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Dispersion of Internationalization and Firm Performance:
a Contextualist Three-Stage Model
Pham Hoanh Son Nguyen
Assistant Professor in Strategy – Groupe ESC Clermont
ABSTRACT
The academic interest in the relationship between Internationalization and Performance (RIP) has grown steadily
during the last four decades. Based on different theories and methodological approaches, researchers propose
and confirm empirically RIP of various natures. Consequently, they have developed various alternative
approaches to model RIP such as negative, positive and linear, positive and negative simultaneously,
indeterminate, U standard and U inverted. In this context, the three-stage model of Lu and Beamish (2004) and
Contractor, Kundu and Hsu (2003), emerges as an integrator model capable of reconciling other efforts to model
RIP. However, this integrator model has, in our point of view, two limitations: (1) the absence of the context of
internationalization, in particular, the cultural and institutional environment in the theoretical analysis and
development; (2) the inability to show the nature of the impact of dispersion of internationalization on
performance. To overcome these limitations, we propose, in this work, to use the dispersion of
internationalization as a vector by which the context of internationalization is incorporated into the analysis on
the impact of degree of internationalization on performance. This research, based on a sample of 69 large
international French enterprises over 7 years, 2001-2007, contributes to RIP research by providing the following
new theoretical, empirical and methodological elements: (i) the three-stage model applies not only to the
relationships between the breadth of internationalization and performance, or the depth of internationalization
and performance, but also to the dispersion of internationalization and performance; (ii) it is not only the degree
of internationalization itself that explains the firm’s performance but also the context of internationalization.
RESUME
L’intérêt académique portant sur la relation internationalisation-performance (RIP) n’a cessé de croître depuis
quatre décennies. S’appuyant sur des démarches méthodologiques et des théories différentes, les chercheurs
proposent et confirment empiriquement des relations de nature diverse entre l’internationalisation et la
performance. Par conséquent, différentes approches alternatives pour modéliser la RIP, telles que les modèles
négatif, positif et linéaire, U standard, U inversé, se sont développées. Dans ce contexte, le modèle à trois
étapes en S horizontal de Lu et Beamish (2004) et de Contractor, Kundu et Hsu (2003) émerge comme un
modèle intégrateur susceptible de réconcilier d’autres efforts de modéliser la RIP. Pourtant, ce modèle
intégrateur présente, de notre point de vue, deux limites : (1) l’absence du contexte de l’internationalisation,
plus particulièrement, l’environnement institutionnel et culturel dans l’analyse et le développement théorique; (2)
l’incapacité de montrer la nature de l’impact de la dispersion d’internationalisation sur la performance. Pour
surmonter ces deux limites, nous proposons, dans ce travail, d’utiliser la dispersion d’internationalisation
comme un vecteur par lequel le contexte d’internationalisation est intégré à l’analyse sur l’impact du degré
d’internationalisation sur la performance. Cette recherche, s’appuyant sur un échantillon de 69 grandes
entreprises internationales françaises pour la période 2001-2007, contribue à la recherche sur la RIP en
apportant les nouveaux éléments méthodologiques, théoriques et empiriques suivants : (i) le modèle général à
trois étapes s’applique non seulement aux relations largeur d’internationalisation-performance ou profondeur
d’internationalisation-performance, mais aussi à celle entre dispersion d’internationalisation et performance ;
(ii) ce n’est pas seulement le degré d’internationalisation lui-même qui explique la performance mais aussi le
contexte d’internationalisation.
Keywords/ Mots-clés: Dispersion, Degree of Internationalization, Context of Internationalization, Performance/
Dispersion, Degré d’Internationalisation, Contexte d’Internationalisation, Performance
Dispersion of Internationalization and Firm Performance:
a Contextualist Three-Stage Model
1. INTRODUCTION
What is the nature of the Relationship between Internationalization and Performance
(RIP)? This question, though debated during the last four decades, still remains far from
being conclusive (Glaum and Oesterle, 2007). Thirty-six years after the pioneer work of
Vernon (1971), Contractor, in an evolutionary and multi-stage theory of internationalization,
concludes that “…International business is good for companies…” (Contractor, 2007; p. 471),
while Hennart, through a transaction cost lens, proves conceptually the non-existence of direct
impact of internationalization on performance (Hennart, 2007). Beyond these two
contradictory answers, other prior efforts to examine RIP, whose the volume is increasing
dramatically (Werner, 2002), exceeding the threshold of 111 in 2011 (Kirca et al., 2011), also
propose other models such as negative (Tallman, Geringer and Olsen, 2004; Siddharthan and
Lall, 1982), positive but with diminishing returns (Gomes and Ramaswamy, 1999), U-shaped
(Contractor, Kumar and Kundu, 2007 ; Ruigrok and Wagner, 2003), inverted U-shaped
(Bouquet, Morrison and Birkinshaw, 2009 ; Daniels and Bracker, 1989).
In front of this state, at the same time extremely well developed and confused, of RIP
literature, Contractor, Kundu and Hsu, in their article “A three-stage theory of international
expansion : the link between multinationality and performance in the service sector »,
published in the Journal of International Business Studies in 2003, offered an excellent
service to the field by proposing and confirming empirically the horizontal S-curve hypothesis:
RIP is non linear, with the slope negative at low levels of internationalization, positive at
medium levels of internationalization and negative at high levels of internationalization.
Almost in parallel, Lu and Beamish, in their work entitled “International diversification and
firm performance: the S-curve hypothesis », published in the Academy of Management
Journal in 2004, also developed a unified three-stage model (Lu and Beamish, 2004).
Together, these authors try to interpret their model as a general/integrator model capable of
reconciling the other efforts to model RIP (Contractor, 2007). And this seems to satisfy many
researchers interested in RIP.
Nevertheless, this model, in our point of view, has two shortcomings. The first is in
terms of the theoretical base, that is the absence of the context of internationalization, in
particular, that of cultural and institutional environment in the conception of the central and
1
independent variable – internationalization. This variable is indeed conceived in the threestage model (Lu and Beamish, 2004; Contractor et al., 2003) as a juxtaposition of various
strict degrees (or contents) of internationalization. This continuum thus created cannot say
anything about the contexts in which the various degrees of internationalization are achieved.
And yet, the context is non neutral towards the relationship between the degree of
internationalization and the firm performance; and its integration into the conception of the
variable Internationalization should enable us to construct different international strategies,
each with its own impacts on the firm performance. Indeed, Vachani, taking into account the
non-neutrality of cultural, economic and geographic proximities towards the exploitation of
intangible assets and the minimization of management costs, argued that “it is important to
distinguish between related and unrelated international geographic diversification”(Vachani,
1991; p. 308). While the former is “the dispersion of a multinational‟s activities across
countries within a relatively homogeneous cluster of countries”, the latter is “the dispersion of
the multinational‟s activities across heterogeneous geographic regions” (Vachani, 1991; p.
307; 308). These two strategies have been empirically and more or less explicitly proven to
have different impacts on performance (Ramirez-Aleson and Espitia-Escuer, 2001; Gomes
and Ramaswamy, 1999). More recently, Qian, Li, Li and Qian (2008), Li (2005), inspired by
the research of Rugman and his colleagues on the predominance of regionalization (Rugman,
2005; Rugman and Brain, 2003; Rugman and Girod, 2003), have also contributed to highlight
the importance of the context of internationalization by discussing the influence on
performance of an international strategy oriented towards the home region of the firm. In
short, it is not only the strict degree of international investments itself that explains the firm’s
performance, but also the context in which these investments are engaged. Consequently,
once Contractor et al. (2003), Lu and Beamish (2004) have constructed Internationalization in
such an acontextual manner, they make their three-stage model unable to show the joint
impact of the context and the degree of internationalization on performance, and therefore
restrict its theoretical and managerial scope.
The second shortcoming is the partial nature of the empirical results raised by the way
in which the authors operationalize Internationalization. This three-stage model, though
specifying the nature of the relationship between the breadth (geographic scope), the depth
(degree of international commitments) of internationalization and the firm’s performance, is
unable to clarify the impact of the dispersion of internationalization on performance. Yet the
latter reflects the way firms deploy their international commitments across their geographic
scope and whether these commitments are distributed in a balanced way across many
2
heterogeneous clusters of countries or, on the contrary, are concentrated in relatively
homogeneous
countries
within
their
home
cluster
of
countries.
To
measure
Internationalization, Contractor et al. (2003) indeed constructed a composite index that is the
eigenvector-weighted sum of the three ratios representing the degree of the firm’s
international commitments: FSTS (foreign sales/total sales), FETE (number of foreign
employees/number of total employees) and FOTO (number of foreign offices/number of total
offices). Accordingly, their multi- stage model is restricted only to describe the impact of the
depth of internationalization on performance. Similarly, following the procedures of Sanders
and Carpenter (1998), Lu and Beamish (2004) developed a two-component index which,
based on the number of host countries and the number of foreign subsidiaries, represents the
geographic scope of firms’ international engagements. As a result, their model describes not
the relationship between internationalization and performance, but that between the breadth of
internationalization and performance. Thus, the horizontal S-curve model is silent on the
impact of the dispersion of internationalization on performance.
It’s from these omissions that we start to develop our research. Indeed, to overcome
the two shortcomings of the three-stage model (Lu and Beamish, 2004; Contractor et al.,
2003), we propose, in this work, to use the dispersion of internationalization as a vector by
which the context of internationalization is incorporated into the analysis on the impact of the
degree of internationalization on performance. In particular, we study the joint and three-stage
effects of the degree and of the context of internationalization on the firm’s performance,
through three patterns of the dispersion of internationalization - concentration, moderate
dispersion and global dispersion - which are the results of combinations between various
degrees and contexts of internationalization.
This research, based on a sample of 69 large international French enterprises over
seven years, 2001-2007, is structured as follows. First, we examine in the next section
previous research on RIP to show the current state of the literature, in particular, the advances
and limitations of various approaches to model the relationship. Second, to develop our
research hypothesis, we analyze how the benefits and the costs related to internationalization
change each time the firm shifts from one pattern of internationalization dispersion to another.
Then, we present and discuss successively the methodology, the database elaboration and the
results of regression analysis. Finally, we specify the contributions and the implications of
this research as well as its limitations and avenues for future research.
3
2. PREVIOUS RESEARCH ON THE RIP
The academic interest in RIP has grown steadily during the last four decades. So far,
more than one hundred works have been devoted to examining RIP by worldwide researchers
(Kirca et al., 2011; Ruigrok et al., 2007). Based on different theories and methodological
approaches, researchers propose and confirm empirically various sorts of RIP. Consequently,
they have developed various alternative approaches to model the relationship such as:
Indeterminate: Revealed for the first time by Horst (1972), the thesis of the nonexistence of RIP was then confirmed by Dunning (1985) and Kumar (1984). Together, they
suggested that it is impossible to distinguish multinational firms from non-multinationals on
the basis of net profits (Horst, 1972), and that internationalization has no impact on
performance (Sambharya, 1995).
Negative: In their study of 101 U.S. enterprises, Michel and Shaked (1986) compare
risk-adjusted profitability of multinational enterprises (MNEs) with that of domestic
enterprises (DMEs), and find that profitability is higher for the latter than for the former.
Similarly, Majocchi and Zucchella (2003), Collins (1990), Siddharthan and Lall (1982) agree
on the fact that internationalization is negatively associated with the firm’s performance.
Positive and linear: Focusing only on the benefits of internationalization such as sales
increase and economies of scale, Vernon (1971) defends and confirms empirically the
proposition that the performance of MNEs is higher than that of DMEs. This statement is
further strengthened by Tallman and Li (1996), Grant (1987), Miller and Pras (1980), who all
worked on British and American firms. The unique study based on a sample of French
enterprises of Riahi-Belkaaoui (1996) also gives credibility to the thesis of Vernon (1971).
Positive but with diminishing returns: Drawing on the theories of incremental
internationalization (Johanson and Vahlne, 1977) and of transaction costs (Williamson, 1985,
1975), Gomes and Ramaswamy (1999) suggest a curvilinear relationship between
internationalization and performance. In the initial stages of internationalization, performance
increases thanks to the profits generated by the choices of location. However, once
internationalization exceeds a certain threshold, performance decreases because of the
acceleration of transaction costs. Internationalization continues to have a positive but lower
impact than initially.
Positive and negative simultaneously: Through an internalization theory lens, Goerzen
and Beamish (2003) argue that the traditional concept of geographic scope should be divided
into two related, but more precise, elements of international asset dispersion and country
environment diversity. And they confirm empirically that each of these two elements forms a
4
special relationship with the firm’s performance: a positive relationship between international
asset dispersion and performance, and, on the contrary, a negative relationship between
country environment diversity and performance. These results reinforce the ambivalence of
RIP previously raised by Geringer, Tallman and Olsen (2000).
U standard model: From an organizational learning perspective (Argyris and Schon,
1978), Ruigrok and Wagner (2003) examine the international evolution of 84 German
enterprises and its impact on performance. And they observe a U-shaped relationship. The
first steps towards becoming an international player require significant costs associated with
installation and implementation of subsidiaries while the benefits acquired are still modest.
Therefore, the firm’s performance decreases. However, over time, the firm learns and
accumulates international experience, allowing it to operate effectively and thus to improve
its performance. Contractor et al. (2007), Capar and Kotabe (2003) also share the same point
of view with these two authors.
Inverted-U model: This model was proposed for the first time in the late 1980s by
Daniels and Bracker (1989) and Geringer, Beamish and daCosta (1989). The main argument
developed is the principle of the internationalization threshold according to which geographic
diversification allows the firm to enhance its performance up to a point beyond which global
complexity and transaction costs start to surpass the advantages of even further international
expansion. Despite the criticisms on its deterministic nature, this model has always been
reinforced by the results of the studies in the 1990s and 2000s. To name a few: Qian et al.
(2008) and Hitt et al. (1997).
Three-stage model: Sullivan (1994), one of the precursors of the horizontal S-curve
model, refutes the principle of the internationalization threshold (Daniels and Bracker, 1989;
Geringer et al., 1989) by pointing out its static and undifferentiated nature. Instead, leaning
on his statistical analysis and through an organizational evolution theory lens (Tushman and
Romanelli, 1985), he suggests that RIP “is characterized by at least one, if not a series, of
‘convergence, decline, reorientation, convergence’ cycle” (Sullivan, 1994). Thus, Sullivan
(1994) establishes the very first foundation of the three-stage or horizontal S-curve model that
is later developed and defended by Lu and Beamish (2004), Contractor et al. (2003). These
researchers try to interpret the three-stage model as a general model that could resolve the
inconsistency of empirical results in the literature.
Overall, thanks to previous studies, RIP has become a very well developed field of
research. However, their theoretical foundations and empirical results are highly inconsistent
and even contradictory. In this context, the three-stage model of Lu and Beamish (2004) and
5
Contractor et al. (2003) emerges as an integrator model capable of reconciling other efforts to
model RIP. However, this integrator model has, as discussed above, two limitations: (i) The
absence of the context of internationalization, in particular, the cultural and institutional
environment in the theoretical analysis and development; (ii) the inability to show the nature
of the impact of dispersion of internationalization on performance. To overcome these two
shortcomings, our first step is, in the next section, to develop theoretically how the various
combinations between diverse degrees and contexts of internationalization represented by the
three patterns of internationalization dispersion affect the firm’s performance.
3. THEORETICAL FOUNDATION AND HYPOTHESIS DEVELOPMENT
Examining the impact of internationalization on performance consists essentially in
analysing how the benefits and the costs change across stages of international expansion
(Kumar and Singh, 2008; Lu and Beamish, 2004; Contractor et al. 2003; Ruigrok and Wagner,
2003; Gomes and Ramaswamy, 1999). According to Lu and Beamish (2004), Contractor et al.
(2003), geographic diversification provides firms with two types of benefits: (i) exploration
benefits such as the acquisition and development of resources, knowledge and competences
through learning in complex and varied environments (Hitt, Hoskisson and Kim, 1997); (ii)
exploitation benefits such as economies of scale and scope (Caves, 1996), the extension of
product life cycle, the exploitation of firms’ intangible assets and products on a global scale
(Buckley, 1988; Vernon, 1966), the exploitation of location advantages (Dunning 1980; 1988),
the arbitrage of differences in input and output markets (Hennart, 1982), the reduction of
fluctuations in revenue (Kim, Hwang and Burgers, 1993) and the construction of global
market power (Kogut, 1985). Concerning the costs of internationalization, three series have
been identified: (a) the transaction costs (Williamson, 1985; 1975); (b) the liabilities and the
costs of newness (Stinchcombe, 1965); (c) the liabilities and the costs of foreignness (Daamen,
Hennart, Kim and Park, 2007; Hymer, 1976; 1970). By adopting this approach of analysis, we
examine, in the next section, how this benefit and cost structure changes each time the firm
shifts from one internationalization dispersion pattern to another.
A firm decides to start its international activities if and only if the benefits generated
are greater than the investment costs. While the latter are immediate, the former often come
later. We argue that one possible solution to balance the benefit-cost structure from the
beginning is to concentrate the firm’s first international commitments in locations within its
home cluster of countries.
6
Concentrating its first international commitments in such a way provides the firm with
market familiarity (Eramilli, 1991; Davidson, 1983) due to the similarities in terms of
competitive environment, institutions, working attitudes, cultures and demands shared
between countries within the same cultural cluster (Ronen and Shenkar, 1985; House, Hanges,
Javidan, Dorfman and Gupta, 2004). And that is vital for the transfer, the integration and the
immediate exploitation without major adaptations of the firm’s specific advantages such as
marketing, productive and technological know-how and the ability to coordinate and control
its asset base efficiently. A familiar business environment is also a necessary condition for the
standardization of operational processes, the rationalization of productive systems and the
realization of economies of scope and scale (Hitt et al, 1997; Tallman and Li, 1996).
Market concentration also enables the firm to secure significant market shares, to
realize market specialization and to acquire greater market knowledge and a high degree of
control (Albaum, Strandskov, Duerr and Dowd, 1989; Piercy, 1982). In addition, concentrated
internalization could be a vehicle for the appropriation of internal synergies in terms of
development and exploitation of knowledge and competence. Resources, based on the
knowledge accumulated in similar environments, can be combined and integrated relatively
easily to create new competences (Eisenhardt and Martin, 2000). And these new core
competences developed in one country can be applied in other countries with strong cultural
similarities (Tallman and Li, 1996).
Regarding the costs, concentration of the firm’s activities and assets in its home cluster
of countries can enable it to economize. A familiar environment therefore that has more social,
linguistic, normative, regulatory and institutional homogeneity makes it possible for the firm
to accelerate the tasks necessary to initiate a subsidiary (e.g. the establishment of commercial
and distribution networks) and to save time and effort building its internal and external
legitimacy (Stinchcombe, 1965; Tushman and Romanelli, 1985). In addition, a familiar
environment simplifies tasks of communication, coordination and data and information
processing, because sharing a similar social and cultural background should facilitate
communication between people, but also between strategic business units in the same cultural
cluster of countries. Thus, the initial investment costs, often substantial, are limited.
Overall,
by
adopting
the
concentration
pattern,
the
first
stage
of
the
internationalization process of the firm resembles what Vachani (1991) described as related
international diversification, and is conducted by the logic of exploitation (Rugman, 1981;
1980; Buckley and Casson, 1976): the firm initially internationalizes in host homogenous
countries to exploit, without major adaptation, its specific advantages previously developed in
7
its home country. And thus, it seems that the firm is able to control costs and realize already
(major) benefits of internationalization. We therefore propose that the firm’s performance
increase at low levels of internationalization dispersion.
At medium levels of internationalization dispersion, the firm continues to concentrate
progressively its engagements and activities in traditional national markets, on the one hand,
and widens its choices of location beyond its home cluster of countries, on the other hand.
The firm’s geographic scope henceforth extends to more and more distant national markets.
And its model of attribution of assets, resources and activities is characterized by the
dominance of the activities of exploitation compared to the activities of exploration, and also
by the imbalance between new and traditional host countries. While the latter always receive
more and more commitments to intensify the exploitation of specific advantages, the former
attract a limited, but increasing, part to start the exploration of new markets and sources of
knowledge. With this pattern of moderate internationalization dispersion, the firm’s
performance is conditioned by two types of effects, one from the concentration of investments
and activities in host traditional homogeneous countries and the other from new entries in host
new heterogeneous countries.
The firm seeks at this second stage to exploit in a wider and deeper manner its specific
advantages in its home cluster of countries. The relative homogeneity of commercial and
environmental conditions inside of this cluster, as analysed above, should maximize the
standardization, the rationalization of operational processes, the realization of economies of
scale and scope, and also the exploitation of benefits of procedural learning during the first
stage of internationalization. That is to say, the firm can apply what it has learned in terms of
procedure and method of subsidiary building from one country to another, regardless of the
cultural, economic and institutional distance between them. For example, previously
accumulated managerial skills would make less complicated new tasks of governance and
coordination, and thus facilitate the integration of new subsidiaries into the firm’s established
networks. Similarly, experiences in establishing relationships and collaborating with local
partners and governments can be mobilized when the firm faces the same tasks again.
International experience here is the key for the success of additional international expansions
(Johanson and Vahlne, 1977). A progressive intensification of investments and activities in
home cluster of countries thus seems to generate a positive effect on the firm’s performance.
Parallel to this process of exploitation, the firm also keeps watch to avoid the
obsolescence of its existing specific advantages and the degressive efficiency of investments
related to the stagnation of traditional national markets. This leads the firm to start gradually
8
entries in more and more heterogeneous countries to seek new markets, especially to explore
and assimilate new sources of local knowledge necessary for the innovation of its specific
advantages in exploitation and for the creation of new skills and competences. However, these
tasks are long, complicated and costly, especially since they take place in distant and
heterogeneous countries. They also require a certain level (quantum) of commitments or
physical presence, which has not yet been reached given the current model of allocation of
assets, resources and activities of the firm focusing on traditional national markets. Therefore,
the new entries and the launch of exploration activities in host heterogeneous countries should
produce an increasingly negative effect on the firm’s performance. The accumulation of this
negative effect with the positive effect from the concentration of investment in the firm’s
home cluster of countries should create an overall positive but lower growth rate of
performance than initially given the dominance of the exploitation activities compared to the
exploration activities and the increase of costs of multiple subsidiary installations and
managements in host distant and heterogeneous countries.
However, the firm’s performance does not increase constantly. Incremental costs
exceed incremental benefits, once the firm shifts from moderate dispersion to global
dispersion. The latter reflects a relatively proportional spread of the firm’s activities,
resources and assets across a very large number, if not all, of heterogeneous clusters of
countries. Parallel to its concentration strategy in traditional national markets, the firm tries to
disperse as broad and as balanced as possible its engagements and activities in a mixed batch
of country blocs.
This global dispersion strategy might enable the firm to achieve both economies of
scale and scope, to secure its conquered traditional market shares, but also to reduce its
dependence on a particular market and possible fluctuations in revenue (Kim, Hwang and
Burgers, 1993; Olusoga, 1993; Albaum et al., 1989). Furthermore, it would also provide the
benefits of global operational flexibility (Allen and Pantzalis, 1996; Kogut, 1985). Indeed,
such dispersion would enable the firm to engage in multiple points of competition (Karnani
and Wernerfelt, 1985). And for each point of competition, the firm may adopt a specific
strategy consistent with its strategic and financial objectives and with the particularities of
customers, distribution systems and products offered by the firm itself and its competitors. In
addition, the firm may also realize arbitrage of differences in input and output markets
(Hennart, 1982). It can buy inputs and services at best prices through its directory of
international partners and suppliers. For its outputs, the firm can choose best distribution
channels to sell them. The firm here is able to create a constant growing gap between logistic9
productive costs and selling prices. Furthermore, this positive effect generated by operational
flexibility can be amplified by the market power that the firm has over its partners, suppliers
and customers (Kogut, 1985). Internationalization and, through it, the increase of size and the
application of specific competences and expertise of the firm, provide it with more or less
important market power with which it may make purchase and sales negotiations in its favour.
Thus, the firm has gains and cost savings that Scherer (1970) calls false savings.
However, the realization of such benefits requires major incremental transaction costs
and excessive demands for information processing (Hitt et al., 1997; Jones and Hill, 1988).
Excessive dispersion of activities, resources and assets leads indeed to the rapid increase of
regulatory barriers and cultural/psychic distances (Siddharthan and Lall, 1982). And that
aggravates the managerial difficulties (Thomas and Eden, 2004; Zaheer, 1995) that are
already induced by the organization and management of a multicultural-multilocation
workforce that serve different customers in varied markets (Gomes and Ramaswamy, 1999).
Increasing cultural diversity also makes heavy the tasks of information processing,
communication, coordination and control (Gomes and Ramaswamy, 1999; Hitt et al., 1997;
Geringer et al., 1989; Grant, 1987; Siddharthan and Lall, 1982). Consequently, managerial
constraints and cross-border administrative costs rise (Geringer et al., 2000).
Overall, global dispersion introduces abundantly organizational and environmental
complexities in the firm (Wagner, 2004) that greatly outweigh its organizational and
managerial capacities and thus lead to operational inefficiencies. Therefore, the firm
experiences declining performance at high levels of internationalization dispersion. On this
basis, we suggest that:
Hypothesis 1: The relationship between the dispersion of internationalization and the
firm’s performance is curvilinear: the performance is positive at low levels of dispersion of
internationalization, positive but with lower growth rate than initially at medium levels of
dispersion of internationalization, and negative at high levels of dispersion of
internationalization.
10
Performance
H1
Concentration
Low
Moderate dispersion
Medium
Global dispersion
High
Levels of internationalization dispersion
Figure 1- Relationship between internationalization dispersion and performance
4. METHODOLOGY AND ELABORATION OF DATABASE
4.1. SAMPLE AND ELABORATION OF DATABASE
This research is based on a sample of 69 large international French firms over seven
years, 2001 - 2007. The choice to focus on a sample of international French firms was firstly
motivated by the relative neutrality of being native of France with regard to the RIP. Indeed,
the country of origin, with its specific economic factors such as economy size and degree of
openness of the economy, influences the RIP (Elango and Sethi, 2007). Dutch and Belgian
firms, for example, might be the most pushed, even immediately after their creation, toward
international markets to survive and capture growth opportunities due to the small size of their
national economies. That explains the very high international age, experience and
involvement of Dutch and Belgian enterprises. And that should have a more or less direct and
important impact on the international performance of these firms.
At the other extreme, US firms might be the least pushed because of their large
economy. Accordingly, the international age, experience, commitments and, through them,
the performance of US firms might be different from those of Dutch and Belgian firms. On
this criterion of economy size and degree of international involvement, France (but also
Germany and the United Kingdom), in the middle of the spectrum (see Figure 2), seems far
more neutral than the United States, Belgium and the Netherlands, with respect to the RIP. By
choosing a sample of French firms, our intention is to limit the risk of biasing our empirical
results by possible influences of the size of the economy of the firms’ country of origin.
11
GDPa
*USA
8
6
* Japan
4
Germany
*
France
* United Kingdom
Italy * *Average
2
*
0
20
40
*Switzerland *Netherlands *Belgium
60
80
100
120
140
Degree of openness – Trade in Good (%)
Figure 2- Plot of Country GDP and Extent of Trade in Goods (1995-2000 averages)
Source: adapted from Elango and Sethi (2007)
a. In trillions of 1995 US dollars
The second motivation that drove us to choose French firms was the scarcity of
research devoted to study the RIP on the empirical base of French firms. The work of RiahiBelkaoui (1996) is an exception. But this research, although embodying a rare and valuable
effort to study the RIP in the context of French multinationals, was conducted in a simplistic
approach by taking into account only the advantages of internationalization and ignoring the
costs associated. In addition, the use of cross-sectional data forbade the author to examine the
evolution of firms’ internationalization behaviours over time. By choosing a sample of French
firms, we would like to be the first to build an evolutionary and three-stage model for the RIP
of French enterprises. Additionally, we also wanted to benefit from elements of comparison
since the three-stage model has been the object of considerable research based on samples of
British and American firms since the mid-1990s (e.g. Kumar and Singh (2008), Ruigrok et al.
(2007), Li (2005), Lu and Beamish (2004), Thomas and Eden (2004), and Contractor et al.
(2003), Sullivan (1994)).
Furthermore, the choice to select only large firms was dictated by two reasons: the
first is the availability of data from large firms; the second is to ensure that firms involved in
the sample have an appropriate physical size necessary to achieve the benefits of
internationalization, in particular, economies of scale, based on which we elaborated
arguments. That was why we narrowed our choice to French firms whose annual turnover
exceeds 75 million euros (equivalent to approximately 100 million US dollars) which is often
used as the threshold to be seen as a large firm in RIP research (Ruigrok and Wagner, 2003;
Hitt et al., 1997).
12
To measure the variables of our research model, we built an original panel database.
Our analysis unit is firm-year. Each of 69 firms was the object of a longitudinal analysis
between 2001 and 2007. The collection of panel data was performed by exploiting the annual
activity reports of 69 firms as well as the two financial databases: Infinancials and Orbis. The
2008-2010 global financial crisis led us to censor the data after 2007. Indeed, this period is a
recession in which the most industrialized countries of the world (including France) entered
following the crash of the fall of 2008 which was the second phase of the December 2007 to
2010 financial crisis. Thus, we avoided the risk of biasing our research results by variables
related to global economic conjuncture. We also censored the data before 2001 because of the
unavailability of data necessary to measure all of the control variables introduced into our
research model. Moreover, it should also be important to note that from the list of 500 largest
French firms classified by the database Infinancials based on total sales of 2007, we chose
only 69 firms that satisfied the criterion of size and whose the data was available for the
measure of all of the variables introduced in our research model.
4.2. VARIABLES
Dependent variable: Our research focused on corporate financial performance. To
measure this, there are two accounting-based indicators: return on assets (ROA) and return on
equity (ROE). However, we ruled ROE out because it is more sensitive to capital structure
differences (Hitt et al., 1997). ROA was computed as the ratio of net income to total assets.
Independent variable: In our research, internationalization is examined as an
incremental dispersion process of the firm’s engagements and assets across different country
clusters, from the most culturally homogenous clusters to the most culturally heterogeneous
ones. To identify these clusters, there were two classifications at our disposal: (i) the first
proposed by Ronen and Shenkar (1985) classified countries on attitudinal dimensions into 9
clusters: Nordic, Germanic, Anglo, Latin European, Latin American, Far Eastern, Arab, Near
Eastern and Independent; (ii) the second developed by House, Hanges, Javidan, Dorfman and
Gupta (2004) in the GLOBE project confirmed the existence of 10 cultural country clusters:
South Asia, Anglo, Arab, Germanic Europe, Latin Europe, Eastern Europe, Confucian Asia,
Latin America, Sub-Saharan Africa, and Nordic Europe. Finally, we chose the classification
of House et al. (2004) because it is more complete than that of Ronen and Shenkar (1985).
Indeed, House et al. (2004) took into account not only most of the countries studied by Ronen
and Shenkar (1985), but also the other and not yet studied countries from Eastern Europe,
Sub-Saharan Africa and the ex-communist bloc. And that allowed us to cover much more
largely the international geographic presence of 69 firms in our sample. For host countries of
13
our firms that were not classified in the classification used, we added them drawing on the
criterion of cultural, religious and geographic proximity. For example, we added Tunisia,
which was not included in the 62 nation sample of House et al. (2004), into the cluster of
Arab cultures because of the large cultural, religious (and geographic) proximity shared
between Tunisia and the countries already included in this cluster like Morocco and Egypt.
We measured internationalization dispersion using the entropy index Global Market
Diversification (GMD) of Miller and Pras (1980)
A
GMD   f a ln f a
a 1
Where:
fa = Number of the firm’s foreign countries in the country cluster a / Number of the firm’s
foreign countries
lnfa = Natural logarithm of fa , representing the weight that is given to each host cluster of
countries
This index measures not only the extent to which the firm spreads its engagements and
activities in homogeneous countries within clusters of countries but also the dispersion of the
firm’s engagements and activities across heterogeneous clusters of countries. The higher the
value of the GMD, the greater the level of internationalization dispersion of firms. We added
the square and the cube of this variable to capture nonlinearities.
Control variables: In our research model, we included controls for several variables
identified in previous studies that could affect performance, internationalization and the
relationship between them such as: antecedent performance (Bouquet et al., 2009), R&D
intensity, firm’s size and financial leverage (Lu and Beamish, 2004), firms’ level of risk and
firm’s age (Qian et al., 2008), speed of internationalization (Wagner, 2004), rhythm of
internationalization (Vermeulen and Barkema, 2002), industry impact (Contractor et al., 2003)
and quotation. Specifically, we used the firm’s performance of the preceding year (Pt-1) to
measure antecedent performance. We measured the firm’s R&D intensity using the ratio of
R&D expenditures to total sales. The natural logarithm of total number of employees and the
debt-to-equity ratio were used as measures of the firm’s size and financial leverage. To
quantify firms’ level of risk, we computed the standard deviation of performance over a three
year period; e.g. to evaluate the risk of 2001, we computed the standard deviation of ROE
over the 1998-2000 period, and so on. Firms’ ages were calculated by the number of
operation years from their creation. Following Wagner (2004), we measured the speed of
internationalization by the change in the depth of internationalization between 2001 and 2007,
i.e. the change in the ratio of international sales to total sales over that period. Concerning the
14
measure of internationalization rhythm, we calculated the kurtosis of the first derivative of the
number of foreign subsidiaries of the firm over time (Vermeulen and Barkema, 2002). We
used seven industry dummy variables to control the impact of eight industries, classified
according to the Standard Industrial Classification code, in which 69 firms operate. Our last
control variable is the quotation that was measured by a binary variable. This variable takes
the value 1 if the firm is quoted. On the contrary, it takes the value 0, if the firm is not quoted.
4. 3. SPECIFICATION OF RESEARCH MODEL
We examined the impact of internationalization dispersion on financial performance
using panel data (Times-Series-Cross-Section) analysis over a seven-year period, from 2001
to 2007. With this type of analysis, we used the fixed-effects models with robustness test to
test our research hypothesis. The fixed-effects models with robustness test correct the
presence of autocorrelation and heteroscedasticity in panel data, and increase the reliability of
estimated coefficients. This methodology enables researchers to examine and take into
account both the inter-individual variability and the intra-individual variability over time
(Sevestre, 2002).
Moreover, we used the Hausman test (Baltagi, 1995; p. 68) to compare our fixedeffects models with random-effects models. The results of the test confirm the rejection of
random-effects models in favour of our fixed-effects models in all cases. STATA 10
statistical and data-analysis software was used to perform regression analysis. To test our
research hypothesis, we constructed the following cubic equation:
ROAit   0  1 ROA (t  1) it   2 RISK it   3 R & Dit   4 RHYT it   5 SPEDit   6 SIZE it
7
  7 AGEit    7 m INDU m  15 LEVEit  16QUOTit  17 ( LID ) it  18 ( LID ) it2  19 ( LID ) 3it  wit
m 1
In cubic models, the linear, quadratic and cubic terms of one independent variable tend
to exhibit extremely high multicollinearity because of the way they are calculated. This
problem of spurious multicollinearity probably falsifies the results of regression analysis. To
eliminate completely this problem, we used the orthogonalization procedure (Saville and
Wood, 1991), which uses regression residuals to represent quadratic and cubic terms of
internationalization dispersion. Table 1 lists the components of the equation and specifies the
operationalization of all variables.
15
Table 1- Description of model variables
ROA
LID
(LID)2
(LID)3
RHYT
SPED
R&D
SIZE
AGE
LEVE
RISK
QUOT
ROA(t-1)
INDU
i
t
wit

Return on Assets = Net income / Total assets
Level of Internationalization Dispersion = Global Market Diversification GMD index
Level of Internationalization Dispersion squared
Level of Internationalization Dispersion cubed
Rhythm of internationalization = Kurtosis of the first derivative of the number of foreign
subsidiaries of the firm over time
Speed of internationalization
R&D Intensity = R&D expenditures / Total sales
Firm size= Natural logarithm of total number of employees
Firm Age = Number of operation years from their creation
Financial leverage = Debt / Equity
Firms’ level of risk = Standard deviation of performance over a three year period
Quotation, binary variable, = 1 if quoted, = 0 if non quoted
ROA of preceding year
Seven industry dummy variables to control the impact of eight industries, classified by SIC codes
represent the studied firms
correspond to different years
Error term
Coefficients
5. RESULTS
5.1. DESCRIPTIVE STATISTICS AND CORRELATIONS
In Table 2, we present descriptive statistics and correlations for all variables. There is
a moderate degree of correlation between age and size, and between size and
internationalization dispersion that are statistically significant with a p-value < 0.01, but other
variables have low levels of multicollinearity.
Table 2 - Descriptive statistics and correlations (n = 483)
Variables
1. ROA
2. LID
3. Risk
4. R&D
5. Speed
6. Rhythm
7. Size
8. Age
9. Fi. Lev.
* p<0.05
Mean
5.79
1.68
15.26
0.03
14.20
0.28
3.95
71.29
0.59
S.D.
7.45
0.58
37.18
0.04
15.14
2.45
0.78
55.52
1.54
1
1.000
-0.08
-0.19**
-0.07
-0.12*
0.09
-0.04
0.03
0.01
2
3
4
5
6
7
8
9
1.000
-0.03
0.08
-0.08
0.3**
0.47**
0.21**
0.06
1.000
-0.03
-0.06
-0.09
-0.08
-0.18**
-0.11*
1.000
0.07
0.07
-0.03
-0.12**
-0.06
1.000
-0.04
-0.25**
-0.33**
0.07
1.000
0.34**
0.39**
0.01
1.000
0.42**
0.09*
1.000
-0.01
1.000
** p<0.01
16
5.2. RESULTS OF REGRESSION ANALYSIS
We tested the suggested relationship between internationalization dispersion and
performance (Hypothesis 1) by conducting a series of linear regressions using the return on
assets (ROA) as dependent variable, on the one hand, and diverse levels of
internationalization dispersion (LID) as independent variables, on the other hand. We report
the results in Table 3: (i) in the baseline model 1, we included only the control variables and
the performance measure ROA; (ii) Model 2 tested whether there is a linear relationship
between internationalization dispersion and ROA; (iii) Model 3 checked for a non-linear and
two-stage link between internationalization dispersion and ROA; (iv) Model 4 tested whether
there is a curvilinear, three-stage and inverted-U relationship between internationalization
dispersion and ROA (Hypothesis 1). All of the models, from 1 to 4, are statistically significant,
as their statistical results (F<0.01) show.
The results of our regression analysis are inconsistent with our theoretical
development. Contrary to our expectation, the relationship between internationalization
dispersion and performance formed an inverted-S curve: the firm’s performance, measured by
ROA, is positively associated with the linear term and the cube of internationalization
dispersion; and it is negatively associated with the square of internationalization dispersion;
and the regression coefficients (3.59; -2.1; 0.73) are all statistically significant with p-values <
0.1 (Table 3, Model 4). In addition, the regression results also confirmed an average
explanation power of Model 4 (Table 3). The set of control variables and independent
variables (internationalization dispersion, internationalization dispersion squared and
internationalization dispersion cubed) explain indeed 19.25 % the effect of intra-individual
variability of ROA (Table 3, Model 4, R2 = 19.25 %).
Therefore, our hypothesis of existence of an inverted-J relationship was not validated.
Instead, the empirical results confirmed the existence of a three-stage relationship, represented
by an inverted-S, between internationalization dispersion and financial performance measured
by ROA.
17
Table 3 - Results of regression analysis: Internationalization Dispersion and Performance a, b, c
ROA
Independent variables
Intercept
ROA t-1
Risk
R&D Intensity
Firm size
Firm age
Financial leverage
Quotation
Model
1
5.84
(15.32)
0.27*
(0.11)
0.02
(0.02)
-40.38*
(16.47)
-11.89**
(3.35)
0.56**
(0.16)
0.41
(0.42)
6.62**
(0.68)
Model
2
17.03
(16.94)
0.28*
(0.11)
0.02†
(0.01)
-39.21*
(16.17)
-13.84**
(3.64)
0.51**
(0.16)
0.41
(0.41)
6.29**
(0.72)
Model
3
16.13
(17.33)
0.28*
(0.11)
0.02†
(0.01)
-39.36*
(16.20)
-13.7**
(3.72)
0.51**
(0.16)
0.42
(0.41)
6.33**
(0.74)
Model
4
14.03
(17.96)
0.27*
(0.1)
0.01†
(0.01)
-39.24*
(16.21)
-13.39**
(3.83)
0.53**
(0.17)
0.41
(0.41)
6.42**
(0.76)
1.75*
(0.84)
1.99*
(0.76)
-0.49
(1.03)
3.59**
(0.75)
-2.1†
(1.14)
0.73†
(0.38)
483
18.16 %
483
18.98 %
59.36**
51.66**
483
19.02 %
0.04 %
53.25**
483
19.25%
0.27 %
48.07**
Internationalization dispersion
Internationalization dispersion
squared
Internationalization dispersion
cubed
Number of observations
R2
R2
F
† p<0.1 *p<0.05
**p<0.01
a
The variables speed of internationalization, rhythm of
internationalization, industry impacts were included in every model, but their coefficients are not
shown by the fixed-effects model regression. b The changes of R2 are calculated compared to the linear
model. c The standard errors are reported in parentheses.
In addition, in Model 3 (Table 3), the regression coefficients (1.99; -0.49) of
internationalization dispersion and internationalization dispersion squared are not all
statistically significant. Hence, there is no two-stage relationship between internationalization
dispersion and ROA. Moreover, in Model 2 (Table 3), the coefficient (1.75) of
internationalization dispersion is statistically significant, with p-value < 0.05, confirming a
positive impact of the (first stage of) internationalization dispersion on ROA.
Regarding the control variables, the results of regression analysis showed that
antecedent performance, risk, R&D intensity, firm’s size, firm’s age and quotation have
18
significant impacts on ROA. This justifies a posteriori the fact that we included them in our
research model. On the contrary, the variable financial leverage is not significantly related to
performance.
6. DISCUSSION
In dividing geographic scope into two elements: international asset dispersion and
country environment diversity, Goerzen and Beamish (2003) theorized and found evidence
for a positive and linear relationship between international asset dispersion and financial
performance (measured by Jensen's alpha, Sharpe measure, and Price to Book ratio). Ten
years earlier, in 1993, Kim, Hwang and Burgers also showed the same relationship, in an
attempt to provide more theoretical insight and empirical support for the statement of
Bowman (1980) that firms with high returns may experience low risks. Both works are part of
the few efforts to understand the impact of internationalization dispersion on performance,
and succeed in establishing a linear relationship between the two variables.
However, we believe that this link is not so simple. Growing dispersion of
international assets created by a more balanced (re)allocation of assets on a wider
geographical scope could lead to more or less long and major incompatibilities between
internal strategies, structures, resources and external environmental factors. This would affect
operational effectiveness of the firm resulting in an inconstancy in the growth of performance.
By integrating jointly the degree and the context of internationalization in our analysis,
we proposed a three-stage and inverted-U relationship between internationalization dispersion
and performance. Nevertheless, the empirical results do not support our inverted-U, but
confirm the existence of a curvilinear and inverted-S relationship. Figure 3 shows the
inverted-U curve suggested and the inverted-S established by the empirical results. These two
curves converge at low levels of internationalization dispersion during which the firm records
the growth of performance. This growth, as analyzed in the section of hypothesis
development, is the result of the concentration strategy in a group of host homogenous
countries.
19
Performance
Inverted -U
anticipated
Low
Empirical inverted-S
Medium
High
Levels of internationalization dispersion
Figure 3 – Relationship between internationalization dispersion and performance:
hypothesis and empirical results
At medium levels of internationalization dispersion, we suggested a positive but with
lower growth rate performance. Nevertheless, the empirical results do not support this
suggestion, but on the contrary, confirm a negative performance. The first explanation for this
result would be the premature stagnation of the traditional national markets in the home
cluster of countries of the firm which induces a degressive efficiency of investment earlier
than its expectation. Accordingly, the performance of the activities of exploitation, although
always positive, is declining, and could not recompense the increasing costs of the new entries
and the launch of exploration activities in host heterogeneous countries. And that especially
when the firm reaches higher levels of the moderate dispersion pattern.
The second explanation may be the inability of the firm to adapt to new more and
more varied and complex external environments. And that because the cognitive maps, mental
models and (re)action/reflection paths of the firm become too restricted after a long
confinement period in a narrow geographic scope sharing a strong cultural proximity. Indeed,
concentration of commitments and activities in a group of homogeneous countries in order to
benefit from market familiarity could limit the mental models, accumulated experience and
vision of managers, since they confront only with a restricted number of challenges, and face
a relatively small number of competitors and customers in relatively undiversified cultural
and commercial conditions (Barkema and Vermeulen, 1998). Consequently, the firm is not
yet able to make appropriate adaptations and to absorb new organizational and environmental
complexities (Wagner, 2004) imposed by more and more diversified commercial and
competitive conditions beyond its traditional markets. This results in persistent
incompatibilities between the internal and external factors, which enclose the firm in a chaotic
20
transition phase from concentration strategy towards moderate dispersion strategy. That may
be where the firm sees the reverse side of its concentration pattern.
In addition, the way by which the firm realizes new entries and the activities of
exploration in host heterogeneous countries could also explain the negative performance.
Indeed, a rapid speed of internationalization, i.e. implementation of multiple subsidiaries in
multiple heterogeneous countries over a short period of time, could induce not only the
exponential augmentation of the costs of transaction, of newness and of foreignness
(Williamson, 1985; 1975; Hymer, 1976; 1970; Stinchcombe, 1965), but also substantial time
compression diseconomies (Vermeulen and Barkema, 2002; Dierickx and Cool, 1989).
Together, these costs could outweigh largely all possible benefits of the activities of
exploitation realized in the firm’s host traditional homogeneous countries. Consequently, the
firm experiences a negative performance.
When the firm reached high levels of internationalization dispersion, we anticipated a
decreasing performance since the organizational and managerial complexities were expected
to exceed the capacity of managers. Again, the empirical results do not support this
expectation, confirming the contrary that, at high levels of internationalization dispersion, the
more the firm's assets are dispersed, the more its performance increases. Thus, we can
conclude that once global dispersion is reached, the costs and inconveniences associated are
offset by the results of experimental learning efforts in diversity realized during the previous
phase of internationalization. In addition, with a global dispersion pattern, the firm can realize
the benefits of global operational flexibility such as economies of scale and scope (Grant et al.,
1988), access to resources of new regions (Qian et al. , 2008), the ability to beat or match the
competitors (Mitchell, Roehl and Slattery, 1995), the development of its power and influence
in global markets (Grant, 1987; Kogut, 1985) and the opportunity to learn and develop new
competences in diversity (Kim et al, 1993).
The graphical representation of the empirical results also shows that there is an
inflection point of performance which is the crossing point between medium and high levels
of internationalization dispersion (see figure 4). The existence of such an inflection point that
we call the quantum of dispersion of international activities and commitments challenges the
absolute validity of the principle of internationalization threshold (Daniels and Bracker, 1989),
which has dominated so far in the RIP literature. Indeed, one possible interpretation of this
observation is that increasing dispersion of international activities and commitments in more
and more heterogeneous clusters of countries leads to decreasing performance down to a point
beyond which the incremental benefits generated by a global operational flexibility and
21
learning in diversity offset the incremental costs associated with each additional degree of
internationalization dispersion. In other words, the managerial and organizational hypercomplexities and the cultural and environmental hyper-diversity that go hand in hand with
Performance
global dispersion strategy are not always the source of operational and financial inefficiencies.
Quantum of internationalization
dispersion
Low
Medium
High
Levels of internationalization dispersion
Figure 4 – Inverted-S relationship and the identification of the quantum of internationalization
dispersion
7. CONCLUSION
The contributions of this research are of three categories. Firstly, compared to previous
research covering the link between internationalization dispersion and performance (e.g.
Goerzen and Beamish, 2003; Kim et al., 1993), our work has two concomitant interests,
empirical results and the methodology:
(i) The first interest is in the fact that the empirical results of our work enable, for the
first time, to establish that the relationship between internationalization dispersion and
financial performance is of curvilinear nature, although our model which supposed an
inverted-U has not been confirmed. The identified three stage inverted-S model shows that the
changes of levels of internationalization dispersion generate at the same time costs and
benefits, and that for each dispersion pattern, the firm records a different benefit-cost structure.
This enables us to go beyond the simplistic view of the previous research that was only
interested in benefits and consequently enables the setting up of a positive and linear link
between the two variables in question.
(ii) The second interest is that we dealt with the dimension of internationalization
dispersion going beyond the simple geographic scope of internationalization. We took into
account both the geographic scope of commitments and the way they are attributed, not only
22
in our theoretical analysis but also in our way of measuring internationalization dispersion. In
their study, Goerzen and Beamish (2003), for example, defined their central variable
international assets dispersion as “the extent of MNE investment in foreign markets” (Goerzen
and Beamish, 2003; p. 1291), whereas they used the entropy GMD index of Miller and Pras
(1980) designed to measure the dispersion of corporate assets. Thus, we observe that there is
incoherence between the conceptualization and the measure of the variable in their research. It
further follows that their arguments used in favour of a positive link between the two
variables in question do not necessarily reflect the influences from one (dispersion) to the
other.
Secondly, compared with the three-stage integrator model of Lu and Beamish (2004)
and Contractor et al. (2003), our result both improves and enhances. We improve it because
we simultaneously brought together and studied both facets – degree and context – of
internationalization in our theoretical three-stage development. Such an analysis approach,
often seen as important, has been paradoxically very little adopted in past research. Indeed, in
observing this methodological gap, we attempted to examine not only the impact on
performance of the sliding of diverse degrees of internationalization but also the context in
which it occurs. By placing this contextualist approach at the heart of our theoretical analyses
and developments of the joint impact on performance of the various dispersion patterns and
different levels of cultural diversity, we design our third contribution to RIP research.
Moreover, our result also enriches the empirical extent of the three-stage model since it
confirms that the general three-stage model applies not only to the relationship between the
breadth and the depth of internationalization-performance but also to that between the
dispersion of internationalization and performance.
It should also be noted that as we write these lines, there is no work as far as we know
that identifies such a three-stage relationship based on a sample of French firms. Indeed,
Kumar and Singh (2008) worked with Indian firms, Li (2005) with Americans, Lu and
Beamish (2004) with Japaneses, and Contractor et al. (2003) with the world’s biggest service
companies, Sullivan (1994) with Americans and Europeans. Our research constitutes the first
contribution in that sense.
Thirdly, our research also adds a major theoretical contribution. We developed the
three patterns of internationalization dispersion – concentration, moderate dispersion and
global dispersion – by which the resource-based and internalization theories can be associated
with the performance evolution of MNEs. Indeed, although the internalization theory
(Rugman, 1981;1980; Buckley and Casson, 1976) provides an excellent and robust
23
explanation of the raison d’être of MNE, it is unable to explain why the performance of one
multinational is different from another.
To this question, the resource-based theory provides a better response: the differences
of firms’ performances come directly from the heterogeneity of their sustainable competitive
advantages, and indirectly from that of their strategic resources (Amit and Schoemaker, 1993;
Peteraf, 1993; Barney, 1991; Wernerfelt, 1984). Mobilized in research on the performance of
MNEs, the resource-based theory thus establishes a purely linear argument that, as the firm
still possesses strategic resources that contain the potential to bring a competitive advantage
and sustainable profits, it would realize increasing performance with continued
internationalization. However, this proposition, positive and linear in nature, appears unable
to take into account the ups and downs of performance throughout the international life of a
firm.
To fill this theoretical gap, we made the dispersion dimension a vector by which the
resource-based and internalization theories are associated with the dynamics of the
performance of MNEs. Specifically, we were able to point out that it is the configuration of
resource allocation and of cross-border integration of productive and commercial activities
which explains not only the differences in performance between MNEs, but also the evolution
of performance throughout the international life of MNEs.
In addition, our research also has important managerial implications. First, it provides
managers with clear information about the evolution of performance across the three patterns
of internationalization dispersion. We offer them different international strategy options with
corresponding implications in term of performance. These strategic options would constitute
important inputs for their internationalization planning, implementation and reorientation.
Moreover, our results also enable managers to understand that their international performance
depends not only on how much they have invested abroad, but also on the way their
investments have been engaged and carried out, in particular, their choice of host clusters of
countries, the order of their market entries and how they engage and spread investments.
Our research has two limitations. The first is that we do not, in our theoretical
development, take into account the firm’s foreign investment policy (Atamer, Calori and
Nunes, 2000), i.e. the modes of entry into international markets such as exportation, joint
ventures, and acquisition of local firms. We wonder if the identified inverted-S model in this
study also reflects the impact of each entry mode on performance. The second shortcoming is
the specific empirical context. This research is based on large firms in only one country,
namely France. From a methodological point of view, while the choice of international
24
French firms constitutes an advantage in terms of sample neutrality, and provides a new
empirical framework for the three-stage RIP analysis, it does not exempt our research from
the limits of a specific context. This is because each country has of course its own
idiosyncrasies such as foreign trade and macroeconomic policies and the institutional and
regulatory bases that may have a more or less direct and important influence on the
internationalization behaviours of firms.
These shortcomings of course open perspectives for future research. First, for a more
detailed understanding of the internationalization dispersion-performance link, we are
convinced that it would be interesting and fruitful to integrate the firm’s foreign investment
policy (Atamer et al., 2000) into the analysis of the evolution of the benefit-cost structure of
the dispersion process of international investment. By adding this dimension, we can, on the
one hand, verify whether the impact of each entry mode on performance produces a
curvilinear and three-stage model. On the other hand, we can compare both the short-and
long-term effectiveness between diverse entry modes. Thus, we would gain depth in our
analysis of the internationalization dispersion-performance relationship. Moreover, placing
this research in a multi-national context is expected to improve the scope of its results. A
multi-national sample which is composed in a balanced way of firms of different nationalities
and different economic levels would form an ideal base for empirical RIP analysis.
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