Proceedings of 3rd European Business Research Conference
4 - 5 September 2014, Sheraton Roma, Rome, Italy, ISBN: 978-1-922069-59-7
Does Internationalization Influence Firm Performance? An
Empirical Study of Italian Firms
Tiziana La Rocca
The present paper aims to investigate the effect of internationalization, both
in terms of foreign sales and manufacturing diversification (production
plants located abroad), on firm performance. Although a general positive
relationship between foreign sales (and foreign production plant) and firm
performance is reported, suggesting that internationalization is a valueenhancing strategy, these effects differ according to the macro-areas of
interest. With regards of foreign sales, considering the expansion of trade,
there is a negative relationship between internationalization and firm
performance in North American, while a positive effect is reported with
regards of European countries and Asia. Referring to foreign production
plants, to realize a production plants in North America is expensive, with a
negative effect on performance, while, vice versa, increasing the numbers of
plants shows to have a positive effect. By contrast, to have a production
plants in EU is positively related to performance, while increasing the
numbers of plants has a negative effect. Finally, to have or to increase the
production plants in Asia has a negative effect on firm performance.
JEL Codes: F23, L25 and M16
1. Introduction
The international expansion represents a very important strategic option for business
growth and the relationship between internationalization and firm performance is a major
issue for researchers and managers. For many companies the expansion into foreign
markets has become necessary, but also easier because of the growing liberalization and
the reduction of trade barriers (Khanna, Palepu 2006) and even considering the process of
globalization and the integration among financial markets around the world.
Internationalization is often referred to international diversification (Wiersema, Bowen
2011) concerning a process of increasing involvement in international operations across
the borders of countries into different geographic locations or markets (Johanson, Vahlne
1977, Ghoshal 1987, Welch and Luostarinen, 1988, Hitt, Hoskisson, Kim 1997, Hitt,
Ireland, Hoskisson 2007 ). In most cases, the focus is on the expansion of foreign sales.
However, it is also important to consider the internationalization of manufacturing or
international manufacturing diversification defined as “the strategy of locating production
activities in foreign jurisdictions that are relatively diverse in terms of legal structures,
national cultures, and ways of doing business” (Lampel, Giachetti 2013).
Although the extent of a firm’s dependence on its international operations may generate
more organizational complexity and costs, it rises benefits as well. Many drivers can lead
a company to realize a production plant abroad. On the supply side, the availability of lowcost resources and privileged access to raw materials. On the demand side, proximity to
markets and lower transportation costs. With regard to the institutional context, the most
favorable legal frameworks and business services or the presence of incentives systems

Assistant Professor of Management – University of Messina, Department of Economics, Management,
Environmental and Quantitative Methods. e-mail: tlarocca@unime.it
1
Proceedings of 3rd European Business Research Conference
4 - 5 September 2014, Sheraton Roma, Rome, Italy, ISBN: 978-1-922069-59-7
and financial incentives. With reference to technological issues, the ability to enhance the
activity of research and development due to its proximity to research centers, universities
and technology centers. At the same time, the construction of a plant abroad is an
expensive investment, and often irreversible, with considerable risks, both in terms of
economic and financial risk, country risk, business risk, and contractual risk. Therefore, the
presence of benefits and costs associated with the internationalization of production
renders controversial the effect on firm performance. In fact, depending on the prevalence
of costs and risk compared with the potential benefits, there could be a positive or negative
relationship between internationalization of production and firm performance.
Several studies have examined the phenomenon of internationalization and wide range of
literature is devoted to this topic. However, about its implications on firm performance, the
results are mixed. Some scholars have found a positive relationship (Delios, Beamish
1999, Hitt et al. 2006), others negative (Denis et al. 2002, Geringer et al. 2000), or Ushaped (Lu, Beamish 2001), or inverted U-shaped (Geringer et al. 1989, Hitt et al. 1997),
or even no relationship at all between internationalization and firm performance (Dess et
al. 1995, Morck, Yeung 1991).
The objective of this paper, based on a sample of Italian firms over a very extended period
of time, 1976-2012, is to investigate the effects of both internationalization and
international manufacturing diversification on firm performance, considering foreign sales
and foreign production. The originality of the paper concerns the focus, not just interested
on the general effect of internationalization on firm performance, but sorting this effect
according to different macro-geographic areas the firm’s activities is related with. It is
possible that previous controversial results are based on the lack of the due consideration
for the geographical location of foreign sales and of foreign plants.
The impact of internationalization and international manufacturing diversification on firm
performance appears to be affected by context-specific factors related to the geographical
macro-area where the firm sells and where the production plants is located. In North
American there is a negative relationship between foreign sales and firm performance,
while in Europe and in Asia there is a positive effect.
With regard to foreign production plants, the analysis shows a negative effect on firm
performance in Asia, instead the results are mixed in North America and in Europe.
The paper is structured as follows. The next section presents the main theoretical aspects
of the relationship under study and describes the research hypotheses. The third section
presents the empirical analysis, data, methodology, analysis models and variables used.
The fourth section reports the results of empirical verification. The last section concludes
the work by suggesting possible managerial implications and future research.
2. Literature Review and hypotheses
An overview of the literature on the relationship between internationalization and firm
performance for the last 30 years reveals a set of heterogeneous and conflicting results.
According to some authors the mixed results of the studies are related to the different
extension of the time periods, the different institutional and industrial contexts in different
economies analyzed (Gaur, Kumar 2009).
Other scholars attribute the difference in results in an incomplete conceptualization of the
benefits and costs of firm internationalization (Contractor et al. 2003, Lu, Beamish 2004).
Some studies consider mainly the nature of the relationship between internationalization
and firm performance, without taking much attention to country-specific factors (Geringer,
Beamish, Dacosta 1989, Tallman, Li 1996). Other studies focus on the influence of
moderating factors on the relationship between internationalization and firm performance
2
Proceedings of 3rd European Business Research Conference
4 - 5 September 2014, Sheraton Roma, Rome, Italy, ISBN: 978-1-922069-59-7
(Hitt et al. 1997, Kotabe et al. 2002, Ramaswamy 1995). Other studies explore the
relationship between internationalization and performance in different countries and
contexts, institutional, cultural, and industrial (Capar, Kotabe 2003, Nahum 2004).
According to the institutional perspective, institutions define the rules of the game, firms
are embedded in a broader context, which encourages and induces firms to follow some
strategies (North 1990).
Regarding the effect of internationalization on firm performance, some contributions adopt
the internal capital market perspective. According to Desai, Foley and Hine (2004) the
creation of an internal capital market confers important advantages to multinational
companies compared to domestic firms, especially considering countries with poorly
developed financial market and/or limited investor protection. The subsidiaries can meet
their financial needs through loans from parent companies. In addition, the internal capital
markets cushion the impact of adverse economic and financial conditions existing in other
contexts, such as in the case of host countries with more capital controls (Desai et al.
2004). The ability to substitute external funds with internal funds allows multinational
corporations to take advantage of opportunities not available to local competitors, with a
more limited access to global capital markets.
The international diversification of manufacturing could generate a positive impact on firm
performance through economies of scale and scope, specific advantages of location,
synergistic effects. Some studies indicate that there are benefits related to the shift of
manufacturing operations in foreign countries (McLaren 2000, Ritter, Sternfels 2003,
Lampel, Giachetti 2013). The internationally diversified companies, in terms of production,
can gain competitive advantage by exploiting the differences of national resources (Teece
1986), can gain greater bargaining power thanks to multinational network and greater
economies of scale, scope and learning (Kogut 1985, Meijboom, Vos 1997). Moving
manufacturing plants in foreign locations, it is possible to reduce the costs of production
and logistics (Lawrence, Hottenstein 1995, Naor et al. 2010, Vereecke, Van Dierdonck
2002). In light of this perspective, the following hypothesis is formulated.
Hypothesis 1a: There is a positive effect of internationalization and international
manufacturing diversification on firm performance.
Other empirical studies highlight the problems of coordination between the different
geographical markets. The increase in the size of the geographically diversified company
can generate managerial difficulties in relation to the increase in the cost of governance
and coordination (Stein 1997). Market imperfections in emerging economies may increase
the potential agency costs associated with the international diversification (Li, Wong 2003);
greater information asymmetry could allow the management and major shareholders to
more easily take advantage of the company for their own purposes. Agency theory
motivates the entry of firms in international markets as an opportunistic choice of manager.
Kim and Mathur (2007), Denis et al. (2002), Doukas and Travlos show that high agency
costs may have an adverse effect on the firm market value when there is news of a firm’s
decision to acquire a foreign company. Firms that expand the productive activities abroad
support higher costs of governance and transaction, which can erode the benefits arising
from the internationalization of production (Lessard, Lightstone 1986, Sundaram, Mishra
1991, Sundaram, Black 1992, Ritter, Sternfels 2003). Hitt et al. 1997, Geringer et al. 1989
highlight the costs of monitoring of the manager and the coordination between the parent
and foreign production activities. Some authors emphasize the impact of cultural distance
and language differences with problems related to communication between the parent
company and subsidiaries (Mollica et al. 2001, Stratman 2008). The following hypothesis
is formulated.
3
Proceedings of 3rd European Business Research Conference
4 - 5 September 2014, Sheraton Roma, Rome, Italy, ISBN: 978-1-922069-59-7
Hypothesis 1b: There is a negative effect of internationalization and international
manufacturing diversification on firm performance
As the level of market integration varies from country to country and / or from industry to
industry, the benefits (or losses) resulting from an international diversification strategy,
could also depend on the country or industry objective of the firm. The alignment between
business strategy and institutional context is a central theme in management literature
(Astley and Van de Ven 1983, Khanna and Palepu 1997, Lengnick-Hall and Wolff 1999,
Courtney 2001). According to Khanna and Palepu (1997) the lack of product markets
consolidated, efficient financial markets and labor markets (“market conditions inefficient”),
the lack of an efficient enforcement and legislative system (“institutional behavior
uncertain”), produce serious implications for business strategies in the international field.
Even more, developed compared to developing areas can differently affect the value
added provided by internationalization of the firm’s activities.
Therefore, it is important to assess the institutional context of the different foreign countries
when the company decides to expand abroad.
Hypothesis 2: the impact of internationalization and international manufacturing
diversification on firm performance is affected by context-specific factors related to the
area where the firm sells and where the production plants is located.
With regard to structural change in global manufacturing systems and international trade, a
strand of literature focuses on aspects called unbundling, fragmentation, offshoring, global
value (supply) chains (Feenstra 1998, Grossman, Rossi-Hansberg 2006 and 2008,
Baldwin Robert-Nicoud 2007 and 2010). Grossman and Rossi-Hansberg (2006 and 2008)
suggest a conceptual systematization: from trade of finished goods (trade-in-goods) in
exchange of tasks necessary to the production of goods (trade-in-tasks). The
manufacturing process of a product is a set of tasks to be carried out in different parts of
the world; the enterprise relocates a task in the country in which they are lower production
costs and transaction (offshoring). Many goods are the result of “global production chains”
(global supply chains) in which firms from different countries add valuable pieces. The
global value chains are configured as a channel for rapid transmission of real and financial
shocks: a decline in demand for final goods is reflected immediately on that of intermediate
goods. According to Baldwin (2009), the collapse in international trade in 2008-2009 was
indeed caused by the internationalization of value chains. This probably would have
facilitated the spread of the international recession that followed the global financial crisis
(Cattaneo et al. 2010). In turn, the crisis could have accelerated the phenomenon of the
new globalization, stimulating productive organizations to seek more detailed and
relocation cost-saving (Accetturo et al. 2011).
Hypothesis 3: internationalization and international diversification of manufacturing during
the recent financial crisis has led to a deterioration of firm performance.
3. Methodology, data and models
3.1
Sample
The data used in the empirical analysis are extracted from the annual report “Research &
Studies” by Mediobanca. The database includes information on a vast and reliable sample
of leading businesses based in Italy. To our knowledge, the Directory at hand is the only
4
Proceedings of 3rd European Business Research Conference
4 - 5 September 2014, Sheraton Roma, Rome, Italy, ISBN: 978-1-922069-59-7
database of Italian firms containing details on the amount of foreign macro-areas where
the firms have their manufacturing plants. The sample used for the study consists of 262
medium-to-large enterprises with registered office in Italy. It is an unbalanced panel that
covers a time period of 37 years, 1976 to 2012. The sample is composed of both
companies operating exclusively in Italy, defined domestic firms, and internationalized
companies that have expanded their sales and their investments abroad, through the
establishment of manufacturing facilities.
3.2
Models and variables
To test the hypotheses two main regression models are used in the empirical analysis,
considering different proxy of internationalization (in terms of international trade activities
and international manufacturing diversification).
The Model A considers firm performance as a function of internationalization in terms of
foreign sales as it follows:
Performanceit = f (Internationalit, control variables)
The Model B considers firm performance as a function of internationalization in terms
international manufacturing diversification as it follows:
Performanceit = f (Int. Manufacturing Div, control variables)
Two firm performance measures are used, alternatively, as dependent variable. Consistent
with most studies of the relationship between internationalization and firm performance
(Daniels, Bracker 1989, Haar 1989, Ramaswamy 1995, Gomes, Ramaswamy 1999, Li
2007), and with previous studies that specifically investigate the manufacturing strategy–
financial performance relationship (Demeter, 2003; Kim, Arnold, 1993; Tunalv, 1992;
Vickery et al., 1993; White, 1996), return on assets (ROA) was used as performance
measurement. It measures the efficiency with which assets are used and it is calculated as
the ratio of operating income to total assets. The ROA allows to obtain information on the
operating profitability of the company, before considering the fiscal and financial
components. In addition, it is also used the Cfroi (cash flow return on investment),
calculated as the ratio of EBITDA to total assets. It is another index that considers just the
core business, before interest, taxes, depreciation and amortization.
With regards to internationalization in terms of foreign trade the following measures are
used. ForeingSales/Tot.Sales is the ratio of foreign sales to total sales of the company
(FSTS) and indicates the dependence on sales from international markets. This ratio is the
measure most commonly used in studies concerning the impact of internationalization on
corporate results (Grant et al. 1989, Geringer et al. 1989, Sullivan 1994, Tallman, Li 1996,
Li 2007). Herfindal_ForeingSales is the Herfindahl-Hirschman concentration index as
measure of the level of internationalization (Bühner 1987). Sales abroad are organized
according to six main areas: North America, Central and South America, Europe, Africa,
Asia, Oceania. In the sample the information concerning the foreign countries in which firm
have located their operations were not available. Mediobanca’s database provides
information about six macro-geographic areas pertaining the firm’s international
expansion.
Concerning the international manufacturing diversification measure, the following variables
are used as. Int. Manufacturing Div. is a dummy that takes the value of 1 when the firm
has at least one manufacturing plant abroad, 0 when all its production is concentrated in
Italy. ForeignPlants/Tot. Plants indicates the percentage of manufacturing plants abroad
owned by the company (McGrath, Bequillard 1989, Ramaswamy 1993, Kim et al. 1993,
5
Proceedings of 3rd European Business Research Conference
4 - 5 September 2014, Sheraton Roma, Rome, Italy, ISBN: 978-1-922069-59-7
Contractor et al. 2003), it is calculated as the ratio of the numbers of foreign plants on total
production plants (both in Italy and abroad).
The following control variables are used in the analysis. Growth opportunity measured by
the annual percentage change in sales. The decision to expand abroad can be justified by
the objective to exploit growth opportunities (Jose et al. 1986) in order to create value for
the company. Kim et al. (1993) argue that firms expanding into the international arena
have opportunities to improve their performance, with particular reference to the possibility
of achieving economies of scale and scope and the opportunity of learning from overseas
operations. Leverage measured as total debt over total assets. According to Shapiro
(1978) the internationalization allows firms to diversify cash flow, reducing the risk of
failure and allowing a higher level of debt. Other authors (Lee and Kwok 1998) argue that
internationalization may lead to the high agency costs and low levels of debt. Tangibility
represents the tangible assets of the company and it is measured by the ratio of property,
plant and equipment to total assets. This variable affects the ability of companies to invest
in strategic projects abroad. Size is the natural logarithm of total assets, to compare the
differences in size of the companies analyzed. Larger sizes allow the company to be more
competitive through economies of scale, learning economies, economies of scope and
flexibility (Kogut 1990). The size of firms is a prerequisite correlated with the decision to
expand internationally; the larger the size of the firm, the greater the propensity to invest
abroad (Cavusgil, Bilkey Tesar 1979, Cavusgil, Nevin 1981). Ownership is the percentage
of shares held by the main shareholder, it can influence the choice of international
diversification. Cash holding is the amount of equity cash held by businesses. The
company may invest the available funds in complex projects, such as those related to the
internationalization. Dummy family, listing and crisis are equal to 1, respectively, if the
company is related to a family business, if the company is listed, and if the analysis
considers the years subsequent to 2008 as a period of crisis; equal to 0 otherwise. Dummy
industry is related to the sector in which the company operates. The analysis considers the
following sectors: food, textile and leather, wood and paper products, publishing, oil and
fuels, chemicals and rubber, mineral processing, metallurgy, mechanical engineering,
electronics and transport equipment; other industries, utilities, construction, transportation
and communication.
4. Findings
4.1 Descriptive statistics
The values for the mean, standard deviation, minimum and maximum for the variables
considered in the analysis are shown in Table 1.
6
Proceedings of 3rd European Business Research Conference
4 - 5 September 2014, Sheraton Roma, Rome, Italy, ISBN: 978-1-922069-59-7
Table 1: Descriptive statistics
Variables
(1)
Mean
(2)
SD
(3)
Min
(4)
Max
ForeignSales/Tot. Sales
0.372
0.285
0
0.981
Herfindal_ForeingSales
0.186
0.211
0
0.990
D_Int. Manufacturing Div.
0.534
0.499
0
1
ForeignPlants/Tot.Plants
0.160
0.241
0
1
Roa
0.074
0.082
-0.409
0.665
Cfroi
0.129
0.097
-0.245
0.898
MTB
1.533
0.781
0.312
6.182
Leverage
0.440
0.231
0.006
0.970
Tangibility
0.368
0.172
0.033
0.871
Size
20.42
1.451
16.17
25.63
Growth Opportunity
0.118
0.515
-0.922
15.41
Cash Holding
0.075
0.088
0.001
0.470
Ownership
0.646
0.261
0.050
1
D_Family
0.582
0.493
0
1
D_Listing
0.397
0.489
0
1
D_crisis
0.124
0.330
0
1
More than half of the sample (58.2%) consists of firms with family ownership and almost
39.7% are listed companies. In addition, the firms in the sample show a high interest in
international expansion. Model A considers the percentage of foreign sales of each
company. The model B considers the settlements production facilities in foreign markets
and, therefore, the analysis considers companies that have embarked on a strategy of
international diversification of manufacturing. 53.4% of the observations have at least one
manufacturing plant abroad.
The correlation matrix, not reported, shows that multicollinearity problems are negligible
given the absence of significant correlations between variables that could affect the validity
of the econometric results. It was also used, although the table is not reported, the
variance inflation factors test (VIFs). The maximum VIF that results from any of the models
is 1.74, which is far below the generally employed cut-off of 10 (or, more prudently, 5) for
regression models.
4.2 Empirical results
Table 2 reports the results considering the relationship between foreign sales and firm
performance, columns (1) to (4), and the relationship between international manufacturing
diversification and firm performance, columns (5) to (8).
7
Variables
Table 2: Relationship between foreign sales and ROA (Model A) and between foreign plants and firm performance (Modello B)
Model A
Model B
(1)
(2)
(3)
(4)
(5)
(6)
(7)
Roa
Roa
Cfroi
Cfroi
Roa
Roa
Cfroi
ForeignSales / Tot.Sales
0.039***
(0.002)
Herfindal_ForeingSales
0.040***
(0.003)
0.036***
(0.002)
0.034***
(0.005)
International Manufacturing Div.
0.012***
(0.003)
Foreign Plants/Tot. Plants
Growth Opportunity
Leverage
Tangibility
Size
Ownership
Cash Holding
D_Family
D_Listing
D_Crisis
Observations
R-squared
Number of id
Industry FE
Year FE
0.015***
(0.000)
-0.076***
(0.000)
-0.035**
(0.014)
-0.011***
(0.001)
0.005
(0.461)
0.039**
(0.037)
-0.028***
(0.005)
0.008
(0.174)
-0.026**
(0.023)
2,804
0.123
234
Yes
Yes
(8)
Cfroi
0.015***
(0.000)
-0.072***
(0.000)
-0.034**
(0.016)
-0.013***
(0.000)
0.005
(0.519)
0.035*
(0.056)
-0.032***
(0.001)
0.009
(0.134)
-0.026**
(0.019)
0.017***
(0.000)
-0.091***
(0.000)
-0.010
(0.530)
-0.028***
(0.000)
0.004
(0.631)
0.012
(0.536)
-0.048***
(0.000)
0.005
(0.466)
-0.018
(0.164)
0.017***
(0.000)
-0.087***
(0.000)
-0.008
(0.611)
-0.029***
(0.000)
0.003
(0.663)
0.007
(0.715)
-0.053***
(0.000)
0.005
(0.417)
-0.017
(0.153)
0.015***
(0.000)
-0.071***
(0.000)
-0.040***
(0.003)
-0.012***
(0.000)
0.001
(0.881)
0.032*
(0.064)
-0.031***
(0.001)
0.001
(0.854)
-0.026**
(0.017)
2,867
2,804
2,867
2,987
0.124
0.138
0.138
0.115
238
234
238
243
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
p-value in parenthesis *** p<0.01, ** p<0.05, * p<0.1
0.011**
(0.011)
0.016*
(0.067)
0.016***
(0.000)
-0.084***
(0.000)
-0.033***
(0.007)
-0.011***
(0.000)
-0.011*
(0.078)
0.026*
(0.089)
-0.030***
(0.000)
-0.009*
(0.096)
-0.032***
(0.007)
0.017***
(0.000)
-0.086***
(0.000)
-0.012
(0.422)
-0.027***
(0.000)
0.000
(0.993)
0.009
(0.624)
-0.051***
(0.000)
-0.003
(0.674)
-0.018
(0.128)
0.012
(0.119)
0.018***
(0.000)
-0.100***
(0.000)
-0.006
(0.679)
-0.030***
(0.000)
-0.013*
(0.061)
0.003
(0.885)
-0.050***
(0.000)
-0.014**
(0.022)
-0.023*
(0.086)
2,462
0.156
234
Yes
Yes
2,987
0.128
243
Yes
Yes
2,462
0.177
234
Yes
Yes
9
Concerning the relative magnitude of the export sales (Model A) expressed by the
variables ForeignSales/Tot.Sales and Herfindahl Foreign Sales, a positive impact of
internationalization on performance is highlighted in table 2 columns (1) to (4), both
considering the level of concentration (or dispersion) of the foreign sales and the
increasing concentration (or decreasing dispersion) in foreign sales on Roa and Cfroi.
With regards to the effect of international manufacturing diversification on firm
performance (Model B), considering the variables Int. Manufacturing Div. and
ForeignPlants / Tot.Plants a positive effect results as well (table 2 columns (5) to (8)).
These findings confirm the hypothesis 1a relative to the positive effect for the company to
increase production establishments abroad.
Tables 3, 4 and 5 show the analysis results of the effect of internationalization of sales and
international diversification of production on firm performance, considering the macro
geographical areas where the firm obtains revenues and the foreign geographic areas in
which the firm has production plants. This classification allows us to consider the
environmental differences related to the macro-environment (economic, social, cultural,
physical, technological, demographic, cultural and political) and the sector (customers,
suppliers, substitute products, competitors).
Table 3 shows the results of the analysis of foreign sales based on the continents the
revenues are realized. The table reports a negative relationship between exports in North
America and the financial performance of Italian firms. Instead, this relationship is positive
considering sales in Europe, and Asia.
The results presented in Table 3 confirm the hypothesis 2, so that the impact of
internationalization on firm performance depends on the country in which the firm is being
internationalized. There is a negative relationship in developed countries such as North
America. Instead, in emerging markets like Asia this relationship is reversed; in these
cases, companies could take advantage of market imperfections, typical of emerging
economies, to their own advantage.
Selling products in North America, although leading to benefits is very expensive, and this
analysis leads to saying that the costs of selling products in that macro geographical area
are greater than the benefits. Instead, it is profitable to sell in Europe, as well as enter into
emerging markets in Asia.
10
Tab. 3: Foreign sales distinct on the basis of macro
geographical area (model A)
Variables
NorthAmericanSales / Tot.Sales
SouthAmericanSales / Tot.Sales
EUSales / Tot.Sales
AsianSales / Tot.Sales
AfricanSales / Tot.Sales
OceanianSales / Tot.Sales
Growth Opportunity
Leverage
Tangibility
Size
Ownership
Cash Holding
D_Family
D_Listing
D_Crisis
Observations
R-squared
Number of id
Industry FE
Year FE
(1)
Roa
(2)
Cfroi
-0.078**
(0.029)
0.086
(0.428)
0.035**
(0.012)
0.088*
(0.075)
-0.004
(0.980)
-0.808
(0.603)
0.015***
(0.000)
-0.072***
(0.000)
-0.034**
(0.016)
-0.012***
(0.001)
0.003
(0.645)
0.034*
(0.058)
-0.036***
(0.000)
0.009
(0.121)
-0.027**
(0.020)
-0.090**
(0.021)
0.041
(0.729)
0.032*
(0.054)
0.147***
(0.006)
-0.036
(0.828)
-1.271
(0.450)
0.017***
(0.000)
-0.087***
(0.000)
-0.007
(0.636)
-0.028***
(0.000)
0.002
(0.786)
0.007
(0.709)
-0.055***
(0.000)
0.005
(0.437)
-0.018
(0.153)
2,867
0.124
238
Yes
Yes
2,867
0.139
238
Yes
Yes
Tab. 4: Relationship between Dummy production,
based on macro geographical area, and firm
performance (model B)
Variables
D_Prod. North America
D_Prod. Central&South Amer.
D_Prod. Europa
D_Prod. Asia
D_Prod. Africa
D_Prod. Oceania
Growth Opportunity
Leverage
Tangibility
Size
Ownership
Cash Holding
D_Family
D_Listing
D_Crisis
Observations
R-squared
Number of id
Industry FE
Year FE
(1)
Roa
(2)
Cfroi
-0.010*
(0.058)
0.001
(0.830)
0.010**
(0.013)
-0.017***
(0.001)
0.016**
(0.026)
0.023*
(0.077)
0.013***
(0.000)
-0.075***
(0.000)
-0.038***
(0.002)
-0.015***
(0.000)
-0.010
(0.105)
0.046***
(0.003)
-0.031***
(0.000)
-0.003
(0.634)
-0.025**
(0.018)
-0.010*
(0.095)
-0.000
(0.954)
0.009**
(0.039)
-0.022***
(0.000)
0.020**
(0.014)
0.012
(0.402)
0.014***
(0.000)
-0.089***
(0.000)
-0.002
(0.875)
-0.032***
(0.000)
-0.012*
(0.092)
0.030*
(0.077)
-0.052***
(0.000)
0.002
(0.775)
-0.016
(0.162)
2,567
0.161
236
Yes
Yes
2,567
0.186
236
Yes
Yes
Tab. 5: Relationship between the number of foreign
plants, based on macro geographical area, and firm
performance (model B)
Variables
NorthAmericanPlants
SouthAmericanPlants
OtherEUPlants
AsianPlants
AfricanPlants
OceanianPlants
Growth Opportunity
Leverage
Tangibility
Size
Ownership
Cash Holding
D_Family
D_Listing
D_Crisis
Observations
R-squared
Number of id
Industry FE
Year FE
(1)
Roa
(2)
Cfroi
0.114**
(0.019)
-0.026
(0.587)
-0.057*
(0.086)
-0.143**
(0.030)
0.057
(0.622)
-0.061
(0.834)
0.025*
(0.066)
-0.080***
(0.000)
-0.014
(0.661)
-0.036***
(0.000)
-0.012
(0.548)
-0.039
(0.400)
-0.015
(0.528)
0.013
(0.373)
0.056
(0.253)
0.122**
(0.044)
-0.027
(0.649)
-0.065
(0.110)
-0.149*
(0.068)
0.142
(0.322)
-0.171
(0.636)
0.035**
(0.036)
-0.117***
(0.000)
0.066
(0.104)
-0.078***
(0.000)
-0.008
(0.763)
-0.066
(0.247)
-0.023
(0.434)
0.020
(0.280)
0.082
(0.178)
572
0.278
148
Yes
Yes
572
0.302
148
Yes
Yes
p-value in parenthesis *** p<0.01, ** p<0.05, * p<0.1
11
Table 4 and 5 show the results relative to the relationship between dummy production and
number of foreign plants, based on the macro geographical areas, and firm performance.
The analysis shows a negative effect on firm performance in Asia, instead the results are
mixed in North America and in Europe. To realize a production plants in North America is
expensive, with a negative effect on performance, while, vice versa, increasing the
numbers of plants shows to have a positive effect. By contrast, to have a production plants
in EU is positively related to performance, while increasing the numbers of plants has a
negative effect. To have or to increase the production plants in Asia has a negative effect
on firm performance.
5. Conclusions
This study shows, as a general output, the existence of a positive relationship between
internationalization, both in terms of foreign sales and manufacturing plants, and firm
performance.
As main contribution of the paper, results concerning the analysis for macro geographical
areas of the relationship studied are provided. The impact of internationalization and
international manufacturing diversification on firm performance appears to be affected by
context-specific factors related to the macro geographical area where the firm sells and
where the production plants is located.
There is a negative relationship between internationalization and firm performance in the
North American continent, for the expansion of trade, and in Asia, with regard to the
expansion of production.
From the analysis of foreign sales based on macro geographical areas there are major
advantages arising from trade internationalization in Europe, Asia and South America. In
North American there is a negative impact of foreign sales on firm performance, while in
Europe and in Asia there is a positive effect.
With regard to foreign production plants, the analysis shows a negative effect on firm
performance in Asia, instead the results are mixed in North America and in Europe. The
internationalization of production has a negative impact on firm performance by referring to
the Italian productions in Asia. This evidence, characterizes a particularly serious situation,
as the major Italian companies that have set up production facilities abroad, were not able
to manage all costs relating to such production expansion. In contrast, however, there was
a favorable situation of Italian manufacturing presence in Europe, Africa and Oceania.
References
ACCETTURO A., GIUNTA A., ROSSI S. 2011. “Le imprese italiane tra crisi e nuova globalizzazione”,
L’industria, n. 1, gennaio-marzo, pp. 145–164.
AGGARWAL R., SOENEN L.A. 1987. “Changing benefits of international diversification of real assets”,
Rivista Internazionale di Scienze Economiche e Commerciali, vol. 34, n. 11-12, pp. 1103–112.
AMIT R., LIVNAT J. 1988. “Diversity strategies, business cycles and economic performance ”, Strategic
Management Journal, vol. 9, n. 2, pp. 99–110.
ANDERSEN O. 1993. “On the internationalization process of firms - A Critical Analysis”, Journal of
International Business Studies, vol. 24, n. 2, pp. 209–231.
ASTLEY W.G., VAN DEVEN A.H. 1983. “Central Perspectives and Debates in Organization Theory”,
Administrative Science Quarterly, vol. 28, n. 2, pp. 245–273.
BARNEY J. 1991. “Firm resources and sustainable competitive advantage”, Journal of Management,
vol. 17, n. 1, pp. 99–120.
12
Proceedings of 3rd European Business Research Conference
4 - 5 September 2014, Sheraton Roma, Rome, Italy, ISBN: 978-1-922069-59-7
BERGER P.G., OFEK E. 1995. “Diversification effect on firm’s value”, Journal of Financial Economics, vol.
37, n. 1, pp. 39–65.
BLOODGOOD J.M., SAPIENZA H.J., ALMEIDA J.G. 1996. “The internationalization of new high potential
U.S. ventures: antecedents and outcomes”, Entrepreneurship Theory and Practice, vol. 20, n. 4, pp. 61–
76.
BREWER H. L. 1981. “Investor benefits from corporate international diversification”, Journal of Financial and
Quantitative Analysis, vol. 16, n. 1, pp. 113–126.
BÜHNER R. 1987. “Assessing International Diversification of West German Corporations”, Strategic
Management Journal, vol. 8, n. 1, pp. 25–37.
CANTWELL J.A. 1995. “The globalisation of technology: what remains of the product cycle model?”,
Cambridge Journal of Economics, vol. 19, n. 1, pp. 155–174.
CAPAR N., KOTABE M. 2003. “The relationship between international diversification and performance in
service firms”, Journal of International Business Studies, vol. 34, n. 4, pp. 345–355.
CATTANEO O., GEREFFI G., STARITZ C. (a cura di) (2010), Global Value Chains in a Postcrisis World: A
Development Perspective, Banca Mondiale, Washington DC.
CAVUSGIL S., TAMER W.J., BILKEY G. T. 1979. “A note on the export behaviour of firms: exporter profiles”,
Journal of International Business Studies, vol. 10, n. 1, pp. 91–104.
CHANG S., WANG C. 2007. “The effect of product diversification strategies on the relationship between
international diversification and firm performance ”, Journal of World Business, vol. 42, n. 1, pp. 61–79.
CONTRACTOR F. J., KUNDU S. K., HSU C.C. 2003. “A three-stage theory of international expansion: The
link between multinationality and performance in the service sector”, Journal of International Business
Studies, vol. 34, n. 1, pp. 5–18.
DENIS D.J., DENIS D.K., SARIN A. 1997. “Agency problems, equity ownership, and corporate
diversification”, Journal of Finance, vol. 52, n. 1, pp. 135–160.
DENIS D.J., DENIS D.K., YOST K. 2002. “Global Diversification, Industrial Diversification, and Firm Value”,
Journal of Finance, vol. 57, n. 5, pp. 1951–1979.
DOUKAS J., TRAVLOS N.G. 1988. “The Effect of Corporate Multinationalism on Shareholders’ Wealth:
Evidence from International Acquisitions”, Journal of Finance, vol. 43, n. 5, pp. 1161–1175.
DOUKAS J. 1995. “Overinvestment, Tobin’s q and gains from foreign acquisitions”, Journal of Banking and
Finance, vol. 19, n. 7, pp. 1285–1303.
DOUKAS J.A., LANG L.H.P. 2003. “Foreign direct investment, diversification and firm Performance ”, Journal
of International Business Studies, vol. 34, n. 2, pp. 153–172.
DOUKAS J.A., KAN 2008. “Investment decisions and internal capital markets: Evidence from acquisitions”,
Journal of Banking & Finance, vol. 32, n. 8, pp. 1484–1498.
ERRUNZA V., SENBET L. 1984. “International corporate diversification, market valuation and size-adjusted
evidence”, Journal of Finance, vol. 39, n. 3, pp. 727–743.
GERINGER J.M., BEAMISH P.W., DA COSTA R.C. 1989. “Diversification strategy and internationalization:
Implications for MNE performance ”, Strategic Management Journal, vol. 10, n. 2, 109–119.
GERINGER J.M., TALLMAN S., OLSEN D.M. 2000. “Product and international diversification among
Japanese multinational firms”, Strategic Management Journal, vol. 21, n. 1, pp. 51–80.
GOMES L., RAMASWAMY K. 1999. “An empirical examination of the form of the relationship between
multinationality and performance ”, Journal of International Business Studies, vol. 30, n. 1, pp. 173–188.
GHOSHAL S. 1987. “Global strategy: An organizing framework”, Strategic Management Journal, vol. 8, no.
5, pp. 425–440.
GRANT R.M. 1987. “Multinationality and performance among British manufacturing companies”, Journal of
International Business Studies, vol. 18, n. 3, pp. 79–89.
GRANT R.M., JAMMINE A.P., THOMAS H. 1988. “Diversity, diversification, and profitability among British
manufacturing companies”, Academy of Management Journal, vol. 31, n. 4, pp. 771–801.
GOERZEN A., BEAMISH P. 2003. “Geographic Scope and Multinational Enterprise Performance”, Strategic
Management Journal, vol. 24, n. 13, pp. 1289–1306.
HISEY K.B., CAVES R.E. 1985. “Diversification strategy, choice of country: Diversification acquisitions
abroad by U.S. multinationals, 1978–1980,” Journal of International Business Studies, vol. 16, n. 2, pp.
51–64.
HILL C., SNELL S. 1988. “External control, corporate strategy, and firm performance in research intensive
industries”, Strategic Management Journal, vol. 9, n. 6, pp. 577–590.
HILL C., HOSKISSON R.E. 1987. “Strategy and structure in the multiproduct firm”, Academy of Management
Review, vol. 12, n. 2, pp. 331–341.
HITT M.A., HOSKISSON R.E., IRELAND R.D. 1994. “A mid-range theory of the interactive effects of
international and product diversification on innovation and performance ”, Journal of Management, vol.
20, n. 2, pp. 297–326.
HITT M.A., HOSKISSON R.E., KIM H. 1997. “International diversification: Effects on innovation and firm
13
Proceedings of 3rd European Business Research Conference
4 - 5 September 2014, Sheraton Roma, Rome, Italy, ISBN: 978-1-922069-59-7
performance in product-diversified firms”, Academy of Management Journal, vol. 40, n. 4, pp. 767–798.
HITT M.A., TIHANYI L., MILLER T., CONNELLY B. 2006. “International Diversification: Antecedents,
Outcomes, and Moderators”, Journal of Management, vol. 32, n. 6, pp. 831–867.
HOSKISSON R.E., EDEN L., LAU C.M., WRIGHT M. 2000. “Strategy in Emerging Economies”, Academy of
Management Journal, vol. 43, n. 3, pp. 249–267.
HSU C.C., BOGGS D.J. 2003. “Internationalization and performance: Traditional measures and their
decomposition”, Multinational Business Review, vol. 11, n. 3, pp. 23-49.
HUBBARD G., PALIA D. 1999. “A Reexamination of the Conglomerate Merger Wave in the 1960s: An
Internal Capital Markets View”, Journal of Finance, vol. 54, n. 3, pp. 1131–1152.
JENSEN M.C., MURPHY K.J. 1990. “Performance pay and top management incentives”, Journal of Political
Economy, vol. 98, n. 2, pp. 225–264.
JOHANSON J., VAHLNE J.E. 1977. “The internationalization process of the firm - A model of knowledge
development and increasing foreign market commitments”, Journal of International Business Studies,
vol. 8, n. 1, pp. 23–32
JONES G.R., HILL C.W.L. 1988. “Transaction cost analysis of strategy structure choice”, Strategic
Management Journal, vol. 9, n. 2, pp. 159–172.
JOHANSSON J.K., YIP G.S. 1994. “Exploiting globalization potential: U.S. and Japanese strategies”,
Strategic Management Journal, vol. 15, n. 8, pp. 579–601.
KHANNA T., PALEPU K. 1997. “Why Focused Strategies May Be Wrong for Emerging Markets”, Harvard
Business Review, vol. 75, n. 4, pp. 41–51.
KIM W.C., HWANG P., BURGERS W.P. 1993. “Multinational’s diversification and the risk-return trade-off”,
Strategic Management Journal, vol. 14, n. 4, pp. 275–285.
KOGUT B. 1984. “Normative Observations on the International Value-Added Chain and Strategic Groups”,
Journal of International Business Studies, vol. 15, n. 2, pp.151–167.
KOGUT B. 1985. “Designing global strategies: Profiting from operational flexibility”, Sloan Management
Review, vol. 27, n. 1, pp. 27–38.
KOGUT B., CHANG S.J. 1991. “Technological capabilities and Japanese foreign direct investment in the
United States”, Review of Economics and Statistics, vol. 73, n. 3, pp. 401–413.
KOTABE M. 1990. “The relationship between offshore sourcing and innovativeness of U.S. multinational
firms: An empirical investigation”, Journal of International Business Studies, vol. 21, n. 4, pp. 623–638.
LAMBEL J., GIACHETTI C. 2013. “International diversification of manufacturing operations: Performance
implications and moderating forces”, Journal of Operations Management, vol. 31, n. 4, pp. 213–227.
LEE K., KWOK C. 1988. “Multinational corporations vs. domestic corporations: International environmental
factors and determinants of capital structure”, Journal of International Business Studies, vol. 19, n. 2, pp
195–217.
LI M., WONG Y. 2003. “Diversification and Economic Performance: An Empirical Assessment of Chinese
Firms”, Asia Pacific Journal of Management, vol. 20, n. 2, pp. 243–265.
LU J. W., BEAMISH P. W. 2004. “International diversification and firm performance : The S-curve
hypothesis”, Academy of Management Journal, vol. 47, n. 4, pp. 598–609.
MARKIDES C.A. 1995. “Diversification, restructuring and economic performance ”, Strategic Management
Journal, vol. 16, n. 2, pp. 101–118.
MATHUR I., SINGH M., GLEASON K. C. 2004. “Multinational Diversification and Corporate Performance :
Evidence from European Firms”, European Financial Management, vol. 10, n. 3, pp. 439–464.
NACHUM L. 2004. “Geographic and industrial diversification of developing country firms”, Journal of
Management Studies, vol. 41, n. 2, pp. 273–294.
OECD 2009. Top barriers and drivers to SME internationalization, OECD Publications.
OLIVER C. 1997. “Sustainable Competitive Advantage: Combining Institutional and Resource-Based Views”,
Strategic Management Journal, vol. 18, n. 9, pp- 697–713.
RUIGROK W., WAGNER H. 2003 “Internationalization and performance: An organizational learning
perspective”, Management International Review, vol. 43, n. 1, pp. 63–83.
RUGMAN A. 1976. “Risk reduction by international diversification”, Journal of International Business Studies,
vol. 7, n. 2, pp. 75–80.
RUGMAN A.M. 1977. “International diversification by financial and direct investment”, Journal of Economics
and Business, vol. 30, n. 1, pp. 31–37.
RUGMAN, A. 1983. “The Comparative Performance of U.S. and European Multinational Enterprises, 197079”, Management International Review, vol. 23, n. 2, pp. 4–14.
RUGMAN J. H., DUNNING A. M. 1985. “The Influence of Hymer’s Dissertation on the Theory of Foreign
Direct Investment”, American Economic Review, vol. 75, n. 2, pp. 228–232.
SAMBHARYA R. B. 1995. “The combined effect of international diversification and product diversification
strategies on the performance of U.S.-based multinational corporations”, Management International
Review, vol. 35, n. 3, pp. 197.
14
Proceedings of 3rd European Business Research Conference
4 - 5 September 2014, Sheraton Roma, Rome, Italy, ISBN: 978-1-922069-59-7
SAMBHARYA, R. B. 1996. “Foreign experience of top management teams and international diversification
strategies of US multinational corporations”, Strategic Management Journal, vol. 17, n. 9, pp. 739–746.
STEIN J.C. 1997. “Internal Capital Markets and the Competition for Corporate Resources”, Journal of
Finance, vol. 52, n. 1, pp. 111–133.
SULLIVAN D. 1994. “Measuring the degree of internationalization of a firm”, Journal of International
Business Studies, vol. 25, n. 2, pp. 325–342.
TALLMAN S., LI J. T. 1996. “Effects of international diversity and product diversity on the performance of
multinational firms”, Academy of Management Journal, vol. 39, n. 1, pp. 179–196.
TEECE D. J. 1980. “Economies of scope and the scope of the enterprise”, Journal of Economic Behavior
and Organization, vol. 1, n. 3, pp. 223–247.
WAN C.-C. 1998. “International diversification, industrial diversification and firm performance of Hong Kong
MNCs”, Asia Pacific Journal of Management, vol. 15, n. 2, pp. 205–217.
WIERSEMA M. F., BOWEN H. P. 2011. “The relationship between international diversification and firm
performance: why it remains a puzzle”, Global Strategy Journal, vol. 1, pp. 152–170.
ZAHEER S. 1995. “Overcoming the liability of foreignness”, Academy of Management Journal, vol. 38, n. 2,
pp. 341–363.
15