Mario Krist Internationalization and Firm Performance

Transcription

1 Mario Krist Internationalization and Firm Performance

2 GABLER EDITION WISSENSCHAFT

3 Mario Krist Internationalization and Firm Performance The Role of Intangible Resources With a foreword by Prof. Dr. Andreas Bausch GABLER EDITION WISSENSCHAFT

4 Bibliographic information published by the Deutsche Nationalbibliothek The Deutsche Nationalbibliothek lists this publication in the Deutsche Nationalbibliografie; detailed bibliographic data are available in the Internet at Dissertation Jacobs University Bremen, st Edition 2009 All rights reserved Gabler GWV Fachverlage GmbH, Wiesbaden 2009 Editorial Office: Claudia Jeske / Anita Wilke Gabler is part of the specialist publishing group Springer Science+Business Media. No part of this publication may be reproduced, stored in a retrieval system or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the copyright holder. Registered and/or industrial names, trade names, trade descriptions etc. cited in this publication are part of the law for trade-mark protection and may not be used free in any form or by any means even if this is not specifically marked. Cover design: Regine Zimmer, Dipl.-Designerin, Frankfurt/Main Printed on acid-free paper Printed in Germany ISBN

5 To my parents Erhard and Anna

6 Foreword A large body of strategy and international business literature has examined the relationship between internationalization (regional diversification) and firm performance over the last decades. In essence, the current state of research on the internationalization-performance relationship must be characterized, however, as being heterogeneous and inconclusive. From a conceptual point of view, increasing levels of internationalization should have positive effects on firm performance due to economies of scale, market power effects, and risk reduction effects, to name but a few. At the same time, firms that expand internationally have to cope with substantial negative effects which are primarily associated with liabilities of foreignness. As a consequence, extensive empirical studies on the internationalization-performance relationship are somewhat mixed and contradictory. Against this background, Mario Krist highlights three central research objectives: First, he establishes if and why there should be a relationship between internationalization and firm performance. Second, he elaborates which intangible resources act as major success factors in the relationship between internationalization and performance and why this occurs. Third, he explores how these intangible resources act within the internationalization process concerning their ultimate impact on firm performance and how characteristics of the internationalization process itself have an impact on the focal relationship. Mario Krist chooses a topic which is of high practical relevance since internationalization is at the core of corporate and business strategy. His research objectives are well developed based on a sound description of the current research status. The empirical approaches chosen by the author reflect a suitable research design in order to answer the research questions at hand. The combination of meta-analysis and primary empirical research indicates the wide range of the author s methodological knowledge. Overall, with this thesis Mario Krist significantly contributes to a comprehensive understanding of the drivers that influence the success of internationalization. All empirical studies are based on sound theoretical analyses and argumentations. Furthermore, the conclusions the author draws add noticeably to the existing body of knowledge in the research field of corporate strategy and international business. Thereby, the study does not only inform a broad readership about a central topic, but also offers the expert new insights. The results may thus have important implications for future research and theory building. Prof. Dr. Andreas Bausch

7 Acknowledgements Man entdeckt keine neuen Weltteile, ohne den Mut zu haben, alle Küsten aus den Augen zu verlieren. André Gide ( ) First, I would like to thank my supervisor Prof. Dr. Andreas Bausch for the great inspiration and support he has given me. Not only has he provided valuable suggestions and ideas in various stages of this research but his trust and personal promotion reach far beyond this thesis. Many thanks also go to Prof. Dr. Welf Werner from Jacobs University and Prof. Dr. Joerg Freiling from the University of Bremen who agreed to co-supervise the thesis. Furthermore, I am grateful to Prof. Dr. Michael Frese from the University of Giessen for giving me the opportunity to work at his department in an interdisciplinary team and for sharing his passion of research. I also wish to thank my fellow colleagues from Jacobs University and the University of Giessen for many discussions on the topic. They provided valuable comments and shared their views in interesting talks. This research would not have been possible without the financial support by the Cusanuswerk. Thank you for funding my research and international conference participations but even more so for meeting wonderful people during that time. I am also especially grateful to Alexandre Segão Costa and Ulrich Koehler for proofreading parts of this thesis. Furthermore, I owe a lot to all of my friends. Especially the law connection in Giessen has pushed me towards the completion of this thesis and often supported me emotionally with a late-night talk. Most of all, I want to thank my family, especially my mother and my father for their support and their belief in me throughout the years. Without their love, nothing would be as it is. This thesis is dedicated to them. Finally, internationalization has unclosed to me the kind of relationship it has with performance after a long time. At the same time, however, I found another relationship, one that is precious in itself. Frauke, I am thankful for proving that Martin Buber is right as he notes: Der Erfolg ist keine Vokabel in der Sprache der Liebe. Mario Krist

8 Summary of Contents Chapter 1 Introduction 1 Chapter 2 The Effect of Context-Related Moderators on the Internationalization-Performance Relationship: Evidence from Meta-Analysis 23 Chapter 3 Intangible Resources and their Effect on the Internationalization-Performance Relationship 71 Chapter 4 Intangible Resources and the Internationalization Process: Path Dependence of Building a Profitable Multinational Company 131 Chapter 5 Conclusion 171 Appendix 183

9 Table of Contents Chapter 1 Introduction Internationalization and Firm Performance Definition of Key Terms Scientific Approach Course of Work Universality or Context Dependence Curve Type and the Role of Intangible Resources Intangible Resources the Internationalization Process and Performance 13 Endnote 17 References 18 Chapter 2 The Effect of Context-Related Moderators on the Internationalization-Performance Relationship: Evidence from Meta-Analysis Introduction Theoretical Background and Hypotheses R&D Intensity Product Diversification Country of Origin Age Size Method Sample Variable Coding Analytical Approach Consideration of Methodological Differences Results Discussion Limitations 52

10 XIV Table of Contents 2.7 Implications for Future Research Key Moderator Variables Understanding Contextual Interdependencies Non-Linearity Conclusions 56 Endnote 59 References 60 Chapter 3 Intangible Resources and their Effect on the Internationalization-Performance Relationship Introduction An Inquiry into a Non-Linear Internationalization-Performance Relationship Previous Inquiries into a Non-Linear Relationship Benefits of Internationalization Costs of Internationalization Synthesis and Hypothesis The Moderating Impact of Intangible Resources Theoretical Background A Hedonic Approach to the Concept of Intangible Resources The Multidimensional Nature of Intangible Resources Technological Know-How Market Know-How Contract-Based Know-How Top Management Team Demographics Method Sample Variable Coding Sources of Data and Process of Data Collection Analytical Approach Results Discussion Limitations 115

11 Table of Contents XV 3.8 Implications for Future Research Conclusions 117 Endnotes 120 References 122 Chapter 4 Intangible Resources and the Internationalization Process: Path Dependence of Building a Profitable Multinational Company Introduction Theoretical Background and Hypotheses How Intangible Resources Shape the Internationalization Process How Differences in Internationalization Paths Affect Performance Method Sample Variable Coding Analytical Approach Results Discussion Limitations Implications for Future Research Conclusions 164 Endnotes 166 References 167 Chapter 5 Conclusion Summary of Results Implications and Recommendations for Future Research 176 References 181 Appendix 183

12 List of Tables Table 2.1 Summary of Primary Studies 37 Table 2.2 Sample Source over Time 38 Table 2.3 Degree of Internationalization over Time across Countries and by Firm Size 39 Table 2.4 Operationalization of Internationalization and Performance 39 Table 2.5 Analysis of Bias in Sub-Samples for Moderator Analysis 43 Table 2.6 Methodological Moderators Internationalization and Performance 45 Table 2.7 Results of Meta-Analysis on Internationalization and Performance 47 Table 2.8 Shape of the Internationalization-Performance Relationship 56 Table 3.1 Selected Empirical Studies on the Relationship between Internationalization and Firm Performance 74 Table 3.2 Theoretical Perspectives and Performance Drivers of Internationalization 76 Table 3.3 Theoretical Perspectives and Cost Drivers of Internationalization 78 Table 3.4 Descriptive Statistics and Correlations (N = 789) 99 Table 3.5 Coefficients from Hedonic Regression 103 Table 3.6 Regression of Curve Type and Moderation of Tobin s q 105 Table 3.7 Moderation of Hedonic q 107 Table 3.8 Moderation of Individual Intangible Resources 108 Table 4.1 Regional Dispersion of International Sales 143 Table 4.2 Descriptive Statistics and Correlations (N = 563) 147 Table 4.3 Regression of Intangible Resources on Degree of Internationalization 150 Table 4.4 Regression of Intangible Resources on Propensity to Internationalize 151 Table 4.5 Regression of Intangible Resources on Scope of Internationalization 153 Table 4.6 Regression of Intangible Resources on Scope of Expansion 154 Table 4.7 Moderation of Speed of Expansion 156 Table 4.8 Moderation of Scope of Expansion on Change of ROA over Two Years 157 Table 5.1 Summary of Hypotheses Pertaining to the Role of Intangible Resources 173

13 List of Figures Figure 1.1 Theoretical Model for the Investigation of Context Related Moderators 9 Figure 1.2 Theoretical Model for Moderator Analysis of Intangible Resources 13 Figure 1.3 Theoretical Model of Intangible Resources the Internationalization Process and the Internationalization-Performance Relationship 16 Figure 2.1 Criteria for Moderator Variables of the Meta-Analysis 28 Figure 2.2 Stem-and-Leaf Plot of Correlations (r) between Internationalization and Performance 48 Figure 2.3 Key Findings from Meta-Analysis on Internationalization and Performance 58 Figure 3.1 Sigmoid Internationalization-Performance Relationship 80 Figure 3.2 Categorization of Intangibles by the FASB and the Working Group Intangible Assets in Accounting of the Schmalenbach Society 86 Figure 3.3 Results for Moderator Analysis of Intangible Resources 118 Figure 4.1 Research Framework with Intangible Resources and Internationalization Process Characteristics 133 Figure 5.1 Mobility of Intangible Resources in the Context of Internationalization 176

14 Chapter 1 Introduction 1.1 Internationalization and Firm Performance The relationship between internationalization activities and firm performance has been the subject of extensive discussion in the strategy and international business literature over the course of the last thirty years. Unfortunately, with close to a hundred studies, little consensus has emerged among researchers as to the nature of the relationship between internationalization and firm performance. Studies in the 1970s emphasized the benefits of internationalization and thus hypothesized a linear positive relationship between the degree of internationalization and firm performance; however researchers in the 1980s and 1990s acknowledged that internationalization can be subject to risk and failure, thus recognizing possible drawbacks to success in internationalization. As a result of these divergent findings, researchers, in a search for an optimal degree of internationalization, have more recently begun to examine the benefit-cost trade-off of internationalization and its variations along the internationalization continuum. These researchers have tried to resolve empirical findings of either a significant positive linear effect (Vernon, 1971; Buhner, 1987) or significant negative linear effect (Brewer, 1981; Ramaswamy, 1992) by remodeling the shape of this relationship. Yet to date, researchers disagree on the exact shape of the curve. Significant results vary from u-shaped curves (Lu and Beamish, 2001; Capar and Kotabe, 2003) to inverted u-shaped curves (Hitt, Hoskisson, and Kim, 1997; Gomes and Ramaswamy, 1999) and cubic curves (Contractor,

15 2 Introduction Kundu, and Hsu, 2003; Lu and Beamish, 2004). Empirical findings are even more diverse. The assertion of non-linearity is challenged by empirical studies that tested for but could not confirm a curvilinear relationship (Tallman and Li, 1996; Hsu and Boggs, 2003; Wan and Hoskisson, 2003). The heterogeneity of empirical results on different types of curves, effect sizes, and even overall direction lead to differing views and conclusions in contemporary research. While prior research set out to establish a single universal relationship between internationalization and firm performance, a discussion emerges among international business researchers as to whether such a relationship really exists or whether there are simply several context dependent relationships reflecting the conditions when and how internationalization and firm performance relate. The current state of research on the internationalization-performance relationship is often described as inconsistent (Harveston, Kedia, and Francis, 1999, p. 295), mixed (Gomez-Mejia and Palich, 1997, p. 310; Doukas and Lang, 2003, p. 154; Hsu and Boggs, 2003, p. 23), decidedly mixed (Hitt et al., 1997; Qian, 2002, p. 618), contradictory (Geringer, Tallman, and Olsen, 2000, p. 51), inconsistent and contradictory (Ruigrok and Wagner, 2003, p. 65), inconclusive and contradictory (Tallman and Li, 1996, p. 180), and conflicting (Annavarjula and Beldona, 2000, p. 48). The extant literature gives different explanations for this confusion. One recurrent explanation is based on theoretical shortcomings (Gomes and Ramaswamy, 1999) and differences in research methodology. Sullivan (1994), in his attempt to improve the content validity of measuring the degree of internationalization of a company, infers that measurement error seriously distorts estimates of effect sizes and precludes distinguishing trait variance from unwanted method variance. He therefore concludes that theory testing remains ambiguous precisely because we cannot ascertain whether the acceptance or rejection of a hypothesis is the result of excessive error in measurement or the adequacy or inadequacy of prevailing theories of the internationalization of the firm (Sullivan, 1994, p. 338). The work by Grant (1987) has stimulated another line of research. He classifies research on the performance consequences of internationalization into comparative studies that investigate whether or not multinational companies outperform their domestic rivals (e.g. Vernon, 1971; Brewer, 1981; Fatemi, 1984) and into research that uses control variables such as research and development, firm size, and industry to

16 Definition of Key Terms 3 examine the relationship between internationalization and performance (e.g. Kumar, 1984; Morck and Yeung, 1991; Tallman and Li, 1996). He concludes that contradictory findings on the direction and magnitude of the internationalization-performance relationship are mainly due to moderator variables considered by some researchers but not others. This piece of research incorporates the remarks of Grant as it seeks to make a contribution to the academic debate on the nature of the relationship between internationalization and performance with particular consideration of the role of different intangible resources. It addresses three successive research questions. First, it tries to establish if and why there should be a relationship between internationalization and firm performance. Building upon the seminal work by Morck and Yeung (1991) the second question focuses on the role of intangible resources. Specifically I distinguish between different facets of intangible resources in order to explore which intangible resources act as major success factors in the relationship between internationalization and performance and why they do so. This approach distinguishes between dimensions of intangible resources and elaborates on the specific mechanisms for why a specific resource should act as moderator of the focal relationship. Therefore it is more in line with the original work of the resource based view of the firm (Wernerfelt, 1984; Barney, 1991; Peteraf, 1993) as it considers the heterogeneous character of firm resources (Barney, 1991). The third question concerns how these intangible resources act in the internationalization process to ultimately impact firm performance and how characteristics of the internationalization process itself (i.e. the way how a firm arrives at its present state of internationalization) has an impact on the relationship between internationalization and performance. 1.2 Definition of Key Terms In order to guarantee a common understanding about the object of research and constructs under investigation it is mandatory to clarify key terms. Hence I would like to introduce three definitions of what constitutes (1) a multinational firm, (2) the underlying comprehension of performance as outcome variable and (3) intangible resources.

17 4 Introduction Multinational Firms In the literature there are many different approaches to a definition of multinational companies. One of the first definitions of internationalization can be derived from Lilienthal, who defines multinational firms as corporations which have their home in one country but which operate and live under the laws and customs of other countries as well (Lilienthal, 1975, p. 119). The essence of this definition is operation in more than one country. I will adopt this rather broad definition throughout this work by defining multinational firms as firms which undertake value creating activities in more than one country. In order to distinguish this definition from others I would like to discuss alternative definitions that have been suggested in the literature as well. For example Dunning defines multinational companies as follows: Firms, which own and control income-generating assets in more than one country can be defined as Multinational Companies (MNCs) (Dunning, 1974, p. 13). This definition restricts the status of multinationality to those companies that follow a certain form of international involvement, namely the physical presence in a foreign country. But Dunning does not mention whether this involvement is defined in the form of a sales subsidiary or production facility for example. Other researchers again narrow this definition in that they restrict multinational companies to those firms that engage in foreign production, such as Glaum: Eine Unternehmung gilt als international, wenn sie in mehreren Staaten als Produzent tätig ist (A company is regarded international if it acts as producer in several countries) (Glaum, 1996, p. 10) or Rugman, Lecraw, and Booth: The essence of multinationality is foreign production (Rugman, Lecraw, and Booth, 1985, p. 7). What these definitions do have in common is that they more or less implicitly restrict the scope of international activities. However, it is a commonly accepted research methodology that definitions differ. In this sense I agree with the notion of Buckley who writes that definitions are not right or wrong, just more or less useful (Buckley, 1981, p. 71) in that these narrow definitions are not wrong, but that they confine the scientific object of internationalization. For the purpose of the present peace of research they might consequently not be appropriate to capture the diversity of internationalization and allow a comprehensive examination of the phenomenon of internationalization and firm performance.

18 Definition of Key Terms 5 The definition of value creating activities in more than one county seems to be more suitable for two reasons: First, value creating activities instead of pure production broadens the scope for possible motivations for internationalization. Second, this definition encompasses all forms of international market entry (with the exception of indirect exports) and therefore offers the potential for conclusions that can be generalized across different structural configurations of doing business abroad. Firm Performance My definition of performance as the outcome variable is firm financial performance. The idea is that the net impact from value creating activities in more than one country, i.e. internationalization, should finally be reflected in the financial position and profitability of the firm. Metrics of financial performance are generally accepted as suitable proxies to measure the degree of satisfaction of a variety of stakeholders of the firm because they reflect their financial interests in the firm, such as income payments to employees, tax payments to official authorities, or interest and dividend payments to investors. Only sufficient funds to satisfy the claims of the diverse stakeholders of the firm guarantee their interest in the firm in the long run. Hence, internationalization is evaluated with respect to its contribution to the ultimate goal of a firm, which can be defined as the conservation and successful development of the firm (Hahn and Hungenberg, 2001). Profitability ratios of a company are typically able to indicate the degree of investors satisfaction after the claims of other stakeholders have been satisfied. I only consider the impact of internationalization on overall firm profitability and not on profitability of foreign units or activities. Overall firm profitability seems to be an appropriate level of measurement, since internationalization typically represents a strategic action that can have a fundamental impact on the corporate development. A restriction to the success or profitability of foreign activities would fall short of the possibility that ongoing activities abroad can have an impact on national businesses as well, the so called internationalization imprint (Sapienza, Autio, and Zahra, 2003) or that transfer price arrangements can allocate profits away from their point of origin. Intangible Resources As in other fields of research, a variety of competing terminologies exists. Despite researchers high interest in the topic of intangible resources, no consensus on one set of terms is obvious. Terms used include, but are not limited to, the following: Intangible resources, intangibles, intangible assets, intellectual capital, and intellectual

19 6 Introduction property (Lev, 2001). There is not only a variety of terms but also a wide spectrum of definitions for intangible resources in the literature. In some cases the definitions remain abstract and offer little guidance for practitioners or researchers. In their literature review of different terms and definitions of intangible resources Kaufmann and Schneider (2004, p. 374) comment that Most authors definitions regardless of the term used include knowledge in some way and refer to some form of economic value that is attached to intangible assets. In a similar vein some authors point to the profit generating potential of intangible resources. Sullivan (2000, p. 228) calls intangible resources knowledge that can be converted into profit and Lev (2001, p. 5) posits that an intangible asset is a claim to future benefits that does not have a physical or financial embodiment. This definition describes the term intangible resources quite well as it reveals their specific character. In this work I will follow Lev s definition of intangible resources as entitlements to future benefits without physical substance as the two constitutive elements. 1.3 Scientific Approach While production of new knowledge and theoretical advancement are the ultimate goals of scientific endeavors they are as well the most difficult ones to accomplish. This piece of research seeks to make a contribution not only to empirical evidence on the internationalization-performance relationship but also to an advancement of internationalization theory. The basic methodological approach to achieve these goals is explanatory-affirmative. In a first step I derive hypotheses based on theoretical reasoning. In a second step I test whether empirical data affirms these propositions or whether it does not. Accordingly, the relevant criterion for an assessment of the scientific contributions obtained from this piece of research is whether empirical evidence is able to reject the hypotheses proposed throughout the chapters. Two basic scientific principles serve as guiding paradigms in the following chapters: Rigor and relevance. Only work that is rigorous both theoretically and methodologically and centered on issues of focal concern to a wide community of stakeholders (e.g. managers, government policy makers, trades unionists, and consumer groups) will truly bridge the relevance gap, thereby meeting the double hurdles for management research (Hodgkinson, Herriot, and Anderson, 2001, p. 46) with reference to (Pettigrew, 1997). Rigor mainly applies to methodological considerations and demands the compliance with publication standards of leading international

20 Course of Work 7 journals. Relevance is the main principle for the recognition of phenomena surrounding the internationalization-performance relationship. If results shall be relevant for a wide community of stakeholders and decision makers then controllable variables are of primary concern. In this way scientific insights can be successfully converted into practically relevant and actionable information. This would be an important step to bridge the gap between scientists and practitioners towards an establishment of the concept of evidence-based management (Rousseau, 2007) in the domain of international business research. 1.4 Course of Work Although the chapters of this book can be read independently of each other it is also in their interplay and integration that they help to advance theory on the internationalization-performance relationship. The subsequent chapters are structured as follows: Chapter two analyzes prior empirical research on the internationalizationperformance relationship based on the method of meta-analysis. Given the diversity of empirical findings so far this chapter seeks to explore the reasons for these conflicting results. It investigates whether it is possible to model a systematic but context dependent relationship instead of a uniform relationship. Chapter three discusses in more detail the role of intangible resources. The first part of this chapter represents an investigation into which curve type best reflects the internationalization-performance relationship for a sample of German firms. In the second part I explore the moderating role of five different dimensions of intangible resources and introduce a novel concept of measuring the joint value of the different facets of intangible resources the so called hedonic approach. Chapter four encompasses research on how intangible resources shape the internationalization process. The first part is an examination of the effect of intangible resources on the decision to internationalize while the second part examines if and how the internationalization process itself exerts an influence on the internationalization-performance relationship. Chapter five draws conclusions from the preceding chapters and outlines the implications for future research. For a better readability each chapter contains a separate list of references. However, before starting with the analysis of the main research topic I need to clarify further key areas of investigation which I will do in the remaining sections of chapter one.

21 8 Introduction 1.5 Universality or Context Dependence The question of whether there is a systematic relationship between the internationalization of firms and their performance is central to the field of international business. Despite the extensive amount of research that has been conducted on the internationalization-performance relationship a fundamental question remains: How universal is the internationalization-performance effect? For more than three decades researchers in the domain of international business try to assess whether there exists one universally valid relationship or whether this relationship is fundamentally context dependent, i.e. the direction and the magnitude of the relationship are depending on other variables. Given the number of empirical studies addressing the subject of internationalization and firm performance and given the diversity of the results to date, the need for a comprehensive analysis of past research is crucial for the advancement of research. What is missing to date is a systematic review and consolidation of research based on quantitative methods. Given the shortcomings of vote counting methods (Hunter and Schmidt, 1990), meta-analysis is a logical next step. Metaanalysis has its roots in the discipline of medicine. It offers unique possibilities for detecting the true relationship of variables and analyzing reasons for conflicting findings that are not available in any other study (Dalton et al., 1999). Meta-analysis integrates and statistically analyses prior research findings in an attempt to evaluate whether inconsistencies and contradictory findings in prior research are due to research artifacts (such as sampling error, or error of measurement) one cannot avoid in single studies or whether the differences in effect sizes are of substantial nature, i.e. due to moderator variables. Given the number of single studies in the area of internationalization and performance to date, meta-analytical procedures are more likely to offer further insight than would another single study (Hunter and Schmidt, 1990; Dalton et al., 1999). Therefore meta-analysis is a particularly suitable method to assess how universal the internationalization-performance relationship is and decisive for the direction of further inquiries. The meta-analytical survey in chapter two consequently addresses two major research questions: (1) What is the overall relationship between internationalization and firm performance? And (2) how is the relationship between internationalization and performance moderated by intervening variables? I address this question by metaanalyzing 36 studies with an overall sample size of N = 7,792 observations. This study

22 Universality or Context Dependence 9 is among the first to introduce the method of meta-analysis to international business research. To the author s knowledge only one more working paper by Ruigrok and Wagner (2004) exists so far. However, these authors focus their meta-analytic analyses mainly on methodological moderators such as publication outlet, investigative time frame, and measurement of the internationalization and performance variables. Based on extant theory I will analyze the impact of five contextual moderator variables: R&D intensity, product diversification, country of origin, firm age, and firm size. I choose the set of moderator variables based on two criteria: (1) Whether there is ambiguity on the direction and magnitude of the effect and (2) whether sufficient data is available for meaningful analyses. Consequently, this list should not be considered an exhaustive enumeration of all possible moderator variables but rather an appraisal of key contextual variables. Figure 1.1 depicts the theoretical model used in chapter two. Furthermore, I will analyze to what extend differences in research methodology (such as conceptually different measures of the constructs of internationalization and performance, or time frame of investigation) are responsible for contradictory findings in prior research. Figure 1.1 Theoretical Model for the Investigation of Context Related Moderators Degree of Internationalization R&D Intensity Product Diversification Country of Origin Firm Age Firm Size Firm Performance

23 10 Introduction The study contributes to the literature in at least two important ways. First, I determine the magnitude and direction of the overall effect of internationalization on firm performance. Second, I establish the universality of the internationalizationperformance relationship as I test the relevance of key moderator variables. Knowledge about the direction, magnitude, and moderators of the internationalization effect on firm performance has important theoretical and practical implications. It is important for investors, policy makers, educators, and the managers themselves. The application of meta-analysis represents an important step towards evidence-based management (Rousseau, 2007) in the domain of international business and a practical tool for theory development. If the relationship is indeed fundamentally context dependent, future research should no longer search for generalizations, but instead investigate the conditions under which internationalization might be fruitful. 1.6 Curve Type and the Role of Intangible Resources One of the premises of meta-analysis is that it assumes linearity. However, recently the debate on the shape of the relationship between internationalization and performance has received increased attention. While in recent years there seemed to be some agreement in the research community that the trade-off between benefits and costs associated with internationalization is not constant but varies along the internationalization continuum there is still ambiguity about the kind of curve type that best reflects the internationalization-performance relationship. At present the notion of the 3-stage theory seems to become the prevailing paradigm in international business research (Glaum and Oesterle, 2007). Latest publications in leading international journals make all use of this sigmoid curve type model 1. This proposition seems appealing because it integrates different aspects in terms of an eclectic paradigm of curve type pattern. Its proponents claim that the 3-stage theory can be interpreted as a general theory, i.e. a theory that encompasses other attempts to model the relationship between firm internationalization and performance. Yet it is challenged by empirical research that doubts a universally applicable curve type. Scholars like Ruigrok, Amann, and Wagner (2007) propose that the curve type that best fits the internationalization-performance relationship is depending upon the country of origin of a firm. The main arguments of these scholars center on the proximity to neighboring markets (in terms of culture, language, economic develop-

24 Curve Type and the Role of Intangible Resources 11 ment, etc.) and the size of the home market. While the first factor relates to the magnitude of liability of foreignness faced by an internationalizing firm and therefore the question whether the first steps of internationalization lead to a decline or rise of overall performance the size of the home market concerns the inflection points at which the benefit-cost trade-offs change. Based on a sample of German firms with n = 789 observations I investigate how the shape of the internationalization-performance relationship varies across different degrees of internationalization. This investigation contributes to the literature in that it challenges the idea of a general theory of a sigmoid curve type. The pioneers of the 3-stage theory based their arguments about curve type patterns on idiosyncratic home market characteristics of their respective samples (Japan and US). While Germany shares some commonalities with these countries it differs from both of these countries in one important way: Germany is one of the largest economies in the world, but it is as well member of a wider economic union, the single European market. Therefore I will reconsider the benefit-cost trade-off associated with internationalization and develop a coherent model for the shape of the internationalization-performance relationship in a German context. However, as Hennart (2007) notes, if one reasons about why there should be any relationship between internationalization and firm performance it is hard to deduct immediate and systematic performance consequences just from being international without considering the circumstances. This notion doubts the assumption that there should be a direct and universal relationship. Rather it seems plausible that third variables constitute relevant success factors that elevate firm performance and that internationalization might be a relevant vehicle to exploit these advantages in different markets. Against this background, internationalization is the result of rational actors behavior in reaction to favorable market conditions that allow the creation or exploitation of some competitive advantage within the scope of a company s own business. Right from the beginning of theory building researchers in the discipline of international business contended that a major justification for international business activities of a firm is the exploitation of a competitive advantage compared to domestic and foreign rivals (Caves, 1971). The multinational company (MNC) seems to be an effective medium to exploit competitive advantage in foreign markets because of market failure. Assuming that any performance consequences from inter-nationalization are context dependent, the question arises whether intangible resources can be a

25 12 Introduction reason for doing business abroad. This perception has been proposed by different researchers; may it be in the notion of ownership advantages within the eclectic theory by Dunning (1980) or the importance of unique resources by scholars in favor of internalization theory (Buckley and Casson, 1976; Hymer, 1976). In his review of the resource based view and international business Peng (2001) concludes that the resource based view has become a highly influential theoretical perspective in contemporary international business research. If so, a second question follows, namely the question if intangible resources generally have a positive performance impact when applied internationally or if the importance of certain dimensions of intangible resources for internationalization success varies. While considerable attention has been dedicated to the first research question (e.g. Morck and Yeung, 1991; Mishra and Gobeli, 1998), until today research has mainly fallen short of dividing between different facets of intangible resources. Not only has theorizing about the value impact of intangible resources neglected that different dimensions of intangibles might be more valuable if exploited internationally than others but measuring intangible resources in empirical tests has remained underdeveloped as well (with R&D intensity being the most common conceptualization). I will investigate, (1) if and why intangible resources moderate the internationalization-performance relationship and (2) if particular dimensions of intangible resources contribute differently to performance. Consequently, this section is not an investigation on the plurality of possible moderator variables but rather an investigation on the role of intangible resources and their different facets in the domain of internationalization. Especially the second kind of inquiry uncovers a blind spot of the international business research landscape as it comes closer to the original literature of the resource based view of the firm. Already early contributions asserted that the value of resources varies in terms of industry specific success factors (Amit and Schoemaker, 1993). If applied to the internationalization-performance relationship this would mean that the extent to which different dimensions of intangible resources offer internationalization potential (i.e. enhance the performance impact of internationalization) might vary. This study contributes to the literature as it will introduce a novel approach of measuring the overall impact of intangible resources on the basis of Tobin s q, the so called hedonic approach. The measure is derived from hedonic prizing models that aim to derive the overall value of an asset from the separate values of different components. Furthermore, I will differentiate five dimensions of intangible resources and

26 Intangible Resources the Internationalization Process and Performance 13 derive how each of them moderates the internationalization-performance relationship. These dimensions include: Technological know-how, market know-how, contractbased know-how, and top management team (TMT) demographic traits. Figure 1.2 depicts the research model for the moderating influence of different measures of intangible resources upon the internationalization-performance relationship. Figure 1.2 Theoretical Model for Moderator Analysis of Intangible Resources Degree of Internationalization Technological Know-How Tobin s q Market Know-How Contract-Based Know-How Hedonic q TMT International Diversity TMT Education Firm Performance 1.7 Intangible Resources the Internationalization Process and Performance The internationalization of firms, together with the existence of intangible resources within firms, has become the subject of extensive study over the last decade. Several internationalization theories have considered the availability of intangible resources owned by the firm to be a key factor in the internationalization of that firm (Delgado-Gómez, Ramírez-Alesón, and Espitia-Escuer, 2004). In the same manner the internationalization process has been a central research focus of international business

27 14 Introduction scholars since the late 1970s (e.g. Johanson and Vahlne, 1977; Johanson and Mattson, 1988; McDougall and Oviatt, 1996). However, only a few empirical analyses have addressed these issues collectively and considered how intangible resources interact with the internationalization process of the firm, and even fewer in the case of German firms. Against this background, this study starts addressing this research gap. While chapter three assesses if intangible resources act as moderators of the relationship between internationalization and firm performance chapter four will explore how this occurs. Central to the research framework of chapter four is the introduction of the internationalization process into the discussion of contingency factors of the internationalization-performance relationship. Specifically I will seek to give answers to two interrelated research questions: (1) Do intangible resources explain different process patterns of internationalization for a sample of German firms between 2001 and 2006? And (2) how do differences in the internationalization process itself moderate the internationalization-performance relationship? There are three main differences with respect to previous research. First, I will open up the black box of how international expansion of the firm is dependent on the availability of intangible resources and how process patterns of international expansion again lead to different performance outcomes. Second, I analyze the impact of intangible resources on the decision by the firm to increase international diversification, rather than only on the degree of internationalization. Third, I distinguish between different facets of intangible resources again. While from a theoretical point of view it seems reasonable to differentiate certain characteristics of intangible resources most previous researchers have chosen to use simple variables that reflect some of the intangible resources, assuming consciously or not that they are representative of the stock of intangibles of a firm. As a consequence this study introduces a dynamic perspective and takes a closer look on how the internationalization of firms evolves over time. Concerning the first research question I will investigate the internationalization posture of German firms with respect to the impact that the availability of intangible resources has on the propensity to increase internationalization between 2001 and 2006 as well as the effect it has on the geographic location where increasing international commitment takes place. This kind of inquiry has been stimulated by a recent paper by Rugman and Verbeke (2004) who introduce the regionalization hypothesis into international

28 Intangible Resources the Internationalization Process and Performance 15 business research. Their major argument is that multinational enterprises are regional, not global, which they define as balanced sales across America, Europe, and Asia. They propose that the sales of the majority of the largest multinational companies are concentrated either in the region in which their head offices are located or in that of one other region. This study seeks to contribute to the emerging debate on the regional profile of multinational companies in that it analyzes the importance that the availability of a firm s intangible resources has on its decision to increase its presence in foreign markets, that is to say, its effect on international expansion into different regions of the world. As concerns the second research question only few studies have investigated the performance attributes of the international expansion process to date (Vermeulen and Barkema, 2002; Wagner, 2004). Consequently little is known to date about the moderating impact of different process characteristics on the internationalizationperformance relationship, and even fewer on how these process characteristics are affected by intangible resources. However, I suppose that not only the degree of internationalization matters with regard to the way how internationalization relates to firm performance but as well the way how a company arrives there. This is because firms have only limited capacity to handle new information. Drawing upon the notion of absorptive capacity (Cohen and Levinthal, 1990) and diseconomies of time compression (Dierickx and Cool, 1989) I will build a theoretical argument how the internationalization process might depress the performance effect from internationalization. Two major process characteristics can be distinguished, speed and scope of internationalization. While speed relates to the sheer amount of new information from internationalization scope relates to the diversity of new information. The study contributes to the literature on internationalization and performance in two ways. First, it opens up the black box of the triangular relationship between intangible resources, the internationalization process and how they jointly relate to the internationalization-performance relationship. Second, it explores if certain expansion characteristics are depending upon the availability of intangible resources. Knowledge of how the performance consequences of certain expansion patterns depend upon intangible resources will be important to understand better how intangible resources can be successfully deployed in international markets. The key objective of this study is to illuminate further the internationalizationperformance relationship by applying innovative temporal, black box, and contextual