andreas bausch/mario krist the effect of context-related … · 2017. 9. 9. · andreas...

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Andreas Bausch/Mario Krist

The Effect of Context-Related Moderatorson the Internationalization-PerformanceRelationship: Evidence from Meta-Analysis

Abstract and Key Results

■ After thirty years of research on the relationship between internationalization andfirm performance, findings on direction and magnitude are still contradictory.This paper quantitatively reviews prior research in an attempt to reconcile thefragmented results.

■ We address the question if and how internationalization relates to firm perfor-mance by integrating findings from 36 studies (41 samples, N = 7,792) using themethod of meta-analysis.

■ We find empirical support for a significant positive relationship at the aggregatelevel. Equally important, meta-analysis reveals that the relationship is moderatedby R&D intensity, product diversification, country of origin, and firm age andsize.

Key Words

Internationalization, Firm Performance, Meta-Analysis, Contextual Moderators

Authors

Andreas Bausch, Professor of Business Administration and International Management, FriedrichSchiller University Jena, Jena, Germany, and Adjunct Professor of Strategic Management and Con-trolling, International University Bremen, Bremen, Germany.Mario Krist, Research Associate, International University Bremen, Bremen, Germany.

Manuscript received June 2005, revised March 2006, final version received November 2006.


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Introduction

The relationship between internationalization activities and firm performance hasbeen the subject of extensive discussion in the strategy and international businessliterature over the course of the last thirty years. Unfortunately, with close to a hun-dred studies, little consensus has emerged among researchers as to the nature of therelationship between internationalization and firm performance.

Studies in the 1970s emphasized the benefits of internationalization and thushypothesized a linear positive relationship between the degree of internationaliza-tion and firm performance; however researchers in the 1980s and 1990s acknowl-edged that internationalization can be subject to risk and failure, thus recognizingpossible drawbacks to success in internationalization. As a result of these divergentfindings, researchers, in a search for an optimal degree of internationalization, havemore recently begun to examine the benefit-cost trade-off of internationalizationand its variations along the internationalization continuum. These researchers havetried to resolve empirical findings of either a significant positive linear effect(Buhner 1987, Vernon 1971) or significant negative linear effect (Brewer 1981, Ra-maswamy 1992) by remodeling the shape of this relationship. Significant resultsvary from U-shaped curves (Capar/Kotabe 2003, Lu/Beamish 2001) to inverted U-shaped curves (Gomes/Ramaswamy 1999, Hitt/Hoskisson/Kim 1997) and cubiccurves (Contractor/Kundu/Hsu 2003, Lu/Beamish 2004). Empirical findings areeven more diverse. The assertion of non-linearity is challenged by empirical studiesthat tested for but could not confirm a curvilinear relationship (Hsu/Boggs 2003,Tallman/Li 1996, Wan/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 contemporaryresearch. While prior research set out to establish a single universal relationshipbetween internationalization and firm performance, a discussion emerges amonginternational business researchers as to whether such a relationship really exists orwhether there are simply several context-dependent relationships reflecting theconditions when and how internationalization and firm performance relate. The cur-rent state of research on the internationalization-performance relationship is oftendescribed as “inconsistent” (Harveston/Kedia/Francis 1999, p. 295), “mixed”(Doukas/Lang 2003, p. 154, Gomez-Mejia/Palich 1997, p. 310, Hsu/Boggs 2003,p. 23), “decidedly mixed” (Hitt et al. 1997, p. 772, Qian 2002, p. 618), “contradic-tory” (Geringer/Tallman/Olsen 2000, p. 51), “inconsistent and contradictory”(Ruigrok/Wagner 2003, p. 65), “inconclusive and contradictory” (Tallman/Li 1996,p. 180), and “conflicting” (Annavarjula/Beldona 2000, p. 48).

The extant literature gives different explanations for this confusion. One re-current explanation is based on theoretical shortcomings (Gomes/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 pre-cludes distinguishing trait variance from unwanted method variance. He thereforeconcludes that “theory testing remains ambiguous precisely because we cannotascertain whether the acceptance or rejection of a hypothesis is the result of ex-cessive error in measurement or the adequacy or inadequacy of prevailing theoriesof the internationalization of the firm” (Sullivan 1994, p. 338).

The work by Grant (1987) has stimulated another line of research. He classifiesresearch on the performance consequences of internationalization into comparativestudies that investigate whether or not multinational companies outperform theirdomestic rivals (e.g. Brewer 1981, Fatemi 1984, Vernon 1971) and into researchthat uses control variables such as research and development, firm size, and indus-try to examine the relationship between internationalization and performance (e.g.Kumar 1984, Morck/Yeung 1991, Tallman/Li 1996). His conclusion is that contra-dictory findings on the direction and magnitude of the internationalization-perfor-mance relationship are mainly due to moderator variables considered by some re-searchers but not others.

Given the number of empirical studies addressing the subject and given thediversity of the results, the need for a comprehensive analysis of past research iscrucial for the advancement of internationalization research. Although qualitativereviews of the literature have been conducted before (Annavarjula/Beldona 2000,Ramaswamy 1992), what is missing to date is a systematic review and consolidationof research based on quantitative methods. Given the shortcomings of vote countingmethods (Hunter/Schmidt 1990), meta-analysis is a logical next step. Meta-analysisoffers unique possibilities for detecting the true relationship of variables andanalyzing reasons for conflicting findings (such as research artifacts or moderatorvariables) that are not available in any other study (Dalton/Daily/Johnson/Ellstrand1999). Given the number of single studies in the area of internationalization andperformance to date, meta-analytical procedures are more likely to offer furtherinsight than would another single study (Dalton et al. 1999, Hunter/Schmidt 1990)and are therefore crucial for the advance of research in this field.

What is the relationship between internationalization and performance? Weaddress this question by meta-analyzing 36 studies with an overall sample size ofN = 7,792 observations. This study is among the first to introduce the method ofmeta-analysis into international business research. It adds to existing knowledge asit investigates the relationship between internationalization and firm performanceusing the method of meta-analysis.

The Effect of Context on the Internationalization-Performance Relationship

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Theoretical Background and Hypotheses

The present study addresses two major research questions: (1) what overall rela-tionship exists between internationalization and firm performance? And (2) how isthe relationship between internationalization and performance moderated by inter-vening variables?

Analysis of relevant studies shows that one can distinguish three prevalentresearch streams for an explanation of internationalization decisions: theories offoreign direct investment (Buckley/Casson 1976, Dunning 1981, Hymer 1976), thelearning theory (Johanson/Vahlne 1977), and the resource-based view of the firm(Barney 1991, Teece 1977, Wernerfelt 1984). Originally the first two researchstreams aimed to explain when, where and how a firm should go international, whilethe last research stream more generally characterizes resources as determining factorsfor the scope of firm activities. Nonetheless, they all imply theoretical mechanismsas to why a relationship to performance should exist. Since the overall directionand magnitude of internationalization’s effect on performance is fundamentallydependent on the benefits and costs associated with internationalization, we willdwell on the major factors that determine these.

Theories of foreign direct investment aim to elaborate the conditions underwhich it might be beneficial for a firm to do business abroad. Factors both insideand outside a firm can provide the basis for ownership advantages. Theories thatfocus on the organization’s internal setting view the main source of benefits frominternationalization in the opportunities it offers to leverage firm-specific resources.Internalization theory suggests that the multinational company (MNC) can be aneffective means of transferring superior resources to foreign markets (Buckley/Casson 1976, Hennart 1982). Theories relying on external factors aim to explainwhy multinational firms exist, and postulate that market imperfections promotefirms that internationalize (Caves 1971, Morck/Yeung 1998). Location theorystresses arbitrage opportunities in factor cost differentials and therefore advantagesfrom local sourcing and production (Kogut 1985). Industrial organization theoryhighlights such market deficiencies as entry barriers, which potentially enable firmsto earn economic rents via exploitation of their international market power (Hamel/Prahalad 1985). If market imperfections favor internalization of activities overmarket transactions, multinational companies may benefit from transaction costadvantages (Williamson 1975) or production cost advantages such as the potentialfor economies of scale and scope in international markets (Capar/Kotabe 2003,Grant 1987, Kim/Hwang/Burgers 1993, Porter 1985).

The learning theory (Johanson/Vahlne 1977) views internationalization as anincremental process that fosters organizational learning and knowledge development(Barkema/Vermeulen 1998, Hamel 1991) not available to domestically operatingfirms. Through gradual acquisition, integration and use of knowledge about foreign


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markets the internationalization process offers the opportunity to gain a competitiveadvantage over less internationally active competitors. The critical kind of knowl-edge in this context is experiential knowledge that can be distinguished into generalinternationalization knowledge and market-specific knowledge. Johanson and Vahlne(1977) consider these two kinds of knowledge as dimensions of the human resourcesthat should be reflected in improved products and services and that ultimately shouldcontribute to superior firm performance.

Much like the concept of ownership advantages, the resource-based view of thefirm proposes that the possibility of global dispersion and exploitation of core com-petencies generates economic rents as long as these resources retain their value(Amit/Schoemaker 1993). Furthermore, internationalization makes it possible totap otherwise locked resource pools and offers unique opportunities for the proactivecreation of new resources.

But costs associated with internationalization might, at least partly, offset thegains from going international. Theories of foreign direct investment assume thatmonopolistic advantages are necessary because multinational firms will encounterliabilities of foreignness and newness (Kostova/Zaheer 1999, Zaheer 1995) and otherdifficulties that might erect formidable barriers to successful business activitiesabroad. Internalization theory recognizes limits to the efficiency of organizationalarrangements. Firms face organizational constraints such as absorptive capacity(Cohen/Levinthal 1990) or the difficulty and expense of processing large amountsof information (Simon 1955). Scholars of transaction cost theory (Jones/Hill 1988,Williamson 1975) and agency theory (Roth/O’Donnell 1996) illustrate how growingcomplexity may eventually exhaust managerial capacity.

The learning theory assumes that the complexity of managing widespreadbusiness units increases with heterogeneity in markets. Cross-cultural studies positthat geographical dispersion and cultural diversity of business activities lead tocommunication, coordination, and motivation problems (Hofstede 1980).

Furthermore, internationalization increases exposure to financial and politicalrisks such as currency fluctuations, government regulations, and trade laws (Bod-dewyn 1988, Brewer 1992, Reeb/Kwok/Baek 1998, Sundaram/Black 1992).

As mentioned before empirical results show controversial results concerning theprevalence of either benefits or costs associated with internationalization. Togetherwith reasoning from established theories that imply theoretical mechanisms for ben-efits and costs associated with internationalization we propose competing hypotheses:

Hypothesis 1a. The overall relationship between internationalization and firm per-formance is positive.

Hypothesis 1b. The overall relationship between internationalization and firm per-formance is negative.

Despite the extensive amount of research that has been conducted on the interna-tionalization-performance relationship, a fundamental question remains: “How uni-


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versal is the internationalization-performance effect?” The apparent inability toreach a broad consensus regarding the focal relationship is not entirely unexpected.In addition to methodological reasons, such as the ambiguity of constructs and sub-stantial differences in the research methodologies applied and samples studied, thereis still another possible reason. As already mentioned, it is possible that the inter-nationalization-performance relationship is context-dependent and that an effecttherefore exists only under certain conditions. If this is the case, then investigatorsshould not be searching for internationalization-performance generalizations orprinciples, but rather focusing on the identification of moderators – variables thatproduce differential internationalization-performance effects.

We selected our sample of moderator variables on the basis of two criteria. Thefirst was whether there is ambiguity in the extant literature about the direction andstrength of the effect the moderator variable potentially has on the international-ization-performance relationship. The second criterion was availability – whethersufficient data from empirical studies were available for meaningful analyses. Thevariables we were able to extract from the literature are research and development(R&D) intensity, product diversification, country of origin, firm age, and firm size.

R&D Intensity

The resource-based view and Dunning’s eclectic paradigm (Dunning 1988, 1993)follow a similar logic. Firms with unique resources and capabilities (ownership ad-vantage) should leverage their resources internationally as long as these resourcesenable them to earn economic rents. Intangible assets are a main source of com-petitive advantage (Kaufmann/Schneider 2004). Caves (1982) and Franko (1989)emphasize the role of research and development efforts as a principal driver ofinternationalization. Morck and Yeung (1991) assert that internationalization perse is not a valuable strategy for investors, but that the impact of R&D spending onmarket value increases with a firm’s multinational scale. R&D expenditures are acommon measure of a firm’s technology-based know-how (Caves 1982) and inno-vative capabilities (Hitt/Hoskisson/Ireland/Harrison 1991). Intangible assets suchas technological know-how do not tend to deteriorate when applied in multiple mar-kets (Morck/Yeung 1998), rather they very often tend to appreciate, as knowledgeand information are cumulative (Grossman/Helpman 1994).

Although the majority of studies have found empirical support for a positiveeffect of R&D efforts on internationalization, some have not; contrary to theoreticalexpectations, Majocchi and Zuchella (2003) established in a sample of 220 Italianinternational small- and medium-sized companies that firms with higher R&D ex-penditures exhibit lower financial results. Hsu and Boggs (2003) found that for asample of 118 large US multinational companies, spending on R&D had a signifi-cantly negative impact on ROE. Meta-analytic techniques might help to resolve


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these contradictions, i. e. help to establish whether the differences in effect sizesare of substantial nature or whether they might be attributed to statistical artifactslike sampling differences.

McGuinness and Little (1981) argue that R&D intensity had a positive effecton export motivation, but that the impact on performance is marginal in comparisonto that of other situational factors. Hitt et al. (1997) maintain that internationaldiversification provides firms with incentives to invest in innovation and providesthem with greater returns from innovation. Internationalization holds special benefitsfor firms with a high stock of technological-based know-how and innovative capa-bilities. Opportunities to exploit market imperfections in the trade of technologicalresources might give them a major competitive advantage over their competitors;consequently, internationalization should be a more valuable option for firms withhigh R&D efforts. Therefore we posit:

Hypothesis 2. Intangible assets in terms of technological know-how moderate therelationship between internationalization and firm performance,such that the relationship between internationalization and perfor-mance is stronger for R&D intensive firms.

Product Diversification

Vachani (1991) theorized that the construct of firm diversity comprises businessand geographic diversity. The guiding paradigm postulates that related productdiversification yields superior performance vis-à-vis unrelated diversification in adomestic setting (Bettis/Hall 1982, Palepu 1985, Rumelt 1974). In their pioneeringstudy, Stopford and Wells (1972) determined that area diversification and productdiversification are two of the critical success factors for MNC growth. Since then,a number of studies have examined the combined effects of product and interna-tional diversification on performance. A combination of the arguments broughtforward by the resource-based view and transaction cost theory suggests that in-ternationalization offers the opportunity to successfully leverage a firm’s strategicresources across different levels of product diversification as long as new businessesstay within the scope of the firm’s strategic resources and capabilities (Hitt et al.1997). Unrelatedness, but also transaction costs, puts a cap on international andproduct diversification, as high levels of both dimensions of firm diversity incurrising governance costs (Geringer et al. 2000, Jones/Hill 1988). Egelhoff (1982)empirically supports this notion. He found that rising transaction costs and infor-mation processing demands associated with international activities together withhigh levels of product diversification depressed firm performance. Contrary toEgelhoff’s findings, Geringer, Beamish, and DaCosta (1989), using a sample of thelargest 100 US and European MNCs, did not find support for the hypothesis that


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product diversification moderates the positive performance impact of internationaldiversification. Kim, Hwang, and Burgers (1989) again found no support for thecontention that firms with low product diversification perform better when they aremore geographically diversified, but they found a positive effect from internation-alization on performance for firms with higher product diversification.

The predominant position in the literature, however, is that related productdiversification enhances performance (Rumelt 1974) and provides slack resources,which are available for geographical diversification (Penrose 1959). Yet high levelsof product diversification might cause excessive transaction costs that may even-tually exceed management capabilities and therefore offset the benefits attributableto internationalization (Tallman/Li 1996). Consequently, we hypothesize that theperformance impact attributable to internationalization is stronger for firms withlow levels of product diversification.

Hypothesis 3. Product diversification moderates the relationship between interna-tionalization and firm performance, such that the relationship be-tween internationalization and performance is stronger for firms withlow levels of product diversification.

Country of Origin

Although macro-level contextual settings might have an impact on the internation-alization-performance relationship, only a few empirical studies have compared thebenefit and cost trade-offs attributable to internationalization that firms from dif-ferent countries face when going abroad.

Firms in some countries are more internationalized than those in other countriesand thus draw on a greater level of internationalization experience. Just because ofrestricted domestic market size firms from smaller countries, in particular, are forcedto internationalize earlier in order to generate the same sales volumes as firms fromlarger countries. They therefore have the advantage of experience in dealing withforeign customers, unfamiliar government regulations, and trade laws. Familiaritywith foreign markets should lead to higher efficiency in international transactions.Recent analysis by the United Nations has shown that European firms operate ata far higher degree of internationalization than do firms from the USA or Japan(UNCTAD 2004). Empirically, Geringer et al. (1989) found a significant interna-tionalization effect on performance only when they separated their data by region(USA vs. Europe). Their findings suggest that the size of the effect is significantlyaffected by country environment context.

There are also differences among countries with respect to costs. The degree ofsimilarity between the home business environment and that of neighboring countriesvaries: greater differences in contextual settings create exponential complexity and


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inflate the costs of doing business abroad (Kostova/Zaheer 1999). Institutional andcultural factors may erect formidable barriers to the transfer of competitive advan-tage across national borders (Kogut 1985). These factors include heterogeneity inpolitico-regulatory environments (Delios/Henisz 2000), levels of economic devel-opment (Woodward/Rolfe 1993), and cultural conditions (Chang/Rosenzweig 2001).The “establishment chain” concept of Johanson and Vahlne (1977) posits that marketknowledge attributable to internationalization experience is vital for success in in-ternationalization (Gomez-Mejia/Palich 1997). At the outset of internationalization,a firm should serve markets that are culturally similar to its home market. By doingso, a firm can avoid unfamiliarity with local business customs, which can, for ex-ample, lead to friction in communication and coordination. Ruigrok and Wagner(2003) support this “market familiarity” principle using a sample of 80 Swiss multi-national manufacturing companies. These firms overwhelmingly chose Germanyfor their initial foreign market entry, a large market quite similar to their homemarket. But firms from different countries differ in their “familiarity” with neigh-boring countries. Firms in some countries are exposed to comparatively unfamiliarmarkets right from the outset of their expansion and cannot easily leverage theirresources without considerable adaptation needs. Ronen and Shenkar (1985) iden-tified culturally isolated countries such as Japan and Korea, which do not have anyclose cultural counterparts, such as Switzerland has with Germany.

Country-specific “givens,” i.e. idiosyncratic contextual settings, predetermineon a macro-scale the benefits and costs that firms will likely face when doing businessabroad. Thus the relevance of internationalization as a strategic option for successmight vary among countries. Therefore we conclude:

Hypothesis 4. Country of origin moderates the relationship between international-ization and firm performance, such that the relationship betweeninternationalization and performance differs significantly for firmsfrom different countries.

Age

Whether the age of a firm influences the internationalization-performance relation-ship is a matter of the nature of a firm’s resources rather than the quantity. While newventures rely on resources that are less specialized (but flexibly deployable in chang-ing environments), incumbent firms utilize a specialized resource base that enablesthem to efficiently operate under current market conditions (Amit/Schoemaker 1993,Thornhill/Amit 2003). Flexibility plays a central role in the internationalizationprocess. Incumbent firms that remain in current trajectories and do not manage toadapt to environmental change may fail to keep up with competition (DeCarolis 2003,Sull 1999).


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Entering foreign markets involves high risks and uncertainties as well. Orga-nizational and resource arrangements that facilitate a willingness to take risks andremain proactive and innovative are key success factors under these conditions(Lumpkin/Dess 1996, Sapienza/Autio/Zahra 2003). Younger firms often displaythis entrepreneurial mode of behavior; management structures are more flexibleand management maintains a proactive attitude towards opportunity exploitation(Penrose 1959). Therefore younger firms might be at a flexibility advantage whenit comes to the adaptation needs of internationalization.

The new venture internationalization theory (McDougall/Oviatt 1996) and thelearning theory (Johanson/Vahlne 1977) both emphasize foreign market knowledgeas a key to success in internationalization. Although these two theories assert differentprocesses of internationalization, they both nevertheless emphasize that merits ofinternationalization arise from knowledge development and exploitation. While thenew venture internationalization theory stresses the importance of knowledge re-sources and organizational learning in the pursuit of new opportunities, learningtheory highlights how behavioral constraints emanating from uncertainty avoidance(Sapienza et al. 2003) are imposed by the firm’s existing knowledge base. Thus in-flexible structures may hinder success in internationalization. In particular, olderfirms are at risk for organizational inertia. Since they have developed for a longerperiod of time in a domestic setting, they may find it difficult to turn opportunitiesin international markets into financial results. Firms that have not developed a highstock of knowledge in a domestic setting are at a learning advantage of newness(Autio/Sapienza/Almeida 2000).

Older firms owe a higher portion of performance to their competence in estab-lished tasks, whereas younger firms’ performance is more dependent on recognizingnew business opportunities. Therefore we hypothesize that internationalization hasa greater potential to affect firm performance for younger firms.

Hypothesis 5. Firm age moderates the relationship between internationalization andfirm performance, such that the relationship between international-ization and performance is stronger for younger firms.

Size

Small businesses differ fundamentally from large businesses, as has been docu-mented by Shuman and Seeger (1986): besides differences in ownership, organi-zational structures and processes, and management systems, they differ in resourceavailability (financial, management, and information) for expanding their businessabroad (Carrier 1994, Smith/Gannon/Grimm/Mitchell 1988). Dhanaraj and Beamish(2003) use firm size as an indicator of managerial and financial resource availability.In support of Penrose (1959), they reason that firms will look for business oppor-tunities abroad if excess resources are available. Bloodgood, Sapienza, and Almeida


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(1996) support the notion that resource availability plays a key role in the decisionto internationalize. They found in a sample of 61 US venture capital-backed newventures that firm size correlated to the degree of internationalization. Their find-ings suggest that early internationalization is neither favorable nor detrimental tofirm performance, but rather contingent upon resource conditions. They concludethat internationalization has a positive impact on firm performance if resource con-straints are not a major problem.

However small firms often lack financial resources for investing in assets likeinternationalization experience – resources needed to overcome barriers such as theliability of foreignness (Coviello/McAuley 1999, Zaheer 1995). Tihanyi, Ellstrand,Daily, and Dalton (2000) found in a sample of 126 US firms that certain top man-agement team characteristics, such as higher tenure heterogeneity and higher averageinternational experience, are positively related to the decision to internationalize. Themanagerial constraints of small firms, such as a lack of international experience inthe upper management team, may exhaust the absorptive capacity of management atearly stages of internationalization and limit the extent of international involvement.

While one can generally assume a positive correlation between firm size andfirm age we are interested in a separation of these two effects with regard to theirimpact on the internationalization-performance relationship. Knowledge about thetwo individual effects is important since it might point to different and situationspecific avenues for success in internationalization. But since the effects of firmage and firm size are probably confounded we have to restrict our hypothesis con-cerning the effect of firm size to classes of firms with similar age. Firms that possesslarger stocks of resources are able to operate at higher levels of internationalization.Therefore internationalization should also be responsible for a higher portion of theperformance variance of those firms. Assuming that smaller firms face more severeresource constraints than larger firms we hypothesize:

Hypothesis 6. Within classes of firms with similar firm age, firm size moderatesthe relationship between internationalization and firm performance,such that the relationship between internationalization and perfor-mance is stronger for large firms.

Method

Sample

In order to arrive at a representative sample and assure the replicability of researchresults, meta-analytical methods require clear and coherent separation criteria as to


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which research reports they include or exclude. One advantage of meta-analyticprocedures over narrative reviews is that they keep authors from – consciously orunconsciously – selecting and describing studies to support their own understandingof the literature and/or their own established theoretical positions (Rosenthal/DiMatteo 2001). Consequently, we examined those published studies that explicitlyinvestigate the relationship of internationalization and firm performance in orderto establish a coherent body of literature on this research question. We only con-sidered studies that focused on the impact of internationalization on the overallfirm performance and that reported, at a minimum, the number of observations andan effect size that is transferable into the Pearson product-moment correlation r.Consequently we did not include measures of association that capture the impactof internationalization on firm performance after accounting for the influence ofthird variables, such as beta-coefficients from multiple regression analysis or partialcorrelation coefficients. This procedure is appropriate if one wants to achieve aclear picture of the straightforward operation of individual components, as is thecase with meta-analysis: “Whereas there is admittedly some loss of informationwhen one concentrates on single effects in meta-analysis, a singular focus helps totarget specific questions and to distill the essential elements of a phenomenon understudy” (Rosenthal/DiMatteo 2001, p. 67).

In identifying the studies for inclusion in our meta-analysis, we initiated a com-puter-aided keyword search of the Business Source Premier, EconLit, and ABI/Inform databases and we reviewed all past issues of pertinent journals that showeda comparably high accumulation of relevant studies, namely Strategic ManagementJournal (7)1, Academy of Management Journal (5), Journal of International BusinessStudies (4), Journal of Business Venturing (4), Management International Review(3), and International Business Review (3). We furthermore culled the referencesections of the studies collected for additional studies and searched the home pagesof researchers in the area of internationalization for additional published material.This procedure offered reasonable assurance that we had identified all relevant studies.To test for availability bias, we applied file-drawer analysis and calculated fail-safeN(x) according to Rosenthal (1979). This statistical procedure helps to resolveconcerns about publication bias favoring significant results over non-significant re-sults and represents a number that shows how many unlocated studies would haveto exist to make the obtained effect size insignificant.

We identified 71 articles that met our selection criteria, of which we had to ex-clude 34 that did not provide sufficient data that we could transfer into zero-ordercorrelations. One article was removed because it shares its sample with the studyby Grant (1987). Our final sample consists of 36 articles that were published be-tween 1979 and 2004. These articles report 41 independent samples with a totalsample size of N = 7,792. These samples report 146 effect sizes. Because thesesamples usually relied on multiple operationalizations for internationalization andperformance, we arrived at a ratio of effect sizes per sample of 3.6.


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Table 1. Sample Source over Time

Sample source

Total America Europe Japan Rest of World

Number

of

samples

Sample

size

Number

of

samples

Sample

size

Number

of

samples

Sample

size

Number

of

samples

Sample

size

Number

of

samples

Sample

size

Overall 41 7,792 22 2,861 8 1,496 7 2,841 4 594

a

> 1991

5

36

791

7,001

2

20

266

2,595

2 344

1,152

–

7

–

2,841

1

3

181

413

b

> 1999

20

21

2,901

4,891

13

9

1,831

1,030

3

5

389

1,107

3

4

500

2,341

1

3

181

413

a Median year of publication (1979–2004).

b Median studies’ publication year.

Although the median year of publication was 1991, 36 of our 41 samples werepublished later. While early studies relied heavily on samples of American compa-nies, the focus widened in the second half of the investigation. Samples from Japan,and more recently Europe, were the focal point (see Table 1). Presently, there seemsto be a general shift of emphasis in the samples studied in international businessresearch, as Zhao, Luo, and Suh (2004) report similar findings for their meta-analy-sis on international entry mode choice.

The average firm in our sample operated at a foreign sales to total sales (FSTS)ratio of 33.5 percent and had foreign direct investments (FDI) in 7.8 countries (seeTable 2). A segmentation by the median studies’ publication year reveals that com-panies have consistently increased their degree of internationalization (up to 1999:31.7 percent FSTS, FDI in 6.8 countries; 2000 and later: 34.8 percent FSTS, FDIin 8.8 countries; see Table 2) across all regional clusters (America, Europe, Japan).Furthermore, large firms from our sample show higher degrees of internationaliza-tion than do the small firms. See Table 2 for descriptive study characteristics on thedegree of internationalization.

Variables

The studies included in our meta-analysis measure internationalization using adiverse set of variables that cover international sales or asset dispersion of a firmand operationalize performance via numerous quantitative measures that can beclassified into financial accounting return-oriented, growth-oriented or capital mar-ket-oriented (Jensen alpha, Sharpe ratio, market-to-book ratio, Tobin’s q). The mostcommon conceptualization modes for internationalization and performance fromour samples make up Table 3.


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Table 2. Degree of Internationalization over Time, across Countries, and by Firm Size

Foreign sales to total sales Number of foreign countries

Number of

samples

Sample

size

Degree of inter-

nationalization

Number of

samples

Sample

size

Degree of inter-

nationalization

Overall 16 1,574 .33 13 2,777 7.8

a 1

15 1,382 .34

1

12

188 14.5

7.3

b 7

885

.32

.35

6

7 1,381

6.8

8.8

America

Europe

Japan

Rest of World

10

3

1

2

1,061

210

20

283

.31

.50

.36

.24

8

3

2

- - -

1,272

563

- - -

7.2

10.0

5.4

- - -

MNC

SME

11

6

1,081

573

.37

.27

8

5 862

8.1

7.1

a

b Median studies’ publication year.

Table 3. Operationalizations of Internationalization and Performance

Internationalization Performancea

Operationalization Times used Operationalization Times used

Foreign sales to total salesb

Number of foreign countries

Various entropy measures

Foreign subsidiary sales to

total sales

Number of foreign direct

investments

Various indices

Export sales to total sales

Foreign assets to total assets

Other

21

13

10

4

4

4

3

3

6

Return on assets (ROA)

Return on sales (ROS)

Return on equity (ROE)

Sales growth

Various capital market

oriented measures

Market share

Return on investment

Other return oriented

measures

Other growth oriented

measures

26

15

13

11

8

6

3

9

4

a Thirteen of 41 samples measured performance time-lagged with a range of four years time-lag (K = 1)

to one year time-lag (K = 8).b The difference in the number of operationalizations reported in this table (k = 21) to the number of

sales means and therefore could not be analyzed in Table 2.

The variety of operationalizations of the independent and dependent variablesraised concerns that differences in measurement might significantly influenceestimates of effect sizes. We therefore performed moderator analyses on differentclasses of measures for internationalization and performance. Although prior re-search based on Sullivan (1994) has suggested that the internationalization constructis multidimensional, the degree to which these dimensions affect firm performancedoes not seem to differ significantly. Estimates of effect sizes based on sales-ori-ented measures of internationalization were not significantly different from effectsize estimates based on asset-oriented measures of internationalization (z = 1.08).Therefore we conclude that differences in measurement of the diverse facets ofthe internationalization construct do not significantly contribute to an explanationof controversial results in prior empirical studies. The differences in effect sizeestimates for measures of firm performance were also not significant (z = -0.44 forfinancial accounting return-oriented measures vs. growth-oriented measures,z = 1.00 for financial accounting return-oriented measures vs. capital market-oriented measures, and z = 1.17 for growth-oriented measures vs. capital market-oriented measures). Interestingly, by meta-analyzing prior empirical research onthe internationalization-performance relationship we do not find support that in-ternationalization relates differently to certain aspects of firm performance either.

The measure for R&D intensity is the portion of R&D expenses to total sales.We split our sample into sub-samples of studies with averages above or below 5percent R&D intensity. Splitting the overall population based on the median sam-ples’ R&D intensity results in exactly the same classification.

Product diversification is commonly computed as a Herfindahl-type entropymeasure (Tallman/Li 1996) or an entropy measure according to Palepu (1985). Withregard to the Palepu measure, we focused on the unrelated ratio, which capturesdiversification across two-digit Standard Industrial Classification (SIC) codes,whereas the related ratio only captures diversification across four-digit SIC codeswithin a two-digit SIC industry. As the Herfindahl measure and the unrelated ratioof the Palepu measure are standardized on an interval between zero and one weconsidered samples with values higher than 0.5 to be highly product-diversified andthose with lower values to have low product diversification. Splitting the populationbased on the median samples’ product diversification would require recoding onestudy and would only marginally change results.

With regard to their country of origin, we were able to separate samples of firmsthat originated from North America, Europe, and Japan. Although the United King-dom is geographically a part of Europe, its firms are somewhat special because oftheir strong ties to North America. The samples by Grant (1987), Harveston et al.(1999), and Wan and Hoskisson (2003) all contain British firms at least in part intheir European samples. We were able to resolve our concerns that these samplescould bias the results for the effect of contextual settings: an exclusion of thesesamples from the European sample would not significantly change the results.


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Our definition of young firms parallels prior research on “new ventures” (Big-gadike 1979, McDougall/Oviatt 1996) and “adolescent firms” (Miller/Camp 1985):it classifies a firm as young if it is less than 12 years old (Covin/Slevin/Covin 1990).

In accordance with the American Small Business Administration definition ofsmall- and medium-sized enterprises (SMEs), we differentiated between firms withmore than and less than 500 employees (Lu/Beamish 2001).

Two researchers independently coded the relevant study characteristics. Theyagreed in 96.2 percent of the cases. After in-depth investigation and discussion ofthe remaining 5 cases, they were able to resolve all discrepancies. Consequently wejudged that the data preparation process was providing reliable data.

Analytical Approach

We focused on the meta-analytical techniques developed by Hunter and Schmidt(Hunter/Schmidt 1990, Hunter/Schmidt/Jackson 1982). In order to determine thedirection and magnitude of the relationship between internationalization and per-formance, we estimated effect sizes based on the Pearson product-moment corre-lation r. When other translatable statistics (e.g., d-value, t-test, F-test, etc.) wereavailable, we converted these values into the r-statistic. If a study offered severaleffect sizes because of multiple operationalizations, we calculated the average effectsize. This procedure guaranteed that information from identical samples contributedonly once to the estimate of an effect size (Petitti 2000).

A key question in meta-analysis is whether large effect-size variance remainsafter accounting for study artifacts. We tested for population homogeneity in twoways. If 95 percent credibility intervals did not overlap zero (Koslowsky/Sagie1993) and more than 75 percent of the observed variance was due to sampling error,we considered the population homogeneous, because all effect-size variance is likelydue to artifacts (Hunter et al. 1982, Schmidt/Hunter/Raju 1988). In order to distin-guish the effects of firm age and firm size we performed hierarchical analyses, i. e.we separated the entire population into young firms and old firms and then testedthe effect of firm size in both sub-samples. In a meta-analytical setting this procedureis comparable to testing for one effect while controlling for another (Hunter/Schmidt/Jackson 1982).

The number of studies included into a moderator analysis is often a lot smallerthan the overall number of studies, because not every moderator variable can becoded from each study. Analysis as to whether the main effect was also present insub-samples for moderator analysis revealed that effect sizes from these combinedsub-samples did not differ significantly from those of the whole population.

We applied two criteria in testing for significance of moderator variables. First,we calculated z-statistics to test for significance of differences in effect sizes. Second,the average residual variance of sub-samples was required to be less than the residual


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variance in the combined samples (Hunter et al. 1982). As a final step we calcu-lated 95 percent confidence intervals to test whether the effect-size estimates dif-fered significantly from zero.

Results

The average effect size across all studies is positive but small (r̄ = 0.06, see Table 4),with a range in effect sizes from -0.28 to 0.43 indicating a positive association be-tween internationalization and firm performance. The credibility interval includeszero and sampling error accounts for only 31.1 percent of observed variance andthus fails to fulfill the 75 percent rule proposed by Hunter and Schmidt (1990). Thisresult leads us to suspect that other variables moderate the relationship betweeninternationalization and firm performance and that it does not represent a singlepopulation. However, since the confidence interval does not include zero, we canconclude that there is an overall significant positive relationship between interna-tionalization and firm performance and that this effect is not due to chance (p < 0.05).File-drawer analysis according to Rosenthal (1979) underlines the robustness ofthis finding. It requires K = 266 studies with effect sizes averaging zero to makeour findings insignificant. In conclusion, internationalization is positively relatedto firm performance and therefore our data support hypothesis H1a.

Hypothesis two predicts that R&D intensity positively moderates the interna-tionalization-performance relationship. Our data support this hypothesis. The dif-ference in effect size estimates for high and low R&D intensity samples is significant(p < 0.05) and the average residual variance of the sub-samples is lower than thecombined residual variance. The mean corrected effect size for firms with low R&Dintensity is insignificant. As the confidence interval overlaps zero we cannot inferthat internationalization in the absence of technological know-how will have animpact on firm performance at all.

Firms with low product diversification exhibit higher effect sizes than highlydiversified firms. Although there is no reduction in the mean residual variance, thedifferences in effect sizes are significant (p < 0.05). Our results confirm that thetwo dimensions of firm diversity significantly interact, i.e. the level of productdiversification influences performance gains attributable to internationalization.Thus we cannot reject hypothesis three.

Analysis of country of origin reveals that American and European companiesexhibit a significant positive relationship between internationalization and firmperformance. Even though the mean effect-size estimate for Japanese companies ispositive, the 95 percent confidence interval includes zero. The mean residual varianceof the sub-samples declines compared to the combined samples and the z-statistic for


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differences in effect sizes is significant for the Japanese sample (p < 0.01 comparedto American firms and p < 0.10 in comparison to the European sample). Althoughthe mean performance impact of internationalization is stronger for American firmsthan for European firms, the differences in effect sizes are not significant.

Firm age has a strong impact on the portion of performance variance attributableto internationalization. The difference in effect sizes is highly significant (p < 0.01)and the mean residual variance diminishes. Another strong indication is that the 95


336 vol. 47, 2007/3

Table 4. Results of Meta-analysis on Internationalization and Performance

Variable K N r sr

2

se

2

s2 95%

interval

95%

interval

Critical

z-value

H1a 1b 41 7,792 .059 .017 .005 .012

H2

6

6

846

2,922

.170

.021

.027

.005

.007

.002

.020

.003

2.05*

H3

7

9

557

3,219

.128

.001

.040

.002

.012

.002

.028

.000

1.66*

H4

22

8

7

2,861

1,496

2,841

.128

.081

.009

.020

.008

.003

.007

.005

.002

.013

.003

.001

1.06b

1.88

3.20**

H5

5

29

582

6,370

.209

.040

.013

.015

.008

.005

.005

.010

3.06**

H6

26

2

4,668

213

.066

–.053

.017

.002

.006

.002

.012a

.000

3.10**

N r sr

2

se

2

s2

†

a

b

percent confidence intervals for the mean effect sizes of young and old firms do notoverlap. Younger firms show a mean effect size of 0.21, the highest correlationfound in our analysis.

Firm size moderates the relationship between internationalization and firmperformance as well. This effect becomes apparent in both sub-samples of youngfirms and old firms. As shown in Table 4 the difference in effect sizes of large firmscompared to small firms is highly significant (p < 0.01) for the sub-sample of oldfirms and the mean residual variance diminishes. The results for young firms aresimilar although only five studies were available for this investigation. Due to thisfact we decided not to show them in Table 4 but to emphasize the results for oldfirms instead. Within the sub-sample of young firms the effect size for large firmsis r̄ = 0.40 and r̄ = 0.19 for small firms and the difference in effect size estimates issignificant as well (z = 4.20, p < 0.01). The fact that both effect sizes within the sub-sample of young firms are higher than those produced by the sub-sample of oldfirm justifies the separation of these two samples. Analysis on an aggregated basiswould have caused ambiguity in the assignment of the performance effects to thetwo explanatory variables firm age and firm size. Consequently the effect of firmsize would have been suppressed by the effect of firm age and would not have be-come obvious.

Discussion

Our major research objective was to answer the important but as yet unresolvedquestion of whether internationalization has an impact on firm performance. Giventhe obtained meta-analytic results with a sample size-weighted mean effect size ofr̄ = 0.06 for the entire population, the answer must be yes. Although the effect sizeis small in magnitude (Cohen 1977) there is a positive and statistically significantoverall relationship between internationalization and firm performance. Perhapseven more important, we find evidence that this relationship is highly context-de-pendent. Although this perception has been subject to growing research interest inrecent years, it has not yet been investigated adequately enough to fully understandthe extent to which interacting variables shape the internationalization-performancerelationship. We found support for the proposition that five context-related moder-ator variables significantly affect performance gains attributable to international-ization: R&D intensity, product diversification, country of origin, firm age, and firmsize. Apparently, under certain conditions, effect sizes are much higher than indi-cated by the overall effect size. The highest effect sizes we found were those forthe sub-samples of young firms (r̄ = 0.21), followed by firms with high R&D in-tensity (r̄ = 0.17), firms with low levels of product diversification or originating


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from North America (r̄ = 0.13), and large and old firms (r̄ = 0.07). Not only is thestrength of the relationship significantly different for each moderator variable, thedirection of the mean corrected effect size is positive for each sub-sample – withan exception of small and old firms.

In this meta-analysis we corrected for sampling error, the most important sta-tistical artifact in single studies (Hunter/Schmidt 1990). It is also possible that thereis error in measurements of the independent or dependent variable in the studies wereviewed. While some scholars make use of estimates for population reliabilities(Combs/Ketchen Jr. 2003, Sturman 2003), other researchers assume global relia-bilities of 0.80 in measuring the independent and dependent variable in their meta-analyses (Dalton/Daily/Ellstrand/Johnson 1998, Dalton et al. 1999, King/Dalton/Daily/Covin 2004). However, we could not accurately account for measurementerror, as none of our articles reported information on data reliability. Altogether wedo not consider our results to be seriously biased as corrections for artifacts beyondsampling error generally account for very little variance in effect sizes in meta-analysis (Hunter/Schmidt 1990). If we could have corrected for these artifacts,effect-size estimates would probably have been slightly higher. Therefore, themagnitudes of effect sizes are rather conservative estimates of the real populationvalues, underlining the robustness of our findings.

As already noted, market imperfections are the basis for benefits gained fromcross-border activities of firms. However, the extent to which these market imper-fections offer opportunities for internationalization may not be stable over time, butrather conditional upon a certain period of investigation. For example, trade barriersin factor and financial markets have diminished over the last three decades andlarger trade regions like NAFTA, MERCUSOR, ASEAN, and the European SingleMarket have emerged. Therefore, arbitrage opportunities in market imperfectionsmight have had a greater impact on firm performance in earlier investigations. Buta separation of our samples by publication date did not reveal significant differ-ences in effect sizes (z = 0.37, p > 0.10). There may be three different explanationsfor this: (1) major market imperfections may still persist around the world, (2) con-trary to theory, external conditions such as market imperfections may not be a mainsource of advantage for multinational firms, or (3) companies might have learnedto compensate for the loss of arbitrage opportunities in market imperfections andhave developed stronger internal capabilities.

Firms with a strong effort in the generation of technologically based know-howcan successfully leverage these resources through internationalization. Contrary tothis finding, the effect of foreign business activities on firm performance is in-significant in the absence of technologically based know-how. Accordingly, effortsin research and development can be a major source of competitive advantage in theinternationalization process; one that apparently can be transferred and exploitedsuccessfully by multinational firms. These results underline the importance ofownership advantages for successful internationalization (Dunning 1988).


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Geographic diversification and product diversification are two dimensions of firmdiversity that significantly interact. Our results indicate that the ability to managecomplexity is a key success factor in internationalization. Greater levels of interna-tionalization contribute positively to firm performance only if there is sufficientabsorptive capacity to cope with increasing complexity (Cohen/Levinthal 1990). If afirm has already spread its activities across a variety of product markets, the addi-tional performance effect of spreading its activities across different geographicalmarkets as well is null. In contrast, firms that do not face constraints of coordinatingand monitoring a variety of businesses have the opportunity to benefit from interna-tionalization as long as they can avoid overextending their managerial capacity tohandle complexity. Hence there seems to be a trade-off between forms of diversifi-cation. Managers should pay careful attention to which kind of expansion path theychoose, because over-diversification might eventually exhaust managerial capacity.

American, and to a lesser extent European, companies benefit more frominternationalization than do their Japanese counterparts. But how does country oforigin actually influence performance differences attributable to internationaliza-tion? Is it through cultural distance (Hofstede 1980), environment familiarity andinternationalization experience (Johanson/Vahlne 1977), or liability of foreignness(Zaheer 1995), or a combination of all three?

Unlike European or Japanese companies, the average US MNC can draw on ahuge home market and does not have to take the additional risk and costs of cross-border activities in order to gain from economies of scale. Companies from smallercountries must go abroad early on in order to take advantage of the same benefits.US firms, being larger and more mature at the time of their initial foreign marketentry (UNCTAD 2004), might therefore already enjoy benefits that firms fromsmaller countries are looking for internationally and therefore can be more success-ful in international competition. Furthermore, European and even more so Japanesefirms are exposed to unrelated environmental contexts right from the outset of for-eign expansion (Ronen/Shenkar 1985). It seems that European firms can at leastpartly compensate for this disadvantage as compared to American firms. Assum-ing that the average degree of internationalization reflects the accumulated inter-nationalization experience of a typical company, European firms are at an advan-tage with respect to their capacity or competence in managing internationalization.Japanese firms cannot draw on this kind of experience to the same extent and facesubstantial cultural barriers when going abroad.

Nevertheless, causal inferences on the sources of differences in success (suchas cultural, political, or geographic aspects) are difficult to draw, as the country oforigin variable may exert its influence on the relationship between international-ization and performance in many different ways. Therefore, our meta-analyticalapproach is more explorative than confirmative with respect to country of origin.

Younger firms might have a learning advantage of newness as suggested byAutio et al. (2000). Their resources are not yet specialized and therefore can be


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more flexibly deployed (Amit/Schoemaker 1993). Older firms that have grown upin a domestic setting may find it difficult to adapt organizational routines and man-agement systems to environmental changes and might be seriously disadvantagedby organizational inertia. Therefore internationalization of business activities earlyon in the life cycle of a firm might be a particularly interesting strategic option.

The way how firm size acts as a proxy for resource availability in the domainof internationalization is twofold. First, firms that possess a higher stock of re-sources show higher international involvement – expressed by their foreign salesratio (see Table 2). Second, the relationship between internationalization and firmperformance is stronger for the population of large firms as well. Internationalizationrequires considerable amounts of resources in order to become a successful endeavor.Another important insight is that the effects of firm size and firm age confound withrespect to their impact on the internationalization-performance relationship. Whileour results indicate that internationally expanding firms might gain from both –greater firm size and younger firm age – it also becomes apparent that the relevanceof the factors underlying firm age are more important for internationalization suc-cess than those underlying firm size. The effect sizes exhibited by younger firmsare higher than those of older firms irrespective of whether these firms are large orsmall. Therefore we conclude that flexibility might be a key success factor for firmswilling to broaden their scope of business abroad that cannot be simply compen-sated by sheer resource availability.

Limitations

Meta-analytic methods cannot resolve questions of causality, i.e. we cannot inferwhether internationalization leads to higher performance, whether firms with out-standing performance are more likely to internationalize, or whether the relationshipis of a reciprocal nature. But the fact that 32 percent of the studies measure time-lagged performance variables might indicate a certain causality in this relationship,i.e., there are performance gains attributable to internationalization. However, futureresearch might further apply longitudinal designs in order to address this issue.

We had to omit a number of studies from our meta-analysis because they didnot contain sufficient information for the computation of effect sizes. This limitationin data from primary research highlights the need for more complete reporting ofresearch results in published articles. In the future, authors and editors should re-port statistical tests or, at a minimum, zero-order correlations in their articles (Eden2002). With improved reporting of research results, our ability to compare and drawconclusions across studies will increase.

With regard to our research framework, we focused on five context-relatedmoderators; we additionally tested whether two methodological moderators, i.e.differences in measurement and time of publication, significantly moderate effect


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sizes. Consequently, this study is limited in how much it adds to an understandingof the extent to which other methodological differences in research design accountfor differences in effect sizes.

Future Research

While our framework of moderator variables helps to resolve many prior conflictingfindings surrounding the internationalization-performance relationship, a substantialamount of performance variance remains unexplained, as none of our sub-samplesfor moderator analysis fulfilled the 75 percent rule for population homogeneity.Clearly there is no universal internationalization-performance relationship; there-fore future research should no longer look for generalizations, but instead developfiner grained models, i.e., investigate the conditions under which internationaliza-tion might be fruitful. Of course, the set of moderators we investigated should notbe considered an exhaustive enumeration of all possible moderator variables. Be-side R&D intensity, product diversification, country of origin, firm age, and firmsize, other contextual settings such as industry sector and competition, and exchange-rate fluctuations might have a significant impact on effect sizes as well. Hansen andWernerfelt (1989) and Powell (1996) have pointed to another promising avenue.They showed that differences at the company level count for twice as much in per-formance differences as uncontrollable external environmental factors. Therefore,future research should take a closer look at how strategic action variables such asentry mode choice, composition of senior management and incentive systems, anddifferences in the internationalization process itself contribute to performance dif-ferences attributable to internationalization.

Given that the focal relationship is highly context-dependent, we need to betterunderstand how different moderator variables interact with each other. One exampleis our joint analysis of firm age and firm size. The range in average effect sizes fromr̄ = 0.40 for young and large firms to r̄ = -0.05 for old and small firms points to thefact that internationalization might not be a valuable option for any firm. Never-theless, an investigation how firms might best try to benefit from both effects – lowfirm age and large firm size – i. e. staying flexible while trying to maximize prof-its from resource availability – cannot be answered in this study. While we thinkthat this question is of elementary managerial relevance in the context of interna-tionalization and firm performance it must be left for future inquiry. Due to a lackof data, we were not able to perform further hierarchical analyses, such as an in-vestigation of performance gains attributable to the interaction of R&D intensityand level of product diversification. Although the magnitude of the effect size offerssome evidence on the potential impact of a moderator, investigations on interactioneffects aiming to develop knowledge about how firms solve oppositional pressureswould be very useful. The set of moderator variables developed in this study might


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be a good starting point for further inquiry, as all of our variables significantly in-fluence effect sizes.

Noteworthy is that country of origin, firm age, and size are not causal factorsin and of themselves. Considering the variety of constructs they may approximate,researchers should ideally collect the underlying constructs more specifically in thefuture. While imprecise constructs with limited relevance to managerial actions maybe easier to collect, they will continue to hinder our understanding of the roots thatultimately shape the internationalization-performance relationship.

Conclusions

This research makes two major contributions to the literature. Our first aim was tosynthesize the prior fragmented and contradictory findings on the direction andmagnitude of the internationalization-performance relationship. We found solidevidence that internationalization and firm performance show a statistically sig-nificant correlation, although this relationship is low in magnitude.

Second we explored the existence of moderator variables. Our results show that theinternationalization-performance relationship is indeed context-dependent. Based onextant theory, we extracted five context-related variables: R&D intensity, product di-versification, country of origin, firm age, and firm size, all of which significantlymoderate effect sizes. These variables constitute major determinants of success in theresearch domain of internationalization. Hence future research should view them asmoderator or control variables to be taken into consideration in every single study. Inaddition, our results provide empirical evidence as to what constitutes a “typical,”“large,” or “small” effect size of the internationalization-performance relationship inselected research situations. Consequently, researchers now have a reference of ef-fect sizes against which to compare and evaluate their own research.

Although our meta-analytical review takes an important step towards solvingmany apparent contradictions, the results provide evidence that we have only justreached the starting point for future inquiries. Theory building and empirical in-vestigations in search of further theoretically based and methodological contextualfactors and their interactions might yield valuable insights into the nature of the in-ternationalization-performance relationship.


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Endnote

1 In parentheses: The number of studies included in the meta-analysis from the respective journal.


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