A combined focused industry and company size investigation of the internationalization-performance relationship: the case of small and medium-sized enterprises (SMEs) within the Swedish wood manufacturing industry.

TL;DR: The current literature has failed to deliver a coherent explanation of the internationalization-performance (I-P) relationship as discussed by the authors, and the empirical findings are quite confusing and even contradictory.

About: This article is published in Forest Policy and Economics.The article was published on 2018-12-01 and is currently open access. It has received 14 citations till now. The article focuses on the topics: Internationalization & Manufacturing.

Summary

1. Introduction

• The theoretical underpinning of the I-P relationship is discussed in the next section.
• Following that, the methodology of the research is presented, which is followed by the results and discussion, and rounded off with the conclusions.
• To summarize the applicable conclusions and build a foundation for future research, the managerial implications, research limitations and suggestions for further studies are discussed at the end.

2. Theoretical frame of reference

• Summing up on the use of theoretical frameworks explaining the I-P relationship, there is no single theory with the potential to cover all the aspects.
• Therefore, researchers are recommended (de Chernatony et al., 2005; Jack and Raturi, 2006; Ma and Norwich, 2007) to triangulate existing theories with respect to the company situations and the specific environmental contexts.
• Theory triangulation consists of using more than one theory to interpret a phenomenon (Jack and Raturi, 2006) .
• Therefore, when a research question is approached from more than one theoretical perspective, it is called theory triangulation (de Chernatony et al., 2005) .

2.2. Empirical studies of the I-P relationship

• All in all, the shape of the nonlinear relationship is determined by the situation in which the companies are performing when the research has been executed.
• By learning how to handle these initial costs through adjusting organizational structures, processes and systems, companies start to receive more income while keeping costs under control (Contractor et al., 2003) .
• Unfortunately, firms do not experience the infinite increasing performance consequences of internationalization, because at some point they face an "internationalization threshold".
• Proponents of both the linear and the nonlinear explanations of the U-shape and inverted U-shape use transaction cost economies and the resource-based view as theoretical underpinnings.
• The S-shaped relationship takes a longer view and follows the rationale of the sigmoid 3-stage theory to reconcile the contradictions between the U-shape and inverted U-shape explanations.

3.1. Sample selection and data sources

• The process of deciding upon total populations and executing the surveys was the same.
• First, a list of all active companies in the Swedish wood manufacturing industry was received from the industry organizations Swedish Wood and the Swedish Federation of Wood and Furniture Industry.
• These lists were also compared to the companies listed in the official SIC statistics.
• To increase the probability of getting a high response rate, a letter from the CEOs of those industry organizations was attached to the questionnaires.

3.2. Variables and measures

• Internationalization is an extremely complex phenomenon, and its effect on performance is very likely to appear over time.
• Therefore, studying the phenomenon over time is considered to be the proper approach to investigate the I-P relationship (Glaum and Oesterle, 2007) .
• In order to incorporate the time-effect relationship into their research, the authors combined two independent surveys with data from the Swedish wood manufacturing industry, one from 2001 and one from 2014.

3.2.1. Performance: dependent variable

• Another aspect which conveys a deeper explanation is performance growth.
• While most researchers measure growth objectively, there are other studies which focus on subjective growth of companies (Davis and Harveston, 2000) .
• The authors define growth as the changes in ROC from the time at which the data were collected to one year later.

3.2.2. Internationalization: independent variable

• International business studies consider international SMEs as predominantly exporting companies in the sense that major assets are still kept in the domestic market, such as development and production.
• In other words, SMEs mainly rely on the entry modes with low initial investment such as exporting rather than the heavy investment choices like foreign direct investment (FDI) or opening a plant in a foreign market.
• For this kind of company, the scale of export is deemed to be more relevant for I-P analysis than the scope.
• Thus, the independent variable of this study is defined as the international sales ratio, which is consequently operationalized as the ratio of foreign sales to total sales.
• Secondly, international scale is the most relevant measurement to helping reconcile previous research because it is by far the most common operationalization used (Fernhaber, 2013) .

3.2.3. Control variables

• Hierarchical regression is a useful technique when the predictors' variables are correlated with each other or to analyze the pure effect of predictors after controlling for disturbing variables (Pedhazur, 1997) .
• Research intensity, however, has been controlled through hierarchical regression analysis.
• Firm size is measured as the number of employees, and research intensity as the physical and monetary resources a company spends on designing and developing new products.

4. Results and discussion

• To check the presence of homoscedasticity in the data, both Breusch and Pagan (BP) (1979) and Koenker (1981) tests were used.
• Therefore, when there is a conflict between these two, the authors rely on the Koenker test.
• To check the autocorrelation, the Durbin-Watson test was used which revealed no autocorrelation among errors in all the regression models.
• A quick look at the descriptive statistics reported in Table 1 shows that the size of the companies which participated in the second survey is bigger and their export share is larger.
• Regarding the scale of internationalization, the authors can conclude that, on average, about 17.9% of companies' sales in the sample come from the international market, which is a high rate for SMEs.

4.1. Performance and internationalization

• The regression coefficients of square and cubic internationalization in all the models are not significant.
• These results suggest that the connection between the degree of internationalization and performance among Swedish wood manufacturing companies is a persistent negative linear relationship.
• Time in the pooled analysis and all its interactions with internationalization, square internationalization, and sigmoid internationalization are not statistically significant, indicating that the shape and direction of the internationalization-performance connection remains unchanged over time.
• To summarize, the shape of the internationalization-performance relationship among Swedish wood manufacturing companies is linear and the direction is negative.

4.4. Segmented analysis

• Figure 2 indicates a negative relationship between internationalization and growth for low internationalized companies in 2014 until the turning point is reached (7-8 percent).
• This relationship becomes positive when the companies suppress the first turning point and is continuous until the maximum point (19-20 percent).
• Generating more than 20% of total sales from international markets again reduces the growth of low internationalized companies.
• This could be due to the costs associated with the liability of newness.
• The experience and benefits gained from increasing involvement in international markets (from 7 to 20 percent) compensates for the costs of being new in these markets, and the new costs arising from managing the complexity of internationalization outweigh the benefit and reduce growth.

5. Conclusion

• Perhaps the first limitation, which is actually an advantage of this study, is its limited focus on the Swedish wood manufacturing industry.
• While the discussion of using a multi-dimensional measure of internationalization is well spoken for, supplemental empirical considerations such as availability and applicable guidelines to compose different measures of internationalization are lacking, which limits the use of such measures.
• Third, this research follows a repeated cross-sectional design of longitudinal study which means taking independent samples from the same population over time.

Figures

Table 3: Growth-internationalization relationship in linear, quadratic, and cubic models (hierarchical regression analysis)

Table 2: ROC-internationalization relationship in linear, quadratic, and cubic models (hierarchical regression analysis)

Table 1: Descriptive statistics and correlations of the variables.

Table 5: Piecewise regression analysis for ROC and growth of low and highly internationalized firms

Table 4: One-way ANCOVA analysis for ROC and growth of domestic, low, and highly internationalized firms

Frequently asked questions

Q1. What are the contributions mentioned in the paper "A combined focused industry and company size investigation of the internationalization-performance relationship: the case of small and medium-sized enterprises (smes) within the swedish wood manufacturing industry" ?

Building on the resource-based view and the S-shape theory of internationalization, this paper aims at such an empirically focused investigation of SMEs within the Swedish wood manufacturing industry. A repeated cross-sectional survey study using hierarchical regression analysis has revealed a linear negative relationship between internationalization and performance. In addition, the follow-up tests of ANCOVA ( analysis of covariance ) and piecewise regression revealed a non-linear relationship between ( 1 ) internationalization and performance for highly internationalized firms in 2001, ( 2 ) internationalization and growth for low internationalized companies in 2001, and ( 3 ) internationalization and performance for highly internationalized groups in the pooled dataset.