Internationalization and performance: Degree, duration, and scale of operations

We assess the theoretical underpinnings and associated empirical findings of the three-stage sigmoid–curve relationship between degree of internationalization (DOI) and performance by re-examining the results reported in one of the prominent studies in the literature. We further conduct our own analyses of 23,474 observations of 2,620 US manufacturing firms over the period 1976–2008 and account for self-selection of firms into different degrees of internationalization by using a generalized propensity score estimator. Both sets of results show that the relationship between DOI and performance conforms to a mostly negative sigmoid curve and does not support the three-stage theorization. Further examination reveals that two major conceptual and empirical shortcomings underlie the disparity between the theoretical predictions of the three-stage model and these empirical findings. First, whereas theory relies overwhelmingly on enhanced scale of operations as a causal mechanism through which internationalization contributes to performance, empirical studies preclude proper identification of scale-related benefits. Second, theory and empirics tend to confuse temporary difficulties experienced upon entry into international markets with examining the benefits realizable at different levels of DOI, regardless of the firm’s short-term difficulties in realizing those benefits. Our empirical results show that correcting for each of these shortcomings contributes to diminishing the theory–empirics gap.