Internationalization and Firm Performance

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

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Dissertation Jacobs University Bremen, 2008
1st Edition 2009

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To my parents
Erhard and Anna

Foreword
A large body of strategy and international business literature has examined the
relationship between internationalization (regional diversification) and firm perform-
ance over the last decades. In essence, the current state of research on the internation-
alization-performance relationship must be characterized, however, as being heteroge-
neous and inconclusive. From a conceptual point of view, increasing levels of interna-
tionalization 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 internationaliza-
tion process itself have an impact on the focal relationship.
Mario Krist chooses a topic which is of high practical relevance since interna-
tionalization 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 authors 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. Fur-
thermore, 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

Acknowledgements
Man entdeckt keine neuen Weltteile,
ohne den Mut zu haben,
alle Ksten aus den Augen zu verlieren.
Andr Gide (1869 - 1951)
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 sugges-
tions 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 Uni-
versity of Giessen for many discussions on the topic. They provided valuable com-
ments 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 Sego Costa and Ulrich Koehler for
proofreading parts of this thesis. Furthermore, I owe a lot to all of my friends. Espe-
cially 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 rela-
tionship, 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
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
Table of Contents
Chapter 1
Introduction 1
1.1 Internationalization and Firm Performance 1
1.2 Definition of Key Terms 3
1.3 Scientific Approach 6
1.4 Course of Work 7
1.5 Universality or Context Dependence 8
1.6 Curve Type and the Role of Intangible Resources 10
1.7 Intangible Resources the Internationalization Process and Performance 13
Endnote 17
References 18
Chapter 2
2.1 Introduction 23
2.2 Theoretical Background and Hypotheses 25
2.2.1 R&D Intensity 28
2.2.2 Product Diversification 29
2.2.3 Country of Origin 31
2.2.4 Age 33
2.2.5 Size 34
2.3 Method 35
2.3.1 Sample 35
2.3.2 Variable Coding 38
2.3.3 Analytical Approach 41
2.3.4 Consideration of Methodological Differences 43
2.4 Results 46
2.5 Discussion 49
2.6 Limitations 52
XIV Table of Contents
2.7 Implications for Future Research 53

2.7.1 Key Moderator Variables 53
2.7.2 Understanding Contextual Interdependencies 54
2.7.3 Non-Linearity 55
2.8 Conclusions 56
Endnote 59
References 60
Chapter 3
3.1 Introduction 71
3.2 An Inquiry into a Non-Linear Internationalization-Performance Relationship 72
3.2.1 Previous Inquiries into a Non-Linear Relationship 72
3.2.2 Benefits of Internationalization 74
3.2.3 Costs of Internationalization 76
3.2.4 Synthesis and Hypothesis 77
3.3 The Moderating Impact of Intangible Resources 81
3.3.1 Theoretical Background 81
3.3.2 A Hedonic Approach to the Concept of Intangible Resources 84
3.3.3 The Multidimensional Nature of Intangible Resources 85
3.3.3.1 Technological Know-How 88
3.3.3.2 Market Know-How 89
3.3.3.3 Contract-Based Know-How 90
3.3.3.4 Top Management Team Demographics 91
3.4 Method 92
3.4.1 Sample 92
3.4.3 Sources of Data and Process of Data Collection 98
3.5 Results 104
3.6 Discussion 109
3.7 Limitations 115
Table of Contents XV

3.9 Conclusions 117
Endnotes 120
References 122
Chapter 4
4.1 Introduction 131
4.2 Theoretical Background and Hypotheses 134
4.2.1 How Intangible Resources Shape the Internationalization Process 134
4.2.2 How Differences in Internationalization Paths Affect Performance 139
4.3 Method 142
4.3.1 Sample 142
4.4 Results 149
4.5 Discussion 157
4.6 Limitations 161
4.8 Conclusions 164
Endnotes 166
References 167
Chapter 5
Conclusion 171
5.1 Summary of Results 172
5.2 Implications and Recommendations for Future Research 176
References 181
Appendix 183
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 Tobins 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
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
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 rela-
tionship between internationalization and firm performance.
Studies in the 1970s emphasized the benefits of internationalization and thus hy-
pothesized 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, Hoskis-
son, and Kim, 1997; Gomes and Ramaswamy, 1999) and cubic curves (Contractor,
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 condi-
tions 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 contra-
dictory (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 recur-
rent 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 measure-
ment 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
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 contradic-
tory 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 interna-
tionalization 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.
4 Introduction
Multinational Firms
In the literature there are many different approaches to a definition of multina-

tional 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 opera-
tion 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 activi-
ties in more than one country.
In order to distinguish this definition from others I would like to discuss alterna-
tive definitions that have been suggested in the literature as well. For example Dun-
ning 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 ttig ist (A company is regarded international if it acts as pro-
ducer 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.
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 produc-
tion 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 general-
ized across different structural configurations of doing business abroad.
Firm Performance
My definition of performance as the outcome variable is firm financial perform-

ance. 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 profit-
ability 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
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
Levs 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 ulti-
mate goals of scientific endeavors they are as well the most difficult ones to accom-
plish. This piece of research seeks to make a contribution not only to empirical evi-
dence 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 con-
sumer 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
Course of Work 7
journals. Relevance is the main principle for the recognition of phenomena surround-
ing 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 interna-
tional 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 interna-
tionalization-performance relationship. The subsequent chapters are structured as
follows: Chapter two analyzes prior empirical research on the internationalization-
performance 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 depend-
ent 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.
8 Introduction
1.5 Universality or Context Dependence

The question of whether there is a systematic relationship between the interna-
tionalization 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. Meta-
analysis 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 per-
formance 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 meta-
analyzing 36 studies with an overall sample size of N = 7,792 observations. This study
Universality or Context Dependence 9
is among the first to introduce the method of meta-analysis to international business

research. To the authors 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
Country
R&D of Origin
Intensity
Firm
Age
Product
Diversification
Firm
Size
Firm
Performance
10 Introduction
The study contributes to the literature in at least two important ways. First, I de-
termine the magnitude and direction of the overall effect of internationalization on
firm performance. Second, I establish the universality of the internationalization-
performance relationship as I test the relevance of key moderator variables.
Knowledge about the direction, magnitude, and moderators of the internationali-

zation 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 interna-
tionalization 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 model1. 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 relation-
ship 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-
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 mag-
nitude 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 exploita-
tion of some competitive advantage within the scope of a companys own business.
Right from the beginning of theory building researchers in the discipline of inter-
national business contended that a major justification for international business
activities of a firm is the exploitation of a competitive advantage compared to domes-
tic 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-nationaliza-
tion are context dependent, the question arises whether intangible resources can be a
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 con-
temporary 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 differ-
ent 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 internationali-
zation-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 investiga-
tion 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 Schoe-
maker, 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 internationali-
zation) 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 Tobins 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 compo-
nents. Furthermore, I will differentiate five dimensions of intangible resources and
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, contract-
based 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
Technological
Know-How
Market
Tobins q 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-Gmez, Ramrez-Alesn, and Espitia-Escuer, 2004). In the same manner the
internationalization process has been a central research focus of international business
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 interna-
tionalization-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 intangi-
ble 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
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 availabil-
ity of a firms 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 internationalization-
performance 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 internationali-
zation. 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 internationalization-

performance relationship by applying innovative temporal, black box, and contextual
16 Introduction
perspectives simultaneously. In doing so, this study promotes the research streams
capability to effectively inform management practice as well. Figure 1.3 summarizes
the proposed research framework.
Figure 1.3 Theoretical Model of Intangible Resources the Internationalization

Process and the Internationalization-Performance Relationship
Intangible
Resources
Technological Process
Know-How
Market ' Int = I(t=n) I(t=0)

Know-How
Contract-Based Speed
Know-How
TMT Internat.
Diversity Scope
TMT
Education
Degree of Firm
Internationalization Performance
Endnote 17
Endnote
1. For example see the Special Issue on internationalization and firm performance in Management
International Review 03/2007 with the contributions by (Ruigrok et al., 2007) and (Contractor,
2007) as well as other publications in A-journals such as Academy of Management Journal (Lu
and Beamish, 2004) or Journal of International Business Studies (Contractor et al., 2003).
18 Introduction
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Chapter 2
Evidence from Meta-Analysis
2.1 Introduction
Empirical research in a certain domain typically involves three phases (Hunter
and Schmidt, 1990). In the first phase researchers conduct individual studies with the
ambition that their efforts will lead to a clear answer to the research question at hand.
Inevitably, these single studies suffer from statistical bias such as sampling error,
measurement error, and range restriction. As a consequence empirical results across
studies might not be conclusive or even contradictory and lead to different interpreta-
tions of the phenomenon under investigation.
During the second phase researchers typically ask for additional research to
identify moderator variables, i.e. variables that caused the conflicting findings. This
phase involves the validation of constructs and measurement instruments as well as
contextual research on contingency factors of the focal relationship. Nevertheless,
instead of solving the problem through contextual inquiries, scholars often conclude
that the number of questions has instead grown.
In the third phase researchers conclude that the phenomenon turned out to be too
complex and doubt that consensus on the phenomenon can be reached at all. The
moderator hypotheses from the initial studies are not borne out and no one can make
24 The Effect of Context
much sense of the conflicting findings. Consequently researchers resign from search-
ing answers to the original research question and ask for different research paradigms
that seem to be more tractable. However, research does not need to enter this last
phase of resignation as Hunter and Schmidt (1990, p. 37) have pointed out:
Applications of meta-analysis to accumulated research literatures have generally

shown that our research findings are not nearly as conflicting as we had thought and that
useful general conclusions can be drawn from past research. Cumulative knowledge is
possible in the behavioral and social sciences after all. [...] It means that cumulative
understanding and progress in theory development is possible after all. It means that the
behavioral and social sciences can attain the status of true sciences; they are not doomed
forever to the status of pseudo-sciences, or even quasi-sciences.
If this logic of academic progress is transferred to the internationalization-per-

formance relationship early research can be traced back to the 1970s. Perhaps the
influential papers of Sullivan (1994) and Hitt, Hoskisson, and Kim (1997) towards the
mid 1990s mark the beginning of phase number two. Contemporary research might
lead to the conclusion that the research community is still in stage number two with
some indication that it might be at the edge of phase three (for example see Hennart
(2007) who fundamentally doubts the theoretical rationale for a systematic relationship
between multinationality and performance).
Given the number of empirical studies addressing the subject and given the
diversity of the results, the need for a comprehensive analysis of past research is
crucial for the advancement of internationalization research. Although qualitative
reviews of the literature have been conducted before (Ramaswamy, 1992; Annavarjula
and Beldona, 2000), what is missing to date is a systematic review and consolidation
of research based on quantitative methods. Due to the shortcomings of vote counting
methods (Hunter and Schmidt, 1990), meta-analysis is a logical next step. Meta-
analysis offers unique possibilities for detecting the true relationship of variables and
analyzing reasons for conflicting findings (such as research artifacts or moderator
variables) that are not available in any other study (Dalton et al., 1999). Given the high
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) and are therefore crucial
for the advance of research in this field.
What is the relationship between internationalization and performance? I address

this question by meta-analyzing 36 studies with an overall sample size of N = 7,792
Theoretical Background and Hypotheses 25
observations. This study is among the first to introduce the method of meta-analysis
into international business research. It adds to existing knowledge as it investigates the
relationship between internationalization and firm performance using the method of
meta-analysis.
2.2 Theoretical Background and Hypotheses

The present chapter addresses two major research questions: (1) What overall
relationship exists between internationalization and firm performance? And (2) how is
the relationship between internationalization and performance moderated by interven-
ing variables?
Analysis of relevant studies shows that one can distinguish three prevalent
research streams for an explanation of internationalization decisions: Theories of
foreign direct investment (Buckley and Casson, 1976; Hymer, 1976; Dunning, 1981),
the learning theory (Johanson and Vahlne, 1977), and the resource-based view of the
firm (Teece, 1977; Wernerfelt, 1984; Barney, 1991). Originally the first two research
streams aimed to explain when, where and how a firm should go international, while
the last research stream more generally characterizes resources as determining factors
for the scope of firm activities. Nonetheless, they all imply theoretical mechanisms as
to why a relationship to performance should exist. Since the overall direction and
magnitude of internationalizations effect on performance is fundamentally dependent
on the benefits and costs associated with internationalization, I will dwell on the major
factors that determine these.
Theories of foreign direct investment aim to elaborate the conditions under which
it might be beneficial for a firm to do business abroad. Factors both inside and outside
a firm can provide the basis for ownership advantages. Theories that focus on the
organizations internal setting view the main source of benefits from internationaliza-
tion in the opportunities it offers to leverage firm-specific resources. Internalization
theory suggests that the multinational company (MNC) can be an effective means of
transferring superior resources to foreign markets (Buckley and Casson, 1976; Hen-
nart, 1982). Theories relying on external factors aim to explain why multinational
firms exist, and postulate that market imperfections promote firms that internationalize
(Caves, 1971; Morck and Yeung, 1998). Location theory stresses arbitrage opportuni-
ties in factor cost differentials and therefore advantages from local sourcing and
production (Kogut, 1985). Industrial organization theory highlights such market

deficiencies as entry barriers, which potentially enable firms to earn economic rents
via exploitation of their international market power (Hamel and Prahalad, 1985). If
market imperfections favor internalization of activities over market transactions,
multinational companies may benefit from transaction cost advantages (Williamson,
1975) or production cost advantages such as the potential for economies of scale and
scope in international markets (Porter, 1985; Grant, 1987; Kim, Hwang, and Burgers,
1993; Capar and Kotabe, 2003).
The learning theory (Johanson and Vahlne, 1977) views internationalization as

an incremental process that fosters organizational learning and knowledge develop-
ment (Hamel, 1991; Barkema and Vermeulen, 1998) not available to domestically
operating firms. Through gradual acquisition, integration and use of knowledge about
foreign markets the internationalization process offers the opportunity to gain a
competitive advantage over less internationally active competitors. The critical kind of
knowledge in this context is experiential knowledge that can be distinguished into
general internationalization knowledge and market-specific knowledge. Johanson and
Vahlne (1977) consider these two kinds of knowledge as dimensions of the human
resources that should be reflected in improved products and services and that ulti-
mately should contribute to superior firm performance.
Much like the concept of ownership advantages, the resource-based view of the
firm proposes that global dispersion and exploitation of core competencies generates
economic rents as long as these resources retain their value (Amit and Schoemaker,
1993). Furthermore, internationalization makes it possible to tap otherwise locked
resource pools and offers unique opportunities for the proactive creation of new
resources.
But costs associated with internationalization might, at least partly, offset the
gains from going international. Theories of foreign direct investment assume that
monopolistic advantages are necessary because multinational firms will encounter
liabilities of foreignness and newness (Zaheer, 1995; Kostova and Zaheer, 1999) and
other difficulties that might erect formidable barriers to successful business activities
abroad. Internalization theory recognizes limits to the efficiency of organizational
arrangements. Firms face organizational constraints such as absorptive capacity
(Cohen and Levinthal, 1990) or the difficulty and expense of processing large amounts
of information (Simon, 1955). Scholars of transaction cost theory (Williamson, 1975;
Jones and Hill, 1988) and agency theory (Roth and ODonnell, 1996) illustrate how
growing complexity may eventually exhaust managerial capacity.
The learning theory assumes that the complexity of managing widespread busi-
ness units increases with heterogeneity in markets. Cross-cultural studies posit that
geographical dispersion and cultural diversity of business activities lead to communi-
cation, coordination, and motivation problems (Hofstede, 1980).
Furthermore, internationalization increases exposure to financial and political

risks such as currency fluctuations, government regulations, and trade laws
(Boddewyn, 1988; Brewer, 1992; Sundaram and Black, 1992; Reeb, Kwok, and Baek,
1998).
As mentioned before empirical results show controversial results concerning the

prevalence of either benefits or costs associated with internationalization. Together
with reasoning from established theories that imply theoretical mechanisms for bene-
fits and costs associated with internationalization I propose competing hypotheses:
Hypothesis 1a. The overall relationship between internationalization and firm per-
formance is positive.
Hypothesis1b. 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 univer-
sal is the internationalization-performance effect? The apparent inability to reach a
broad consensus regarding the focal relationship is not entirely unexpected. In addition
to methodological reasons, such as the ambiguity of constructs and substantial differ-
ences in the research methodologies applied and samples studied, there is still another
possible reason. As already mentioned, it is likely that the internationalization-per-
formance relationship is context-dependent and that an effect therefore exists only
under certain conditions. If this is the case, then investigators should not be searching
for internationalization-performance generalizations or principles, but rather focusing
on the identification of moderators variables that produce differential internationali-
zation-performance effects.
I selected the sample of moderator variables on the basis of two criteria. The first
was whether there is ambiguity in the extant literature about the direction and strength
of the effect the moderator variable potentially has on the internationalization-per-

formance relationship. The second criterion was availability whether sufficient data
from empirical studies were available for meaningful analyses. Figure 2.1 illustrates
this classification of third variables as the basis for the present meta-analysis. The
variables I was able to extract from the literature as moderating variables are research
and development (R&D) intensity, product diversification, country of origin, firm age,
and firm size. The variety of third variables that have been considered influential to the
internationalization-performance relationship in empirical studies so far can be
depicted from the column (Relevant) Hypotheses in Appendix A 2.1. Contextual
variables with an empirically established effect, i.e. without ambiguity, are commonly
treated as control variables in single studies from a methodological point of view.
Figure 2.1 Criteria for Moderator Variables of the Meta-Analysis
Available Unavailable
Ambiguous Moderator
Variables
Variables for
Future Research
Unambiguous Established
Contextual Variables
2.2.1 R&D Intensity
The resource-based view and Dunnings eclectic paradigm (Dunning, 1988,

1993) follow a similar logic. Firms with unique resources and capabilities (ownership
advantage) should leverage their resources internationally as long as these resources
enable them to earn economic rents. Intangible resources are a main source of com-
petitive advantage (Kaufmann and Schneider, 2004). Caves (1982) and Franko (1989)
emphasize the role of research and development efforts as a principal driver of inter-
nationalization. Morck and Yeung (1991) assert that internationalization per se is not a
valuable strategy for investors, but that the impact of R&D spending on market value
increases with a firms multinational scale. R&D expenditures are a common measure
of a firms technology-based know-how (Caves, 1982) and innovative capabilities
(Hitt et al., 1991). Intangible resources such as technological know-how do not tend to
deteriorate when applied in multiple markets (Morck and Yeung, 1998), rather they
very often tend to appreciate, as knowledge and information are cumulative (Grossman
and Helpman, 1994).
Although the majority of studies have found empirical support for a positive
effect of R&D efforts on internationalization, some have not; contrary to theoretical
expectations, Majocchi and Zuchella (2003) established in a sample of 220 Italian
international small- and medium-sized companies that firms with higher R&D expen-
ditures exhibit lower financial results. Hsu and Boggs (2003) found that for a sample
of 118 large US multinational companies, spending on R&D had a significantly
negative impact on ROE. Meta-analytic techniques might help to resolve these contra-
dictions, i.e. help to establish whether the differences in effect sizes are of substantial
nature or whether they might be attributed to statistical artifacts like sampling differ-
ences.
McGuinness and Little (1981) argue that R&D intensity had a positive effect on
export motivation, but that the impact on performance is marginal in comparison to
that of other situational factors. Hitt et al. (1997) maintain that international
diversification provides firms with incentives to invest in innovation and provides
them with greater returns from innovation. Internationalization holds special benefits
for firms with a high stock of technological-based know-how and innovative capabili-
ties. Opportunities to exploit market imperfections in the trade of technological
resources might give them a major competitive advantage over their competitors;
consequently, internationalization should be a more valuable option for firms with
high R&D efforts. Therefore I posit:
Hypothesis 2. Intangible resources in terms of technological know-how moderate the

relationship between internationalization and firm performance, such
that the relationship between internationalization and performance is
stronger for R&D intensive firms.
2.2.2 Product Diversification
Vachani (1991) theorized that the construct of firm diversity comprises business
and geographic diversity. The guiding paradigm postulates that related product diversi-
fication yields superior performance vis--vis unrelated diversification in a domestic
setting (Rumelt, 1974; Bettis and Hall, 1982; Palepu, 1985). In their pioneering study,
Stopford and Wells (1972) determined that area diversification and product
diversification are two of the critical success factors for MNC growth. Since then, a
number of studies have examined the combined effects of product and international
diversification on performance. A combination of the arguments brought forward by
the resource-based view and transaction cost theory suggests that internationalization
offers the opportunity to successfully leverage a firms strategic resources across
different levels of product diversification as long as new businesses stay within the
scope of the firms strategic resources and capabilities (Hitt et al., 1997). Unrelated-
ness, but also transaction costs, puts a cap on international and product diversification,
as high levels of both dimensions of firm diversity incur rising governance costs
(Jones and Hill, 1988; Geringer, Tallman, and Olsen, 2000). Egelhoff (1982) empiri-
cally supports this notion. He found that rising transaction costs and information
processing demands associated with international activities together with high levels of
product diversification depressed firm performance.
Contrary to Egelhoffs findings, Geringer, Beamish, and DaCosta (1989), using a

sample of the largest 100 US and European MNCs, did not find support for the
hypothesis that product diversification moderates the positive performance impact of
international diversification. A few scholars found empirical evidence that is even
opposed to the prevalent position in the literature. Harrison, Hitt, Hoskisson, and
Ireland (1991) delineate that differences in resource allocation patterns across firms
international business units are more beneficial than similarities. They reason that
there seem to be unique merits in internationalization for firms with unrelated product
portfolios. Unrelated product diversification and internationalization constitute com-
plements that help a firm to achieve economies of scale and scope that are unavailable
from either form of diversification alone (Hitt et al., 1997). Kim, Wang, and Burgers
(1989) again found no support for the contention that firms with low product
diversification perform better when they are more geographically diversified, but they
found a positive effect from internationalization on performance for firms with higher
product diversification.
The predominant position in the literature, however, is that related product diver-
sification enhances performance (Rumelt, 1974) and provides slack resources, which
are available for geographical diversification (Penrose, 1959). Yet high levels of
product diversification might cause excessive transaction costs that may eventually
exceed management capabilities and therefore offset the benefits attributable to
internationalization (Jones and Hill, 1988; Tallman and Li, 1996). Consequently, I
hypothesize that the performance impact attributable to internationalization is stronger

for firms with low levels of product diversification.
Hypothesis 3. Product diversification moderates the relationship between interna-

tionalization and firm performance, such that the relationship between
internationalization and performance is stronger for firms with low
levels of product diversification.
2.2.3 Country of Origin
Although macro-level contextual settings might have an impact on the interna-

tionalization-performance relationship, only a few empirical studies have compared
the benefit and cost trade-offs attributable to internationalization that firms from
different countries face when going abroad.
Firms in some countries are more internationalized than those in other countries
and thus draw on a greater level of internationalization experience. Just because of
restricted domestic market size firms from smaller countries, in particular, are forced
to internationalize earlier in order to generate the same sales volumes as firms from
larger countries. They therefore have the advantage of experience in dealing with
foreign customers, unfamiliar government regulations, and trade laws. Familiarity with
foreign markets should lead to higher efficiency in international transactions. Recent
analysis by the United Nations has shown that European firms operate at a far higher
degree of internationalization than do firms from the USA or Japan (UNCTAD, 2004).
Empirically, Geringer et al. (1989) found a significant internationalization effect on
performance only when they separated their data by region (USA vs. Europe). Their
findings suggest that the size of the effect is significantly affected by country envi-
ronment context.
There are also differences among countries with respect to costs. The degree of
similarity between the home business environment and that of neighboring countries
varies. Greater differences in contextual settings create exponential complexity and
inflate the costs of doing business abroad (Kostova and Zaheer, 1999). Institutional
and cultural factors may erect formidable barriers to the transfer of competitive
advantage across national borders (Kogut, 1985). These factors include heterogeneity
in politico-regulatory environments (Delios and Henisz, 2000), levels of economic
development (Woodward and Rolfe, 1993), and cultural conditions (Chang and
Rosenzweig, 2001). The establishment chain concept of Johanson and Vahlne (1977)
posits that market knowledge attributable to internationalization experience is vital for
success in internationalization (Gomez-Mejia and Palich, 1997). At the outset of
internationalization, a firm should serve markets that are culturally similar to its home
market. By doing so, a firm can avoid unfamiliarity with local business customs,
which can, for example, lead to friction in communication and coordination. Papado-
poulos and Denisz (1988), Davidson (1983), and Eramilli (1991) found that psychic
distance, cultural distance, and geographic distance are major criteria for initial
international location choice. Ruigrok and Wagner (2003) support this market
familiarity principle using a sample of 80 Swiss multinational manufacturing compa-
nies. These firms overwhelmingly chose Germany for their initial foreign market
entry, a large market quite similar to their home market. But firms from different
countries differ in their familiarity with neighboring countries. Firms in some coun-
tries are exposed to comparatively unfamiliar markets right from the outset of their
expansion and cannot easily leverage their resources without considerable adaptation
needs. Ronen and Shenkar (1985) identified culturally isolated countries such as Japan
and Korea, which do not have any close cultural counterparts, such as Switzerland has
with Germany.
Another dimension of culture concerns differences in a societies time-horizon

for performance goals. Harveston, Kedia, and Francis (1999) show that interna-
tionalization has a positive impact on short-term performance measures like ROA and
ROS but not on market-share for North American and European firms and that it has a
positive impact on long-term performance measures like market-share but not on ROA
or ROS for firms originating from the Pacific Rim.
Country-specific givens, i.e. idiosyncratic contextual settings, predetermine on

a macro-scale the benefits and costs that firms will likely face when doing business
abroad. Thus the relevance of internationalization as a strategic option for success
might vary among countries. Therefore I conclude:
Hypothesis 4. Country of origin moderates the relationship between internationaliza-

tion and firm performance, such that the relationship between interna-
tionalization and performance differs significantly for firms from dif-
ferent countries.
2.2.4 Age
Whether the age of a firm influences the internationalization-performance rela-

tionship is a matter of the nature of a firms resources rather than the quantity. While
new ventures rely on resources that are less specialized (but flexibly deployable in
changing environments), incumbent firms utilize a specialized resource base that
enables them to efficiently operate under current market conditions (Amit and Schoe-
maker, 1993; Thornhill and Amit, 2003). Flexibility plays a central role in the interna-
tionalization process. Incumbent firms that remain in current trajectories and do not
manage to adapt to environmental change may fail to keep up with competition (Sull,
1999; DeCarolis, 2003).
Entering foreign markets involves high risks and uncertainties as well. Organiza-
tional and resource arrangements that facilitate a willingness to take risks and remain
proactive and innovative are key success factors under these conditions (Lumpkin and
Dess, 1996; Sapienza, Autio, and Zahra, 2003). Younger firms often display this
entrepreneurial mode of behavior; management structures are more flexible and
management maintains a proactive attitude towards opportunity exploitation (Penrose,
1959). Therefore younger firms might be at a flexibility advantage when it comes to
the adaptation needs of internationalization. The born global phenomenon (Oviatt
and McDougall, 1994; Harveston et al., 1999) shows that since the 1990s new firms
tend to internationalize earlier in their life cycle (Zahra, Ireland, and Hitt, 2000). Some
firms are international from inception and display high international market commit-
ment.
The new venture internationalization theory (McDougall and Oviatt, 1996) and
the learning theory (Johanson and Vahlne, 1977) both emphasize foreign market
knowledge as a key to success in internationalization. Although these two theories
assert different processes of internationalization, they both nevertheless emphasize that
merits of internationalization arise from knowledge development and exploitation.
While the new venture internationalization theory stresses the importance of knowl-
edge resources and organizational learning in the pursuit of new opportunities, learn-
ing theory highlights how behavioral constraints emanating from uncertainty avoid-
ance (Sapienza et al., 2003) are imposed by the firms existing knowledge base. Thus
inflexible structures may hinder success in internationalization. In particular, older
firms are at risk for organizational inertia. Since they have developed for a longer
period of time in a domestic setting, they may find it difficult to turn opportunities in
international markets into financial results. Firms that have not developed a high stock
of knowledge in a domestic setting are at a learning advantage of newness (Autio,
Sapienza, and 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 recognizing
new business opportunities. Therefore I hypothesize that internationalization has a
greater potential to affect firm performance for younger firms.
Hypothesis 5. Firm age moderates the relationship between internationalization and

firm performance, such that the relationship between internationaliza-
tion and performance is stronger for younger firms.
2.2.5 Size
Small businesses differ fundamentally from large businesses, as has been docu-
mented by Shuman and Seeger (1986). Besides differences in ownership, organiza-
tional structures and processes, and management systems, they differ in resource
availability (financial, management, and information) for expanding their business
abroad (Smith et al., 1988; Carrier, 1994). 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 opportunities abroad if excess
resources are available. Bloodgood, Sapienza, and Almeida (1996) support the notion
that resource availability plays a key role in the decision to internationalize. They
found in a sample of 61 US venture capital-backed new ventures that firm size corre-
lated to the degree of internationalization. Their findings suggest that early interna-
tionalization is neither favorable nor detrimental to firm performance, but rather
contingent upon resource conditions. They conclude that internationalization has a
positive impact on firm performance if resource constraints are not a major problem.
However small firms often lack financial resources for investing in assets like
internationalization experience resources needed to overcome barriers such as the
liability of foreignness (Zaheer, 1995; Coviello and McAuley, 1999). Tihanyi, Ell-
strand, Daily, and Dalton (2000) found in a sample of 126 US firms that certain top
management team characteristics, such as higher tenure heterogeneity and higher
average international experience, are positively related to the decision to internation-
alize. The managerial constraints of small firms, such as a lack of international experi-
Method 35
ence in the upper management team, may exhaust the absorptive capacity of manage-
ment at early stages of internationalization and limit the extent of international
involvement.
While one can generally assume a positive correlation between firm size and firm
age it would be rewarding to separate these two effects with regard to their impact on
the internationalization-performance relationship. Knowledge about the two individual
effects is important since it might point to different and situation specific avenues for
success in internationalization. But since the effects of firm age and firm size are
probably confounded I have to restrict my hypothesis concerning the effect of firm
size to classes of firms with similar age. Firms that possess larger stocks of resources
are able to operate at higher levels of internationalization. Therefore internationaliza-
tion should also be responsible for a higher portion of the performance variance of
those firms. Assuming that smaller firms face more severe resource constraints than
larger firms I hypothesize:
Hypothesis 6. Within classes of firms with similar firm age, firm size moderates the
that the relationship between internationalization and performance is
stronger for large firms.
2.3 Method
2.3.1 Sample
In order to arrive at a representative sample and assure the replicability of

research results, meta-analytical methods require clear and coherent separation criteria
as to which research reports they include or exclude. One advantage of meta-analytic
procedures over narrative reviews is that they keep authors from consciously or
unconsciously selecting and describing studies to support their own understanding of
the literature and/or their own established theoretical positions (Rosenthal and DiMat-
teo, 2001). Consequently, I examined those published studies that explicitly investi-
gate the relationship of internationalization and firm performance in order to establish
a coherent body of literature on this research question. I only considered studies that
focused on the impact of internationalization on the overall firm performance and that
reported, at a minimum, the number of observations and an effect size that is transfer-
able into the Pearson product-moment correlation r. Consequently I did not include
measures of association that capture the impact of internationalization on firm per-

formance after accounting for the influence of third variables, such as beta-coefficients
from multiple regression analysis or partial correlation coefficients. This procedure is
appropriate if one wants to achieve a clear picture of the straightforward operation of
individual components, as is the case with meta-analysis: Whereas there is admittedly
some loss of information when one concentrates on single effects in meta-analysis, a
singular focus helps to target specific questions and to distill the essential elements of
a phenomenon under study (Rosenthal and DiMatteo, 2001, p. 67).
In identifying the studies for inclusion in this meta-analysis, I initiated a com-

puter-aided keyword search of the Business Source Premier, EconLit, and ABI/Inform
databases and I reviewed all past issues of pertinent journals that showed a comparably
high accumulation of relevant studies, namely Strategic Management Journal (7)1,
Academy of Management Journal (5), Journal of International Business Studies (4),
Journal of Business Venturing (4), Management International Review (3), and Inter-
national Business Review (3). I furthermore culled the reference sections of the studies
collected for additional studies and searched the home pages of researchers in the area
of internationalization for additional published material. This procedure offered
reasonable assurance that I had identified all relevant studies. To test for availability
bias, I applied file-drawer analysis and calculated fail-safe N(x) according to Rosen-
thal (1979). This statistical procedure helps to resolve concerns about publication bias
favoring significant results over non-significant results and represents a number that
shows how many unlocated studies would have to exist to make the obtained effect
size insignificant.
I identified 71 articles that met my selection criteria, of which I had to exclude 34

that did not provide sufficient data that I could transfer into zero-order correlations.
One article was removed because it shares its sample with the study by Grant (1987).
My final sample consists of 36 articles that were published between 1979 and 2004.
These articles report 41 independent samples with a total sample size of N = 7,792.
These samples report 146 effect sizes. Because these samples usually relied on multi-
ple operationalizations for internationalization and performance, I arrived at a ratio of
effect sizes per sample of 3.6. Table 2.1 provides a list of all studies, year of publica-
tion and sample size used in the meta-analysis. For further information about these
studies please refer to Appendix A 2.1. This section provides a comprehensive over-
view over the articles and covers research question(s), relevant hypotheses and results,
sample characteristics and variable coding.
Method 37
Table 2.1 Summary of Primary Studies
Author (s) Yeara nb Author (s) Year n
Aggarwal 1979 192 Lu and Beamish 2001 164

Bloodgood, Sapienza, and Almeida 1996 61 Lu and Beamish 2004 1,489
Buhner 1987 40 Majocchi and Zucchella 2003 220
Capar and Kotabe 2003 81 Mauri and Sambharya 2001 91
Chen and Martin 2001 49 McDougall and Oviatt 1996 62
Delios and Beamish 1999 399 Qian 1996 126
Dhanaraj and Beamish 2003 157 Qian 2002 71
Dragun 2002 130 Qian and Li 2002 125
Geringer, Beamish, and daCosta 1989 181 Qian and Li 2003 67
Geringer, Tallman, and Olsen 2000 108 Ruigrok and Wagner 2003 84
Goerzen and Beamish 2003 580 Sambharya 1995 53
Gomes and Ramaswamy 1999 95 Siddharthan and Lall 1982 74
Gomez-Mejia and Palich 1997 442 Simmonds and Lammont 1996 156
Grant 1987 304 Tallman and Li 1996 188
Harveston, Kedia, and Francis 1999 152 Wan 1998 81
Hitt, Hoskisson, and Kim 1997 295 Wan and Hoskisson 2003 722
Hsu and Boggs 2003 118 Zahra and Garvis 2000 98
Knight 2000 216 Zahra, Ireland, and Hitt 2000 321
Note:
Unless otherwise indicated, the tables, figures, and appendices of this book are original work of the
author.
a
Year of publication.
b
Sample size.
In the literature scanning process 34 more studies could be identified that are not included in this
meta-analysis. Although they empirically investigate the internationalization-performance relationship,
they did not provide data that could be transferred into zero-order correlations. These studies are as
follows:
Benvignati (1987); Brewer (1981); Buckley, Dunning, and Pearce (1977); Chang and Thomas (1989);
Christophe (1997); Collins (1990); Contractor, Kundu, and Hsu (2003); Daniels and Bracker (1989);
Denis, Denis, and Yost (2002); Doukas and Lang (2003); Errunza and Senbet (1984); Fatemi (1984);
Garrod and Rees (1998); Haar (1989); Han and Lee (1998); Hirschey (1982); Kim, Hwang, and
Burgers (1989); Kim and Lyn (1986); Kotabe, Srinivasan, and Aulakh (2002); Kumar (1984); Mathur,
Singh, and Gleason (2001); Michel and Shaked (1986); Mishra and Gobeli (1998); Morck and Yeung
(1991); Palich, Carini, and Seaman (2000); Ramirez-Aleson and Espitia-Escuer (2001); Reuber and
Fischer (2002); Riahi-Belkaoui (1996; 1999); Riahi-Belkaoui and Alnajjar (2002); Severn and Laurence
(1974); Vermeulen and Barkema (2002); Vernon (1971); Westhead, Wright, and Ucbasaran (2001).
Although the median year of publication was 1991, 36 of 41 samples were pub-
lished later. While early studies relied heavily on samples of American companies, the
focus widened in the second half of the investigation. Samples from Japan, and more
recently Europe, were the focal point (see Table 2.2). Presently, there seems to be a
general shift of emphasis in the samples studied in international business research, as
Zhao, Luo, and Suh (2004) report similar findings for their meta-analysis on interna-
tional entry mode choice.
Table 2.2 Sample Source over Time
Sample source
Total America Europe Japan Rest of World
Number Sample Number Sample Number Sample Number Sample Number Sample
of size of size of size of size of size
samples samples samples samples samples
Overall 41 7,792 22 2,861 8 1,496 7 2,841 4 594
d 1991 a
5 791 2 266 2 344 --- --- 1 181
> 1991 36 7,001 20 2,595 6 1,152 7 2,841 3 413
d 1999b 20 2,901 13 1,831 3 389 3 500 1 181

> 1999 21 4,891 9 1,030 5 1,107 4 2,341 3 413
a
Median year of publication (1979-2004).
b
Median studies publication year.
The average firm in this 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 (see
Table 2.3). A segmentation by the median studies publication year reveals that
companies 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, FDI in
8.8 countries; see Table 2.3) across all regional clusters (America, Europe, Japan).
Furthermore, large firms from this sample show higher degrees of internationalization
than do the small firms. See Table 2.3 for descriptive study characteristics on the
degree of internationalization.
2.3.2 Variable Coding
The studies included in this meta-analysis measure internationalization using a

diverse set of variables that cover international sales or asset dispersion of a firm and
operationalize performance via numerous quantitative measures that can be classified
into financial accounting return-oriented, growth-oriented or capital market-oriented
(Jensen alpha, Sharpe ratio, market-to-book ratio, Tobins q). The most common
conceptualization modes for internationalization and performance from the samples
make up Table 2.4.
Method 39
Table 2.3 Degree of Internationalization over Time across Countries

and by Firm Size
Foreign sales to total sales Number of foreign countries
Number of Sample Degree of inter- Number of Sample Degree of inter-

samples size nationalization samples size nationalization
Overall 16 1,574 .33 13 2,777 7.8
d 1991 a 1 192 .29 1 188 14.5

> 1991 15 1,382 .34 12 2,589 7.3
d 1999b 7 689 .32 6 1,396 6.8

> 1999 9 885 .35 7 1,381 8.8
10 1,061 .31 8 1,272 7.2

America 3 210 .50 3 942 10.0
Europe 1 20 .36 2 563 5.4
Japan 2 283 .24 --- --- ---
Rest of World
MNC 11 1,081 .37 8 1,915 8.1

SME 6 573 .27 5 862 7.1
a
Median year of publication (1979-2004).
b
Median studies publication year.
Table 2.4 Operationalization of Internationalization and Performance
Internationalization Performancea
Times Times
Operationalization used Operationalization used
Foreign sales to total salesb 21 Return on assets (ROA) 26

Number of foreign countries 13 Return on sales (ROS) 15
Various entropy measures 10 Return on equity (ROE) 13
Foreign subsidiary sales to 4 Sales growth 11
total sales Various capital market 8
Number of foreign direct 4 oriented measures
investments Market share 6
Various indices 4 Return on investment (ROI) 3
Export sales to total sales 3 Other return oriented 4
Foreign assets to total assets 3 measures
Other 6 Other growth oriented 1
measures
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
samples included in Table 2.3 (k = 16) is due to five samples that did not report foreign sales to
total sales means and therefore could not be analyzed in Table 2.3.
The measure for R&D intensity is the portion of R&D expenses to total sales. I
split the sample into sub-samples of studies with averages above or below five percent
R&D intensity. Splitting the overall population based on the median samples R&D
intensity results in exactly the same classification. I decided to dichotomize moderator
variables as this procedure enhances inter-rater reliability. If taken continuously the
power of the analysis would have been artificially higher.
Product diversification is commonly computed as a Herfindahl-type entropy

measure in the form of Hf(a) = 1 - 6 Si2 (Si is the ratio of sales in product group i to
total sales) (Tallman and Li, 1996) or an entropy measure according to Palepu (1985)
which is Pa(a) = 6i (Pi x ln(1/Pi) (Pi is the portion of sales in product group i to total
sales). With regard to the Palepu measure, I focused on the unrelated ratio, which
captures diversification across two-digit Standard Industrial Classification (SIC)
codes, whereas the related ratio only captures diversification across four-digit SIC
codes within a two-digit SIC industry. I considered samples with values higher than
0.5 to be highly product diversified and those with lower values to have low product
diversification, since the Herfindahl measure and the unrelated ratio of the Palepu
measure are standardized on an interval between zero and one (exactly 0 d Hf(a) d
(k-1)/k and 0 d Pa(a) d 1). Splitting the population based on the median samples
product diversification would require recoding one study and would only marginally
change results.
With regard to their country of origin, I was able to separate samples of firms
that originated from North America, Europe, and Japan. Although the United Kingdom
is geographically a part of Europe, its firms are somewhat special because of their
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 in their Euro-
pean samples. I was able to resolve my concerns that these samples could bias the
results for the effect of contextual settings: An exclusion of these samples from the
European sample would not significantly change the results.
Researchers have used different cutoff points for the separation of young and old
firms such as eight years (McDougall, 1989; Zahra, 1996) and six years for start-ups
(Brush and Vanderwerf, 1992; Brush, 1995; Shrader, 1996). My definition of young
firms parallels prior research on new ventures (Biggadike, 1979; McDougall and
Oviatt, 1996) and adolescent firms (Miller and Camp, 1985). It classifies a firm as
young if it is less than twelve years old (Covin, Slevin, and Covin, 1990).
Method 41
In accordance with the American Small Business Administration definition of

small- and medium-sized enterprises (SMEs), I differentiated between firms with more
than and less than 500 employees (Lu and Beamish, 2001).
A second researcher and the author independently coded the relevant study char-
acteristics. They agreed in 96.2 percent of the cases. After in-depth investigation and
discussion of the remaining five cases, we were able to resolve all discrepancies.
Consequently I judged that the data preparation process was providing reliable data.
2.3.3 Analytical Approach
This study is among the first to investigate the relationship between internation-
alization and performance quantitatively based on the method of meta-analysis. Meta-
analysis is a powerful tool to detect the real relationship between variables in a sys-
tematic way when findings are inconclusive (Hunter and Schmidt, 1990). Moreover, it
allows for the correction of research artifacts one cannot avoid in single studies and the
detection of moderator variables based on different sample characteristics. Given the
number of single studies in the research 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 crucial endeavor for the advance of research in this field.
I focused on the meta-analytical techniques developed by Hunter and Schmidt

(Hunter, Schmidt, and Jackson, 1982; Hunter and Schmidt, 1990). In order to deter-
mine the direction and magnitude of the relationship between internationalization and
performance, I estimated effect sizes based on the Pearson product-moment correlation
r. When other translatable statistics (e.g. d-value, t-test, F-test, etc.) were available, I
used formulas given by Glass, McGaw, and Smith (1981) and Hunter et al. (1982) to
convert these values into the r-statistic. If a study offered several effect sizes because
of multiple operationalizations, I calculated the average effect size. This procedure
guaranteed that information from identical samples contributed only once to the
estimate of an effect size (Petitti, 2000). The population effect size estimate r offers
considerably increased accuracy in estimating an effect size relative to an estimate
obtained from any single study because the sampling error present in each single study
can be deleted.
In the present study it was not possible to correct for statistical artifacts beyond
sampling error due to a lack of available data. Consequentially, I divided the observed
variance in effect sizes into variance resulting from sampling error and into remaining
variance that is attributable to real variance in effect sizes of the population.
A key question in meta-analysis is whether large effect size variance remains

after accounting for study artifacts. I tested for population homogeneity in two ways. If
95 percent credibility intervals did not overlap zero (Koslowsky and Sagie, 1993) and
more than 75 percent of the observed variance was due to sampling error, I considered
the population homogeneous, because all effect size variance is likely due to artifacts
(Hunter et al., 1982; Schmidt, Hunter, and Raju, 1988). I rejected applying a chi-
square test for homogeneity as this test may infer sample homogeneity caused by
chance in the case of small samples (Hunter et al., 1982). In order to distinguish the
effects of firm age and firm size I performed hierarchical analyses, i.e. I separated the
entire population into young firms and old firms and then tested the effect of firm size
in both sub-samples. In a meta-analytical setting this procedure is comparable to
testing for one effect while controlling for another (Hunter et al., 1982).
The number of studies included into a moderator analysis is often a lot smaller
than the overall number of studies, because not every moderator variable can be coded
from each study. Analysis as to whether the main effect was also present in sub-
samples for moderator analysis revealed that effect sizes from these combined sub-
samples did not differ significantly from those of the whole population. None of the
z-values for differences in effect sizes was significant (see Table 2.5).
I applied two criteria in testing for significance of moderator variables. First, I

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
variance in the combined samples (Hunter et al., 1982). As a final step I calculated 95
percent confidence intervals to test whether the effect size estimates differed signifi-
cantly from zero. 95 percent confidence intervals are based on the standard error from
sampling error variance in case of homogeneous populations. When significant
variance remained after correction of study artifacts, I calculated the confidence
interval based on the standard error of the observed effect size variance (Whitener,
1990).
A comprehensive description of the statistical formulas and meta-analytic calcu-

lations according to Hunter and Schmidt (1990) can be found in Appendix A 2.2.
Method 43
Table 2.5 Analysis of Bias in Sub-Samples for Moderator Analysis
Variable K N r Critical z-value

H1a, H1b: Overall 41 7,792 .059
H2: R&D Intensity
High 6 846 .170 .10
Low 6 2,922 .021
H3: Product Diversification

Low 7 557 .128 1.25
High 9 3,219 .001
H4: Country of origin

America 22 2,861 .128 -0.44
Europe 8 1,496 .081
Japan 7 2,841 .009
H5: Age
Young 5 582 .209 .17
Old 29 6,370 .040
H6: Size
Large 26 4,668 .066 -0.58
Small 2 213 -.053
Notes:
K: number of samples, N: sample size Ni, r : sample size weighted mean effect size, critical z-value:
two-tailed test for significance of differences in effect sizes of the combined sub-samples compared to
the overall sample.
p < .10.
* p < .05.
** p < .01.
2.3.4 Consideration of Methodological Differences
As is the case with every piece of empirical research, quantitative reviews of the
literature can produce biased results and lead to erroneous conclusions. Researchers
need to find ways to deal with this problem. I was able to identify three potential
sources of bias. The first source is specific to the method of meta-analysis. The major
source of bias in meta-analytical investigations stems from conceptual differences in
measuring the independent and dependent variable the so called apples and oranges
problem. The remaining two conceptual differences that need to be considered are
specific to the research question at hand. Second, the question if and how internation-
alization relates to firm performance might not be time stable but rather contingent
about a certain period of investigation. Third, the performance consequences from
internationalization might only be observed after a certain period of time and hence
require time lagged measurement designs.
A common critique of meta-analysis is the argument that it mixes studies that

examine apples with those that examine oranges. Independent and dependent
variables are conceptually different and thus results are not comparable across studies.
However, this does not necessarily have to be the case as Wolf (1986, p. 54) notes:
Good meta-analysis capitalizes on this [criticism] by coding apples as apples and
oranges as oranges in order to empirically test whether and how they are similar or
different. In doing so, it is possible to reveal important methodological moderator
variables. Indeed, the variety of operationalizations of the independent and dependent
variables raised concerns that differences in measurement might significantly influ-
ence estimates of effect sizes. I therefore performed moderator analyses on different
classes of measures for internationalization and performance. Although prior research
based on Sullivan (1994) has suggested that the internationalization construct is
multidimensional, the degree to which these dimensions affect firm performance does
not seem to differ significantly (see Table 2.6). Estimates of effect sizes based on
sales-oriented measures of internationalization were not significantly different from
effect size estimates based on asset-oriented measures of internationalization
(z = 1.08). Therefore it can be concluded that differences in measurement of the
diverse facets of the internationalization construct do not significantly contribute to an
explanation of controversial results in prior empirical studies. The differences in effect
size estimates for measures of firm performance were also not significant (z = 0.44
for financial 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 on the interna-
tionalization-performance relationship I do not find support that internationalization
relates differently to certain aspects of firm performance either. Additional analyses of
the mean effect sizes produced by every single measurement item for internationaliza-
tion and firm performance can be found in Appendix A 2.3.
Concerning the second possible source of methodological bias I did not find evi-
dence that the time of publication of a study moderates effect size estimates. A separa-
tion of the samples by publication date did not reveal significant differences in effect
sizes (z = .37, p > .10). Studies published before 1999 (K = 20, r = .068) showed
similar effect sizes to those studies published after that date (K = 21, r = .053).
Method 45
Table 2.6 Methodological Moderators Internationalization and Performance
95 percent 95 percent
Critical
Variable K N r sr2 se2 sU2 confidence credibility
z-value
interval interval
Sales-orienteda 28 3,186 .101 .026 .009 .017 .041 : .161 -.158 : .360 1.08
Asset-orientedb 21 5,768 .060 .011 .004 .007f .016 : .104 -.106 : .226
Firm Performance
Return-orientedc 62 10,668 .069 .020 .006 .014 .034 : .104 -.166 : .304 -0.44g
Growth-orientedd 16 2,576 .085 .016 .006 .010 .022 : .148 -.113 : .283 1.00h
Capital market-or.e 6 2,873 .020 .012 .002 .010 -.068 : .109 -.177 : .218 1.17i
Notes:
K: number of samples, N: sample size Ni, r : sample size weighted mean effect size, sr2: variance in
effect sizes, se2: sampling error variance, sU2: residual variance (sampling error corrected variance in
effect sizes), 95 percent confidence interval: interval around sample size weighted mean effect size
based on observed variance for heterogeneous populations and on sampling error variance for
homogenous populations, 95 percent credibility interval: interval around sample size weighted mean
effect size based on residual variance, critical z-value: statistic based on test for significance of
difference in effect sizes one-tailed if the direction of the effect size is hypothesized, two-tailed if the
direction of the effect size is not hypothesized.
p < .10.
* p < .05.
** p < .01.
a
Sales oriented measures include: Foreign sales to total sales, Sales based entropy measures, foreign
subsidiary sales to total sales, export sales to total sales, sales based indices.
b
Asset oriented measures include: Foreign assets to total assets, number of foreign countries, asset
based entropy measures, number of foreign direct investments, percentage of primary activities
abroad.
c
Return oriented measures include: ROA, ROS, ROE, ROI, operating profit margin, EBITOA, subjec-
tive profitability assessment, risk adjusted return on invested capital.
d
Growth oriented measures include: Sales growth, profit growth, asset growth, subjective firm
growth assessment, earnings-per-share growth.
e
Capital market oriented measures include: Realized economic value, market-to-book ratio, indices of
various capital market oriented measures, Tobins q, Jensen alpha, Price-Earnings ratio.
f
Deviation to difference between observed variance and sampling error variance due to rounding.
g
Value for comparison of return oriented measures and growth oriented measures.
h
Value for comparison of return oriented measures and capital market oriented measures.
i
Value for comparison of growth oriented measures and capital market oriented measures.
I did not find support that the third possible source of bias systematically affects
effect size estimates either. Although it can be argued that the performance conse-
quences from internationalization might only materialize into firm financial perform-
ance over time I did not find support that different measurement designs moderate the
internationalization-performance relationship (z = -1.02, p > .10). Studies that used
time lagged measurement designs of the internationalization-performance relationship
(K = 12, r = .033) did not generate effect size estimates that were significantly differ-
ent from those that did not apply time lagged measurement designs (K = 21, r = .076).
2.4 Results
Table 2.7 and Figure 2.2 present the meta-analytic results. The average effect
size across all studies is positive but small ( r = .06, see Table 2.7), with a range in
effect sizes from -.28 to .43 (see Figure 2.2) indicating a positive association between
internationalization and firm performance. The credibility interval includes zero and
sampling error accounts for only 31.1 percent of observed variance and thus fails to
fulfill the 75 percent rule proposed by Hunter and Schmidt (1990). This result leads
me to suspect that other variables moderate the relationship between internationaliza-
tion and firm performance and that it does not represent a single population. However,
since the confidence interval does not include zero, one can conclude that there is an
overall significant positive relationship between internationalization and firm perform-
ance and that this effect is not due to chance (p < .05). File-drawer analysis according
to Rosenthal (1979) underlines the robustness of this finding. It requires K = 266
studies with effect sizes averaging zero to make these findings insignificant. In conclu-
sion, internationalization is positively yet marginally related to firm performance
and therefore my data support hypothesis H1a.
Hypothesis two predicts that R&D intensity positively moderates the internation-
alization-performance relationship. My data support this hypothesis. The difference in
effect size estimates for high and low R&D intensity samples is significant (p < .05)
and the average residual variance of the sub-samples is lower than the combined
residual variance. The mean corrected effect size for firms with low R&D intensity is
insignificant. As the confidence interval overlaps zero one cannot infer that interna-
tionalization in the absence of technological know-how will have an impact on firm
performance at all.
Firms with low product diversification exhibit higher effect sizes than highly
diversified firms. Although there is no reduction in the mean residual variance, the
differences in effect sizes are significant (p < .05). These results confirm that the two
dimensions of firm diversity significantly interact, i.e. the level of product diversifica-
tion influences performance gains attributable to internationalization. Thus I cannot
reject hypothesis three.
Results 47
Table 2.7 Results of Meta-Analysis on Internationalization and Performance
95 percent 95 percent
Critical
Variable K N r sr2 se2 sU2 confidence credibility
z-value
interval interval
H1a, H1b: Overall 41 7,792 .059 .017 .005 .012 .019 : .099 .152 : .270
H2: R&D Intensity
High 6 846 .170 .027 .007 .020 .040 : .300 .106 : .446 2.05*
Low 6 2,922 .021 .005 .002 .003 .035 : .078 .084 : .127
H3: Product Diversification

Low 7 557 .128 .040 .012 .028 .020 : .276 .200 : .454 1.66*
High 9 3,219 .001 .002 .002 .000 .027 : .028 .001 : .001
H4: Country of Origin

America 22 2,861 .128 .020 .007 .013 .069 : .188 .093 : .350 1.06b
Europe 8 1,496 .081 .008 .005 .003 .019 : .144 .023 : .186 1.88c
Japan 7 2,841 .009 .003 .002 .001 .028 : .045 .047 : .065 3.20**d
H5: Age
Young 5 582 .209 .013 .008 .005 .110 : .308 .072 : .346 3.06**
Old 29 6,370 .040 .015 .005 .010 .005 : .084 .159 : .238
H6: Size (old firms)

Large 26 4,668 .066 .017 .006 .012a .015 : .117 .149 : .280 3.10**
Small 2 213 -.053 .002 .002 .000 -.109 : .002 .053 : -.053
Notes:
K: number of samples, N: sample size Ni, r : sample size weighted mean effect size, sr2: variance in
effect sizes, se2: sampling error variance, sU2: residual variance (sampling error corrected variance in
effect sizes), 95 percent confidence interval: interval around sample size weighted mean effect size
based on observed variance for heterogeneous populations and on sampling error variance for
homogenous populations, 95 percent credibility interval: interval around sample size weighted mean
effect size based on residual variance, critical z-value: statistic based on test for significance of
difference in effect sizes one-tailed if the direction of the effect size is hypothesized, two-tailed if the
direction of the effect size is not hypothesized.
p < .10.
* p < .05.
** p < .01.
a
Deviation in difference between observed variance and sampling error variance due to rounding.
b
Value for comparison of American and European samples.
c
Value for comparison of European and Japanese samples.
d
Value for comparison of American and Japanese samples.
Analysis of country of origin reveals that American and European companies

exhibit a significant positive relationship between internationalization and firm per-
formance. Even though the mean effect size estimate for Japanese companies is
positive, the 95 percent confidence interval includes zero. The mean residual variance
Figure 2.2 Stem-and-Leaf Plot of Correlations (r) between

Internationalization and Performance
Stem Leaf Summary statistics
.4 23 Maximum: .43
.3 1349 Minimum: -0.28
.2 334 Median: .05
Weighted Mean: .06
.1 0001455699 Standard Deviation: .02
.0 1112223345566
-.0 23677
-.1 15
-.2 28
of the sub-samples declines compared to the combined samples and the z-statistic for
differences in effect sizes is significant for the Japanese sample (p < .01 compared to
American firms and p < .10 in comparison to the European sample). Although the
mean performance impact of internationalization is stronger for American firms than
for European firms, the differences in effect sizes are not significant.
Firm age has a strong impact on the portion of performance variance attributable
to internationalization. The difference in effect sizes is highly significant (p < .01) and
the mean residual variance diminishes. Another strong indication is that the 95 percent
confidence intervals for the mean effect sizes of young and old firms do not overlap.
Younger firms show a mean effect size of .21, the highest correlation found in this
analysis.
Firm size moderates the relationship between internationalization and firm per-
formance as well. This effect becomes apparent in both sub-samples of young firms
and old firms. As shown in Table 2.7 the difference in effect sizes of large firms
compared to small firms is highly significant (p < .01) for the sub-sample of old firms
and the mean residual variance diminishes. The results for young firms are similar
although only five studies were available for this investigation. Due to this fact I
decided not to show them in Table 2.7 but to emphasize the results for old firms
instead. Within the sub-sample of young firms the effect size for large firms is r = .40
and r = .19 for small firms and the difference in effect size estimates is significant as
well (z = 4.20, p < .01). The fact that both effect sizes within the sub-sample of young
firms are higher than those produced by the sub-sample of old firm justifies the
separation of these two samples. Analysis on an aggregated basis would have caused
Discussion 49
ambiguity in the assignment of the performance effects to the two explanatory vari-
ables firm age and firm size. Consequently the effect of firm size would have been
suppressed by the effect of firm age and would not have become obvious.
2.5 Discussion
The major research objective in this chapter was to answer the important but as
yet unresolved question of whether internationalization has an impact on firm per-
formance. Given the obtained meta-analytic results with a sample size weighted mean
effect size of r = .06 for the entire population, the answer must be yes. Although the
effect size is small in magnitude (Cohen, 1977) there is a positive and statistically
significant overall relationship between internationalization and firm performance.
Perhaps even more important, I find evidence that this relationship is highly context
dependent. Although this perception has been subject to growing research interest in
recent years, it has not yet been investigated adequately enough to fully understand the
extent to which interacting variables shape the internationalization-performance
relationship. I found support for the proposition that five context related moderator
variables significantly affect performance gains attributable to internationalization:
R&D intensity, product diversification, country of origin, firm age, and firm size.
Apparently, under certain conditions, effect sizes are much higher than indicated by
the overall effect size. The highest effect sizes I found were those for the sub-samples
of young firms ( r = .21), followed by firms with high R&D intensity ( r = .17), firms
with low levels of product diversification or originating from North America ( r = .13),
and large and old firms ( r = .07). Not only is the strength of the relationship signifi-
cantly different for each moderator variable, the direction of the mean corrected effect
size is positive for each sub-sample with an exception of small and old firms.
In this meta-analysis I corrected for sampling error, the most important statistical
artifact in single studies (Hunter and Schmidt, 1990). It is also possible that there is
error in measurements of the independent or dependent variable in the studies that I
reviewed. While some scholars make use of estimates for population reliabilities
(Combs and Ketchen Jr., 2003; Sturman, 2003), other researchers assume global
reliabilities of .80 in measuring the independent and dependent variable in their meta-
analyses (Dalton et al., 1998; Dalton et al., 1999; King et al., 2004). However, I could
not accurately account for measurement error, as none of the articles reported infor-
mation on data reliability. Altogether I do not consider my results to be seriously
biased as corrections for artifacts beyond sampling error generally account for very
little variance in effect sizes in meta-analysis (Hunter and Schmidt, 1990). If I could
have corrected for these artifacts, effect size estimates would probably have been
slightly higher. Therefore, the magnitudes of effect sizes are rather conservative
estimates of the real population values, underlining the robustness of the findings.
Market imperfections are the basis for benefits gained from cross-border activi-
ties of firms. However, the extent to which these market imperfections offer opportu-
nities for internationalization may not be stable over time, but rather conditional upon
a certain period of investigation. For example, trade barriers in factor and financial
markets have diminished over the last three decades and larger trade regions like
NAFTA, MERCUSOR, ASEAN, and the single European market have emerged.
Therefore, arbitrage opportunities in market imperfections might have had a greater
impact on firm performance in earlier investigations. But as already noted, a separation
of my samples by publication date did not reveal significant differences in effect sizes
(z = .37, p > .10). There may be three different explanations for this: (1) Major market
imperfections may still persist around the world, (2) contrary to theory, external
conditions such as market imperfections may not be a main source of advantage for
multinational firms, or (3) companies might have learned to compensate for the loss of
arbitrage opportunities in market imperfections and have developed stronger internal
capabilities.
Firms with a strong effort in the generation of technologically based know-how

can successfully leverage these resources through internationalization. Contrary to this
finding, the effect of foreign business activities on firm performance is insignificant in
the absence of technologically based know-how. Accordingly, efforts in research and
development can be a major source of competitive advantage in the internationaliza-
tion process; one that apparently can be transferred and exploited successfully by
multinational firms. These results underline the importance of ownership advantages
for successful internationalization (Dunning, 1988). In the two following two chapters
I will therefore analyze in more detail, (1) which intangible resources act as modera-
tors of the focal relationship, (2) why they offer potential for internationalization
success and (3) how they contribute to superior firm performance.
Geographic diversification and product diversification are two dimensions of

firm diversity that significantly interact. The results indicate that the ability to manage
complexity is a key success factor in internationalization. Greater levels of internation-
Discussion 51
alization contribute positively to firm performance only if there is sufficient absorptive

capacity to cope with increasing complexity (Cohen and Levinthal, 1990). If a firm has
already spread its activities across a variety of product markets, the additional per-
formance effect of spreading its activities across different geographical markets as
well is null. In contrast, firms that do not face constraints of coordinating and moni-
toring a variety of businesses have the opportunity to benefit from internationalization
as long as they can avoid overextending their managerial capacity to handle complex-
ity. Hence there seems to be a trade-off between forms of diversification. Managers
should pay careful attention to which kind of expansion path they choose, because
over-diversification might eventually exhaust managerial capacity.
American, and to a lesser extent European, companies benefit more from inter-
nationalization than do their Japanese counterparts. But how does country of origin
actually influence performance differences attributable to internationalization? Is it
through cultural distance (Hofstede, 1980), environment familiarity and internationali-
zation experience (Johanson and 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 a

huge 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 smaller
countries 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 market entry
(UNCTAD, 2004), might therefore already enjoy benefits that firms from smaller
countries are looking for internationally and therefore can be more successful in
international competition. Furthermore, European and even more so Japanese firms are
exposed to unrelated environmental contexts right from the outset of foreign expansion
(Ronen and Shenkar, 1985). It seems that European firms can at least partly compen-
sate for this disadvantage as compared to American firms. Assuming that the average
degree of internationalization reflects the accumulated internationalization experience
of a typical company, European firms are at an advantage with respect to their capacity
or competence in managing internationalization. Japanese firms cannot draw on this
kind of experience to the same extent and face substantial cultural barriers when going
abroad.
Nevertheless, causal inferences on the sources of differences in success (such as

cultural, political, or geographic aspects) are difficult to draw, as the country of origin
variable may exert its influence on the relationship between internationalization and
performance in many different ways. Therefore, the meta-analytical approach is more
explorative than confirmative with respect to country of origin.
Younger firms might have a learning advantage of newness as suggested by

Autio et al. (2000). Their resources are not yet specialized and therefore can be more
flexibly deployed (Amit and Schoemaker, 1993). Older firms that have grown up in a
domestic setting may find it difficult to adapt organizational routines and management
systems to environmental changes and might be seriously disadvantaged by organiza-
tional inertia. Therefore internationalization of business activities early on 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 domain of
internationalization is twofold. First, firms that possess a higher stock of resources
show higher international involvement expressed by their foreign sales to total sales
ratio (see Table 2.3). Second, the relationship between internationalization and firm
performance is stronger for the population of large firms as well. Internationalization
requires 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 with
respect to their impact on the internationalization-performance relationship. While the
results indicate that internationally expanding firms might gain from both greater
firm size and younger firm age it also becomes apparent that the relevance of the
factors underlying firm age are more important for internationalization success than
those underlying firm size. The effect sizes exhibited by younger firms are higher than
those of older firms irrespective of whether these firms are large or small. Therefore I
conclude that flexibility might be a key success factor for firms willing to broaden
their scope of business abroad that cannot be simply compensated by sheer resource
availability.
2.6 Limitations
Meta-analytic methods cannot resolve questions of causality, i.e. one cannot infer
whether internationalization leads to higher performance, whether firms with out-
standing performance are more likely to internationalize, or whether the relationship is
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
Implications for Future Research 53
are performance gains attributable to internationalization. However, future research

might further apply longitudinal designs in order to address this issue.
I had to omit a number of studies from this meta-analysis because they did not
contain sufficient information for the computation of effect sizes. This limitation in
data from primary research highlights the need for more complete reporting of
research results in published articles. In the future, authors and editors should report
statistical tests or, at a minimum, zero-order correlations in their articles (Eden, 2002).
With improved reporting of research results, the ability to compare and draw conclu-
sions across studies will increase.
With regard to my research framework, I focused on five context related mod-

erators; I additionally tested whether three methodological moderators, i.e. differences
in measurement of the independent and dependent variable, time of publication and
consideration of time lagged effects, significantly moderate effect sizes. Consequently,
this study is limited in how much it adds to an understanding of the extent to which
other methodological differences in research design account for differences in effect
sizes.
2.7 Implications for Future Research

2.7.1 Key Moderator Variables
While this framework of moderator variables helps to resolve many prior con-
flicting findings surrounding the internationalization-performance relationship, a
substantial amount of performance variance remains unexplained, as none of the sub-
samples for moderator analysis fulfilled the 75 percent rule for population homogene-
ity. Clearly there is no universal internationalization-performance relationship; there-
fore future research should no longer look for generalizations, but instead develop
finer grained models, i.e., investigate the conditions under which internationalization
might be fruitful. Of course, the set of moderators I investigated should not be consid-
ered an exhaustive enumeration of all possible moderator variables. Beside R&D
intensity, product diversification, country of origin, firm age, and firm size, other
contextual settings such as industry sector and competition, and exchange rate fluctua-
tions might have a significant impact on effect sizes as well. Hansen and Wernerfelt
(1989) and Powell (1996) have pointed to another promising avenue. They showed
that differences at the company level count for twice as much in performance differ-
ences as uncontrollable external environmental factors. Therefore, future research

should take a closer look at how strategic action variables such as market knowledge,
composition of senior management and incentive systems, and differences in the
internationalization process itself contribute to performance differences attributable to
internationalization. Contextual research appears to be a promising start for a better
understanding of the nature of the internationalization-performance relationship. In
chapter three I will follow up this conception and will more closely investigate the
moderating impact of one seemingly especially important construct intangible
resources.
2.7.2 Understanding Contextual Interdependencies
Given that the focal relationship is highly context dependent, we need to better
understand how different moderator variables interact with each other. This can be
exemplified by my joint analysis of firm age and firm size. The range in average effect
sizes from r = .40 for young and large firms to r = -.05 for old and small firms points
to the fact that internationalization might not be a valuable option for any firm. Nev-
ertheless, an investigation how firms might best try to benefit from both effects low
firm age and large firm size i.e. staying flexible while trying to maximize profits
from resource availability cannot be answered in this work. While I think that this
question is of elementary managerial relevance in the context of internationalization
and firm performance it must be left for future inquiry. Due to a lack of data, I was not
able to perform further hierarchical analyses on the basis of the meta-analytic methods
developed by Hedges and Olkin (1985), such as an investigation of performance gains
attributable to the interaction of R&D intensity and level of product diversification.
Although the magnitude of the effect size offers some evidence on the potential impact
of a moderator, investigations on interaction effects aiming to develop knowledge
about how firms solve oppositional pressures would be very useful. The set of mod-
erator variables developed in this study might be a good starting point for further
inquiry, as all of the variables significantly influence effect sizes.
Noteworthy is that country of origin, firm age, and size are not causal factors in
and of themselves. Considering the variety of constructs they may approximate,
researchers should ideally collect the underlying constructs of interest more specifi-
cally in the future. While imprecise constructs with limited relevance to managerial
actions may be easier to collect, they will continue to hinder our understanding of the
roots that ultimately shape the internationalization-performance relationship.
2.7.3 Non-Linearity
In recent years empirical results have indicated that remodeling the curve type of
the internationalization-performance relationship might explain additional variance in
performance differences. Yet to date researchers disagree on the exact shape of the
curve.
As meta-analysis assumes linearity I could not account for differences in the

internationalization-performance relationship across different degrees of internation-
alization within the bounds of meta-analysis. However, at the meta-level I was able to
perform regression analysis testing for both quadratic and cubic curve types.
In order to test for curvilinearity of the overall relationship, i.e. quadratic or cubic
relationship, I centered the independent variable (degree of internationalization) and
calculated a regression analysis of the effect size of the internationalization-perform-
ance relationship on average sample degree of internationalization (Sturman, 2003). I
conducted this analysis with a subset of studies that report uniform operationalizations
of the independent variable (i.e. foreign sales to total sales and number of foreign
countries).
The test for curvilinearity of the relationship reveals mixed results. A comparison
between linear, quadratic, and cubic curve types indicates that a linear curve type
arguably best reflect the regression slope of foreign sales to total sales on effect size
estimates ('R2 = .11, F(1,14) = 1.64, p = .22, see Table 2.8). When it comes to the
number of foreign countries an inverted u-shape curve type is the best approximation
for the regression slope ('R2 = .35, F(1,10) = 5.37, p < .05).
However, these propositions should be treated with caution. First, the results for
the foreign sales to total sales measure are not supported at a statistically significant
level. Second, this analysis is based on studies with samples from different countries.
An analysis at this aggregate level might not be able to capture differences in the curve
type by nationality. Indeed, the meta-analytic findings of significantly different effect
sizes for American, European, and Japanese firms provide support for the contention
Table 2.8 Shape of the Internationalization-Performance Relationship
Model R2 'R
2
'F df1 df2 p
a
Foreign sales to total sales
Linear .112 .112 1.64 1 14 .22
Quadratic .117 .005 .07 1 13 .80
Cubic .126 .009 .12 1 12 .74
Number of foreign countriesb

Linear .003 .003 .03 1 11 .87
Quadratic .351 .348 5.37 1 10 .04
Cubic .370 .019 .27 1 9 .62
a
Analysis based on K = 16 samples, N = 1,574.
b
Analysis based on K = 13 samples, N = 2,777.
that there appear to be strong boundary conditions which put the existence of a univer-
salistic shape of the internationalization-performance relationship across company
nationalities into question (Ruigrok and Wagner, 2003; Ruigrok, Wagner, and Amann,
2004; Ruigrok, Amann, and Wagner, 2007).
For example, it might be proposed that a positive linear relationship between

internationalization and performance may be achievable for firms pursuing culturally
related strategies but not for companies following culturally unrelated internationali-
zation strategies; or it could be argued that both are able to experience a positive linear
form of the internationalization-performance relationship, but the likelihood to do so
will be contingent upon the development of different intra-company capabilities
(Wagner, 2001). Given these limitations of an analysis based on meta-analytic data I
will elaborate on this issue thoroughly in the following chapter for a sample of German
firms.
2.8 Conclusions
This chapter makes two major contributions to the literature. My first aim was to
synthesize the prior fragmented and contradictory findings on the direction and
magnitude of the internationalization-performance relationship. I found solid evidence
that internationalization and firm performance show a statistically significant correla-
tion, although this relationship is low in magnitude.
Conclusions 57
Second, I explored the existence of moderator variables. The results show that
the internationalization-performance relationship is indeed context dependent. Based
on extant theory, I extracted five context related variables: R&D intensity, product
diversification, country of origin, firm age, and firm size, all of which significantly
moderate effect sizes. These variables constitute major determinants of success in the
research domain of internationalization. Hence future research should view them as
moderator or control variables to be taken into consideration in every single study. In
addition, my results provide empirical evidence as to what constitutes a typical,
large, or small effect size of the internationalization-performance relationship in
selected research situations. Consequently, researchers now have a reference of effect
sizes against which to compare and evaluate their own research. Figure 2.3 depicts the
results of this meta-analysis for the effect of methodological differences and for the
five hypotheses on the role of contextual moderators of the internationalization-
performance relationship.
Although this meta-analytical review takes an important step towards solving

many apparent contradictions, the results provide evidence that we have only just
reached the starting point for future inquiries. Theory building and empirical investi-
gations in search of further theoretically based and methodological contextual factors
and their interactions might yield valuable insights into the nature of the internationali-
zation-performance relationship.
In the following two chapters I will therefore analyze in more detail, (1) which
intangible resources act as moderators of the focal relationship, (2) why they offer
potential for internationalization success and (3) how they contribute to superior firm
performance.
Figure 2.3 Key Findings from Meta-Analysis on Internationalization

and Performance
Sales-oriented Asset-oriented
Degree of
(+A, +E, oJ) Country

R&D (+) of Origin
Intensity
(-) Firm
Age
Product (-)
Diversification (+) Firm
Size
Firm
Performance
Return-oriented Growth-oriented Capital market-or.
Notes:
(+) Significant positive relationship.
(-) Significant negative relationship.
(o) No significant relationship.
A America
E Europe
J Japan
Endnote 59
Endnote
1. In parentheses: The number of studies included in the meta-analysis from the respective journal.
Studies of the meta-analysis in order that all citations show up in the reference section
(Aggarwal, 1979; Siddharthan and Lall, 1982; Buhner, 1987; Grant, 1987; Geringer et al., 1989; Sambharya, 1995; Bloodgood et al., 1996;
McDougall and Oviatt, 1996; Qian, 1996; Simmonds and Lamont, 1996; Tallman and Li, 1996; Gomez-Mejia and Palich, 1997; Hitt et al.,
1997; Wan, 1998; Delios and Beamish, 1999; Gomes and Ramaswamy, 1999; Harveston et al., 1999; Geringer et al., 2000; Knight, 2000;
Zahra and Garvis, 2000; Zahra et al., 2000; Chen and Martin, 2001; Lu and Beamish, 2001; Mauri and Sambharya, 2001; Dragun, 2002;
Qian, 2002; Qian and Li, 2002; Capar and Kotabe, 2003; Dhanaraj and Beamish, 2003; Goerzen and Beamish, 2003; Hsu and Boggs, 2003;
Majocchi and Zucchella, 2003; Qian and Li, 2003; Ruigrok and Wagner, 2003; Wan and Hoskisson, 2003; Lu and Beamish, 2004)
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Chapter 3
Internationalization-Performance Relationship
3.1 Introduction
Meta-analytic evidence from chapter two strengthens the notion that a generally
applicable form of the internationalization-performance relationship does not exist but
that this relationship is highly context dependent. Two lines of inquiry can be distin-
guished in contemporary research that are based on such an understanding. One
investigates performance consequences from varying degrees of internationalization
while the other discusses firm specific differences as decisive factors that might be
responsible for differences in the internationalization-performance relationship (Lu
and Beamish, 2004).
The first research stream examines the benefit-cost trade-off from internationali-
zation. A fundamental statement is that this trade-off is not constant but varies along
the internationalization continuum. Consequently there must be one (or several)
optimal degree(s) of internationalization for every firm. Following this rationale
scholars have tried to merge empirical findings of either a positive or a negative linear
effect of internationalization on performance by remodeling the shape of this relation-
ship. As already outlined in the introduction section of this book, results vary from
u-shaped curve types to inverted u-shaped curve types and cubic curve types. But until
now, there is no consensus on a universal form of the internationalization-performance
relationship. Ruigrok, Wagner, and Amann (2004) propose that the shape of the
72 Intangible Resources as Moderators
relationship itself is context related, depending on the size of the home market and the
possibility to pursue a cultural or institutional related kind of international expansion.
The second research stream proposes that firm level characteristics constitute a
major distinguishing feature if and how internationalization relates to firm perform-
ance. This line of research can be traced back to Hymer (1976) who identified firm
specific advantage as a driver of internationalization and Dunning (1979) who refined
the idea of Hymer by examining different kinds of production inputs that can lead to
the growth of the MNC. Later on, scholars of the resource based view characterized
intangible resources as major drivers of success in markets, as they accord to the
VRIN1 criteria (Bloodgood, Sapienza, and Almeida, 1996). In their seminal work
Morck and Yeung (1991) confirm this notion and assert that internationalization per se
is not a valuable strategy for investors, whereas the impact of R&D spending and
advertising expenditures on market value increases with a firms multinational scale.
Other researchers like Christophe (1997) did not find empirical support for this
proposition and doubt the generalization of the positive impact of intangible resources
on success when expanding business abroad.
In order to understand more fully the nature of the internationalization-perform-

ance relationship and resolve apparent contradictory empirical evidence more empiri-
cal research is advisable, particularly on samples beyond those from the US and across
different periods of time. Therefore, this chapter addresses the question how interna-
tionalization relates to firm performance for a sample of publicly listed German firms.
Specifically, the present chapter seeks to give answers to the following two research
questions: (1) How does the shape of this relationship vary across different degrees of
internationalization? And (2) how is the relationship between internationalization and
firm performance moderated by intangible resources?
3.2 An Inquiry into a Non-Linear

Internationalization-Performance Relationship
3.2.1 Previous Inquiries into a Non-Linear Relationship
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
An Inquiry into a Non-Linear Internationalization-Performance Relationship 73
drawbacks to success in internationalization. As a result of these divergent findings,

researchers began to examine the benefit-cost trade-off of internationalization and its
variations along the internationalization continuum in search for an internationaliza-
tion threshold (Geringer, Beamish, and DaCosta, 1989; Gomes and Ramaswamy,
1999). These scholars have tried to reconcile controversy empirical findings, i.e. those
of positive or negative significant linear effect sizes, by remodeling the shape of this
relationship. Significant findings vary from u-shaped curve types to inverted u-shaped
curve types. But until now there is no consensus on a universal form of the interna-
tionalization-performance relationship. 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).
More recently, the debate on the shape of the relationship between internationali-
zation and performance has received increased attention again. This is mainly due to
the results of empirical studies that make use of new models. While previous empirical
research has largely relied on linear or, in some cases, quadratic models, now several
authors have postulated a so-called 3-stage theory based on a sigmoid model. This
model has quickly established itself in the literature as a benchmark model. Its propo-
nents 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 internationali-
zation and performance. However, even among these studies differences in patterns
are notable. For instance, while Contractor, Kundu, and Hsu (2003), Lu and Beamish
(2004), Thomas and Eden (2004), and Ruigrok, Amann, and Wagner (2007) report a
horizontal s-shaped relationship, the sequence of the slopes reported by Thomas and
Eden as well as Ruigrok et al. is quite opposite to the earlier two studies. The ration-
ales underlying the different slopes are described in detail in the course of deriving
hypothesis one in section 3.2.4. Table 3.1 depicts the range of findings of selected
empirical studies on the shape of the internationalization-performance relationship.
The pioneers of the 3-stage theory consciously or not base their arguments
about the curve type patterns on idiosyncratic home market characteristics of their
respective samples and therefore ignore the possibility that the shape of the relation-
ship itself is context related, depending on the size of the home market and the prox-
imity to neighboring markets (in terms of culture, language, economic development,
etc.). Therefore I will in more detail review the benefit-cost trade-off associated with
Table 3.1 Selected Empirical Studies on the Relationship between

Internationalization and Firm Performance
Linear
Positive Relationship No Relationship Negative Relationship
Author (s), and year Author (s), and year Author (s), and year
Vernon, 1971 Buckley, Dunning, and Brewer, 1981
Errunza and Senbet, 1984 Pearce, 1977 Siddharthan and Lall, 1982
Kim and Lyn, 1986 Haar, 1989 Kumar, 1984
Buhner, 1987 Morck and Yeung, 1991 Michel and Shaked, 1986
Grant, 1987 Chang and Thomas, 1989
Daniels and Bracker, 1989 Collins, 1990
Kim, Hwang, and Burgers, Ramaswamy, 1992
1989
Han and Lee, 1998
Curvilinear
U-Shaped Inverted U-Shaped Sigmoid / Cubic
Author (s), and year Author (s), and year Author (s), and year
Lu and Beamish, 2001 Hitt, Hoskisson, and Kim, Riahi-Belkaoui, 1998
Capar and Kotabe, 2003 1997 Contractor, Kundu, and Hsu,
Ruigrok and Wagner, 2003 Gomes and Ramaswamy, 2003
1999 Lu and Beamish, 2004
Zahra and Garvis, 2000 Thomas and Eden, 2004
Qian, 2002 Chiang and Yu, 2005
Ruigrok, Amann and Wagner,
2007
internationalization and develop a coherent model for the shape of the internationali-
zation-performance relationship in a German context throughout the following sec-
tions.
3.2.2 Benefits of Internationalization
Analysis of relevant studies shows that two research streams in particular seem to
have the strongest explanatory power for internationalization benefits: (1) Theories of
market imperfection, and (2) theories of firm specific advantage. Originally these
established theories aim to explain when, where and how a firm would go interna-
tional. Nonetheless, they imply theoretical mechanisms as to why a relationship to
performance should exist. Both research streams imply the idea of efficiency, i.e. that
internationalization enhances overall firm performance. The difference between them
consists in the origin of determinants for superior firm performance from internation-
alization. Factors located outside and inside a firm arguably determine advantages of
international expansion.
Theories relying on external factors aim to explain why multinational companies

exist and postulate that market imperfections promote firms that internationalize
(Caves, 1971; Morck and Yeung, 1998). Early research in this manner has been
conducted by trade theorists and has focused on factor cost differentials that promote
international trade due to the immobility of factors of production (Heckscher and
Ohlin, 1991). By the mid 1960s scholars started to focus on the phenomenon of
foreign direct investment by pointing out the potentials from internalizing international
business activities in the face of market imperfections. Vernon (1966) postulates that
products pass different stages of development and that firms would be able to exploit
economies of scale by expanding operations abroad. Hymer (1976) developed his
arguments on the basis of industrial organization theory and postulates that interna-
tional firms could exploit local structural market imperfections in product, factor, and
capital markets. In a similar vein location theory stresses arbitrage opportunities in
factor cost differentials and therefore advantages from local sourcing and production
(Tesch, 1980). Industrial organization theory more generally highlights such structural
market deficiencies as entry barriers, which potentially enable firms to earn economic
rents via exploitation of their international market power (Hamel and Prahalad, 1985).
Other scholars have stressed the benefits from the internalization of markets for
intermediate products and knowledge in the face of transactional market imperfection.
If market imperfections favor internalization of activities over market transactions,
multinational companies may benefit from transaction cost advantages (Coase, 1937;
Williamson, 1975). The argument is put forth that potential costs emerge in market
transactions due to adverse selection or moral hazard (Akerlof, 1970; Stiglitz, 1989).
Multinational firms might increase their performance as they avoid these costs by
substituting external markets by internal markets in the form of foreign direct invest-
ment. Furthermore, capital market theory puts an emphasis on diversification advan-
tages from internationalization (Markowitz, 1952; Rugman, 1976) and postulates the
superior risk-return performance of multinational firms.
Theories of firm specific advantage adopt a more managerial perspective and

focus on the organizations internal setting. In this view the main source of benefits
from internationalization stems from a proactive creation and exploitation of firm
specific advantage. Internationalization of activities holds benefits such as the utiliza-
tion of relationships among different businesses and geographic areas (Porter, 1985).
Therefore the multinational company can be an effective means to transfer superior

resources to foreign markets (Bloodgood et al., 1996). Similarly, the resource based
view of the firm proposes that the possibility of global dispersion of core competencies
generates economic rents and fosters the development of new knowledge (Hamel,
1991; Barkema and Vermeulen, 1998). Internationalization enables firms to tap
otherwise locked resource pools and offers unique opportunities for the proactive
creation of new resources. The learning theory (Johanson and Vahlne, 1977) views
internationalization as an incremental process that fosters organizational learning and
knowledge development (Hamel, 1991; Barkema and Vermeulen, 1998) not available
to domestically operating firms. Through gradual acquisition, integration, and use of
knowledge about foreign markets the internationalization process offers the opportu-
nity to gain a competitive advantage over less internationally active competitors. Table
3.2 summarizes the different theoretical perspectives of internationalization benefits.
Table 3.2 Theoretical Perspectives and Performance Drivers of Internationalization
Performance Drivers
Theoretical Perspective Author(s)
of Internationalization
Product Life Cycle Vernon, 1966 Economies of scale
Industrial Organization Caves, 1971; Hymer, 1976 Exploitation of structural

market imperfections
Transaction Cost Economics Buckley and Casson, 1976; Overcoming transactional

Hennart, 1982 market imperfections
Financial Economics Markowitz, 1952; Improvement of risk-return

Rugman, 1976 profile
Resource Based View Barney, 1991; Peteraf, 1993; Leverage of unique and firm
Amit and Schoemaker, 1993 specific resources
Organization Learning Johanson and Vahlne, 1977; Learning curve effects,

Ruigrok and Wagner, 2003 know-how transfer
3.2.3 Costs of Internationalization
While early research within the field of international business solely emphasized
the benefits of internationalization, scholars started to consider costs associated with
internationalization that might, at least partly, offset the gains from going international
by the 1980s. Theories of foreign direct investment assume that monopolistic advan-
tages are necessary because multinational firms will encounter the so-called liabilities
of foreignness (Zaheer, 1995; Kostova and Zaheer, 1999).
The learning theory assumes that the complexity of managing widespread busi-
ness units increases with heterogeneity in markets, resulting in cross-cultural com-
plexity (Siddharthan and Lall, 1982). Cross-cultural studies posit that geographical
dispersion and cultural diversity of business activities lead to communication, coordi-
nation, and motivation problems (Hofstede, 1980). Organizational ecologists empha-
size the cost of organizational change induced by the implementation of a radical shift
in strategy, such as internationalization. These costs are rooted in the structural inertia
of a firm and are manifested in sunk costs of non-transferable assets, costs of resource
reallocation and firm internal political resistance towards change (Hannan and Free-
man, 1984). Scholars of transaction cost theory (Williamson, 1975; Jones and Hill,
1988) and agency theory (Roth and ODonnell, 1996) illustrate how growing complex-
ity may eventually exhaust managerial capacity. Firms face organizational constraints
such as absorptive capacity (Cohen and Levinthal, 1990) or the difficulty and expense
of processing large amounts of information (Cohen and Levinthal, 1990). Internaliza-
tion theory recognizes limits to the efficiency of organizational arrangements.
Increasing transaction costs come along with higher diversity of foreign environments
due to information asymmetries, asset specificity, and the potential for opportunistic
behavior. Furthermore, internationalization increases the exposure to financial and
political risks such as currency fluctuations, government regulations, and trade laws
(Boddewyn, 1988; Brewer, 1992; Sundaram and Black, 1992; Reeb, Kwok, and Baek,
1998). Table 3.3 summarizes the different theoretical perspectives of internationaliza-
tion costs.
3.2.4 Synthesis and Hypothesis
A commonality among the above mentioned theories is that they treat either
benefits or costs from internationalization as constant across different degrees of
internationalization. More recently researchers have begun to recognize that certain
kinds of costs are associated with specific stages of a firms internationalization
process.
The pioneers of the s-curve hypothesis (Contractor et al., 2003; Lu and Beamish,
2004) developed their conceptual framework in an attempt to reconcile and synthesize
Table 3.3 Theoretical Perspectives and Cost Drivers of Internationalization
Cost Drivers
Theoretical Perspective Author(s)
of Internationalization
Cultural Diversity Hofstede, 1980; Communication, coordination
Siddhartan and Lall, 1982 and motivation problems
Organizational Ecology Hannan and Freeman, 1984 Organizational inertia
Transaction Cost Economics Coase, 1937; Transaction costs

Williamson, 1975 (information asymmetry,
asset specificity)
Principal-Agent Theory Jensen and Meckling, 1975 Agency costs (opportunism),

governance costs
Political Science Boddewyn, 1988; Bargaining costs,

Brewer, 1992 risk of expropriation
prior findings of a u-shape curve type pattern and inverted u-shape curve type pattern.
They propose that internationalizing firms face a performance downturn at the initial
stage of internationalization because of barriers like liabilities of foreignness and
newness (Zaheer, 1995; Kostova and Zaheer, 1999). After this first stage of interna-
tionalization firms enter a stage where benefits from internationalization prevail until
they come into a third stage where escalating costs of complexity (such as limited
managerial capacity or cultural diversity) erode the positive performance impact of
internationalization.
Two remarks are noteworthy that may limit the generalizability of this frame-
work. First, as already pointed out in chapter two, country of origin determines the
benefits and costs and their trade-off associated with international expansion at a
macro level. Consequently, a hypothesis of which curve type best reflects the interna-
tionalization-performance relationship in a German setting should take into account
the heterogeneity of different countries as a starting point. Specifically as Ruigrok et
al. (2007) have pointed out, the assumptions underlying the s-curve hypothesis appear
particularly valid for companies that meet the following conditions: (1) Relatively
large home market, (2) without larger similar neighboring markets, and (3) not part of
a wider economic union. Second, the original s-curve hypothesis is at its core a
fairly deterministic approach. Liabilities of foreignness outweigh benefits from
internationalization only at low degrees of internationalization, and firms are doomed
to diminishing performance once they have passed a certain level of internationaliza-
tion, irrespective of their organizational configuration of international business activi-

ties.
As regards the first remark, the first investigations of the s-curve hypothesis in
fact relied on samples that fit the criteria set by Ruigrok et al. (2007) quite well.
Contractor et al. (2003) used an international dataset of 103 service companies with
606 firm year observations taken from the Directory of the Worlds Largest Service
Companies of which 42 percent were headquartered in the US. Lu and Beamish
(2004) draw their results from a dataset of 1.489 Japanese firms. When investigating a
German setting one has to take into consideration commonalities and differences of
relevant home country characteristics as opposed to these studies. What these settings
have in common is that Germany is among the largest economies in the world as well.
What makes this setting different is that the German economy is more international-
ized than the Japanese and US economies and that it is integrated into the single
European market. German companies thus can draw on a wider international economic
union with consistent institutional arrangements and uniform business regulations at
the initial phase of internationalization. In addition, Germany has two close cultural
and linguistic neighboring countries, Austria and Switzerland which might facilitate
the initial foreign market entry for German firms there. Higher similarity to neighbor-
ing countries augments performance gains without incurring high reconfiguration
costs. Irrespective of this proposition I would not want to argue that German firms face
less cultural disaccords when doing business in France for example than a US based
firm would encounter when doing business in the United Kingdom. However, as a
result of the integrated single European market the initial learning costs particularly
with regard to foreign institutional and regulatory settings might not necessarily
constitute key internationalization hurdles at low degrees of internationalization any
more. Therefore German firms will experience increasing performance at low degrees
of internationalization.
Nevertheless, as firms reach beyond a certain level of internationalization, recon-

figuration costs might eventually depress firm performance. However, the notion that
this performance downturn is irreversible is at odds with research suggesting the
existence of ample benefits for firms that are internationally diversified into culturally
heterogeneous markets. In such a process, it is conceivable that managers will look for
new organizational solutions or relevant experience of other companies to match at
least to some extent the new environmental requirements (Bartlett and Ghoshal,
1989). Hitt, Hoskisson, and Kim (1997) for example, argue that cognitive inputs from
a culturally diverse workforce are essential for innovation and technological progress.
Firms capable of transferring or generating intangible resources across a variety of
cultural environments may obtain the most valuable internationalization benefits.
Certainly, as Wagner (2001) points out, in contrast to initial benefits from internation-
alization such as economies of scale, benefits at higher degrees of internationalization
and in multiple diverse markets must be proactively generated and managed. As noted
before, this might require that firms have to be fundamentally reconfigured, concomi-
tantly increasing costs. Following Bartlett and Ghoshal (1989) and Prahalad and Doz
(1987) this means that firms would shift their strategic orientation from international
(culturally related) to transnational (culturally unrelated).
Reflecting this line of argument I expect that the curve type pattern that best fits
the internationalization-performance relationship is depending on idiosyncratic home
market characteristics. Figure 3.1 graphically depicts the hypothesized relationship. In
a German setting the original proposition of the s-curve is shifted to the right, preceded
by an initial stage of increasing performance. Furthermore, firms are not doomed to
declining performance at a certain level of internationalization, but managers can
proactively shift existing thresholds. Therefore I hypothesize:
Hypothesis 1. The relationship between internationalization and performance

exhibits a sigmoid curve type pattern with increasing performance at
low levels of internationalization, an upper-bound and a subsequent
lower-bound inflection point at growing degrees of internationaliza-
tion.
Figure 3.1 Sigmoid Internationalization-Performance Relationship
Performance
Degree of Internationalization
The Moderating Impact of Intangible Resources 81
3.3 The Moderating Impact of Intangible Resources

Although hypothesis one about the shape of the internationalization-performance
curve should hold in general, the slope could vary across firms. Intangible resources
are an important dimension that might moderate the performance consequences from
any internationalization strategy. Indeed, I found meta-analytic evidence in chapter
two confirming that technological know-how is an important moderator variable in the
domain of internationalization and firm performance. But until now, knowledge about
which intangible resources actually have an impact on internationalization success and
why they do so is limited. Although the firm-specific intangible resource is a central
construct in internalization theory and in the eclectic paradigm by Dunning, it has
commonly been treated as unidimensional. Only recently has an attempt been made by
Rugman and Verbeke (2003) to refine the concept of firm-specific intangible assets (or
advantages). Specifically they distinguish between location bound and non-location
bound firm-specific and country-specific advantages. Given that intangible resources
arguably are a central construct within the relationship between internationalization
and firm performance, a more thorough understanding of their role is crucial for an
advancement of research. Hence, in the following section I will investigate (1) if and
why intangible resources moderate the internationalization-performance relationship
and (2) if particular dimensions of intangible resources contribute to differing per-
formance outcomes.
3.3.1 Theoretical Background
Arguably the most influential theory for an explanation of the motivation for for-
eign direct investment is internalization theory which has its roots in the Coasian
transaction cost theory (Coase, 1937) and the theory of the growth of the firm by Edith
Penrose (Penrose, 1959). Internalization theory establishes the raison dtre for
foreign subsidiaries and hence the multinational company. Essentially, internalization
theory proposes that intangible resources such as superior production skills, manage-
ment talent, consumer goodwill, or valuable trademarks are information sensitive and
therefore their transaction is subject to market failure (Caves, 1982). In order to benefit
from an exploitation of these resources the transaction of these resources must be
internalized. Consequently, foreign direct investment is a promising strategy to
leverage the value from intangible resources and gain from economies of scale and
scope as long as the gains generated by these resources are sufficient to compensate
for the higher costs of operating internationally. The central role of firm-specific
intangible resources indicates that internalization theory is by and large equivalent to
the resource or knowledge based view of the firm within the context of international
business (Rugman and Verbeke, 2003).
Dunnings eclectic paradigm extends on this theory. He synthesizes internaliza-

tion theory with other theories of foreign direct investment and suggests that, in
addition to intangible resources and internalization benefits, location advantages also
facilitate a firms internationalization benefits because of unique market opportunities
and country-specific endowments (Dunning, 1980, 1988).
The majority of empirical literature so far has supported the appropriability

regime-based rationale of internalization theory (Delios and Beamish, 1999; Kotabe,
Srinivasan, and Aulakh, 2002; Lu and Beamish, 2004) (see also chapter two on the
effect of R&D intensity). In their pioneering empirical work in the late 1970s, Morck
and Yeung (1991) conclude that multinational activity leads to enhanced firm value
only because it allows the MNC to exploit its intangible resources on a larger scale.
They find no evidence to support what they refer to as the managerial objectives or
the tax avoidance and low cost inputs theory which would have suggested that
performance consequences from internationalization are mainly determined by exter-
nal factors. But the universality of this notion was challenged later on by Christophe
(1997) who attributed the positive performance impact of intangible assets on interna-
tionalization to a specific period of investigation. In the late 1970s firms faced low
exchange rate volatility. As the exchange rates became more volatile in the 1980s the
picture changed. The performance impact of intangible resources for internationalizing
firms became marginal in comparison to that of other situational factors. Moreover
Hsu and Boggs (2003) found for a sample of 118 large US multinational companies
that spending on R&D as a measure of technological know-how had a significantly
negative impact on ROE.
One potential shortcoming of prior research in this domain is the measurement of

the construct of intangible resources. Researchers have used a diversity of proxies,
with spending on R&D and advertising among the most common ones (e.g. Siddhar-
than and Lall, 1982; Morck and Yeung, 1991; Delios and Beamish, 1999; Lu and
Beamish, 2001; Kotabe et al., 2002; Qian, 2002; Lu and Beamish, 2004; Thomas and
Eden, 2004; Annavarjula, Beldona, and Sadrieh, 2005). Although these accounting
measures are comparatively easy to collect, they only capture part of the intangible
resource base of a firm.
Tobins q has been proposed as an alternative measure (Villalonga, 2004). This

ratio captures the intangibility of a firms resource base or resource intangibility as
a whole. It is calculated as the ratio of a firms market value to the replacement cost of
its assets. The market value of a firm is made up of the value of its tangible and
intangible assets. The fair value of a firms tangible resources can be estimated as the
replacement cost of these assets the current cost of purchasing assets of equal
productive capacity. The value of a firms intangible resources can be determined as
the difference between the market value of a firm and the value of its tangible
resources (Villalonga, 2004). The assumption of this concept of measuring the intan-
gibility of a firms resource base is that investors take into account and evaluate the
whole stock of intangibles as a bundle when they make investment decisions. If
markets are efficient, securities prices provide the best estimates of the value of a
firms resources (Fama, 1970). When markets can be assumed to be efficient in the
aggregate, there is no reason to expect a systematic bias from this calculation in large
cross-sectional samples. Empirically, Lev (2001) demonstrates that Tobins q proxies
the intangible resources of a firm as a result of the accounting treatment of intangibles.
Tangible assets can be capitalized, i.e. recognized as assets and reported in a firms
balance sheet. In contrast, intangibles are generally expensed, i.e. written off in the
income statement in the period when costs for their development occur. As a result, the
book value of assets does not reflect the stock of intangibles from cumulative invest-
ments whereas market value does.
Therefore, Tobins q is arguably the most comprehensive measure for the intan-
gible resources of a firm and a superior measure for a general assessment of the role of
intangible resources with respect to the internationalization-performance relationship.
Following the propositions brought forward by the internalization theory I hypothe-
size:
Hypothesis 2. Intangible resources measured by Tobins q moderate the relationship

between internationalization and firm performance, such that high
resource intangibility increases the performance gains attributable to
3.3.2 A Hedonic Approach to the Concept of Intangible Resources
Hypothesis 2, if empirically supported, may be subject to the alternative inter-

pretation that Tobins q is simply capturing investor expectations of additional future
growth opportunities or higher persistence of profits of firms that already operate
successfully internationally. Furthermore, if this is the reason for the association, then
the causal direction of hypothesis two might be opposite to the one proposed, i.e. it
could be described as: The stronger the relationship between internationalization and
performance, the higher the intangibility of the resource base.
I address the possibility of an alternative interpretation in that I apply a slightly

different approach of measuring the combined impact of different dimensions of
intangible resources, the so-called hedonic approach. This approach is derived from
hedonic pricing models2. The basic concept is that the observable prices of different
varieties of a good can be attributed to its various components or quality characteris-
tics. Hedonic regression is typically used to estimate the marginal contribution of these
individual characteristics. For example, in the case of digital cameras, a hedonic
approach would require a function that estimates the prices of cameras based on
certain quality measures, such as number of pixels, storage size, manufacturer reputa-
tion, size, etc. (Manninen, 2005). The obtained regression coefficients can then be
interpreted as the marginal variation of the price of the product if the explaining
variable changes by one unit.
I restrict my measure of resource intangibility from Tobins q to the predicted

value from the regression of Tobins q on several measures of intangibles that are
available from accounting data. I will refer to this measure as hedonic q. Under the
hedonic approach, any factor that could affect investors expectations other than the
specific intangible resources considered remains in the disturbance of the regression
and out of the main equation (Villalonga, 2004). In analogy with hypothesis two I
propose:
Hypothesis 3. Intangible resources measured by hedonic q moderate the relationship

between internationalization and firm performance, such that high
resource intangibility increases the performance gains attributable to
3.3.3 The Multidimensional Nature of Intangible Resources
While prior research has used a variety of constructs, all termed intangible
resources to test the propositions put forward by internalization theory, their universal
representativeness for the different dimensions of intangible resources remains doubt-
ful. In fact, such an assumption would run counter to the original paradigm of the
resource based view of the firm that accentuates the idiosyncratic nature of different
resources (Wernerfelt, 1984; Dierickx and Cool, 1989; Barney, 1991; Peteraf, 1993).
Although undeniably numerous resources can be identified that positively influ-

ence performance (for a comprehensive review see Newbert (2007)), not all of them
might hold internationalization potential. With this term I refer to the supposition
that the differing attributes of intangible resources determine if and why certain
categories of intangibles enhance the performance impact of internationalization and
how they do so. Not only may the appropriability regimes or isolating mechanisms
differ by which intangibles contribute to superior firm performance, but maybe even
more important resources differ with respect to their potential for transferability, i.e.
the value of resources is more or less location bound.
Indeed, it was not until recently that international business scholars started to
consider this phenomenon. Rugman and Verbeke (2007) differentiate between firm-
specific advantages that are location bound and others, that are non-location bound.
From this distinction they derive their regionalization hypothesis, i.e. that some firms
are capable of exploiting their firm-specific advantage worldwide while many others
are not capable of doing so and are confined to their home region. Consequently a
more differentiated approach might generate valuable and actionable knowledge on
distinctive characteristics of intangibles that determine why intangibles exert an
influence on the internationalization-performance relationship. In the following section
I will derive the theoretical rationales and hypotheses as to why a moderating impact
of certain intangible resources should exist.
As already noted, a variety of resources have been proposed to affect firm per-
formance. Therefore, the question arises how to structure or to categorize them. A
proper classification would be helpful for the systematic assessment of the different
roles of intangible resources with respect to the internationalization-performance
relationship. Several classifications have been proposed in the literature. Bukh, Larsen,
and Mouritsen (2001) compare various taxonomies of intellectual capital and conclude
that despite of a vast ambiguity they all have three things in common: The connection
(1) to employees, (2) to processes and structures, and (3) to customers. In another
review of prior attempts to categorize intangibles Kaufmann and Schneider (2004,
p. 377) conclude that most researchers confirm this classification of three categories.
Nevertheless they summarize:
In the end, all these categorizations stay at a very abstract level. They do not offer
direct guidance on the management of intangibles. Which goods and resources belong to
each category is also not clear. Furthermore, the categories are usually quite broad.
Recently, two more promising approaches have been developed by the

Schmalenbach-Gesellschaft fr Betriebswirtschaft (Schmalenbach Society for Busi-
ness Administration) (2001) and the American Financial Accounting Standards Board
(FASB, 2001). Both taxonomies are rooted in financial reporting and offer a more
detailed classification, with more specific categories. The Schmalenbach group
differentiates human capital, customer capital, supplier capital, investor capital,
process capital, location capital, and innovation capital. The FASB system includes
technology-based assets, customer-based assets, market-based assets, contract-based
assets, workforce-based assets, organization-based assets, and statutory-based assets.
Figure 3.2 compares the two categorizations and highlights overlaps.
Figure 3.2 Categorization of Intangibles by the FASB and the Working Group
Intangible Assets in Accounting of the Schmalenbach Society
FASB Categories Working Group Schmalenbach Society
Technology-based Assets Human Capital
Customer-based Assets Customer Capital
Market-based Assets Supplier Capital
Contract-based Assets Investor Capital
Workforce-based Assets Process Capital
Organization-based Assets Location Capital
Statutory-based Assets Innovation Capital
Source: Kaufmann and Schneider (2004, p. 378).

Strength of both of these reporting models is that they provide detailed examples
which serve as guidelines for distinguishing the categories because they were devel-
oped for financial reporting purposes. However, one deficiency remains: The catego-
ries they propose are not mutually exclusive of each other as the Schmalenbach group
concedes (FASB, 2001, p. 991):
Jeder immaterielle Wert ist mindestens einer dieser sieben Kategorien zuzuord-
nen, wobei einzelne immaterielle Werte mglicherweise mehreren Kategorien zugeordnet
werden knnen, da die Kategorien nicht berschneidungsfrei sind. (Each intangible
resource can be assigned to one of the seven categories at least. However, a particular
intangible resource might as well be assigned to more than one category, because the
categories are not mutually exclusive of each other.
In conclusion it seems that for the time being there is no selective and single-
staged classification available for a categorization of intangible resources. However, as
can be seen from the two classifications above, it is possible to distinguish systemati-
cally between several different facets of intangible resources after all in order to
investigate whether the multidimensional nature of intangible resources leads to
differing performance consequences from internationalization. In consequence I
decide to rely on the FASB categorization as a starting point. The FASB approach
seems particularly helpful because it offers a comprehensive classification, based on a
parsimonious set of variables. It involves few overlaps among the categories and gives
a more concrete and complete perspective on intangibles than prior classifications
(Kaufmann and Schneider, 2004).
When it comes to the formulation of testable hypotheses the questions arises if

the relevant dimensions of intangible resources can be operationalized validly. To the
authors knowledge no single piece of empirical research exists to date that comprehen-
sively embraces all of the categories that have been articulated by the FASB or the
Schmalenbach group. I could differentiate four classes of intangible resources for
which an operationalization is feasible. These form the basis for my assessment of the
differing impact of intangibles on the internationalization-performance relationship.
They comprise (1) technological know-how, (2) market know-how, (3) contract-based
know-how, and (4) top management team diversity and education. Although this
classification also lacks the characteristics of mutual exclusiveness and comprehensive
exhaustion it is capable of capturing the majority of the categories that have been
proposed by the FASB. As an example contract-based intangible resources such as
purchased brands or technology licensing agreements doubtlessly involve overlaps
with internally generated market know-how or technological know-how with respect

to their application within the value chain of the firm. However, these resources differ
with regard to another fundamental aspect, i.e. their appropriability regimes. While
technological know-how and market know-how can be developed internally, contract-
based intangible resources must be externally acquired by definition. Already Schnei-
der and Kaufmann (2004) refer to the importance of the origin of an intangible
resource. According to these authors whether an intangible resource is developed
internally or whether it is externally purchased implicates different strategies how to
deploy it successfully. Therefore the separate treatment of externally purchased
intangible resources can be justified in the course of this studys analysis.
3.3.3.1 Technological Know-How
The rationale why technological know-how should enhance the profitability

impact of internationalization has already been discussed at length in chapter two.
Technological knowledge is a function of the proprietary technological knowledge-
generating activities within a firm (Chatterjee and Wernerfelt, 1991). It includes
product, service, or process know-how as the result of research and development
activities and the value of this know-how is often embedded in the product or service
itself. Upstream intangible resources such as technological know-how are non-location
bound in principle, i.e. they offer potential to be transferred across national borders,
and therefore such resources do not tend to deteriorate quickly when applied in
multiple markets (Morck and Yeung, 1998). They often rather tend to appreciate, as
knowledge and information are cumulative (Grossman and Helpman, 1994). Conse-
quently, multinational companies may not only achieve economies of scale from the
exploitation of their know-how in multiple markets, but they may benefit from explo-
ration activities and realize economies of scope as well. This is especially true in cases
where the international transfer of technological know-how is complemented by
location bound elements, that is, linkages with external parties or learning capabilities
that allow subsidiaries to reap the benefits from local responsiveness (Rugman and
Verbeke, 2003).
In sum, the different opportunities to exploit market imperfections in the trade of

technological resources might give multinational companies a major competitive
advantage over their competitors; consequently, internationalization should be a
valuable option for firms with strong efforts in the generation of proprietary techno-
logical knowledge. Therefore I hypothesize:
Hypothesis 4. Intangible resources in terms of technological know-how moderate the

that high levels of technological know-how increases the performance
gains attributable to internationalization.
3.3.3.2 Market Know-How
Market know-how is the capability to analyze markets, develop plans to sell

products or services, and eventually build and maintain brands. Brands constitute
intangible resources that are rare and difficult to imitate because they are built through
cumulative investments in marketing over time (Rossiter and Percy, 1997). Expenses
for marketing may therefore in the long run constitute superior knowledge to serve
customer needs, build up customer relationships, and eventually result in customer
goodwill, i.e. the reputation for an outstanding product or service quality.
While customers are location bound this knowledge is non-location bound in

principle (Fang et al., in press.). Nevertheless, market based know-how intangible
resources differ from technological know-how in that market know-how is located at
the downstream side of the value chain. Consequently, a firm has to make considerable
investments in order to create a critical mass for customer attention. Therefore, the
transfer of its value across national borders is more challenging because of the time-
consuming nature of brand building in new geographic markets (Katsikeas, Samiee,
and Theodosiou, 2006). The consequence of this is that marketing based resources that
are built on marketing knowledge accumulated in a firms home country might be less
valuable, at least initially, in foreign expansion than technological or experiential
knowledge. However, the value of a brand is likely to increase over time.
Even with the difficulty to transfer brands internationally, such transfer does
occur. Some prominent global brands are well known to foreign consumers even
though familiarity with the product itself (e.g. Mercedes, Levis, and Coke) may be
lacking (Owen, 1993). The general and procedural knowledge how to bring added
value to customer needs or how to fit the supply to special customer needs that is
developed in one market might be successfully transferred to others. Therefore I posit:
Hypothesis 5. Intangible resources in terms of market know-how moderate the

that high levels of market know-how increase the performance gains
attributable to internationalization.
3.3.3.3 Contract-Based Know-How
Contract-based know-how comprises a rather multifaceted category of intangi-

bles. It mainly includes acquired knowledge such as brands, patents, and licenses.
Contract-based intangible resources fulfill the requirements for recognition of financial
reporting standards and consequently must be acknowledged in books. In fact the
definition of contract-based know-how by the FASB is based upon these recognition
criteria for intangible resources.
IFRS defines intangible assets under their standard IAS 383 that is similar to the
definition by US-GAAP laid out in Accounting Principles Board (APB) 17. Both
regulations specify specific rules for the recognition of intangibles and the obligation
to subsequently capitalize these resources as assets in balance sheets. According to
IAS 38, intangible assets are identifiable non-monetary assets without physical sub-
stance that are controlled by the enterprise. Another important recognition criterion is
that future economic benefits are expected to accrue to the firm from these intangible
assets. In addition it is not sufficient that these benefits are only possible but instead
they must be probable. In practice this is a crucial distinction between self-created and
externally purchased intangible resources (Villalonga, 2004). Only in cases where the
intangible resource is acquired (separately or as part within a business combination)
the standard setters admit that the probability criterion is always fulfilled.
If assets satisfy these requirements then they comply as well with the basic
requirements for intangible resources according to the internalization theory (Caves,
1971) or ownership advantages (Dunning, 1980). Firms may generate economies of
scale from the transfer of these resources to multiple markets, one of the major per-
formance drivers of internationalization. Therefore I contend:
Hypothesis 6. Intangible resources in terms of contract-based know-how moderate

the relationship between internationalization and firm performance,
such that high intangible intensity increases the performance gains
attributable to internationalization.
3.3.3.4 Top Management Team Demographics
According to the upper echelon perspective the top management team (TMT) of
a firm makes up the most important part of the human capital of a firm (Hambrick and
Mason, 1984). Hence, demographic characteristics such as top management team
international diversity or education might be important success factors in the interna-
tionalization of a firm and enhance the performance outcome of internationalization
processes. The reason being that demographic characteristics can be used as proxies
for more elusive psychological team processes, member traits and capabilities, such as
cognitive capacity, communication fluency, or quality of decision making (Lawrence,
1997). Consequently it would be an all too simplistic approach to expect a direct
relationship between TMT demographic traits and performance but it is more impor-
tant to expand upon certain TMT capabilities, which ultimately have an impact on
performance. Already Hambrick and Mason (1984) underline the importance of
organization context in the research of TMT demographics. They assume that TMT
characteristics have the strongest effects on performance and strategic choice under
conditions of high uncertainty. Carpenter (2002) identifies TMT international back-
ground and educational background as important demographic traits in the domain of
international management.
The international background of firms key decision makers is expected to be

related to the way they manage the internationalization activities of their firms (Fischer
and Reuber, 2003). International background matters because it influences the forma-
tion of the firms dominant logic (Bettis and Prahalad, 1995), an information funnel
through which managers attention is filtered. Different experiential contexts are likely
to result in the formation of different types of dominant logics, which will result in
different decisions and actions on the part of decision makers (Boeker, 1997; Tyler and
Steensma, 1998). A team composition displaying high group heterogeneity (e.g.
diversity in the TMT cognitive base expressed through heterogeneity in nationality or
age) has been found to be associated with high levels of creativity and innovation
(Wiersema and Bantel, 1992) and might be suitable to help a TMT to overcome
information overload, complexity and domestic myopia created by complex business
environments (Carpenter and Fredrickson, 2001, p. 534).
Diversity in TMT educational background and diverse viewpoints will lead to

originality and creativity in TMT problem-solution capacity (Chatman et al., 1998),
high quality decision making, increased capability of scanning the environment for
information, and interpretation of possible action alternatives (Hambrick and Mason,

1984). In turn, this leads to efficient information-processing and more accurate predic-
tions, e.g. with respect to a firms position in a specific strategic setting (Westphal and
Fredrickson, 2001). All of these attributes might be specifically important for interna-
tionalization success. Internationalization typically involves a plurality of foreign
markets. Top management team traits that help to handle additional complexity and
uncertainty might constitute a valuable human resource in this context.
In sum, such TMT demography characteristics as internationality or educational

background can be characterized as intangible resources that determine team proc-
esses. I expect that higher international diversity and higher educational background of
the TMT positively influence the performance impact of internationalization. There-
fore, I hypothesize:
Hypothesis 7. Intangible resources in terms of top management team international

diversity and education moderate the relationship between interna-
tionalization and firm performance, such that higher levels of diversity
increase the performance gains attributable to internationalization.
3.4 Method
3.4.1 Sample
The analysis is based on a sample of publicly listed firms from Germany over the
five year time frame between 2001 and 2006. A German setting provides an appropri-
ate sample to test the hypotheses as it offers the potential to analyze firms at different
stages of their international expansion. With respect to the research questions at hand it
is adequate to apply a single country design since the country of origin might seriously
bias results (see chapter two for a discussion of the moderating impact of the country
of origin).
Germany plays an important role in international business. For years it has been
known as world-wide leading country in exports. Many of Germanys firms are among
the world market leaders in their industries. This makes Germany an ideal setting for
an assessment of the role of intangibles. Furthermore, Germany is the largest European
economy and the third largest worldwide (UNCTAD, 2004, 2005). Another important
characteristic is that it is part of the single European market, which makes this setting
Method 93
different from prior samples. Prior research has largely relied on samples from the US,
and to a lesser extent on other non-European samples, such as Japan. The only other
study that tested the s-curve hypothesis beyond those settings so far is Ruigrok et al.
(2007), who relied on a sample of N = 87 Swiss multinational companies with n = 696
firm year observations4.
The initial sample consisted of all German companies that are listed under the
prime standard of the Deutsche Boerse AG (N = 324). The prime standard is a EU
regulated segment for companies also wishing to position themselves vis--vis inter-
national investors. Firms must comply with international transparency standards, such
as (1) quarterly reports in German and English and (2) application of international
accounting standards (IFRS/IAS or US-GAAP). These conditions guarantee the
availability of comprehensive and reliable information. Firms from listing segments
other than the prime standard in turn might not provide reliable data, since disclosure
regulations for these firms are less rigorous. In addition, firms from other sectors do
not have to adhere to international accounting standards and therefore do not (1)
provide sufficient data on intangibles and international activities and (2) guarantee the
comparability of the information to other firms.
The selection process was fourfold. First, I eliminated firms that exhibited no
foreign sales in their annual accounts. Second, I ruled out firms that operated in the
banking and financial services sector (SIC codes between 6000 and 6999) and third, I
excluded small firms with less than 500 employees with the goal of creating a validly
comparable company sample (in terms of degree of internationalization, return ori-
ented performance measures and especially intangible intensity) (Ruigrok et al., 2007).
Finally, I had to erase those firms for which I could not retrieve the data for all items
in a given year. Overall this procedure yielded N = 193 firms with n = 789 firm year
observation that met these criteria. These firms can be considered representative of
German medium to large non-financial multinational companies with international
activities over the five year time frame between 2001 and 2006. A compilation of all
firms with basic characteristics can be found in Appendix A 3.1.
To the authors knowledge the present study is based on the largest sample of
firms not originating from the US or Japan so far that investigates the relationship
between internationalization and performance. In addition, it is among the first to
explore the role of intangible resources in a European context. One reason for this
might be that disclosure regulations often prevented researchers from drawing upon
non Anglo-American samples. This is especially true, since data on intangibles is often
fragmented and seldom easily accessible for samples beyond Anglo-American ones in
databases such as Datastream or Compustat.
Performance
The dependent variable in this study is corporate performance. A variety of

accounting-based return measures have been used in the domain of international
business. In order to secure the comparability of the results to other studies I choose
return on assets (ROA) as the measure of financial performance, since this is the most
frequent used return measure (see chapter two, Table 2.4). ROA is computed as after-
tax ratio in accordance with the formula applied in Datastream: [Net Income before
Preferred Dividends + ((Interest Expense on Debt - Interest Capitalized) * (1 - Tax
Rate))] / Last Year's Total Assets * 100.
The measure of internationalization is the ratio between foreign sales and total
sales (FSTS). Although Sullivan (1994) suggested that the concept of internationaliza-
tion is complex and multidimensional, firms are required to provide data on geo-
graphical sales dispersion only, not on asset or subsidiary dispersion between home
country and foreign countries, under German company law. Thus, statistically reliable
and complete internationalization data was only obtainable in FSTS form. Equally
important, FSTS is the internationalization measure most often used in previous
studies, facilitating cross-study comparison of findings (see chapter two, Table 2.4).
Nevertheless I also calculated the ratio between foreign assets and total assets (FATA)
for a sub-sample of firms, which provided the necessary information.
Tobins q
Lindenberg and Ross (1981) introduced the concept of Tobins q. The problem
with their measure is that it is very complicated to calculate because it requires very
detailed information, e.g. on long-ranging depreciation schedules. Modifications have
been proposed by Lang and Litzenberger (1989) and Lewellen and Badrinath (1997),
who proposed a superior and more pragmatic method. However, their method again is
prone to a high percentage of missing observations and therefore results in the selec-
Method 95
tion of samples that are biased (Lee and Tompkins, 1999). Perfect and Wiles (1994)
empirically compared five alternative constructions of Tobins q and found that results
are method-sensitive for levels of q, but not for changes. This is why some researchers
take a shortcut and employ the market-to-book ratio instead of the more sophisticated
versions of Tobins q.
I calculated Tobins q following the procedure by Chang and Pruitt (1994) which
does not require out-of-financial report data. They find that what they call approxi-
mate q explains at least 96.6 percent of the variability of Tobins q calculated as in
Lindenberg and Ross (1981), which is generally acknowledged as the most accurate
procedure.
I refrained from using the even more simple measure of market-to-book ratio for
two reasons: First, the magnitude of the market-to-book ratios is remarkably different
to the values of Tobins q obtained from my sample of German publicly traded firms
(average market-to-book ratio = 2.07 as opposed to Tobins q = 1.38, see Table 3.4).
Second and probably even more important is the fact that this variable shows a
correlation of only r = .78 with Tobins q in my sample (see Table 3.4). While
researchers often refer to the studies by Perfect and Wiles (1994) as well as Chang and
Pruitt (1994) to justify the use of the market-to-book ratio, my results doubt the
equality of the market-to-book ratio as proxy for Tobins q as opposed to more sophis-
ticated versions of this measure, at least for a sample of publicly listed companies from
Germany. Consequently, I calculate Tobins q as follows:
Tobins q = (MVE + PS + DEBT) / TA
where MVE is the market value of common equity (calculated as the product of a
firms share price and the number of common stock shares outstanding), PS is the
liquidation value of the firms outstanding preferred stock, DEBT is the value of the
firms short-term liabilities net of its short-term assets plus the book value of the firms
long-term debt, and TA is the book value of the total assets of the firm. As stated
above, all of these required inputs are readily obtainable from a firms basic financial
and accounting information (Chung and Pruitt, 1994).
Hedonic q
This measure of resource intangibility is the predicted value obtained from the
regression of Tobins q on five accounting measures of intangible resources: R&D
intensity, marketing intensity, intangibles in books intensity, top management team
internationalization, and top management team education. I am therefore attempting to

capture the joint value of a firms technological know-how, market and customer
know-how, contract-based know-how, and human capital of the top management team.
I will describe the computation and obtained beta-coefficients in section 3.4.4.
Technological Know-How
The prevalent measure for intangible resources in the literature is research and
development (R&D) intensity (Hitt et al., 1991; Morck and Yeung, 1991). In fact, this
measure captures an important dimension of intangible resources, namely a firms
technology based know-how. I calculated R&D intensity as the ratio of R&D expen-
ditures to total sales.
Market Know-How
Analogous to a firms spending on research and development in order to build

technological expertise the marketing or advertising expenses of a firm constitute a
proxy for the creation of market know-how or customer goodwill (Morck and Yeung,
1991; Delios and Beamish, 1999; Kotabe et al., 2002). I calculated advertising inten-
sity (ADV) as the ratio of marketing expenses to total sales.
Contract-based Know-How
Contract-based know-how comprises the capitalized intangible resources of a

firms balance sheet exclusive of goodwill. They comprehend a diverse set of different
accounting items which are (1) brands and patents, (2) licenses, (3) deferred costs, and
(4) miscellaneous intangible fixed assets. I will refer to the sum of these items as
intangibles in books. I decided to omit goodwill since goodwill is simply the result of
merger and acquisition (M&A) activities and hence a residual item which contains a
conglomeration of intangibles for which only an abstract entitlement can be specified.
For the present research question an integration of goodwill would be misleading since
only strategies of external growth result in goodwill as opposed to strategies of organic
growth. Contract-based know-how (CONT) is calculated as the sum of the four items
mentioned above divided by total assets.
Top Management Team Demographics
Generally, researchers have used a variety of different methods to arrive at a

definition of a top management team (TMT). Constructs used include top-level
executives (Murray, 1989) or positions such as vice-president or higher (Michel and
Method 97
Hambrick, 1992) and also the direct questioning of the CEO to nominate the persons
they see as belonging to the TMT (Eisenhardt and Schoonhoven, 1990).
Before describing the measures for TMT international diversity and TMT educa-
tion, I want to indicate what a TMT in the German context is. This is of particular
relevance as in contrast to Anglo-American countries firms listed in Germany usually
do display a two-tier corporate governance system, i.e. the management board and the
supervisory board.
The top executives represent the management board that holds the responsibility
to lead the company on a day to day basis and develop the strategy of the firm. In the
German context, the management board incorporates a CEO (Vorsitzender / Sprecher)
and members (Vorstandsmitglieder). The supervisory board represents the sharehold-
ers (and other interest groups such as employees) and has the task to monitor the
management board. The control the supervisory board has over the management board
is rather focused on financial control. Usually, board members monitor the financial
performance, while strategic control is rather reserved for executives (Westphal and
Fredrickson, 2001).
I refer to the management board as the more appropriate institution for decision
making with respect to internationalization. The measure of TMT international diver-
sity (TMT_INT) is the portion of non-German executives among the management
board. The measure of TMT education (TMT_ACD) is the percentage of executives
holding an academic title such as professor or PhD (Papadakis, Lioukas, and Cham-
bers, 1998; Carpenter, 2002).
In addition, I calculated these two diversity measures for the supervisory board
and the combined management and supervisory board. The results of the analyses did
not reveal significant differences, if these slightly different measures were applied.
Controls
I include controls for several variables known to effect corporate performance.

Descriptive statistics and a correlation matrix for several alternative operationaliza-
tions of all control variables can be found in Appendix A 3.2.
Empirical studies have shown that firm size and internationalization are corre-
lated (Morck and Yeung, 1991; Mishra and Gobeli, 1998). I measure firm size by the
natural logarithm of the number of employees. The correlation of this measure with
alternative measures of firm size such as total sales or total assets is very high, under-
lining the robustness of this measure. As a consequence of the meta-analytical results
from chapter two I calculated a measure for level of product diversification that is
based on the 4-digit SIC Code according to Gedajlovic and Shapiro (1998). Again,
results for 2-digit SIC Codes provided similar results. Furthermore, I included a total
debt-to-total capital ratio as measure of financial leverage. Finally, I introduced fixed
effects for a firms main industry as based on a classification of the Economic Sector
code (manufacturing, service, and other) according to the primary SIC code of each
company.
Table 3.4 provides descriptive statistics and a correlation matrix of the variables
for the full sample of firms.
3.4.3 Sources of Data and Process of Data Collection
To compile my sample I collected corporate information on international activi-

ties, intangible resources, and performance. Most of the information was obtained
from the Thomson Extel Profile Cards database, which I supplemented with informa-
tion from annual reports and data on market value of common equity from Datastream.
The objective of the data collection process of this study was to create one single and
consistent data base. In order to provide the necessary longitudinal data on all relevant
variables I had to collect the data at two separate points in time since Extel Cards only
covers data for up to five years in history and updates its database on an irregular basis
during the year. The first time of assessment was in May 2006 and yielded data for the
years 2000 to 2005. The second data scanning process was performed in May 2007,
yielding addition as well as missing data for the period from 2001 to 2006.
Although prior research has predominantly relied on databases such as Data-

stream or Compustat Global Vantage they bare some serious deficiencies with respect
to my research questions and data requirements. While they offer ease of collecting
financial statement items they only offer limited coverage of German firms, especially
with respect to the level of detail and quality of information regarding (1) intangible
resources and (2) regional dispersion of international activities (this information will
be required in chapter four).
Table 3.4 Descriptive Statistics and Correlations (N = 789)
Method
Variables Mean S. D. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
1. ROA .047 .096
2. FSTS .517 .235 .15**
3. FATA .378 .216 .13** .57**
4. Tobins q 1.38 .879 .46** .01 .04
5. Hedonic q 1.25 .270 .14** -.03 .10 .40**
6. Market to book ratio 2.07 1.94 .28** -.05 .01 .78** .39**
7. R&D .043 .039 .05 .19** .06 .16** .29** .06
8. ADV .032 .036 .11** -.15** .03 .21** .66** .24** -.03
9. CONT .041 .067 -.10* -.07* .01 .01 .11** .01 .08* .12**
10. TMT_INT .084 .153 .04 .23** .28** .08* .23** .10** -.05 .00 -.05
11. TMT_ACD .318 .286 -.06 .13** .07 -.08* -.16** -.08* .15** -.02 -.07 -.03
12. Size_ln 8.63 1.86 .15** .34** .35** -.10** -.13** -.07 -.12** -.04 -.04 .28** .26**
13. Product Div. 4.55 2.14 .08* .22** .20** -.09* -.05 -.05 -.07* .11** -.02 .14** .15** .57**
14. Leverage .606 .177 -.30** .06 .02 -.29** -.20** -.01 -.33** -.15** -.06 .14** .12** .39** .28**
15. I1: Manufacturing .581 .494 .12** .32** .08 -.09* -.16** -.07* .05 -.06 -.04 .01 .00 .12** .19** .13**
16. I2: Service .216 .411 -.15** -.42** -.14** .16** .29** .11* .05 .11** .12** -.16** -.11** -.39** -.37** -.25** -.62**
Notes:
FATA: N = 565, Tobins q: N = 765, Market to book ratio: N = 763.
p < .10.
* p < .05.
** p < .01 (all two-tailed tests).
99
In a pre-test I compared different data sources based on three criteria: (1) Com-
pany coverage, (2) data reliability, and (3) data availability. I considered the following
databases: Amadeus, Hoppenstedt Bilanzdatenbank, Datastream (together with
Worldscope), Compustat Global Vantage and Extel Cards. All databases cover the
majority of German stock-quoted firms, although at a different level of detail. I had to
exclude Amadeus and Hoppenstedt, because these databases only provide basic
financial information which does not include detailed information on international
activities.
I evaluated the reliability of the data provided by Datastream, Compustat, and

Extel Cards as opposed to the companies published annual reports based on a ran-
domly chosen sample of five firms (Deutsche Post, Gildemeister, Kontron, SGL
Carbon, and Vossloh). I found no differences for the data delivered by Extel Cards to
annual reports data whereas Datastream and even more so Compustat revealed
considerable differences in the data they reported, especially for data back in history.
This is a remarkable finding since prior research has extensively relied on these
databases. Moreover, this finding lends support to the call for more valid and reliable
measurement in empirical research in the domain of business administration and
economics that has recently been expressed by the German Science Council (Wissen-
schaftsrat) (Solga and Wagner, 2007). They find fault with the tendency of quantitative
analyses in business administration to be based on identical data from only few
databases. Furthermore they complain that these data are of questionable quality.
Appendix A 3.3 compares selected items that are drawn from different databases.
The third criterion concerns the availability of data on international dispersion of

sales and on intangible resources. Compustat does not provide detailed data on inter-
national activities beyond the amount of foreign sales or foreign assets and reports no
data on top management team characteristics. Although Datastream provides this
information in principle, it only distinguishes between up to five values. For example
it only exhibits the five largest business units for a calculation of product diversifica-
tion or only displays up to five members of the top management team. This is a rather
serious shortcoming since it does not distinguish between the management board and
supervisory board either.
Given the deficiencies of other databases I decided to collect the necessary

information from Thomsons Extel Profile Cards database. It offers the highest
coverage of information on all necessary variables and shows the highest reliability of
Method 101
data. Nevertheless this database has some minor weaknesses as well. It does not
provide ratios like ROA, foreign sales to total sales or R&D intensity directly. It only
provides financial accounting data from annual reports (balance sheet, income state-
ment, etc.). Therefore one has to calculate these items manually which raises the
potential for calculation errors. Furthermore Extel Cards does not offer the ease of
collecting these data like Datastream or Compustat does. Since it does not comprehend
an automatic company search tool, each company has to be retrieved manually. This
deficit again is prone to missing company observations. Appendix A 3.4 exhibits the
output screen from Extel Cards database for a showcase sample firm (SGL Carbon).
A well-known problem in studies using R&D or advertising expenditures is the

substantial amount of missing data for both of these variables from most company
databases. Villalonga (2004) compared alternative solutions to deal with missing data5.
I agree with her approach and applied the following procedure: When a data point was
missing between two non-missing ones, I filled in the data by interpolation. When
the last data point of a series was missing, so that the interpolation could not be
performed, I assumed it to be equal to the previous period expenditures, multiplied by
the growth rate of the previous period (with respect to the one before). The reverse
procedure was used when it was the first data point of a series that was missing. If data
were missing after this method had been employed I excluded the respective observa-
tion.
The international background of the TMT was the only other item for which I
needed to collect additional information. German companies are not obliged to release
comprehensive demographic information about their TMT and there is a reluctance to
publish this information. However, since the discussion on corporate governance
issues started at the end of the 1990s, also in Germany, companies have developed a
higher degree of awareness of the issues of information transparency and started to add
demographic information on TMTs to their web sites and company reports. As central
sources for data on international TMT members, I used company web-sites to access
current data. Demographic data on current TMTs obtained from companies web sites
are usually reliable, of high quality and very comprehensive (covering a full TMT for
the present situation), as in the best case it comes as complete CV documents. I coded
place of birth and CV development as a proxy for nationality. Furthermore, I used
company reports and sites of institutions or organizations where the TMT member in
question holds an important position for retrieving both current and historical
accounts. Appendix A 3.5 exemplifies this coding procedure for a sampling firm (SGL
Carbon).
I estimated two different econometric models: The hedonic regression of Tobins

q, and a pooled time-series cross-sectional regression analysis in order to test my
hypotheses. The hedonic equation was specified as follows:

ln q
it
D E
j 1j
* R & D E * ADV E * CONT E * TMT _ INT E * TMT _ ACD H ,
it 2j it 3j it 4j it 5j it it
where q is Tobins q, R&D is expenses on research and development divided by

sales, ADV is marketing expenses divided by sales, CONT is intangibles in books
divided by assets, TMT_INT is the percentage of international members of the top
management team, and TMT_ACD is the percentage of members of the top manage-
ment team holding an academic title.
Following Hall (1993), I took the natural logarithm of q, so that the coefficient
estimates allow me to calculate the percentage change in q for a one unit change in the
given variable. In contrast, a linear transformation would imply constant returns to
scale from investments in intangibles, which is unlikely to be the case. The j subscripts
in all coefficients indicate that this model was estimated separately for every industry
based on the official classification by Deutsche Boerse AG. This allows for the fact
that a specific intangible resource included in this equation may be more relevant in
some industries than in others. Table 3.5 exhibits the beta-coefficients obtained from
hedonic regression by industry. The hedonic q estimates for each firm year are the
antilogarithms of the predicted values of q from the regression equation.
I calculated beta-coefficients based on alternative industry classifications as well.

Two alternative classifications can be based (1) on the primary one-digit SIC-Code
and (2) on the technology versus classic segment by Deutsche Boerse AG. The R2
values obtained from these classifications were lower, which implies that these
taxonomies reflect the essence of strategic industry factors (Amit and Schoemaker,
1993) to a lesser extent. Results from hedonic regression with these industry classifica-
tions are depicted in Appendix A 3.6. Consequently, I draw my results from the
classification shown in Table 3.5.
Table 3.5 Coefficients from Hedonic Regression
Method
Industry N Intercept R&D ADV CONT TMT_INT TMT_ACD R2

Automobile 53 -.468 7.36 19.25 -3.32 -.243 .074 .220
Basic Resources and Construction 46 .129 1.56 -1.92 1.35 -.390 -.157 .319
Chemicals 50 .230 -6.38 12.01 -.078 -.202 -.136 .203
Consumer 86 -.073 .929 4.32 2.17 .611 -.176 .456
Industrial
- Advanced Equipment and Renewables 54 .752 -7.63 -3.23 .231 -1.01 .166 .170
- Heavy Machinery and Diversified 42 -.451 -.138 28.84 .998 .540 -.207 .342
- Industrial Machinery 52 -.071 .873 -5.68 6.58 .000 .025 .306
- Industrial Products 75 .016 -.629 15.21 1.56 -.596 .023 .094
Media and Telecommunication 26 1.34 -33.30 .899 -2.18 .269 -.167 .259
Pharmaceutical and Healthcare 56 -.311 4.67 3.16 1.26 .372 -.095 .417
Retail 61 -.273 .000 4.97 .191 1.10 .654 .441
Software 107 .232 .717 1.30 -.262 1.76 -.082 .127
Technology 37 .809 -4.47 -30.12 -3.47 1.61 1.37 .603
Transport, Logistics, and Utilities 44 .141 -2.25 2.48 -1.22 -.140 -.145 .059
Notes:
N: Number of firm-year observations.
103
I chose panel data OLS regression analysis pooling time-series and cross-sec-
tional data as the method to test my hypotheses. This procedure is well established in
international business research (Gomes and Ramaswamy, 1999; Contractor et al.,
2003; Ruigrok and Wagner, 2003; Ruigrok et al., 2007) as it offers some advantages
compared to cross-sectional research designs. It enlarges the degrees of freedom of the
statistical analysis and improves the reliability and stability of parameter estimates. As
Aiken and West (1991) recommend, I mean-centered the variables before I created the
interaction terms to minimize the effect of multicollinearity. A review of the correla-
tion values in Table 3.4 indeed indicates that the risk of multicollinearity invalidating
the results is minimal for the firm variables in the model. The two variables size and
leverage show the highest correlation among the predictor variables of r = .57 (statisti-
cally significant), as one should expect. Therefore I checked the variance inflation
factor (VIF) in each of the regression models. In the case of this studys variables, the
VIF is significantly lower (max. 2.26 for firm size) than the upper threshold value of
ten recommended by Burns and Bush (2000) for each of the models. Additionally, it
should be noted that many leading references in econometrics and statistical method-
ology have offered as a rule of thumb that collinear relationships under 0.7 should not
create potential problems (or statistical confounds) related to multicollinearity
(Andersen, Sweeney, and Williams, 1996). Based on the two reasons stated above I
concluded that multicollinearity is not a concern for this study.
3.5 Results
I report the results in three different tables. ROA is the dependent variable in all
of the tables and models.
Table 3.6 shows the results for the tests of hypotheses one and two. Model one is
the base line model that includes only the control variables and Tobins q, the measure
of intangible resources. All control variables except product diversification display
significant effect sizes. This confirms the necessity to control for their effects in the
domain of international business. Tobins q has a significantly positive effect, indicat-
ing the importance of intangible resources for success in general. I test hypothesis one
stepwise throughout models two to four. In model two I add the term for internation-
alization, followed by the squared term in model three and lastly a cubic term in model
Results 105
Table 3.6 Regression of Curve Type and Moderation of Tobins qa
Variable 1 2 3 4 5
1. Intercept -.014 -.011 -.039 -.100** -.105**
(-.73) (-.58) (-1.75) (-3.96) (-4.16)
2. Size_ln .013** .013** .013** .014** .013**
(6.24) (6.22) (6.24) (6.67) (6.53)
3. Product Div. .000 .000 0.00 .000 .000
(-.16) (-.18) (.03) (-.19) (-.14)
4. Leverage -.180** -.181** -.183** -.186** -.184**
(-9.82) (-9.83) (-9.96) (-10.26) (-10.20)
5. I1: Manufacturing .015* .015* .014 .016* .016*
(2.00) (2.07) (1.92) (2.26) (2.15)
6. I2: Service -.037** -.039** -.036** -.030** -.030*
(-3.91) (-3.96) (-3.65) (-3.05) (-3.12)
7. Tobins q .046** .046** .046** .045** .048**
(13.51) (13.52) (13.67) (13.68) (13.95)
8. FSTS -.009 .128* .703** .721**
(-.68) (2.35) (5.31) (5.46)
9. FSTS (squared) -.138** -1.57** -1.59**
(-2.61) (-5.13) (-5.25)
10. FSTS (cubic) .985** 1.02**
(4.75) (4.85)
11. FSTS * Tobins q -.038**
(-2.71)
R2 .354 .355 .361 .379 .385

Adjusted R2 .349 .349 .354 .372 .377
' R2 .001 .007 .025 .031
F-statistic 69.35** 59.47** 53.28** 51.21** 47.22**
p < .10.
* p < .05.
a
Upper number in a cell is a parameter estimate; numbers in the parentheses are t-statistics.
four in order to test for a sigmoid curve type of the internationalization-performance

relationship. The linear term in model two is insignificant, indicating that there is no
simple linear relationship between internationalization and firm performance. In
contrast, both internationalization terms in model three are significant, as well as the
linear, squared in cubic terms in model four. While model three gives indication for an
inverted u-shaped curve type pattern it becomes obvious that the addition of a cubic
term significantly improves model fit and explains a far higher degree of performance
variance ('R2 of .025 in model four versus 'R2 of only .007 in model three as com-
pared to the base line model). Consequently the internationalization-performance
relationship can be best described by a sigmoid curve type pattern and therefore
hypothesis one can be supported. Performance increases at low levels of internation-
alization and exhibits an upper-bound and a subsequent lower-bound inflection point

with growing degrees of internationalization. As corroboration for this result, I calcu-
lated F-values to test model fit. The results confirm that the inclusion of additional
terms significantly improves model fit throughout model one to four (p < .01). Note
that this curve type pattern is consistent across different operationalizations of intangi-
ble resources in Tables 3.7 and 3.8.
Hypothesis two predicts that intangible resources positively moderate the inter-
nationalization-performance relationship. I test this hypothesis by entering the interac-
tion term of internationalization and Tobins q in model five. Although the coefficient
for the interaction term is significant it is not in the hypothesized direction. Therefore I
have to reject hypothesis two.
Table 3.7 presents the results for the test of hypothesis three. It introduces
hedonic q as an alternative measure of intangible resources that more purely comprises
the value of intangible resources. Model one to four contain results for the shape of the
internationalization-performance relationship that are similar to the ones reported in
Table 3.6. However, the interaction term of internationalization and hedonic q is not
significant in model five. Intangible resources measured by the overall measure of
hedonic q do not significantly moderate the relationship between internationalization
and performance. Therefore hypothesis three has to be rejected as well.
Table 3.8 presents the results for the moderating impact of different facets of
intangible resources upon the internationalization-performance relationship. Model
one is the base line model again. As one can see, there is no uniform direct effect from
intangible resources on ROA. Only market know-how constitutes a valuable resource
that directly affects performance. In contrast, contract-based know-how and the
academic background of the TMT have a negative impact. Rather surprisingly tech-
nological know-how does not exhibit a direct effect on performance while it appears
more comprehensible that the international diversity of the TMT per se does not
constitute a universal valuable resource that enhances performance. The curve type
pattern in model two is consistent with the ones in the prior two tables (Table 3.6 and
Table 3.7); yet after separate controlling for the influence of each dimension of
intangible resources.
Results 107
Table 3.7 Moderation of Hedonic qa
Variable 1 2 3 4 5
1. Intercept .004 .004 -.007 -.071* -.070*
(.15) (.15) (-.28) (-2.37) (-2.36)
2. Size_ln .014** .014** .014** .015** .015**
(6.54) (6.33) (6.32) (6.74) (6.71)
3. Product Div. -.001 -.001 -.001 -.001 -.001
(-.47) (-.47) (-.38) (-.67) (-.67)
4. Leverage -.231** -.231** -.232** -.234** -.235**
(-12.15) (-12.05) (-12.10) (-12.38) (-12.35)
5. I1: Manufacturing .015 .015 .014 .017* .017*
(1.87) (1.86) (1.80) (2.16) (2.14)
6. I2: Service -.036** -.036** -.034** -.028* -.028*
(-3.35) (-3.27) (-3.06) (-2.52) (-2.52)
7. Hedonic q .052** .052** .050** .049** .049**
(4.34) (4.32) (4.14) (4.06) (4.06)
8. FSTS .000 .069 .669** .670**
(-.03) (1.15) (4.64) (4.63)
9. FSTS (squared) -.069 -1.55** -1.55**
(-1.20) (-4.70) (-4.70)
10. FSTS (cubic) 1.03** 1.03**
(4.56) (4.56)
11. FSTS * Hedonic q -.006
(-.11)
R2 .220 .220 .221 .242 .242

Adjusted R2 .214 .213 .213 .233 .232
' R2 .00 .001 .022 .022
F-statistic 36.74** 27.56** 31.45** 27.71** 27.56**
p < .10.
* p < .05.
a
In model three I test whether technological know-how moderates the internation-

alization-performance relationship. The effect size is positive and significant, and the
addition of the interaction term increases the explanatory power of the model. There-
fore hypothesis four can be supported. Although the moderator term in model four is
positive, it just fails to become significant. As a consequence I have to reject hypothe-
sis five. The interaction of market know-how and internationalization does not signifi-
cantly contribute to an increase in firm profitability. In model five contract-based
know-how represents a significant intervening variable that positively moderates the
internationalization-performance relationship. Therefore, hypothesis six can be
supported. Furthermore, the direct and negative effect from contract-based know-how
Table 3.8 Moderation of Individual Intangible Resourcesa
Variable 1 2 3 4 5 6 7 8
1. Intercept .075** .004 .005 .001 .011 .025 .005 .034
(3.56) (.139) (.19) (.04) (.38) (.91) (.17) (1.23)
2. Size_ln .016** .015** .014** .016** .016** .011** .015** .011**
(7.05) (6.79) (6.24) (6.93) (6.90) (4.97) (6.74) (4.54)
3. Product Div. -.001 -.001 -.001 -.001 -.001 -.001 -.001 .000
(-.56) (-.67) (-.58) (-.79) (-.40) (-.66) (-.62) (-.25)
4. Leverage -.244** -.246** -.238** -.246** -.250** -.231** -.246** -.229**
(-12.14) (-12.26) (-11.92) (-12.29) (-12.52) (-11.75) (-12.25) (-11.72)
5. I1: Manufacturing .017* .017* .018* .017* .017* .016* .018* .016*
(2.07) (2.17) (2.27) (2.15) (2.12) (1.98) (2.19) (2.06)
6. I2: Service -.025* -.016 -.012 -.015 -.012 -.020 -.015 -.010
(-2.36) (-1.51) (-1.08) (-1.44) (-1.12) (-1.90) (-1.42) (-.96)

7. R&D -.101 -.130 -.253** -.129 -.157 -.153 -.132 -.295**
(-1.20) (-1.52) (-2.77) (-1.51) (-1.84) (-1.83) (-1.53) (-3.33)
8. ADV .234** .225* .224* .288** .227** .187* .219* .196*
(2.70) (2.59) (2.60) (3.02) (2.63) (2.19) (2.50) (2.11)
9. CONT -.168** -.134** -.134** -.130** -.075 -.122** -.133** -.057
(-3.63) (-2.89) (-2.91) (-2.80) (-1.51) (-2.69) (-2.85) (-1.18)
10. TMT_INT -.007 -.007 -.001 -.005 -.008 .011 -.003 .020
(-.34) (-.33) (-.06) (-.26) (-.39) (.56) (-.12) (.91)

11. TMT_ACD -.034** -.026* -.025* -.027* -.024* -.020 -.026* -.019
(-2.95) (-2.23) (-2.19) (-2.38) (-2.13) (-1.77) (-2.24) (-1.67)
12. FSTS .581** .584** .583** .515** .600** .579** .531**
(3.91) (3.97) (3.93) (3.46) (4.14) (3.90) (3.69)
13. FSTS (squared) -1.29** -1.25** -1.31** -1.17** -1.35** -1.30** -1.19**
(-3.80) (-3.72) (-3.86) (-3.46) (-4.06) (-3.81) (-3.62)
14. FSTS (cubic) .851** .808** .864** .790** .896** .857** .801**
(3.67) (3.51) (3.73) (3.42) (3.96) (3.69) (3.57)
15. FSTS * R&D 1.47** 1.35**
(3.75) (3.53)
16. FSTS * ADV .607 .137
(1.59) (.37)
17. FSTS * CONT .606** .637**
(3.45) (3.70)
18. FSTS * TMT_INT .286** .286**
(6.30) (6.31)
19. FSTS * TMT_ACD -.044 -.048
(-.47) (-.53)
R2 .232 .247 .261 .250 .259 .284 .247 .309

Adjusted R2 .222 .235 .247 .236 .245 .271 .234 .293
' R2 .015 .029 .018 .027 .052 .015 .077
F-statistic 23.45** 19.58** 19.49** 18.40** 19.29** 21.93** 18.18** 19.12**
p < .10.
* p < .05.
a
Discussion 109
on performance becomes insignificant in this model. Empirically the low correlations

to technological know-how (r = .08) and to market know-how (r = .12) justify a
separate treatment of contract-based know-how (see Table 3.4). The first part of
hypothesis seven predicts that the more international the composition of the TMT the
higher the performance gains from internationalization. This part of the hypothesis is
supported as well, as one can see from model six. The effect size is positive and highly
significant. Furthermore the internationalization of the TMT makes up for the highest
portion of additional performance variance explained from any of the single moderat-
ing variables which I investigate. In contrast, the top management educational back-
ground does not moderate the internationalization-performance relationship. Conse-
quently hypothesis seven can only be supported partially.
Model eight contains the entire set of variables and shows the moderating effects
from different measures of intangible resources simultaneously. In combination these
dimensions of intangible resources explain additional 6.2 percent points of perform-
ance variance; that is model eight has an explanatory power that is more than 25
percent higher than the one obtained by model two. Hence, the inclusion of the effects
from different facets of intangible resources into the investigation of the internationali-
zation-performance relationship increases the explanatory power of the sigmoid curve
type model strongly.
3.6 Discussion
The major research objective of this chapter was to address the important but yet
unresolved question if and why internationalization does have an impact on firm
performance in the context of intangible resources. This study is among the few that
address this question analyzing a sample of firms beyond companies from the US. The
results reveal two important findings. First, a sigmoid curve type pattern best explains
the shape of the internationalization-performance relationship in a German context.
Nevertheless, the coefficients are quite contrary than has originally been predicted by
the pioneers of the so called 3-stage theory. Second, the role of intangible resources
is more complex than prior research has assumed. In fact this finding reflects the
original theory on firm-specific advantage (Barney, 1991; Peteraf, 1993) or ownership
advantages (Dunning, 1988) more precisely in that it captures the idiosyncratic nature
of intangible resources, specifically with respect to their effect upon performance
consequences from the international expansion of the firm.
German firms face an initial phase of increasing performance followed by an

upper and subsequent lower inflection point in their internationalization trajectory.
This result challenges the idea of earlier studies that aimed to establish a general
model on the curve type that best fits the internationalization-performance relation-
ship. Their line of inquiry has tended to assume that the curve type pattern is mostly
independent of home-country attributes of internationalizing firms. In fact, I agree
with Ruigrok et al. (2007, p. 362) who state: Thus, while the s-shape curve should
provide the conceptual starting point for analyses of the link between international
expansion and firm performance, home-country effects should be taken into account as
well. These home country effects include (1) the size of the home market and (2) the
similarity of neighboring markets.
As an extension I contend that home market size does not influence the basic
overall shape of the curve type pattern, but it determines the inflection points, i.e. the
degrees of internationalization at which firms encounter reversing benefit-cost trade-
offs. This is simply true because of the composition of the measure of internationali-
zation that is mostly used in these investigations the ratio between foreign sales and
total sales (FSTS). To illustrate this point, take a firm that sells 70 percent of its
products in Germany and 30 percent in Switzerland. If this firm happens to be a
German firm it will have a 30 percent FSTS ratio. However, if the firm is registered in
Switzerland the ratio is 70 percent, and if it were to relocate its headquarters, its degree
of internationalization would change even though nothing has changed economically.
The present sample covers firms at different stages of internationalization (foreign
sales to total sales ranging from .01 to .95). Indeed, I find the first inflection point to
occur earlier for the German sample (at about 20-30 percent FSTS) than Ruigrok et al.
(2007) found for their Swiss sample (between 40-49 percent FSTS interval, p. 362).
The similarity to neighboring markets determines if and when firms face differ-
ent stages of internationalization. While I do not doubt that there is something like a
liability of foreignness, it does not necessarily have to be the case that the costs
associated with being a foreigner outweigh benefits at low levels of internationaliza-
tion. What really matters in this context is the degree of dissimilarity between business
environments. Prior research has mainly attributed costs from dissimilarities to cultural
differences (Contractor et al., 2003; Lu and Beamish, 2004). My results suggest that
similarity to neighboring markets may also include the availability of a wider eco-
nomic union. Therefore, not only culture is an important aspect with regard to interna-
tional management but as well the commonality of institutional and regulatory
Discussion 111
arrangements. Once again, while I do not doubt that cultural dissimilarity creates
additional costs of communication and coordination I contend that comparable institu-
tional arrangements might compensate for these additional costs and enhance the
performance prospects at low degrees of internationalization.
Albeit the membership in the European Union might reduce the intra-regional
liability of foreignness for German firms, increasing adaptation costs come along with
rising degrees of internationalization and operations in several regions. In a similar
vein, Rugman and Verbeke (2007) distinguish three regions (Europe, America, and
Asia) and divide between intra- and inter-regional liabilities of foreignness. Neverthe-
less German firms might find ways to cope even with these costs by reorganizing their
management systems and are not doomed to ever decreasing performance beyond a
certain level of internationalization. The fact that firms from this sample generate on
average 51.7 percent of their sales abroad (see Table 3.4) confirms the assumption that
German firms can draw on considerable internationalization experience in comparison
to firms from many other countries (UNCTAD, 2004). It would seem implausible to
expect that more than half of the German firms have over-internationalized
(Contractor et al., 2003), i.e. systematically operate at degrees of internationalization
that are detrimental to firm performance. With experience in adapting to local business
customs these firms might have learned to avoid or at least to minimize frictions in
communication and coordination.
Another explanation might be that growing transaction and coordination costs are
rather reflected in measures that cover international asset or subsidiary dispersion than
in sales based measures of internationalization. I tested for this possibility with a
subset of firms that report data on international asset dispersion (N = 565). The
direction of the obtained regression coefficients is identical to the foreign sales to total
sales measure although the significance of the effect size estimates diminishes. See
Appendix A 3.7 for the results based on foreign assets to total assets as the measure of
internationalization. Furthermore I tested whether time-lagged measurement of the
performance variable would lead to different conclusions. I find that the results are
robust across different measurement designs. Appendix A 3.8 displays the results for
measuring the dependent variable ROA with one year and two year time lag. This is
probably due to the fact that the measures for intangible resources such as spending on
R&D or the composition of the management board are rather stable over time.
The second research question approaches the influence of the availability of

intangible resources on the s-shape curve type pattern found in hypothesis 1. The
empirical evidence suggests that some but not all dimensions of intangible resources
elevate the performance effect from internationalization. This finding is equally
important to the result of an s-shape curve type pattern because it shows that prior
operationalizations of the internalization theory have fallen short of distinguishing
between different facets of intangible resources.
Neither Tobins q as an overarching measure of intangible resources nor the

more pure measure of hedonic q could confirm the notion that all intangibles hold
internationalization potential, i.e. enhance performance when applied in multiple
markets. Furthermore, the insignificant results from hypothesis three with hedonic q as
a measure of intangible resources as compared to the negative effect from Tobins q in
hypothesis two cast doubt upon the adequacy of Tobins q as a valid measure of
intangible resources for my sample. The direction of the moderator term based on
Tobins q is opposite to the one hypothesized, and therefore the alternative interpreta-
tion that Tobins q reflects at least partially investors expectations beyond the
value relevance of intangible resources cannot be rejected.
While prior tests of the internalization theory have largely assumed many differ-
ent operationalizations of intangible resources to be valid and representative measures
for other dimensions as well, researchers have only recently pointed to the multidi-
mensional nature of intangible resources in the domain of international business (Lei,
2007; Rugman and Verbeke, 2007). The results from this study indicate that it is
important to differentiate between different facets. One distinction is central for the
explanation why certain intangible resources can be effectively deployed internation-
ally while others can not. It is the distinction whether the value of a resource is loca-
tion bound or whether it is not. Intangible resources in the form of technological
know-how or the international composition of the top management team significantly
determine performance consequences of any internationalization strategy. This finding
demonstrates that internationalization can truly be a valuable strategy if the value of a
certain resource does not stick to the market where it was originally created.
Technology intensive firms face significant pressure to reduce costs but rela-
tively less pressure to make changes in products (Prahalad and Doz, 1987). In such
competitive environments, it has been argued that a firm failing to capitalize on these
benefits is likely to face competitive disadvantage versus a rival who has internalized
Discussion 113
these benefits through international operations. Consequently internationalization

seems to be an important vehicle to exploit firm specific competitive advantage for
R&D intensive firms. The value from upstream intangible resources such as techno-
logical know-how is embedded in the product itself which in turn can be sold interna-
tionally while avoiding major adaptation needs to sustain the value derived from this
specific resource.
In contrast, I could not find support for the hypothesis that market know-how
moderates the internationalization-performance relationship. It seems as though this
kind of knowledge depreciates quickly when applied in foreign markets. Market know-
how originates from the downstream side of the value chain, where products and
services need to be marketed to buyers. Therefore the value of this resource depends
on location specific components as well. Market know-how, although non-location
bound in principle, may consequently only be valuable in proximate markets, instead
of having really global deployment and exploitation potential.
Contract-based know-how positively moderates the internationalization-perform-

ance relationship. It seems as if the value from intangibles that is codified in contracts
can be successfully deployed internationally. In large part these contract-based
resources consist of externally purchased brands, patents, and licenses. Such know-
how in turn comprises recorded and explicit know-how that can be exploited in
different environments in contrast to implicit know-how like experience that needs
additional location specific resource commitments.
The stake of international members of the top management team enhances the
performance impact of internationalization. This is because different national back-
grounds of the individual members affect a TMTs dominant logic. Prahalad and
Bettis (1986, p. 491) define dominant logic as the mindset [...] of the business and
administrative tools to accomplish goals and make decisions [...] which is stored as a
shared cognitive map among the dominant coalition. Bringing greater diversity and
international experience to the TMT dominant logic allows firms to draw on the
benefits from geographical diversity, strengthening the relationship between interna-
tionalization and firm performance. Note that the value of this resource depends on the
context in which it is applied, i.e. multinational firms. From Table 3.8 one can deduce
that a more international dominant logic among the TMT does not directly affect firm
performance. It is only in the context of firms with growing degrees of internationali-
zation that this resource obtains its value and becomes crucial for internationalization
success. The second measure of TMT demographic diversity, i.e. educative back-
ground, does not significantly moderate the internationalization-performance relation-
ship. It seems as if this measure is too general to affect performance in the context of
internationalization. This might be because educational background lacks reference to
the specific abilities that are required for internationalization from the TMT.
Compositional demographic traits are certainly rough surrogates for subjective

concepts such as group conflict, group ingenuity, or group creativity (Michel and
Hambrick, 1992) which influence the performance of teams and the ability to success-
fully manage an international company. As demographic proxies however, they are
useful for measuring constructs that are otherwise almost impossible to measure or are
prone to unreliable measurement. TMT demographic traits are not only directly
observable and thus more reliable and valid replicable measures, but they also produce
a simpler, more parsimonious model of human behavior and interaction within the
respective TMT. The results for TMT demography yield two important insights: First,
one should be aware of processes and factors that work within the link of TMT
demographics and firm performance in order to understand why TMT traits such as
international diversity influence performance effects from internationalization (Smith
et al., 1994) and second, the specific organizational context may have an influence on
the work of TMTs and their ability to influence firm performance (Keck, 1997).
To sum up, the result that intangible resources are relevant in different extents in
the context of internationalization and firm performance is in line with one essential
finding already articulated in chapter two. The internationalization-performance
relationship is complex and fundamentally context dependent.
This perception is as well an extension and refinement of internalization theory.

This established theory posits that internationalization is the result of market failure for
the transfer of valuable resources. It does not specify what makes resources valuable
and it does not indicate if resources that are valuable in a national context can be
successfully deployed in international markets. Since the results obtained from this
chapter corroborate the multidimensional nature of intangibles one is led to wonder
whether it is still possible to talk about intangibles in general in the context of the
internationalization-performance relationship. Can researchers studying intangibles in
general offer suggestions that can be transferred into business life or must one focus on
a specific kind of intangible resource in order to offer concrete descriptions and
suggestions? This piece of research suggests that a distinction of intangible resources
Limitations 115
by their utilization within the value chain explains why some resources are more
valuable in the context of internationalization than others. The practical additional
insight from this chapter is that a firms internal setting is decisive for success in
international markets. Therefore, future research should further explore how configu-
rations of international activities such as speed and scope of the international expan-
sion process moderate this relationship.
3.7 Limitations
As with any study, this one has several limitations, and its findings should be
interpreted within its context. First, this study is coarse-grained in nature, as it relies on
a large sample of 789 firm year observations based on publicly available secondary
data, and therefore suffers all the attendant limitations with conceptual and measure-
ment issues related to such designs. Second, it focuses on one country to reduce the
chance that country confounds would invalidate the findings. Therefore, this boundary
condition should also apply to its findings. This concerns the curve type pattern as well
as the role of intangible resources. Indeed, comparing the results on the s-shape curve
type pattern found in this chapter to the results obtained from other countries it seems
that mixed country samples probably would lead to spurious results. In international
competition German firms are well-known for quality leadership. Therefore intangible
resources are of primary importance for German firms. Firms from different environ-
ments such as developing or less munificent countries may find that different resources
are more important in their context (Wan and Hoskisson, 2003). Nevertheless, the
classification of intangible resources that I relied on is derived from an established
classification by the FASB, therefore facilitating cross-country comparisons.
I rely on foreign sales to total sales as the measure of internationalization.

Although prior research has criticized the application of this measure for a couple of
reasons, it is still the most widely used measure of internationalization in contempo-
rary research. Nevertheless, a problem regarding the degree of internationalization
arises that is inherent to the concept of this measure. As has been pointed out in
chapter two, firms face different incentives and opportunities for internationalization
depending on the size of the home market. Consequently, firms degrees of interna-
tionalization, if measured with conventional flow data (foreign sales, foreign assets,
etc.) will depend on the size of their home markets. For instance, given that the US
market is much larger than the German, or any other European market, US firms tend
to have much smaller degrees of internationalization than European firms, all other
things being equal. The interdependence between the size of firms home markets and
their degrees of internationalization creates problems with comparisons of studies
based on different national data.
The results from this study reflect the internationalization of medium to large
German firms. Therefore the findings may not be transferable one-on-one to smaller
enterprises. As already pointed out in chapter two, firm size represents an important
contextual characteristic. Entrepreneurship research has shown that smaller firms have
different ownership structures or management styles (Coviello and McAuley, 1999)
with the result that small firms may exhibit different internationalization patterns. For
example, small firms are found to use differing entry modes such as equity joint-
ventures to compensate for their lack of financial capital and human resource con-
straints (Inkpen and Beamish, 1997). Hence, future research might increasingly
investigate differences in the internationalization patterns of small firms as well.

The 3-stage proposition is a theory that should ideally be tested over time. Future
research may ideally employ different methods such as case study designs that cover a
longer time frame to find out whether firms that increasingly expand abroad indeed
face the different phases of increasing performance and subsequent adaptation and
reconfiguration pressures. A central explanation of changing curve type patterns is that
companies learn along their internationalization path. Future research might therefore
analyze in more detail what kind of knowledge is critical at different stages of interna-
tionalization and how international learning occurs. How can knowledge obtained
abroad be successfully transferred back to the parent company and how does it diffuse
into the dominant logic of the company? Rugman and Verbeke (2003) have already
developed a promising conceptual piece of research in this area. They delineate the
decisive role of subsidiaries for learning and innovation.
Another promising avenue will be research on firms operating at extreme degrees

of internationalization. In this study I analyze established medium to large German
firms. Some of them operate at rather low levels of internationalization. These firms
must not necessarily be at initial stages of their internationalization process. Knowl-
edge on international growth barriers would be worthwhile, i.e. why certain firms stop
Conclusions 117
their internationalization process at rather low degrees of internationalization while

others that already operate at extremely high degrees of internationalization still
advance their internationalization. This would broaden our knowledge on different
motives for internationalization and the strategic importance different managers
attribute to internationalization. Recently, Ruigrok et al. (2007) for example investi-
gated Swiss firms operating at extreme high degrees of internationalization. They
found that firms face screening forces at extreme degrees of internationalization.
For firms operating at extremely high DOIs, absorptive capacity constraints appear to
be salient [...] The counterintuitive finding of this study is not that many MNCs at
extreme DOIs face severe performance pressures. Rather, the interesting finding is that
some companies at extreme DOI levels would appear to have found ways to deal with
weak situations relatively successfully. (Ruigrok et al., 2007, p. 363f.).
Future research would ideally investigate if and how home country givens influ-
ence the availability and importance of intangible resources for internationalization
success. For example samples could be drawn from developing countries. Do firms
that derive their competitive advantage from cheap labor costs in their home country
benefit from international diversity among the top management team? How does
technological know-how intensity relate to the munificence of the home country or
macro economic institutions such as different education systems?
I was not able to capture more facets of intangible resources due to fact that the
analyses are based on accounting data from annual reports. Future research would
include the collection of survey data or conduct of case studies to more deeply under-
stand which resources managers actually have in mind when considering internation-
alization as an option to generate value.
3.9 Conclusions
In this chapter I tested a sigmoid curve type pattern and the role of intangibles
resources in the context of the internationalization-performance relationship. Using a
dataset of publicly listed German firms I find that the originally proposed s-shape
curve is shifted to the right, preceded by an initial phase of increasing performance. In
addition I do not find that firms necessarily face ever decreasing performance once
they have passed a certain internationalization threshold. The second contribution of
this chapter is that it makes use of a more comprehensive conceptualization of the
construct of intangible resources and that it introduces a novel approach to measuring

the value of intangible resources, the so called hedonic approach.
I find support that the relationship under examination is fundamentally context

dependent. This result backs those theories that stress the conditionality of success in
internationalization and that emphasize the decisive role of intangible resources,
especially in the form of technological know-how and top management team interna-
tional diversity. Figure 3.3 summarizes the results for the moderating impact of
intangible resources. Given the complexity and context-dependency of this relation-
ship I think that future research might benefit from an integration of several theoretical
approaches to more fully understand the nature of the internationalization-performance
relationship.
Figure 3.3 Results for Moderator Analysis of Intangible Resources
Degree of
Technological
Know-How
Market
Tobins q Know-How
Contract-Based
Know-How
Hedonic q TMT International

Diversity
TMT
Education
Firm
Performance
Supported
Not Supported
Conclusions 119
Furthermore, this study offers practical guidance to managers in internationaliz-

ing firms. It shows that one should not underestimate the importance of intangible
resources. Just as many exporting activities started by unsolicited export orders the
reputation of technological excellence or a strong brand name might precedent firms in
an increasingly globalizing world. Customers, business partners or the press might
already have determined the quality of a firms products or services before it actually
ventures abroad.
Although this study helps to refine the nature of the internationalization-perform-

ance relationship the results provide evidence that additional research is necessary,
especially on samples beyond the US. Theory building and empirical investigations in
search of moderating factors, their interactions and evolution along the internationali-
zation process might yield valuable insights into the nature of the internationalization-
performance relationship. In the following chapter I will therefore analyze in more
detail, how intangible resources influence the internationalization process and how
different process dimensions influence the performance attributes of internationaliza-
tion.
Endnotes
1. According to Barney (1991) an item hast to satisfy four conditions, in order to be termed
resource. These characteristics are called the VRIN-criteria (valuable, rare, imperfectly imitable,
and non-substitutable). While the first two characteristics are constituent criteria for competitive
advantage of a firm the later two criteria refer to the sustainability of a competitive advantage.
2. Hedonic pricing models have their roots in the calculation of prize indices, for example in such
diverse areas as real estate or digital cameras. Count (1939) is often cited to be the first who intro-
duced the term hedonic. As economist for the Automobile Manufacturers Association, he devel-
oped a hedonic price index for automobiles. Court recognized that a single variable could not
explain automobile demand. His hedonic model to explain prices included three variables: Dry
weight, wheelbase and horsepower.
3. The objective of IAS 38 is to prescribe the accounting treatment for intangible assets that are not
dealt with specifically in another IAS. The standard requires an enterprise to recognize an intangi-
ble asset if, and only if, certain criteria are met. The standard also specifies how to measure the
carrying amount of intangible assets and requires certain disclosures regarding intangible assets.
For a comprehensive overview of accounting rules and regulations for intangibles see Lev (2001,
p. 135-153).
An intangible asset is defined as identifiable non-monetary asset without physical substance. An

asset is a resource that is controlled by the enterprise as a result of past events (for example, pur-
chase or self-creation) and from which future economic benefits (inflows of cash or other assets)
are expected. Thus, the three critical attributes of an intangible asset are (1) identifiability, (2)
control (power to obtain benefits from the asset), and (3) future economic benefits (such as reve-
nues or reduced future costs). An intangible asset is identifiable when it is separable (capable of
being separated and sold, transferred, licensed, rented, or exchanged, either individually or as part
of a package) or arises from contractual or other legal rights, regardless of whether those rights are
transferable or separable from the entity or from other rights and obligations.
IAS 38 requires an enterprise to recognize an intangible asset, whether purchased or self-created

(at cost) if, and only if (1) it is probable that the future economic benefits that are attributable to
the asset will flow to the enterprise, and (2) the cost of the asset can be measured reliably. This
requirement applies whether an intangible asset is acquired externally or generated internally. The
probability of future economic benefits must be based on reasonable and supportable assumptions
about conditions that will exist over the life of the asset. The probability recognition criterion is
always considered to be satisfied for intangible assets that are acquired separately or in a business
combination.
4. Given the size and prominence of the German economy it is surprising that comparatively few
studies have been published in leading international journals that investigate German samples.
Selected empirical studies based on German samples during the last decade include: Wagner
(2004), N = 83 manufacturing firms, Capar and Kotabe (2003), N = 87 largest German service
Endnotes 121
firms; Ruigrok and Wagner (2003), N = 84 manufacturing firms; and Gerpott and Walter (1999),
N = 51 very large industrial firms.
5. According to Villalonga (2004, p. 227f.) two main alternative solutions have been adopted by
different researchers: (1) Limit the sample to those firms for which no data are missing (e.g. Jen-
sen, 1993); (2) Assume they are equal to zero (e.g. Morck and Yeung, 1991; Hall, 1993 - for
advertising). A third solution that can complement either of the first two is to fill in the data by
interpolation when there are only one or two missing values in an R&D or advertising series. This
has been used for the construction of the R&D stock variable in the NBER Manufacturing Sector
Master File (Hall, 1990), on which many subsequent studies are based.
Solution one is the most straightforward, but creates two additional problems: sample selection
bias, and sample size reduction. In my case, the sample selection problem is a serious one, because
I am interested in comparing firms with different degrees of resource intangibility including zero
intangibility. As for sample reduction, excluding the observations with missing data would leave,
after the necessary elimination of companies with less than three consecutive observations, a sam-
ple of less than 100 firms. For these two reasons, I discard solution one. Solution two, which is
based on the assumption that firms that do not report R&D or advertising expenditures do not
engage in those activities, may be acceptable when data are missing for the full series. However, it
is typically untenable when there are only one or two missing values in the series.
For these reasons, I have opted for combining solutions two and three for the construction of both
the R&D and advertising stock variables. When a data point is missing between two non-missing
ones, I follow Halls interpolation procedure. When the last data point of a series is missing, so
that the interpolation cannot be performed, I assume it to be equal to the previous period expendi-
tures, multiplied by the growth rate of the previous period (with respect to the one before), and
adjusted for inflation using the wholesale price index for R&D, and the consumer price index for
advertising. The reverse procedure is used when it is the first data point of a series that is missing.
TABLE 3.1 Zur Auffnahme in die Reference list

(Vernon, 1971; Errunza and Senbet, 1984; Kim and Lyn, 1986; Buhner, 1987; Grant, 1987; Daniels
and Bracker, 1989; Kim, Hwang, and Burgers, 1989; Han and Lee, 1998)
(Buckley, Dunning, and Pearce, 1977; Haar, 1989; Morck and Yeung, 1991)
(Brewer, 1981; Siddharthan and Lall, 1982; Kumar, 1984; Michel and Shaked, 1986; Chang and
Thomas, 1989; Collins, 1990; Ramaswamy, 1992)
(Lu and Beamish, 2001; Capar and Kotabe, 2003; Ruigrok and Wagner, 2003)
(Hitt et al., 1997; Gomes and Ramaswamy, 1999; Zahra and Garvis, 2000; Qian, 2002)
(Riahi-Belkaoui, 1998; Contractor et al., 2003; Lu and Beamish, 2004; Thomas and Eden, 2004;
Chiang and Yu, 2005; Ruigrok et al., 2007)
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(Markowitz, 1952; Vernon, 1966; Caves, 1971; Buckley and Casson, 1976; Hymer, 1976; Rugman,
1976; Johanson and Vahlne, 1977; Hennart, 1982; Barney, 1991; Amit and Schoemaker, 1993;
Peteraf, 1993; Ruigrok and Wagner, 2003)
TABLE 3.3
(Coase, 1937; Williamson, 1975; Jensen and Meckling, 1976; Hofstede, 1980; Siddharthan and Lall, 1982;
Hannan and Freeman, 1984; Boddewyn, 1988; Brewer, 1992)
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Chapter 4
Path Dependence of Building a Profitable
Multinational Company
4.1 Introduction
The internationalization process has been a central research focus of international
business research for a long time. Next to inquiries about different reasons for interna-
tionalization that seek to explore why firms do business abroad, the internationaliza-
tion process research stream has focused on the how to become international as well.
Arguably the most influential theory has been the learning theory by Johanson and
Vahlne (1977). This theory describes internationalization as an incremental process of
knowledge creation and foreign market commitment. One of its major contributions is
that it achieves an interrelated explanation of why and how firms increase their
presence in international markets. Concerning the question of causality it emphasizes
that merits of internationalization arise from knowledge exploitation and development.
As regards the question of modality the learning theory posits that firms would best
follow a process of gradual expansion. This is mainly due to the fact that management
has only limited capacity to absorb and integrate new information (Cohen and Levin-
thal, 1990).
Despite its importance, little or no research exists about how intangible resources
may interact with the internationalization process and how both may affect the rela-
tionship between internationalization and firm performance. As a result, little is known
132 Intangible Resources and the Internationalization Process
about how intangible resources influence the scope and speed of internationalization
and thereby differentiate firm performance. Because of continuing increase in interna-
tional competition, an investigation of the role of process characteristics offers sub-
stantial value and importance to practitioners as well. Moreover, an investigation of
the interaction between intangible resources and process characteristics may refine our
conceptual understanding of the internationalization-performance relationship. The
present chapter consequently seeks to open up the black box of how intangible
resources can be exploited worldwide and which internationalization steps firms
should take in order to maximize the payoff from their intangible resources and
international endeavors. In consideration with the overarching subject of this piece of
research the relationship between internationalization and firm performance I
address two interrelated research questions in particular: (1) Do intangible resources
explain different process patterns of internationalization? And (2) how do differences
in the internationalization process itself moderate the internationalization-performance
relationship?
Figure 4.1 depicts the theoretical framework of chapter four. Based on this model
the theory section is structured as follows: In section 4.2.1 I investigate how intangible
resources shape the internationalization process. Given the results obtained from
chapter three I differentiate between five dimensions of intangibles. The first part of
this analysis involves an assessment if intangible resources can also be interpreted as
internationalization enablers, i.e. explain why firms conduct business abroad and if
intangible resources had an impact on the decision to internationalize for a sample of
German firms during the period 2001 and 2006. In the second part I explore whether
the availability of intangible resources has an impact on how multinational companies
disperse their activities worldwide as well. To do so I differentiate between the general
decision to conduct a higher portion of business abroad and the decision to increase the
dispersion of international business activities around the globe.
In section 4.2.2 I investigate how differences in the internationalization process

moderate the internationalization-performance relationship. The central idea is that not
only the degree of internationalization matters with regard to performance outcomes
but as well the way how a company arrives there. Two fundamental process dimen-
sions are differentiated; internationalization speed, i.e. the magnitude of change in
internationalization during a given period, and international scope, i.e. the dispersion
of international activities.
Figure 4.1 Research Framework with Intangible Resources and Internationalization Process Characteristics
Introduction
Intangible
Resources
Technological Process
Know-How
' Int = I(t=n) I(t=0)
Market
Chapter 4.2.1 Know-How
Chapter 4.2.1
Contract-Based Speed
Know-How
TMT Internat. Scope

Diversity
TMT
Education
Chapter 4.2.2
Chapter 3
Degree of Firm
Internationalization Performance
133
The central subject of the proposed model is that understanding the relationships
among internationalization, its intangible antecedents, its performance consequences,
and the role of the internationalization process can lead to a better understanding of the
relationship between internationalization and firm performance. This chapter attempts
to make two contributions. First, it addresses existing knowledge gaps by analyzing
the influence of resource based antecedents upon the internationalization process. In
other words, it posits that intangible resources are core enablers of international
expansion as well as that they determine the degree to which a company can disperse
its business activities worldwide. Second, by studying the moderating role of speed
and scope and their relationship with intangible resources it enriches the debate on the
internationalization-performance relationship conceptually.
4.2 Theoretical Background and Hypotheses

4.2.1 How Intangible Resources Shape the Internationalization Process
In their pioneering study, Stopford and Wells (1972) determine that area diversi-
fication (i.e. geographic scope) and product diversification are two of the critical
determinants of the success of a firms growth. Equally, Penroses work (1959, p. 250)
concerned these two growth avenues:
The productive opportunity which invites expansion is not exclusively an exter-

nal one. It is largely determined by the internal resources of the firm: the products the
firm can produce, the new areas in which it can successfully set up plants, the innovations
it can successfully launch, the very ideas of its executives and the opportunities they see,
depend as much on the kind of experience, managerial ability and technological know-
how already existing within the firm as they do upon external opportunities open to all.
Nevertheless, as Hoskisson et al. (1993) indicate, as yet there is no consistent

theoretical structure that explains the antecedents of diversification. Important theo-
retical contributions like the above quote by Edith Penrose however, base their expla-
nation on a set of factors that are closely related to the characteristics of the firm and
on the imperfections of the markets in which that firm operates (Buckley and Casson,
1976). It must be emphasized that the objective of this chapter is not to determine the
factors that have an impact on increasing internationalization, but only to establish the
relevance of intangible resources. As Caves (1982) notes, a firms motive for interna-
tional expansion and its success are largely determined by its intangible resources.
This notion is closely related to the results already obtained in Chapter three.
Internalization theory posits that the ownership of information sensitive resources such
as intangibles is a major motivation to do business abroad. This is because the transfer
of these resources is subject to market failure (Hymer, 1976). Accordingly intangible
resources are a major factor for conducting business abroad. Empirical research points
to a positive relationship between a firms international involvement and its endow-
ment with intangible resources (Dunning, 1993). This notion has been supported for
the technological resources of US (Grubaugh, 1987) and Japanese (Kogut and Chang,
1991) based multinational companies.
In sum, I suppose that international expansion by a firm represents an attempt to

exploit valuable intangible resources, such as technological capabilities, established
brand names, or management know-how. Therefore, intangible resources can be
interpreted as antecedents to internationalization, i.e. firms with more intangible
resources operate at higher degrees of internationalization and show greater propensi-
ties to increase internationalization. Such resources defy easy market transfer but are
deployable in multiple markets at low cost (Teece, 1986). Therefore I hypothesize:
Hypothesis 1. Intangible resources are positively related to internationalization, such

that more intangible resources are associated with higher degrees of
internationalization as well as a higher propensity to increase the
The results from chapter three lend support for the notion that the construct of
intangible resources is multifaceted and that not all intangible resources do enhance
firm performance once they are applied in several foreign markets. For this reason I
introduced the term of differing internationalization potential of intangible resources.
With this expression I refer to the possibility that the marginal performance impact of
some intangible resources might deteriorate more quickly than the value of others with
increasing degrees of internationalization. This argument should mainly hold for the
diversity of international markets compared to the home market and not necessarily for
the overall degree of internationalization. To illustrate this point, take a firm holding a
valuable brand recognition that sells 40 percent of its products abroad, but only in one
foreign market. The marginal value of its intangible resources would probably not
deteriorate severely if this company sells another 20 percent of its overall sales in the
identical foreign market. In contrast if the same company would increase its foreign
sales ratio by 20 percent but sell this additional amount in another market, the mar-
ginal value of its intangible resource would probably deteriorate more because of its
idiosyncratic nature.
In fact, this kind of reasoning corresponds to the underlying logic of the region-
alization hypothesis brought forward by Rugman and Verbeke (2004). Their major
argument is that multinational enterprises are regional, not global. 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.
Indeed, they find that 320, or 84 percent of the largest 380 firms worldwide are mainly
home region oriented1, and another 25, or seven percent, are bi-regional (i.e. they
operate in two of the three regions considered by Rugman and Verbeke)2. Only nine of
the 380 firms (two percent) identified showed a balanced geographic distribution of
sales across all the regions and according to them can be considered genuine
global. In a recent paper the same authors develop a theoretical explanation for this
pattern that is based on what they call the origin of firm specific advantage (FSA)
(Rugman and Verbeke, 2007, p. 201):
[...] many of these MNEs FSAs although non-location bound in principle, that
is, deployable and exploitable beyond home country borders appear to be home region
bound rather than having global deployment and exploitation potential. This holds espe-
cially for FSAs at the downstream side of the value chain, where products and services
need to be marketed to buyers. In the case of markets seeking foreign direct investment
(FDI), an MNEs resource allocation to the host market can be interpreted as a set of one-
sided commitments without equivalent commitments from potential purchasers, and
therefore carrying substantial risks, especially in cases where a high liability of inter-
regional foreignness is present. In contrast, other types of FDI, focused on the upstream
side of the value chain, especially sourcing and manufacturing, are often accompanied by
resource commitments from other economic actors, thereby reducing the challenges
posed by the liability of inter-regional foreignness, at least if these other actors are
embedded in the relevant host region. Especially if inter-regional FDI in sourcing or
manufacturing is meant primarily to facilitate home region sales, and is thus efficiency
seeking (as is the case with much North American and European investment in China and
India), the liability of inter-regional foreignness mostly does not constitute a major risk,
but such investment will then not necessarily improve the MNEs position in terms of
sales in the host region either.
The arguments by Rugman and Verbeke center on the upstream or downstream

nature of international activities. While they generally question that international
selling potential is truly global and argue that the downstream functions of firms are
(at best) regional, the direction of the arguments brought forward in this section is
somewhat different. The focus of this chapter is rather on the extent of internationali-
zation (in terms of sales) and the way how it is influenced by intangible resources. The
main argument is that the origin of intangible resources (i.e. from upstream or down-
stream operations) has an impact on the geographic scope of a firms internationaliza-
tion in terms of selling activities as well. I suppose that this is true because
upstream and downstream intangible resources differ along such dimensions as
geographic fungibility or location specificity. Note that the terms geographic scope
and dispersion are used synonymously in this chapters context. They both refer to
the diversity of geographic regions whereas the degree of internationalization more
generally refers to international sales as portion of total sales irrespective of the
regional distribution of international sales.
While upstream intangible resources such as technological know-how carry the

characteristics of geographic or cross-border fungibility, downstream resources
presumably are not fungible to the same extent. Brands and market know-how tend to
be more location bound than technological know-how. Part of this is driven by the
greater degree of interaction with consumers among the marketing functions, as
compared to technical activities. The same factors that make sales force systems
difficult to build from scratch also limit its cross border transferability. Distribution
systems tend not to be fungible across borders because of their physical nature as well
as the idiosyncratic component found in the relationships between producer and
consumer (Anand and Delios, 2002). Given its lack of fungibility, a strong domestic
sales force system is not sufficient as an impetus for internationalization (Horst, 1974).
One important insight from stage theory of internationalization (Stopford and

Wells, 1972; Welch and Loustarinen, 1988) is that the more international experience a
firm has the better able it will be to expand internationally. Since some of the interna-
tional experience is as well located within individuals, firms that wish to expand
globally might capitalize on a multinational composition of their top management
team. The complexity of doing business in heterogeneous regions can thus be matched
with higher diversity of the management systems. Ashbys (1956) concept of requisite
variety suggests a coherent logic. His law of requisite variety postulates that organiza-
tional adaptability and responsiveness is improved when the degree and nature of
complexity extant in the environment is matched by or reflected in intra-company
organizational design. Likewise, diversity in type of education may imply different
skills, views, and ways of understanding and evaluating investments (Barkema and
Shvyrkov, 2007). Therefore I suppose that TMT educational diversity increases the
novelty of the geographic location of investments as well.
As intangible resources differ with regard to their geographic fungibility I

hypothesize that they determine the dispersion of international business activities.
Therefore I contend:
Hypothesis 2. Intangible resources determine the scope of internationalization, such

that upstream intangible resources relate to higher geographic diver-
sity while downstream intangible resources relate to lower geographic
diversity.
Building upon the notion of location or non-location bound value and hence fun-
gibility of intangible resources, this chapter refines and extends the logic of Rugman
and Verbeke and claims that intangible resources act as central explanatory variables
that help to explain the globalization vs. regionalization puzzle. Specifically, I
suppose that intangible resources do not only have an impact on the state of global
sales dispersion, but that they determine as well the direction of further internationali-
zation steps.
Recently, Dunning, Fujita, and Yakova (2007) comment on the globalization vs.
regionalization debate and posit that much of the explanation for the regional con-
centration of FDI and MNE activity reflects that of the gross domestic product (GDP)
and trade of the countries concerned, rather than any distinctive strategy on the part of
investing firms (Dunning et al., 2007, p. 177). Based on macro economic data they
show that between 1990 and 2002 there is no marked trend towards geographical
diversification over the past decade (p. 183). Nevertheless they conclude that, at least
for the part of European firms, this is the case because of the novel opportunities
offered by the completion of the European internal market, and the opening up of
Eastern Europe.
The diverse conclusions in contemporary research leave us to wonder whether

the regional nature of the majority of multinational firms is mainly due to macroeco-
nomic conditions and institutional realities in different regions of the world, or
whether it is a constitutive part of the strategy of multinational firms. In order to
address this issue I examine whether intangible resources can be determinants of a
firms decision to increase its dispersion of international business activities, irrespec-
tive of its state of internationalization. As Barney (1986) notes, resources vary in terms
of their usefulness to generate value in their application to different products or

businesses, depending on their higher or lower specificity. As a consequence, the
nature of resources is one of the determining factors in the direction taken by the
diversification of the firm (Chatterjee and Wernerfelt, 1991; Montgomery and Hariha-
ran, 1991). Intangible resources are easily transferable to other countries, but even
more so to those markets that firms already know or to those with similar characteris-
tics to the domestic market. Thus, firms prefer markets where they are already active
to those where they are not (Davidson, 1980; Delgado-Gmez, Ramrez-Alesn, and
Espitia-Escuer, 2004). This is especially true for intangible resources at the down-
stream side of the value chain which are less fungible (Anand and Delios, 2002). Part
of this is driven by the path dependent development of downstream capabilities. In
contrast intangible resources at the upstream side do not share these attributes to the
same extent. These resources are more fungible as has already been laid out in the
derivation of hypothesis 2. Since the value of these resources is embedded in the
product itself it can be sold more easily in different regions of the world without
incurring the need to be complemented with local commitments as is the case with
downstream intangible resources (Rugman and Verbeke, 2003).
Given that prior research has neglected the critical role of intangible resources
for the direction of international diversification I reason that they might be an integral
part to a solution of the regionalization debate that is still emerging among scholars in
international business research. Hence I posit:
Hypothesis 3. Intangible resources determine the direction of the internationalization

process, such that the availability of upstream intangible resources is
associated with increasing scope of international expansion.
4.2.2 How Differences in Internationalization Paths Affect Performance
In chapter three I already discussed the benefits and costs associated with inter-
nationalization and how the trade-off between them varies with growing degrees of
internationalization. However, the actual benefit-cost trade-off does not only depend
on the present degree of internationalization but it depends as well on the way how a
company arrived there. This is because a firms capacity to absorb expansion is subject
to constraints (Penrose, 1959; Cyert and March, 1963). Some expansion patterns
increase profitability more than others. Firms that pursue extreme expansion paths face
constraints such as absorptive capacity (Cohen and Levinthal, 1990) that together with
diseconomies of time compression (Dierickx and Cool, 1989) have a negative moderat-
ing impact on the performance consequences of internationalization. Firms that expand
internationally at high speed and into diverse regions maybe with several new
foreign subsidiaries at a time will have little time to evaluate their foreign experi-
ence, understand and assimilate it and turn it to commercial ends (Cohen and Levin-
thal, 1994). In consequence I posit that the two elementary process dimensions speed
and scope of international expansion moderate the performance consequences that are
typically associated with differing degrees of internationalization.
This line of argument fit into recent findings of Vermeulen and Barkema (2002)
as well. These scholars apply a longitudinal design that covers 26 years and find for a
sample of N = 22 Dutch multinational firms that pace, rhythm, as well as product and
geographic scope of internationalization all negatively moderate the internationaliza-
tion-performance relationship in a linear way. Their research framework is based on
the concept of time compression diseconomies by Dierickx and Cool (1989) which
describes the mechanism of diminishing returns when everything else equal the
pace of processes increases. This assumption is based on the belief that, due to limits
of absorptive capacity (Cohen and Levinthal, 1990), individuals as well as companies
effectively can only handle a certain degree of increase in organizational and environ-
mental complexity within a certain time frame. Furthermore, due to organizational
inertia, organizations are slow to adjust to new environmental configurations (Hannan
and Freeman, 1984).
The internationalization process is subject to time compression diseconomies

because it is accompanied by an increase in organizational and environmental com-
plexity. That is, too rapid a firms internationalization within a given time frame will
exhaust firm absorptive capacity, thereby causing inadequate adaptation of mental
maps, organizational structures, systems, and processes (Calori, Johnson, and Sarnin,
1994; Nohria and Ghoshal, 1994). This, in turn, eventually triggers negative perform-
ance effects. However there are ample arguments to believe as well that the impact of
expansion speed is not simply negative in a linear way but that it can be actually
approximated by an inverted u-shaped pattern.
In particular, this chapter contends that firms pursuing gradual expansion speeds
experience performance gains because gradual expansion allows them sufficient time
to: (1) effectively absorb new information and level of complexity, (2) adapt to it
through suitable organizational restructuring, and then (3) reap the opportunities while
holding the threats under control (Wagner, 2004). Further progression of internation-
alization speed at some point will lead to diminishing performance gains. Finally,
firms pursuing extreme levels of internationalization speed will face a critical edge at
which performance consequences start to be negative. Firms progressing in such
internationalization rushes can be overstrained by the significant complexity increase
within a short, compressed time frame. This is because learning and adaptation to new
environments cannot be endlessly compressed in time (Dierickx and Cool, 1989).
Consequently, even if higher degrees of internationalization might be associated with
positive performance attributes, it requires balanced expansion to realize this potential.
To conclude, this studys conceptual framework suggests that internationalization

is accompanied by benefits and costs and that the trade-off between these two ele-
ments i.e. the net performance outcome is moderated by internationalization speed.
Most important, this moderation effect is expected to be non-linear. That is, the impact
of international expansion speed on performance is argued to be positive at low and
modest expansion speeds but negative at extreme expansion speeds. Thus I infer:
Hypothesis 4. Speed of the internationalization process moderates the internation-

alization-performance relationship, such that low and modest speed
elevates the performance gains attributable to internationalization
whereas high expansion speed has a negative impact.
Concerning the moderating impact of the internationalization process the pre-

ceding hypothesis deals with the amount of foreign expansion within a given period of
time. The second hypothesis focuses on the regions in which the expansion takes
place. Just as higher speed of the internationalization process might tax managerial and
absorptive capacity so does the scope of international expansion. This is because
higher diversity of markets and more heterogeneous environments necessitate addi-
tional adaptation and reconfiguration processes. Rugman and Verbeke (2007) differen-
tiate between what they call the triad regions of the world (Europe, America, and Asia)
and contend that the liability of inter-regional foreignness is considerably higher than
the liability of intra-regional foreignness. Diseconomies of time compression occur
when the organization is less able to absorb expansion. This may not only be the case
because of the sheer amount of new information from higher internationalization
speed, but may also be due to the dispersion of international activities into different
regions of the world. Empirically, Hitt, Hoskisson and Kim (1997) as well as Barkema
and Vermeulen (2002) support this notion and find a negative moderating impact of
geographic scope on the relationship between foreign subsidiaries and firm perform-
ance.
Nevertheless, as I already distinguish between the effects of different intangible

resources on the direction of international expansion in the derivation of hypotheses
two and three, this effect should also be considered with regard to performance
consequences. Drawing upon this chapters framework about the role of intangible
resources within the internationalization process and its performance consequences, it
is logically consistent to expect, that the direction and magnitude of the moderating
performance effect of scope of international expansion is depending upon the avail-
ability of intangible resources. While I suspect that upstream intangible resources
enable firms to broaden the geographic scope of business activities to a greater extent
(hypotheses two and three) this assumption is based on rational actors behavior, i.e.
that managers decisions to leverage intangible resources in different regions of the
world are based on the objective of maximizing firm value.
To summarize I expect that the geographic scope of international expansion

moderates the internationalization-performance relationship. Even more so, this
moderation effect is expected to be contingent upon the availability of intangible
resources. That is, a negative impact of higher geographic scope is not observable in
the presence of upstream intangible resources. Consequently I hypothesize that this
effect is only associated with downstream intangible resources.
Hypothesis 5. Scope of the internationalization process moderates the internationali-

zation-performance relationship, such that higher scope of expansion
has negative performance consequences in the presence of down-
stream intangible resources.
4.3 Method
4.3.1 Sample
For practical reasons this chapter is based on the same sample as chapter three.
This sampling procedure guarantees the connectivity and comparability of the results
obtained in this chapter to the results from the chapter before. Hence, the analyses are
based on publicly listed firms from Germany over the five year time frame between
Method 143
2001 and 2006, yielding N = 193 firms with n = 789 firm year observation. These
firms can be considered representative of German medium to large non-financial
multinational companies with international activities over the five year time frame
between 2001 and 2006. A German setting offers an ideal setting to test the hypotheses
since it offers some uniqueness as compared to other countries. First, Germany is one
of the largest economies worldwide that is integrated into a wider economic union, the
single European market. Second, intangible resources generally play a crucial role for
the competitiveness of German firms in international markets. Data on the regional
dispersion of international sales (scope) was available for a subset of n = 563 firm year
observations. Table 4.1 displays the regional dispersion of international activities of
firms from this studies German sample compared to the 500 largest firms worldwide
from the pioneering study of the regionalization hypothesis by Rugman and Verbeke
(2004).
Table 4.1 Regional Dispersion of International Sales
German sample (N = 563) Fortune 500 (N = 365)b

Percentage Percentage
No. of Percentage No. of Percentage
Type of MNCa intra-regional intra-regional
MNCs of 563 MNCs of 365
sales sales
Global 23 4.1 40.5 9 2.5 38.3
Bi-regional 16 2.8 43.4 25 6.8 42.0
Host region 22 3.9 30.6 11 3.0 30.9

oriented
Home region 502 89.2 79.9 320 87.7 80.3

oriented
Total 563 100.0 75.3 365 100.0 71.9
a
Classification according to Rugman and Verbeke (2004, p. 7). See endnote one for the definitions.
b
Data are for 2001. Data source: Rugman and Verbeke (2004, p. 7).
Although the firms from the German sample are on average smaller than the 500
largest firms in the world their sales are not less dispersed worldwide. Remarkably, the
internationalization or regionalization pattern of the German sample is very similar
to the sample of the Fortune 500 firms by Rugman and Verbeke. While a higher
percentage of German firms are genuine global (i.e. four percent), the vast majority of
firms is still home region oriented. Appendix 4.1 exhibits a list of global, bi-regional,
and host region oriented firms including detailed data on their international sales
dispersion. This globalization pattern corroborates the results by Rugman and Verbeke
(2004) in that the majority of German firms are home region oriented as well, although
they generally operate at high degrees of internationalization if compared
internationally. Furthermore, it extends their notion as it shows that this pattern is not
only typical for the largest firms in the world. While global business to date is
frequently believed to be a domain of large multinational corporations the results
indicate that large and even medium sized German firms are not less internationalized
but do instead exhibit similar globalization patterns.
The measure of performance is return on assets (ROA). Internationalization is

defined as the ratio between foreign sales and total sales (FSTS). Furthermore I
distinguish between five individual dimensions of intangible resources: technological
know-how (R&D), market know-how (ADV), contract-based know-how (CONT), top
management international diversity (TMT_INT), and top management education
(TMT_ACD). Chapter three, section 3.4.2 contains the coding schemes as well as
detailed descriptions of these measures. Next to these measures, three other variables
are introduced in this chapter: The first variable captures the geographic diversity of
internationalization in terms of a firms present state while the other two variables are
dynamic in nature as they describe characteristics of the internationalization process,
i.e. speed and scope of international expansion.
Geographic Diversity
Geographic diversity is measured as the dispersion of sales across three different

regions: Europe, America, and Asia-Pacific3. This categorization complies with the
regional classification by Rugman and Verbeke (2004) who developed their regionali-
zation hypothesis based on this scheme. Its underlying logic is the concept of triad
power that has been articulated by Ohmae (1985). Triad power refers to the fact that
by the time Ohmae published his book the worlds largest MNCs were concentrated
in the US, Europe, and Japan. The problem faced by many of these MNCs was that
they sell engineered commodities, i.e. innovative and differentiated products and
services, resulting from capital intensive production and knowledge development.
Unfortunately, these products quickly lose their monopoly status when transferred
Method 145
across these regions. According to Ohmae (1985) this is because of global impasse.
With this term he describes the problem that even the largest companies face con-
straints to repeat their home triad base market share in the two other triad regions. In
Ohmaes view a strong presence in all three regions is necessary to recover substantial
innovation costs and in order to avoid surprises, i.e. unanticipated strategic moves by
rivals from other regions (Rugman and Verbeke, 2004).
I considered alternative regional classifications as well. One influential classifi-

cation has been developed by Ronen and Shenkar (1985) and has recently been applied
by Dunning et al. (2007) in their contribution to the ongoing debate about the region-
alization hypothesis. It is based on six regional clusters: an Anglo cluster, a Latin
European cluster, a Nordic and Germanic cluster, a Latin American cluster, a Far
Eastern cluster, and one cluster named Other. Nevertheless, as Rugman and Verbeke
(2007, p. 203) note: It is clear that the cultural clusters adopted are merely an aca-
demic artifact, intellectually appealing but relatively far removed from the practice of
international corporate strategy and geo-political reality. Consequently I refrained
from using this classification and instead relied on the distinction of the triad regions.
Furthermore the later classification requires less detailed information on the interna-
tional dispersion of company sales and therefore augments the amount of available
firm year observations.
In order to estimate the dispersion of sales across the triad regions I calculated
the distribution of international sales accounted for by each of the three regions. In a
second step I calculated the standard deviation of the distribution and subtracted in
from 1. The presumption is that the nearer the standard deviation approaches 0 (which
would mean that international sales are equally distributed, i.e. 33 percent in each of
the triad regions), the more globalized are the sales of a firm and hence the measure of
international scope would take a value of 1. I will term this measure foreign sales
dispersion (FS_Disperison). Note that the denominator of the ratios is the sum of
foreign sales and that the numerators are the foreign sales derived from Europe,
America, and Asia from the perspective of a German firm. Next to this variable I
calculated a slightly different measure that will be termed total sales dispersion
(TS_Dispersion). In this case the denominator is the sum of total sales and the
numerators are the total sales derived from Europe, America, and Asia. The difference
is that foreign sales dispersion captures the dispersion of sales across the triad regions
irrespective of the degree of internationalization (measured as foreign sales to total
sales) while the total sales dispersion is, by definition, not independent of the degree of
internationalization. Hence, the measure of foreign sales dispersion permits the

separation of two effects, namely that of being more international in terms of scale
from the effect of being more globally dispersed, in terms of higher scope. Therefore I
decide to rely on the measure of foreign sales dispersion as measure of geographic
diversity of internationalization in the first place. However, since the correlation of
these two measures is very high (r = .91, see Table 4.2) results based on the measure of
total sales dispersion are very similar to the ones obtained from foreign sales disper-
sion.
Speed of expansion
Internationalization speed is derived from the measure of internationalization that

I already introduced in chapter three, i.e. foreign sales to total sales (FSTS). Interna-
tionalization speed is then proxied with the change in FSTS over a two year time
frame ('FSTS_2year). The larger the change of this ratio over the two year period, the
higher the expansion speed. The narrow investigation time frame of two years has
been explicitly chosen because of two reasons. First, the pursued internationalization
speeds of firms show a wide range of variation (i.e. some firms progressed slowly and
others rapidly), and second, the short time frame facilitates the capture of expansion
speed effects on firm performance because it makes the absorptive capacity constraints
as well as diseconomies of time compression identifiable. Overall, the chosen time
frame allows a valid test of the impact that international expansion speed has on firm
performance. For validation purposes I calculated these variables as three year and five
year differences as well.
Scope of expansion
Just like the measure of speed is based on the FSTS ratio, the measure for scope
of international expansion is based on the dispersion of foreign sales (FS_Dispersion).
Scope of expansion ('S.D._FS_2year) is defined as change of FS_Dispersion over a
two year time frame. It is coded as dummy variable that takes the value of one if the
standard deviation of foreign sales becomes smaller within the two year time frame,
i.e. firms become more global. Again, I calculated this variable as three year and five
year differences as well.
Table 4.2 provides descriptive statistics and a correlation matrix of the variables
for the sample of firms that report data on the regional dispersion of international
sales.
Table 4.2 Descriptive Statistics and Correlations (N = 563)
Method
Variables Mean S. D. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
1. FSTS .566 .237

2. FS_Dispersion .678 .169 .06*
3. TS_Dispersion .616 .150 .79** .91**
4. 'FSTS_2year .061 .431 -.26** -.18** -.19**
5. 'FSTS_3year .089 .543 -.30** -.21** -.23** .92**
6. 'FSTS_5year .264 1.43 -.36** -.24* -.24* .94** .98**
7.'S.D._FS_2year .445 .498 .18** .11* .16** -.03 -.08 -.10
8.'S.D._FS_3year .448 .498 .18** .10 .18** -.07 -.06 -.10 .69**
9.'S.D._FS_5year .494 .503 .25* .18 .31** -.11 -.12 -.11 .70** .77**
10.'S.D._TS_2year .494 .501 .19** .19** .15** .05 .21 .03 .61** .45** .46**
11.'S.D._TS_3year .509 .501 .23** .18** .17* -.01 .05 .08 .51** .64** .48** .71**
12.'S.D._TS_5year .485 .504 .26* .16 .22 -.11 .03 .09 .36** .58** .67** .59** .76**
13. R&D .043 .041 .27** .27** .34** -.04 -.07 -.06 .03 -.01 .05 .16** .16* .14
14. ADV .030 .037 -.12** -.19** -.17** .15** .12* .42** -.09 -.13* -.21 -.08 -.10 -.10 -.10*
.
15. CONT .042 .072 -.08* -.08 -.03 -.06 -.11* -.03 -.01 -.01 07 .00 -.09 .14 .06 .14**
16. TMT_INT .089 .159 .18** .14** .19** .11* .09 .13 .05 .04 .06 .08 .06 -.05 .16** .00 -.13**
17. TMT_ACD .340 .290 .29** .18** .16** .03 .03 .16 .11* .12 .16 .09 .08 .01 -.07* -.02 -.01 -.05
Notes:
'FSTS_2year: N = 353, 'FSTS_3year: N = 257, 'FSTS_5year: N = 77.
'S.D._FS_2year: N = 353, 'S.D._FS_3year: N = 257, 'S.D._FS_5year: N = 77.
'S.D._TS_2year: N = 330, 'S.D._TS_3year: N = 230, 'S.D._TS_5year: N = 66.
p < .10.
* p < .05.
147
In order to test hypotheses one to three I regressed measures of internationaliza-

tion on five intangible resources (technological know-how, market know-how, con-
tract-based know-how, TMT diversity, and TMT education) after controlling for firm
size, product diversification, leverage, and industry.
Hypothesis four was tested using moderated regression analysis. This procedure
has already been applied in chapter three and has been thoroughly described there
(section 3.4.4). Speed of internationalization is the moderator variable. Because a
curvilinear moderation is hypothesized, the interaction term between degree of inter-
nationalization and internationalization speed is tested in a linear as well as a squared
form.
I tested hypotheses five by regression analysis as well. Explicitly, the research

equation is specified as follows:
5 5
'ROAt 2 t0 f( Int.resource , FS _ Dispersion, 'S .D. _ FS _ 2 year, 'S.D. _ FS _ 2 year * Int.resource , H ),
1
j
1
j
where 'ROA is the change of firm performance, Int.resource with its j subscript
denotes the different intangible resources, FS_Dispersion is the dispersion of foreign
sales and 'S.D._FS_2year describes the scope of expansion over the two year period.
The performance impact of scope of expansion is estimated in a two step procedure. In
the first step I tested whether foreign sales dispersion and expansion scope are associ-
ated with performance differences. In the second step I add an interaction term and
explore whether the performance impact of expansion scope is contingent upon the
availability of intangible resources.
I tested all the models using panel data OLS regression with pooled time-series,
cross-sectional data. As already noted, this procedure is well established in interna-
tional business research and several researchers that rely on multiyear data items draw
upon this statistical procedure (Gomes and Ramaswamy, 1999; Contractor, Kundu,
and Hsu, 2003; Ruigrok and Wagner, 2003; Ruigrok, Amann, and Wagner, 2007).
Furthermore, multicollinearity of variables was not a concern in this chapter. I checked
the variance inflation factor (VIF) in each of the models of which none exceeds the
threshold of ten (Burns and Bush, 2000). Additionally all of the relevant correlations
were lower than 0.7.
Results 149
4.4 Results
Table 4.3 and table 4.4 provide the statistical results for hypothesis one. Foreign
sales to total sales is the dependent variable in table 4.3 and the propensity to increase
internationalization (two year change of foreign sales to total sales) is the dependent
variable in table 4.4. In table 4.3 model one includes the control variables in which
firm size, leverage, and industry relate to the degree of internationalization of the firm.
The impact of intangible resources is tested throughout models two to six. All intangi-
ble resources significantly interact with internationalization. However market know-
how and contract-based know-how are negatively related to the degree of internation-
alization. In contrast technological know-how and top management team international
diversity are strongly associated with higher degrees of internationalization and all of
the models in table 4.3 are highly significant. The joint explanatory power of the
individual facets of intangibles is 13.1 percent, as one can see from model seven. That
is, intangible resources are important antecedents to the internationalization of the
firm. In contrast the measures of Tobins q and hedonic q do not relate significantly to
the degree of internationalization. This finding is in line with the results obtained from
chapter three. The construct of intangible resources is multidimensional and the effects
of intangible resources on outcome variables that relate to the internationalization of
the firm vary because of their different characteristics. Therefore I refrain from
applying measures of Tobins q and hedonic q to test the hypotheses, but report the
results for these two measures for information only in Appendix 4.2.
Table 4.4 contains the results for dynamic aspects of internationalization during
the period 2001 and 2006. Market know-how and TMT international diversity are the
only two variables that positively relate to firms increasing their presence in interna-
tional markets during that time. All other intangible resources that relate to degree of
internationalization do not relate to increasing degrees of internationalization during
this five year period. I tested for different time frames as well. The results are robust
for three year change of internationalization and five year change of internationaliza-
tion (see Appendix A 4.2). However one should treat the results for five year time
frame with caution, since the number of observations is often low compared to the
number of variables under consideration in the analysis. In sum, market know-how is
the strongest predictor for increasing internationalization during this period. Given the
different effects of intangible resources on the degree of internationalization and the
propensity to increase internationalization during 2001 and 2006 hypothesis one can
be partially supported.
Table 4.3 Regression of Intangible Resources on Degree of Internationalizationa

(Foreign Sales to Total Sales)
Variable 1 2 3 4 5 6 7
1. Intercept .356** .233** .389** .363** .403** .366** .338**
(6.86) (4.36) (7.48) (6.98) (7.95) (7.09) (6.28)
2. Size_ln .028** .029** .026** .028** .019** .022** .015*
(4.63) (5.11) (4.45) (4.71) (3.27) (3.52) (2.41)
3. Product Div. -.002 -.004 .001 -.003 -.001 -.002 .001
(-.49) (-.78) (0.13) (-.50) (-.19) (-.32) (.21)
4. Leverage -.167** -.060 -.188** -.172** -.197** -.163** -.123*
(-3.17) (-1.13) (-3.56) (-3.27) (-3.86) (-3.11) (-2.37)
5. I1: Manufacturing .156** .131** .153** .157** .162** .157** .140**
(7.26) (6.21) (7.19) (7.33) (7.78) (7.35) (6.98)
6. I2: Service -.070* -.077* -.067* -.064* -.059 -.071* -.059*
(-2.25) (-2.58) (-2.18) (-2.08) (-1.96) (-2.30) (-2.08)
7. R&D 1.50** 1.27**
(6.65) (5.60)
8. ADV -.745** -.526*
(-3.00) (-2.23)
9. CONT -.214 -.164
(-1.71) (-1.39)
10. TMT_INT .371** .396**
(6.44) (7.11)
11. TMT_ACD .097** .086**
(2.97) (2.67)
R2 .208 .266 .220 .212 .263 .220 .339

Adjusted R2 .201 .258 .212 .203 .255 .212 .327
' R2 .058 .012 .004 .055 .012 .131
F-Statistic 29.22** 33.61** 26.20** 24.92** 33.02** 26.17** 28.28**
p < .10.
* p < .05.
a
Upper number in a cell is a parameter estimate, numbers in the parentheses are t-statistics.
Results 151
Table 4.4 Regression of Intangible Resources on Propensity to Internationalizea

(Two Year Change of Degree of Internationalization)
Variable 1 2 3 4 5 6 7
1. Intercept -.123 -.148 -.233 -.109 -.100 -.116 -.217
(-.92) (-1.05) (-1.74) (-.82) (-.76) (-.86) (-1.46)
2. Size_ln .005 .005 .010 .005 -.007 .004 -.002
(.30) (.30) (.67) (.35) (-.43) (.22) (-.10)
3. Product Div. -.015 -.015 -.026* -.014 -.013 -.014 -.025*
(-1.14) (-1.14) (-1.99) (-1.14) (-1.06) (-1.12) (-1.98)
4. Leverage .344 .367* .409** .333* .359** .339* .430**
(2.51) (2.56) (3.01) (2.44) (2.64) (2.46) (3.01)
5. I1: Manufacturing -.052 -.057 -.046 -.050 -.051 -.051 -.045
(-.97) (-1.05) (-.88) (-.93) (-.95) (-.95) (-.84)
6. I2: Service .200 .201* .193* .213** .199** .201* .211**
(2.52) (2.53) (2.48) (2.67) (2.53) (2.53) (2.70)
7. R&D .342 .302
(.54) (.46)
8. ADV 2.30** 2.55**
(3.60) (3.94)
9. CONT -.440 -.488
(-1.50) (-1.65)
10. TMT_INT .194* .188*
(2.30) (2.08)
11. TMT_ACD .045 .094
(.29) (.61)
R2 .058 .059 .092 .064 .072 .058 .117

Adjusted R2 .044 .043 .076 .048 .056 .042 .092
' R2 .001 .034 .006 .014 .000 .059
F-Statistic 4.28** 3.61** 5.84** 3.95** 4.49** 3.57** 4.55**
p < .10.
* p < .05.
a
The results for the test of hypothesis two are presented in Table 4.5. Geographic
diversity, measured by foreign sales dispersion, is the dependent variables in all
models. The effects of intangible resources are similar to the ones obtained from table
4.3. Although foreign sales dispersion is independent from the degree of internation-
alization from a conceptual point of view the same variables that relate to higher
internationalization are as well associated with higher dispersion of international
business activities across the triad regions. Upstream intangible resources such as
technological know-how, TMT international diversity, and TMT education relate to
higher geographic diversity while contract-based know-how and downstream intangi-
ble resources such as market know-how relate to lower geographic diversity. Again all
of the models are significant and intangible resources jointly explain 8.1 percent of the
regionalization vs. globalization of German firms after controlling for other effects
known to relate to foreign sales dispersion. Therefore hypothesis two can be sup-
ported. For the results of Tobins q and hedonic q please refer to Appendix A 4.3.
Table 4.6 reports the results for hypothesis 3. Scope of expansion (i.e. the change
of foreign sales dispersion) is the dependent variable in all of the models. Technologi-
cal know-how as well as the international diversity of the top management team are
positively related to higher dispersion of international activities across the triad
regions, as can be seen in models two and five. While German firms with downstream
intangible resources in the form of market know-how increased their degree of inter-
nationalization between 2001 and 2006 (see table 4.4), this apparently does not
automatically come along with higher dispersion of international activities. Indeed,
only firms that possess a high stock of upstream intangibles in relative terms compared
to the rest of the firms at a given moment in time have a greater tendency to increase
their scope of international business activities in the two subsequent periods. Therefore
hypothesis three can be supported. Again I tested whether the selection of different
time frames has an impact on effect size estimates. The results are depicted in Appen-
dix A 4.4. They confirm the results obtained by two year change of scope of interna-
tional expansion, although at lower significance. Furthermore I applied an alternative
measure of scope of expansion, i.e. the change in total sales dispersion. As one would
expect the results are not materially different to the ones obtained by change in foreign
sales dispersion because of their high correlation. Please refer to Appendix A 4.4 for
the results of alternative time frames.
Results 153
Table 4.5 Regression of Intangible Resources on Scope of Internationalizationa

(Dispersion of International Sales)
Variable 1 2 3 4 5 6 7
1. Intercept .424** .342** .459** .429** .433** .429** .400**
(12.61) (9.93) (13.69) (12.78) (12.78) (12.81) (11.19)
2. Size_ln .029** .030** .028** .029** .027** .026** .026**
(7.50) (8.10) (7.29) (7.62) (6.92) (6.38) (6.34)
3. Product Div. -.002 -.003 .001 -.002 -.002 -.002 .001
(-.63) (-.94) (.43) (-.64) (-.54) (-.49) (.16)
4. Leverage -.144** -.074* -.167** -.148** -.150** -.142** -.110**
(-4.23) (-2.15) (-4.96) (-4.36) (-4.39) (-4.18) (-3.20)
5. I1: Manufacturing .168** .151** .165** .169** .169** .168** .154**
(12.08) (11.12) (12.14) (12.20) (12.17) (12.17) (11.51)
6. I2: Service -.006 -.011 -.003 -.001 -.004 -.006 -.002
(-.28) (-.55) (-.14) (-.07) (-.18) (-.31) (-.12)
7. R&D .990** .851**
(6.78) (5.66)
8. ADV -.826** -.658**
(-5.21) (-4.20)
9. CONT -.180* -.137
(-2.23) (-1.75)
10. TMT_INT .073 .082*
(1.90) (2.23)
11. TMT_ACD .055* .029
(2.57) (1.38)
R2 .347 .397 .378 .353 .352 .355 .428

Adjusted R2 .342 .391 .371 .346 .345 .348 .417
' R2 .050 .031 .006 .005 .008 .081
F-Statistic 59.31** 61.09** 56.28** 50.60** 50.26** 51.02** 41.27**
p < .10.
* p < .05.
a
Table 4.6 Regression of Intangible Resources on Scope of Expansiona

(Two Year Change of Dispersion of Foreign Sales)
Variable 1 2 3 4 5 6 7
1. Intercept .243 .084 .281 .241 .290 .254 .190
(1.52) (.50) (1.70) (1.50) (1.78) (1.58) (1.04)
2. Size_ln .018 .019 .016 .018 .012 .010 .004
(.94) (1.01) (.84) (.93) (.60) (.50) (.20)
3. Product Div. -.022 -.024 -.019 -.022 -.022 -.022 -.021
(-1.44) (-1.57) (-1.19) (-1.44) (-1.42) (-1.41) (-1.30)
4. Leverage .116 .263 .096 .118 .085 .133 .212
(.67) (1.46) (.55) (.68) (.48) (.77) (1.15)
5. I1: Manufacturing .198** .155* .194** .198** .202** .197** .160*
(3.07) (2.35) (2.99) (3.06) (3.13) (3.05) (2.42)
6. I2: Service .063 .066 .061 .062 .067 .066 .069
(.65) (.69) (.63) (.64) (.70) (.68) (.71)
7. R&D 2.15** 1.88*
(2.74) (2.24)
8. ADV -.808 -.555
(-.90) (-.61)
9. CONT .040 .112
(.11) (.30)
10. TMT_INT .317 .356
(1.77) (1.93)
11. TMT_ACD .132 .096
(1.30) (.86)
R2 .039 .061 .041 .039 .048 .044 .070

Adjusted R2 .024 .043 .023 .021 .031 .026 .041
' R2 .021 .002 .000 .009 .005 .031
F-statistic 2.61* 3.47** 2.31* 2.17* 2.74* 2.46* 2.42**
p < .10.
* p < .05.
a
Hypothesis four and five concern the moderating impact of internationalization

process characteristics upon the internationalization-performance relationship. The
results for speed of internationalization are illustrated in table 4.7. Model one is the
base line model. It comprises the control variables and the direct performance impact
of the change of degree of internationalization over the past two years in its linear in
quadratic form. Change in internationalization does not exhibit a direct effect on firm
performance. Model two adds the effect of internationalization on firm performance.
The sigmoid curve type pattern already found in chapter three becomes obvious again.
Model three and four explore the moderating impact of the speed of international
expansion on the internationalization-performance relationship. Both, the linear term
in model three as well as the linear and quadratic terms in model four are significant.
Results 155
The results indicate that the moderating impact can best be described by an inverted
u-shaped pattern, i.e. international expansion speed has a positive impact at low and
modest expansion speed that eventually becomes negative at high internationalization
speeds. As all of the models are significant, hypothesis four can be supported. Results
for the moderating impact of change of internationalization for three years and five
years in history are available in Appendix A 4.5. The direction of the effect size
estimates is similar, although at lower levels of significance.
Table 4.8 exhibits the results for the test of hypothesis five. Model one comprises
the effects of intangible resources on the change of profitability during the subsequent
two periods. Model two investigates whether the scope of internationalization and the
change of international scope predict performance changes. None of these variables
becomes significant. These results do not lend support for the position that higher
scope of international expansion would automatically trigger negative performance
pressures. Models three to seven test the joint effects of higher scope of international
expansion in combination with the existence of intangible resources. The moderating
term with market know-how and contract-based know-how is associated with declin-
ing performance at a significant level. In contrast the negative performance impact of
higher scope of international expansion does not become significant in conjunction
with technological know-how and TMT education. All the more, the direction of the
moderator term of expansion scope and TMT international diversity becomes positive
although not at a significant level either. Given that higher scope of international
expansion only relates to negative performance consequences in the presence of
downstream intangible resources hypothesis five can be supported. Again I tested
whether the choice of different time frames has an impact on effect size estimates. As
has been the case with analyses of change aspects before, the results for three year and
five year time frames resemble the ones displayed in table 4.8. These tables are
depicted in Appendix A 4.6. Models with Tobins q and hedonic q in turn do not
become significant (see also Appendix A 4.6). This again supports the superiority of
analyses based on individual dimensions of intangible resources.
Table 4.7 Moderation of Speed of Expansiona

(Change of Internationalization over Past Two Years)
Variable 1 2 3 4
1. Intercept .122** .094** .080* .075*
(5.49) (2.86) (2.40) (2.27)
2. Size_ln .009** .009** .010** .010**
(3.48) (3.68) (3.94) (3.90)
3. Product Div. .003 .003 .002 .003
(1.63) (1.45) (1.26) (1.34)
4. Leverage -.260** -.262** -.269** -.271**
(-11.97) (-11.96) (-12.22) (-12.33)
5. I1: Manufacturing .006 .009 .008 .008
(.73) (1.02) (.97) (.87)
6. I2: Service -.008 -.007 -.007 -.007
(-.68) (-.60) (-.59) (-.57)
'FSTS_past2years -.017 -.014 .004 .053
(-.48) (-.37) (.09) (1.12)
8. 'FSTS_past2years (squared) .144 .108 -.152 -.310
(.96) (.71) (-.83) (-1.53)
9. FSTS .293 .377* .407*
(1.64) (2.07) (2.24)
10. FSTS (squared) -.774 -.901* -.950*
(-.196) (-2.27) (-2.39)
11. FSTS (cubic) .545* .598* .628*
(2.06) (2.26) (2.38)
12. FSTS* .515* .564**
'FSTS_past2years (2.41) (2.62)
13. FSTS* -1.61
'FSTS_past2years (squared) (-1.85)
R2 .240 .248 .258 .263

Adjusted R2 .229 .232 .240 .244
' R2 .008 .018 .023
F-statistic 21.06** 15.34** 14.62** 13.76**
p < .10.
* p < .05.
a
Discussion 157
Table 4.8 Moderation of Scope of Expansiona on Change of ROAb over Two Years
(Two Year Change of Dispersion of Foreign Sales)
Variable 1 2 3 4 5 6 7 8
1. Intercept .031** .022 .015 .014 .020 .024 .015 .024
(2.92) (1.33) (.86) (.85) (1.21) (1.41) (.83) (1.48)
2. R&D -.268* -.248 -.118 -.219 -.274* -.240 -.252 -.255
(-2.11) (-1.87) (-.74) (-1.65) (-2.08) (-1.80) (-1.90) (-1.23)
3. ADV -.059 -.060 -.044 .076 -.066 -.057 -.051 -.277*
(-.37) (-.36) (-.27) (.43) (-.41) (-.35) (-.31) (-2.05)
4. CONT .114 .112 .106 .117 .240** .110 .112 .089
(1.80) (1.76) (1.66) (1.85) (3.07) (1.73) (1.77) (1.41)
5. TMT_INT .016 .016 .010 .016 .018 -.003 .015 .014
(.53) (.51) (.32) (.54) (.58) (-.08) (.49) (.46)
6. TMT_ACD -.026 -.026 -.026 -.026 -.026 -.026 -.008 -.025
(-1.54) (-1.50) (-1.47) (-1.49) (-1.48) (-1.51) (-.37) (-1.48)
7. FS_Dispersion .015 .020 .020 .008 .013 .019 .024
(.47) (.65) (.67) (.27) (.42) (.62) (.77)
8. 'S.D._FS_2year .007 .007 .004 .006 .007 .008 .006
(.74) (.77) (.43) (.67) (.74) (.79) (.66)
9. 'S.D._FS_2year* -.388 -.264
R&D (-1.47) (-.97)
10. 'S.D._FS_2year* -.980* -.708
ADV (-2.21) (-1.62)
11. 'S.D._FS_2year* -.352** -.340*
CONT (-2.76) (-2.61)
12. 'S.D._FS_2year* .038 .022
TMT_INT (.62) (.36)
13. 'S.D._FS_2year* -.042 -.045
TMT_ACD (-1.24) (-1.30)
R2 .039 .041 .047 .055 .063 .042 .046 .084

Adjusted R2 .024 .020 .024 .032 .040 .018 .022 .050
' R2 .002 .008 .016 .024 .003 .007 .045
F-statistic 2.63* 1.97 2.00* 2.36* 2.71** 1.77 1.92 2.41**
p < .10.
* p < .05.
a
b
Change of ROA is calculated as the difference between ROAt+2 and ROAt=0.
4.5 Discussion
This chapter addresses the important but as yet unresolved question if intangible
resources affect patterns of the internationalization process and how differences in the
internationalization process itself moderate the internationalization-performance
relationship. Given that intangibles constitute major success factors for the interna-
tionalization of the firm this question is of foremost relevance to advance our under-
standing with respect to the internationalization process from a conceptual point of
view as well as for practitioners willing to expand abroad. This study makes an
important contribution as it opens up the black box of how intangible resources frame
the internationalization process and how different process patterns ultimately affect
firm performance. Furthermore, it develops the mechanisms through which this
occurs. One pattern can be observed throughout the analysis; the idiosyncratic nature
of the different intangible resources prevents from determining a universal effect.
Instead the individual characteristics of intangibles matter with regard to the interna-
tionalization process and performance consequences.
The results yield some essential insights. First, they demonstrate that intangible
resources are a fundamental raison dtre of multinational companies, especially if
these intangibles originate from the upstream side of the value chain. Not only do
these intangible resources determine the degree of internationalization at which a firm
ideally operates but also the propensity to increase internationalization during the five
year period between 2001 and 2006. Second, intangible resources do not only explain
why firms can augment performance by doing business abroad but their very nature
determines as well the direction and optimum scope with regard to breath of interna-
tionalization in terms of regions served. Third, not only the scale and scope of interna-
tionalization have an impact on firm performance but as well the way how a company
arrives there. While low and modest speeds of international expansion have a positive
impact on performance, this effect eventually becomes negative for firms progressing
in rushes. Furthermore, higher scope of international business activities must not
necessarily result in performance pressures as has been proposed by Vermeulen and
Barkema (2002). Instead the negative performance consequences from higher scope of
internationalization will be encountered only if higher scope of expansion involves
substantial amounts of intangibles at the downstream side of the value chain. This is
because the development of these resources is path dependent and consequentially
more location bound in nature.
Hypothesis one lends support to internalization theory. Intangible resources

refuse market transfer but are deployable in multiple markets if the transfer occurs
within the firm. Therefore, the stock of intangibles is a fundamental driver of interna-
tionalization and the value of internationalization stems from an increase in the
economic rents that accrue to these firm specific resources (Teece, 1986). With regard
to downstream intangible resources the results differ for state aspects of internationali-
zation and dynamic aspects of the propensity to increase internationalization between
2001 and 2006. Downstream intangible resources are associated with lower absolute
Discussion 159
levels of internationalization. Nevertheless, this does not have to mean that these
resources impede internationalization. Market know-how is a strong predictor of
increasing levels of internationalization during the five year time frame. An explana-
tion of this phenomenon can be based on the different mobility of resources. While
imperfect inter-firm mobility is a prerequisite for the sustainability of competitive
advantage (Barney, 1991), upstream and downstream resources differ with respect to
their intra-firm mobility, i.e. the mobility between diversified units. According to Fang
et al. (in press.) the transfer of marketing capabilities within business units of a firm
occurs more slowly as compared to the transfer of technological capabilities. Consid-
ering that the transfer of market know-how across national borders with concurrent
cultural and linguistic barriers is toilsome, it is plausible that the internationalization
process of firms with considerable downstream intangible resources progresses more
slowly as compared to other firms. This could be true for entire industry sectors as
well. Although I control for industry affiliation in this analysis, i.e. manufacturing and
service sector, I cannot rule out that more specific industry or competitive patterns
have an impact when and to what extent internationalization takes place.
Hypotheses two and three reveal that differing internationalization potential of

intangible resources is an essential explanatory variable for the scope of international
selling activities. This has important implications for managerial practice as well.
Without doubt there are several motivations for internationalization. While the inter-
nationalization of upstream activities such as research and development or production
is motivated by knowledge or efficiency seeking, internationalization at the down-
stream side is mainly motivated by market seeking (Dunning, 1993). In consideration
of this chapters finding that intangible resources matter with regard to the optimum
scope of business activities, one important managerial implication is that executives
should carefully evaluate their stock of intangibles at hand. Specifically it suggests that
intangible resources should be an integral part of the process of strategy development,
especially with regard to the formulation of regional strategies. This again implies
recurrent evaluation and permanent controlling of the different dimensions of intangi-
bles with regard to opportunities as well as threats they provide in international
markets. The insight of this chapters analysis is that this is not only an important
strategic task because internationalization offers potential for the generation of valu-
able intangible resources (described by knowledge or efficiency seeking motives) but
that intangibles are important determinants with regard to the optimum strategy in
terms of the number and diversity of geographic regions a firm should serve with its
products or services.
Intangible resources such as technological know-how and TMT international

diversity do not only relate to higher levels of global integration of business activities
but they are associated with continuing rise of globalization during the five year period
between 2001 and 2006 as well. The value from technological know-how is embedded
in the product or service itself. Selling products of this kind across multiple countries
and regions needs fewer location specific investments and is less risky as compared to
products where the value of intangible resources is based on customer relationships.
Upstream intangible resources are driving forces of globalization and might ultimately
enable more firms achieving a status of balanced sales across all major regions in the
world.
Although market know-how is the strongest predictor for increasing internation-

alization between 2001 and 2006 this does not imply that firms increased their scope
of internationalization in terms of the distribution of their international sales across the
triad regions. Instead these firms followed a strategy of concentration, i.e. they headed
for a stronger presence in the regions in which they were already active. This result
demonstrates that downstream intangible resources do not lack internationalization
potential in general, but that their potential for quick and easy transfer into many
numerous different environments is constrained. With downstream intangible
resources an international strategy of concentration seems more promising than a
strategy of diversification. These results are in line with those obtained from other
regions of the world. Yu (1990), in an analysis of investment decisions by US firms in
Japan, found that previous experience in one country induces subsequent investments
in the same country. Hennart and Park (1994) confirm this result for Japanese firms. A
strategy of concentration is beneficial because of already existing relationships with
customers or other types of synergies obtained from the activities carried out in
previous investments. Moreover, the availability of customer and market related
intangible resources allows firms to exploit these resources to erect entry barriers.
The explanation for the moderating effect of speed upon the relationship between
internationalization and firm performance is based on the concept of absorptive
capacity in conjunction with diseconomies of time compression. Given that extreme
pace of international expansion is detrimental to firm performance, firms willing to
expand internationally should take care to avoid frictions from suboptimal reconfigu-
Limitations 161
ration and alignment of systems, structures, and processes. Learning and the integra-
tion of new knowledge obtained from international markets into firm routines becomes
a crucial success factor within the internationalization process. Firms that accomplish
to develop their potential and realized absorptive capacity (Zahra and George, 2002)
can reap higher benefits from internationalization. Potential absorptive capacity relates
to the effective acquisition and assimilation of relevant information while realized
absorptive capacity is related to the transformation and exploitation of the obtained
knowledge into competitive advantage. Given that German firms have a relatively high
internationalization experience (Wagner, 2001) these findings may also be interpreted
to suggest that speed of expansion remains an important factor for internationalization
success even for organizations with considerable experiential knowledge.
The results of hypothesis five lend support for the notion that the application of
contingency approaches can be a fruitful avenue to expand knowledge on different
factors that have an impact on the way how internationalization relates to firm per-
formance and especially on how these factors interact. I could not find support for a
uniform pattern of the moderating role of scope of expansion such as has been pro-
posed by Vermeulen and Barkema (2002). The inclusion of intangible resources within
this research framework allows a more fine-tuned analysis and reveals that benefits
from higher scope of internationalization might more than compensate for the costs
associated with more heterogeneous environments under certain circumstances. The
positive sign of the moderating effect of higher scope of expansion in combination
with an international diverse composition of the top management team supports this
assumption. Higher international diversity at the part of the top decision makers may
be a proxy for higher absorptive capacity and therefore already hint to a promising
way how to handle growing international complexity.
4.6 Limitations
The empirical approach is akin to the one already applied in chapter three. Con-
sequently the same limitations also apply to this chapter with regard to the sample and
methodological approach. Although German firms represent a fruitful setting for this
studies research framework, the focus on German firms is, like any other single
country investigation, simultaneously a study limitation.
I investigate the internationalization process for a five year time frame. Conse-
quently this study is limited in how much it adds to an understanding how internation-
alization patterns evolve over longer time horizons. Longitudinal analyses based on
samples that cover the entire internationalization history of firms from the first inter-
national market entry on might yield valuable insights how the exploitation and
creation of intangible resources takes place in international markets and how they
interact with each other. However, all databases cover only a limited number of years
back in history and therefore the analyses in this study were bounded by the availabil-
ity of data. Furthermore it is noteworthy that the firms in this sample do not form a
random sample. They all survived the five year period between 2001 and 2006.
Consequently I was not able to analyze whether extreme internationalization paths
with regard to speed or scope of international expansion increase the risk of going
bankrupt or being taken over. Future research is welcome to investigate the effects of
extreme paths of internationalization on profitability and survival.
The research setting with regional dispersion of international activities prevents

from using measures of international diversification other than foreign sales to total
sales because of data unavailability. Firms are required to provide data on geographi-
cal sales dispersion only, not on asset or subsidiary dispersion between home country
and foreign countries, under German company law. Thus, statistically reliable and
complete internationalization data especially with regard to detailed regional and
country specific operations is only obtainable for the sales based dispersion of interna-
tional activities. However, this study is the first that distinguishes between regional
activities of German firms, since data on these activities was generally not availability
until firms started to adopt to international accounting standards in the late 1990s.
Furthermore, this study is based on German large to medium sized firms. It may be
argued that its findings are not transferable to smaller firms. Smaller firms often lack
financial and managerial resources (Shuman and Seeger, 1986; Smith et al., 1988;
Carrier, 1994). Research how resource constraints limit the speed and scope of interna-
tional expansion or lead to differing internationalization paths altogether is therefore
highly appreciated.

The findings from this chapter suggest two key implications for future research
on the internationalization-performance relationship. The first is temporality, i.e. the
tendency of cross-sectional analyses to look at the degree of internationalization of a

company at a particular point in time. This kind of research design inevitably fails to
capture the dynamic nature of the contemporary business reality with regard to inter-
nationalization. Although genuine global firms are still a rare species, the results of
this chapter indicate that there is a trend towards globalization that is associated with
the availability of upstream intangible resources. Whether this trend will eventually
lead to a higher portion of firms becoming global with balanced sales across all major
regions of the world must be left to future investigation. Maybe though, Rugman and
Verbeke (2004, p. 16) are right in the end as they conclude:
When globalization does occur, it is restricted to the upstream end of the value
chain. Some of the worlds largest MNEs master the art of connecting globally dispersed
inputs. These can be in the form of financial capital, human capital, R&D knowledge,
components, etc., and can be integrated to better serve home region clients. Hence it
appears possible to be global at the upstream end of the value chain, and much can
undoubtedly be learned from observing and imitating the routines of global leaders in this
portion of the value chain.
The second implication for future research concerns the introduction of contin-
gency approaches to the research question if, why, and how internationalization relates
to firm performance. For example a firm that currently operates at a 50 percents FSTS
ratio may have rushed there within two years from a scale of 20 percent, or may have
already been operating at this level of internationalization for several years. In other
words, performance implications may differ greatly between such firms. Again, such
patterns will not be identifiable through cross-sectional analyses. Thus, as the results
of this study indicate, future research may benefit from the application of longitudinal
research designs.
There are several areas where knowledge on contingencies and path dependen-
cies are central to understand how internationalization exerts its influence on perform-
ance. For example this study shows that low and moderate expansion speeds are more
beneficial to firm performance than extreme speed of internationalization. None the
less firms will still be confronted with a trade-off between either accepting frictions
from higher expansion speed or being left with fewer foreign subsidiaries to benefit
from. Low expansion speed will help to avoid misalignment between international
diversified units and guarantee proper evaluation and integration of new information
obtained from foreign markets but at the same time it will leave the company with
slower penetration of international markets at the expense of international market
share. Research how managers solve this apparent conflict will be a valuable endeavor
and enrich theories of international management as well as managerial practice,
especially if it comes along with the consideration of additional strategic motives such
as first mover advantages and the like.
Another suggestion for future research concerns measurement although not as a

direct implication of the results obtained from this chapter. While already Sullivan
(1994) called for adequate variables to capture the multidimensional construct of
internationalization, prior research has extensively relied on the ratio between foreign
sales and total sales. This is mainly due to limited data availability in major databases
such as Datastream or Compustat. However since the beginning of this century an
increasing number of databases such as Extel Cards report more detailed information
in their geographical analyses sections. With more firms adapting to international
reporting standards the data availability for the construction of more precise and
sophisticated measures of internationalization will improve. This in turn will enable
researchers to conduct more fine-grained analyses of the internationalization-perform-
ance relationship.
4.8 Conclusions
Chapter three investigated if intangible resources have an impact on the interna-
tionalization-performance relationship. This chapter builds upon findings of a positive
performance impact of several intangible resources. It explores how and why this
occurs. Numerous internationalization theories have considered the availability of
intangible resources owned by the firm to be the key factor in the internationalization
of that firm (Delgado-Gmez et al., 2004). However, only a few empirical analyses
have addressed this issue and even fewer in the case of German firms. Against this
background this chapter makes several important contributions to the literature as it
opens up the black-box of the triangular relationship between intangible resources, the
internationalization process and how both relate to the internationalization-perform-
ance relationship.
First, it demonstrates that the presence of intangible resources within the firm has
an impact not only on the degree of international diversification, but also on the
direction that such diversification takes. An important insight is that intangible
resources differ with respect to their internationalization potential because of their
Conclusions 165
idiosyncratic nature. Distinguishing intangible resources by their origin in the value

chain explains why some resources are more valuable in the context of the internation-
alization of the firm than others. Upstream intangible resources enable firms to expand
their scope of internationalization to a greater extent in terms of business activities
across the triad regions Europe, America, and Asia than do downstream intangible
resources.
Second, this chapter expands knowledge on contingency factors that have a mod-
erating impact on the internationalization-performance relationship. It demonstrates
that speed and scope of internationalization are two crucial process dimensions of
internationalization. Consequently, not only the degree of internationalization matters
with regard to the performance impact of internationalization but as well the way how
a company arrives there.
Finally, these results have important managerial implications. Managers should

carefully consider their intangible resource base and develop their internationalization
strategy according to it. Furthermore they must keep in mind that building a profitable
MNC is a path dependent endeavor. Systems, structures, and processes that are
suitable to develop the effectiveness of absorptive capacity might constitute an impor-
tant competitive advantage over rivals under conditions of worldwide competition.
Endnotes
1. Rugman and Verbeke define home region oriented firms if they have at least 50 percent of their
sales in their home region of the triad. Bi-regional firms are defined as firms with at least 20
percent of their sales in each of two regions, but less than 50 percent in any one region. Host
region oriented firms are defined of having more than 50 percent of their sales in a triad market
other than their home region. Global firms are defined as having sales of 20 percent or more in
each of the three parts of the triad, but less than 50 percent in any one region of the triad (see Rug-
man and Verbeke, 2004, p. 7).
2. The three regions they differentiate are NAFTA (US, Canada, and Mexico), Europe (including
Central and Eastern Europe), and Asia-Pacific.
3. Dunning et al. (2007) suggest to include a fourth region termed Other because they identify some
firms in their sample that recorded more of their sales in this region [Other] than in some of the
three identified (Dunning et al., 2007, p. 188). However for the sample of German multinational
firms sales from other than the triad regions account for only for 3.2 percent of total sales on aver-
age. Assigning an additional category for this portion seemed disproportionate to the author.
References 167
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Chapter 5
Conclusion
Internationalization of firms and the way how it relates to firm performance has
been a focus of academic research in international business for a long time. After thirty
years of research on the relationship between internationalization and firm perform-
ance findings on the direction and magnitude are still contradictory. This work sought
to explore if, how, and why the two constructs of internationalization and performance
should have a relation with each other with an explicit consideration of the role of
intangible resources in this context. Chapter two analyzed prior empirical research
based on the method of meta-analysis. Given the diversity of empirical findings so far
this chapter explored if there is one uniform relationship between internationalization
and firm performance or whether this relationship is rather context dependent. Chapter
three and four discussed in detail the role of intangible resources. In chapter three I
explored the moderating role of five different dimensions of intangible resources and
adopted a novel concept of measuring the joint value of the different facets of intangi-
ble resources the so called hedonic approach. In chapter four I include the interna-
tionalization process in order to assess how it is shaped by intangible resources and
how they both relate to the internationalization-performance relationship.
In this concluding chapter I briefly summarize and comment on the main results
and scientific contributions of this piece of research. Subsequently, I will highlight
some of the practical and theoretical implications.
172 Conclusion
5.1 Summary of Results

I started with a quantitative review of prior research on the internationalization-
performance relationship in an attempt to reconcile the fragmented results. Given the
diversity of empirical findings on the direction and magnitude of this relationship I
applied meta-analysis. Meta-analysis is an innovative approach to the discipline of
international business research and is particularly helpful whenever there is ambiguity
on the real nature of a relationship. In fact, recently scholars such as Hitt et al. (2006)
recognized the urgent need to make sense of the extant body of empirical research by
means of innovative methodological approaches as they comment in their narrative
review of the literature: The empirical tests of this relationship [international diversi-
fication and performance] have reached a critical mass, allowing meta-analyses to be
completed (Hitt et al., 2006, p. 854). In fact, meta-analysis proved to be an important
endeavor to advance knowledge on the actual relationship. I was able to extract
findings from 36 studies (41 samples), comprising N = 7,792 observations and found
empirical support for a significant positive relationship at the aggregate level ( r =
.06). Maybe even more important is the fact that this relationship is highly context
dependent. I investigated whether two different kinds of moderators explain the
inconsistencies in prior research; methodological differences and context related
variables. I could not find support for the notion that differences in research designs,
time frame of analysis, or variable measurement such as different scales for interna-
tionalization and firm performance explain a significant part of the conflicting results
in past research. In contrast I found strong support that context related moderators
explain why prior research has not been able to reach a consensus on the question how
internationalization and performance relate. Meta-analysis reveals that the relationship
between internationalization and firm performance is moderated by R&D intensity,
product diversification, country of origin, firm age, and firm size. These results
highlight the need for future inquiry to consider these moderating variables as major
determinants of success in the research domain of internationalization.
In the following chapter I examined the benefit-cost trade-off from internation-

alization and explored its incremental variation across the internationalization contin-
uum. As has been suggested before, I assessed that the performance impact of interna-
tionalization is not stable but that the benefit-cost trade-off varies depending on the
stage of internationalization. However, unlike the pioneers of the 3-stage theory
(Contractor, Kundu, and Hsu, 2003; Lu and Beamish, 2004) I found that the benefit-
cost trade-off a firm faces in its internationalization process depends on the accessibil-
Summary of Results 173
ity of similar foreign markets. Similarity concerns cultural heritage but institutional
arrangements as well. The curve type that best explains the internationalization-
performance relationship for a sample of German firms can be described by a sinus
curve. Internationalization is associated with increasing performance at low stages of
internationalization. Similar institutional arrangements such as the single European
market disburden the extra costs from investing abroad as opposed to the home market
and facilitate the initial foreign market entry. With increasing international commit-
ment German firms face performance pressures; however these firms are not doomed
to declining performance once they have passed a certain level of internationalization.
Instead firms may have the ability to proactively shift existing thresholds or avoid
them altogether.
Throughout the remaining sections of this book I explored in detail the role of
one important category of contextual factors the intangible resources of a firm.
Despite the significant contributions of the eclectic paradigm (Dunning, 1980, 1988)
and internalization theory (Buckley and Casson, 1976; Hymer, 1976), there are three
weaknesses in contemporary research that limit their capacity to adequately capture
intangible resources as determinants of a firms internationalization and explain how
they moderate the internationalization-performance relationship. First, although the
firm specific intangible resource is a central construct of the eclectic paradigm as well
as internalization theory, it has not been fully developed to complete our understand-
ing of multinational strategies and operations (Itaki, 1991; Hitt, Hoskisson, and Kim,
1997). Prior research has largely treated intangible resources as a unidimensional
construct (Lei, 2007). Second, the two theories have paid little attention to the cost
side of multinationality (Eden and Miller, 2001). This is in part due to the implicit
assumption that multinational companies accumulate sufficient intangible resources
prior to foreign market entry and that these intangibles at least outweigh the liability of
foreignness (Zaheer, 1995). However, the value of intangible resources might vary
depending on characteristics of the foreign market as compared to the market where
the intangible resource was originally developed, a situation in which firms will
inevitably incur extra costs when investing abroad. Third, the eclectic paradigm as
well as internationalization theory have fallen short of providing insights into how
international activities and performance of multinational companies evolve over time.
Against this background I developed a novel approach of measuring the value of

the stock of intangibles as a whole the so-called hedonic approach. In a second step I
differentiated between five different intangible resources, based on a comprehensive
174 Conclusion
classification by the FASB. I did so in order to explore whether intangible resources

differ regarding the way how they affect the performance outcome of internationaliza-
tion and how this occurs. Based on a sample of n = 789 observations of medium to
large publicly listed firms from Germany I ascertained that intangible resources as a
hole (measured by hedonic q) do not systematically moderate the internationalization-
performance relationship. Furthermore, although prior research has advocated Tobins
q as a measure of intangible resources (Ross, 1983; Hirschey and Weygandt, 1985;
Delgado-Gmez, Ramrez-Alesn, and Espitia-Escuer, 2004) the results of this study
cast doubt whether this variable constitutes a valid measure of the set of intangible
resources in the context of international business research. However, once I separated
between different facets I found that intangible resources not only moderate the
internationalization-performance relationship but explain differing patterns of the
internationalization process as well. One distinction is crucial regarding the impact of
intangible resources. It is the differentiation whether the value of a resource is location
bound or whether it is non-location bound. The results of this analysis indicate that the
value of intangible resources that originate from the upstream side of the value chain is
(in tendency) less location-bound than that of intangibles that originate from the
downstream side. Such intangible resources as technological know-how and the
international diversity of the top management team do not only positively moderate the
internationalization-performance relationship, they are also associated with (1) higher
degrees of internationalization and (2) higher dispersion of international activities
worldwide and even (3) a higher tendency to increase global commitment during 2001
and 2006. In contrast, downstream intangible resources such as market know-how and
contract-based know-how (which comprehends such resources as purchased brands)
are associated with lower degrees of internationalization and less dispersion of inter-
national sales across the major regions of the world. In the case of downstream intan-
gible resources higher scope of international expansion is associated with performance
decline as well. Table 5.1 summarizes the results of those hypotheses that relate to the
different facets of intangible resources.
Finally, I found support that not only the degree of internationalization matters
with regard to performance outcomes but as well the way how a company arrives
there. Speed and scope of international expansion constitute two critical process
dimensions. Slow and modest internationalization speed does not cause performance
pressures whereas an extreme pace of international expansion might tax the absorptive
Summary of Results 175
Table 5.1 Summary of Hypotheses Pertaining to the Role of Intangible Resources
Techno- Contract- TMT

Market TMT
Hypotheses logical Based Internat.
Know-How Education
Know-How Know-How Diversity
Chapter 3:
H4-7:Moderating impact
on internationalization- (+) (+) (+)
performance relationship
Chapter 4:
H1: Degree of
(+) () () (+) (+)
internationalization
H1: Two year change of
(+) (+)
H2: Scope of
(+) () () (+) (+)
H3: Scope of expansion (+) (+)
H5: Moderating impact of

() ()
scope of expansion
Notes:
(+) Significant positive relationship.
() Significant negative relationship.
capacity of an organization and affect firm performance negatively. The effect of a

higher scope of international expansion depends on the availability of appropriate
resources. While a higher scope of expansion is not associated with declining perform-
ance in the presence of upstream intangible resources it is in the case of downstream
intangible resources.
In summary, this work advances existing knowledge on the role of intangible

resources as it takes a more differentiated approach to the concept of intangible
resources with the consideration of differing internationalization potential. It makes
six contributions to the literature: First, meta-analysis provides evidence that the
relationship between internationalization and firm performance is highly context
dependent. Second, this piece of research shows that the curve type of this relationship
depends on home country characteristics, especially concerning the similarity to
neighboring countries. Third, it introduces the hedonic approach into international
business research, a novel concept of measuring intangible resources. Forth, it distin-
176 Conclusion
guishes the moderating role of different facets of intangible resources. Fifth, it contrib-
utes to the regionalization hypothesis introduced by Rugman and Verbeke (2004), as
it explores the role of intangible resources regarding the scope of internationalization,
and sixth, it introduces speed and scope of internationalization as important moderator
variables and discloses how the performance impact of scope is contingent on intangi-
ble resources.
5.2 Implications and Recommendations for Future Research

The studies reported in this book have a number of practical and theoretical
implications. Their results are important for researchers, investors, policy makers,
educators, and the management of multinational companies. The particular findings
and implications of the three main chapters have been extensively treated in the
discussion sections of the respective chapters (chapter two, three, and four). The
remaining part of the present chapter seeks to put the findings in a broader perspective
and to point out directions for future research.
This work proposes that the relationship between internationalization and firm
performance is fundamentally context dependent. Therefore researchers should no
longer look for generalizations but instead develop more fine-grained models that
investigate the circumstances when and how internationalization and performance
relate. The results give support to theories that stress the conditionality of success in
internationalization and that emphasize the decisive role of intangible resources. I
think that an integration of different theoretical approaches might be helpful to
advance knowledge on the nature of the internationalization-performance relationship.
However, first and foremost this piece of research represents one step towards
the development of evidence-based management (Frese et al., 2005). I applied meta-
analytic techniques to establish the status of the concepts of internationalization and
firm performance. The study reviewed more than three decades of research. Findings
may assist researchers in their choice of variables, measurements and control vari-
ables. Managers in turn should be conscious that their organizational context has an
impact on the profitability attributes of internationalization. As an example, especially
older firms should be aware of organizational change because of organizational inertia.
This is not trivial, because prior knowledge may also lead to rigidity and inflexibility
(Audia, Locke, and Smith, 2000). In changing environments knowledge may also
Implications and Recommendations for Future Research 177
become obsolete quickly and require the owner to unlearn (Reuber and Fischer, 1999).
Although a number of moderators could be identified, heterogeneity in the effects
which cannot be attributed to research artifacts is still remaining. This fact strongly
suggests the need for more rigorous contingent approaches to internationalization and
performance. To be practically beneficial, an evidence-based approach for the domain
of international business research requires further meta-analyses that specify the size
and generalizability of other effects of concepts discussed in literature.
Another step towards evolving evidence-based management is the development

of cumulative evidence from individual studies as well as the examination of new
individual concepts. The distinction of different characteristics of intangible resources
(chapter three and four) represents such a concept that promises to be theoretically and
practically useful. The present study is among the first to simultaneously address the
relationships between (1) different characteristics of intangible resources, (2) the
internationalization process and (3) performance as the outcome of that process.
Maybe the most critical process is the successful deployment of intangible

resources in foreign markets (Kogut and Zander, 1993). The findings from this work
have important implications for the conceptual development and refinement of the
resource based view within international diversified firms. One important conclusion
from this research concerns the importance to bear in mind the idiosyncratic nature of
intangible resources (with respect to value, rareness, inimitability, and non-substitut-
ability), which has an effect on the effectiveness of such resources in international
markets. As intangible resources are imperfectly mobile (Kogut and Zander, 1992), a
firm may find it difficult to transfer knowledge to its foreign subsidiaries especially
if this knowledge is valuable and rare. Thus, the paradox of value and challenges to
transferability is created. Figure 5.1 displays a conceptualization of the resource based
view of the firm, as adapted from Mata, Fuerst, and Barney (1995). This conceptuali-
zation can be applied to this studys results as well. As shown in this figure, resources
that conform to the criteria value, rareness, and imperfect mobility across firms might
enable a firm to achieve sustained competitive advantage. However, some intangible
resources such as market know-how have a positive effect on firm performance only
after a considerable period of time. This is because their transfer across units of a firm
is toilsome and time-consuming. This issue has important managerial implications. It
highlights the challenges associated with the successful deployment of the firms
know-how base across different markets. Hence, even though a multinational company
178 Conclusion
Figure 5.1 Mobility of Intangible Resources in the Context of Internationalization
N Is a resource Y
valuable?
N Y Paradox of
Is it
rare? Resource
Mobility
Competitive N Is it imperfectly Y
Disadvantage mobile across
firms?
Competitive N Is it imperfectly Y
Parity mobile across
business units?
International Experience Temporary
Competitive
Advantage
Host-country Experience Rapid Building Slow Building

of Sustained of Sustained
Competitive Competitive
Advantage Advantage
Technological Know-How Market Know-How
Source: Adapted from Mata, Fuerst, and Barney (1995).
might possess valuable intangible resources, the complexity of the embedded know-
how might defy immediate performance gains. This perception has recently been
emphasized by Fang et al. (in press.) as well. They describe a trade-off between the
immediacy of performance gains and the sustainability of competitive advantage.
The more complex a firms knowledge, the more difficult it will be to transfer
effectively. Managers should not look to short-term performance when an expansion is
predicated on the transfer of complex firm-specific knowledge. Managers with the
patience to stick through short-term instability in international diversification may be
rewarded by long-term gains (Fang et al., in press., p. 9).
It is important, however, to comment on the limits inherent in using secondary

data in international business research as well, especially regarding intangible
resources. While a more detailed reporting of international segment data on the
regional dispersion of firm activities in recent years allows future research to develop
more fine-grained models of the internationalization-performance relationship, com-
pany reporting on intangible resources in annual reports or databases will probably
remain limited. As this studys test for data quality of different databases discovers,
even recognized data sources such as Datastream and Compustat reveal deficiencies
regarding the reliability of historic data they report. Future research should be aware of
Implications and Recommendations for Future Research 179
the flaws pertaining to archival data and adapt appropriate procedures to avoid them.
Finally, I encourage future research to draw on more diverse samples as well, espe-
cially from countries other than the US. Some samples such as the Fortune 500 have
been heavily applied in prior research (e.g. Sambharya, 1995; Gomez-Mejia and
Palich, 1997; Qian and Li, 2002). A broader empirical base will help to avoid misinter-
pretations and over-simplistic generalizations of results that rest on only a few differ-
ent samples, comprising similar firms. Therefore I suggest that the field of interna-
tional business would definitely benefit from more in-depth field research. Case
studies that focus on firm level differences or studies conducted at an industry level
might reveal important differences in the internationalization process and how interna-
tional experience evolves over time. Ideally, such research should be based on longitu-
dinal research designs, relating firm specific internationalization processes to perform-
ance over time. Research of this kind could address the multidimensional nature of the
internationalization process.
One fundamental insight from this piece of research is that the question of how
internationalization and performance relate cannot be answered straightforwardly. It
seems no simple and direct relationship is awaiting its discovery by international
business scholars. If this is true and this research question is not suited for (over-)
simplistic research models then researchers should focus on certain facets of this
question and use integrative theoretical approaches to eventually arrive at a compre-
hensive explanation of this phenomenon. This work represents a start in this vein and
develops a model that focuses on the role of intangible resources with regard to the
internationalization-performance relationship. I propose that future research should
apply more particularistic research models in this domain. This might include research
on further explanatory variables at individual and firm level, industry and regional
differences, and research on intermediate outcome variables. Seemingly, learning
plays a critical role in the domain of internationalization. For example the 3-stage
model is based on learning arguments. Hence, it should be tested whether this learn-
ing actually takes place and how it works.
Ultimately, to end here in this outlook, I strongly recommend moving the inter-
nationalization-performance research stream away from bivariate and universalistic
propositions towards a new premise that is based on multivariate and particularistic
perspectives. In particular, I suggest that contingency theory represents a promising
and applicable theoretical foundation for this line of inquiry (Drazin and Van de Ven,
1985; Venkatraman and Prescott, 1990). It became obvious throughout the preceding
180 Conclusion
chapters that particularistic interaction models which make use of moderator variables
have the ability to isolate precisely specified theoretical links. Therefore they might be
valuable to advance research in this field in the near future. Once a sufficient volume
of such research is generated, researchers could start to aggregate and integrate the
results with the help of more holistic systems approaches (Miller and Friesen, 1980;
Miller, 1981). Antecedents of internationalization, moderators and mediators might
form the building blocks of a contingency theory on internationalization and perform-
ance (Hitt et al., 2006). Finally, new meta-analyses may help to establish the gener-
alizability of individual findings towards the development of a mid-range theory of the
internationalization-performance relationship.
References 181
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Appendix
Appendix Chapter 2
Appendix Chapter 3
Appendix Chapter 4
184 Appendix Chapter 2
Appendix Chapter 2
A 2.1 Studies of the Meta-Analysis 185
A 2.2 Meta-Analytic Procedure and Statistical Formulas 206
A 2.3 Methodological Moderators 209

Table A 2.3.1 Independent Variable: Internationalization 209
Table A 2.3.2 Dependent Variable: Performance 210
A 2.1: Studies of the Meta-Analysis
Author(s) Research Variable

(Relevant) Hypotheses Results Sample
Year Question(s) Coding
Aggarwal, Do U.S. investors re- Capital markets are not fully inte- Internationalization is positively N=192 U.S. Independent:
1979 ward U.S. companies grated on an international level, related to Price/Earnings-ratio multinationals FSTS,
The Effect of Context
for going overseas? therefore investors value firms (P/E-ratio) and negatively to firm from Business FATA, For-
international diversification, be- beta. Investors are willing to pay a International. eign income
cause they cannot do so them- premium for multinationals and to total in-
selves. systematic risk decreases as firms come.
go international. Dependent:
Firm beta,
P/E-ratio,
Cost of capi-
tal.
Blood- What are the antece- H7: Top management interna- Greater international work experi- N=61 venture Independent:
good, Sa- dents and outcomes tional exposure, sources of com- ence among top managers, pursuit capital backed Percent of
pienza, of the internationali- petitive advantage, innovative- of product differentiation, and lar- firms that were primary ac-
Almeida, zation of new high- ness, and size at IPO will have the ger firm size are strongly associ- less than five tivities (ac-
1996 potential ventures? same relationship with subsequent ated with greater internationaliza- years old at the cording to
How is a firm's deci- performance as they had with ini- tion of new ventures. Internation- time of IPO. Porter, 1985)
sion to international- tial internationalization. H8: The alization is marginally related to that were at
ize and the subse- level of internationalization of the earnings two years after IPO. least partially
quent performance new U.S. venture at the time of Early internationalization is not international
affected by its set of the IPO is positively related to its good or bad but rather contingent activities.
resources available? subsequent performance. upon industry and resource condi- Dependent:
tions. Sales growth,
EBIT.
185
186
A 2.1: Studies of the Meta-Analysis (continued)

Buhner, What is the effect of Capital market inefficiencies Results show significant positive N=40 large Independent:
1987 international diversi- benefit firms that internationalize. relationships between geographic West German Herfindahl-
fication of firms in Market failure, asset specificity, diversification and both market corporations of type index of
Western Germany on and indivisible physical assets are performance and accounting per- the top 300 international
market performance? further benefits for internationali- formance. While domestic product firms in West- sales disper-
What is the difference zation. diversity appears to be motivated ern Germany, sion.
compared to a strat- by internal "push" stimuli such as all stock ex- Dependent:
egy of product diver- risk reduction and poor profitabil- change noted Jensen alpha,
sification? ity in traditional lines of business, in Frankfurt. ROA, ROE.
internationalization appears to be
"pulled" by external stimuli of
prospective market opportunities.
Capar, What is the effect of H: The relationship between inter- H: Supported. Lower inflection N=81 major Independent:
Kotabe, international diversi- national diversification and per- point at FSTS = ca. 18%. German ser- FSTS.
2003 fication on perform- formance in service firms will be vice firms from Dependent:
ance in service firms? U-shaped curvilinear, with per- the largest 500 ROS, ROA.
formance decreasing up to a cer- German Com-
tain point, beyond which higher panies Direc-
levels of international diversifica- tory by Die
tion will increase performance. Welt.
Appendix Chapter 2

Chen, When encountering H1: When encountering difficul- H1: Supported, small firms with N=49 SMEs Independent:
Martin, competitive threats, ties, small firms that already have prior foreign business involve- randomly se- dummy (0/1)
2001 what causes firms to foreign operations are more likely ment are more likely to use for- lected from US depending on
use foreign expansion to engage in foreign expansion. eign expansion to deal with the electronic the formation
to overcome the diffi- H2: Product expansion activities problems. H2,3: Supported, for- components of a new for-
culties? How is a negatively affect foreign expan- eign activities of small firms are industry (SIC- eign business
strategy of interna- sion of small firms. H3: Domestic closely related to their non-foreign 36). SME: unit in a year.
tionalization related expansion activities negatively strategies and cannot be consid- sales less than Dependent:
to strategies of do- affect the foreign expansion of ered separate strategic choices. the industry Firm sales
mestic expansion and small firms. Because of resource scarcity, average for at change, ROA
product expansion? SMEs should either engage in least half of the change.
product or international diversifi- periods.
cation.
Delios, Is there value intrinsic H4a: R&D intensity of a firm is H4a,b: Supported. H5: Supported. N=399 Japa- Independent:
Beamish, to a wide geographic positively related to its geographic The effect of internationalization nese publicly Index of
1999 scope of operations? scope. H4b: Advertising intensity and the effect of proprietary assets traded firms number of
Is internationalization of a firm is positively related to its are separated through a path ana- from Analysts FDI and
per se valuable or are geographic scope. H5: The geo- lytic approach. Ownership advan- Guide; firms number of
proprietary assets the graphic scope of a firm is posi- tages as well as internationaliza- are listed at the countries.
ultimate source of tively related to corporate per- tion itself lead to superior per- first section of Dependent:
superior firm performance. formance. the Tokyo ROA, ROE,
formance? stock ex- ROS. All
change. items are 5-
year aver-
ages.
187
188

hanaraj, What is the relation- H5: The greater the technological H5,6: Supported. Enterprise, tech- N=70 US Independent:
Beamish, ship between degree intensity of a firm, the greater the nological intensity and firm size SMEs from an Export inten-
2003 of internationalization degree of internationalization. H6: are good predictors of export industrial sity, number
and firm perform- The higher the degree of interna- strategy and export strategy influ- midwestern of foreign
ance? Are differences tionalization of a firm, the higher ences firm performance positively. state. N=87 countries.
between US and Ca- the performance. The path coefficients for Ameri- Canadian Dependent:
nadian SMEs observ- can and Canadian SMEs are com- SMEs from the Profitability,
able? parable, except for the path from whole country. Market share,
enterprise to degree of interna- Questionnaire Market share
tionalization, where the US sam- survey. growth.
ple is not significant.
Dragun, What is the impact of No Hypotheses offered. Higher proportion of international N=130 of Independent:
2002 international spread sales leads to lower profitability World's largest IMG - inte-
(globalisation) on and lower risk-adjusted cash re- 500 retail grative
financial and value turns. The more global the com- companies, measure of
performance? What pany is, the greater its earnings from 19 coun- globalization.
characteristics do in- volatility. A "sound financial per- tries. Dependent:
ternational retailers formance" retailer has the follow- Operating
with corresponding ing characteristics: reasonably big, profit margin,
sound financial per- modestly international (FSTS: Realized
formance display? 18%), regionally focused (1-2 re- economic
What strategic rec- gions), lightly leveraged. value.
ommendations on the
appropriate interna-
tional expansion
mode can be offered?
Appendix Chapter 2

Geringer, How can performance H2: Relative performance of a H2: Supported, internationaliza- N=181 largest Independent:
Beamish, differences of MNCs MNE will tend to be positively tion enhances performance. American and Foreign sub-
DaCosta be explained by their related to the degree of interna- European mul- sidiary sales
1989 diversification strat- tionalization of the firm's opera- tinationals to total sales.
egy and internation- tions. from World Dependent:
alization? How directories of ROS, ROA,
should an MNC de- multinational 5-year aver-
ploy its resource base enterprises. ages.
to generate economic
rents?
Geringer, What is the relation- H2: Performance levels of Japa- H2: Negative coefficient for the N=108 largest Independent:
Tallman, ship between product nese multinational manufacturing first two periods for ROS, not sig- manufacturing Foreign sub-
Olsen, diversification and firms should vary positively and nificant for sales growth in period multinationals sidiary sales
2000 performance and in- linearly with the degree of multi- 2-3. H3: Supported for ROS in from Japan in to total sales,
ternationalization and nationality. H3: Performance lev- first period, not significant in pe- 1981, Data export sales
firm performance els of Japanese multinational riod 2-3. H5a,b: Not supported, from Daiwa to total sales.
over different periods manufacturing firms should vary signs contrary to those predicted. Securities Co., Dependent:
of time for Japanese positively with the level of export Ltd. Analysts ROA, ROS,
keiretsu and non- sales by the firm from the home Guide und Ja- Sales growth.
keiretsu manufactur- country compared with total sales. pan company
ing firms? H5a,(b): The interaction of multi- handbook.
national diversity and product di- Timeframe:
versity (squared) should be nega- 1977-1993.
tively (positively) related to per-
formance for Japanese multina-
tional manufacturing firms.
189
190
Author(s) Research
(Relevant) Hypotheses Results Sample Variable Coding
Year Question(s)
Goerzen, What are the latent H1: The relationship between H1: Supported. H2: Supported. N=580 Japa- Independent:
Beamish, subcomponents of an MNE's International Asset Global Competitiveness en- nese MNEs, Entropy measure of
2003 geographic scope Dispersion and its Economic tropy score is dominant, while that have op- international asset
and how are they Performance is positive. H2: the Cultural Diversity entropy erations in six dispersion, Environ-
related to firm suc- The relationship between an score has modest impact - a or more coun- ment Diversity: In-
cess? International MNE's Country Environment great variance in the levels of tries. dex consisting of four
asset dispersion and Diversity and its Economic Per- economic development has an entropy measures: 1.
country environ- formance is negative. H3a,b: important negative effect on Global Competitive
ment diversity are Interaction of International As- performance, cultural effects Index, 2. Culture ac-
differentiated. set Dispersion and Country En- are more modest. H3a,b: The cording to Hofstede
vironment Diversity. combination of the two geo- (1980), 3. Economic
graphic scope constructs yields Freedom Index, 4.
an overall positive effect on Political Constraint
firm performance. Explanation Index.
for some non-linearity findings: Dependent: Profit-
Organizations complexity ef- ability Index consist-
fect is based on the magnitude ing of Jensen alpha,
of country environment diver- Sharpe ratio, Market-
sity. Greater dispersion of as- to-book ratio.
sets is positively related to firm
performance.
Appendix Chapter 2

Gomes, What is the form (lin- H: The relationship between mul- H: Supported. Adding the squared N=95 US Independent:
Ramas- ear - nonlinear) of the tinationality and performance will term significantly increased the companies Index of
wamy, relationship between be nonlinear with performance proportion of variance explained. from chemical FSTS,
1999 internationalization increasing up to an optimal level (28), pharma- FATA,
and performance? Is beyond which higher levels of ceutical (14), Number of
this relationship time- multinationality lead to perform- IT (24), and countries.
stable, because some ance decline. Theoretical short- electronic Dependent:
found positive results comings led to "inconclusive" re- equipment (29) ROA, Oper-
that could not be rep- sults, because they did not con- industries. ating costs to
licated in later stud- sider that benefits and costs of in- total sales.
ies? ternationalization change with the
Gomez- What are the per- Culturally related international Regression tests using nine indica- N=442 compa- Independent:
Mejia, formance implica- diversification will be positively tors of cultural diversity revealed nies from For- Dispersion of
Palich, tions of culturally re- associated with firm performance. no significant cultural effects on tune 500. subsidiaries
1997 lated vs. unrelated Conversely, culturally unrelated any of the indicators. The negative across
internationalization? global diversification will be impact of greater cultural diversity Hofstedes
negatively associated with firm can be overcome through deliber- (1980) di-
performance. Cultural diversity is ate strategies and benefits through mensions.
supposed to have a negative im- cultural heterogeneity. Dependent:
pact on production synergies, in- ROA, Mar-
novation, technology implementa- ket-to-book
tion, organizational transformation ratio. 10-year
processes, market response, inter- averages.
personal dynamics, organizational
control systems, and human re-
191
source programs.
192

Grant, The purpose of this Reasons for superior performance: 1. Static analysis: Overseas pro- N=304 quoted, Independent:
1987 paper is to examine 1. Return to intangible assets, 2. duction ratio has a highly signifi- British owned, Sales of
more carefully than Market power conferred by inter- cant positive influence which is manufacturing overseas op-
hitherto the relation- national scope, 3. Capacity to un- consistent across all three profit- companies erating sub-
ship between multina- dertake risky investments, 4. ability measures. taken from the sidiaries as
tionality and firm per- Broadening of investment oppor- 2. Dynamic Analysis: Significant Times 500 list proportion of
formance. tunities. Ha: Because of similari- positive coefficient of changes in of Britain's total sales.
ties in language and culture, in- overseas production to changes in largest compa- Dependent:
vestment in the Commonwealth performance variables nies. Sales
countries of the Rest of the World 3. Geographical influences: Lack Growth,
and, to a lesser extent, in North of consistent differences between ROA, Oper-
America might be expected to be the regression coefficients on the ating profit
more successful than investment regional overseas production ra- growth,
in Western Europe. Hb: Because tios. ROE, ROS.
of differences in levels of eco- Result: The primary source of the
nomic development and differ- superior performance of multina-
ences in the intensity of competi- tionals is competitive advantage
tion, UK firms might find it easier rather than the higher rate of profit
to compete in the Rest of the in the industries of other countries.
World than in North America, Hc:
because of geographical prox-
imity, UK firms might find inter-
national integration easier with
their European subsidiaries than
with those in North America or
the Rest of the World.
Appendix Chapter 2

Har- What is the relation- H1: Dependence on foreign activi- H1: Significant for ROS, not sig- N=152 firms Independent:
veston, ship between the ex- ties of MNC will be positively nificant for ROA and market- from the re- FSTS.
Kedia, tent of foreign de- related to MNC performance. share. H2: Supported. North gions Pacific Dependent:
Francis, pendence and per- H2a(b): Short-term - ROA, ROS America, Europe: significant for (20), Western ROS, ROA,
1999 formance? Is this re- (long-term - market share) orienta- ROA, ROS, not significant for Europe (45), Market-share
lationship different tion measures of performance of market share. Pacific Rim: not and North
for firms originating European and North American (a significant for ROS, ROA, signifi- America (87).
either from the Pa- Pacific Rim) MNCs will be posi- cant for market share. The per- Large MNCs
cific Rim, Western tively related to the degree of formance differences are depend- from the top
Europe or North MNC dependence on foreign ac- ing upon the time-horizon of the 500 global
America? tivities but will have no relation- performance measure. manufacturing
ship with the degree of MNC de- and service
pendence on foreign activities for corporations
a Pacific Rim (European and and 100 largest
North American) MNC. transnational
corporations.
Hitt, How is the relation- H1: The relationship between in- H1: Supported. International di- N=295 manu- Independent:
Hoskis- ship between interna- ternational diversification and versification is beneficial because facturing firms Entropy
son, Kim, tionalization and per- firm performance is nonlinear, internal resource and capabilities with sales measure of
1997 formance moderated with the slope positive at low and can earn rents on market imper- higher than sales disper-
by product- moderate levels of international fection. On the contrary costs of $100 Mio. sion.
diversification and diversification but negative at high internal and external communica- Dependent:
innovation (R&D)? In levels of international diversification rise. H3: Supported. Experi- ROA.
what direction are the tion. H3: Product diversification ence with diverse product portfo-
causal relationships? positively moderates the curvilin- lios helps to handle rising com-
ear relationship between interna- plexity.
tional diversification and firm per-
193
formance.
194

Hsu, What is the relation- H1-4: All else being equal, for H1-4: When measured via FSTS a N=118 US Independent:
Boggs, ship of internationali- multinational companies, the rela- linear curve type explains the rela- firms from Number of
2003 zation on different tionship between the degree of tionship for ROA, ROE, Profit Hoover's 750 countries,
performance meas- internationalization and firm per- Margin best (not an inverted u- US Major Pub- FSTS.
ures and their decom- formance, measured by H1: ROE, shape). Only for Total Asset Turn- lic Companies Dependent:
position? Theory H2: ROA, H3: Profit Margin, H4: over a standard u-shaped curve list. ROE, ROA
suggests that these are Total Asset Turnover will be has highest explanatory power. and their de-
different constructs characterized by an inverted U- When measured via number of composition
therefore differing shape, with a slope that is positive countries an inverted u-shape according to
relationships are ex- at lower levels of internationaliza- curve type explains a far higher the DuPont
pected (linear, u- tion and negative at higher levels degree of performance variance scheme.
shaped, inverted u- of internationalization. for ROA, ROE and Total Asset
shaped). Turnover. Again, a linear curve
type fits best the relationship with
Profit Margin.
Knight, What are the interre- H6: The more the firm responds to H6: Supported. H7: Supported. N=216 interna- Independent:
2000 lationships of entre- globalization, the better is the per- SMEs that respond to globaliza- tionally active Globalization
preneurial orientation, formance of the firm. H7: The tion and prepare in advance to en- firms. Survey Index con-
marketing strategy, more the firm prepares in advance ter foreign markets tend to enjoy method sisting of six
tactics, and firm per- to enter foreign markets the better better performance. items.
formance among is the performance of the firm. Dependent:
SMEs affected by Comparison
globalization? with com-
petitors based
on five items.
Appendix Chapter 2

Lu, What is the relation- H1: An SME's performance is H1: Not supported, negative rela- N=164 Japa- Independent:
Beamish, ship between the ex- positively related to its level of tionship. H2: Supported. H3a: nese SMEs Export inten-
2001 tent of FDI, exporting exporting activities. H2: The rela- Supported. H3b: Domestic joint listed on the sity (percent
activity, and relative tionship between the level of FDI ventures have a negative impact. first or second of parent
use of alliances, to the and an SME's performance is H4: Supported. section of the sales derived
corporate perform- nonlinear, with the slope negative Additional comment on liabilities Tokyo stock from export
ance of international- at low levels of FDI but positive at of foreignness: There is a negative exchange. revenues),
izing SMEs? higher levels of FDI. Resource impact on performance with a Number of
constraints lead to H3a(b): An more than two percent reduction FDI, Percent-
SME's performance is positively in ROA when the number of FDI age of for-
(negatively) related to its level of countries reaches five. eign joint
alliances with local (home coun- ventures.
try) partners formed in the process Dependent:
of internationalization. Export and ROS, ROA.
FDI demand different capabilities,
therefore: H4: Exporting activities
will exert a negative moderating
effect on the relationship between
FDI and performance.
195
196

Lu, What is the form of H1: The relationship between H1: Supported. The inclusion of N=1489 Japa- Independent:
Beamish, the relationship be- geographic diversification and the cubic term significantly im- nese firms of Index from
2004 tween internationali- firm performance is nonlinear, proved the model fit. H2: Linear which 1059 are number of
zation and perform- with the slope negative at low lev- positive effect of R&D on ROA engaged in FDI FDI, number
ance? What is the els of geographic diversification, and Tobin's q. activities. of countries.
performance impact positive at medium levels of geo- Dependent:
of intangible assets? graphic diversification and nega- ROA, Tobin's
tive at high levels of geographic q.
diversification. H2: A firms in-
tangible assets moderate the rela-
tionship between geographic di-
versification and firm perform-
ance such that high levels of in-
tangible assets increase the per-
formance gains attributable to
geographic diversification.
Appendix Chapter 2

Majocchi, Has the process of H1: A positive relationship exists H1: Rejected. H2: Supported. In N=220 Italian Independent:
Zucchella, upgrading the level of between SMEs financial perform- order to access the American mar- SMEs in the Export sales
2003 international com- ance and its level of export inten- ket SMEs must develop high ca- manufacturing to total sales,
mitment (in order to sity. H2: SMEs exporting in the pabilities that finally lead to sector. Number of
be rooted in the core US are consistently more profit- higher financial performance. H3: countries,
world markets, close able than SMEs operating in the Supported. Because of liability of FDI dummy
to key customers) EU domestic market. H3: The re- foreignness of SMEs. H4: Sup- (has FDI /
created value for the lationship between FDI and prof- ported. Firms that have intensely has no FDI).
enterprises involved? itability is negative. H4: The rela- exported in distant markets gener- Dependent:
Are there country tionship between FDI and profit- ated a value creation process that ROS, ROA.
specific factors? Does ability is positive, thus overcom- can be beneficial because of the
the form of interna- ing the liability of foreignness, cumulated knowledge useful and
tionalization (export, if FDI follows a high level of ex- applicable on other internationali-
FDI) matter? port activities by firms. zation modes.
Mauri, What impact does the Prior studies focused on the distri- H1: Supported, for low levels of N=91 US Independent:
Samb- amount of integration bution of company activities integration firm performance companies Global inte-
harya, of the global opera- across countries and overlook at tends to increase positively with from four in- gration index,
2001 tions of a firm have the global exchange of resources the level of global integration. The dustries with shows inter
on performance? among differentiated corporate climax is reached at a relatively revenues area sales in-
units. H1: The relation between high level of global integration as higher than between the
global integration and firm per- it represents 1.3 standard devia- $50 Million. company.
formance follows an inverse U- tions beyond the sample mean. Data source: Dependent: 3
shaped curve. Compustat year average
ROS.
197
198

McDou- What is the impact of H1: Technology-based new ven- H1: Supported for relative market N=62 US Independent:
gall, internationalization tures with higher levels of interna- share, not supported for ROI. manufacturing FSTS.
Oviatt, on new venture per- tional sales subsequently have H2: Supported. Ventures with an new ventures Dependent:
1996 formance? As new higher levels of performance. H2: increase in internationalization that are ROI, Relative
ventures internation- Strategic change will be more have significantly higher correla- younger than market share.
alize, are changes in positively related to performance tions between strategic change and eight years.
their strategies neces- among technology-based new both relative market share and
sary? How are ventures that have increased their ROI.
changes in percentage internationalization than among
of international sales technology-based new ventures
related to changes in that have not increased their inter-
strategies (relative nationalization.
market share) and
performance (ROI)?
Qian, What is the effect of a H1a(b): On average, the profit- H1a,b: Supported. H2a,b: Sup- N=126 largest Independent:
1996 firm's overseas activi- ability of high international mar- ported. H3: Not supported. US industrial FSTS.
ties upon its risk- ket diversifiers - HI (medium in- Any firm which belongs to the firms. Dependent:
return performance ternational market diversifiers - multinational category based upon ROA, ROE.
by using different MI) is greater than that of both MI the criterion of multinationality
multinationality and low market diversifiers - LI (FSTS) can provide a similar risk-
measures? (LI) diversification. H2a(b): On return performance independent of
average, the profit stability of HI the number of countries or geo-
(MI) is greater than that of both graphic areas in which it operates.
MI and LI (LI). H3: The risk-
return performance of the highest
international market diversifica-
tion group is greater than that of
Appendix Chapter 2
the other MNCs.


Qian, What are the individ- H2: Performance should posi- H2: Supported. Curvilinear rela- N=71 US firms Independent:
2002 ual and joint effects tively vary, to a certain extent, tionship. H3: Supported. Firm per- in the manu- FSTS.
of multinationality with degrees of multinationality. formance will be positive at low facturing sec- Dependent:
and product diversifi- H3: The curvilinear (inverted U- and moderate levels of product tor from Hoo- ROS, After-
cation on profit per- shaped) relationship between mul- diversification and multinational- vers handbook tax profit-to-
formance for a sam- tinationality and/or product diver- ity, but may be adversely affected of emerging sales. 5-year
ple of US emerging sification, and profit performance with further increase in the degree companies. averages.
small- and medium- becomes weaker at high levels of of multinationality and product
sized enterprises? these two dimensions. diversification.
Qian, Li, What strategic com- H1: On the average, profitability H1: Not supported. HGM strategy N=125 US Independent:
2002 bination of geo- of high global market diversifica- did not produce a better return firms out of the Geographic
graphic scale (foreign tion (HGM) is higher than that of performance as suggested, and largest 500 scale: FSTS;
involvement, multina- both medium global market diver- even performed poorly relative to from Fortune Geographic
tionality) and scope sification (MGM) and low global the MGM strategy. HFI contrib- 500. scope: GMD
(different world re- market diversification (LGM). H2: uted significantly to a higher prof- (Global Mar-
gions or markets) of On the average, profitability of the itability (when compared to both ket Diversifi-
foreign operations HGM/High foreign involvement MFI and LFI). H2: "may lend sup- cation) - En-
yields highest per- (HFI) combination is higher than port" - no clear statement, after- tropy meas-
formance for large that of other strategic combina- wards: e.g. HFI/MGM ure.
US firms? tions. H3: Increased geographic (MFI/MGM) outperforms Dependent:
scale of foreign operations has HFI/HGM (MFI/HGM). H3: Sup- ROA, ROS,
positive influence on profit per- ported. Foreign involvement plays ROE.
formance. an important role in increasing
returns.
199
200

Qian, Li, What are the profit- H4: An SMTE's profitability is H4: Supported. Internationaliza- N=67 Biotech Independent:
2003 ability determinants positively associated with its in- tion generates additional sales; it firms. Firms FSTS.
of small- and me- ternationalization. Reasons: 1. helps SMTEs split the investments are older than Dependent:
dium-sized enter- R&D investments associated with across various markets. It also 5 years and ROA, ROE,
prises in high-tech innovator strategy afford that provides more opportunities for have more than ROS, Sales
industries? Espe- products are sold across many SMTEs to maximize profits before 10 employees. growth.
cially: What is the markets in order to sustain large- their innovations become obsolete.
role of innovator po- scale R&D-operations 2. Increase
sition, market aware- in economies of scale, and experi-
ness, niche operation ence.
and internationaliza-
tion?
Ruigrok, What is the form of The relationship between "degree Supported. Several analysis tech- N=84 German Independent:
Wagner, the relationship be- of internationalization" and "per- niques are applied, all of which manufacturing FSTS.
2003 tween internationali- formance" exhibits a standard-U have been applied in research of a companies Dependent:
zation and perform- form, with performance being non-linear relationship to date. from 500 larg- ROA, Oper-
ance? high at low degrees of internation- These are ANOVA (grouping of est manufac- ating costs to
alization, low at medium degrees observations and analysis of the turing compa- total sales.
of internationalization, and high significance of mean differences), nies.
again at high degrees of interna- multiple regression and pooled
tionalization. time-series/cross-sectional regres-
sion analysis. Regression analysis
reveals global minimum at 61%
FSTS (dependent variable ROA).
Appendix Chapter 2

Samb- What are the individ- H1: MNCs which are highly di- H1: Not supported. High interna- N=53 US Independent:
harya, ual and joint effects versified internationally will per- tional diversifiers are not signifi- MNCs from FSTS,
1995 of product and inter- form better than those which are cantly different than those with the Fortune FATA,
national diversifica- less diversified internationally. less international diversification. 500 Industrial Number of
tion on firm perform- H2: Product diversification will be H2: Supported. MNCs do have a list Mailing FDI, GMD
ance? inversely related to international preferred mode of diversification questionnaire. (Global mar-
diversification in MNCs. H3: The either in terms of markets or prod- ket diversifi-
interaction between international ucts. H3: Strong support. The in- cation index).
and product diversification influ- dividual strategies by themselves Dependent:
ences performance in MNCs. have no effect on firm perform- ROS, ROA,
ance but their interaction exerts a ROE.
tremendous influence on firm per-
formance.
Siddhar- How may multina- Greater multinationality will be Multinationality exercises a uni- N=74 largest Independent:
than, Lall, tionality affect firm positively associated with growth, formly negative effect on growth US MNCs in Foreign af-
1982 growth? and the existence of large mini- in all the equations. This seems to manufacturing filiate sales to
mum economies of scale in the run counter to what the received during 1976- total com-
relevant industry would strengthen wisdom on MNCs would lead us 1979. pany sales.
the ability of large MNCs to grow. to expect, though it may be in con- Dependent:
But: physical distance, linguistic formity with expectations raised Growth of
and cultural differences, legal bar- by the managerial literature. consolidated
riers, etc. may increase the costs sales reve-
of assimilating new management nue, ROE.
over those experiences by a simi-
lar-sized purely domestic firm.
201
202

Sim- What is the impact of H1: Product-market and interna- H1: Cannot be rejected. H2: Can- N=156 US Independent:
monds, product-market diver- tional diversification are inde- not be rejected although it appears corporations. FSTS.
Lamont, sification and level of pendent determinants of firm prof- interactive results were influenced Dependent:
1996 foreign involvement itability. H2: Product-market and by certain product-market diversi- Sales
on corporate financial international diversification are fication categories. H3: Cannot be Growth,
performance? What interactive determinants of firm rejected. Earnings per
are the theoretical risk adjusted returns. H3: Product- share growth,
linkages between market and international diversifi- ROIC, ROA,
product-market and cation are interactive determinants ROE, Risk-
geographic diversifi- of firm growth. adjusted re-
cation and three im- turn on in-
portant performance vested capi-
categories? tal.
Tallman, What is the relation- H2: Performance should vary H2: Not supported. H3: Sup- N=188 large Independent:
Li, 1996 ship among interna- positively and linearly with the ported. Weak positive effect of US industrial FSTS, Num-
tional diversity, prod- degree of multinationality. H3: country scope, but a quadratic multinationals ber of coun-
uct diversity, and firm Performance level should vary term was not significant. H4: Not from Directory tries.
performance? Spe- positively with the geographical supported. H5: Not supported. of Multina- Dependent:
cifically: How inter- scope of international operations. tionals. ROS.
act different aspects H4: Performance should vary
of international diver- positively with the interaction of
sity (scale - FSTS and multinationality and country
scope number of scope. H5: The interaction of in-
countries) with each ternational and product diversity
other and how are should reduce the effects of vary-
they related to prod- ing levels of product diversity on
uct diversity, and firm performance.
Appendix Chapter 2
performance?

Wan, What is the relation- H1: On average, locally incorpo- H1: Not supported. H2: Not sup- N=81 MNCs Independent:
1998 ship of internationali- rated MNCs outperform domestic ported. Internationalization has no from Hong International
zation and perform- firms in Hong Kong. H2: For impact on profitability but a sig- Kong, listed on sales concen-
ance in an Asian con- MNCs from Hong Kong, the rela- nificant positive impact on stabil- the Stock Ex- tration ac-
text, i.e. for Hong tionship between international di- ity of profitability and sales change of cording to
Kong MNCs? versification and firm perform- growth. Hong Kong. Palepu
ance is nonlinear and inverted U- (1985).
shaped. Dependent:
ROE, Sales
Growth.
Wan, How is the corporate H2a(b): In more (less) munificent H2a: Supported. Firms in more Highly munifi- Independent:
Hoskis- diversification - per- home country environments, out- munificent environments are able cent countries: Outbound
son, 2003 formance link related bound international diversification to show strong performance when N=499 - Swe- international
to home country envi- is positively (negatively) related to they engage in foreign operations. den (115), diversifica-
ronments? What fac- firm performance. H3a(b): In H2b: Not supported. H3a: Par- France (177), tion: Number
tors facilitate trans- more (less) munificent home tially supported. H3b: Not sup- England (207). of countries,
formational activities country environments, inbound ported. H4a: Supported. H4b: Less munifi- Inbound in-
and how foster insti- international diversification is Supported. cent countries: ternational
tutions these transac- negatively (positively) related to N=233 - Ire- diversifica-
tional activities? firm performance. H4a(b): In land (40), Italy tion: Number
Three strategies are more (less) munificent home (133), Portugal of foreign
differentiated: prod- country environments, the interac- (50). partners.
uct, outbound internation between product diversifica- Dependent:
tional and inbound tion and outbound international ROA, Earn-
international diversi- diversification is negatively (posi- ings before
fication. tively) related to firm perform- interest and
203
ance. taxes / assets.

204

Zahra, (1) What is the effect H1: ICE will be positively associ- H1: Supported. ICE has a signifi- N=98 US Independent:
Garvis, of international cor- ated with a firm's financial per- cant impact on ROA, revenue manufacturing ICE - Inter-
2000 porate entrepreneur- formance. H2: The relationship growth, foreign profits, and for- companies. national cor-
ship (ICE) effort on between ICE and a company's per- eign revenue. H2: Supported. En- porate entre-
company perform- formance will be moderated by vironment hostility has a negative preneurship,
ance? (2) How does international environmental hostil- (but not significant) impact on Global scope:
perceived hostility of ity. Firms that pursue ICE in in- ROA. The interaction term with Number of
the international envi- ternational environments with ICE was significantly and posi- countries.
ronment moderate the higher levels of hostility will have tively associated with ROA - simi- Dependent:
relationship between higher profits and higher growth. lar results for sales growth. The ROA, Sales
ICE and company impact of ICE on ROA and sales Growth.
performance? growth is greater under higher
levels of environment hostility.
Appendix Chapter 2

Zahra, How do new venture H4a-c: The (a) breadth, (b) depth, H4a,c: Supported. H4b: Partially N=321 US Independent:
Ireland, firms that are interna- and (c) speed of technological supported. H5a: Not completely firms from Entropy
Hitt, 2000 tionalizing use tech- learning in international markets supported. Two of the five meas- high-tech in- measure of
nological learning are positively related to new ven- ures of international diversity dustries; Age: number of
gained through inter- ture performance. were positively related to ROE. younger than countries.
nationalization? What H5a,b: International expansion is H5b: Supported. Generally: The six year. Dependent:
is the impact of this positively related to new venture results show a strong relationship ROE, Sales
learning on the firm's profitability (sales growth). between international diversity growth.
financial perform- and the breadth, depth, and speed
ance? What is the im- of a new venture firm's techno-
pact of the firms' logical learning, especially when
technological learning the firm undertakes formal knowl-
on their modes of en- edge integration.
try into international
markets? How does
knowledge integra-
tion moderate the re-
lationship between
international expan-
sion activities and
technological learn-
ing?
205
A 2.2: Meta-Analytic Procedure and Statistical Formulas
The meta-analysis applied in Chapter 2 can be divided into five main steps: Calculation
of the mean effect size and observed variance, division of the observed variance into sampling
error variance and residual variance, calculation of credibility interval, subgroup test, and cal-
culation of confidence interval. The formulas used for these statistical analyses are all pro-
vided by Hunter and Schmidt (Hunter, Schmidt, and Jackson, 1982; Hunter and Schmidt,
1990).
First the sample-size weighted mean effect size r corrected for sampling error is esti-
mated. Following Hunter and Schmidt (1990), the best estimate of the population correlation
() is the sample size weighted mean effect size ( r ) (1). The observed variance of correlations
across studies (sr2) is defined as the sample size weighted average squared error (2).
(1) r
>N * r @
i i
2
(2) sr
>N i * ri r
2
@
N i Ni
where:
ri = observed effect size for each sample
Ni = number of observations per sample.
The second step involves a separation of the observed (sr2) into its two different compo-
nents. It should be noted that the variance of observed effect sizes (sr2) is composed of the
true variance (sU2) and variance stemming from sampling error (se2); thus, sr2 = sU2 + se2. The
variance stemming from sampling error is calculated by the following formula (3):
2
(3) s e
1 r
2 2
*K
i
N
where:
K = number of samples.
Accordingly, sU2 is the residual variance after the variance stemming from sampling er-
ror has been removed from the observed variance (i.e. sU2 = sr2 - se2).
The Effect of Context 207
In the third step, the existence or non-existence of sub-populations i.e., moderators of

the internationalization-performance relationship is determined by calculating the credibility
interval around the sample size weighted mean effect size corrected for sampling error. The
range of the 95 percent credibility interval is based on the corrected standard error (sU2) in
effect sizes. It is estimated by the following formula (4):
(4) r - 1.96 * (sU2/K)1/2 < r < r + 1.96 * (sU2/K)1/2
I applied two criteria to determine whether my data set is homogeneous (no subgroups
exist) or heterogeneous (subgroups or moderators exist). Homogeneity is assumed if credibil-
ity intervals do not overlap zero and at least 75 percent of the observed effect size variance is
explained by sampling error.
If these two criteria are not fulfilled, the fourth step involves subgroup analyses to quan-
titatively identify individual moderator variables. The z-test used produces critical values that
indicate whether effect sizes between subgroups are significantly different. Z-test significance
is determined by a one-tailed test if the direction of the effect size is hypothesized and a two-
tailed test if the direction of the effect size is not hypothesized. The critical value z is calcu-
lated by the following formula (5):
r1 r2
(5) z 2 2
s r1 s
r2
K1 K2
where:
r(1,2) = mean effect size for compared subgroups weighted by sample size and uncorrected
for sampling error
sr(1,2)2 = observed variance of the effect sizes for compared subgroups weighted by sample
size and uncorrected for sampling error
K(1,2) = number of samples for compared subgroups.
The final step implies the calculation of 95 percent confidence intervals in order to test
for the significance of the obtained effect sizes. If an effect size is obtained from a homogene-
ous population (95 percent credibility intervals did not overlap zero and more than 75 percent
of the observed variance was due to sampling error) the confidence interval is calculated
around the sample size weighted mean effect size r corrected for sampling error based on the
standard error from sampling error variance (se2) (6).
(6) r - 1.96 * (se2/K)1/2 < r < r + 1.96 * (se2/K)1/2
But in the case of this meta-analysis all effect sizes are based on heterogeneous popula-
tions, since the criteria for population homogeneity were not met in any of the calculations. In
such a case the confidence interval is calculated around the sample size weighted mean effect
size r corrected for sampling error around the standard error from observed variance (sr2)
(7).
(7) r - 1.96 * (sr2/K)1/2 < r < r + 1.96 * (sr2/K)1/2

A 2.3: Methodological Moderators
Table A 2.3.1 Independent Variable: Internationalization

Comparison of effect sizes from different single measurement items
95% 95%
Variable K N r sr2 se2 sU2 confidence Credibility
interval interval
H1a, H1b: Overall 41 7,792 .059 .017 .005 .012 .019 : .099 -.152 : .270
Foreign sales to total sales 20 1,755 .159 .033 .011 .022 .080 : .239 -.130 : .449
Number of foreign countries 13 2,777 .093 .012 .005 .008a .032 : .153 -.081 : .266
Entropy measures 10 2,959 .063 .011 .003 .008 -.003 : .128 -.110 : .235
Indices 4 1,805 -.053 .004 .002 .002 -.118 : .011 -.144 : .038
Number of foreign direct investments 4 665 -.006 .005 .006 .000b -.076 : .064 -.006 : -.006
Foreign subsidiary sales 4 667 .030 .019 .006 .013 -.105 : .164 -.191 : .251
Foreign assets to total assets 3 340 -.017 .004 .009 .000b -.090 : .056 -.017 : -.017
Export sales to total sales 3 492 .024 .006 .006 .000b -.064 : .111 .024 : .024
Others 6 780 .109 .018 .008 .011a .000 : .217 -.094 : .312
Notes:
K: number of samples, N: sample size Ni, r : sample size weighted mean effect size, sr2: variance in effect sizes, se2: sampling error variance, sU2: residual
variance (sampling error corrected variance in effect sizes), 95% confidence interval: interval around sample size weighted mean effect size based on ob-
served variance for heterogeneous populations and on sampling error variance for homogenous populations, 95% credibility interval: interval around sample
size weighted mean effect size based on residual variance.
a
b
Zero values are possible in cases where only few studies are included into the estimate of an effect size.
209
210
A 2.3: Methodological Moderators (continued)
Table A 2.3.2 Dependent Variable: Performance

Comparison of effect sizes from different single measurement items
95% 95%
Variable K N r sr2 se2 sU2 confidence Credibility
interval interval
H1a, H1b: Overall 41 7,792 .059 .017 .005 .012 .019 : .099 -.152 : .270
ROA 25 5,420 .034 .015 .005 .010 -.014 : .081 -.162 : .230
ROS 14 1,973 .086 .016 .007 .009 .019 : .153 -.103 : .276
ROE 12 1,797 .135 .019 .006 .013 .056 : .214 -.088 : .357
Other return oriented measures 8 1,260 .078 .036 .006 .029a -.054 : .208 -.260 : .413
ROI 3 218 .202 .020 .013 .007 .042 : .362 .202 : .202
Sales growth 10 1,851 .064 .016 .005 .010a -.014 : .141 -.134 : .262
Other growth oriented measures 6 725 .139 .009 .008 .001 .063 : .215 .139 : .139
Capital market oriented measures 6 2,873 .020 .012 .002 .010 -.068 : .109 -.177 : .218
Market Share 6 371 .134 .009 .016 .000b .058 : .210 .134 : .134
Other 3 344 .119 .033 .009 .025a -.087 : .326 -.188 : .427
Notes:
K: number of samples, N: sample size Ni, r : sample size weighted mean effect size, sr2: variance in effect sizes, se2: sampling error variance, sU2: residual
variance (sampling error corrected variance in effect sizes), 95% confidence interval: interval around sample size weighted mean effect size based on ob-
served variance for heterogeneous populations and on sampling error variance for homogenous populations, 95% credibility interval: interval around sample
size weighted mean effect size based on residual variance.
a
b
Zero values are possible in cases where only few studies are included into the estimate of an effect size.
Appendix Chapter 2
Intangible Resources as Moderators 211
Appendix Chapter 3
A 3.1 Compilation of Sampling Firms 212

A 3.2 Descriptive Statistics of the Control Variables 224
A 3.3 Comparison of Selected Data from Different Databases 225
A 3.4 Output Screen of Extel Cards for SGL Carbon 226
A 3.5 Coding Procedure of TMT Demographics 234
A 3.6 Coefficients from Hedonic Regression (alternative) 236
A 3.7 Results for Foreign Assets to Total Assets 237

Table A 3.7.1 Regression of Curve Type and Moderation of Tobins q 237
Table A 3.7.2 Moderation of Hedonic q 238
Table A 3.7.3 Moderation of Individual Intangible Resources 239
A 3.8 Results for Time-Lagged Measurement Designs 240

Table A 3.8.1 Moderation of Individual Intangible Resources ROA = t+1 240
Table A 3.8.2 Moderation of Individual Intangible Resources ROA = t+2 241
212
A 3.1: Compilation of Sampling Firms
Data FSTS FATA Accounting Standard

Company Name Industry Industry Group
Availability (2003) (2003) followed
A.S.CREATION TAPETEN O.N. Consumer Home Construction & Furnishings missing
3U TELECOM AG Telecommunication Fixed-Line Telecommunication missing
4 SC AG Pharma & Healthcare Biotechnology missing
AAP IMPLANTATE AG Pharma & Healthcare Medical Technology missing
AAREAL BANK AG Banks Mortgage Banks 2006-2001
ABIT AG O.N. Software Software missing
AC-SERVICE AG NA O.N. Software IT-Services missing
ADIDAS-SALOMON AG O.N. Consumer Clothing & Footwear 2006-2001 0.47 missing IFRS
ADVA AG OPT.NETW.O.N. Technology Communications Technology 2006-2001 0.87 0.36 US standards (GAAP)
ADVANCED PHOTONICS O.N. Industrial Advanced Industrial Equipment missing
AHLERS AG ST O.N. Consumer Clothing & Footwear 2006-2000 0.36 0.51 Local standards
AIG INTL REAL ESTATE Financial services Real Estate 2005-2002
AIXTRON AG O.N. Technology Semiconductors 2006-2000 0.90 missing US standards (GAAP)
ALLIANZ AG VNA O.N. Insurance Insurance 2006-2001
ALPHAFORM O.N. Industrial Industrial Products & Services missing
ALTANA AG O.N. Pharma & Healthcare Pharmaceuticals 2006-2001 0.83 0.36 IFRS
AMADEUS FIRE AG Industrial Industrial Products & Services 2006-2002 0.00 missing IFRS
AMB GENERALI HOLDING AG Insurance Insurance 2006-2001
ANALYTIK JENA AG O.N. Industrial Advanced Industrial Equipment 2006-2001 0.56 missing IFRS
ARBOMEDIA AG O.N. Media Advertising missing
ARQUES INDUSTRIES AG Industrial Industrial, Diversified 2005-2002 0.67 0.43 IFRS
ARTICON INTEGRALIS AG Software Software 2006-2001 0.74 0.75 IFRS
ARXES NETW.COMM.CONS.AG Software IT-Services missing
ATOSS SOFTWARE AG Software Software missing
AUGUSTA TECHNOLOG.AG Industrial Advanced Industrial Equipment 2006-2000 0.16 0.12 US standards (GAAP)
AWD HOLDING AG O.N. Financial services Diversified Financial 2006-2001
BAADER WP.HDLS.BK.AG O.N. Financial services Securities Brokers 2005-2004
BALDA AG O.N. Industrial Industrial Products & Services 2006-2001 0.25 missing IFRS
Appendix Chapter 3
A 3.1: Compilation of Sampling Firms (continued)

BASF AG O.N. Chemicals Chemicals, Speciality 2006-2001 0.80 0.59 Local standards
BASLER AG O.N. Industrial Advanced Industrial Equipment missing
BAUVEREIN HAMBURG O.N. Financial services Real Estate missing
BAY.HYPO-VEREINSBK.O.N. Banks Credit Banks 2006-2001
BAY.MOTOREN WERKE AG ST Automobile Automobile Manufacturers 2006-2001 0.73 0.61 IFRS
BAYER AG O.N. Chemicals Chemicals, Speciality 2006-2001 0.58 missing IFRS
Intangible Resources as Moderators
BAYWA AG NA. Industrial Industrial Products & Services 2006-2001 0.34 0.31 IFRS
BEATE UHSE AG Retail Retail, Catalog 2006-2001 0.56 0.47 Local standards
BECHTLE AG O.N. Software IT-Services 2006-2000 0.32 0.46 US standards (GAAP)
BEIERSDORF AG O.N. Consumer Personal Products 2006-2001 0.25 missing IFRS
BERTRANDT AG O.N. Automobile Auto Parts & Equipment 2006-2001 0.14 0.14 IFRS
BETA SYST.SOFTW.AG O.N. Software Software missing
BHW HOLDING AG O.N. Financial services Diversified Financial 2006-2001
BILFINGER BERGER AG Construction Construction & Engineering 2006-2001 0.65 0.46 IFRS
BIOLITEC AG O.N. Pharma & Healthcare Medical Technology 2006-2001 0.51 missing US standards (GAAP)
BIOTEST AG ST O.N. Pharma & Healthcare Pharmaceuticals 2006-2000 0.65 0.15 IFRS
BMP AG Industrial Industrial, Diversified 2005-2001 missing missing Local with EEC guidelines
BOEWE SYSTEC AG O.N. Industrial Industrial Machinery 2006-2000 0.84 0.69 Local with EEC guidelines
BROADNET AG Telecommunication Fixed-Line Telecommunication missing
BRUEDER MANNESM.AG O.N. Retail Retail, Specialty missing
CAATOOSEE AG Software IT-Services 2006-2001 0.91 0.61 US standards (GAAP)
CANCOM IT SYSTEME AG Software IT-Services 2006-2000 0.19 0.13 US standards (GAAP)
CARL-ZEISS MEDITEC AG Pharma & Healthcare Medical Technology 2006-2001 0.92 0.28 US standards (GAAP)
CASH.LIFE AG Financial services Diversified Financial 2006-2001
CCR LOGISTICS SYSTEMS AG Industrial Industrial Products & Services missing
CDV SOFTWARE O.N. Media Movies & Entertainment missing
CE GLOB.SOURCING AG O.N Industrial Industrial Products & Services 2005-2000 0.90 missing IFRS
CEAG AG Consumer Consumer Electronics 2006-2001 0.42 missing IFRS
213
214

CELESIO AG O.N. Retail Retail, Food & Drug 2006-2001 0.82 0.93 IFRS
CENIT AG SYSTEMH.O.N. Software IT-Services 2006-2000 0.03 0.03 IFRS
CENTROTEC SUSTAINABLE O.N Industrial Industrial Products & Services 2006-2000 0.18 missing IFRS
CEOTRONICS AG O.N. Technology Communications Technology missing
CEWE COLOR HOLDING O.N. Consumer Leisure Goods & Services 2006-2000 0.41 missing IFRS
COLON.REAL ESTATE AG Financial services Real Estate missing
COMBOTS AG NA O.N. Software Internet 2006-2001 0.10 missing US standards (GAAP)
COMDIRECT BANK AG Financial services Securities Brokers 2006-2001
COMMERZBANK AG O.N. Banks Credit Banks 2006-2001
COMPUTERLINKS AG Software IT-Services 2006-2001 0.51 0.56 IFRS
COMTRADE AG Software IT-Services missing
CONERGY AG O.N. Industrial Renewables 2006-2002 0.06 0.06 IFRS
CONSTANTIN FILM AG O.N. Media Movies & Entertainment 2006-2001 0.14 missing IFRS
CONTINENTAL AG O.N. Automobile Auto Parts & Equipment 2006-2001 0.67 0.56 US standards (GAAP)
CTS EVENTIM AG Media Movies & Entertainment 2006-2000 0.05 missing IFRS
CURANUM AG Pharma & Healthcare Health Care missing
CURASAN AG Pharma & Healthcare Biotechnology missing
D + S EUROPE AG Media Advertising missing
D. LOGISTICS AG O.N. Transportation & Logistics Logistics 2006-2000 0.46 0.56 US standards (GAAP)
DAB BANK AG Financial services Securities Brokers 2006-2001
DAIMLERCHRYSLER AG NA O.N Automobile Automobile Manufacturers 2006-2001 0.84 missing US standards (GAAP)
DATA MODUL AG O.N. Technology Electronic Components & Hardware 2006-2000 0.23 0.07 US standards (GAAP)
DEAG DT.ENTERTAINM. Media Movies & Entertainment 2006-2000 0.54 0.15 IFRS
DEGUSSA AG O.N. Chemicals Chemicals, Speciality 2006-2001 0.72 0.47 IFRS
DEUTSCHE BANK AG NA O.N. Banks Credit Banks 2006-2001
DEUTSCHE BOERSE NA O.N. Financial services Securities Brokers 2006-2001
DEUTSCHE EUROSHOP AG O.N. Financial services Real Estate 2005-2001
DEUTSCHE POST AG NA O.N. Transportation & Logistics Logistics 2006-2001 0.48 0.16 IFRS
Appendix Chapter 3

DEUTSCHE POSTBANK AG Banks Credit Banks 2006-2001
DEUTZ AG O.N. Industrial Heavy Machinery 2006-2000 0.75 missing Local with EEC guidelines
DIS DEUT.IND.SERV.O.N. Industrial Industrial Products & Services 2006-2001 0.03 missing IFRS
DOCCHECK AG Software Internet 2006-2000 missing missing IFRS
DOUGLAS HOLDING O.N. Retail Retail, Specialty 2006-2001 0.30 missing Local with EEC guidelines
DR. HOENLE AG O.N. Industrial Advanced Industrial Equipment missing
DR.SCHELLER COSM.O.N. Consumer Personal Products missing

DRAEGERWERK VORZ.A.O.N. Pharma & Healthcare Medical Technology 2006-2001 0.75 0.61 IFRS
DRILLISCH AG O.N. Telecommunication Wireless Telecommunication 2006-2000 0.00 0.00 IFRS
DT.BETEILIG.AG O.N. Industrial Industrial, Diversified 2006-2001 missing missing missing
DT.EFF.U.WECH.-BET.G.O.N. Financial services Diversified Financial 2005-2001
DT.TELEKOM AG NA Telecommunication Fixed-Line Telecommunication 2006-2001 0.39 0.48 Local with EEC guidelines
DUERR AG O.N. Industrial Industrial Machinery 2006-2001 0.75 0.33 IFRS
DYCKERHOFF ST O.N. Construction Building Materials 2006-2001 0.47 missing IFRS
E.ON AG O.N. Utilities Multi-Utilites 2006-2001 0.39 0.47 US standards (GAAP)
ECKERT+ZIEGLER AG O.N. Pharma & Healthcare Medical Technology 2006-2000 0.57 missing US standards (GAAP)
ELEXIS AG O.N. Industrial Industrial Machinery missing
ELMOS SEMICONDUCTOR AG Technology Semiconductors 2006-2001 0.46 0.34 US standards (GAAP)
ELRINGKLINGER AG NA O.N. Automobile Auto Parts & Equipment 2006-2000 0.61 0.54 Local with EEC guidelines
EM.TV AG Media Movies & Entertainment 2006-2003 0.03 0.03 IFRS
EMPRISE MANAG.CON.AG O.N. Software IT-Services 2005-2000 missing missing IFRS
E-M-S NEW MEDIA AG Media Movies & Entertainment missing
EPCOS AG NA O.N. Technology Electronic Components & Hardware 2006-2001 0.73 0.84 US standards (GAAP)
EPIGENOMICS AG Pharma & Healthcare Biotechnology 2006-2001 missing missing IFRS
ERSOL SOLAR ENERGY AG Industrial Renewables 2006-2002 0.32 missing IFRS
ESCADA AG O.N. Consumer Clothing & Footwear 2006-2001 0.87 0.64 IFRS
ESSANELLE HAIR GROUP O.N. Retail Retail, Specialty missing
EVOTEC AG O.N. Pharma & Healthcare Biotechnology 2006-2001 0.90 0.78 US standards (GAAP)
215
216

FIELMANN AG O.N. Retail Retail, Specialty 2006-2001 0.18 0.16 Local with EEC guidelines
FJH AG O.N. Software Software 2005-2000 0.15 0.09 IFRS
FLUXX AG Retail Retail, Internet missing
FORTEC ELEKTRO. O.N. Technology Electronic Components & Hardware 2006-2001 missing missing International standards
FRAPORT AG FFM.AIRPORT Transportation & Logistics Transportation Services 2006-2001 0.15 0.09 IFRS
FREENET.DE O.N. Software Internet 2005-2001 0.01 missing IFRS
FRESEN.MED.CARE KGAA ST Pharma & Healthcare Health Care 2006-2001 missing missing missing
FRESENIUS AG O.N. ST Pharma & Healthcare Health Care 2006-2001 0.61 missing US standards (GAAP)
FUCHS PETROLUB AG O.N. Chemicals Chemicals, Speciality 2006-2001 0.39 missing IFRS
FUNKWERK O.N. Technology Communications Technology missing
GEA GROUP AG Industrial Industrial, Diversified 2005-2002 missing missing US standards (GAAP)
GERATHERM O.N. Pharma & Healthcare Medical Technology missing
GERRY WEBER INTERNAT.O.N. Consumer Clothing & Footwear 2006-2001 0.40 missing Local with EEC guidelines
GESCO AG O.N. Industrial Industrial, Diversified missing
GFK AG O.N. Industrial Industrial Products & Services 2006-2001 0.65 0.28 US standards (GAAP)
GFT TECHNOLOGIES AG Software IT-Services 2006-2001 0.33 0.21 IFRS
GILDEMEISTER AG O.N. Industrial Industrial Machinery 2006-2001 0.41 0.38 IFRS
GPC BIOTECH AG Pharma & Healthcare Biotechnology 2006-2001 0.02 missing US standards (GAAP)
GRAMMER AG O.N. Automobile Auto Parts & Equipment missing
GRAPHIT KROPFMUEHL AG Basic resources Mining 2006-2001 0.44 0.30 IFRS
GRENKELEASING AG O.N. Financial services Diversified Financial 2006-2004
H+R WASAG AG Chemicals Chemicals, Speciality missing
HANN.RUECKVER.AG NA O.N. Insurance Re-Insurance 2006-2001
HAWESKO HOLDING AG SVG Retail Retail, Food & Drug missing
HCI CAPITAL NA O.N. Financial services Diversified Financial 2006-2002
HEIDELBERG.DRUCKMA.O.N. Industrial Industrial Machinery 2006-2001 0.59 missing IFRS
HEIDELBERGCEMENT AG O.N. Construction Building Materials 2006-2001 0.88 missing IFRS
HEILER SOFTWARE O.N. Software Software missing
Appendix Chapter 3

HENKEL KGAA ST O.N. Consumer Personal Products 2006-2001 0.81 missing IFRS
HOCHTIEF AG Construction Construction & Engineering 2006-2001 0.81 0.52 IFRS
HOEFT+WESSEL AG O.N. Technology Electronic Components & Hardware 2006-2000 0.60 missing IFRS
HORNBACH HOLD.VZO O.N. Retail Retail, Specialty 2006-2001 0.29 0.24 IFRS
HORNBACH-BAUMARKT O.N. Retail Retail, Specialty 2006-2001 0.31 0.28 Local with EEC guidelines
HUGO BOSS AG ST O.N. Consumer Clothing & Footwear 2006-2001 0.74 0.61 IFRS
HYPO REAL ESTATE HLDG ST Banks Mortgage Banks missing

IBS AG EXC.COLL.MANU.O.N. Software Software 2006-2000 0.43 missing US standards (GAAP)
IDS SCHEER AG O.N. Software IT-Services 2006-2001 0.59 0.38 US standards (GAAP)
IKB DT.INDUSTRIEBANK O.N. Banks Credit Banks 2006-2001
IM INTERNATIONALMED. O.N Media Movies & Entertainment 2006-2000 0.78 missing IFRS
INDUS HOLDING AG Industrial Industrial, Diversified 2006-2001 0.35 0.08 Local with EEC guidelines
INFINEON TECH.AG NA O.N. Technology Semiconductors 2006-2001 0.77 0.45 US standards (GAAP)
INIT INNOVATION O.N. Technology Electronic Components & Hardware missing
INTERHYP AG Financial services Diversified Financial 2006-2002
INTERSHOP COMM. Software Internet 2006-2000 0.20 0.12 US standards (GAAP)
INTERTAINMENT O.N. Media Movies & Entertainment 2005-2000 missing missing IFRS
INTICOM SYSTEMS AG Technology Communications Technology missing
ISRA VISION O.N. Software Software 2006-2001 0.51 0.08 IFRS
ITELLIGENCE AG O.N. Software IT-Services 2006-2000 0.50 0.38 IFRS
IVG IMMOBILIEN AG O.N. Financial services Real Estate 2006-2003
IVU TRAFFIC TECHN.AG O.N. Software IT-Services 2006-2000 0.16 0.00 IFRS
IWKA AG O.N. Industrial Industrial Machinery 2006-2001 0.62 0.41 IFRS
JACK WHITE PRODUCT.AG Media Movies & Entertainment missing
JENOPTIK AG O.N. Industrial Advanced Industrial Equipment 2006-2001 0.52 missing IFRS
JERINI AG Pharma & Healthcare Biotechnology missing
JETTER AG O.N. Industrial Advanced Industrial Equipment missing
JUNGHEINRICH AG O.N.VZO Industrial Industrial Machinery 2006-2001 0.72 0.36 US standards (GAAP)
217
218

K+S AG O.N. Chemicals Chemicals, Commodity 2006-2001 0.76 0.22 Local standards
KARSTADT QUELLE AG O.N. Retail Retail, Multiline 2006-2001 0.24 0.21 IFRS
KLOECKNER-WERKE O.N. Industrial Industrial Machinery 2006-2002 0.72 0.06 Local with EEC guidelines
KOENIG + BAUER AG ST O.N. Industrial Industrial Machinery 2006-2001 0.86 0.19 IFRS
KONTRON AG O.N. Technology Electronic Components & Hardware 2006-2001 0.48 missing IFRS
KRONES AG O.N. Industrial Industrial Machinery 2006-2000 0.82 0.28 missing
KWS SAAT AG O.N. Industrial Industrial Products & Services 2006-2001 0.73 missing Local with EEC guidelines
LANXESS AG Chemicals Chemicals, Commodity 2006-2002 0.76 0.52 IFRS
LEIFHEIT AG O.N. Consumer Household Appliances & Housewares 2006-2000 0.57 0.32 IFRS
LEONI AG NA O.N. Automobile Auto Parts & Equipment 2006-2001 0.58 0.60 US standards (GAAP)
LINDE AG O.N. Chemicals Industrial Gases 2006-2001 0.79 0.81 IFRS
LINOS O.N. Industrial Advanced Industrial Equipment 2006-2000 0.11 0.08 IFRS
LION BIOSCIENCE AG O.N. Pharma & Healthcare Biotechnology 2005-2001 0.81 0.32 US standards (GAAP)
LLOYD FONDS AG Financial services Diversified Financial 2006-2002
LOEWE AG O.N. Consumer Consumer Electronics 2006-2001 0.49 missing IFRS
LPKF LASER+ELECTRON. Industrial Advanced Industrial Equipment 2006-2000 0.80 0.24 IFRS
LUDW.BECK A.RATHAUSECK Retail Retail, Specialty missing
LUFTHANSA AG VNA O.N. Transportation & Logistics Airlines 2006-2001 0.36 missing IFRS
MAGIX AG NA O.N. Software Software missing
MAN AG ST O.N. Industrial Industrial, Diversified 2006-2001 0.75 0.22 IFRS
MARSEILLE-KLINIKEN AG Pharma & Healthcare Health Care 2006-2001 0.00 0.00 Local with EEC guidelines
MASTERFLEX O.N. Industrial Industrial Products & Services 2006-2000 0.47 0.27 IFRS
MAXDATA AG Industrial Industrial Products & Services 2006-2001 0.41 0.24 IFRS
MEDICLIN AG Pharma & Healthcare Health Care 2006-2001 0.00 0.00 Local standards
MEDIGENE NA O.N. Pharma & Healthcare Biotechnology 2006-2000 0.00 0.00 US standards (GAAP)
MEDION AG O.N. Industrial Industrial Products & Services 2006-2001 0.39 0.39 IFRS
MENSCH UND MASCH.O.N. Software Software missing
MERCK KGAA O.N. Pharma & Healthcare Pharmaceuticals 2006-2001 0.90 0.62 IFRS
Appendix Chapter 3

METRO AG ST O.N. Retail Retail, Multiline 2006-2001 0.50 0.52 IFRS
MLP AG Financial services Diversified Financial 2006-2001
MOBILCOM AG O.N. Telecommunication Wireless Telecommunication 2005-2001 0.00 0.00 IFRS
MORPHOSYS AG O.N. Pharma & Healthcare Biotechnology 2006-2001 0.83 missing IFRS
MPC MUENCH.PET.CAP.O.N. Financial services Diversified Financial 2006-2004
MTU AERO ENGINES NA O.N. Industrial Heavy Machinery 2006-2002 0.74 0.02 IFRS
MUEHLBAUER HOLD.O.N. Technology Electronic Components & Hardware 2006-2001 0.59 missing US standards (GAAP)
MUELLER-DIE LILA LOGISTIK Transportation & Logistics Logistics missing
MUENCH.RUECKVERS.VNA O.N. Insurance Re-Insurance 2006-2001
MVV ENERGIE AG O.N. Utilities Multi-Utilites 2006-2001 missing missing IFRS
MWB WERTPAPIERHAND.AG Financial services Securities Brokers missing
NEMETSCHEK AG O.N. Software Software 2006-2000 0.50 0.41 IFRS
NET AG Software Software 2006-2001 0.04 0.00 US standards (GAAP)
NEUE SENTIM.FILM O.N. Media Advertising missing
NEXUS AG O.N. Software IT-Services missing
NORDDT.AFFINERIE O.N. Basic resources Steel & Other Metals 2006-2001 0.38 missing IFRS
NORDEX AG O.N. Industrial Renewables 2006-2002 0.51 missing IFRS
NOVEMBER AG O.N. Pharma & Healthcare Biotechnology 2006-2000 0.14 missing IFRS
NUERNBERGER BET.AG VNA Insurance Insurance 2006-2001
OHB TECHNOLOGY O.N. Technology Communications Technology missing
ONVISTA O.N. Software Internet 2006-2000 0.16 missing IFRS
ORBIS AG O.N. Software IT-Services missing
P U.I PER.U.INFO.AG O.N. Software Software missing
PAION O.N Pharma & Healthcare Biotechnology 2006-2001 missing missing IFRS
PANDATEL AG O.N. Technology Communications Technology 2005-2001 missing missing US standards (GAAP)
PARAGON AG Technology Electronic Components & Hardware missing
PARSYTEC AG Software Software 2006-2000 0.78 0.21 US standards (GAAP)
PATRIZIA IMMOBILIEN NA ON Financial services Real Estate missing
219
220

PC-WARE INFOR.TECHNOLO.AG Software IT-Services 2006-2001 0.35 0.45 IFRS
PFEIFFER VACUUM TECH.O.N. Industrial Advanced Industrial Equipment 2006-2001 0.42 0.32 US standards (GAAP)
PFLEIDERER AG Industrial Industrial Products & Services 2006-2001 0.54 missing US standards (GAAP)
PLAMBECK N.ENERG.NA O.N. Industrial Renewables 2006-2000 missing missing IFRS
PLASMASELECT AG Pharma & Healthcare Health Care 2006-2001 0.24 missing IFRS
PLENUM AG O.N. Software IT-Services 2005-2001 0.00 0.00 US standards (GAAP)
PONGS + ZAHN AG O.N. Chemicals Chemicals, Commodity missing
PRAKTIKER BAU-U.H.HLDG ON Retail Retail, Specialty missing
PREMIERE NA O.N. Media Broadcasting 2006-2001 0.00 0.00 IFRS
PRIMION TECHNOLOGY O.N. Industrial Industrial Products & Services missing
PROCON AG O.N. Media Movies & Entertainment missing
PROGRESS-WERK OBERK. O.N. Automobile Auto Parts & Equipment 2006-2000 0.34 0.19 IFRS
PROSIEBENSAT.1 O.N.VZO Media Broadcasting 2006-2001 0.00 0.00 IFRS
PSI AG F.PR.U.SYS.O.N. Software Software 2006-2000 0.17 0.00 IFRS
PULSION ST O.N. Pharma & Healthcare Medical Technology missing
PUMA AG Consumer Clothing & Footwear 2006-2001 0.32 missing IFRS
PVA TEPLA AG O.N. Industrial Advanced Industrial Equipment missing
Q-CELLS AG Industrial Renewables 2006-2002 0.26 missing IFRS
QSC AG NA O.N. Telecommunication Fixed-Line Telecommunication 2006-2001 0.00 0.00 US standards (GAAP)
R. STAHL AG O.N. Industrial Industrial Machinery missing
RATIONAL AG Industrial Industrial Products & Services 2006-2001 0.84 0.37 IFRS
REALTECH AG O.N. Software IT-Services 2006-2001 0.55 0.29 US standards (GAAP)
REPOWER SYSTEMS AG Industrial Renewables missing
RHEINMETALL AG Industrial Industrial, Diversified 2006-2001 0.64 0.42 IFRS
RHOEN-KLINIKUM O.N. Pharma & Healthcare Health Care 2006-2001 0.00 0.00 IFRS
ROHWEDDER AG O.N. Industrial Industrial Machinery missing
RUECKER AG O.N. Automobile Auto Parts & Equipment 2006-2001 0.25 missing US standards (GAAP)
RWE AG ST O.N. Utilities Multi-Utilites 2006-2001 0.45 0.62 IFRS
Appendix Chapter 3

SALZGITTER AG O.N. Basic resources Steel & Other Metals 2006-2001 0.53 0.09 IFRS
SANACORP PHARMAHAN.VZO Retail Retail, Food & Drug 2006-2001 0.00 0.00 IFRS
SAP AG O.N. Software Software 2006-2001 0.75 0.53 US standards (GAAP)
SARTORIUS AG O.N. Industrial Advanced Industrial Equipment 2006-2001 0.42 missing IFRS
SCHERING AG O.N. Pharma & Healthcare Pharmaceuticals 2006-2001 0.52 missing IFRS
SCHLOTT GRUPPE AG O.N. Media Publishing & Printing 2006-2001 0.27 0.08 International standards
SCHWARZ PHARMA AG O.N. Pharma & Healthcare Pharmaceuticals 2006-2001 0.67 0.64 US standards (GAAP)
SECUNET SECURITY AG O.N. Software IT-Services 2006-2001 0.03 missing IFRS
SGL CARBON AG O.N. Chemicals Chemicals, Speciality 2006-2001 0.85 0.68 IFRS
SHS AG O.N. Software IT-Services missing
SIEMENS AG NA Industrial Industrial, Diversified 2006-2001 0.63 0.61 US standards (GAAP)
SILICON SENSOR INT. O.N. Technology Semiconductors missing
SINGULUS TECHNOL. Industrial Advanced Industrial Equipment 2006-2001 0.90 missing IFRS
SINNERSCHRADER O.N. Software IT-Services 2006-2001 missing missing US standards (GAAP)
SIXT AG ST O.N. Transportation & Logistics Transportation Services 2006-2004 0.14 0.22 Local with EEC guidelines
SOFTING AG O.N. Industrial Advanced Industrial Equipment missing
SOFTM SOFTW.U.BER.O.N. Software Software missing
SOFTWARE AG O.N. Software Software 2006-2001 0.42 missing IFRS
SOLAR-FABRIK AG O.N. Industrial Renewables missing
SOLARWORLD AG O.N. Industrial Renewables 2006-2001 0.30 0.03 IFRS
SOLON AG F.SOLARTECH.AG Industrial Renewables missing
SPL.MEDIEN AG O.N. Media Movies & Entertainment missing
STADA ARZNEIMITT.VNA O.N. Pharma & Healthcare Pharmaceuticals 2006-2001 0.53 missing IFRS
STEAG HAMATECH AG O.N. Industrial Advanced Industrial Equipment 2006-2000 0.89 missing IFRS
STRATEC BIOMED.SY.EO 1 Pharma & Healthcare Medical Technology missing
SUEDZUCKER MA./OCHS. O.N. Food & Beverages Food 2006-2001 0.00 missing IFRS
SUESS MICROTEC O.N. Technology Semiconductors 2006-2001 0.71 missing US standards (GAAP)
SUNWAYS AG O.N. Industrial Renewables missing
221
222

SURTECO AG Basic resources Forest & Paper Products 2006-2001 0.30 0.15 IFRS
SYNAXON AG Retail Retail, Specialty 2006-2000 missing missing IFRS
SYSKOPLAN AG Software IT-Services missing
SYZYGY AG O.N. Software IT-Services 2006-2000 0.50 0.48 US standards (GAAP)
TA TRIUMPH-ADLER AG Industrial Industrial Products & Services 2006-2001 0.29 0.14 IFRS
TAG TEGERNSEE IMMOB. Financial services Real Estate 2005-2003
TAKKT AG O.N. Retail Retail, Catalog 2006-2001 0.75 0.63 IFRS
TDS INFORMATIONSTECH. Software IT-Services 2006-2000 0.11 0.11 US standards (GAAP)
TECHEM O.N. Industrial Industrial Products & Services 2006-2001 0.13 0.14 IFRS
TECHNOTRANS AG O.N. Industrial Advanced Industrial Equipment 2006-2001 0.54 0.26 IFRS
TELEGATE AG O.N. Telecommunication Telecommunication Services 2006-2001 0.18 0.25 US standards (GAAP)
TELES AG INFORM.TECHN. Software Internet 2006-2000 0.70 0.07 IFRS
THIELERT NA O.N. Industrial Industrial Machinery 2005-2002 0.73 missing IFRS
THYSSENKRUPP AG O.N. Industrial Industrial, Diversified 2006-2001 0.67 missing US standards (GAAP)
TIPP24 AG NA O.N. Retail Retail, Internet 2005-2001 0.09 missing IFRS
TIPTEL AG Technology Communications Technology 2005-2001 0.48 0.20 IFRS
TOMORROW FOCUS AG Software Internet 2006-2000 0.00 0.00 IFRS
T-ONLINE INTERN. NA O.N. Software Internet 2005-2001 0.11 0.28 IFRS
TRAVEL24.COM AG KON. Retail Retail, Internet missing
TRIA IT-SOLUTIONS AG Software IT-Services 2006-2001 0.00 0.00 IFRS
TRIPLAN AG O.N. Construction Construction & Engineering missing
TUI AG NA Transportation & Logistics Transportation Services 2006-2001 0.91 0.61 IFRS
TV-LOONLAND O.N. Media Movies & Entertainment 2005-2000 0.90 0.22 IFRS
UMS O.N. Pharma & Healthcare Medical Technology 2006-2001 0.77 0.32 IFRS
UNITED LABELS O.N. Retail Retail, Specialty 2006-2000 0.60 missing IFRS
USU SOFTWARE AG Software Software 2006-2000 0.09 0.01 IFRS
UTD.INTERNET AG NA Software Internet 2006-2001 0.23 0.21 IFRS
UTIMACO SAFEW.AG O.N.SVG Software Software 2006-2001 0.41 0.44 IFRS
Appendix Chapter 3

VARETIS AG Technology Communications Technology missing
VCL FILM+MEDIEN AG KONV. Media Movies & Entertainment 2005-2000 missing missing missing
VILLEROY + BOCH AG VZ Consumer Household Appliances & Housewares 2006-2001 0.70 0.52 IFRS
VIVACON AG O.N. Financial services Real Estate missing
VOLKSWAGEN AG ST O.N. Automobile Automobile Manufacturers 2006-2001 0.72 0.49 IFRS
VOSSLOH AG O.N. Industrial Industrial Products & Services 2006-2001 0.68 0.64 IFRS
W.O.M. O.N. Pharma & Healthcare Medical Technology missing

WACKER CHEMIE O.N. Chemicals Chemicals, Speciality 2006-2000 0.77 missing missing
WAPME SYSTEMS O.N. Software Internet missing
WASHTEC AG O.N. Industrial Industrial Machinery missing
WAVELIGHT AG O.N. Pharma & Healthcare Medical Technology missing
WCM BET.-U.G. O.N. Industrial Industrial, Diversified 2005-2000 0.63 0.06 Local with EEC guidelines
WESTAG + GETALIT ST O.N. Consumer Home Construction & Furnishings 2006-2000 0.16 0.13 Local with EEC guidelines
WINCOR NIXDORF O.N. Industrial Industrial Products & Services 2006-2002 0.67 0.60 International standards
WIRE CARD AG Software IT-Services missing
ZAPF CREATION AG O.N. Consumer Leisure Goods & Services 2005-2000 0.68 missing US standards (GAAP)
223
A 3.2: Descriptive Statistics and Correlations Matrix

of the Control Variables (N = 789)
Variables Mean S. D. 1 2 3 4 5 6
1. Total Assets_ln 6.89 2.08
2. Employees_ln 8.63 1.86 .93**
3. Total Sales_ln 6.97 1.98 .97** .94**
4. Prod. Div._2digitSIC 2.87 1.46 .53** .52** .53**
5. Prod. Div._4digitSIC 4.55 2.14 .58* .58** .58** .77**
6. Total Debt / Total Assets .606 .177 .34** .39** .38** .31** .51**
7. Long Term Debt / Total Assets .131 .116 .21** .21** .18** .18** .56** .51**
Notes:
Bold correlations are those of alternative operationalizations of the control variables.
p < .10.
* p < .05.
A 3.3: Comparison of Selected Data from Different Databases
Annual Reporta Datastream Compustat Extel Cards

2004 2003 2004 2003 2004 2003 2004 2003
Turnover
Deutsche Post 43.168 40.017 43.167.980 40.016.990 45.745.969 45.286.038 43.168 40.017
Gildemeister 1.051,5 977,8 1.051.499 977.762 1.307.792 1.106.505 1.051,5 977,8
Kontron 262,1 229,3 262.134 229.244 326.026 259.429 262,1 229,3
SGL Carbon 944,0 915,8 926.200 1.046.200 1.151.951 1.183.953 944,0 916,0
Vossloh 922,2 912,5 922.200 919.800 1.146.976 1.040.910 921,8 912,5
Total Assets
Deutsche Post 153.357 154.933 152.781.000 154.134.000 208.372.268 195.374.009 153.235 154.933
Gildemeister 970,7 874,9 915.198 845.414 1.277.208 1.103.284 970,7 874,9
Kontron 278,8 272,0 259.047 265.701 1.227 0.000 278,7 272,1
SGL Carbon 1.314,8 1.246,9 1.184.599 1.122.099 1.786.471 1.572.369 1.314,8 1.246,9
Vossloh 1.021,3 880,3 1.000.500 914.000 1.387.681 1.162.158 1.021,3 880,3
Intangible Assets
Deutsche Post 6.846 6.404 6.845.997 6.403.997 8.629.357 7.641.797 6.846 6.404
Gildemeister 98,9 99,8 98.911 99.795 101.453 95.772 98,9 99,8
Kontron 83,5 76,0 83.514 87.140 76.550 81.318 83,5 76,0
SGL Carbon 84,8 99,0 84.800 101.400 115.221 124.841 84,8 99,0
Vossloh 276,0 272,8 276.000 271.000 364.142 341.737 276,0 272,8
R&D expenses
Deutsche Post -19,0 -19,0 missing 19.000 missing missing -19,0 -19,0
Gildemeister -37,8 -43,1 37.800 43.100 missing missing -37,8 -43,1
Kontron -28,4 -26,3 28.430 26.312 35.359 29.776 -28,7 -26,3
SGL Carbon -19,2 -19,0 19.200 20.900 23.880 23.652 -19,2 -19,0
Vossloh -8,6 -7,4 8.600 7.400 10.696 8.374 -8,6 -7,4
Notes:
Bold figures indicate deviations between the data reported in the database as compared to the figures derived from the annual report.
a
Data reported in annual report and Extel cards are in million, data from Datastream and Compustat are in thousand.
225
226
A 3.4: Output Screen of Extel Cards for SGL Carbon
Copyright 2006 Thomson Financial SGL CARBON spA Italy 99,70%

Thomson Extel Cards Database SGL CARBON SA Spain 100,00%
SGL CARBON SA France 100,00%
May 19, 2006 SGL CARBON GmbH & Co Australia 100,00%
RK Carbon International Ltd United Kingdom 100,00%
LAST AMENDED: May 1, 2006 SGL TECHNIC Ltd United Kingdom 100,00%
PG Lawton Ltd United Kingdom 100,00%
SGL Carbon AG SGL TECHNIC SA France 100,00%
SGL Risomesa SpA Italy 100,00%
Rheingaustrasse 182 SGL CARBON Ltd United Kingdom 100,00%
65203 Wiesbaden SGL CARBON LLC United States 100,00%
GERMANY MGP LLC United States 100,00%
HITCO CARBON Composites Inc United States 94,00%
* * * * * * * * * * COMMUNICATIONS * * * * * * * * * * SGL TECHNIC Inc United States 100,00%
TELEPHONE: +49 611 60 29 0 SGL Canada Inc Canada 100,00%
FAX: +49 611 60 29 101 SGL ACOTEC Sarl France 100,00%
URL: http://www.sglcarbon.com SGL ACOTEC Sarl Maroc Morocco 100,00%
SGL ACOTEC Ltd United Kingdom 100,00%
* * * * * * * * * * COMPANY IDENTIFIERS * * * * * * * * * * SGL ACOTEC SpA Italy 100,00%
TICKER: SGL SGL ACOTEC Polska Spzoo Poland 51,00%
EXTEL REF. NO: 00032015 Ceilcote Ing Corrosion SA de CV Mexico 51,00%
SEDOL: 4818351 SGL ACOTEC Singapore Pte Ltd Singapore 100,00%
ISIN: DE0007235301 SGL ACOTEC Inc United States 100,00%
SGL ACOTEC Ltda Brazil 100,00%
* * * * * * * * * * COMPANY INFORMATION * * * * * * * * * * SGL ACOTEC Wuhan Co Ltd China 90,00%
OPERATING STATUS: Active Note: O = Owned; C = Controlled. If neither is indicated then the company has not reported
the owned and controlled proportions being different.
* * * * * * * * * * CORPORATE STRUCTURE * * * * * * * * * *
SUBSIDIARIES
Company Country Owned * * * * * * * * * * EXECUTIVES * * * * * * * * * *
Main Consolidated
SGL Carbon AG Germany 100,00%
SGL Carbon Beteiligung GmbH Germany 100,00% SUPERVISORY BOARD
SGL CARBON GmbH Germany 100,00% Position Name Appointed/Ceased
SGL TECHNOLOGIES GmbH Germany 100,00% Chairman Max D. Kley
SGL BRAKES GmbH Germany 100,00% Vice Chairman Josef Scherer 27 Apr 2005 Appointed
SGL Carbon Holding GmbH Germany 100,00% Member Prof. Dr. Utz-Hellmuth Felcht
SGL PanTrac GmbH Germany 100,00% Member Peter Fischer
SGL Carbon Holding S.L Spain 100,00% Member Dr. Claus Hendricks
KCH Beteiligungs GmbH Germany 100,00% Member Juergen Kerner
SGL CARBON SA Poland 100,00% Member Dr. Hubert Lienhard
ZEW Zaklady Elektrod Weglowych SA Poland 97,20% Member Jacques Loppion
Appendix Chapter 3
A 3.4: Output Screen of Extel Cards for SGL Carbon (continued)
Member Edelbert Schilling * * * * * * * * * * BALANCE SHEET * * * * * * * * * *

Member Andrew H. Simon
Member Heinz Will 28 Apr 2005 Appointed CONSOLIDATED BALANCE SHEETS
Member Hans-Werner Zorn Eurom Eurom Eurom Eurom Eurom
31 Dec 31 Dec 31 Dec 31 Dec 31 Dec
2005 2004 2003 2002 2001
MANAGEMENT BOARD FIXED ASSETS
Position Name Appointed/Ceased Intangible assets 86,6 84,8 99 103,8 111,2
Chairman & Chief Executive Robert J. Koehler Tangible assets 346 353,1 408,5 477,3 553,5
Chief Financial Officer Sten Daugaard Financial assets 14,9 11,5 28,7 33,2 34
Member Theodore H. Breyer -------- -------- -------- -------- --------
Member Dr. Hariolf Kottmann 447,5 449,4 536,2 614,3 698,7
-------- -------- -------- -------- --------

* * * * * * * * * * DESCRIPTION * * * * * * * * * * MISC ASSETS 132,8 195,4 127,2 93,4 80,4
CURRENT ASSETS
SGL Carbon AG. The Group's principal activity is to manufacture carbon, graphite and com- Stocks 280,6 256,4 258 288,4 394,2
posite materials. The Group operates in three divisions: Carbon and Graphite: develops Rcble-eqty A/c cos - - - 12,9 6,4
graphite electrodes designed for industrial steel production in electric arc furnaces; Graphite Intra-group recbles 3,7 6,9 28,7 - -
Specialties: supplies products made of isostatically pressed, extruded, die and vibration- Trade debtors 192,3 178,2 204,2 198,1 256
molded graphite, carbon/carbon, felt, graphite foils and laminated sheets, carbon and graph- Prepays/accrued inc 4,1 3,5 3,3 7 -
ite yarns for a variety of applications and SGL technologies: develops new business opportuni- Tax recoverable 9,9 9,8 17,5 19,8 -
ties based on the Group's competencies for high technology materials, processes and applica- Misc debtors 14,7 10,7 25,7 - -
tions. The Group has operations in Europe, North, Central and South America. Cash & near cash 93,4 128 - - -
Cash & equivalents - 67,5 46,1 21,4 11,6
* * * * * * * * * * MARKET AND INDUSTRY * * * * * * * * * * Trading investments 4,3 9,9 - 0,1 0,5
PRIMARY SIC: Misc current assets - - - 31 47,2
3624 - Carbon and graphite products -------- -------- -------- -------- --------
SECONDARY SIC: 603 670,9 583,5 578,7 715,9
3624 - Carbon and graphite products -------- -------- -------- -------- --------
1629 - Heavy construction, nec CREDS due within 1 yr
3674 - Semiconductors and related devices Short term debt 5,8 66,3 83,9 193,1 300,7
3561 - Pumps and pumping equipment Pble-group cos - - 5,5 6 3,8
3295 - Minerals, ground or treated Trade creditors 89,2 90,3 98,9 110,5 107,7
3823 - Process control instruments Accruals & defd inc 7,9 6,5 7,6 - -
PRODUCTS: Carbon & graphite accounted for 60% of 2005 revs; Special graphite, 25%; Payments on account - - 1,8 0,8 7,3
Technical products, 15% & Others nominal. Revenue tax 16,1 10,3 9,5 6,4 12,5
MARKETS: Tax & social security 5,9 4,8 8,2 6,7 5,2
GERMANY - Current provisions 151 131 153,6 - -
Misc creditors 40,4 59,8 105,9 131,3 168,4
* * * * * * * * * * FINANCIALS * * * * * * * * * * -------- -------- -------- -------- --------
FISCAL YEAR DATE: 12/31 316,3 369 474,9 454,8 605,6
-------- -------- -------- -------- --------
227
228
NET CURRENT 286,7 301,9 108,6 123,9 110,3 NOTES TO CONSOLIDATED BALANCE SHEETS
ASSETS
Eurom Eurom Eurom Eurom Eurom
-------- -------- -------- -------- --------
TOTAL 867 946,7 772 831,6 889,4
2005 2004 2003 2002 2001
ASSETS LESS
INTANGIBLE ASSETS
CURRENT
Goodwill, gross 66,8 61,6 114,6 120,8 132,3
LIABILITIES
Goodwill, amortn - - -36,5 -29,9 -26,6
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
CREDS due after 1 yr
Goodwill, net 66,8 61,6 78,1 90,9 105,7
Long term debt 336,3 353,3 410,6 255,4 238,2
-------- -------- -------- -------- --------
L/T trade creditors 0,4 1 - - -
Brands/patents, gross - - - - 24
Misc other L/T liabs 0,2 36,7 - - -
Brands/patents amortn - - - - -18,5
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
336,9 391 410,6 255,4 238,2
Brands, patents, net - - - - 5,5
PROVISIONS 206,7 221,4 244,5 378,5 394,4
-------- -------- -------- -------- --------
MISC - 65,2 - - -
Misc intang FA, gross 42,5 41 44,3 34,4 -
LIABILITIES
Misc intang FA amortn -22,7 -17,8 -23,4 -21,5 -
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
NET ASSETS 323,4 269,1 116,9 197,7 256,8
Misc intang FA, net 19,8 23,2 20,9 12,9 -
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
SHARE 144,9 142,9 56,8 56 55,2
-------- -------- -------- -------- --------
CAPITAL
86,6 84,8 99 103,8 111,2
Share premium 280,6 274 111,5 111,3 111,3
-------- -------- -------- -------- --------
Retained earnings -111,6 -25,2 -51,7 37,8 88,7
Property - cost 321,7 312,9 355,5 372 395,8
Profit for the year 28,2 -86,4 - - -
Property depreciation -199 -188,1 -204,4 -203,7 -214,5
Currency apprecn res -19,1 -39,6 - -8,8 -
-------- -------- -------- -------- --------
Misc reserves -0,9 1,6 - - -
Property NBV 122,7 124,8 151,1 168,3 181,3
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
SHAREHOLDER 322,1 267,3 116,6 196,3 255,2
-------- -------- -------- -------- --------
S' FUNDS
Property NBV 122,7 124,8 151,1 168,3 181,3
Minority interests 1,3 1,8 0,3 1,4 1,6
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Oth tangible FA-cost 1.111,30 1.063,30 1.091,70 1.155,30 1.249,10
NET ASSETS 323,4 269,1 116,9 197,7 256,8
Oth tangible FA depn -907,3 -853,8 -851,6 -875,7 -929,6
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Other tangible FA NBV 204 209,5 240,1 279,6 319,5
-------- -------- -------- -------- --------
Cap w-i-p gross c/f 19,5 19 17,5 29,6 52,9
Cap w-i-p written off -0,2 -0,2 -0,2 -0,2 -0,2
-------- -------- -------- -------- --------
Cap w-i-p NBV c/f 19,3 18,8 17,3 29,4 52,7
-------- -------- -------- -------- --------
Appendix Chapter 3
-------- -------- -------- -------- -------- DEBT BY MATURITY

Tangible assets 346 353,1 408,5 477,3 553,5 Debt due within 1 yr 5,8 66,3 83,9 193,1 300,7
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
FINANCIAL ASSETS Short term debt 5,8 66,3 83,9 193,1 300,7
-------- -------- -------- -------- -------- PROVISIONS
Investments 2,4 2,4 2,5 2,5 2,7 Tax provisions 0,9 - 1,3 2,3 10,5
-------- -------- -------- -------- -------- Deferred taxation 34,7 45,3 43 38,7 36,7
Invs in assoc cos 7,7 4,4 21 25,6 - Pension provisions 134,2 133,5 161 218,5 216,1
Trade investments - - - - 26,1 Severance provisions 13,8 13,2 15,3 75,8 71,1
-------- -------- -------- -------- -------- Misc provisions 23,1 29,4 23,9 43,2 60
Trade investments 7,7 4,4 21 25,6 26,1 -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- 206,7 221,4 244,5 378,5 394,4
Long term receivables - - - - 5,2 -------- -------- -------- -------- --------

Misc financial assets 4,8 4,7 5,2 5,1 - SHARE CAPITAL
-------- -------- -------- -------- -------- Ordinary shares 144,9 142,9 56,8 56 55,2
14,9 11,5 28,7 33,2 34 SHAREHOLDERS' FUNDS
-------- -------- -------- -------- -------- Eqty s/holders funds - - - 196,3 255,2
STOCKS COMMITMENTS AND
Raw materials etc 85,2 64,4 71,8 83,1 109,1 CONTINGENCIES
Work in progress 138,5 134,9 138,5 147,9 200,9 Lease commitments 8,1 7,7 - 11,1 9,4
Finished gds & resale 56,9 57,1 47,1 54,5 71 PENSION BENEFITS
Advance stock pmts - - 0,6 -6,4 0,6 Pension benefit 268,9 216,8 234 244,8 -
Misc stocks - - - 9,3 12,6 oblig.
-------- -------- -------- -------- -------- Fair value - plan 63,9 47,4 40,9 45,3 -
280,6 256,4 258 288,4 394,2 assets
-------- -------- -------- -------- -------- Unfunded pension 205 169,4 193,1 199,5 -
DEBTORS includes liab
L/T trade debtors 0,1 0,3 2,2 0,3 0,4 PENSION BENEFIT COSTS
Misc L/T debtors - - 0,2 - - Pension service costs -5,1 -5,2 -4,7 -5,5 -
-------- -------- -------- -------- -------- Pension interest cost -12,8 -11,8 -13,6 -14,2 -
Due after one 0,1 0,3 2,4 0,3 0,4 Exp return - plan 4,9 3,4 3,2 4,5 -
year assets
-------- -------- -------- -------- -------- Oth net pension -6,7 -6,6 - -3,5 -
DEBT BY TYPE
Convertible loans 270 320 133,7 135 135
Credit institutions 88,1 119,9 360,8 313,5 359,5
Bills & notes - - - - 37
Misc debt -16 -20,3 - - 7,4
-------- -------- -------- -------- --------
342,1 419,6 494,5 448,5 538,9
-------- -------- -------- -------- --------
229
230
* * * * * * * * * * INCOME STATEMENT * * * * * * * * * * -------- -------- -------- -------- --------

RETAINED 28,2 -86,4 -50,3 -23,6 -95,2
CONSOLIDATED PROFIT AND LOSS ACCOUNT PROFITS
Eurom Eurom Eurom Eurom Eurom -------- -------- -------- -------- --------
2005 2004 2003 2002 2001 NOTES TO CONSOLIDATED PROFIT AND LOSS ACCOUNT
TURNOVER 1.068,80 1.066,70 1.046,20 1.112,30 1.233,30
Cost of sales -746,7 -779 -794,6 -886,5 -941,8 Eurom Eurom Eurom Eurom Eurom
-------- -------- -------- -------- -------- 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec
GROSS 322,1 287,7 251,6 225,8 291,5 2005 2004 2003 2002 2001
PROFIT PROVISIONS
Distribution costs -126,8 -119,1 -121,8 -139,4 -154,5 Provns written back 3 3,1 4,2 - -
Administration exps -48,1 -86,2 -65,9 -47,5 -57,8 Misc provisions -2,9 -1,3 -1,4 - -
Provisions 0,1 1,8 2,8 - - -------- -------- -------- -------- --------
Other trading exps -26,2 -23,7 -27,2 -25,4 -31,1 0,1 1,8 2,8 - -
Other trading inc net 2,8 - 1,9 15,1 10,6 -------- -------- -------- -------- --------
Exceptional chgs-tdg -11,1 -19,1 -27,4 -30,3 -76 OTHER TRADING EXPS
-------- -------- -------- -------- -------- Net exchange losses -2 -1,2 -2,8 - -
TRADING 112,8 41,4 14 -1,7 -17,3 Research & dev -18 -19,2 -19 -25,4 -31,1
PROFIT Misc other tdg exps -6,2 -3,3 -5,4 - -
Equity A/c profits 0,8 -0,8 - - - -------- -------- -------- -------- --------
Interest/inv income 5,5 4,9 3,3 12,3 5,7 -26,2 -23,7 -27,2 -25,4 -31,1
Interest payable -43,8 -38,9 -42,8 -37,8 -54,2 -------- -------- -------- -------- --------
Net interest expense - -4,6 -3,3 - - OTHER TRADING INC NET
Other expenses net -28,1 -27,1 -35,5 - - Misc other tdg inc 2,8 - 1,9 15,1 10,6
-------- -------- -------- -------- -------- EXCPL CHARGES-TDG
PROFIT 47,2 -25,1 -64,3 -27,2 -65,8 FA disposal gain-tdg 9,7 0,6 2,5 - -
BEFORE TAX Reorg costs-tdg -20,8 -19,7 -10,4 -8,3 -41
Tax -19,1 -0,4 14,1 3,6 -29,2 Misc excpl chgs-tdg - - -19,5 -22 -35
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
PROFIT 28,1 -25,5 -50,2 -23,6 -95 -11,1 -19,1 -27,4 -30,3 -76
AFTER TAX -------- -------- -------- -------- --------
Minority interests 0,1 -0,1 -0,1 - -0,2 INTEREST/INV INCOME
Discont ops inc net - - -21,5 - - Investment income - - - -1,8 3,2
-------- -------- -------- -------- -------- Interest income 5,5 4,9 3,3 14,1 2,5
Net credits 0,1 -0,1 -21,6 - -0,2 -------- -------- -------- -------- --------
Extraordinary losses - -60,8 - - - 5,5 4,9 3,3 12,3 5,7
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
NET INCOME 28,2 -86,4 -50,3 -23,6 -95,2
Ordinary dividends 0 0 0 0 0
Appendix Chapter 3
OTHER EXPENSES NET Depreciation -60,7 -62,3 -64,5 -71,3 -78,9

Misc expenses net -28,1 -27,1 -35,5 - - Goodwill amortisation - - -3,9 -5,1 -4,4
TAX BY COUNTRY Brands amortisation - - - - -3,5
Domestic current tax 0,7 -0,2 -0,3 -2,1 -5,6 Licences amortisation -4,4 -4,6 -3,8 -4,8 -
Domestic deferred tax 0,1 -0,7 27,2 11,1 -1,6 Duties & taxes -7,6 -7,6 - -9,8 -9,7
-------- -------- -------- -------- -------- Net exchange losses - - - -0,2 -5,6
Domestic tax 0,8 -0,9 26,9 9 -7,2 FA disposal gain-tdg - - - 0,6 -2,2
Overseas tax -19,9 -0,3 -8,1 -5,4 -22
Misc tax by country - 1,2 -4,7 - - CONSOLIDATED PROFIT AND LOSS ACCOUNT - DISCONTINUED - EXISTING
-------- -------- -------- -------- --------
-19,1 -0,4 14,1 3,6 -29,2
-------- -------- -------- -------- --------
2005 2004 2003 2002 2001

TAX BY TYPE
TURNOVER - 122,7 130,4 - -
Current taxation -26,3 -16,7 -14,3 -7,8 -22,4
Cost of sales - -97,7 -113,8 - -
Deferred taxation 7,2 15,5 33,1 11,4 -6,8
-------- -------- -------- -------- --------
Misc tax by type - 1,2 -4,7 - -
GROSS - 25 16,6 - -
-------- -------- -------- -------- --------
PROFIT
-19,1 -0,4 14,1 3,6 -29,2
Distribution costs - -42,6 -29,1 - -
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
EXTRAORDINARY LOSSES
TRADING - -17,6 -13,5 - -
Xord discont bus cost - -60,8 - - -
PROFIT
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Av no of staff 5.257 5.399 7.077 7.704 8.491
a) Restated to confirm with current presentation or current accounting policies
No of staff at y/e 5.263 5.265 6.926 7.360 8.197
PROFIT BEFORE TAX IS AFTER (CHARGING) CREDITING CALENDAR:

STAFF EXPENSES BY
DATE EVENT
GRADE
09-Mar-2006 Prelim
Wages & salaries -236 -209,9 -207,7 -298,1 -326
25. Apr 06 First Quarter
Social security -53,8 -59,4 -51,5 -51,4 -59,9
28. Apr 06 Annual General Meeting
Staff pensions -19,7 -20,2 -20,5 -18,7 -17,3
26. Jul 06 Second Quarter
-------- -------- -------- -------- --------
26-Oct-2006 Third Quarter
-309,5 -289,5 -279,7 -368,2 -403,2
-------- -------- -------- -------- --------
Staff expenses by type
LOAD-DATE: May 22, 2006
Directors emoluments - - - -1,9 -
FEES ETC
Your use of this service is governed by Terms and Conditions. Please review them.
Auditors remuneration -1,6 - - - -
Copyright 2006 LexisNexis Group a division of Reed Elsevier (UK) Ltd. All rights reserved.
Non-audit fees -0,3 - - - -
-------- -------- -------- -------- --------
231
232
* * * * * * * * * * CASHFLOW STATEMENT * * * * * * * * * * NOTES TO CONSOLIDATED STATEMENT OF CASH FLOWS

CONSOLIDATED STATEMENT OF CASH FLOWS Eurom Eurom Eurom Eurom Eurom
Eurom Eurom Eurom Eurom Eurom 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec
31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 2005 2004 2003 2002 2001
2005 2004 2003 2002 2001 OPERATIONS
OPERATIONS 17,5 45,4 16,5 139 62,4 Profit before tax 47,2 -2,9 -47,5 - -
------- ------- ------- ------- ------- Taxation -22,6 -14,2 -4,2 - -
INVESTING ACTIVITIES Net income - - - -27,2 -65,8
Invests acquired -2,3 -0,8 -1,7 - - Depn & amortn incr 65,1 67,6 69,5 81,4 86,8
Property acquired -6,2 - - - - Provision increases 13 16,3 24,2 -2,8 19,8
Equip & vehs acquired -33,2 - - - - Other tdg adj incr -64,9 -48,2 1 -32,4 -3,8
Tangibles acquired - -46,3 -43,4 -41,5 -96,1 Asset disposal -9,7 -0,6 -3,4 -3,8 1
Intangibles acquired -5,3 - - -12,1 - Decrease in stocks -10,1 -4 0,3 82,7 -21,5
Trade invs sold - - - - 5,5 Decrease in debtors -8,2 0,9 -31,2 44,7 65,8
Investments sold 0,3 2 5,7 - - Increase in creditors -4,8 3,5 -4,1 6,8 17
FA sold 16,1 4,5 1,5 7,8 3,8 Other wkg cap decr 12,5 27 11,9 -10,4 -36,9
Misc investing inflow - - - 4,9 -5,7 ------- ------- ------- ------- -------
------- ------- ------- ------- ------- 17,5 45,4 16,5 139 62,4
-30,6 -40,6 -37,9 -40,9 -92,5 ------- ------- ------- ------- -------
------- ------- ------- ------- -------
FINANCING
Debt raised - 38,6 60,5 - 36,5
Share capital issued 2,5 244,1 1 0,8 2,2 BUSINESS ANALYSIS:
Debt repaid -92,7 -89,3 - -87,6 - BUSINESS ANALYSIS - TURNOVER
Dividends paid ord 0 0 0 -0,2 -0,1 Eurom Eurom Eurom Eurom Eurom
Misc financing inflow -0,8 -23,9 -15,9 - - 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec
------- ------- ------- ------- ------- 2005 2004 2003 2002 2001
-91 169,5 45,6 -87 38,6 Carbon & graphite 657.0 572.2 921.0 947.2 984.4
------- ------- ------- ------- ------- Special graphite 267.2 253.2 280.7 240.4 297.6
OTHER - -24,6 0,7 - - Technical products 166.2 136.0 128.8 154.8 377.6
INFLOWS Other 41.9 33.8 50.5 47.3 42.2
------- ------- ------- ------- ------- Corrosion protection - - - 228.7 -
CASH& -104,1 149,7 24,9 11,1 8,5 Intra-group (63.5) (51.2) (465.2) (506.1) (468.5)
EQVTS TURNOVER 1,068.8 944.0 915.8 1,112.3 1,233.3
INCREASE -------- ------- ------- -------- --------
------- ------- ------- ------- ------- 1.068,80 944 915,8 1.112,30 1.233,30
Currency appreciation 2 -0,3 -0,3 -1,7 -6,2 -------- ------- ------- -------- --------
------- ------- ------- ------- -------
B/S CASH& -102,1 149,4 24,6 9,4 2,3
EQVT INCR
------- ------- ------- ------- -------
Appendix Chapter 3
BUSINESS ANALYSIS - PROFIT BEFORE TAX GEOGRAPHICAL ANALYSIS - TURNOVER BY SOURCE

Eurom Eurom Eurom Eurom Eurom Eurom Eurom Eurom Eurom Eurom
31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec
2005 2004 2003 2002 2001 2005 2004 2003 2002 2001
Carbon & graphite 121,6 86,4 65,5 51,9 78,9 Rest of Europe - 390,1 632,4 692,4 676,8
Special graphite 19,8 13,9 12,4 1,9 26 Germany 358,1 313,9 469,6 588,9 636,1
Technical products 0,2 -10,6 -13,6 -11,7 -24,8 Rest of Europe 440,7 - - - -
Other -28,8 -30,7 -36,8 -18,3 -21,4 North America 264,6 229,1 279 324,6 372,2
Corrosion protection - - - 4,8 - South America - - - 5,1 8
Intra-Group - - 0 - - Asia 5,4 10,9 - 7,4 8,7
Discontinued ops - -22,2 -91,8 - - Intra-group - - - -506,1 -468,5
Exceptional charges - - - -30,3 -76 Adjustment accounts - - -465,2 - -

Assoc cos profit 0,8 -0,8 - - - -------- ------- ------- -------- --------
Net interest expense -52,2 -50,6 - -25,5 -48,5 1.068,80 944 915,8 1.112,30 1.233,30
Misc -14,2 -10,5 - - - -------- ------- ------- -------- --------
PROFIT 47,2 -25,1 -64,3 -27,2 -65,8 GEOGRAPHICAL ANALYSIS - TURNOVER BY MARKET
BEFORE TAX
-------- ------- ------- -------- --------
47,2 -25,1 -64,3 -27,2 -65,8
2005 2004 2003 2002 2001
-------- ------- ------- -------- --------
Western Europe - 320,2 306,9 - -
Germany 142,7 140 137,6 216,6 246
BUSINESS ANALYSIS - TOTAL ASSETS Rest of Europe 380,4 - - 373,8 409,2
Eurom Eurom Eurom Eurom Eurom North America 283,8 250 250,7 281,6 315,8
31 Dec 31 Dec 31 Dec 31 Dec 31 Dec South America - - 49,4 63,4 63,1
2005 2004 2003 2002 2001 Asia 261,9 233,8 171,2 176,9 199,2
Carbon & graphite 513,8 520,1 531,3 - - -------- ------- ------- -------- --------
Special graphite 227 204,9 224,8 - - 1.068,80 944 915,8 1.112,30 1.233,30
Technical products 220,3 201,1 203,2 - - -------- ------- ------- -------- --------
Total 961,1 926,1 959,3 - - GEOGRAPHICAL ANALYSIS - TOTAL ASSETS
a) Restated to confirm with current presentation or current accounting policies
2005 2004 2003 2002 2001
Rest of Europe - 365,2 - - -
Germany 330,6 296,3 - - -
Rest of Europe 328,6 - - - -
North America 275,8 237,3 - - -
Asia 26,1 27,3 - - -
-------- ------- ------- -------- --------
Total 961,1 926,1 - - -
-------- ------- ------- -------- --------
233
A 3.5: Coding Procedure of TMT Demographics
The following section exemplifies the procedure to obtain top management team demo-
graphic information from internet resources (specifically company web sites) for SGL Car-
bon. In the first step the names of the members of the top management team are obtained from
Extel Cards.
* * * * * * * * * * EXECUTIVES * * * * * * * * * *
SUPERVISORY BOARD
Position Name Appointed/Ceased
Chairman Max D. Kley
Vice Chairman Josef Scherer 27 Apr 2005 Appointed
Member Prof. Dr. Utz-Hellmuth Felcht
Member Peter Fischer
Member Dr. Claus Hendricks
Member Juergen Kerner
Member Dr. Hubert Lienhard
Member Jacques Loppion
Member Edelbert Schilling
Member Andrew H. Simon
Member Heinz Will 28 Apr 2005 Appointed
Member Hans-Werner Zorn
MANAGEMENT BOARD
Position Name Appointed/Ceased
Chairman & Chief Executive Robert J. Koehler
Chief Financial Officer Sten Daugaard
Member Theodore H. Breyer
Member Dr. Hariolf Kottmann
Source: Extel Cards
In the second step these names are cross-checked with information obtained from the
company web site and annual reports. In the third step the same company web resources are
searched for information on the national and educational background of members of the top
management team. Based on this information the two variables top management team inter-
national diversity (TMT_INT) and top management team education (TMT_ACD) are cal-
culated in a final step. For SGL Carbon the result would be as follows:
TMT_INT: Two out of four members are internal.

TMT_ACD: One out of four members holding an academic title.
The following screenshots are taken from the company web site of SGL Carbon and depict
the members of the management board.
(http://www.sglcarbon.de/company/executive.html, date: 30.07.2007)
236
A 3.6: Coefficients from Hedonic Regression Alternative Industry Classifications (N = 765)
Industry N Intercept RD ADV CONT TMT_INT TMT_ACD R2

Classification by 1-digit SIC-Code
- Manufacturing 435 .082 .672 3.14 .685 .007 -.124 .118
- Service 169 .247 1.21 .145 -.154 1.50 -.129 .101
- Other 161 -.228 1.92 4.66 -.466 1.07 .153 .382
Classification by German Stock Exchange

- Classic Sector 548 -.034 2.24 4.03 .782 .263 -.113 .208
- Technology Sector 217 .275 -.060 .924 -.738 .802 -.053 .062
Notes:
N: Number of firm-year observations.
Appendix Chapter 3
A 3.7: Results for Foreign Assets to Total Assets
Table A 3.7.1 Regression of Curve Type and Moderation of Tobins qa
Variable 1 2 3 4 5
1. Intercept .013 .013 .005 -.009 -.009
(.64) (.64) (.23) (-.34) (-.36)
2. Size_ln .012** .012** .012** .012** .012**
(5.87) (5.50) (5.36) (5.41) (5.43)
3. Product Div. -.002 -.002 -.003 -.002 -.002
(-1.32) (-1.32) (-1.46) (-1.29) (-1.27)
4. Leverage -.185** -.184** -.181** -.181** -.180**
(-9.24) (-9.16) (-8.94) (-8.92) (-8.90)
5. I1: Manufacturing .012 .012 .012 .014 .014
(1.69) (1.66) (1.66) (1.82) (1.82)
6. I2: Service -.036** -.036** -.036** -.034** -.034**
(-3.47) (-3.47) (-3.45) (-3.26) (-3.23)
7. Tobins q .041** .041** .041** .041** .042**
(12.18) (12.15) (12.12) (12.17) (12.18)
8. FATA .003 .070 .188 .182
(.22) (1.31) (1.59) (1.53)
9. FATA (squared) -.080 -.415 -.400
(-1.29) (-1.36) (-1.30)
10. FATA (cubic) .258 .246
(1.12) (1.06)
11. FATA * Tobins q -.011
(-.63)
R2 .398 .398 .400 .401 .402

Adjusted R2 .391 .390 .391 .391 .391
' R2 .000 .002 .003 .004
F-statistic 59.97** 51.32** 45.17** 40.31** 36.28**
p < .10.
* p < .05.
a
A 3.7: Results for Foreign Assets to Total Assets (continued)
Table A 3.7.2 Moderation of Hedonic qa
Variable 1 2 3 4 5
1. Intercept .027 .027 .019 .007 .002
(.95) (.96) (.66) (.23) (.07)
2. Size_ln .013** .013** .012** .013** .012**
(5.75) (5.39) (5.25) (5.28) (5.22)
3. Product Div. -.002 -.002 -.002 -.002 -.002
(-.99) (-.98) (-1.10) (-.99) (-.95)
4. Leverage -.242** -.242** -.239** -.238** -.237**
(-11.53) (-11.46) (-11.18) (-11.12) (-11.09)
5. I1: Manufacturing .013 .012 .012 .013 .013
(1.55) (1.54) (1.53) (1.63) (1.55)
6. I2: Service -.035** -.035** -.035** -.034** -.035**
(-3.03) (-3.03) (-3.00) (-2.88) (-2.94)
7. Hedonic q .056** .056** .056** .057** .063**
(4.26) (4.19) (4.16) (4.21) (4.25)
8. FATA .002 .067 .160 .152
(.14) (1.14) (1.26) (1.19)
9. FATA (squared) -.077 -.344 -.323
(-1.15) (-1.04) (-.98)
10. FATA (cubic) .206 .190
(.82) (.76)
11. FATA * Hedonic q -.059
(-.98)
R2 .267 .267 .269 .270 .271

Adjusted R2 .259 .258 .258 .258 .258
' R2 .000 .002 .003 .004
F-statistic 33.86** 29.00** 25.53** 22.76** 20.58**
p < .10.
* p < .05.
a
A 3.7: Results for Foreign Assets to Total Assets (continued)
Table A 3.7.3 Moderation of Individual Intangible Resourcesa
Variable 1 2 3 4 5 6 7 8
1. Intercept .092** .085** .092** .087** .089** .097** .088** .112**
(4.01) (3.12) (3.38) (3.19) (3.26) (3.59) (3.22) (4.15)
2. Size_ln .015** .014** .013** .014** .014** .012** .014** .010**
(6.28) (5.71) (5.19) (5.62) (5.65) (4.77) (5.58) (3.94)
3. Product Div. -.002 -.002 -.002 -.002 -.003 -.002 -.002 -.003
(-1.18) (-1.23) (-1.18) (-1.30) (-1.40) (-1.31) (-1.16) (-1.40)
4. Leverage -.252** -.248** -.247** -.245** -.247** -.241** -.250** -.237**
(-11.34) (-11.00) (-11.03) (-10.83) (-10.98) (-10.81) (-11.07) (-10.66)
5. I1: Manufacturing .015 .015 .016 .014 .015 .010 .016 .011
(1.89) (1.82) (1.93) (1.73) (1.84) (1.25) (1.93) (1.33)
6. I2: Service -.022 -.022 -.021 -.023* -.020 -.025* -.020 -.024*
(-1.90) (-1.88) (-1.82) (-1.98) (-1.75) (-2.20) (-1.72) (-2.07)
7. RD -.045 -.051 -.116 -.039 -.084 -.040 -.066 -.128
(-.50) (-.56) (-1.24) (-.43) (-.91) (-.44) (-.72) (-1.38)
8. ADV .398** .393** .380** .449** .388** .403** .391** .459**
(3.86) (3.81) (3.71) (3.99) (3.77) (3.96) (3.80) (4.18)
9. CONT -.197** -.192** -.211** -.198** -.172** -.176** -.190** -.185**
(-3.61) (-3.50) (-3.84) (-3.60) (-3.08) (-3.24) (-3.46) (-3.33)
10. TMT_INT .001 -.001 .007 -.001 .001 .003 .012 .024
(.03) (-.05) (.30) (-.04) (.04) (.12) (.50) (1.01)

11. TMT_ACD -.033** -.032** -.028* -.032** -.030* -.023 -.031* -.016
(-2.69) (-2.64) (-2.32) (-2.67) (-2.42) (-1.88) (-2.54) (-1.31)
12. FATA .067 .096 .031 .045 .055 .063 .018
(.52) (.75) (.24) (.35) (.44) (.50) (.14)
13. FATA (squared) -.084 -.155 .024 -.019 -.019 -.093 .092
(-.26) (-.47) (.07) (-.06) (-.06) (-.28) (.27)
14. FATA (cubic) .023 .077 -.063 -.031 -.036 .042 -.116
(.09) (.31) (-.24) (-.13) (-.15) (.17) (-.46)
15. FATA * RD 1.17** 1.18**
(2.89) (2.86)
16. FATA * ADV -.621 -.810
(-1.25) (-1.64)
17. FATA * CONT .441* .320
(2.05) (1.44)
18. FATA * TMT_INT .237** .248**
(4.08) (4.30)
19. FATA * TMT_ACD -.124 -.111
(-1.28) (-1.16)
R2 .288 .289 .300 .291 .294 .310 .291 .330

Adjusted R2 .275 .272 .282 .273 .276 .292 .273 .308
' R2 .001 .012 .003 .006 .022 .003 .042
F-statistic 22.36** 17.22** 16.80** 16.12** 16.38** 17.64** 16.13** 14.94**
p < .10.
* p < .05.
a
A 3.8: Results for Time-Lagged Measurement Designs
Table A 3.8.1 Moderation of Individual Intangible Resourcesa ROA = t+1
Variable 1 2 3 4 5 6 7 8
1. Intercept .079** .021 .019 .018 .025 .042 .021 .043
(3.20) (.63) (.56) (.54) (.74) (1.28) (.63) (1.30)
2. Size_ln .008** .008** .007* .008** .008** .004 .008** .004
(2.89) (2.89) (2.60) (3.06) (2.90) (1.44) (2.88) (1.37)
3. Product Div. .002 .002 .002 .001 .002 .002 .002 .002
(1.00) (.78) (.78) (.62) (.90) (.82) (.78) (.89)
4. Leverage -.165** -.169** -.164** -.169** -.171** -.153** -.169** -.152**
(-6.99) (-7.13) (-6.90) (-7.13) (-7.21) (-6.56) (-7.12) (-6.49)
5. I1: Manufacturing .006 .008 .009 .008 .008 .007 .008 .007
(.69) (.90) (1.01) (.86) (.88) (.73) (.90) (.79)
6. I2: Service -.020 -.015 -.012 -.015 -.013 -.019 -.015 -.013
(-1.61) (-1.23) (-.98) (-1.17) (-1.04) (1.53) (-1.19) (-1.03)
7. RD .110 .100 .002 .102 .087 .075 .099 -.002
(1.08) (.96) (.02) (.98) (.84) (.74) (.96) (-.02)

8. ADV .224* .210 .208 .273* .207 .168 .209 .197
(2.10) 1.96) (1.95) (2.41) (1.94) (1.60) (1.93) (1.76)
9. CONT -.114* -.088 -.084 -.084 -.051 -.079 -.088 -.034
(-2.16) (-.166) (-1.57) (-1.58) (-.87) (-1.52) (-1.65) (-.60)
10. TMT_INT .013 .017 .021 .020 .018 .034 .018 .042
(.55) (.69) (.85) (.79) (.72) (1.40) (.68) (1.60)

11. TMT_ACD -.031* -.023 -.022 -.025 -.022 -.017 -.023 -.017
(-2.34) (-1.68) (-1.59) (-1.83) (-1.63) (-1.25) (-1.68) (-1.23)
12. FSTS .529** .548** .532** .493** .542** .529** .519**
(2.97) (3.07) (2.99) (2.74) (3.11) (2.96) (2.95)
13. FSTS (squared) -1.27** -1.28** -1.29** -1.20** -1.33** -1.27** -1.28**
(-3.11) (-3.13) (-3.16) (-2.94) (-3.32) (-3.11) (-3.19)
14. FSTS (cubic) .870** .861** .888** .837** .923** .872** .899**
(3.12) (3.09) (3.18) (2.99) (3.38) (3.11) (3.27)
15. FSTS * RD .905 .604
(1.70) (1.15)

16. FSTS * ADV .745 .436
(1.69) (1.00)
17. FSTS * CONT .311 .317
(1.55) (1.60)
18. FSTS * TMT_INT .290** .284**
(5.39) (5.23)
19. FSTS * TMT_ACD -.010 -.040
(-.09) (-.37)
R2 .127 .141 .145 .145 .144 .180 .141 .188

Adjusted R2 .113 .123 .125 .125 .125 .161 .121 .163
' R2 .014 .018 .018 .017 .053 .014 .051
F-statistic 8.96** 7.72** 7.40** 7.39** 7.36** 9.57** 7.16** 7.79**
p < .10.
* p < .05.
a
A 3.8: Results for Time-Lagged Measurement Designs (continued)
Table A 3.8.2 Moderation of Individual Intangible Resourcesa ROA = t+2
Variable 1 2 3 4 5 6 7 8
1. Intercept .092** .075* .073* .075* .077* .092** .076* .095**
(3.64) (2.13) (2.08) (2.13) (2.18) (2.65) (2.17) (2.72)
2. Size_ln .001 .001 .001 .001 .001 -.002 .001 -.002
(.45) (.48) (.21) (.42) (.48) (-.54) (.43) (-.84)
3. Product Div. .003 .002 .002 .002 .002 .002 .002 .003
(1.22) (1.04) (1.06) (1.09) (1.11) (1.02) (1.12) (1.27)
4. Leverage -.116** -.117** -.113** -.117** -.118** -.105** -.116** -.104**
(-4.76) (-4.75) (-4.59) (-4.76) (-4.81) (-4.31) (-4.74) (-4.26)
5. I1: Manufacturing .002 .003 .005 .003 .003 .002 .004 .004
(.23) (.33) (.47) (.36) (.34) (.19) (.43) (.46)
6. I2: Service -.011 -.009 -.006 -.009 -.007 -.012 -.007 -.005
(-.85) (-.72) (-.47) (-.73) (-.57) (-.96) (-.52) (-.40)

7. RD .177 .166 .061 .166 .152 .136 .163 .043
(1.68) (1.53) (.50) (1.52) (1.40) (1.27) (1.50) (.35)
8. ADV .504** .511** .501** .490** .510** .488** .499** .435**
(4.36) (4.38) (4.30) (4.04) (4.37) (4.24) (4.25) (3.62)
9. CONT -.092 -.084 -.080 -.086 -.053 -.079 -.080 -.040
(-1.78) (-1.60) (-1.52) (-1.64) (-.89) (-1.53) (-1.52) (-.68)
10. TMT_INT .056* .057* .060* .056* .057* .068** .067* .081**
(2.23) (2.22) (2.34) (2.17) (2.23) (2.69) (2.46) (2.98)
11. TMT_ACD -.021 -.018 -.017 -.018 -.017 -.014 -.018 -.011
(-1.54) (-1.27) (-1.18) (-1.23) (-1.21) (-.97) (-1.29) (-.78)
12. FSTS .172 .195 .175 .153 .177 .170 .172
(.92) (1.04) (.93) (.81) (.96) (.91) (.93)
13. FSTS (squared) -.447 -.458 -.446 -.416 -.486 -.465 -.476
(-1.04) (-1.07) (-1.04) (-.97) (-1.15) (-1.08) (-1.12)
14. FSTS (cubic) .327 .320 .324 .315 .371 .350 .372
(1.11) (1.09) (1.10) (1.07) (1.28) (1.19) (1.28)

15. FSTS * RD .928 .665
(1.74) (1.25)
16. FSTS * ADV -.309 -.441
(-.66) (-.95)
17. FSTS * CONT .225 .256
(1.13) (1.30)
18. FSTS * TMT_INT .217** .219**
(3.89) (3.88)
19. FSTS * TMT_ACD -.128 -.138
(-1.09) (-1.19)
R2 .132 .135 .140 .135 .137 .162 .137 .172

Adjusted R2 .114 .111 .114 .109 .111 .137 .111 .140
' R2 .003 .008 .003 .005 .030 .005 .040
F-statistic 7.14** 5.58** 5.42** 5.20** 5.27** 6.42** 5.27** 5.34**
p < .10.
* p < .05.
a
Appendix Chapter 4
A 4.1 Regional Dispersion of Sales 244
A 4.2 Additional Results for Hypothesis One 247

Table A 4.2.1 Regressions of Intangible Resources on Degree of
Internationalization (Foreign Sales to Total Sales) - TQ 247
Table A 4.2.2 Regressions of Intangible Resources on Propensity to Internationalize
(Three Year Change of Degree of Internationalization) 248
Table A 4.2.3 Regressions of Intangible Resources on Propensity to Internationalize
(Five Year Change of Degree of Internationalization) 249
A 4.3 Additional Results for Hypothesis Two 250

Table A 4.3.1 Regression of Intangible Resources on Scope of
Internationalization (Dispersion of International Sales) - TQ 250
Intangible Resources and the Internationalization Process 243
A 4.4 Additional Results for Hypothesis Three 251

Table A 4.4.1 Regression of Intangible Resources on Scope of Expansion
(Three Year Change of Dispersion of Foreign Sales) 251
(Five Year Change of Dispersion of Foreign Sales) 252
(Two Year Change of Dispersion of Total Sales) 253
Three Year Change of Dispersion of Total Sales) 254
(Five Year Change of Dispersion of Total Sales) 255
A 4.5 Additional Results for Hypothesis Four 256

Table A 4.5.1 Speed of Expansion Descriptive Statistics and Correlations 256
Table A 4.5.2 Moderation of Speed of Expansion
(Change of Internationalization over Past Three Years) 257
Table A 4.5.3 Moderation of Speed of Expansion
(Change of Internationalization over Past Five Years) 258
A 4.6 Additional Results for Hypothesis Five 259

Table A 4.6.1 Moderation of Scope of Expansion on Change of ROA
(Three Year Change of Dispersion of Foreign Sales) 259
(Five Year Change of Dispersion of Foreign Sales) 260
(Two Year Change of Dispersion of Foreign Sales) - TQ 261
(Three Year Change of Dispersion of Foreign Sales) - TQ 262
(Five Year Change of Dispersion of Foreign Sales) - TQ 263
244
A 4.1: Regional Dispersion of Sales
Global MNCs
Intra-regional America Asia-Pacific

Foreign sales
Company Name Industry Year percentage of percentage of percentage of
to total sales
total sales total sales total sales
ALTANA AG O.N. Pharma & Healthcare 2006 82.8 48.5 20.7 23.0
CARL-ZEISS MEDITEC AG Pharma & Healthcare 2004 92.5 25.4 46.7 27.9
ESCADA AG O.N. Consumer 2004 86.7 46.3 32.7 21.0
HEIDELBERG.DRUCKMA.O.N. Industrial 2002 62.6 43.0 33.2 20.7
HOCHTIEF AG Construction 2004 81.4 23.2 47.3 29.3
INFINEON TECH.AG NA O.N. Technology 2003 75.0 43.0 22.6 33.8
MERCK KGAA O.N. Pharma & Healthcare 2004 90.5 45.5 26.0 20.9
SGL CARBON AG O.N. Chemicals 2004 85.2 48.8 26.5 24.8
SINGULUS TECHNOL. Industrial 2002 94.1 37.1 33.5 29.4
Appendix Chapter 4
A 4.1: Regional Dispersion of Sales (continued)
Bi-regional MNCs

Foreign sales
to total sales
DUERR AG O.N. Industrial 2004 74.7 48.0 38.2 13.8

EVOTEC AG O.N. Pharma & Healthcare 2003 94.0 49.0 46.0 0.0
HEIDELBERG.DRUCKMA.O.N. Industrial 2001 64.6 42.7 36.2 18.5
Intangible Resources and the Internationalization Process
SCHERING AG O.N. Pharma & Healthcare 2001 75.2 45.1 33.5 18.1
WACKER CHEMIE O.N. Chemicals 2006 80.3 48.5 19.8 28.8

245
246
A 4.1: Regional Dispersion of Sales (continued)
Host region oriented MNCs

Foreign sales
to total sales
DAIMLERCHRYSLER AG NA O.N Automobile 2001 84.9 29.9 62.0 4.1
KONTRON AG O.N. Technology 2001 65.0 38.7 50.9 10.4
MTU AERO ENGINES NA O.N. Industrial 2002 81.5 29.5 62.0 6.7
SCHWARZ PHARMA AG O.N. Pharma & Healthcare 2003 81.1 33.8 64.4 1.8
UMS O.N. Pharma & Healthcare 2002 73.2 46.1 53.9 0.0
CAATOOSEE AG Software 2003 76.1 40.0 0.0 60.0

STEAG HAMATECH AG O.N. Industrial 2000 96.8 13.3 19.9 65.6
STEAG HAMATECH AG O.N. Industrial 2005 90.8 27.2 4.4 64.1
Appendix Chapter 4
A 4.2: Additional Results for Hypothesis One
Table A 4.2.1 Regressions of Intangible Resources on Degree of Internationalizationa

(Foreign Sales to Total Sales) - TQ
Variable 1 2 3
1. Intercept .371** .358** .390**
(7.03) (6.37) (5.47)
2. Size_ln .025** .025** .024**
(4.01) (3.96) (3.84)
3. Product Div. .001 .001 -.002
(.15) (.12) (-.30)
4. Leverage -.176** -.165** -.178**
(-3.22) (-2.89) (-3.06)
5. I1: Manufacturing .152** .152** .142**
(6.98) (6.96) (6.41)
6. I2: Service -.069* -.072* -.097**
(-2.21) (-2.28) (-2.93)
7. Tobins q .007
(.67)
8. Hedonic q .010
(.31)
R2 .200 .201 .207

Adjusted R2 .193 .192 .198
' R2 .001 .007
F-Statistic 27.10** 22.64** 21.96**
p < .10.
* p < .05.
a
A 4.2: Additional Results for Hypothesis One (continued)
Table A 4.2.2 Regressions of Intangible Resources on Propensity to Internationalizea

(Three Year Change of Degree of Internationalization)
Variable 1 2 3 4 5 6 7
1. Intercept -.195 -.201 -.314 -.163 -.173 -.189 -.275
(-.98) (-.95) (-1.56) (-.83) (-.87) (-.94) (-1.23)
2. Size_ln .014 .014 .017 .015 .002 .013 .004
(.59) (.59) (.75) (.64) (.06) (.53) (.16)
3. Product Div. -.017 -.017 -.032 -.017 -.017 -.017 -.033
(-.92) (-.92) (-1.67) (-.90) (-.90) (-.91) (-1.73)
4. Leverage .421* .426* .550** .402* .445* .417* .577**
(2.06) (2.00) (2.66) (1.98) (2.18) (2.03) (2.65)
5. I1: Manufacturing -.101 -.101 -.099 -.100 -.099 -.099 -.096
(-1.29) (-1.28) (-1.28) (-1.29) (-1.27) (-1.26) (-1.24)
6. I2: Service .278* .278* .252* .312** .280* .279* .288*
(2.36) (2.35) (2.16) (2.64) (2.38) (2.36) (2.47)
7. R&D .072 .153
(.08) (.16)
8. ADV 2.58** 2.99**
(2.78) (3.18)
9. CONT -.896* -.919*
(-2.27) (-2.30)
10. TMT_INT .206 .211*
(1.73) (1.74)
11. TMT_ACD .040 .082
(.18) (.36)
R2 .075 .075 .102 .093 .084 .075 .136

Adjusted R2 .056 .052 .081 .072 .062 .053 .101
' R2 .000 .027 .018 .009 .000 .061
F-statistic 4.05** 3.36** 4.75** 4.29** 3.84** 3.37** 3.88**
p < .10.
* p < .05.
a
A 4.2: Additional Results for Hypothesis One (continued)
Table A 4.2.3 Regressions of Intangible Resources on Propensity to Internationalizea

(Five Year Change of Degree of Internationalization)
Variable 1 2 3 4 5 6 7
1. Intercept -.397 -.545 -1.20 -.383 -.348 -.184 -.913
(-.43) (-.55) (-1.49) (-.41) (-.38) (-.20) (-1.01)
2. Size_ln -.082 -.081 -.013 -.083 -.132 -.114 -.109
(-.72) (-.70) (-.13) (-.71) (-1.12) (-.97) (-1.01)
3. Product Div. -.073 -.074 -.176* -.074 -.068 -.064 -.161*
(-.90) (-.90) (-2.40) (-.89) (-.84) (-.79) (-2.21)
4. Leverage 2.88* 3.03* 3.14** 2.88* 2.97* 2.72* 3.09**
(2.59) (2.59) (3.26) (2.57) (2.70) (2.44) (3.13)
5. I1: Manufacturing -.233 -.259 -.269 -.236 -.249 -.207 -.277
(-.67) (-.73) (-.90) (-.67) (-.73) (-.60) (-.92)
6. I2: Service .988 .985 .683 .980 1.010 1.011 .713
(1.71) (1.70) (1.37) (.67) (1.77) (1.76) (1.43)
7. R&D 1.83 .694
(.41) (.17)
8. ADV 16.98** 17.06**
(5.05) (5.12)
9. CONT -.164 -.470
(-.08) (-.28)
10. TMT_INT .911 1.06
(1.75) (1.97)
11. TMT_ACD 1.23 1.49
(1.23) (1.69)
R2 .187 .189 .404 .187 .217 .204 .462

Adjusted R2 .129 .119 .353 .117 .150 .136 .380
' R2 .002 .207 .000 .030 .017 .275
F-statistic 3.26* 2.71* 7.90** 2.68* 3.23** 2.99* 5.66**
p < .10.
* p < .05.
a
A 4.3: Additional Results for Hypothesis Two
Table A 4.3.1 Regression of Intangible Resources on Scope of Internationalizationa

(Dispersion of International Sales) - TQ
Variable 1 2 3
1. Intercept .431** .398** .452**
(12.66) (11.06) (9.62)
2. Size_ln .028** .027** .026**
(6.97) (6.87) (6.16)
3. Product Div. -.001 -.002 -.003
(-.35) (-.46) (-.69)
4. Leverage -.147** -.120** -.131**
(-4.16) (-3.27) (-3.40)
5. I1: Manufacturing .167** .167** .158**
(11.86) (11.88) (10.82)
6. I2: Service -.008 -.014 -.040
(-.37) (-.70) (-1.81)
7. Tobins q .017*
(2.60)
8. Hedonic q .005
(.24)
R2 .344 .352 .345

Adjusted R2 .338 .344 .337
' R2 .008 .001
F-Statistic 56.64** 48.82** 44.30**
p < .10.
* p < .05.
a
A 4.4: Additional Results for Hypothesis Three
Table A 4.4.1 Regression of Intangible Resources on Scope of Expansiona

(Three Year Change of Dispersion of Foreign Sales)
Variable 1 2 3 4 5 6 7
1. Intercept .191 .053 .260 .215 .247 .196 .170
(1.00) (.26) (1.30) (1.12) (1.26) (1.02) (.76)
2. Size_ln .045* .047* .044 .047* .039 .041 .043
(1.98) (2.07) (1.90) (2.07) (1.65) (1.71) (1.67)
3. Product Div. -.025 -.027 -.019 -.026 -.025 -.025 -.023
(-1.38) (-1.46) (-.99) (-1.39) (-1.39) (-1.38) (-1.20)
4. Leverage -.209 -.093 -.269 -.242 -.244 -.196 -.199
(-.98) (-.43) (-1.23) (-1.14) (-1.14) (-.92) (-.87)
5. I1: Manufacturing .236** .195* .226** .238** .239** .234** .194*
(.3.10) (2.49) (2.96) (3.13) (3.15) (3.07) (2.47)
6. I2: Service .160 .161 .161 .179 .163 .162 .184
(1.36) (1.38) (1.37) (1.52) (1.39) (1.38) (1.57)
7. R&D 1.86 1.93
(1.89) (1.85)
8. ADV -1.49 -.950
(-1.18) (-.74)
9. CONT -.601 -.591
(-1.55) (-1.47)
10. TMT_INT .294 .307
(1.33) (1.36)
11. TMT_ACD .066 -.021
(.53) (-.15)
R2 .054 .069 .060 .064 .062 .056 .091

Adjusted R2 .033 .044 .035 .039 .037 .030 .049
' R2 .015 .005 .010 .008 .002 .037
F-statistic 2.58* 2.77* 2.38* 2.56* 2.45* 2.19* 2.19
p < .10.
* p < .05.
a
A 4.4: Additional Results for Hypothesis Three (continued)

(Five Year Change of Dispersion of Foreign Sales)
Variable 1 2 3 4 5 6 7
1. Intercept .109 -.108 .096 .019 .101 .119 -.256
(.30) (-.26) (.24) (.05) (.27) (.33) (-.54)
2. Size_ln .029 .037 .030 .032 .030 .038 .060
(.63) (.79) (.63) (.69) (.64) (.79) (1.13)
3. Product Div. -.038 -.044 -.038 -.036 -.037 -.038 -.046
(-1.12) (-1.30) (-1.06) (-1.09) (-1.11) (-1.12) (-1.22)
4. Leverage .219 .403 .226 .229 .227 .155 .377
(.45) (.79) (.45) (.47) (.46) (.31) (.70)
5. I1: Manufacturing .240 .180 .242 .261 .240 .252 .205
(1.73) (1.22) (1.70) (1.88) (1.71) (1.79) (1.34)
6. I2: Service .147 .133 .149 .194 .146 .136 .146
(.64) (.59) (.64) (.85) (.64) (.59) (.62)
7. R&D 2.41 2.96
(1.16) (1.29)
8. ADV .255 .295
(.07) (.08)
9. CONT .982 .780
(1.33) (1.00)
10. TMT_INT -.042 -.170
(-.10) (-.40)
11. TMT_ACD -.147 -.263
(-.62) (-.97)
R2 .072 .093 .073 .099 .073 .078 .130

Adjusted R2 .000 .001 .000 .008 .000 .000 .000
' R2 .021 .001 .027 .001 .006 .058
F-statistic .94 1.01 .77 1.08 .77 .84 .83
p < .10.
* p < .05.
a

(Two Year Change of Dispersion of Total Sales)
Variable 1 2 3 4 5 6 7
1. Intercept .158 .126 .205 .159 .205 .166 .267
(1.02) (.77) (1.29) (1.02) (1.31) (1.06) (1.51)
2. Size_ln .016 .016 .013 .016 .008 .012 -.001
(.87) (.87) (.73) (.87) (.44) (.62) (-.07)
3. Product Div. -.014 -.014 -.009 -.014 -.012 -.013 -.007
(-.91) (-.91) (-.58) (-.91) (-.83) (-.89) (-.45)
4. Leverage .175 .203 .148 .175 .144 .180 .122
(1.10) (1.22) (.92) (1.09) (.90) (1.13) (.72)
5. I1: Manufacturing .168** .162* .166** .168** .176** .169** .175**
(2.69) (2.54) (2.66) (2.69) (2.82) (2.70) (2.74)
6. I2: Service .015 .017 .018 .016 .025 .015 .025
(.16) (.18) (.19) (.17) (.27) (.16) (.27)
7. R&D .415 -.011
(.57) (-.01)
8. ADV -.973 -.977
(-1.28) (-1.26)
9. CONT -.017 .107
(-.05) (.30)
10. TMT_INT .270 .320
(1.44) (1.68)
11. TMT_ACD .066 .101
(.67) (.94)
R2 .035 .036 .040 .035 .042 .037 .052

Adjusted R2 .022 .020 .023 .019 .025 .030 .024
' R2 .001 .005 .000 .007 .002 .017
F-statistic 2.55* 2.18* 2.41* 2.12* 2.48* 2.20* 1.86
p < .10.
* p < .05.
a

(Three Year Change of Dispersion of Total Sales)
Variable 1 2 3 4 5 6 7
1. Intercept .019 .020 .088 .021 .074 .022 .207
(.10) (.10) (.46) (.11) (.39) (.12) (.97)
2. Size_ln .025 .025 .023 .025 .016 .023 .008
(1.13) (1.13) (1.03) (1.12) (.71) (.98) (.32)
3. Product Div. -.013 -.013 -.005 -.013 -.012 -.013 -.003
(-.77) (-.77) (-.26) (-.77) (-.69) (-.76) (-.17)
4. Leverage .218 .216 .142 .216 .183 .222 .072
(1.14) (1.08) (.73) (1.13) (.96) (1.16) (.35)
5. I1: Manufacturing .188* .188* .187** .188* .198** .188* .206**
(2.57) (2.54) (2.56) (2.57) (2.71) (2.57) (2.77)
6. I2: Service .160 .160 .175 .162 .171 .160 .182
(1.45) (1.44) (1.59) (1.46) (1.55) (1.45) (1.63)
7. R&D -.024 -.585
(-.03) (-.62)
8. ADV -1.51 -1.59
(1.72) (-1.78)
9. CONT -.058 .075
(-.16) (.20)
10. TMT_INT .348 .393
(1.65) (1.81)
11. TMT_ACD .035 .084
(.30) (.64)
R2 .038 .038 .049 .038 .048 .038 .062

Adjusted R2 .019 .015 .026 .015 .025 .015 .024
' R2 .000 .011 .000 .010 .000 .024
F-statistic 1.97 1.64 2.15* 1.64 2.11 1.65 1.63
p < .10.
* p < .05.
a

(Five Year Change of Dispersion of Total Sales)
Variable 1 2 3 4 5 6 7
1. Intercept -.278 -.371 -.177 -.335 -.222 -.278 -.214
(-.83) (-1.02) (-.52) (-.98) (-.65) (-.82) (-.54)
2. Size_ln .067 .068 .058 .068 .058 .067 .050
(1.57) (1.59) (1.37) (1.61) (1.34) (1.52) (1.07)
3. Product Div. -.038 -.039 -.025 -.038 -.036 -.038 -.022
(-1.28) (-1.29) (-.82) (-1.25) (-1.19) (-1.27) (-.70)
4. Leverage .287 .364 .255 .291 .245 .287 .252
(.70) (.86) (.63) (.71) (.59) (.70) (.58)
5. I1: Manufacturing .264* .248 .269* .279* .271* .264* .283*
(2.08) (1.91) (2.13) (2.18) (2.12) (2.06) (2.14)
6. I2: Service .137 .136 .176 .168 .143 .137 .213
(.65) (.64) (.83) (.79) (.68) (.64) (.98)
7. R&D 1.14 .478
(.71) (.26)
8. ADV -2.14 -2.18
(-1.51) (-1.49)
9. CONT .690 .686
(.96) (.93)
10. TMT_INT .328 .316
(.89) (.82)
11. TMT_ACD -.004 .020
(-.02) (.09)
R2 .113 .120 .141 .125 .123 .113 .165

Adjusted R2 .051 .044 .068 .050 .048 .037 .039
' R2 .007 .028 .012 .010 .000 .052
F-statistic 1.82 1.59 1.92 1.66 1.64 1.49 1.31
p < .10.
* p < .05.
a
256
A 4.5: Additional Results for Hypothesis Four
Table A 4.5.1 Speed of Expansion Descriptive Statistics and Correlations (N = 789)
Variables Mean S. D. 1 2 3 4 5 6 7 8 9
1. ROA .047 .096
2. FSTS .517 .235 .15**
3. 'FSTS_past2years .014 .090 -.04 .17**
4. 'FSTS_past3years .029 .113 -.09 .19** .71**
5. 'FSTS_past5years .044 .100 -.14 .12 .47** .49**
6. Size_ln 8.63 1.86 .15** .34** -.02 -.07 .03
7. Product Div. 4.54 2.14 .08* .22** -.11* -.13* -.05 .58**
8. Leverage .606 .177 -.30** .06 -.01 .04 -.07 .39** .28**
9. I1: Manufacturing .581 .494 .12** .32** -.05 -.05 -.08 .12** .19** .13**
10. I2: Service .216 .411 -.15** -.42** .04 .06 .00 -.39** -.37** -.25** -.62**
Notes:
'FSTS_past2years: N=475.
p < .10.
* p < .05.
Appendix Chapter 4
A 4.5: Additional Results for Hypothesis Four (continued)
Table A 4.5.2 Moderation of Speed of Expansiona

(Change of Internationalization over Past Three Years)
Variable 1 2 3 4
1. Intercept .125** .105** .085* .086*
(5.21) (2.77) (2.23) (2.24)
2. Size_ln .007* .008** .009** .009**
(2.51) (2.68) (3.10) (3.02)
3. Product Div. .004 .004 .003 .003
(1.78) (1.65) (1.50) (1.50)
4. Leverage -.240** -.242** -.253** -.250**
(-9.97) (-9.96) (-10.33) (-10.20)
5. I1: Manufacturing .007 .010 .009 .008
(.81) (1.06) (.96) (.87)
6. I2: Service .001 .000 .001 .001
(.09) (.04) (.05) (.05)
'FSTS_past3years -.057 -.050 -.029 .001
(-1.67) (-1.41) (-.79) (.02)
8. 'FSTS_past3years (squared) .236* .228* -.017 -.019
(2.29) (2.22) (-.12) (-.14)
9. FSTS .217 .304 .287
(1.04) (1.44) (1.36)
10. FSTS (squared) -.579 -.679 -.637
(-1.29) (-1.52) (-1.43)
11. FSTS (cubic) .405 .426 .401
(1.38) (1.46) (1.38)
12. FSTS* .523* .588**
13. FSTS* -.644
'FSTS_past3years (squared) (-1.22)
R2 .245 .251 .266 .269

Adjusted R2 .229 .229 .241 .243
' R2 .006 .021 .024
F-statistic 15.41** 11.08** 10.84** 10.07**
p < .10.
* p < .05.
a
A 4.5: Additional Results for Hypothesis Four (continued)
Table A 4.5.3 Moderation of Speed of Expansiona

(Change of Internationalization over Past Five Years)
Variable 1 2 3 4

1. Intercept .070 .115 .080 .081
(1.88) (1.85) (1.23) (1.25)
2. Size_ln .008 .007 .009 .009
(1.84) (1.47) (1.85) (1.93)
3. Product Div. .002 .001 .001 .001
(.43) (.37) (.35) (.27)
4. Leverage -.137** -.131** -.139** -.145**
(-3.20) (-2.97) (-3.15) (-3.23)
5. I1: Manufacturing .000 .000 .001 .003
(.02) (.01) (.08) (.22)
6. I2: Service .013 .010 .012 .014
(.66) (.52) (.63) (.72)
'FSTS_past5years -.117 -.117 -.069 -.100
(-1.82) (-1.76) (-.95) (-1.21)
8. 'FSTS_past5years (squared) .180 .201 -.033 .076
(.67) (.74) (-.11) (.22)
9. FSTS -.220 -.102 -.090
(-.63) (-.29) (-.25)
10. FSTS (squared) .307 .147 .099
(.41) (.19) (.13)
11. FSTS (cubic) -.102 -.056 -.021
(-.21) (-.11) (-.04)
12. FSTS* .595 .474
13. FSTS* 1.62
'FSTS_past5years (squared) (.79)
R2 .133 .149 .175 .181

Adjusted R2 .066 .052 .069 .065
' R2 .016 .042 .048
F-statictic 1.97 1.53 1.66 1.56
p < .10.
* p < .05.
a
A 4.6: Additional Results for Hypothesis Five
Table A 4.6.1 Moderation of Scope of Expansiona on

Change of ROAb over Three Years (N = 241)
(Three Year Change of Dispersion of Foreign Sales)
Variable 1 2 3 4 5 6 7 8
1. Intercept .048** .057** .046* .043 .056** .058** .042 .024
(3.60) (2.65) (2.04) (1.95) (2.60) (2.67) (1.80) (1.00)
2. R&D -.231 -.255 -.056 -.175 -.263 -.244 -.262 -.086
(-1.39) (-1.46) (-.27) (-1.00) (-1.51) (-1.37) (-1.50) (-.41)
3. ADV -.183 -.181 -.141 -.024 -.188 -.179 -.147 .004
(-.95) (-.93) (-.72) (-.12) (-.96) (-.91) (-.75) (.02)
4. CONT .054 .057 .053 .064 .133 .056 .059 .124
(.73) (.76) (.71) (.86) (1.44) (.74) (.78) (1.34)
5. TMT_INT .032 .031 .019 .027 .032 .016 .033 .019
(.80) (.77) (.46) (.68) (.79) (.27) (.82) (.34)
6. TMT_ACD -.047* -.049* -.047* -.044 -.049* -.049* -.018 -.017
(-2.07) (-2.08) (-2.04) (-1.91) (-2.10) (-2.10) (-.58) (-.54)
7. FS_Dispersion -.018 -.010 -.005 -.022 -.018 -.007 .004
(-.44) (-.26) (-.12) (-.55) (-.45) (-.18) (.09)
8. 'S.D._FS_3year -.005 -.004 -.011 -.005 -.005 -.004 -.010
(-.37) (-.36) (-.90) (-.40) (-.38) (-.29) (-.78)
9. 'S.D._FS_3year* -.628 -.340
R&D (-1.80) (-.93)
10. 'S.D._FS_3year* -1.74** -1.53*
ADV (-2.73) (-2.36)
11. 'S.D._FS_3year* -.218 -.180
CONT (-1.42) (-1.14)
12. 'S.D._FS_3year* .029 .007
TMT_INT (.36) (.09)
13. 'S.D._FS_3year* -.070 -.063
TMT_ACD (-1.56) (-1.34)
R2 .044 .045 .058 .075 .053 .046 .055 .094

Adjusted R2 .024 .017 .026 .043 .021 .013 .023 .047
' R2 .001 .014 .031 .009 .002 .011 .050
F-statistic 2.16 1.58 1.80 2.35* 1.64 1.39 1.69 1.98*
p < .10.
* p < .05.
a
b
A 4.6: Additional Results for Hypothesis Five (continued)

Change of ROAb over Five Years (N = 72)
(Five Year Change of Dispersion of Foreign Sales)
Variable 1 2 3 4 5 6 7 8
1. Intercept .047* .075* .046 .056 .076* .076* .049 .024
(2.25) (2.10) (1.25) (1.52) (2.12) (2.07) (1.23) (.60)
2. R&D .210 .120 .564 .195 .205 .121 .133 .712*
(.79) (.44) (1.73) (.71) (.70) (.43) (.48) (2.00)
3. ADV -.167 -.107 -.018 .029 -.075 -.107 -.043 .152
(-.62) (-.39) (-.07) (.11) (-.27) (-.39) (-.16) (.55)
4. CONT -.004 -.018 -.070 .003 -.217 -.019 -.032 -.366
(-.03) (-.16) (-.60) (.03) (-.85) (-.16) (-.27) (-1.44)
5. TMT_INT .071 .060 .046 .063 .057 .058 .063 .062
(1.06) (.90) (.71) (.96) (.86) (.60) (.95) (.66)
6. TMT_ACD -.085* -.100** -.096** -.084* -.102** -.100** -.052 -.071
(-2.43) (-2.77) (-2.77) (-2.31) (-2.83) (-2.74) (-1.08) (-1.46)
7. FS_Dispersion -.084 -.057 -.069 -.080 -.085 -.063 -.032
(-1.31) (-.89) (-1.08) (-1.24) (-1.30) (-.96) (-.50)
8. 'S.D._FS_5year .016 .020 -.001 .018 .016 .018 .010
(.81) (1.07) (-.05) (.89) (.81) (.94) (.49)
9. 'S.D._FS_5year* -1.29* -1.17*
R&D (-2.35) (-2.00)
10. 'S.D._FS_5year* -2.46 -1.88
ADV (-1.97) (-1.46)
11. 'S.D._FS_5year* .251 .399
CONT (.88) (1.41)
12. 'S.D._FS_5year* .004 -.031
TMT_INT (.03) (-.24)
13. 'S.D._FS_5year* -.100 -.036
TMT_ACD (-1.46) (-.51)
R2 .107 .141 .211 .191 .152 .141 .169 .269

Adjusted R2 .039 .047 .110 .088 .044 .032 .064 .120
' R2 .034 .104 .084 .045 .034 .062 .162
F-statistic 1.58 1.50 2.10* 1.86 1.41 1.30 1.60 1.81
p < .10.
* p < .05.
a
b

Change of ROAb over Two Years
(Two Year Change of Dispersion of Foreign Sales) - TQ
Tobins q Hedonic q
Variable 1 2 3 4 5 6
1. Intercept .028** .009 .003 ,025 ,005 -.014
(3.45) (.67) (.18) (1.29) (.25) (-.58)
2. Tobins q -.010* -.009 -.006
(-2.02) (-1.93) (-1.02)
3. Hedonic q -,010 -,010 .003
(-.65) (-.69) (.19)
4. FS_Dispersion .050 .054 ,047 .054
(1.78) (1.89) (1.68) (1.91)
5. 'S.D._FS_2year .005 .005 ,011 .019
(.56) (.54) (1.17) (1.79)
6. 'S.D._FS_2year* -.020
Tobins q (-1.60)
7. 'S.D._FS_2year* -.068
Hedonic q (-1.79)
R2 .013 .023 .031 .001 .014 .025

Adjusted R2 .010 .014 .019 .000 .004 .011
' R2 .010 .018 .013 .024
F-statistic 4.10* 2.48 2.50* .42 1.40 1.86
Notes:
Tobins q: N=320, Hedonic q: N=300.
p < .10.
* p < .05.
a
b

Change of ROAb over Three Years
(Three Year Change of Dispersion of Foreign Sales) - TQ
Tobins q Hedonic q
1. Intercept .044** .037* .020 .029 .025 .001
(3.78) (2.10) (1.07) (1.22) (.91) (.03)
2. Tobins q -.017* -.017* -.003
(-2.25) (-2.27) (-.40)
3. Hedonic q -.007 -.006 .011
(-.35) (-.33) (.51)
4. FS_Dispersion .026 .024 .002 .011
(.71) (.65) (.06) (.30)
5. 'S.D._FS_3year -.003 -.003 .006 .015
(-.26) (-.26) (.53) (1.16)
6. 'S.D._FS_3year* -.049**
Tobins q (-2.96)
7. 'S.D._FS_3year* -.079
Hedonic q (-1.70)
R2 .022 .024 .060 .001 .002 .015

Adjusted R2 .017 .011 .044 .000 .000 .000
' R2 .002 .038 .001 .014
F-statistic 5.07* 1.88 3.64** .13 .13 .83
Notes:
p < .10.
* p < .05.
a
b

Change of ROAb over Five Years
(Five Year Change of Dispersion of Foreign Sales) - TQ
Tobins q Hedonic q
1. Intercept .041* .046 .015 .003 .011 .028
(2.02) (1.51) (.48) (.10) (.25) (.62)
2. Tobins q -.013 -.011 .014
(-1.02) (-.88) (.96)
3. Hedonic q .020 .023 .011
(.76) (.84) (.39)
4. FS_Dispersion -.038 -.056 -.064 -.074
(-.62) (-.95) (-1.08) (-1.24)
5. 'S.D._FS_3year .011 .004 .023 .015
(.52) (.19) (1.22) (.75)
6. 'S.D._FS_3year* -.082**
Tobins q (-3.08)
7. 'S.D._FS_3year* .082
Hedonic q (1.03)
R2 .015 .026 .152 .009 .054 .071

Adjusted R2 .000 .000 .099 .000 .008 .009
' R2 .011 .137 .045 .062
F-statistic 1.03 .59 2.88* .57 1.17 1.14
Notes:
p < .10.
* p < .05.
a
b

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Internationalization and Firm Performance

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Mario Krist

With a foreword by Prof. Dr. Andreas Bausch

GABLER EDITION WISSENSCHAFT

Dissertation Jacobs University Bremen, 2008

1st Edition 2009

No part of this publication may be reproduced, stored in a retrieval system

Erhard and Anna

Overall, with this thesis Mario Krist significantly contributes to a comprehensive

Prof. Dr. Andreas Bausch

Finally, internationalization has unclosed to me the kind of relationship it has

2.7 Implications for Future Research 53

3.8 Implications for Future Research 116

Table 2.1 Summary of Primary Studies 37

Table 3.1 Selected Empirical Studies on the Relationship between

Table 4.1 Regional Dispersion of International Sales 143

Table 5.1 Summary of Hypotheses Pertaining to the Role

Figure 2.1 Criteria for Moderator Variables of the Meta-Analysis 28

Figure 3.1 Sigmoid Internationalization-Performance Relationship 80

Figure 4.1 Research Framework with Intangible Resources and

Figure 5.1 Mobility of Intangible Resources in the Context

1.1 Internationalization and Firm Performance

The heterogeneity of empirical results on different types of curves, effect sizes,

The current state of research on the internationalization-performance relationship

examine the relationship between internationalization and performance (e.g. Kumar,

This piece of research incorporates the remarks of Grant as it seeks to make a

1.2 Definition of Key Terms

In the literature there are many different approaches to a definition of multina-

My definition of performance as the outcome variable is firm financial perform-

As in other fields of research, a variety of competing terminologies exists.

1.3 Scientific Approach

Two basic scientific principles serve as guiding paradigms in the following

1.4 Course of Work

1.5 Universality or Context Dependence

The meta-analytical survey in chapter two consequently addresses two major

is among the first to introduce the method of meta-analysis to international business

Knowledge about the direction, magnitude, and moderators of the internationali-

1.6 Curve Type and the Role of Intangible Resources

Yet it is challenged by empirical research that doubts a universally applicable

Based on a sample of German firms with n = 789 observations I investigate how

This study contributes to the literature as it will introduce a novel approach of

derive how each of them moderates the internationalization-performance relationship.

Figure 1.2 Theoretical Model for Moderator Analysis of Intangible Resources

Hedonic q TMT International

1.7 Intangible Resources the Internationalization Process

As a consequence this study introduces a dynamic perspective and takes a closer

The study contributes to the literature on internationalization and performance in

The key objective of this study is to illuminate further the internationalization-

Figure 1.3 Theoretical Model of Intangible Resources the Internationalization

Market ' Int = I(t=n) I(t=0)

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Hahn, D. and Hungenberg, H. (2001) PuK, Wertorientierte Controllingkonzepte: Planung und

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Kaufmann, L. and Schneider, Y. (2004) 'Intangibles: A Synthesis of Current Research', Journal of

Peteraf, M.A. (1993) 'The Cornerstones of Competitive Advantage: A Resource-Based View',

Qian, G. (2002) 'Multinationality, Product Diversification, and Profitability of Emerging US Small-

Ramaswamy, K. (1992) 'Multinationality and Performance: A Synthesis and Redirection', Advances

Rousseau, D.M. (2007) 'Educating Managers from an Evidence-Based Perspective', Academy of

Ruigrok, W., Amann, W. and Wagner, H. (2007) 'The Internationalization-Performance Relationship

Ruigrok, W. and Wagner, H. (2003) 'Internationalization and Performance: An Organizational

Ruigrok, W. and Wagner, H. (2004) 'Internationalization and Firm Performance: Meta-analytic