2.2. Empirical Review
The studies on global expansion have used various methodologies, variables, measurements, and have found the controversial results. Furthermore, they mainly focus on the common questions whether internationalization stimulates or discourages the performances of IFs. However, this appears to raise even more questions because these studies did not take account into the existence of moderating effects which can have both direct and indirect influences on DOI and firm performance.
Recently, several studies have used various moderating factors as an effective tool to fully investigate this relationship from different perspectives. For instance, they have investigated internal and external competitive advantages (
Bobillo et al. 2010), organizational slacks, and attainment discrepancy from the perspective of firm behavior (
Lin et al. 2011).
Bobillo et al. (
2010) found an S-shaped relationship between the international diversification and firm performance under the moderating effects of internal and external capabilities. The Worldscope database provides more than 1500 manufacturing firms’ financial statements from 1991 to 2001 in five various EU countries to form a panel data of more than 15,000 observations. DOI (measured as the ratio of foreign sale to total sale) and other control variables, such as size (measured by the taking the logarithm of total employees), and ownership (measured by insiders’ shareholdings) were added in the regression model. Moreover, the study attempted to capture the effects of internationalization on performance across three different stages using the following quadratic and cubic regression models.
In their conclusion,
Bobillo et al. (
2010) found that firm performance varies in different directions as the internationalization degree moves upward. The initially negative impact on performance may be caused by higher transaction costs, greater burden from more complicated governance structure, as well as the urgent demand to adopt market knowledge and technology. However, the downward or upward trends of performance toward DOI also depend on internal and external factors at both the firm level and country level. In the implications, they believed that the firm could only succeed in their internationalization strategy once they are able to take advantage of their capabilities, which are in favor of the country’s institutional factors, such as the financial system and labor market.
Pangarkar (
2008) measured the effects of degree of internationalization on the performance of listed SMEs in Singapore in 2004 using the OLS method. He used the lagged value of the internationalization degree in 2013 as a predictor to explain the firm performance that was determined in 2004. The degree of internationalization is primarily determined by the sale expansion over the foreign market, which is measured as the ratio of the foreign sale to total sale. The sample included 94 completed questionnaires that followed the Likert scale and was obtained in the mid-2005. The control variables, such as firm size, capabilities, and host market attractiveness, are added to the regression equation as follows
Finally, he found a positive linear relationship between DOI and firm performance. The study also discovered that Singapore firms have more incentives to get involved in international markets due to insufficient local markets. However, the problem is how they can cooperate with each other to conquer their common barriers and develop their capabilities (
Pangarkar 2008).
From the perspective of firm behavior,
Lin et al. (
2011) conducted the fixed effect analysis on the sample of 179 high-tech listed firms in Taiwan for the period of 2000 to 2005. They primarily focused on the moderating effects of organizational slacks and attainment discrepancy. Furthermore, they added firm size, firm age, insider shareholding, diversifications, and R&D intensity as the control variables.
Furthermore, they found that internationalization negatively affects the firm performance while a significant S-shaped relationship was not found. More importantly, the effect of internationalization on performance is enhanced for the firms with a higher level of both types of organizational slacks.
Positioning slacks as a strategic resource for internationalization process,
Tan (
2003) conducted the empirical studies on the longitudinal data set of more than 17,000 large and medium state-owned enterprises in China from 1995 to 1996 to investigate the contribution of slacks on IF’s performance. In order to test the causal relationship between slack and internationalization performance, he applied the lagged model in which lagged ROA is used as predictor. By reviewing many previous researches on how to classify the types of slacks depending on the research purposes, capital depreciation funds and retained earnings were selected to reflex two major sources of slacks among Chinese internationalizing firms. The performance was measured by ROA, which is also the performance proxy in the study of
Lin et al. (
2011). Besides, firm size and firm age were also added as control variables. Finally, he found that firm performance is improved by higher level slacks. In order to explain for this, he discussed that once IFs possess abundant slacks, they are more willing to invest on higher-risk markets which are expected to bring higher returns. Moreover, by higher level of slack resources, they also have more capability to manage the risks and maintain their competitiveness in the long-run survival.
To further complicate the issue,
Daniel et al. (
2004) conducted the meta-analysis on 80 samples from 66 studies from 1991 to 2000. From these previous empirical studies, slacks were differently classified, but the most common classification of slacks includes available, recoverable, and potential slacks. In addition, there are many controversies on whether we should consider slacks as a resource—a positive impact on performance or inefficiency of resource allocation and a negative impact on performance (
Glaum and Oesterle 2007). The recent finding is that different types of slacks have various impacts on performance. By calculating the mean correlation and variance of the combined studies,
Daniel et al. (
2004) used them for testing the relationship between slack and internationalization performance. In their findings,
Daniel et al. (
2004) emphasized the contribution of organizational slacks on firm performance by dealing with both internal and external obstacles.
Lin et al. (
2011) attempted to discover the moderating role of organizational slacks on a firm’s internationalization performance. Under the perspective of firm behavior, the research defined slack resources based on the flexibility for use and used the financial indicators to estimate. The proxies for these two types of slacks—high-discretion slack and low-discretion slack are calculated as current assets to current liabilities ratio and equity to debt ratio, respectively. This work appeared to be the extended work of their study in 2009 when they had already researched how organizational slacks affect the degree of internationalization for the same sample and the same defined types of organizational slacks. Using the general linear squares (GLS) random-effect model,
Lin et al. (
2009) found a U-shaped relationship between high-discretion slack and DOI while low-discretion slacks play as a facilitator for firms to internalize all of the time. However,
Lin et al. (
2011) not only considered organizational slacks as their direct contributions to firm performance or DOI, but also their moderating effect on enhancing the relationship between internationalization degree and firm performance. Also, a wide range of control variables were added to the model such as firm size, firm age, insider shareholding, degree of diversification, and R&D intensity.
The finding reinforced for the theory of
Bourgeois (
1981) that the abundant resources of slacks in both kinds of high-discretion and low-discretion will encourage the top management to launch new chances, specifically to enter new foreign markets. Moreover, the organizational slack is also one of important sources of the performance improvement due to its capability to support the firm overcome the bad times as well as the uncertainties during international expansion process.