1. 20-Nov-09
The impact of size on
internationalization success
Romain • Benedict • Alvin • Melvin • Kendrick
Background Hypothesis Model Results
1
Objective & Relevance
Objective
1 Evaluating the significance of firm size in successful
internationalization of Singaporean firms.
2 Identifying the determinants for internationalization
success
Relevance
1 Challenging a common wisdom: size matters in
internationalization
2 New Context: Advancing the debate on determinants of
internationalization success with an Asian-based study
3 Dominance of Business Groups in Asia: Most companies
with international operations tend to belong to larger
business group
Background
Background Hypothesis Model Results
2
1
2. 20-Nov-09
Firm Size & Internationalization
« One of the most widely analyzed relationship »
(Bonaccorsi 1992)
Little consensus
1 Difference in study methodology
2 Difference in the way of measure
Cavusgil 1984:
1 Number of employee : no relationship
2 Sales : strong relationship
Background
Background Hypothesis Model Results
3
Firm Size & Internationalization
Size-Related IB Theoretical
Success Factors Framework
Organizational
Resources
RBV (quality, scale
and scope)
Access to
Supporting
Resources
Firm Size
Risk appetite and
Entry Mode
Commitment
Capacity to
Multi-nationality
manage
and Performance
complexity
Background
Background Hypothesis Model Results
4
2
3. 20-Nov-09
Firm Size & Internationalization
• « the larger the business
the more likely it is to
export » Gertner, 1987
• « Size does not affect the
• Porter 1986: « big firms • Focus only on export firm’s interest in exporting
have a competitive (Gertner 1987) » Swiercz 1991
advantage in the
internationalization • « Size is an important
process » factor when the firm is very
• Focus on one kind of firm small » Cavusgil 1976
• A positive correlation is (Holzmuller and Kasper
often taken as granted. 1991)
• « Size has an indirect
effect on the firm
propensity to export in the
case of the medium and
large companies » Casper
1991
False past Missing Different
assumption research results
Background
Background Hypothesis Model Results
5
Data: Asian Sample
Sample Europe (1) Europe (1)
Region Sweden and Italy (4)
Denmark (1) Austria (1)
Italy
UK(2)
Europe (2)
USA (6)
North
America Canada (1) Canada (1)
India(1)
Asia Japan
(1)
Time
1975 2009
Background
Background Hypothesis Model Results
6
3
4. 20-Nov-09
Data: Asian Sample
End two decades of inconsistency
1 Using both kind of measures for the size of the firm (sales and number of employees)
2 « internationalization success » with FSTS method (Click and Harison, 2000)
3 Analysing all kind of firms: small and big in a sample from Singapore
Background
Background Hypothesis Model Results
7
Framework
Solving the puzzle
Method Hypotheses
1
The bigger the firm, the
Full Sample Regression
higher is its probabiliy to
Does firm size matter succeed internationally
to
2 Comparative Analysis
internationalization Firm size matters up to a
success? certain point but not for
3 Subsample Regression others
Background Hypothesis Model Results
Results
8
4
5. 20-Nov-09
Hypotheses
Type of Relationship Expected Outcome Results
Continuous The bigger the firm, the higher is its
?
Positive Linear probabiliy to succeed internationally
Discontinuous Firm size matters up to a certain point
?
Curvilinear but not for others
Background Hypothesis
Hypothesis Model Results
The Model
Dependent Variable Independent Variable Control Variables
Alternative
Internationalization
success = Size + Explanatory
Variables
International Sales Total Sales
Total Sales Total Employees
Background Hypothesis Model
Model Results
5
6. 20-Nov-09
Control Variables
Numerical Variables Measure References
Business Experience Age of the firm Majocchi (2005)
International Experience Number of international Ekeledo & Sivakumar (2003)
markets
Performance Return on Assets (ROA) Gomes & Ramaswamy (1999)
Physical Proximity Straight line distance Gertner (2006)
Cultural Distance Hofstede’s CDI Thirkell & Dau (1998)
Dummy Variable Measure References
Industry Sector Binomial Categorization Grøgaard (2005)
Background Hypothesis Model
Model Results
Framework
Solving the puzzle
1 Full Sample Regression
• Two measures of firm size are used: Total
Sales and Total number of Employees
• All data points are included in the regression
Does firm size matter 2 Comparative Analysis
to • Reviewing internationalization success in
internationalization each sample group – by size
success? • Both definitions of firm size were reviewed
3 Subsample Regression
• Sample is divided by groups depending on
size (<10mil, 10-100 mil, >100mil)
• Both definitions of firm size are reviewed,
Background Hypothesis Model Results
Results
12
6
7. 20-Nov-09
The Model – Total Sales
Independent Variables Model 2 Model 3 Model 4 Model 5 Model 6 Model 7 Model 8
Total Sales
Age of Firm
Number of Markets
Return on Assets
Cultural Distance
Physical Distance
Industry Type
Background Hypothesis Model
Model Results
The Model – Total Employees
Independent Variables Model 2 Model 3 Model 4 Model 5 Model 6 Model 7 Model 8
Total Employees
Age of Firm
Number of Markets
Return on Assets
Cultural Distance
Physical Distance
Industry Type
Background Hypothesis Model
Model Results
7
8. 20-Nov-09
Data
OneSource Database Over 600,000 companies globally
Source Company Websites
Sampling The sample size of 272 companies was
randomly selected from a population of
Technique Singapore incorporated companies.
Initial Total Number of Companies 272
Incomplete Data 39
Sample Outliers (across various fields) 27
Final Complete data points 206
Sample
Background Hypothesis Model
Model Results
15
Data
Int'l
Firm's CEO's # of Cultural Physical # of
Sales/Total ROA Total Sales
Age Age Markets Distance Proximity Employees
Sales
Mean 54% 31.54 51.49 5.08 $0.00 $849,150 1.12 2,954.09 2,734.87
Min 0% 4.00 39.00 1.00 -$0.91 $347 - - -
188.0
Max 100% 0 68.00 51.00 $0.41 $29,145,190 19.49 14,767.24 45,000.00
Background Hypothesis Model
Model Results
16
8
9. 20-Nov-09
Summary of Results
Variables Model 1 Model 2 Model 3 Model 4 Model 5 Model 6 Model 7 Control
TotalSales
-0.004 0.001 0.073 0.076 0.064 0.058 0.055
-0.070 0.012 1.065 1.123 0.942 0.827 0.786
FirmAge
0.006 0.004 -0.042 -0.044 -0.056 -0.049 0.05
0.095 0.066 -0.614 -0.654 -0.818 -0.700 0.90
Markets
0.135** 0.128** 0.215** 0.212** 0.228** 0.133**
2.268 2.161 3.153 3.113 3.348 2.258
RoA
-0.065 -0.072 -0.141** -0.139** -0.55
-1.097 -1.208 -2.055 -2.028 -0.944
CulturalDistance
-0.024 -0.034 0.078 -0.27
-0.393 -0.569 1.144 -0.446
PhysicalDistance
0.513** 0.524** 0.517**
8.256 8.472 8.462
Industry
0.083 0.087
1.404 1.482
Adjusted R-Square 0.308 0.304 0.059 0.058 0.044 0.04 0.02 0.313
Firm Size is not a • Number of markets is a consistently significant variable
significant variable • RoA and Physical Distance are also statistically significant
Background Hypothesis Model Results
Results 17
Summary of Results
Variables Model 1 Model 2 Model 3 Model 4 Model 5 Model 6 Model 7 Model 8
Employees 0.048 0.054 0.147** 2.136 0.131* 0.121* 0.117*
0.803 0.907 2.173 0.034 1.925 1.733 1.691
FirmAge 0.008 0.006 -0.042 -0.662 -0.058 -0.051 0.05
0.130 0.110 -0.623 0.509 -0.847 -0.726 0.90
Markets 0.135** 0.129** 0.217** 3.158 0.230** 0.133**
2.273 2.178 3.205 0.002 3.393 2.258
RoA -0.074 -0.081 -0.144** -2.067 -0.55
-1.251 -1.369 -2.106 0.040 -0.944
CulturalDistance -0.024 -0.033 0.083 -0.27
-0.398 -0.552 1.235 -0.446
PhysicalDistance 0.513** 0.523** 0.517**
8.265 8.479 8.462
Industry 0.075 0.087
1.274 1.482
Adjusted R-Square 0.317 0.315 0.073 0.070 0.055 0.07 0.09 0.313
Firm Size is not a Number of Markets, RoA and Physical Distance are
significant variable significant variable
Background Hypothesis Model Results
Results 18
9
10. 20-Nov-09
Framework
Solving the puzzle
1 Full Sample Regression
• Two measures of firm size are used: Total
Sales and Total number of Employees
• All data points are included in the regression
Does firm size matter 2 Comparative Analysis
to • Reviewing internationalization success in
internationalization each sample group – by size
success? • Both definitions of firm size were reviewed
3 Subsample Regression
• Sample is divided by groups depending on
size (<10mil, 10-100 mil, >100mil)
• Both definitions of firm size are reviewed,
Background Hypothesis Model Results
Results
19
Further Analysis
Number of international markets - secondary measure of internationalization success
Sample Breakdown by Total Sales and International Markets
No. of Firms Mean International
Markets
80 7.00
6.10
70 4.20 6.00
4.84
60
5.00
3.78
50 No. of Firms
4.00
40
International Markets
3.00
30
2.00
20
10 1.00
0 0.00
< $30,000 $30,000 - $89,999 $90,000 - $349,999 > $350,000
Total Sales ('000)
Background Hypothesis Model Results
10
11. 20-Nov-09
Why size is not significant?
Possible Explanations
Dynamism is more important in Asia
Lower speed to market
Large Firms Low flexibility
ASIAN
MARKET
Higher speed to market
SMEs High flexibility
The Singapore Case
Strong government support for local firms to internationalize:
• International Enterprise Singapore
• Government Subsidy Schemes
• Trade Networking Groups
Background Hypothesis Model Results
Results
Hypotheses
Type of Relationship Expected Outcome Results
Continuous The bigger the firm, the higher is its
FALSE
Positive Linear probabiliy to succeed internationally
Discontinuous Firm size matters up to a certain point
?
Curvilinear but not for others
Background Hypothesis
Hypothesis Model Results
11
12. 20-Nov-09
Framework
Solving the puzzle
1 Full Sample Regression
• Two measures of firm size are used: Total
Sales and Total number of Employees
• All data points are included in the regression
Does firm size matter 2 Comparative Analysis
to • Reviewing internationalization success in
internationalization each sample group – by size
success? • Both definitions of firm size were reviewed
3 Subsample Regression
• Sample is divided by groups depending on
size (<10mil, 10-100 mil, >100mil)
• Both definitions of firm size are reviewed,
Background Hypothesis Model Results
Results
23
Alternative Model 1 Sales Square
Background Hypothesis Model Results
24
12
13. 20-Nov-09
Alternative Model 1 Sales Square
Background Hypothesis Model Results
25
Alternative Model 1 Sales Square
Scatter plot ALL Scatter plot ex >$1billion
Background Hypothesis Model Results
26
13
14. 20-Nov-09
Further Analysis
Regression by sub-samples
Firm Size Total Sales Total Employees
Total
< 10 mil
** -
Firm Size Total Sales
Employees
10 - 25 mil
- **
< 10 mil ** - 25 - 50 mil
- -
10 - 100 mil - -
>100 mil - **
50 - 75 mil
- -
75 - 100 mil
- -
>100 mil
- **
Background Hypothesis Model Results
Results
27
Further Analysis
Subsample < $10 million
Total Sales is a statistically
significant variable
• Amongst firms with Total Sales <
$10 million, Total Sales is
positively correlated with
Internationalization Success
• RoA (+), Physical Distance (+)
and Industry (-) are statistically
significant as well
Background Hypothesis Model Results 28
14
15. 20-Nov-09
Further Analysis
Subsample > $100 million
Total Employees is a
statistically significant variable
• Amongst firms with Total Sales >
$100 million, Total Employees is
positively correlated with
Internationalization Success
• RoA (-) and Physical Distance (+)
are statistically significant as well
• The negative value of RoA
coefficient is unexpected
Background Hypothesis Model Results 29
Further Analysis
Regression by sub-samples
Firm Size Variable** Explanation
Very Small Total Sales • Costly external financing
• Reliant on internal sources
• Insufficient scale of sales
Middle None • Highly contingent conditions for middle-sized firms
Very Large Total Employees • Both internal and external financing are possible
• Constraint for internationalization would be
managerial resources total number of employees
Background Hypothesis Model Results
Results
30
15
16. 20-Nov-09
Further Analysis
Regression by sub-samples
Internal Retained earnings
Internationalization Financing
Success sources
External Loans, bonds & investments
• Unequal access to financial resources
• Differentiated outcome
Background Hypothesis Model Results
Results
31
Limitations
1. Singapore-only dataset – not representative of the region
2. Missing fields – led to datapoints being dropped
3. Generalizations:
• Markets are defined as regions
• Physical distance are taken as euclidian distance
4. Internationalization success need not be measurable by export intensity
Background Hypothesis Model Results
Results
32
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17. 20-Nov-09
Conclusions
1 Firm size as measured by Total Sales or Total Employees are not statistically
significant factors in influencing internationalization success
• No clear positive linear relationship was observed
• Thus, size should not be a barrier to internationalization (Calof 1994)
2 Firm size, however, seems to have an impact when the firm either too small
or very large, but the significant independent variable differ in the two cases
• Total Sales matters for very small firms
• Total Employees matter for very large firms
Background Hypothesis Model Results
Results
33
The impact of size on
internationalization
Q&A
Background Hypothesis Model Results
34
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