20091031 Mgmt205 Presentation Final

20-Nov-09

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Hypothesis ResultsModelBackground

The impact of size on

internationalization success

Romain • Benedict • Alvin • Melvin • Kendrick

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Objective & Relevance

Objective

Evaluating the significance of firm size in successful

internationalization of Singaporean firms.1

Identifying the determinants for internationalization

success2

Relevance

Challenging a common wisdom: size matters in

internationalization1

New Context: Advancing the debate on determinants of

internationalization success with an Asian-based study2

Background

Dominance of Business Groups in Asia: Most companies

with international operations tend to belong to larger

business group

3

2

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Firm Size & Internationalization

Background

« One of the most widely analyzed relationship » (Bonaccorsi 1992)

Little consensus

1

2

Difference in study methodology

Difference in the way of measure

Cavusgil 1984:

1

2

Number of employee : no relationship

Sales : strong relationship

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Background

Firm Size

Multi-nationality and Performance

Risk appetite and Commitment

Capacity to manage

complexity

Organizational Resources

RBV (quality, scale and scope)

Entry Mode

Size-Related

Success Factors

IB Theoretical

Framework

Access to Supporting Resources

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• Porter 1986: « big firmshave a competitiveadvantage in the internationalizationprocess »

• A positive correlation isoften taken as granted.

False pastassumption

• Focus only on export (Gertner 1987)

• Focus on one kind of firm(Holzmuller and Kasper1991)

Missingresearch

• « the larger the business the more likely it is to export » Gertner, 1987

• « Size does not affect the firm’s interest in exporting» Swiercz 1991

• « Size is an important factor when the firm is verysmall » Cavusgil 1976

• « Size has an indirect effect on the firmpropensity to export in the case of the medium and large companies » Casper 1991

Differentresults


Background 5


Data: Asian Sample

Background

North

America

Europe

USA (6)

1975 2009

Asia

6

Japan

(1)

Denmark (1)

Canada (1)Canada (1)

Time

Sample

Region

UK(2)

India(1)

Italy

(2)

Sweden and Italy (4)Austria (1)

Europe (1) Europe (1)

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Data: Asian Sample

Background

End two decades of inconsistency

1

2

Using both kind of measures for the size of the firm (sales and number of employees)

« internationalization success » with FSTS method (Click and Harison, 2000)

3 Analysing all kind of firms: small and big in a sample from Singapore

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Framework

Results8

Solving the puzzle

1 Full Sample Regression

2 Comparative Analysis

3 Subsample Regression

Does firm size matter

to

internationalization

success?

The bigger the firm, the

higher is its probabiliy to

succeed internationally

Firm size matters up to a

certain point but not for

others

Method Hypotheses

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Hypotheses

Hypothesis

The bigger the firm, the higher is its

probabiliy to succeed internationally

Firm size matters up to a certain point

but not for others

Type of Relationship Expected Outcome

Continuous

Positive Linear

Discontinuous

Curvilinear

Results

?

?


The Model

Internationalization success

SizeAlternative Explanatory

Variables= +

Dependent Variable Independent Variable Control Variables

International Sales

Total Sales

Total Sales

Model

Total Employees

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Control Variables

Model

Numerical Variables Measure References

Business Experience Age of the firm Majocchi (2005)

International Experience Number of international

markets

Ekeledo & Sivakumar (2003)

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)


Framework

Results12

Solving the puzzle


• Two measures of firm size are used: Total Sales and Total number of Employees

• All data points are included in the regression


• Reviewing internationalization success in each sample group – by size

• Both definitions of firm size were reviewed


• Sample is divided by groups depending on size (<10mil, 10-100 mil, >100mil)

• Both definitions of firm size are reviewed,


to


success?

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Hypothesis ResultsModelBackground Model

The Model – Total Sales

Total Sales

Model 2 Model 3 Model 4 Model 5 Model 6

Number of Markets

Return on Assets

Age of Firm

Cultural Distance

Physical Distance

Industry Type

Independent Variables Model 7 Model 8


The Model – Total Employees

Total Employees

Model 2 Model 3 Model 4 Model 5 Model 6

Number of Markets

Return on Assets

Age of Firm

Cultural Distance

Physical Distance

Industry Type

Independent Variables Model 7 Model 8

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Data

Total Number of CompaniesIncomplete DataOutliers (across various fields)

The sample size of 272 companies was randomly selected from a population of Singapore incorporated companies.

Model

Source

Initial

Sample

Final

Sample

Sampling

Technique

OneSource Database Over 600,000 companies globallyCompany Websites

2723927

Complete data points 206

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Data

Model

Int'l Sales/Total

Sales

Firm's Age

CEO's Age

# of Markets

ROA Total SalesCultural Distance

Physical Proximity

# of Employees

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 - - -

Max 100%

188.0

0 68.00 51.00 $0.41 $29,145,190 19.49 14,767.24 45,000.00

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Summary of Results

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Variables Model 1 Model 2 Model 3 Model 4 Model 5 Model 6 Model 7 ControlTotalSales -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 0.786FirmAge 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 0.90Markets 0.135** 0.128** 0.215** 0.212** 0.228** 0.133**

2.268 2.161 3.153 3.113 3.348 2.258RoA -0.065 -0.072 -0.141** -0.139** -0.55

-1.097 -1.208 -2.055 -2.028 -0.944CulturalDistance -0.024 -0.034 0.078 -0.27

-0.393 -0.569 1.144 -0.446PhysicalDistance 0.513** 0.524** 0.517**

8.256 8.472 8.462Industry 0.083 0.087

1.404 1.482

Firm Size is not a

significant variable

Results

• Number of markets is a consistently significant variable • RoA and Physical Distance are also statistically significant

0.3130.308 0.304 0.059 0.058 0.044 0.04 0.02Adjusted R-Square


Summary of Results

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Variables Model 1 Model 2 Model 3 Model 4 Model 5 Model 6 Model 7 Model 8Employees 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 1.691FirmAge 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 0.90Markets 0.135** 0.129** 0.217** 3.158 0.230** 0.133**

2.273 2.178 3.205 0.002 3.393 2.258RoA -0.074 -0.081 -0.144** -2.067 -0.55

-1.251 -1.369 -2.106 0.040 -0.944CulturalDistance -0.024 -0.033 0.083 -0.27

-0.398 -0.552 1.235 -0.446PhysicalDistance 0.513** 0.523** 0.517**

8.265 8.479 8.462Industry 0.075 0.087

1.274 1.482

Firm Size is not a


Number of Markets, RoA and Physical Distance are


Results

0.3130.317 0.315 0.073 0.070 0.055 0.07 0.09Adjusted R-Square

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Framework

Results19

Solving the puzzle











to


success?


Further Analysis

3.78

4.84

6.10

4.20

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

0

10

20

30

40

50

60

70

80

< $30,000 $30,000 - $89,999 $90,000 - $349,999 > $350,000

Mean International Markets

No. of Firms

Total Sales ('000)

Sample Breakdown by Total Sales and International Markets

No. of Firms

International Markets

Number of international markets - secondary measure of internationalization success

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Why size is not significant?

Results

SMEs

Large Firms

High flexibility

Low flexibilityASIAN

MARKET

Lower speed to market

Higher speed to market

Dynamism is more important in Asia

Possible Explanations

The Singapore Case

Strong government support for local firms to internationalize:

• International Enterprise Singapore

• Government Subsidy Schemes

• Trade Networking Groups


Hypotheses

Hypothesis

The bigger the firm, the higher is its

probabiliy to succeed internationally

Firm size matters up to a certain point

but not for others

Type of Relationship Expected Outcome

Continuous

Positive Linear

Discontinuous

Curvilinear

Results

FALSE

?

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Framework

Results23

Solving the puzzle











to


success?


Alternative Model 1 Sales Square

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25



26

Scatter plot ALL Scatter plot ex >$1billion

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Further Analysis

Results27

Regression by sub-samples

Firm Size Total SalesTotal Employees

< 10 mil ** -10 - 100 mil - -

>100 mil - **

Firm Size Total Sales Total Employees

< 10 mil ** -10 - 25 mil - **25 - 50 mil - -50 - 75 mil - -

75 - 100 mil - ->100 mil - **

Hypothesis ResultsModelBackground 28

Further Analysis

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

Subsample < $10 million

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Hypothesis ResultsModelBackground 29

Further Analysis

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 RoAcoefficient is unexpected

Subsample > $100 million


Further Analysis

Results30


Very Small

Middle

Very Large

Total Sales

Total Employees

None

Firm Size Variable** Explanation

• Costly external financing

• Reliant on internal sources

• Insufficient scale of sales

• Highly contingent conditions for middle-sized firms

• Both internal and external financing are possible

• Constraint for internationalization would be

managerial resources � total number of employees

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Further Analysis

Results31


Financing

sources

Internal

External

• Unequal access to financial resources

• Differentiated outcome

Internationalization

Success

Retained earnings

Loans, bonds & investments


Limitations

Results32

1. Singapore-only dataset – not representative of the region2. Missing fields – led to datapoints being dropped3. Generalizations:

• Markets are defined as regions• Physical distance are taken as euclidian distance

4. Internationalization success need not be measurable by export intensity

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Conclusions

Results33

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


The impact of size on internationalization

Q & A

34

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Variable Map

Internationalization

Success

Market

Experience

Management

Experience

Domestic

Knowledge Base

Physical Distance

Cultural DistanceInformation

Advantage

Resource

Advantage

Resource

advantage


Correlation Matrix

36

Success TotalSales Employees FirmAge Markets RoACulturalDistance

PhysicalDistance Industry

Success Pearson Correlation 1 .050 .114 -.038 .234**

-.182**

.083 .557**

.127Sig. (2-tailed) .451 .083 .586 .000 .005 .207 .000 .052N 235 234 234 212 235 233 232 235 235

TotalSales Pearson Correlation .050 1 .776**

.066 -.019 .084 .053 .126*

.052Sig. (2-tailed) .451 .000 .328 .766 .195 .410 .050 .417N 234 243 242 220 241 241 240 243 243

Employees Pearson Correlation .114 .776**

1 .074 -.026 .095 -.017 .152*

.082Sig. (2-tailed) .083 .000 .276 .683 .140 .787 .018 .204N 234 242 244 221 241 242 241 244 244

FirmAge Pearson Correlation -.038 .066 .074 1 .038 .094 -.025 -.077 -.048Sig. (2-tailed) .586 .328 .276 .579 .166 .716 .253 .479N 212 220 221 222 219 221 219 222 222

Markets Pearson Correlation .234**

-.019 -.026 .038 1 -.059 -.015 .204**

-.051Sig. (2-tailed) .000 .766 .683 .579 .366 .819 .001 .429N 235 241 241 219 242 240 239 242 242

RoA Pearson Correlation -.182**

.084 .095 .094 -.059 1 -.004 -.130*

-.123Sig. (2-tailed) .005 .195 .140 .166 .366 .948 .043 .055N 233 241 242 221 240 243 240 243 243

CulturalDistance Pearson Correlation .083 .053 -.017 -.025 -.015 -.004 1 .230**

-.100Sig. (2-tailed) .207 .410 .787 .716 .819 .948 .000 .120N 232 240 241 219 239 240 242 242 242

PhysicalDistancePearson Correlation .557**

.126*

.152*

-.077 .204**

-.130*

.230**

1 .088Sig. (2-tailed) .000 .050 .018 .253 .001 .043 .000 .169N 235 243 244 222 242 243 242 245 245

Industry Pearson Correlation .127 .052 .082 -.048 -.051 -.123 -.100 .088 1Sig. (2-tailed) .052 .417 .204 .479 .429 .055 .120 .169N 235 243 244 222 242 243 242 245 245

20091031 Mgmt205 Presentation Final

Technology

Transcript of 20091031 Mgmt205 Presentation Final