Nature of the Relationship between International Expansion and Performance: The Case of Emerging Market Firms

Internationally expanding companies would like to see how they compare with rivals in terms of the effect of internationalization on financial performance (for their sector and their firm). Virtually all such studies have focused on advanced nations. This study, on internationalization of firms based in an emerging economy (India), provides a unique research setting and sheds additional light on this relationship. It tests for the shape of the internationalization–performance curve for emerging market firms, and investigates differences between service firms and manufacturers in the threshold effect between the initial and later stages of internationalization. We find a U-shaped curve depicting the internationalization–performance relationship of Indian firms. Service sector firms tend to gain the positive benefits of internationalization sooner than manufacturing companies.