Internationalization and performance: the role of depth and breadth

Abstract

Purpose The purpose of this paper is to analyze the relationship between multinationality and firm performance (M-P) in Latin American companies, commonly referred to as multilatinas. The study conceptualizes the depth (intensity) and breadth (geographical scope) of internationalization and examines their effect on financial performance. Although scholars have studied how internationalization in various contexts and industries affects performance, little is known about firms in Latin America. Design/methodology/approach The authors conducted an analysis of the effect of the depth and breadth of multilatina internationalization on financial performance by creating a database using information fromAmerica Economia, a specialized Chilean magazine that publishes an annual ranking of multilatinas. Additional data came from the Osiris database of Bureau Van Dijk and Compustat. The hypotheses were tested using an autoregressive heteroskedastic model. Findings The results show that the extent of the depth and breadth of internationalization affects financial performance. Multilatinas’ depth of internationalization has a curvilinear (U-shaped) impact on performance while breadth has an inverted curvilinear impact on performance. Research limitations/implications The theory portion and results expand the literature on firm internationalization and performance by distinguishing between two types of international firm expansion, depth and breadth, and discussing how each contributes to different stages of the three-stage theory of multinationality and performance. Originality/value The findings indicate that multilatinas benefit from their regional expansion, but outside Latin America, expansion has a negative effect on financial performance. They also show that firms can implement different types of internationalization strategies in terms of intensity and scope to achieve better performance.

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