Testing Regional Effects in the Internationalization-Performance Relationship in Asian Service Firms

Despite many years of research, empirical studies of the relationship between internationalization and performance of firms have given conflicting results. Contractor, Kundu, and Hsu (2003) and Lu and Beamish (2004) have recently proposed a three-stage theory of international expansion that attempts to reconcile the conflicting findings. However, other studies suggest that there are good reasons to believe that firms from less-developed countries (LDCs) differ in their internationalization from firms in developed countries. Furthermore, little research has been conducted on service firms in LDCs. This paper aims to fill some of this gap by testing the internationalization-performance relationship in a sample of service firms in the Asia-Pacific region. The study confirms the three-stage model but adds two new dimensions. First, the results show that the internationalization-performance relationship varies significantly depending on whether internationalization is intra-regional or extra-regional. Extra-regional sales/total sales showed significant and positive relationships with return on assets (ROA) in all three models but combined foreign sales/total sales showed no significant relationships with ROA and surprisingly intra-regional sales showed a significant relationship only in the quadratic model.