Correlation Between Internationalization Of Firms And Their Performance

Internationalization of manufacturing firms is a process fromexporting to foreign direct investment. This paper focuses on both theexporting and foreign direct investment and their effects on firms'performance. In respect of theory, we inspect the exporting ofmanufacturing firms based on comparative benefits theory andResource-based view, and deduce that exporting can not improve firms'performance. Moreover, using theory of multinational companies indeveloping country, we inspect the effects of FDI of our firms on theirperformance. In terms of empirical research, we compare the performancebetween exporting firm and non-exporting firms; explore the relationbetween performance and degree of internationalization measured byexport sales ratio (ESR). With data from China's securities exchanges in2004, we get the following empirical results: firstly, seen from the wholeaspect, the degree of internationalization (DOI) of Chinese firms is lowand now the pattern of most of firms is exporting. But the DOI is differentin each industry. Secondly, return on equity without non-recurring profitand loss,return on sales (ROS) and return on assets (ROA) of exportingfirms are not better than non-exporting firms significantly; While scale ofexporting firm is larger than non-exporting firms significantly. Thirdly,aider controlling the factors of industry and firm, we find that the DOI of our firms has a negative effect on performance, and it demonstrates asignificant negative correlation between the DOI of firms measured byESR and retum on sales (ROS) and retum on assets (ROA).