The S-Shaped Relationship Between Internationalization and Performance: Empirical Evidence from Laos

Abstract

The purpose of this study is to investigate the impact of internationalization on the business performance of firms in Laos as a transition economy. Using a panel dataset collected by the World Bank for 285 firms during the period 2009, 2012, and 2016 in the service and manufacturing industries, the two-steps Heckman regression results found robust evidence for the fact that the S-curve tie exists between the degree of internationalization and business performance of firms in Laos while controlling other factors. Specifically, if firms have a degree of internationalization lower than 0.4374, they will suffer losses due to the high cost of preparing for phase 1 which is market penetration. Then, when the degree of internationalization continues to increase from 0.4374 to 0.9131, firms will gain benefits from internationalization (phase 2), however, these benefits will deteriorate when the degree of internationalization is greater than 0.9131 (phase 3), meaning that firms will no longer be able to exploit economies of scale or advantages in target markets, or product cycles will fall into a state of decline. Interestingly, we also found that firms with a high concentration level of ownership and internationalization activities may achieve better performance than those with a low concentration of ownership and one which carried out internationalization activities.