An exploration of the relationship between country of origin (COE) and the internationalization-performance paradigm

Abstract

The relationship of internationalization with firm performance continues to be a major focus of corporate strategy. While internationalization raises important issues of risk and uncertainty, cross-cultural aspects of employee conduct and consumer behavior, market structure and competition, and political and regulatory dimensions, it also provides new opportunities for growth, profitability and organizational learning. This study seeks to contribute to the topic by empirically investigating the influence of the country of origin effect (COE) on the internationalization and performance relationship. COE, as defined here, is a composite variable that serves as a proxy for differential conditions that might exist in the MNC's home country, conditions which would impact the MNC's performance through internalization of attributes connected with its home country. The findings of this study offer strong support for the underlying notion that a MNC's home country impacts the internationalization-performance relationship. In particular, a positive linear relationship was found between internationalization and performance in countries with relatively small economies and which have extensive trade in their economy, while an inverted U-shaped relationship was found in countries with larger economies which have relatively moderate trade in their economy. © Gabler Verlag 2007.