A combined focused industry and company size investigation of the internationalization-performance relationship: The case of small and medium-sized enterprises (SMEs) within the Swedish wood manufacturing industry

The current literature has failed to deliver a coherent explanation of the internationalization-performance (I-P) relationship. The empirical findings are quite confusing and even contradictory. Researchers have found positive, negative, U-shaped, inverted U-shaped, S-shaped, and inverted S-shaped relationships between degree of internationalization and performance. Based on plausible theoretical explanations such as networking effects, cost and benefit mechanisms and minimum efficient scale (MES), the recommendation for further research is to change focus - from an overall level to a more detailed country-industry and company size contextual level. The underlying assumption is that more specific contextual aspects are paramount to the existence and shape of the I-P relationship. Building on the resource-based view and the S-shape theory of internationalization, this paper aims at such an empirically focused investigation of SMEs within the Swedish wood manufacturing industry. A repeated cross-sectional survey study using hierarchical regression analysis has revealed a linear negative relationship between internationalization and performance. Given that wood manufacturing is a low-tech industry, not highly automated and with a low level of MES, the results are expected. The size of the Swedish market is big enough to amortize the initial investments of establishing a small wood manufacturing business, and the costs associated with internationalization diminish overall performance. In addition, the follow-up tests of ANCOVA (analysis of covariance) and piecewise regression revealed a non-linear relationship between (1) internationalization and performance for highly internationalized firms in 2001, (2) internationalization and growth for low internationalized companies in 2001, and (3) internationalization and performance for highly internationalized groups in the pooled dataset. Considering the costs and benefits associated with international activities, the non-linear effects of internationalization on performance or growth is plausible.