International strategy literature has shown that market context varies in terms of importance to international operations and competition. The purpose of this paper is to examine the role of market context in influencing the relationship between internationalization and performance.
Using cluster analysis, this study categorizes market context into two distinct groups: global and multidomestic. Later, it investigates the internationalization‐performance relationship for 263 firms distributed across two market contexts.
Support for an inverted U‐shaped relationship was found in the case of market contexts which have global characteristics, while a U‐shaped relationship was found in the market contexts which have multidomestic characteristics. Additionally, findings indicate that the moderating influence of diversification on the internationalization‐performance relationship varies by the market context of the firm.
The paper seeks to contribute to one of the most critical issues in the international strategy literature, namely, the linkage between internationalization and firm performance. While many studies have been conducted on the topic of internationalization and performance, specific research linking market context and the internationalization‐performance relationship has been lacking. The paper's findings offer strong support to the notion that the nature of the relationship between internationalization and performance varies by market context. Implications for managerial and researchers are presented.
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