International corporate entrepreneurship and firm performance: The moderating effect of international environmental hostility

Shaker A. Zahra, Dennis M. Garvis

Research output: Contribution to journalArticlepeer-review

565 Scopus citations

Abstract

Globalization of the world economy has encouraged U.S. companies to leverage their resources and skills by expanding into existing or new foreign markets. U.S. companies have also acquired new capabilities by locating important functional activities overseas, and joining with foreign partners in new markets through alliances and joint ventures. These opportunities, however, are tempered by the constraints imposed by the competitive forces that exist in international environments. Aggressive government intervention, technological changes, and fierce local rivalries all contribute to hostile international environments for U.S. firms' global expansion. Success in global business operations requires resourcefulness and entrepreneurial risk taking. The activities of U.S. companies in foreign markets, therefore, provide a unique opportunity to examine the effects of international corporate entrepreneurship (ICE) efforts on company performance. ICE is defined as the sum of a company's efforts aimed at innovation, proactiveness, and risk taking. These efforts offer an important means of revitalizing and renewing established companies and improving their performance. Few studies have empirically examined the effects of ICE activities on companies' financial performance. This study used data from 98 U.S. companies to: (1) determine the impact of ICE efforts on firm performance, and (2) explore the moderating effect that the perceived hostility of the international environment has on the relationship between ICE and company performance. The results showed that ICE was positively associated with a firm's overall profitability and growth as well as its foreign profitability and growth. Those firms that aggressively pursued ICE in international environments with higher levels of hostility had higher return on assets (ROA) but did not achieve significantly higher levels of growth. However, as hostility in the international environment continued to intensify, ROA rose and then fell as companies increased their ICE activities. Thus, there was a point of diminishing returns to a company's aggressive pursuit of ICE under excessive environmental hostility. The results highlight both the rewards and risks of pursuing ICE. Companies benefit from ICE activities by achieving higher overall performance as well as foreign profits and growth in revenue. However, the aggressive pursuit of ICE does not always guarantee superior performance. Our results show that the payoff from ICE is moderated by executives' perceptions of the hostility of their firm's international business environment. Our findings highlight the importance of ICE for organizational success, both overall and in foreign markets. Yet, the results compellingly suggest that there are upper limits to the potential gains a firm achieves from its aggressive pursuit of ICE when the international environment in which it competes is hostile.

Original languageEnglish (US)
Pages (from-to)469-492
Number of pages24
JournalJournal of Business Venturing
Volume15
Issue number5
DOIs
StatePublished - 2000

Bibliographical note

Funding Information:
We acknowledge with gratitude the supportive comments of two anonymous JBV reviewers, Brett Matherne and Patricia H. Zahra. An earlier version of this paper appeared in the 1998 Academy of Management Best Papers' Proceedings. The financial support of the Beebe Institute to the first author in data collection is also appreciated.

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