An empirical investigation into the effect of international trading strategy choice on financial performance

Firms may choose among three strategies related to international trading: Domestic; Export; and, Foreign Direct Investment. This study hypothesized that firms in high-technology industries which follow pro-international trading strategies (Export or Foreign Direct Investment) financially outperform firms in the same industries which follow a Domestic strategy. In addition, it was suggested that the relationship would vary significantly based on two environmental factors--one external (industry characteristics) and one internal (firm size). With respect to size, it was expected that smaller firms, using an Exporting strategy would be more successful than those that used a Domestic or Foreign Direct Investment strategy, while among the large firms, the most successful would use a Foreign Direct Investment strategy. The relationship between international trading strategy choice and financial performance could also be differentially affected by external factors (industry characteristics). The level of seller concentration was used as a surrogate measure if barriers to entry to classify the two related industries in the study. The results of the research did not support the hypotheses. The international trading strategy used by a firm was not significantly related to higher rates of financial performance, nor did those findings vary when the interaction of size or industry concentration was considered. According to the study, participation in the international marketplace will not necessarily result in either positive or negative effects on a firm\u27s financial returns. Therefore, the decision to become involved in international trading must rest on other perceived benefits rather than on the assumption of the receipt of short-term financial benefits