UNIVERSITY OF ECONOMICS INSTITUTE OF SOCIAL STUDIES HO CHI MINH CITY THE HAGUE VIETNAM THE NETHERLAND VIETNAM - NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS The Relationship between Internationalization and Manufacturing Firms’ Performance in Vietnam: The Moderating Effect of Organizational Slacks BY HUYNH THI NGOC HIEN MASTER OF ARTS IN DEVELOPMENT ECONOMICS HO CHI MINH CITY, Dec 2014 UNIVERSITY OF ECONOMICS INSTITUTE OF SOCIAL STUDIES HO CHI MINH CITY THE HAGUE VIETNAM THE NETHERLANDS VIETNAM - NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS The Relationship between Internationalization and Manufacturing Firms’ Performance in Vietnam: The Moderating Effect of Organizational Slacks A thesis submitted in partial fulfilment of the requirements for the degree of MASTER OF ARTS IN DEVELOPMENT ECONOMICS By HUYNH THI NGOC HIEN Academic Supervisor: NGUYEN VAN PHUONG PhD HO CHI MINH CITY, Dec 2014 CERTIFICATION “I certify that the substance of this thesis has not already been submitted for any degree and have not been currently submitted for any other degree I certify that to the best of my knowledge and help received in preparing this thesis and all sources used have been acknowledged in this thesis.” HUYNH THI NGOC HIEN ACKNOWLEDGEMENTS In order to successfully complete this thesis, I received unconditional helps from many people I very appreciate the contribution of everyone involved and apologize to those I not mention by name Firstly, I would like to express my gratitude to my supervisor, PhD Nguyen Van Phuong His instructions as well as encouragements are the key factor of my dissertation completion and enabled me to turn my concerns into a serious academic research He was not afraid of time-consuming to hold frequent meetings and response timely to my thesis problems Moreover, he also took time to review the STATA programming and offer many flexible ways to support me in data processing step – the most challenging part in my study Secondly, I am also grateful for PhD Nguyen Trong Hoai and PhD Tran Tien Khai because their valuable comments and suggestions for my TRD at the beginning helped me to orient and revise my research design in a proper way Next, I also received the surprising help from PhD Truong Dang Thuy who appears to be available on email regardless day or night Then, I want to say thanks for the moral support from my peer - Ms Vu Thi Khanh She was very patient in applying many different approaches to find the most appropriate model for her research Therefore, I have learned from her too much, both econometric knowledge and a serious attitude toward addressing the thesis issues Finally, I wish to express my sincere thanks to my parents, my younger brother, my relatives and my friends for their continual encouragements, love for my progress and success ABSTRACT As the world moves toward global expansion, the global enterprises in both developed and developing countries have been becoming the main drivers of this process Although there are many empirical studies on the actual relationship between internationalization and performance, the question is still relatively ambiguous due to controversial findings Thus, this study uses a panel sample of 45491 unlisted Vietnam manufacturing enterprises during the six-year period (2007-2012) surveyed by GSO (General Statistic Office) to investigate the impact of internationalization degree on firm performance It is widely admitted that the Vietnamese economy is mainly based on the credit market which is relatively frail and frequently affected by the changes in the local fiscal and monetary policies Under these contexts, firm’ abundant slack resource is a miracle tool to enable the successful implementation of internationalization strategies After conducting the fixed effect analysis, the study finds a significant S-shaped relationship between degree of internationalization (DOI) and firm performance Specifically, the performance firstly decrease then increase and decline in the later stage Furthermore, the regression depicts that the higher level of slacks on both kind of high-discretion and low-discretion is, the better the firm performs Especially, the sufficient slacks contribute to enhance the relationship between internationalization and performance ABBREVIATIONS ASEAN Association of Southeast Asian Nations DOI Degree of internalization EU European Union FDI Foreign direct investment FEM Fixed effect model REM Random effect model FS Foreign sale IFs Internationalized firms OLS Ordinary Least Squares R&D Research and Development ROA Return on assets TS Total sale US United Joint Stocks VIF Variance Inflation Factors TABLE OF CONTENTS I INTRODUCTION .1 Problem Joint Stockment Research objectives: .6 Research questions: Research Methodology Organization of the Study II LITERATURE REVIEW Theoretical review Concept of Internationalization .8 The degree of internationalization and firm performance .11 Organizational slacks .16 Empirical review 19 Internationalization and firm performance 19 Organizational slacks, internationalization and firm performance 23 III METHODOLOGY 28 Data and Sample 28 Variables and measures 29 Performance 29 Independent variable .30 Organizational slacks – the moderating variables 30 Control variables .31 Firm size 31 Firm age 32 ICT use 32 Learning capability 33 R&D intensity 33 Ownership types .34 Analytical approach 36 IV FINDINGS 41 V CONCLUSION AND RECOMMENDATIONS 55 Main findings 55 Recommendations .55 Limitation 56 REFERENCES APPENDIX LIST OF TABLES Table 1: Summary of variables, measures and expected sign .34 Table 2: Variables definition 41 Table 3: Descriptive statistic and correlations .44 Table 4: The comparison between the FEM models with different added variables 45 Table 5: Fixed effect analysis 49 Table 6: Results of OLS, fixed-effect and random-effect regression analyses on firm performance 50 LIST OF FIGURES Figure 1: Structure of Vietnam export turnover in 2012 Figure 2: Vietnam’s export destination has changed little in the last ten years .3 Figure 3: Internationalization process Figure 4: Three-stage theory (S-shaped) of international expansion (Contractor et al, 2003) .13 Figure 5: Role of slacks within an organization 18 Figure 6: Firm’s internationalization and performance: the moderating effect of highdiscretion slack (Lin, Liu & Cheng, 2011) 27 Figure 7: Firm’s internationalization and performance: the moderating effect of lowdiscretion slack (Lin, Liu & Cheng, 2011) 27 Figure 8: Illustration of moderating variable 37 Figure 9: Model 40 APPENDIX REGRESSION RESULTS OF OLS, FIXED AND RANDOM MODELS (OLS) ROA -0.2099*** (0.0293) (FIXED 1) ROA -0.2711*** (0.0376) (FIXED 2) ROA -0.2711*** (0.0376) (RANDOM) ROA -0.2182*** (0.0289) DOI2 0.3694*** (0.1112) 0.4758*** (0.1381) 0.4758*** (0.1381) 0.3890*** (0.1100) DOI3 -0.3066*** (0.1083) -0.2958** (0.1310) -0.2958** (0.1310) -0.3159*** (0.1072) firm_size 0.0131*** (0.0003) 0.0350*** (0.0023) 0.0350*** (0.0023) 0.0130*** (0.0003) high_slack 0.0029*** (0.0002) 0.0011** (0.0005) 0.0011** (0.0005) 0.0028*** (0.0002) low_slack 0.0091*** (0.0003) 0.0072*** (0.0009) 0.0072*** (0.0009) 0.0085*** (0.0003) DOI_highslack 0.0075** (0.0036) 0.0259*** (0.0055) 0.0259*** (0.0055) 0.0120*** (0.0036) DOI_lowslack 0.0290*** (0.0035) 0.0099* (0.0054) 0.0099* (0.0054) 0.0266*** (0.0034) 0.0022 -0.0013 DOI private 0.0041 (0.0026) (0.0084) share -0.0028 (0.0027) 0.0160* (0.0082) state 0.0000 (.) _cons -0.1283*** (0.0045) 59770 0.0719 N R2 -0.3210*** (0.0224) 59770 0.0490 (0.0031) 0.0173*** (0.0033) -0.0021 (0.0031) 0.0013 (0.0084) 0.0000 (.) -0.3223*** (0.0211) 59770 0.0490 -0.1289*** (0.0050) 59770 Standard errors in parentheses * p chi2 = Coef Std Err -0.2194 0.3870 -0.3127 0.0126 0.0000 z 0.0245 0.0868 0.0766 0.0002 -8.9500 4.4600 -4.0800 52.3000 P>z 0.0000 0.0000 0.0000 0.0000 [95% Conf.Interval] -0.2675 0.2169 -0.4627 0.0122 -0.1714 0.5572 -0.1626 0.0131 high_slack low_slack DOI_highslack DOI_lowslack _cons sigma_u sigma_e rho 0.0027 0.0084 0.0119 0.0262 -0.1224 0.0586 0.0815 34109104 (fraction of variance due to u_i) 0.0002 11.5100 0.0003 30.2000 0.0039 3.0400 0.0020 13.2700 0.0024 -51.7900 0.0000 0.0000 0.0020 0.0000 0.0000 0.0023 0.0079 0.0042 0.0224 -0.1270 0.0032 0.0090 0.0196 0.0301 -0.1177 Coefficient (b) fixed DOI DOI2 DOI3 firm_size high_slack low_slack DOI_highslack DOI_lowslack (B) random (b-B) Difference sqrt(diag(V_b-V_B)) S.E -0.2887704 -0.21945 -0.06932 0.5300033 0.387037 0.142966 -0.3388983 -0.31268 -0.02622 0.0348118 0.012637 0.022175 0.0010646 0.002728 -0.00166 0.0072813 0.008447 -0.00117 0.0259505 0.011913 0.014037 0.0101026 0.026244 -0.01614 b = consistent under Ho and Ha; obtained from xtreg B = inconsistent under Ha, efficient under Ho; obtained from xtreg 0.0291715 0.1057615 0.0954745 0.0014664 0.0003975 0.0006468 0.0052401 0.0034161 Test: Ho: difference in coefficients not systematic chi2(8) = (b-B)'[(V_b-V_B)^(-1)](b-B) Prob>chi2  CHOOSE FIXED EFFECT MODEL = 431.54 = 0.0000