Foreign Multinationals and Domestic Companies in Portugal: Are there Significant Performance Gaps?

Abstract

Firm Performance has been pointed by different authors as an important research matter in International Business, notably in multinational corporations (MNCs). Organisations in general coordinate their activities by objectives and compete to seek competitive advantage via performance. This dissertation investigates if foreign owned (FO) and domestic owned (DO) firms differ in comparative performance. Specifically, this study seeks to determine if there are significant performance gaps between foreign MNCs and their domestic counterparts, and if those differences/gaps vary with different performance measures. This study draws on an underlying theoretical framework based on industrial organisation (IO) and on international business (IB) theories, which is tested by examining a large scale recent sample (for the year 2006) including the Portuguese top largest firms extracted from the SABI database (Sistema de Análise de Balanços Ibéricos/Coface MOPE). This study was done using econometric models estimated by ordinary least squares (OLS) with robust standard errors and by quantile regressions. The results are unequivocal: FO firms have a positive and significant impact in firm performance in both types of performance measures used (profitability and productivity). The findings of this study suggest that there is a significant performance difference between FO and DO firms in the manufacturing industry in Portugal. This study also contributes to the debate about relevant policy measures, notably related to inward investment promotion, performance externalities and effects of inward investments in local economies.