Operating internationally – The impact on operational performance improvement 1 Krisztina Demeter Corvinus University of Budapest Abstract In this paper we investigate how the level of international presence impacts the operational performance improvement of companies. We identify three parts of international nature: source internationally, manufacture internationally and sell internationally. Each of these bricks can contribute to lower costs through scale economies. Moreover, more people can create more knowledge, higher production volumes lead to better understanding of processes, and thus better quality. But being global also has some drawbacks. Logistics and coordination costs, as well as investment costs due to large and productive machinery can increase; long internal and external supply chains lengthen delivery times, increase risks and reduce flexibility. So in total, it is not evident at all, that being multinational results in higher operational performance improvement, even if these companies’ business performance is usually higher than their competitors’. Analysis is made using the Fifth Edition of the International Manufacturing Strategy Survey (IMSS). It includes 725 companies of 21 countries. According to our results being international in itself does not help in improving operational performance. Consistent strategy and improvement programs are needed. Further important research implication is that due to the complexity of operating internationally configuration approaches, such as cluster analysis might give a more valuable picture than looking at simple variable level relationships. Keywords: international operations, operational performance improvement, source, manufacturing, sales. 1. Introduction We can see a diversity of international activities of firms. Start-up companies and well- established giant multinationals work through international links, integrated into internal and external company networks. It is difficult to follow why and how companies make decision on sourcing and sales directions, locate their new alliances in a given area (Martin et al., 1998); why some parts of a product are replaced somewhere else to produce, or outsourced to external partners. The main drivers for companies to establish subsidiaries abroad are to get access to low cost factors, to important markets or to skills and knowledge (Ferdows, 1997; Vereecke and Van Dierdonck, 2002). Their basic motive is to match the double criteria of global integration and local responsiveness, in order to reach both efficiency and customer satisfaction. They develop capabilities stemming from their global nature (Shi and Gregory, 1998; Roth et al., 1991). Internationalization happens through export-import activities, or through establishing foreign manufacturing facilities (Shi, 2003; Abele et al., 2008). Thus, in order to detect the status of internationalization we have to analyze export-import and international manufacturing activities. Companies usually start the process of internationalization by export-import activities to get knowledge first about their potential markets and suppliers (Johanson and Vahlne, 1977). After initial learning and enough financial background they can set up manufacturing establishments abroad or form formal relationship with foreign partners. We assume that companies decide to become international in order to win something from this: it can be simply survival, or finding new challenges in the lack of opportunities in domestic markets, but crossing boarders can easily pay off in higher competitiveness (Han et al., 1998) and in higher business performance (Hitt et al., 2006). The level and kind of international activities varies. Some companies rely heavily on international sourcing but produce and sell almost exclusively on the domestic market. Others 1 This paper was published in International Journal of Production Economics, 149 (2014), 172-182.