In the past 20 years, an increasing number of firms have changed their orientation from domestic to international marketing and/or production. Internationalization is accordingly when firms extend their products or services in overseas markets, usually from their home country.
Among the foreign market operation modes firms can use for their internationalization are exporting, licensing, franchising, joint ventures, strategic alliances, or wholly owned foreign direct investment (FDI), such as greenfield investments and mergers and acquisitions. Although in the literature, the foreign market operation mode has mostly been regarded as a singular entity, in the more complex business reality, firms often use multiple or mixed modes in the same foreign market.
Possible advantages of internationalization are the extension and expansion of market (e.g., increasing sales in foreign markets), the diversification of the risk of overreliance on the home market, the exploitation of resources in other countries, the taking advantage of economies of scale, the acquiring of economies of scope (i.e., the building and using of foreign market expertise in against your rivals) in R&D, marketing and distribution systems, etc. Because of these advantages, internationalization can lead to higher corporate performance, higher profitability and more stable profits.
Several theories and models of internationalization have examined the timing strategies of firms. Especially, there is ample evidence in support of the so-called stages models of internationalization, such as the Uppsala model. These models view internationalization as a sequential incremental process with a varying number of stages. At first, firms develop products and services for domestic markets. After having grown and being well established in their home market, the firms begin venturing abroad by transmission of knowledge and domestic-based practices to other countries, usually to those that are similar to the domestic market in terms of culture and language— therefore mostly to nearby countries first. In the initial years of internationalization, foreign market entry is a gradual commitment of resources, often beginning with export, thereby gaining first knowledge about and establishing ties (to politics, local business, etc.) in the target. As these ties deepen, more resources are invested abroad, often in form of a marketing subsidiary that is being founded. In a next step, foreign production might be established.
Although widely empirically supported, over the last decade, there has been much debate over the applicability of the stage models of internationalization towards certain firms, especially small firms in the high-tech sectors. Especially with regards to the so-called born globals (or international new ventures), i.e., firms that engage in international operations from the first day of their establishment, conventional stage theories with their gradual establishment of internationalization activities do not seem to be applicable anymore.
Due to the new economic landscape, internationalization has also accelerated among these small and new enterprises, because international markets can represent new entrepreneurial opportunities. Mostly because to their size, these firms display several of the characteristics that are advantageous for internationalization, such as high flexibility and short lines of communication. In the process of internationalization, small and new firms are confronted with the notion that often neither the development of a subsidiary (greenfield investment) nor the purchase of a company in the target market (brownfield investment) represent an attractive or even possible option. Recent literature therefore especially suggests cooperation or joint ventures with local partners as promising internationalization strategies for small and new firms.
- Leo Paul Dana, Handbook of Research on European Business and Entrepreneurship: Towards a Theory of Internationalization (Edward Elgar, 2008);
- Jean Guinet and Koen De Backer, The Internationalisation of Business R&D: Evidence, Impact and Implications (OECD, 2008);
- Daniel S. Hamilton and Joseph P. Quinlan, Globalization and Europe: Prospering in the New Whirled Order (Center for Transatlantic Relations, Johns Hopkins University, 2008);
- W. Lu and P. W. Beamish, “The Internationalization and Performance of SMEs,” Strategic Management Journal (2001);
- M. Oviatt and P. P. McDougall, “Toward a Theory of International New Ventures,” Journal of International Business Studies (1994);
- Donna L. Paul and Rossitza B. Wooster, “Strategic Investments by US Firms in Transition Economies,” Journal of International Business Studies (v.39/2, 2008);
- D. Sharma and A. Blomstermo, “The Internationalization Process of Born Globals: A Network View,” International Business Review (2003);
- Beth A. Simmons, Frank Dobbin, and Geoffrey Garrett, The Global Diffusion of Markets and Democracy (Cambridge University Press, 2008).
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