Internationalization of Companies from Developing Countries

Erdener Kaynak

• Publisher: Routledge
• Year: 2014
• Topic: Economics
• eBook ISBN:
  9781317957355
• Subtopic: Business General
• Index: Economics

Explore new international economic and business trends and how your firm can benefit from them!Internationalization of Companies from Developing Countries provides marketing and economic researchers and students with both theoretical and empirical insights into the motives, methods, and processes of internationalization of firms in the developing countries of Africa. Full of current facts and data, this informative book explores how government policies shape a country's strategies for global competitiveness. The book also discusses motives of internationalization, approaches to market analysis and market knowledge acquisition, and domestic and foreign interfirm relations. Informative and intelligent, Internationalization of Companies from Developing Countries offers you a unique conceptual framework for analyzing and understanding the internationalization process of successful Ghanaian firms and how these principles can be applied to other businesses in developing countries. This unique book will assist you in keeping current with the dynamics of the international market by supplying you with important guidelines and suggestions. It covers:

• the limitations of contemporary theories that explain the process of internationalization and export development
• how companies from a developing country become integrated in the global economy
• how governments can support the internationalization process
• three prototype orientations of management decisionmaking: planning orientation, action orientation, and network orientation
• various ways of entering and developing a foreign market
• the concepts of relationship and interaction as they pertain to international business, especially the relationships between government institutions and corporations Comprehensive and concise, this valuable book fills a void in the current literature about internationalization in developing countries, especially in Africa. Internationalization of Companies from Developing Countries will help you establish productive business relationships and improve the position of your company and its partners in today's global arena.

Part I:
Internationalization Theories and Issues of Developing Country Firms

Over the past three decades, a plethora of both conceptual and empirical studies has been published on the export behavior of firms. It is generally accepted that export marketing is by far the most typical type of international business involvement among firms in developed and developing countries. As Cavusgil (1984a) explains, this form of internationalization is less risky and requires less resource commitment than foreign direct investment. Thomas and Araujo’s (1985) review of the export behavior research provides an overview of the dominant academic understanding of the field a decade ago. The main points of agreement at that time were the following:

1. Export behavior and foreign market entry decisions can be viewed as innovation adoption behavior; the innovation can be traced to an innovator, i.e., the decision maker in the firm.
2. The export development process proceeds in a sequential, stagelike manner with the tempo of internationalization and the degree of resource commitment, contingent on a number of factors, including individual characteristics of managers.
3. Exporter profiles can be used in ascertaining identifiable characteristics of firms at different stages in the internationalization process.
4. A leading determinant of export behavior is firm size and its related amount of resources and managerial skills.

The authors, however, observed that most of the published studies lacked a generalizable empirical base, since they were cross-sectional and limited in geographical scope and sample size. Furthermore, nearly all the studies implicitly assumed that export is a first step in the internationalization process of firms. Exporting was considered a good thing in its own right, and companies with the enabling conditions and opportunities would enter export business. As the subsequent discussions will show, some of these viewpoints have been subjected to vigorous criticism in the more recent literature. Strandskov’s (1995) literature review indicates that a number of new competing theoretical perspectives have emerged, creating a pluralistic base for studies in export behavior. Thus, studies in international business today cannot derive their theoretical inspiration from a single accepted framework. Leonidou and Katsikeas (1996) drew similar conclusions in their review of three decades of export marketing research.

The differences in theoretical viewpoints expressed in the literature, however, provide the researcher with the advantage of searching widely for an appropriate angle of analysis, although at the risk of reducing the general acceptability of empirical results based on each of the viewpoints.

The present study is mindful of these theoretical opportunities and weaknesses. As intimated earlier, this part of the book aims to

1. place the study within the existing frame of knowledge in the area and
2. examine the degree of consistency of the empirical results presented here with the major theoretical viewpoints in the existing literature.

This is done, first, by undertaking a review of the mainstream theories of internationalization and, second, by discussing their applicability to the analysis of the export activities of developing country firms.

Chapter 1
Theories and Models of Internationalization

This chapter provides an overview of the contemporary theories of internationalization of firms and discusses their underlying metatheoretical assumptions. The theories have been grouped into three categories, each emphasizing a specific view of the firm’s perception of its “environment” and means of dealing with it.

Categorization of Theories of Internationalization

Companies seeking to internationalize should consider two questions: Why do they want to internationalize? How will they achieve internationalization? Theories dealing with the internationalization of companies are many, and the two questions—why and how—are answered using diverse scientific approaches. In this study, the theory models are grouped into the following three categories:

• Stages Models (the universal path of internationalization)
• Contingency Models (the adaption-planning approach to internationalization)
• (Inter)Action Models (internationalization achieved by seizing international opportunities through networking)

These three categories reflect important differences in the understanding of a company’s internationalization process. These differences can be illustrated by looking at the categories in terms of the following:

1. An objective versus a subjective worldview
2. A static versus a dynamic perspective
3. A planning versus an action orientation

Objective versus Subjective Worldview

An objective worldview implies that the theory (i.e., the assumes that the business world, including the international exists independently of the individual businessperson. It also that the theory assumes that the business world behaves according general (natural) laws and principles that can be determined scientific investigations, thereby increasing one’s knowledge of internationalization.

A subjective worldview implies that the theory assumes that business world is a social construction, i.e., created by the and interaction of human beings. No general laws of behavior be found because each and every situation is unique. Thus, knowledge, in the natural science sense of the term, cannot be accumulated. Of importance are the perceptions and actions of businesspeople.

Static versus Dynamic Perspective

A static approach implies that the theory provides a snapshot of the situation. This contrasts with a dynamic approach, which, in a simple version, implies the addition of a time dimension. This means the internationalization activities are described at different points in time. This version of the dynamic approach is called the “comparative static approach.”

A dynamic approach may also imply that it is not time, as such, that is of interest but rather the dynamic processes, e.g., the interaction between an exporter and an importer that gradually enhances the company’s internationalization.

Planning versus Action Orientation

The theories of internationalization may also be grouped according to whether they focus attention mainly on management planningactivities or are more concerned with managers’ actions and experiences. For example, theories related to the selection of markets or market entry modes may be considered planning tools. Here, the starting point is the totality of markets or market entry modes, the totality being gradually reduced using a stepwise selection procedure. As will be noted subsequently (see Chapter 3), market analysis presupposes that the company needs information for the planning of its activities.

In contrast, action-oriented theories have the intuitive idea of the businessperson as the starting point. The idea is followed up by immediate actions, which in turn provide the actors with experience. This experience is then turned into knowledge through a process of reflections (Kuada and Sørensen, 1997). (Table 1.1 provides an overview of the metascientific bases of the three categories of theories.)

The Stages and Contingency Models belong to mainstream thinking within business economics, assuming an objective reality that science can reveal and present as an input to the corporate planning activities. The models are static or comparatively static, focusing on the situation at a specific point in time and/or extending the past into the future.

TABLE 1.1. Metascientific Dimensions of the Theories of Internationalization

Scientific Dimension	Stages Models	Contingency Models	(Inter)Action Models
Objective versus subjective world-view	Objective	Objective	Subjective (shared understanding)
Static versus dynamic perspective	Comparison of static analysis at each stage	Static	Dynamic
Planning versus action orientation	Planning	Planning	Interaction
Managerial implications	Identify present stage; prepare and plan for the next	Build and use analytical capability	Build and use social capital, i.e., interaction capability

In contrast, the (Inter)Action Models view internationalization as a social construction process. Universal laws on which companies can base their planning do not exist, but through interaction, the companies may adopt a common worldview, i.e., an intersubjective, agreed-upon mode of behavior. Planning is not ruled out of this perspective, but actions/interactions and the concomitant accumulation of experience are more important than the speculations associated with planning. In other words, internationalization is not planned; it is acted/enacted/interacted.

Each of the three categories of internationalization theories are discussed in the subsequent sections, and examples of theories falling within each category are presented.

The Stages Models

The Stages Models view the internationalization of a company as a sequential and orderly process. The company moves through a set of stages, with each stage providing the necessary international prerequisites for the company to move to the next stage. The Stages Models provide us with a generalized pattern that may be used to predict and plan a company’s internationalization. According to the model, managers decide on their international activities by first identifying the stage in which the company is currently positioned and then preparing the company to move into the next predetermined stage.

The existing Stages Models can be divided into two types:

1. Models showing internationalization to be based on learning and the accumulation of experience—the Learning Stages Theory
2. Models showing internationalization to be based on adaption to changes in the environment, i.e., to changes in supply, demand, and competition—the International Product Life Cycle Theory

The Learning Stages Theory

Although heavily criticized (Turnbull, 1987), the Learning Stages Theory of the internationalization process is still a dominant model in contemporary international business literature.¹ Many versions of this theory can be found, but the underlying philosophy is the same for all versions: the internationalization of a company is an orderly and sequential process in which the shift from one stage to the next is based on the learning and accumulation of experience within the preceding stage.

The many versions of the theory differ as to the number of stages a company moves through in the transition from a domestically oriented company to a full-fledged global company. The versions also differ in relation to their focus: some emphasize a specific factor, such as the market entry and development mode (Johanson and Wiedersheim-Paul, 1975); some focus attention on market selection (Bilkey and Tesar, 1977); yet others focus on the general engagement in, and commitment to, internationalization. Three versions of the Learning Stages Theory are shown in Table 1.2.

TABLE 1.2. Three Versions of the Learning Stages Theory of Internationalization

Critics point out that the Learning Stages Theory basically focuses on the pattern of internationalization, thereby ignoring the context in which the internationalization takes place. In other words, the internationalization of a company is assumed to be context-free: the same pattern is expected across different contexts and environments. Furthermore, the different versions tend not to deal with the actual foundation on which the theory is based, i.e., the learning aspect and the accumulation of knowledge. The different authors (with the exception of Johanson and Vahine, 1977) are preoccupied with the outcome of learning, i.e., the actual development of the international engagement in terms of number and types of markets, entry modes, organization modes, methods of market research, etc. (Sørensen, 1991; Kuada and Sørensen, 1995).

An important question to ask is, “Why is it that a general pattern of internationalization can be found?” The question is relevant, considering that each and every company is making an attempt to be different from its competitors, i.e., to develop a unique competitive advantage. If all companies strive to be unique, it appears quite unlikely that a common pattern or a universal law can be found to describe the internationalization of firms.

Three tentative explanations may be offered for the appearance of a general pattern of internationalization:

1. According to the rationale of the Stages Models, internationalization is based on the laws and principles of learning combined with risk taking. A company learns from its actions, and when it has acquired enough experience and reached an acceptable risk level, it is ready to take another step on the internationalization path. As all companies follow this rule of risk reduction through learning, a common internationalization pattern emerges.
2. Related to the first explanation, a general pattern may also be found either because companies are managed by people who have acquired the same management philosophy and the same management tools or because companies learn from one another and imitate the behavior of more successful companies at any given point in time. In these instances, a common pattern will emerge based on common worldviews and, in general, the emergence of a common business culture or system (Whitley, 1992).
   The remarkable performance of many Japanese companies on the global market without the use of Western approaches to management is a clear indication that no universal approach to management exists.
3. A general pattern may also be explained by the structure of an industry. For example, a general pattern of development will emerge in industry structures that include many small autonomous companies that are influenced by common social relations. An example is the well-known product life cycle, which reflects the numerous consumers who autonomously, but under social influence, decide to adopt a certain product. In this case, a combination of structural forces and social influence leads to a common pattern of behavior.
   Thus, the combination of the presence of many actors and a social interaction without social control lays the foundation for the emergence of general patterns of internationalization. The laws, however, are not natural laws; they are laws based on the mechanisms of social relations.
   Transferring this line of thinking to the internationalization of companies, we expect to find general patterns of internationalization in industries with numerous small-scale companies...

Table of contents

• Cover Page
• Half Title page
• Title Page
• Copyright Page
• Contents
• Acknowledgments
• About the Authors
• Abbreviations
• Introduction
• Part I: Internationalization Theories and Issues of Developing Country Firms
• Part II: Empirical Evidence
• Part III: Reassessment of Internationalization Theories
• Appendix A Dominant Contingency Models of Internationalization
• Appendix B Firms That Participated in the Study
• Appendix C Product Associations in Operation As of December 1995
• Appendix D Survey Questionnaire
• Notes
• Bibliography
• Index