Internationalization Speed in the Context of Diversified MNEs : A Literature Review on Internationalization Speed and an Empirical Study on the Internationalization of New Business Units [1 ed.] 9783832593087, 9783832544089

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Martin Hammes

Internationalization speed in the context of diversified MNEs A literature review on internationalization speed and an empirical study on the internationalization of new business units

λογος

 

Martin Hammes

Internationalization speed in the context of diversified MNEs: A literature review on internationalization speed and an empirical study on the internationalization of new business units

Dissertation for obtaining the doctor degree of economic science (Dr. rer. pol.)

at WHU – Otto Beisheim School of Management

2016

First Supervisor:

Prof. Dr. Thomas Hutzschenreuter

Second Supervisor:

Prof. Dr. Lutz Kaufmann

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Dissertation, Wissenschaftliche Hochschule f¨ ur Unternehmensf¨ uhrung (WHU) Otto Beisheim School of Management, Vallendar 2016

Bibliografische Information der Deutschen Nationalbibliothek Die Deutsche Nationalbibliothek verzeichnet diese Publikation in der Deutschen Nationalbibliografie; detaillierte bibliografische Daten sind im Internet u ¨ber http://dnb.d-nb.de abrufbar.

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fotolia.com/mas0380 (Landkarte) c

fotolia.com/Robert Kneschke (Stoppuhr) Bildmontage: Felix P¨ohland (www.felixpoehland-photography.com)

c

Copyright Logos Verlag Berlin GmbH 2017 Alle Rechte vorbehalten. ISBN 978-3-8325-4408-9

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This doctoral thesis is dedicated to

my perfectly wonderful wife Patricia,

my fantastic parents Eva-Maria and Karl,

my awesome brother Felix and his great wife Anne,

and all my family, friends and colleagues!

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SUMMARY OF CONTENTS TABLE OF CONTENTS

Summary of contents ........................................................................................................ 5 Table of contents........................................................................................................... 5 List of figures................................................................................................................ 8 List of tables.................................................................................................................. 9 List of abbreviations ................................................................................................... 10 1. Introduction ................................................................................................................ 13 1.1 Motivation and positioning ................................................................................... 13 1.2 The research subject: Internationalization of newly founded business units........ 15 1.3 Theoretical perspective: Organizational learning ................................................. 16 1.4 Structure of the doctoral thesis ............................................................................. 18 2 Theoretical background ............................................................................................... 21 2.1 The internationalization process ........................................................................... 21 2.1.1 Characteristics of the internationalization process......................................... 21 2.1.1.1 Reasons for internationalization – Why? ............................................................ 22 2.1.1.2 Modes of internationalization – How? ................................................................ 24 2.1.1.3 Directions of internationalization – Where? ....................................................... 27 2.1.1.4 Timing of internationalization – When? ............................................................. 29

2.1.2 Internationalization process theories.............................................................. 30 2.1.2.1 Raymond Vernon’s (1966) product cycle theory ................................................ 31 2.1.2.2 Jair Aharoni’s (1966) Foreign direct investment decision process model .......... 33 2.1.2.3 Johanson and Vahlne’s (1977) Uppsala model of the internationalization process................................................................................. 35

2.1.3 The role of speed in classical internationalization process theories .............. 40 2.2 Speed in contemporary International Business research: A review of the literature.................................................................................... 41

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2.2.1 Method of the literature review...................................................................... 41 2.2.2 Descriptive overview of journal articles ........................................................ 44 2.2.3 The concept of speed...................................................................................... 48 2.2.4 Perspectives of speed in the international business literature ........................ 51 2.2.4.1 The single activity perspectives .......................................................................... 53 2.2.4.2 The multi activity perspectives............................................................................ 65 2.2.4.3 The hybrid perspectives (single and multi activity) ............................................ 70

2.2.5 Learnings from the study of internationalization speed perspectives ............ 77 2.2.6 The study of speed in international business: Overview and Classification .. 80 2.2.7 Drivers of Speed............................................................................................. 83 2.2.7.1 The influence of the general business environment on speed ............................. 83 i. Product Characteristics............................................................................................. 83 ii. Industry Characteristics........................................................................................... 85 iii. Technological development ................................................................................... 91 2.2.7.2 The influence of location-factors on speed ......................................................... 93 iv. Home market environment..................................................................................... 93 v. Foreign market environment ................................................................................... 95 2.2.7.3 The influence of firm-specific characteristics on speed ...................................... 98 vi. General firm characteristics ................................................................................... 98 vii. Firm resources..................................................................................................... 103 viii. Firm knowledge ................................................................................................. 107 ix. Firm management................................................................................................. 115 x. Firm network ......................................................................................................... 120 xi. Entry modes of the firm ....................................................................................... 124

2.2.8 Outcomes of Speed ...................................................................................... 127 a. Survival ................................................................................................................. 127 b. (Financial) performance ........................................................................................ 129 c. Growth................................................................................................................... 133

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2.2.9 Summarizing the findings from the literature review .................................. 136 2.3 Knowledge and learning during the internationalization process....................... 150 2.3.1 Characteristics of knowledge ....................................................................... 150 2.3.2 Types of knowledge in the international context ......................................... 151 2.3.3 Organizational learning modes .................................................................... 153 2.3.4 Knowledge transfer in diversified MNES.................................................... 154 2.3.5 Knowledge accumulation and the start of an NBU’s internationalization process.......................................................................... 156 3. Empirical study: The speed of new business unit internationalization .................... 157 3.1 Development of Hypotheses:.............................................................................. 157 3.2 Methodology ....................................................................................................... 166 3.2.1 Sample.......................................................................................................... 166 3.2.2 Statistical approach ...................................................................................... 168 3.2.3 Variables ...................................................................................................... 170 3.2.3.1 Dependent variable............................................................................................ 170 3.2.3.2 Independent variables........................................................................................ 171 3.2.3.3 Control variables ............................................................................................... 173

3.3 Results................................................................................................................. 176 3.4 Robustness checks .............................................................................................. 181 3.5 Discussion of the empirical study ....................................................................... 182 3.6. Limitations and suggestions for further research............................................... 187 4. Conclusion ................................................................................................................ 191 Bibliography ................................................................................................................. 193

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LIST OF FIGURES Figure 1:

Internationalization of newly founded business units ................................. 15

Figure 2:

Research perspective ................................................................................... 16

Figure 3:

Characteristics of the internationalization process ...................................... 22

Figure 4:

Pan and Tse’s (2000: 538) hierarchical model of choice of entry modes (adapted) ...................................................................................................... 25

Figure 5:

The basic mechanism of internationalization: state and change aspects ..... 36

Figure 6:

Overview of journal article selection........................................................... 44

Figure 7:

Frequency of articles in journals ................................................................. 45

Figure 8:

Cumulative frequency analysis of articles over time................................... 46

Figure 9:

Relative cumulative development of types of articles over time................. 47

Figure 10: Perspectives on speed in international business research............................ 51 Figure 11: Overview of the single activity perspectives ............................................... 64 Figure 12: Overview of the multi activity perspectives ................................................ 70 Figure 13: Overview of the hybrid perspectives ........................................................... 77 Figure 14: Graphical illustration of the perspectives on internationalization speed ..... 79 Figure 15: Literature review framework: Speed drivers and outcomes ........................ 82 Figure 16: Relationships between speed drivers ......................................................... 145 Figure 17: Research framework for the empirical study............................................. 157

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LIST OF TABLES Table 1:

Research approaches and research foci ....................................................... 47

Table 2:

Overview of the firm inception to start of internationalization perspective 59

Table 3:

The relationship between research subjects and conceptualization of speed........................................................................... 81

Table 4:

Frequency of studied speed drivers and outcomes per speed perspective. 136

Table 5:

Overview – Journal articles included in the literature review ................... 137

Table 6:

Descriptive statistics .................................................................................. 178

Table 7:

Results of Cox event history analysis – Speed of new business unit internationalization steps............................... 179

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LIST OF ABBREVIATIONS AMJ

– Academy of Management Journal

AMR

– Academy of Management Review

BU

– Business Unit

CEO

– Chief Executive Officer

CEPII

– Centre d’Etudes Prospectives et d’Informations Internationales

COMECON – Council for Mutual Economic Assistance ETP

– Entrepreneurship: Theory & Practice

FDI

– Foreign Direct Investment

GSJ

– Global Strategy Journal

IB

– International Business

IBR

– International Business Review

IJMR

– International Journal of Management Reviews

IP

– Intellectual Property

JBV

– Journal of Business Venturing

JIBS

– Journal of International Business Studies

JIE

– Journal of International Entrepreneurship

JIMan

– Journal of International Management

JIMar

– Journal of International Marketing

JSBM

– Journal of Small Business Management

JWB

– Journal of World Business

MIR

– Management International Review

MNE

– Multinational Enterprise

NBU

– New Business Unit

OEM

– Original Equipment Manufacturer

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OLI

– Ownership – Location – Internationalization (Eclectic Paradigm)

OS

– Organization Science

SEJ

– Strategic Entrepreneurship Journal

SMJ

– Strategic Management Journal

R&D

– Research and Development

SG&A

– Selling, General and Administrative Expenses

SME

– Small and Medium-sized Enterprises

UK

– United Kingdom

USA

– United States of America

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1. INTRODUCTION 1.1 MOTIVATION AND POSITIONING Firm internationalization is typically conceptualized as a process (Hewerdine & Welch, 2013, Johanson & Vahlne, 1977, Steen & Liesch, 2007, Welch & PaavilainenMäntymäki, 2014, Welch & Luostarinen, 1988). Given that process refers to the progression of events over time (Langley, 2007), time should play a central role within firm internationalization research. However, with few exceptions (for example, Buckley & Casson, 1981, Hashai, 2011, Jones & Coviello, 2005, Pedersen & Shaver, 2011, Vernon, 1966), research has typically given little explicit consideration to time (Casillas & Acedo, 2013). As Eden (2009: 535) has reasoned, the dominant paradigms in international business have focused on ‘why’, ‘where’, and ‘how’ questions, with little attention to ‘when’. However, George and Jones (2000: 658) proposed that although time may often be considered only as a boundary condition (Whetten, 1989), “it can and should play a much more important and significant role in theory and theory building because time directly impacts the what, how, and why elements of a theory”. With the emergence of international entrepreneurship research and the ‘born-global’ phenomenon, scholars have explicitly acknowledged time as a central issue in firm internationalization (Jantunen, Nummela, Puumalainen, & Saarenketo, 2008). In particular, speed of firm internationalization – which is arguably among the most important time-based dimensions – has become the focus of substantial research (Chetty, Johanson, & Martin Martin, 2014, Hewerdine & Welch, 2013, HurmerintaPeltomäki, 2003, Prashantham & Young, 2011, Weerawardena, Mort, Liesch, & Knight, 2007). However, despite the considerable attention which internationalization speed has received in international entrepreneurship research, the concept of speed has still, by and large, been overlooked in internationalization research on established firms

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(for notable exceptions see, for example, Casillas & Moreno-Menendez, 2014, Chang & Rhee, 2011, Pedersen & Shaver, 2011, Vermeulen & Barkema, 2002). An underexplored question therefore is: What explains differences in internationalization speed in the context of established firms? This doctoral thesis aims to make the following contributions: First, I provide an overview on the study of internationalization speed and the drivers and outcomes of speed that have been discussed in the literature until today to describe the context for the further elaborations. Second, I investigate empirically the speed of internationalization in the context of established firms, in particular, established multinational enterprises (MNEs) and their newly established business units (NBUs). This study is based on a journal article by the authors Prof. Dr. Thomas Hutzschenreuter, Prof. Dr. Ingo Kleindienst, Prof. Dr. Christina Günther, and Martin Hammes (in press) that has been accepted by Management International Review1. The theoretical background for the empirical study is the organizational learning and knowledge perspective and my theory focuses on the learning sequence that is based on the temporal order of acquiring business knowledge before internationalization knowledge. I test hypotheses about the influence of the learning modes – direct and indirect learning – on the speed of internationalization. In the next paragraph I will elaborate on the research subject that is examined within this doctoral thesis to provide an introduction to the situation of the MNE and lay out the resulting research questions.

                                                             1

Chapters 1.1; 2.3; 3. and 4. contain parts of this journal article, but are adapted to fit into the structure of this thesis.

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1.2 THE RESEARCH SUBJECT: INTERNATIONALIZATION OF NEWLY FOUNDED BUSINESS UNITS In order to sustain growth, established MNEs found new business units, which in the context of this thesis are defined as newly founded lines of business focusing on a product market in which the respective MNEs have not been previously active (e.g., Chang, 1995, Lee & Lieberman, 2010). Typically, these NBUs are incorporated in a single market and subsequently expand internationally. Figure 1 shows an example. The MNE in the example is active in five different foreign markets (A-E) with three different business units (k,l,m) . In one of the markets (C) it is diversifying and founding a new business unit (n). In the following this business unit may internationalize and enter additional markets (B, D, E, or even F – in this case the MNE is entering the foreign market for the first time).

Figure 1: Internationalization of newly founded business units

Country A

Country C

Country E

MNE

BUk

Country B

BUl

BUk BUl

BUk

BUm

BUm

MNE

Country D

NBUn

MNE

Country F

NBUn

BUk

BUm

MNE NBUn

MNE BUl

NBUn

MNE NBUn

I contend that due to their embeddedness in the corporate environment of their established parent MNEs, NBUs face substantially different conditions as compared to 15

 

newly founded firms, as established MNEs usually possess more resources and more experience than newly founded firms (Knight & Liesch, 2002). I propose that the ability to engage in knowledge transfer with the existing business units of their parent MNEs affects NBUs’ speed of internationalization, since support from the parent MNEs may boost NBUs’ internationalization readiness (Tan, Brewer, & Liesch, 2007). In the empirical part of the thesis, I hypothesize that speed of internationalization increases with NBUs’ relatedness to their parent MNEs’ portfolio of businesses. I therefore observe the internationalization of NBUs and compare which of these business units internationalize faster, as outlined in figure 2.

Figure 2: Research perspective

Diversified MNE corporate environment

BUk

BUl

Relatedness?

NBUn

Which new business units internationalize faster?

BUm Relatedness?

NBUo

BU...

1.3 THEORETICAL PERSPECTIVE: ORGANIZATIONAL LEARNING The hypotheses are based on organizational learning theory, especially the tradition of the Uppsala model of firm internationalization (Johanson & Vahlne, 1977), which posits that experience that grows out of a firm’s current activities is pivotal to the firm’s

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learning process and, by extension, its internationalization process (Johanson & Vahlne, 2009: 1415). The Uppsala model has been one of the most influential theoretical models in international business research and several scholars have challenged and extended the model assumptions (for example Andersen, 1993, Fletcher & Harris, 2012). Forsgren (2002), for example, criticized the Uppsala model for concentrating on experiential learning and largely neglecting other learning modes. Within this thesis I address these criticisms. I focus on more recent contributions on organizational learning that focus on the temporal aspects of acquiring knowledge. Bingham and Davis (2012) introduced the term ‘learning sequence’ to describe the effect of the temporal order between different learning processes, in particular between direct learning through own experience and indirect learning through the acquisition of knowledge from others. In the context of NBUs I focus on direct or indirect learning of business knowledge and the subsequent direct learning of internationalization knowledge and the effect on the NBUs internationalization speed. The focus on NBUs – which are born into the corporate environment of their parent MNEs – enables to explore the possibility that NBUs acquire knowledge by means of indirect learning from other areas of the MNE; a clear distinction to the Uppsala model which focuses on direct learning through the firm’s own experience. As indirect learning can be assumed to occur faster than direct learning (Bruneel, Yli-Renko, & Clarysse, 2010, Tan, Brewer, & Liesch, 2007), NBUs, which receive knowledge from related business units of their parent MNE are able to set up their business within a country more rapidly. These NBUs are consequently enabled to move forward and enter an additional foreign market at a higher speed, as compared to NBUs that have to rely to a greater extent on direct learning through their own experience.

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1.4 STRUCTURE OF THE DOCTORAL THESIS The further thesis is structured as follows. In the next section I provide an overview of the characteristics of the internationalization process and the main internationalization process theories to put “internationalization speed” into perspective and provide a background for readers that are less familiar with these topics. Then I discuss the role of speed for firm internationalization and conduct a literature review on the perspectives on internationalization speed, as well as the drivers for faster speed and the outcomes of faster speed. Based on this literature review I elaborate briefly how my empirical research connects to existing knowledge. I then elaborate on the theoretical background of this thesis, in particular organizational learning theory and develop the hypotheses. The hypotheses are tested by examining the international expansion activities of 788 NBUs on 90 established MNEs in the period between 1985 and 2007 using event history analysis. This sample has been collected by the Chair of Corporate Strategy & Governance, headed by Prof. Hutzschenreuter of the WHU – Otto Beisheim School of Management and has been already used for previous research on internationalization and diversification (Hutzschenreuter & Guenther, 2008, 2009, Hutzschenreuter & Horstkotte,

2013a,

2013b,

Hutzschenreuter,

Kleindienst,

&

Lange,

2014,

Hutzschenreuter, Kleindienst, & von Bieberstein, 2011, Hutzschenreuter & Voll, 2008, Hutzschenreuter, Voll, & Verbeke, 2011). I find support for the hypotheses. I find that the speed of internationalization is significantly faster for NBUs with the highest possible relatedness to the already existing portfolio of business units of their respective parent MNE. I also find that NBUs’ own internationalization experience significantly increases the speed of internationalization. Finally, I find significant evidence that the more an NBU relies on indirect learning during the ramp-up process, the lower is the positive effect of its internationalization experience that it has obtained by means of

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direct learning. I then discuss these findings and the implications for research and practice, as well as the limitations of this study. Finally, I will provide a short conclusion. In advance, it seems appropriate to point to an important limitation regarding the methodology of this study: I ground the theoretical framework in organizational learning theory. However, I do not directly observe and measure the direct and indirect learning processes that may occur in the new business units within the research setting. This shortcoming is mainly due to the longitudinal research setting, encompassing more than two decades. Even though such a longitudinal approach is necessary in order to explore internationalization processes over time, it inhibits primary data collection by means of, for example, interviews or direct observation. As such, I am left with the same problem faced by comparable studies, for example, Chang (1995) or Autio, Sapienza, and Almeida (2000). Hence, given that I am not able to directly assess and measure direct and indirect learning processes, I have to infer from NBUs’ actual internationalization behavior. I will begin the theoretical elaborations of this thesis, as outlined before, by focusing on the internationalization process of firms and describing the role of speed within this process.

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2 THEORETICAL BACKGROUND

2.1 THE INTERNATIONALIZATION PROCESS

I will provide a brief overview of the different characteristics of the internationalization process, as well as the main theoretical contributions that have been discussing this process. These examinations provide the foundations for putting the topic of “internationalization speed” into perspective. Knowing the other characteristics of the internationalization process helps to understand better the role of speed, as, for example, the manager’s decisions on the other characteristics may have an influence on the internationalization speed. On the other hand, faster speed may affect other characteristics as well. Furthermore, the internationalization process theories form the base for substantial research on the firm’s internationalization. Understanding the role of speed in these theories, shows the historical importance of “internationalization speed”, provides a starting point for the further development of these theories in the light of new findings on the role of internationalization speed and helps to interpret the research that has been built on these theories. The overview starts with the internationalization process characteristics.

2.1.1 Characteristics of the internationalization process The Oxford dictionary defined “process” as “a series of actions or steps taken in order to achieve a particular end” (Oxford Dictionaries, 2016). The core characteristics of a process are therefore, following some of the questions that Whetten (1989) suggested. First, a particular end or a reason, why actions or steps are undertaken exists. In the context of internationalization the particular ends are the reasons why a firm is

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internationalizing and conducting particular steps. Second, these steps usually have individual characteristics describing how and where and when they are performed. For internationalizing firms, “how” refers to the entry mode that may range from export to the set up of a fully-owned subsidiary (Johanson & Vahlne, 1977). “Where” refers to the location for example the foreign market the firm is entering and “when” refers to the point in time the steps occur (Eden, 2009). Finally “series” indicates that the steps can be ordered on a timescale with one step occurring before the other, referring to a linear perception of time (Ancona, Okhuysen, & Perlow, 2001). Figure 3 gives an overview of the internationalization process characteristics that I will discuss briefly in the following paragraphs.

Figure 3: Characteristics of the internationalization process

Internationalization step Why?

– Reason

Where?

– Location

How?

– Entry Mode

When?

– Timing

Internationalization step

…

Internationalization step

…

…

Series

2.1.1.1 Reasons for internationalization – Why? The question, why firms internationalize, has attracted interest from researchers for several decades and different perspectives on this question emerged. First, firms may be attracted by the market potential of a foreign market. Following Vernon’s (1966) product cycle model, a firm may for example sell a product in a foreign market that has been developed for its home market once it has reached a

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mature stage, in order to make better use of the R&D expenses to develop it. Dunning and Lundan (2008) called this demand-driven behavior market seeking. Second, firms may be attracted by the resource potential of a foreign market. The availability of natural resources or human resources at comparably lower costs may motivate firms to enter a foreign market. In fact, low-cost labor in East Asia or Eastern Europe has attracted many Western firms to become internationally active in these regions in the 1990s. A special resource is knowledge. As an intangible asset it may be easily transferred across borders, but its generation is linked to individual persons. Foreign markets and even regions within a country may differ in their ability to generate knowledge. The Silicon Valley is an example of an area, where many firms with hightech knowledge reside and many firms from the respective industry are active. Tapping into regions with valuable knowledge may be attractive for firms motivating internationalization activities. In general, the availability of resources may create a location advantage (Dunning, 1988). Internationalizing to obtain resources has been called by Dunning and Lundan (2008) (natural) resource-seeking behavior. Market seeking and resource seeking may be motivated by competitive activities. If competitors put pressure on the business in the home market, firms may “flee” and offer their products abroad (‘defensive’ market seeking behavior) (Aharoni, 1966). In the same vein, if competitors obtain a location advantage by entering a foreign market the firm may follow in order to neutralize this advantage (‘defensive resource seeking behavior) (Belderbos, Olffen, & Zou, 2011, Delios, Gaur, & Makino, 2008) . In oligopolistic markets this may also lead to a tit-for-tat behavior if competitors from different regions start attacking each other in their respective home markets (Yu & Cannella, 2007).

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In general the reasons for NBU internationalization of diversified MNEs are similar to the reasons the overall firm internationalizes. NBUs may be motivated to internationalize due to foreign market and resource potential, as well as competitive activities of their industry peers. However, they face a special situation in comparison to single business firms, if they enter foreign markets, where the MNE is already active. The reason is that the MNE may have gained access to local resources that may be used by the NBU. Furthermore, it may have already generated substantial knowledge about the foreign market that may be of value for the NBU as well. These thoughts indicate that it may be worth to examine the reasons for NBU internationalization in more detail.

2.1.1.2 Modes of internationalization – How? Firms may internationalize through different means that differ in the intensity of involvement and potentially equity-investment (Agarwal & Ramaswami, 1992, Johanson & Vahlne, 1977). Pan and Tse (2000) categorized the different entry modes and I show their model in figure 4. This model should provide an overview for the following description of the firm’s entry modes.

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Figure 4: Pan and Tse’s (2000: 538) hierarchical model of choice of entry modes (adapted) Choice of entry modes

Non-equity modes

Equity modes

Export

Contractual Agreements

Equity Joint Ventures (EJV)

Wholly Owned Subsidiaries

Direct Export

Licensing

Minority EJV

Greenfield

Indirect Export

R&D contracts

50% share EJV

Acquisition

Others

Alliances

Majority EJV

Others

Others Focus of the empirical study in this thesis

The mode with the least exposure is exporting (or importing), which describes an armslength transaction of goods or services across borders (Johanson & Vahlne, 1977). This could occur directly or indirectly through independent agents for sales or purchasing, which requires slightly more involvement, as usually longer-running business relationships are formed (Johanson & Wiedersheim-Paul, 1975). Licensing, joint R&D or interfirm alliances are non-equity modes that are based on contractual agreements between the firm and other partners (Pan & Tse, 2000). In comparison to these nonequity modes the following ones require more commitment, as they contain foreign direct investments and the creation of a legal entity in the foreign market. Firms can partner with another company and found an equity joint-venture to exploit the opportunities of the foreign market. The firm’s commitment, as well as the potential influence over the development of the joint venture increases with the firm’s level of ownership (Pan & Tse, 2000). Finally, it may choose wholly-owned subsidiaries as 25

 

entry mode with the highest level of involvement, which also potentially yields the highest exposure to foreign market risk. Both equity-based forms may be set up through the foundation of a new subsidiary as a greenfield or through an acquisition of all or some shares of an existing firm (Slangen & Hennart, 2007). The selection of the mode has been a topic of research and theoretical development for several decades, especially from the transaction-cost and internalization perspective (Buckley & Casson, 1976, Caves, 1996, Dunning, 1988, Hennart, 2003, Hymer, 1976). I will only rephrase those developments that are relevant for the further explanations within this thesis. The higher the equity stake of the firm, the more hierarchical control is possible, while non-equity modes are based on market transactions. Firms may not possess sufficient resources for equity-based entries and thus begin with modes that require less involvement (Johanson & Vahlne, 1977). Furthermore, if the effort for hierarchical control becomes too costly a market transaction may be preferred (Hennart, 2003, Williamson, 1975). Finally, firms that prefer to avoid the risk of foreign direct investments may hark back to exports or other non-equity forms (Johanson & Vahlne, 1977). However, if an arm’s length transaction does not represent an efficient way of doing business abroad, firms may decide for an equity mode. One case could be, for example because the prices for a transaction cannot be easily defined (Hennart, 2003: 133). Especially, if the firm possesses resources it wants to protect, for example special know-how that may be a source of competitive advantages a wholly-owned subsidiary may be preferred, in comparison to licensing or even joint-ventures (Hennart, 1982). Further reasons for a preference of equity-modes may be that an MNE may benefit from economies of scale and scope that Dunning and Lundan (2008) called efficiency seeking. If, for example, market failures in factor markets exist, a firm may be able to manage an international production network from raw material to final product more efficient than a respective

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market transaction (Hennart, 2003). Furthermore, there may be non-market barriers that predefine a certain mode, for example if export/import restrictions exist or joint ventures with local partners are enforced through government policies (Sun, Mellahi, & Thun, 2010). In the empirical study of this thesis I focus on the equity modes and foreign direct investments of new business units, as these require more involvement from the MNE. More involvement implies that the firm has the intention to build a longer lasting presence in the foreign market and not only operate for individual projects or deals and thus has an incentive to learn about the particular characteristics of the foreign market. Furthermore, from a methodological point of view focusing on FDI yields the advantage that this information is publicly available as it has to be published within the annual report of the firms.

2.1.1.3 Directions of internationalization – Where? During the internationalization process firms have to decide where they want to be active and select a location for their foreign activities. First, they have to decide, which foreign market or markets they want to enter. The selection of a certain country is on the one hand influenced by the expected benefits of internationalization that have been discussed in the previous paragraph on the reasons for internationalization. On the other hand, foreign market entry creates efforts and costs for the firm and the firm’s managers are likely to take these costs into consideration as well, when they select the foreign markets for the firm’s international expansion. Firms encounter entry barriers when they enter new industries and foreign markets. Bain (1956) was the first to carefully observe these barriers that hinder new firms when they attempt to compete in an established industry. The idea of entry barriers goes back

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to neoclassical theory, which interprets entry barriers as indications of market imperfections (Wernerfelt & Montgomery, 1986) and has been extended within the industrial organization (I-O) and transaction-cost perspective (Bain, 1956, Baumol & Willig, 1981, Caves & Porter, 1977, Williamson, 1975, Williamson, 1971). Hymer (1976) adapted Bain’s idea to the international context and elaborated on the costs of doing business abroad, ideas that were picked up by the international business literature, especially when Zaheer (1995) introduced the concept of liabilities of foreignness, which extended the scope from an observation of “market-driven costs” to “structural/relational and institutional costs of doing business abroad” (Zaheer, 2002: 351). Liabilities of foreignness can stem from a number of different sources, unfamiliarity with the foreign market environment being a particularly prominent one. For instance, the firm may not be aware of a foreign market’s level of economic development (Caves, 1996), of its political (Delios & Henisz, 2003a), legal (Mezias, 2002) and institutional structures (Eden & Miller, 2004, Kostova & Zaheer, 1999), or it may not be familiar with its culture (Calhoun, 2002, Mezias, Chen, Murphy, Biaggio, Chuawanlee, Hui, Okumura, & Starr, 2002). Scholars have used the term “distance”, which is the difference between the home market characteristics and the foreign market characteristics to reflect the potential unfamiliarity with the foreign market’s environment (Eden & Miller, 2004, Mezias, Chen, Murphy, Biaggio, Chuawanlee, Hui, Okumura, & Starr, 2002). One of the most prominent concepts in this area is cultural or psychic distance, which received substantial attention from the research community (Hutzschenreuter, Kleindienst, & Lange, 2016, Kogut & Singh, 1988, Mitra & Golder, 2002). In addition to the concept of liabilities of foreignness Johansen & Vahlne (2009) called attention to the importance of local networks. A lack of embeddedness in these

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networks can create a substantial barrier for a firm that enters a foreign market and thus lead to liabilities of outsidership. Liabilities of foreignness and outsidership can increase the costs for the firm, in case it is necessary to dedicate more resources to the foreign market to overcome these barriers. Furthermore, it may prolong the time until the firm benefits from its foreign market entry, as for example establishing relationships and local networks require building trust with local actors through frequent and regular interactions (Johanson & Vahlne, 2009, Vahlne, Schweizer, & Johanson, 2012, Zaheer, 1995). Therefore the situation is different for NBUs that enter foreign markets, where the MNE is already active. In this case the NBU may benefit from the local resources and networks of the MNE and the ramp up time may be shortened. I will outline in a later part of this thesis on the role of organizational learning (Chapter 2.3) that firms and managers gain experience in estimating the effort and time that is required to enter a foreign market (internationalization knowledge).

2.1.1.4 Timing of internationalization – When? The final perspective deals with the timing during the internationalization process. For this perspective two main questions can be formulated: “When does a firm start to internationalize?” and “When does a firm enter a certain foreign market?” The first question relates to the initiation of the internationalization process and the point in time, when a firm transforms from a domestic player into an international one, which dates back to Vernon’s (1966) product cycle theory. This question has gained substantial attention in the last decade, with the emergence of the born-global discussion and the claim that firms exist that are international from their inception (Freeman, Hutchings, Lazaris, & Zyngier, 2010, Gabrielsson & Manek Kirpalani, 2004, Gilbert, McDougall,

29

 

& Audretsch, 2006, Knight & Cavusgil, 2005, McDougall & Oviatt, 2000). This has led to the discussion on the factors that lead to a shorter or longer time period between the firm’s foundation date and its first international activities (Evers, 2010, Jones, 2001, Oesterle, 1997). The majority of studies that have been identified within the literature review examine the drivers of early internationalization and therefore I will provide a detailed overview on these factors in a later part of this thesis. In the empirical study I concentrate on the special case of NBU internationalization and the time period between their inception and first internationalization steps, focusing on the support from the corporate environment as a factor that is driving the speed of internationalization. The second question: “When does a firm enter a certain foreign market?” refers to the previous discussion on market selection (where?). Firms usually do not have a binary choice, whether to enter a certain foreign market or not, but rather may select their target market out of several potentially attractive foreign markets. If the firm is not entering all of these foreign markets at the same time, a decision regarding the order of foreign market entry has to be made and some markets will be entered first, while others will only be entered at a later point in time. Johanson and Vahlne’s (1977) internationalization theory provides an explanation to the order of foreign market entries. In the following part I will discuss this theory and other theories on the internationalization process in more detail.

2.1.2 Internationalization process theories Scholars have developed several theories to describe the internationalization process of firms. The most prominent ones are Vernon’s (1966) product cycle theory, Aharoni’s (1966) Foreign direct investment decision process model and Johanson and Vahlne’s (1977) Uppsala model of internationalization, I will briefly discuss in the following

30

 

focusing on their description of the internationalization process characteristics described above. These theories differ from those that focus on certain aspects of internationalization, for example Dunning’s (1988) eclectic OLI-paradigm, which does not discuss process aspects, but rather the reasons for foreign direct investments or Hymer’s (1976) monopolistic advantage theory that seeks to explain how foreign entrants can survive against local competition in a market. Also Buckley and Casson’s (1976) internalization theory is rather focused on the ownership aspects of internationalization than the internationalization process. As this thesis is focused on the internationalization process I focus on those theories that explicitly contain a process perspective and leave aside the other ones. This way of selecting the theories is similar to the approach of Melin (1992), who also focused on process theories of internationalization.

2.1.2.1 Raymond Vernon’s (1966) product cycle theory Vernon (1966) uses the metaphor of the lifecycle to describe different stages of industry and firm internationalization: First, when firms develop a new, rather not standardized, product, they produce it in their home market and sell it mainly in this market as well, as the home market potential is sufficient. In addition, they possess only limited knowledge about foreign markets. Once the product is reaching a rather mature stage, demand for this product may also arise in foreign markets and firms may begin exporting or even already setting up local plants to address this demand. Finally, standards for the production of the product may emerge and the product becomes commoditized. This allows a production with substantial economies of scale in low-cost countries and the move of production from the home market to low-cost foreign markets and the import of this foreign-produced product back to the original home market.

31

 

In Vernon’s theory internationalization is linked to the stage in the product lifecycle in an ordered sequence, which implies a linear conception of time (Ancona, Okhuysen, & Perlow, 2001). One stage follows the other in a deterministic way, which implies that leapfrogging or moving forwards and backwards in the sequence is not expected (Almor, Hashai, & Hirsch, 2006). However, the point in time, once a move to the next stage occurs is not precisely defined. Van de Ven and Poole (1995: 515) describe these types of processes as: “a unitary sequence (it follows a single sequence of stages or phases), which is cumulative (characteristics acquired in earlier stages are retained in later stages) and conjunctive (the stages are related such that they derive from a common underlying process)”. Vernon himself discussed the factors that influence the move to the next stage and he concluded that the industrial environment and the product characteristics have a strong influence on, how fast this move occurs (Vernon, 1966: 201). The model has been criticized for its focus on the industry- and country-level with the focus on newly founded firms developing new products and forming a new industry (Melin, 1992). It is less applicable to the case of new product introductions by MNEs, which may already have a substantial international network and therefore follow a different internationalization pattern and also, if the standardized product needs to be adapted to local requirements. Vernon (1979) acknowledged these issues when revisiting the model. On the whole the product cycle model touches all aspects of internationalization described above. It provides a reason why the production of goods moves from developed to – where – less-developed countries over time. The focus of Vernon’s reasoning is the relationship between exports/ imports and local production through subsidiaries (how). Finally, the timing – when the next step is made – is described

32

 

through a stage logic and a predictive sequence of steps. For the following reasoning of this doctoral thesis the product cycle model is important, as it is the first to discuss the factors that drive the initiation of internationalization from a process perspective.

2.1.2.2 Jair Aharoni’s (1966) Foreign direct investment decision process model Aharoni’s (1966) model is focused on the decision making process that takes place before a foreign direct investment occurs. His model is based on the following characteristics that influence the decision (Aharoni, 1966): (1)

Firms, as organizations, represent a social system that is embedded in external networks and an institutional environment. The relationships and commitments within and outside the firm influence the decision making process and its outcome.

(2)

These organizations have goals and foreign direct investments are one mean to reach their goals.

(3)

During the decision making process managers will face several constraints that limit their latitude of action, for example limited financial capabilities or special regulations of foreign markets.

(4)

The foreign direct investment decision has to be made under Knightian uncertainty (Knight, 1921) and limited information implicates substantial effort to seek reliable information and transform the uncertainty into “manageable” risks. Managers are averse to risk and uncertainty and seek ways to avoid deciding under these circumstances.

(5)

The decision making process takes a long time. As usually several actors are involved and several subdecisions have to be prepared.

33

 

In general Aharoni (1966) describes the process as follows: US managers usually do not consider foreign direct investments, as enough opportunities within the home market exist. The impetus for looking abroad usually comes from the outside, for example the request to sell the products abroad by a foreign customer or the fear to loose market share if competitors are going abroad. Based on this logic there is no overall decision to go international, but rather an individual decision to invest in a specific foreign market. However, the point in time, when a decision is made is often unclear, as the overall process does not follow a structured logic of analysis before decision, as proposed for example by the strategic planning school (e.g. Ansoff, 1965). Sometimes investigations are ordered ex-post, to justify a decision that has already been made. Bounded rationality (Cyert & March, 1963) and the influence of perceptions and interpretation drive the process, as well as commitments towards other actors within and outside the firm. This is the core difference and the core contribution of Aharoni (1966) in comparison to Vernon’s model (1966). While for the first internationalization decision this rather unstructured process takes place, actors gather experience how to deal with the situation to decide about a foreign direct investment. In further steps they may benefit from this experience and improve the decision making process. This discussion on learning from experience during the internationalization process is very important for the further reasoning of this thesis and is put to the test and is further extended in the discussion of internationalization knowledge below. The second important contribution to the literature is Aharoni’s focus on the micro-processes of decision making that take place before a firm is realizing an internationalization step. These micro-processes are out-of-scope of the empirical examination of this thesis, as they require a different level of analysis. However, it is important to keep in mind that a potentially unstructured and highly subjective decision

34

 

making process inside the firm may be behind each internationalization step that can be observed on the level of the overall firm. Summarizing Aharoni’s foreign direct investment decision process model, the reasons (why) for internationalization are rather opportunistic and the question regarding the selection of a foreign market (where) is not relevant in this model, as it is assumed that managers do not decide between different options, but rather whether to invest in a certain foreign market through FDI (how) or not. The duration of this decision process is rather long, and the point in time, when (timing) the decision is made is often unclear, as a clear structure in the process may be lacking.

2.1.2.3 Johanson and Vahlne’s (1977) Uppsala model of the internationalization process The Uppsala model of the internationalization process is the most prominent internationalization process theory and its core paper by Johanson and Vahlne (1977) is one of the most cited international business articles. The base for their reasoning is the bounded rationality of the actors, as described in the behavioral theory of Cyert and March (1963) and they also hark back to some ideas brought forward by Aharoni (1966). Furthermore, they assume “that the firm strives to increase its long-term profit […]”, but “is also striving to keep risk-taking at a low level” (Johanson & Vahlne, 1977: 27). Against this background they developed a dynamic model that consists of change and state aspects of internationalization and use this model to explain a firm’s sequence of foreign market entries, as well as its sequence of entry modes within a foreign market. Figure 5 shows the graphic they used to explain their original model.

35

 

Figure 5: The basic mechanism of internationalization: state and change aspects (Johanson & Vahlne, 1977: 26) State

Change

Market knowledge

Commitment decisions

Market commitment

Current activities

The state aspects consist of the “resources committed to foreign markets – market commitment – and knowledge about foreign markets possessed by the firm at a given point in time” (Johanson & Vahlne, 1977: 27). Market commitment implies limited flexibility and that resources developed to serve a certain purpose in a foreign market cannot be used elsewhere. Market knowledge can be distinguished in objective and experiential knowledge. According to Penrose (1959) the later can only be acquired through own personal experience, which implies that a firm can only learn about a foreign market, once it is active within this market. They furthermore distinguish general knowledge that can be used globally, independent from a specific location and market-specific knowledge that is only applicable within a certain foreign market. A firm depends on both types of knowledge as they help managers to identify opportunities and govern the business in the foreign market. However, only the general knowledge may be transferred across country borders.

36

 

These state aspects are assumed to influence the change aspects: the “commitment decisions and the way current activities are performed” (Johanson & Vahlne, 1977: 27), but at the same time the change aspects influence the state of internationalization. Current activities in a foreign market are the result of commitment decisions and the prerequisite to obtain experience about this market. As this experiential knowledge cannot be acquired externally the learning process may take a longer time, which slows down the speed of internationalization (Eriksson, Johanson, Majkgard, & Sharma, 1997). Commitment decisions are made under uncertainty on the base of the experience of the firm (Pedersen & Petersen, 2004). An increase of experience is reducing the perceived uncertainty and will lead to more confidence of decision makers. As managers are risk-averse, they will only commit (more) resources to a foreign market, if they possess sufficient experience to make a decision whether the long-term profit exceeds the risk from the additional resource commitment (Johanson & Vahlne, 1977). Based on this model characteristics Johanson and Vahlne (1977) propose a step-wise increase in international commitment to keep the risk at a tolerable level. They identify two processes, where this behavior of firms can be observed. The first example is the establishment chain, the sequential increase of commitment in a foreign market moving from low involvement modes to high involvement modes. Johanson and WiedersheimPaul (1975: 307) distinguish four stages of commitment: “1. No regular export activities, 2. export via independent representatives (agent), 3. sales subsidiary and 4. production/manufacturing”. With each stage the firm is learning more about the foreign market, which decreases the perceived uncertainty and may motivate a further increase of market commitment. If a firm entered a foreign market and directly set-up a local production it would face a higher risk, because it would lack substantial knowledge

37

 

about the foreign market, but at the same time has already a high market commitment. Therefore it is expected that firms will rather choose the sequential approach. The second example is the order of the sequence of foreign market entries. When firms internationalize one would expect that the order of market entry follows an economic market attractiveness logic, for example from larger foreign markets to smaller ones (Johanson & Wiedersheim-Paul, 1975). However, Johanson and Wiedersheim-Paul (1975) observed that firms begin to internationalize in foreign markets that are similar to their home market and only later enter markets with a higher psychic distance. This behavior can be explained by using the internationalization process model from Johanson and Vahlne (1977). When a firm starts internationalizing it possesses only limited internationalization knowledge and has low experience in foreign markets. The risk-averse managers therefore prefer entering foreign markets that are more similar to the home market. In this case at least some knowledge may be applied and the uncertainty is lower in comparison to a market with a higher psychic distance. With each additional international activity the firm gains more knowledge and decreases the uncertainty for subsequent entries in countries with a higher psychic distance. Over the last decades the internationalization process model has been criticized, extended and revised by several authors (e.g. Andersen, 1993, Blomstermo, Eriksson, & Sharma, 2004, Chang, 1995, Eriksson, Johanson, Majkgard, & Sharma, 1997, Forsgren, 2002, Johanson & Vahlne, 2003, 2009, Melin, 1992, Oviatt & McDougall, 1997, Pedersen & Shaver, 2011, Petersen & Pedersen, 1999, Steen & Liesch, 2007, Welch & Paavilainen-Mäntymäki, 2014). An important development has been Johanson and Vahlne’s (2009) revision of the model and their introduction of the network perspective. Similar to Aharoni’s (1966) description they stress that business happens through social relationships within networks. In addition to the uncertainty due to a lack of knowledge

38

 

about a foreign market, uncertainty emerges from the lack of embeddedness in relevant local networks (Johanson & Vahlne, 2009). As learning increases the knowledge, these liabilities of outsidership decrease through increasing commitment to a market, interaction with partners in the local network and the creation of trust. In general the Uppsala model puts less focus on the reasons for internationalization (why), assuming long-term profits as motivation for internationalization. The core of the model is rather the dynamic interaction between reducing uncertainty and increasing commitment that manifests in the establishment chain as the sequence of entry modes (how), as well as the sequence of foreign market entry (where). The timing of each step (when) depends on the liabilities of foreignness and outsidership, as well as on the available knowledge and relationships, which implies that also leapfrogging of stages may be possible (Johanson & Vahlne, 2009). The interesting characteristic of the model from a timing perspective is the combination of a linear process, that follows an ordered sequence of stages, with the concept of a cycle of uncertainty reduction and increased commitment within each stage. This combines the micro-process perspective of learning and decision making that also Aharoni (1966) discussed, with the firm perspective of visible internationalization steps as the outcome of these decisions. In comparison to Aharoni’s (1966) and Vernon’s (1966) works, the Uppsala model may have gained more attention by scholars, because on the one hand it’s basic relationships are quite simple, as shown in figure 5, but on the other hand it is very powerful to describe different aspects of the internationalization process, as the sequence of foreign market entry or the establishment chain. In this thesis I concentrate on the learning and network aspects of Johanson and Vahlne’s (1977, 2009) model and discuss how NBUs benefit from the corporate environment during their internationalization process and how this influences their speed of internationalization. In the next part, I will briefly outline the

39

 

role of internationalization speed in the three models and discuss the implications for the further thesis.

2.1.3 The role of speed in classical internationalization process theories As this short overview of the main internationalization theories shows, the focus has been on the explanation of other characteristics of the internationalization process, but internationalization speed has mainly been neglected. Vernon (1966) discusses that product and industry characteristics may influence, how fast a move to a subsequent stage occurs. Aharoni (1966) presumes that due to the involvement of various actors, the FDI decision making process requires a long time, which implies a low internationalization

speed.

Finally,

Johanson

and

Vahlne’s

(1977,

2009)

internationalization process model implies that learning and overcoming liabilities of outsidership

may

require

substantial

time,

which

impacts

the

speed

of

internationalization. This shows that classical internationalization process theories are not “speedless”, but the depth of the elaboration on speed is limited and the focus has rather been on other aspects. Only in recent years this topic has gained more attention within the international business community. Driven by an increasing interest in international new ventures and born-globals (Oesterle, 1997, Oviatt & McDougall, 1997), scholars have set off to study empirically and theoretically the speed of internationalization and advanced the understanding of this area. I will therefore conduct a literature review focused on speed in the context of international business to explore, how the understanding of internationalization speed has developed within the research community beyond the classical internationalization process theories.

40

 

2.2 SPEED IN CONTEMPORARY INTERNATIONAL BUSINESS RESEARCH: A REVIEW OF THE LITERATURE

The following literature review should give an overview of the way speed has been conceptualized in international business research, the drivers of internationalization speed, as well as its outcome. I begin the literature review by describing the methodology to identify the journal articles that have discussed internationalization speed and provide an overview of the characteristics of these articles. Second, I develop a definition of speed and a classification of the different perspectives on speed in the context of firm internationalization. I use this classification in the third step to classify the journal articles. Based on this evaluation of the speed perspectives, I assess the drivers of speed and the outcomes of speed. In the final part of the literature review I discuss the implications for further research. With this approach I seek to identify potential gaps in the literature. Within the empirical part of this thesis I aim to address some of these gaps, adding to the literature and thus contribute to a better understanding of internationalization speed and the internationalization process.

2.2.1 Method of the literature review The methodological approach for this review follows approaches used by several scholars before (e.g. Hutzschenreuter & Kleindienst, 2006, Keupp & Gassmann, 2009). The review is focused on peer-reviewed journal articles, as these are likely to reflect the variety of the field and can be considered validated knowledge (Podsakoff, Mackenzie, Bachrach, & Podsakoff, 2005). In total 23 journals have been selected for this review, based on their importance for the field and their consideration in other literature reviews (Hutzschenreuter & Kleindienst, 2006, Keupp & Gassmann, 2009, Podsakoff,

41

 

Mackenzie, Bachrach, & Podsakoff, 2005, Welch & Paavilainen-Mäntymäki, 2014). The selected journals stem from three areas: international business (Global Strategy Journal, International Business Review Journal of International Business Studies, Journal of International Management, Journal of International Marketing, Journal of World Business, Management International Review) management (Academy of Management Journal, Academy of Management Review, Administrative Science Quarterly, International Journal of Management Reviews, Journal of Management, Journal of Management Studies, Management Science, Organization Science, Strategic Management Journal, Strategic Organization) and entrepreneurship (Entrepreneurship: Theory & Practice, Journal of Business Venturing, Journal of International Entrepreneurship, Journal of Small Business Management, Small Business Economics, Strategic Entrepreneurship Journal). I conducted a full-text search for selected keywords within these journals using the online databases EBSCO (Business Source Premiere), Proquest and ScienceDirect. The keywords reflect the terminology used to describe speed in the international context. They

are:

“Internationalization

speed”,

"speed

of

internationalization",

"internationalization process speed", "entry speed", "speed of entry”, "international growth speed", "speed of international expansion", "international expansion speed", "expansion speed", "internationalization rate", "rate of internationalization", "international expansion rate", "rate of international", "internationalization time", "faster speed", "faster internationalization", "accelerated speed", "accelerated internationalization",

"accelerated

growth",

"slower

speed",

"slower

internationalization", "rapid international", "rapid internationalization", "early internationalization", "earlier internationalization", "late internationalization", "early internationalizers", "Internationalization pace", "pace of internationalization",

42

 

"internationalization process pace", "entry pace", "pace of entry", "international growth pace", "pace of international expansion", "international expansion pace", "expansion pace", "pace of foreign", "faster pace", "accelerated pace", "slower pace”, "internationalization process rate", "entry rate", "rate of entry", "international growth rate", "rate of international expansion", "expansion rate", "rate of foreign", "faster rate", "accelerated rate", "slower rate", "speed of foreign", "frequency of foreign", "timing of entry".2 As a starting point for the review I selected the year 1966, based on Vernon’s (1966) publication of the product cycle theory. Based on this online search and excluding double entries between the three databases I obtained 1.162 journal articles. In a second step I scanned the abstracts of these articles and identified 170 publications with a potential focus on speed and internationalization. Several of the 992 excluded articles had a different focus (e.g. entry mode) or the keyword appeared only in the reference list, if another article with the keyword in the                                                              2

The exact search term used in EBSCO is (Date of search: 13.03.2016):

TX ("Internationalization speed" or "speed of internationalization" or "internationalization process speed" or "entry speed" or "speed of entry" or "international growth speed" or "speed of international expansion" or "international expansion speed" or "expansion speed" or "internationalization rate" or "rate of internationalization" or "international expansion rate" or "rate of international" or "internationalization time" or "faster speed" or "faster internationalization" or "accelerated speed" or "accelerated internationalization" or "accelerated growth" or "slower speed" or "slower internationalization" or "rapid international" or "rapid internationalization" or "early internationalization" or "earlier internationalization" or "late internationalization" or "early internationalizers" "Internationalization pace" or "pace of internationalization" or "internationalization process pace" or "entry pace" or "pace of entry" or "international growth pace" or "pace of international expansion" or "international expansion pace" or "expansion pace" or "pace of foreign" or "faster pace" or "accelerated pace" or "slower pace" or "internationalization process rate" or "entry rate" or "rate of entry" or "international growth rate" or "rate of international expansion" or "expansion rate" or "rate of foreign" or "faster rate" or "accelerated rate" or "slower rate" or "speed of foreign" or "frequency of foreign" or "timing of entry") AND SO ( "Strategic Management Journal" or "Global Strategy Journal" or "Journal of International Business Studies" or "Journal of International Management" or "Management International Review" or "International Business Review" or "Journal of World Business" or "Journal of International Marketing" or "Strategic Entrepreneurship Journal" or "Academy of Management Journal" or "Academy of Management Review" or "Management Science" or "Journal of Management" or "Journal of Management Studies" or "Administative Science Quarterly" or "Organization Science" or "Strategic Organization" or "Entrepreneurship: Theory & Practice" or "International Journal of Management Reviews" or "Journal of Business Venturing" or "Journal of International Entrepreneurship" or "Small Business Economics" or "Journal of Small Business Management" )

43

 

title had been quoted. In a third step I read the remaining 170 publications to analyze their understanding of concept of speed. 20 articles analyzed in this step did not discuss speed and were excluded leading to a final sample of 150 peer-reviewed journal articles. Figure 6 provides an overview of the filter approach.

Figure 6: Overview of journal article selection

1400 1200

1162

# of articles

1000 800 600 400 170

150

02. Abstract Screening

03. Article Analysis

200 0 01. Database Search

2.2.2 Descriptive overview of journal articles In the following part I will give a brief overview of the selected journal articles. The distribution of articles over the different journals is highly skewed, with the majority of articles published by International Business Review (28), Journal of International Business Studies (27), Journal of World Business (24), Journal of International Entrepreneurship (16) and Management International Review (16). All in all, 73% of the articles have been published in international business journals, 18% in entrepreneurship journals and only 9% in general management journals. The distribution is not surprising, given the focus on speed in the context of international

44

 

business. Furthermore, in 5 journals there has not been any publication on this topic yet. Figure 7 gives an overview of the distribution of articles.

Figure 7: Frequency of articles in journals International Business Review

28 27

Journal of International Business Studies Journal of World Business

24

Management International Review (MIR)

16

Journal of International Entrepreneurship

16

Journal of International Marketing

8 6

Strategic Management Journal Entrepreneurship: Theory & Practice

5

Journal of Business Venturing

4

Journal of International Management

3

Academy of Management Journal

3

Journal of Management Studies

2

Global Strategy Journal

2

Strategic Entrepreneurship Journal

1

Organization Science

1

Journal of Small Business Management

1

International Journal of Management Reviews

1

Academy of Management Review

1

Strategic Organization

0

Small Business Economics

0

Management Science

0

Journal of Management

0

Administrative Science Quarterly

0 0

5

10

15

20

25

The temporal distribution of the articles shows that the topic of speed has gained increasing attention over the last two decades. Even though I focused on a time window of 50 years (from 1966 to March 2016) the first article published focusing on speed in international business dates from 1992 (Mascarenhas, 1992). However, the discussion of internationalization speed gained substantial momentum only from 1996/1997 (Bloodgood, Sapienza, & Almeida, 1996, Glaister & Buckley, 1996, Kutschker, Bäurle, & Schmid, 1997, Oesterle, 1997, Oviatt & McDougall, 1997, Reuber & Fischer, 1997,

45

30

 

Tan & Vertinsky, 1996). This indicates that before the mid-1990s internationalization speed was largely neglected and only later received substantial research attention with on average 7 articles published per year since 1996. Figure 8 shows the temporal distribution of the articles.

Figure 8: Cumulative frequency analysis of articles over time 160

147

150

140 140

113

120

120

101 100

92 84 75

80

62 60

40

20

1

1

1

1

4

8

10

14

16

17

23

27

33

40

42

0 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

The articles can be further classified according to the main research approach and the main research focus. Please note that this classification is not mutually exclusive. Most articles include some form of theory building and especially empirical studies may also contain some form of literature review to motivate the research and put it into perspective. The majority of the articles are empirical studies (125), thereof 44 focused on theory-building, for example using case-study approaches and 81 aiming at theorytesting. Furthermore, I identified 21 articles without empirical elaboration that rather concentrate on theory development and 4 literature reviews. As table 1 shows, theory building and theory testing have almost equal weights.

46

 

Table 1: Research approaches and research foci Research Approach

Theoretical reasoning

Empirical Study

Literature Review

Total

21

44

65

81

81

Research Focus Theory Building

Theory Testing

Synthesizing Research Total

21

125

4

4

4

150

The temporal distribution of the four categories of figure 9 shows that between 2000 and 2009 the distribution of the articles has been quite stable with on average 18% pure theory reasoning articles, 33% exploratory studies for theory building and 47% empirical studies with theory testing. After 2010 this changed and the majority of studies are now concerned with theory testing (60%), while only 8% are focused purely on theory development. Figure 9 shows the relative cumulative development of the three main categories over time.

Figure 9: Relative cumulative development of types of articles over time Literature reviews: 100%

90%

30% 80%

70%

14%

60%

50%

40% 30%

55%

20%

10%

0% 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Theory Testing

Theory Building

- thereof empirical (exploratory) studies

47

Synthezising Research

 

It is notable that the first study (Mascarenhas, 1992) had its focus on theory testing, as speed has not been the main focus within the article, but only side aspect. Articles that are building theory with a stronger focus on the speed of internationalization have only been published from 1996 onwards, with the increasing interest in international new ventures and early internationalization (e.g. Oesterle, 1997, Oviatt & McDougall, 1997). In general, this overview shows that the topic has received substantial attention over the last years and empirical confirmation of hypotheses is gaining increasing attention. To further classify these articles I provide a definition of speed and a classification of the different perspectives on internationalization speed in the following part.

2.2.3 The concept of speed According to the Oxford Dictionary “speed” is one of the 1000 most used words in the English language. It is defined as: “The rate at which someone or something moves or operates or is able to move or operate” (Oxford Dictionaries). The keyword in this definition is rate, which itself is defined as: “A measure, quantity, or frequency, typically one measured against another quantity or measure” (Oxford Dictionaries). The common language reflects this understanding of speed, when we refer to the speed of a car in km per hour or use terms like “fast/faster” and “slow/slower” to compare the performance of participants during a race. Speed is also one of the core terms of physics. Physicists use this term to describe, how fast a particle moves in a certain period of time, which can be more formally shown as speed =

distance (Halliday, Δtime

Resnick, & Walker, 2013: 16). Speed has the characteristic that it cannot be negative, but has as a minimum zero, as a particle can either stay in the position and have zero speed, or move to another position and have a positive speed (Halliday, Resnick, & 48

 

Walker, 2013). Acceleration occurs, if the numerator of the equation increases, and a particle would travel further in a given amount of time, or if the denominator decreases and a given distance can be traveled in shorter time. In International Business Research speed and related constructs as for example rate and pace have been used in various different ways and no uniform definition has emerged. I will therefore provide an overview of the different concepts, which serves as the starting point for the literature review on speed. Borrowing the formal illustration from physics the concepts of speed in international business can be summarized as: speed in international business =

activities in the international context . time

As outlined before, speed changes if either more activities take place during the same time period, or less time is required for the same number of activities. Based on this idea I identify three main perspectives on speed: The single activity perspectives and the multi activity perspectives, as well as a hybrid perspective that combines characteristics from both perspectives. First, international business scholars have focused on one defined activity and observed how fast it occurs. Thus the numerator of the formula is a constant, the given activity, while the focus of the observation is the denominator, the time. An example for this perspective is the observation of firms from their inception until the first internationalization step (e.g. Gabrielsson & Manek Kirpalani, 2004, Knight & Cavusgil, 2005, Oviatt & McDougall, 1997, Pedersen & Shaver, 2011). The path inception Æ internationalization is given and the open question is, how much time the firm requires to reach the internationalization status after its inception. The highest speed is reached, if inception and internationalization occur simultaneously or the time between both statuses is infinite short. These concepts have therefore in common, that a 49

 

starting point for the activity and the end point of the activity is defined. An example for a starting point is the firm’s status as “not internationalized” and the respective end point could be a change of the status to “internationalized”. I therefore call these concepts “single activity perspective”. On the other hand speed has been observed, by keeping the time window constant and observing the quantity of activities that occurs during this time period. In this case the focus is rather on the frequency of activities in the numerator, while the time period in the denominator is left constant. A common characteristic of this perspective is therefore that the start point in time and the end point in time have to be defined. The observation of the frequency of activities can occur by counting each activity right away during the time window of observation, or by comparing the status at the end with the status at the beginning and calculating the change between both situations. Both calculations lead to the same result. Scholars observed for example, how often firms entered foreign markets (e.g. Chang & Rhee, 2011, Hutzschenreuter, Voll, & Verbeke, 2011, Vermeulen & Barkema, 2002) for a given time period. A higher number of entries implies faster speed. Thus, speed could increase, in theory, infinitely with the increase of internationalization activities. I therefore refer to these concepts as “multi activity perspective”. Of course both perspectives are interlinked. As Kutschker, Bäurle and Schmid (1997) discussed, firms may have to decide the start point in time and the end point in time of the process and thus the speed of entry for an individual entry into a certain foreign market (single activity perspective on speed). For the overall firm, they have to decide how many foreign markets the firm is entering during a certain time period and thus how fast it is expanding its international scope (multi activity perspective on speed) (Kutschker, Bäurle, & Schmid, 1997). Figure 10 provides an

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overview of these two perspectives. I will discuss the characteristics of the hybrid perspectives in the following literature review.

Figure 10: Perspectives on speed in international business research

Single activity perspectives Speed =

Core question: How much time from start until end?

Speed in International Business Speed =

Defined : Start → End Δ Time

Activities in the international context Time

Multi activity perspectives Speed =

Δ Number of activities Defined : TimeStart → Time End

Core question: How many activities during the time period?

2.2.4 Perspectives of speed in the international business literature Based on the previous elaborations and the framework developed above (Figure 10), I will first cluster the articles according to the perspectives on speed (single, multi, hybrid). The purpose of this step is to provide an understanding how the concept of speed has been operationalized within international business research. The result of this step are 10 different perspectives (I. – X.) on speed. In a second step, I will analyze the drivers and the outcome of internationalization speed. However, as some of the perspectives on speed analyze the same underlying research subject, I will condense the 10 perspectives and discuss the drivers and outcomes based on four main research subjects: A. the speed until the first internationalization activity, B. the firm’s speed of 51

 

activities during the internationalization process, C. the temporal sequence of foreign market entries and D. the foreign market entry speed. This examination of the speed drivers forms the foundation for a brief discussion on further research possibilities and the positioning of the empirical part of this thesis. For step one, the analysis of the journal articles according to their perspective on speed, I begin with the single activity perspectives, which focus on a defined start state and a defined end state and observes the time required to move from one to the other state. In general 104 journal articles are based on perspectives that follow the single activity logic. The most prominent one, with 91 articles, deals with the start of internationalization after a firm’s inception (I.). Further perspectives deal with the speed of entry into specific foreign markets (II.) , the speed of foreign market penetration (III.) and the speed of re-internationalization (IV.), after a firm has been exiting the foreign market before. In the following I will discuss the multi activity perspective that has been used within 37 articles. This perspective focuses on the frequency of activities over a defined period of time. Studies that observe the international expansion of firms across country borders often apply this perspective. These studies can be classified according to the perspective on internationalization: the foreign business intensity (V.), the foreign market resource commitment (VI.), or the geographic scope of operations (VII.). Finally, I will discuss the hybrid perspectives that combine characteristics from the single and multi activity perspectives. In particular I identify the multi country entry perspective, where the speed of entry into multiple countries is observed in parallel (VIII.). Further studies observed the sequence of internationalization activities. On the one hand, the speed of the sequence of internationalization activities on the global firm level (IX.) has been observed, on the other hand the speed of the sequential entry into a

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specific foreign (X.) market has been studied. 18 articles have been identified that apply a hybrid speed concept. Table 3 in chapter 2.2.6 provides an overview of these speed perspectives. The number of studies, when adding up all three perspectives, differs from the overall number of journal articles, as some articles include more than one perspective on speed.

2.2.4.1 The single activity perspectives I. From firm inception to internationalization The focus of this perspective is the beginning of the internationalization process of firms. The origins of this perspective stem from a criticism of the classical internationalization process models, like the Uppsala model, that fail to explain, how internationalization starts (Andersen, 1993). Based on this criticism and the works of scholars like Oviatt and McDougall, (1997, 1994) or Oesterle (1997) a whole research stream developed, dealing with this phenomenon. 91 journal articles have been identified that refer to this perspective and this quantity is going along with a heterogeneous terminology. Firms that are considered international from their inception have been called “international new ventures” (e.g. Di Gregorio, Musteen, & Thomas, 2008, Oviatt & McDougall, 1997, Prashantham & Floyd, 2012), “born-globals” (Freeman, Edwards, & Schroder, 2006, Knight & Cavusgil, 2004, Kuivalainen, Sundqvist, & Servais, 2007), “born-internationals” (Johanson & Martín Martín, 2015) or “born-regionals” (Lopez, Kundu, & Ciravegna, 2009), as well as “entrepreneurial instant exporters” (McAuley, 1999). Scholars have been discussing “the time-span until internationalization” (Oesterle, 1997), “the initiation of internationalization” (Cheng & Yu, 2008, Yu, Gilbert, & Oviatt, 2011), “early internationalization” (Rialp, Rialp, & Knight, 2005, Sapienza, Autio, George, & Zahra, 2006, Zhang & Dodgson, 2007, Zhou,

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2007, Zucchella, Palamara, & Denicolai, 2007), “accelerated internationalization” (Mathews & Zander, 2007), and the “firm’s age at entry into international markets” (Autio, Sapienza, & Almeida, 2000, Carr, Haggard, Hmieleski, & Zahra, 2010). For the purpose of this thesis I will refer to this perspective as the “inception until internationalization start” perspective. Speed in this context will be called the “speed until internationalization”. Furthermore, a variety of different definitions have emerged, regarding the starting point for the observation, the firm’s inception and the end point for the observation, when a firm should be considered internationalized. The definition of the starting point is relatively coherent across the articles with a focus on the foundation of the firm. The exceptions from the rule are an article by Oviatt and McDougall (2005: 541), who refer to the “the time between the discovery or enactment of an opportunity and its [the ventures] first foreign market entry”, which describes a rather fluid concept and is not operationalized within their study. Furthermore, Patel, Fernhaber, McDougall-Covin, and van der Have (2014) focus on the point in time a prototype for a product innovation has been developed as the starting point for their observation and track the time until the year of the first export of the new product. The majority of the articles refer to the inception as the point in time, when the firm is formally founded or incorporated. However, Herwerdine and Welch (2013) call attention to this issue and show in their case study, that new ventures often go through a long process of organizational emergence and gestation, which may be accompanied by international activities already. They write: “This raises the question as to whether some ‘born globals’ are not so much rapid internationalizers as slow gestators: in other words, their internationalization appears rapid because a long gestational period has preceded legal incorporation” (Hewerdine & Welch, 2013: 474). In the empirical part of this thesis the starting point for the observation is the NBU’s inception, the legal

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founding as subsidiary of the MNE. However, I acknowledge that before this incorporation already gestation activities may take place, as suggested by Herwerdine and Welch (2013). This perspective yields some similarities to the product innovation internationalization study of Patel, Fernhaber, McDougall-Covin, and van der Have (2014) , but focuses on the business unit perspective instead of the product perspective. In the following I analyze which entry mode is considered as the end point within the studies and whether the studies used the speed until internationalization to classify the firms. Table 2 provides an overview of this analysis. The end point, once a firm is considered “international” varies more across the studies. Scholars have considered firms being international: [a] upon the point in time of the first international sales / exports, [b] once the international sales / exports share is higher than a certain level (e.g. 25%), [c] upon the point in time of the first imports, [d] once certain value chain activities are conducted across borders, [e] upon the point in time of the first foreign direct investment, or [f] once international activities, without specific reference to a certain mode, are started. It is obvious that depending on the definition, a venture is considered earlier or later international. Having the first exports will usually be well earlier than the first foreign subsidiary. 25 journal articles consider firms as international, once they have their first international sales or exports [case a] (e.g. Ganotakis & Love, 2012, Kiss & Danis, 2010, Reuber & Fischer, 1997, Shrader, Oviatt, & McDougall, 2000). 16 journal articles have a stricter definition and consider ventures only once their foreign sales to total sales ratio exceeds 20% or 25% as international new ventures [case b] (e.g. Gallego & Casillas, 2014, Knight & Cavusgil, 2004, Tuppura, Saarenketo, Puumalainen, Jantunen, & Kyläheiko, 2008). The idea behind this definition is that new ventures should have “substantive international business intensity and commitment” (Johnson, 2004: 145) to be considered international. Only 1 study is

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including the first imports in the observation [case c]. Pla-Barber and Puig (2009) examined how being located in a traditional industry district influences the import and export speed, each measured as the time since foundation of the firm until the first exports and first imports. I found also only one study, from Bloodgood, Sapienza and Almeida (1996), that focused on the antecedents of value chain internationalization [case d] , using the framework developed by Porter (1985) to describe the different value chain activities. Foreign direct investment or setting up the first foreign subsidiary has been the decisive characteristic in 7 journal articles [case e] (Bangara, Freeman, & Schroder, 2012, Freeman & Cavusgil, 2007, Hutchinson, Alexander, Quinn, & Doherty, 2007, Li, Qian, & Qian, 2015, Musteen, Francis, & Datta, 2010, Óladóttir, 2009, Paul & Gupta, 2014). Finally, the majority of studies (44) defines the end point only generally as the “start of internationalization activities” or “any more of foreign market entry” [case f] (Nadkarni & Perez, 2007). This includes 12 articles with purely theoretical elaborations that did not require for the theoretical reasoning a detailed definition of international activity (Sapienza, Autio, George, & Zahra, 2006, Weerawardena, Mort, Liesch, & Knight, 2007), as well as three literature reviews (Casillas & Acedo, 2013, De Clercq, Sapienza, Yavuz, & Zhou, 2012, Rialp, Rialp, & Knight, 2005). However, several empirical studies (14 theory building, 15 theory testing) consider new ventures as international, without specifying the entry mode (e.g. Bell, McNaughton, & Young, 2001, Madsen, 2013). Furthermore, several journal articles classify firms according to the speed of internationalization. Firms are considered born-globals, early internationalizers or international new ventures, if the time between inception and internationalization is shorter than a predefined time horizon. Some studies have a very strict definition and demand internationalization at the point in time of inception (Fan & Phan, 2007), at the

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time of the IPO (Bloodgood, Sapienza, & Almeida, 1996) or within the first year after inception (Efrat & Shoham, 2012, Lopez, Kundu, & Ciravegna, 2009, McAuley, 1999, Schwens & Kabst, 2009a, Schwens & Kabst, 2009b). However, some studies include a longer time horizon, from two years (Musteen, Datta, & Francis, 2014, Wood, Khavul, Perez-Nordtvedt, Prakhya, Dabrowski, & Congcong, 2011) up to nine years (Hashai & Almor, 2004) or even longer and still call the respective firms born-globals or international new ventures (Acedo & Jones, 2007, Freeman, Hutchings, & Chetty, 2012). Finally, 15 of the observed articles refer to the internationalization from inception perspective, but do neither define start point or end point of the observation, nor the time horizon that would define a born-global firm (e.g. Nordman & Melén, 2008, Pettersen & Tobiassen, 2012). They use for example the speed of internationalization as motivation for their study and use born-globals within their sample, but the research focus is not on speed, but rather on other firm characteristics (Fernhaber, 2013, Freeman, Edwards, & Schroder, 2006, Johanson & Martín Martín, 2015, Styles & Genua, 2008). Furthermore, some articles in the literature review are theoretically elaborating on rapid internationalizing firms, but focus on factors that are not related to speed, as well (Di Gregorio, Musteen, & Thomas, 2008, Freeman, Hutchings, Lazaris, & Zyngier, 2010, Mathews & Zander, 2007, Zahra, Korri, & Yu, 2005). Table 2 provides an overview of the firm inception to start of internationalization perspectives within the journal articles, omitting those 15 studies, where speed has not been operationalized. For each definition of “international firm” based on the entry modes good reasons may and have been brought forward by scholars. The same applies for the point in time that defines whether a firm is considered an “early internationalizer” or “born-global”.

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However, no definition has been theoretically convincing in the sense that there are not also good reasons against each definition. I therefore abstain from judging, whether one definition is more appropriate than others. However, changing this definition may have a huge influence on the outcome of a study or the classification of firms. If scholars compare “early internationalizers” to “late internationalizers” and the cut-off point is three years the results should hold at least, if this point in time is moved to two or four years. Otherwise it is likely that the findings result from a statistical artefact, as from a theoretical point of view it is difficult to explain a difference between such a short period of time. I therefore suggest that if scholars select one of these definitions presented above they make clear, why they select the respective one and not a potential other operationalization. It would be also helpful if they would report the robustness of their study results to different definitions. Furthermore, scholars could explicitly study whether the effect of certain factors changes over the period of time, for example if industry characteristics (see below) have a stronger influence upon firms that internationalize upon inception or firms that internationalize only later. All in all this shows that the perspective on the time to internationalization has received substantial research attention within the last decades and scholars have been very active in classifying firms according to the speed until they are international. I will discuss the drivers and outcomes of this speed in the chapters 2.2.6 – 2.2.8.

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Table 2: Overview of the firm inception to start of internationalization perspective Time perspective Definition of "international" [a] - First Foreign Sales / Exports [b] - Level of Foreign Sales > x

at Inception

at IPO