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Explain internationationalisation theories |
| Answer» <html><body><p>Historical development of internationalization Much of the early literature on internationalization was inspired by general marketing theories. Later on, internationalization dealt with the choice between exporting and FDI (foreign direct investment). During the past 10–15 years there has been much focus on internationalization in networks, by which the firm has different relationships not only with customers but also with other actors in the environment. The <a href="https://interviewquestions.tuteehub.com/tag/traditional-711721" style="font-weight:bold;" target="_blank" title="Click to know more about TRADITIONAL">TRADITIONAL</a> marketing approach The Penrosian tradition (Penrose, 1959; Prahalad and Hamel, 1990) reflects the traditional marketing focus on the firm’s core competences combined with opportunities in the foreign environment. The cost-based view of this tradition suggested that the firm must possess a ‘compensating advantage’ in order to overcome the ‘cost of foreignness’ (Kindleberger, 1969; Hymer, 1976). This led to the identification of technological and marketing skills as the key elements in successful foreign entry. ‘Life cycle’ concept for international trade Sequential modes of internationalization were introduced by Vernon’s ‘product cycle hypothesis’ (1966), in which firms go through an exporting phase before switching first to market-seeking FDI, and then to cost-oriented FDI. Technology and marketing factors combine to explain standardization, which drives location decisions. Vernon’s hypothesis is that producers in advanced countries (ACs) are ‘closer’ to the markets than producers elsewhere; consequently the first production facilities for these <a href="https://interviewquestions.tuteehub.com/tag/products-18828" style="font-weight:bold;" target="_blank" title="Click to know more about PRODUCTS">PRODUCTS</a> will be in the ACs. As demand expands a certain degree of standardization usually takes place. ‘Economies of <a href="https://interviewquestions.tuteehub.com/tag/scale-1195529" style="font-weight:bold;" target="_blank" title="Click to know more about SCALE">SCALE</a>’, through mass production, become more important. Concern about production cost <a href="https://interviewquestions.tuteehub.com/tag/replaces-622256" style="font-weight:bold;" target="_blank" title="Click to know more about REPLACES">REPLACES</a> concern about product adaptations. With standardized products the less developed countries (LDCs) may offer competitive advantages as production locations. One example of this is the movement of production locations for personal computers from ACs to LDCs. The Uppsala Internationalization model The Scandinavian ‘stages’ models of entry suggest a sequential pattern of entry into successive foreign markets, coupled with a progressive deepening of commitment to each market. Increasing commitment is particularly important in the thinking of the Uppsala School (<a href="https://interviewquestions.tuteehub.com/tag/johanson-2139869" style="font-weight:bold;" target="_blank" title="Click to know more about JOHANSON">JOHANSON</a> and Wiedersheim-Paul, 1975; Johanson and Vahlne, 1977). The main consequence of this Uppsala Internationalization model is that firms tend to intensify their commitment towards foreign markets as their experience grows. See also Section 3.2. The internationalization/transaction cost approach In the early 1970s intermediate forms of internationalization such as licensing were not considered interesting. Buckley and Casson (1976) expanded the choice to include licensing as a means of reaching customers abroad. But in their perspective the multinational firm would usually prefer to ‘internalize’ transactions via direct equity investment rather than license its capability. Joint ventures were not explicitly considered to be in the spectrum of governance choices until the mid-1980s (Contractor and Lorange, 1988; Kogut, 1988). Buckley and Casson’s focus on market-based (externalization) versus firm-based (internalization) solutions highlighted the strategic significance of licensing in market entry. Internationalization involves two interdependent decisions – location and mode of control. Uppsala Internationalization model Additional market commitments are made in small incremental steps: choosing additional geographic markets with small psychic distances, combined with choosing entry modes with few additional risks. ESSO_C03.qxd 6/16/08 6:12 PM Page 54 55 Chapter 3 Internationalization theories The internalization perspective is closely related to the transaction cost (TC) theory (Williamson, 1975). The paradigmatic question in internalization theory is that, upon deciding to enter a foreign market, should a firm do so through internalization within its own boundaries (a subsidiary) or through some form of collaboration with an external partner (externalization)? The internalization and TC perspectives are both concerned with the minimization of TC and the conditions underlying market failure. The intention is to analyse the characteristics of a transaction in order to decide on the most efficient, i.e. TC minimizing, governance mode. The internalization theory can be considered the TC theory of the multinational corporation (Rugman, 1986;</p></body></html> | |