File Name: internationalization and market entry mode a review of theories and conceptual frameworks .zip
A short summary of this paper. Conceptual frameworks on SMEs' internationalization: Past, present and future trends of research. More 23 concretely, its general goal is to draw attention to this potential: the possi- 24 bility of better examining this process — and developing a more accurate 25 explanation of it — by encouraging future writers to consider the consol- 26 idated contributions of four major streams of research in the international 27 business literature: FDI theories, the stage models, entry-mode research 28 and the network approach.
Some relevant conclusions and implications 29 are derived from this holistic approach. This fact has logically led to a number of alternative inter- pretations of this concept being found in the literature. Consequently, it is worthwhile at 33 the outset of this paper to indicate that, business internationalization is here to 34 be understood as a set of operations that facilitate the establishment of more 35 stable relationships between a firm and the international markets throughout a 36 learning process of growing international involvement and patterns of devel- 37 opment that may be simultaneously inward and outward.
First, it integrates the behavioral, learning- 3 based issues in play with the economic components affecting any large or small 4 organization. Second, this process-based definition of internationalization is 5 intrinsically dynamic and evolutionary in nature, i.
However, one can also easily observe that Small and Medium-sized 14 Enterprises SMEs are increasingly active in international markets, due mostly 15 to the recent but unstoppable effects of globalization. Consequently, their structures and processes are generally seen to be less rigid, sophisticated and complex compared to those 21 typically existing in larger firms.
This could be due, among other factors, to 26 their more limited capital and management system, lack of time, experience, 27 and information resources, some environmental restrictions, and so on, which 28 lead one to expect that the internationalization phenomenon of SMEs would 29 differ from that of larger firms. This really vast stream of research encompasses general and 32 specific studies focusing basically on the behavior and strategies associated with 33 exporting, on the relationship existing between size and export behavior, and on 34 the organizational and managerial determinants of exporting Leonidou, ; 35 Leonidou et al.
However, the concept of internationalization is not neces- 36 sarily synonymous with export activity, and beyond this extremely dispersed 37 amount of export-related literature, the analysis of internationalization among 38 SMEs, as a wider and intrinsically meaningful stream of research, has only begun 39 to emerge.
Consequently, a rather limited number of papers are available that pro- 40 vide a systematic consolidation of the increasing body of literature in this area. The main purpose of this paper is therefore to identify the evolutionary 4 trends of theoretical research focused on small business internationalization in 5 recent decades in order to consolidate the extant literature and identify further 6 research avenues.
In this sense, the state of the art will be widely examined by 7 means of a systematic review and objective assessment of the most traditional 8 as well as contemporary conceptual frameworks that have successively emerged 9 in this field. Then other contemporary contributions resulting from the increasing 18 foreign entry modes literature e.
Finally, as a result of our review 21 and assessment, a more integrative and synthethic approach to the nature of 22 SME internationalization is presented, leading to a further discussion of future 23 research issues as well as to some managerial implications. The 5 following discussion presents some recent contributions that have been devel- 6 oped in two different directions: one that is more tied to the effect of market 7 imperfections, and the other, more related to the analysis though of a static 8 character of transaction costs.
Hence, the motive for the establishment of 25 FDI appears related to the capacity of the multinational company to take advan- 26 tage of certain market imperfections of an endogenous nature, reinforcing the 27 already existing levels of inefficiency: the specific advantages of the multina- 28 tional firm are related to the exercise of market power, revealing the 29 characteristics of a quasi-monopolistic advantage Alonso, b.
In this way by means of a license 33 the licensor can provide the technical know-how, while the licensee provides 34 the market knowledge. Although 2 the idea that the market could show itself to be inefficient in carrying out deter- 3 minate transactions was initially proposed to explain the origin of the integrated 4 firm with multiple plants Coase, ; Williamson, , , it also appears 5 to fit pretty well in the case of the multinational. It is toward the analysis of 6 this type of imperfection that a new approach emerges, conferring a significant 7 role to the transaction costs derived from the mobilization of intangible assets 8 beyond national borders.
Following this line of thought we have the theory of 9 internalization and the eclectic paradigm. In order to avoid 21 them, the firm should exploit those assets under its control if it intends to keep 22 their value, at least as long as the transaction costs of the market overcome the 23 administrative costs associated with the organizational form itself.
These cases 24 would tend to occur more, the more intensive the knowledge and the more 25 specific the assets of the company were. However, if the market were foreign, then the existence of transporta- 28 tion costs and other commercial barriers would encourage FDI. Therefore, it 29 appears that the internalization approach was developed with the aim of becoming a general theory of the multinational although, given its own 31 theoretical generalness, it ends up operating at a very high conceptual level, 32 which makes giving it greater empirical content difficult Buckley, Thus, the firm should possess, in the first 37 place, a specific advantage associated with some intangible asset, which was 38 as least temporarily inaccessible for local competitors.
Hence, they tend to base 16 their main explanatory variables in transaction costs as well as in factor costs, 17 starting from the assumption of rational decision making on behalf of the invest- 18 ing firm abroad. Nevertheless, all of these proposals seem to suffer from a lack 19 of dynamic considerations and from a limited application to SMEs. They have, otherwise, a notoriously static character on 23 investigating the reasons that motivate such direct investments without making 24 special emphasis in the time dimension of the investing phenomenon.
A focus on the initial steps of the export 13 process is thus expected to be critical as these steps might form the foundation 14 for all future international activity. Frequently, 19 the export method is considered as the most favorable mode of entry at the beginning, since it permits the firm to adjust its exporting effort as it achieves 21 more or less positive results abroad. In this way, exporting becomes, generally 22 before any other method, a learning experience in the international arena Root, 23 A certain consensus exists when considering export as the basis of an 24 experiential learning process through which the firm gradually increases its level 25 of foreign knowledge, implication and commitment.
Although the majority of empirical work related to the decision to export 37 does not explicitly break down the existing stages in the adoption of this inter- 38 national activity, a few studies do conceive of the participation of the firm in 39 export operations as a process of gradual development which takes place in 40 several phases or stages and during a relatively long period of time. So, it should be considered the pioneer model in the interpretation of the internationalizing phenomenon as a process of gradual development over 11 time.
In this sense, the U-Model places special emphasis in the sequential nature 12 of the learning obtained by means of a series of steps which reflect a growing 13 commitment to foreign markets. This 17 problem would be reduced by means of an incremental process of learning and 18 decisions related to foreign markets and operations. Hence, the development of 19 activity abroad would take place through a series of successive stages that repre- sent a greater degree of involvement of the firm in its international operations.
From there, the 28 organization would gradually proceed extending its foreign activities toward 29 other new markets, each time a little more distant from a psychological point of view. For this reason, 8 as a general rule, additional commitments in the foreign market will develop 9 in the form of small, increasing steps. As a 29 consequence, their firms gradually pursue active expansion into more unknown markets and become increasingly committed to international growth.
As summa- 31 rized by Thomas and Araujo and Andersen , this pattern explains 32 internationalization in terms of the innovation-adoption of export behavior.
This is because 38 of the expected effect of the learning process followed by the firm on the reduc- 39 tion of the levels of uncertainty with which it operates in international markets.
The central feature of this 8 approach lies, therefore, in assuming that a large part of the capabilities required 9 by firms for internationalizing their activities are acquired through a process of sequential and accumulative learning, in the form of a series of phases that 11 reflect a higher commitment to foreign markets Melin, Thus, the U-Model, as well as other related 19 behavioral approaches, describes the path followed by the firm throughout its exporting trajectory, but; collectively, these approaches show themselves to be 21 somewhat weak in identifying the explanatory causes of such a progression 22 along the phases or stages considered.
Even 26 in the same area of export activity, some authors, such as Reid , , 27 point out that the structures that are finally adopted are highly specific, basi- 28 cally depending upon the heterogeneity of the transactions performed. Upon freeing it of its excessively deterministic view of the interna- 37 tionalization process, these models could be empowered to explain both the 38 emergence of new, more adaptable, flexible and innovative modes of entry, and 39 simultaneously, the acceleration of the international involvement of firms 40 Alonso, a, b, This review and assessment of several contemporary models of inter- nationalization is intended to better inform our understanding of the strategic 11 decisions and the kind of relationships established by the firm throughout its 12 international projection.
Accordingly, a wide range of institutional arrangements or alternative ways of penetration in foreign markets are becoming 21 integrated within this emerging stream of research.
Hence, a firm could serve 31 the foreign markets by means of exporting from its own domestic context, 32 understood as a mechanism of international activity that could be internalized 33 to a greater or lesser degree. Additionally, an inter- 38 national firm could co-invest with other firms international joint ventures.
These 8 various strategic options, and the different levels of commitment which these 9 alternative entry modes usually imply, can be seen in Fig. The existence of a certain trade-off between the degree of control and operational risk desired 11 in foreign operations and the volume of resources committed by the firm at any 12 specific moment is also shown.
In fact, a firm whose activities were distrib- 16 uted across all nodes should be considered even more internationalized. However, it is also important to point out 29 the fundamentally strategic nature of the deliberate choice between these alter- native trajectories of internationalization, even though such decisions usually 31 come highly conditioned — though not totally predetermined — by the sequence 32 that the firm has created and followed throughout its internationalization.
So, 33 one must acknowledge that managers, in making strategic decisions, are contin- 34 ually faced with situations shaped by the specific and dynamic resources and 35 capacities of their firm and its environment. Some of the most 6 important contributions in this line of inquiry are summarized and also system- 7 atically compared in Table 1. Also according to 11 Andersen , in the last decade applications of TC approach have become 12 fairly common in the entry-mode research.
Selection models of the foreign mode of entry based on the 17 Transaction Cost Approach. In particular, the firm would prefer to internalize international transac- 39 tions, with formulas that determine its direct presence in foreign markets, the 40 greater the transaction costs involved in servicing these markets.
This rather modified TC approach 5 generally predicts a positive relationship between asset specificity and propen- 6 sity for high-control entry modes. Second, too often relevant transaction costs in consideration of entry 15 modes can be only indirectly assessed by means of indicators such as degree 16 of asset specificity and internal or external uncertainty level.
Consequently, 17 more efforts should be made in reaching the necessary fit between the theo- 18 retical and operational levels in these kinds of studies Andersen, This contem- porary approach draws on theories of social exchange and resource dependence, 31 and focuses on firm behavior in the context of a network of inter-organizational 32 and interpersonal relationships. Moreover, researchers of networking have 33 transposed the social exchange perspective of social networks to business 34 networks.
Thus, business 37 takes place in a network setting, where different business actors are linked to 38 each other through direct and indirect relationships. This model 2 uses social exchange theory to illustrate and also explain how firms develop 3 networks organically to internationalize. More concretely, these authors consider 4 business networks as the relationships a firm has with its customers, distribu- 5 tors, suppliers, competitors and government, i.
By inter- 8 nationalizing, the firm creates, develops and maintains business relationships 9 with counterparts in other countries. This occurs in different ways: first, by forming relationships with counterparts in countries that are new to the firm 11 international extension. Second, by increasing commitment in already estab- 12 lished foreign networks penetration.
Third, by integrating their positions in 13 networks in various countries international integration. Thus, by means of these network relationships, SMEs are able to overcome 22 the size-related constraints so often identified as limiting their growth.
An assumption in this model is that a firm requires resources controlled by other firms, which 31 can be obtained through its network positions. Johanson and Mattson also use 32 the term net to specify certain sections of a network. In their opinion, networks can help firms expose themselves 19 to new opportunities, obtain knowledge, learn from experiences, and benefit from the synergistic effect of pooled resources.
However, they also identify 21 from their findings several weaknesses of this model, the most relevant one 22 being that the cases under analysis illustrated that there are other dimensions 23 to the network — such as customers and governments — that drive firms to inter- 24 nationalize rather than just the production net which Johansson and Mattson 25 emphasized in their model.
More concretely, it has 35 been the general goal of this paper to encourage future writers to consider the 36 consolidated contributions of four major streams of research in the international 37 business literature: FDI theories, the stage models, the entry-mode research, and 38 the network approach. Although generally considered in an isolated, non-related 39 way, all of them have been empirically applied in SME internationalization 40 research. In our opinion, the reviewed theo- 13 retical frameworks provide complementary views of the internationalization 14 concept.
Hopefully, such a theoretical refinement and better combination of the 15 extant approaches would critically help other researchers, and also managers, 16 to obtain a more advanced comprehension of this highly challenging phenom- 17 enon. Also, some future directions for promoting further theory development in light of our review and 21 critical assessment of the literature in this field are also addressed.
This view explains internationalization with 25 the argument that firms choose the organizational form and location for which 26 overall transaction costs are minimized. In other words, firms choose their 27 optimal structure to perform foreign production by evaluating the cost of 28 economic transactions.
Transactions perceived to be high risk and requiring 29 significant resource commitment are more likely to be internalized as part of a hierarchically structured organization. However, critics of this theory argue that 31 research in this area is used primarily to explain a pattern of investment in 32 terms of its extent, form, and location of international production, something 33 that is rather applicable to already established MNCs, and not a long-term 34 process of international expansion.
Over 2 time and through experience, firms increase their foreign market commitment 3 and this, in turn, enhances market knowledge leading to further commitment in 4 more distant markets.
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This study attempts to facilitate the future development of a more general theory relative to the nature of small business internationalization and provides a step toward a more holistic understanding of this process. More concretely, its general goal is to draw attention to this potential: the possibility of better examining this process - and developing a more accurate explanation of it - by encouraging future writers to consider the consolidated contributions of four major streams of research in the international business literature: FDI theories, the stage models, entry-mode research and the network approach. Some relevant conclusions and implications are derived from this holistic approach.
This article analyzes 26 definitions found in the literature and identifies four key dimensions of this process: 1 the Uppsala model UM ; 2 the eclectic paradigm EP ; 3 depth; and 4 breadth. A qualitative technique of content analysis was applied to analyze the 26 definitions found. Our results suggest that depth is the dimension most often mentioned 20 , followed by UM and EP 16 , and breadth
Challenging the uppsala internationalization model: a contingent approach to the internationalization of services. I E-mail address: jorgemtc iag. Some authors have questioned whether the well-known Uppsala internationalization model would be generalizable to services.
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PDF | This wholly conceptual paper examines the breadth of literature Internationalisation Theories Explaining Entry Mode Choice Empirical studies explicitly adopting the Eclectic Paradigm as the theoretical framework.
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To browse Academia.Tekhleazthado 09.06.2021 at 01:27
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This paper reviews the following conceptual frameworks of entry mode: entry mode as a chain of establishment, the transaction cost approach, the eclectic.