Research on Knowledge, Innovation and Internationalization: Volume 4

This is the fourth volume in the book series Progress in International Business Research with selected papers from the annual conferences of the European International Business Academy (EIBA). It is with this title that the series was launched by the co-editors Gabriel R. G. Benito and Henrich Greve (BI Norwegian School of Management), based on papers presented during EIBA's annual conference in December 2005 in Oslo. In their preface to the first volume, the previous series editors Torben Pedersen and Ulf Andersson at that time wrote: ‘The aim of the serial is to have an impact on the development of the field of international business by publishing interesting, high quality papers and research ideas that for different reasons might not reach the usual publication outlets.’

This volume of Progress in International Business Research comprises of a selection of 12 competitive papers from the 34th EIBA (European International Business Academy) annual conference, which was held in Tallinn, Estonia in December 2008 with the theme “International Business and the Catching-up Economies: Challenges and Opportunities”. It addresses two main issues – (1) the internationalization process and (2) the role of knowledge and innovation for internationalization – that are important in the current economic slowdown both for catching-up and for other economies, scholars, and practitioners.

Purpose – We examine the fundamental assumptions and features of the Uppsala model of internationalization and argue that we need to look beyond this model for studying internationalization processes in the multinational corporations (MNCs) of today. The purpose of our paper is to identify gaps and neglected issues regarding MNCs' internationalization processes that demand further theoretical and empirical study.

Methodology – Our approach is conceptual: based on the most cited model on internationalization, the Uppsala model, we approach the complex internationalization processes that continuously go on in modern MNCs. We use related bodies of literature, on MNC structure and strategy, headquarters–subsidiary relationships, MNC subsidiary strategy and development, and opportunity seeking and entrepreneurship, to fill in the gaps and develop the emerging research themes.

Findings – We identify the following three issues that need further investigation: the opportunity recognition process preceding internationalization processes in MNCs, the internationalization of multiple products within the confines of the growing MNC, and the internationalization of foreign MNC units.

Research limitations – In this paper, we open up new research fields, but do not offer empirical studies to inform us about these relevant issues. Future research should study these issues empirically, preferably through case study methodologies and/or with longitudinal designs.

Originality – The contribution of our paper is its identification of three research issues in relation to internationalization processes of modern MNCs, which we argue are neglected by contemporary research.

Purpose – This study analyzes international new ventures (INVs) by means of the classification developed by Oviatt and McDougall (1994): global start-ups (GSUs) are compared with other types of INVs.

Design/methodology/approach – The empirical data for the study were collected via a Web-based survey of Finnish ICT companies. Particular emphasis was placed on the operationalization of the key constructs as well as on the sample formation, in which both the number of international markets served and the coordination of international activities were taken into consideration.

Findings – The findings of this study indicate that GSUs are particularly driven by the international growth orientation of the top management. They also seem to perform better than other types of INVs.

Practical implications – From the managerial point of view, the findings of this study indicate that managers of INVs should be encouraged to internationalize their value chain as a whole, despite the risks. However, those managers making these decisions should also be aware of the capabilities needed for managing the global value networks they create.

Originality/Value – This exploratory study reveals that studying INVs from a holistic perspective – including both inward and outward activities – produces interesting findings and opens new avenues for future research. This theme clearly deserves more attention. Our classification of INVs into smaller subgroups also proved to be fruitful, not least concerning GSUs.

Purpose – This article addresses the internationalization processes focusing on changes of firms' internal structures, systems, and culture over time. These changes are analyzed in relation to the firms' developments in the last 10 years along a country and/or mode dimension, comparing firms with county or mode increase, two-dimensional expansions, stagnation/reduction, as well as comparing incremental one step versus multistep developments in a holistic way.

Methodology/approach – Conceptually, the changes in country dimension and establishment chain form a primary level, and structure, systems, and culture a secondary level of the framework. Managers of family-owned firms, able to evaluate the past, were asked about these dimensions in terms of their situation today and 10 years ago.

Findings – This study shows that internationalization causes changes in internal systems in particular, followed by changes in internal structural and slowest by changes in leadership and firm's culture. Even if stagnations or reductions take place, they are related to changes in internal structure, systems, and culture.

Research limitations/implications – Limitations are related to the retrospective design based on managerial perceptions, the use of less proven scales, as well as the analyses of family-owned firms. This exploratory study suggests more empirical insights on dynamic internationalization processes.

Practical implications – The study provides insights for managers into structural, systemic, and cultural changes when future internationalization steps are planned.

Originality/value of the paper – This paper shows holistic evidence of changes in 20 partial dimensions of internal structures, systems, and culture within the internationalization process over time empirically.

Purpose – To identify and systematically analyze empirical works in the emerging field of global online entrepreneurship.

Design/methodology/approach – A review of empirical articles published in peer-reviewed academic journals (1997–2008) focused on global online activities of entrepreneurial firms. The methodology purposefully compares a large number of recent studies on the main objective, type of research, theoretical framework, methodology, and main findings.

Findings – The systematic analysis of 45 articles reveals the most relevant publications in the field highlighting the collective contribution of this body of literature. The review offers insight into the state of the art of the field, discusses the implications for future development, and provides insights into the entrepreneurial aspects of e-commerce use.

Research limitations/implications – The review is limited to empirical articles published in academic journals and does not cover important conceptual contributions, book chapters, or conference publications.

Practical implications – The review highlights avenues for the future development of the field and provides guidelines for practitioners involved in global online business.

Originality/value – This paper provides a consolidation of an emerging field and offers practical advice to firms involved in global e-commerce.

Purpose – To describe and analyze the situation prior to and during the initial stages of internationalization of Chinese SMEs, as well as analyzing the role of clusters as take-off nodes for such firms.

Methodology – A multiple case study is conducted based on semistructured interviews with five private-owned exporting Chinese SMEs. Also, data on Chinese industrial clusters are analyzed.

Findings – The findings complement the model presented with new knowledge. In the take-off situation, Chinese SMEs deviate from assumed paths due to disadvantages in the emerging Chinese market. In the initial stages of internationalization, the focus on indirect exports hinders the building of international relationships being the key for further international expansion. Cluster localization is a take-off node for individual dedicated exporters into international markets.

Research limitations – Few cases, co-location of firms in the advanced Yangtze River Delta region and issues of Chinese versus Western SME definitions limits the possibility to generalize the findings of the study.

Practical implications – Chinese as well as foreign firms can gain from this paper regarding, for example, that competitiveness built up abroad can be utilized for increasing the market share in an attractive domestic market, the pitfall of indirect exports can be overcome by developing direct international relationships, and cluster localization can spur the internationalization of (individual) Chinese SMEs.

Originality – Empirical contribution of internationalization patterns of Chinese private-owned SMEs as well as pinpointing the importance of the domestic market as trigger for internationalization.

Purpose – In the Swiss economy, the service sector has gained a great share of international trade and foreign investments. Export promotion measures, though, are mainly focused on the internationalization of manufacturing companies. From the literature it remains unclear if the internationalization behavior of service and manufacturing firms differs and if promotion measures should be adapted. The present study describes the internationalization of service firms and compares it with the internationalization of manufacturing companies.

Methodology – The study is structured into two consecutive surveys: the first one is explorative, qualitative-empirical, and examines the internationalization behavior of 12 service companies, four each from the industries of corporate consulting, engineering, and information technology. The resulting hypotheses are tested in a subsequent confirmatory, quantitative-empirical survey of 443 service providers from the sectors of consulting, information technology, and education, as well as 553 production enterprises from the sectors of food, textiles, and chemical products.

Findings – The results show that the psychological distance to foreign markets has a greater importance for service providers than for production companies. Service providers prefer direct distribution systems and develop foreign markets more simultaneously than production companies.

Practical implications – The conclusion is that export promotion programs should be tailored to the specific needs of different segments of the economy.

Originality of paper – The study offers an empirical support to the position that the internationalization behaviors of service providers and manufacturers differ, and that internationalization models which are substantially based on the examination of manufacturing companies should be verified.

Purpose – We investigate whether the partnership behavior of Japanese partners in joint ventures (JVs) with European partners in Europe is better explained by the Trojan Horse Hypothesis (THH) than by the cooperative specialization (CS) view. THH assumes that Japanese firms establish JVs to steal the knowledge of their partners and dissolve JVs as soon as they have achieved their goals. The CS view, however, argues that Japanese firms set up JVs to achieve CS and that these JVs will be long-lived.

Methodology – We first derive implications of both the THH and the CS views for the longevity of JVs. We make a census of all two-partner Japanese–European JVs manufacturing in Europe in 1987 and record their evolution to 1996. We count how many of these JVs have evolved in ways that are predicted by the THH and the CS view. We argue that a particular view is supported if the number of JVs following the predicted path is larger than the number of those following alternative paths.

Findings – We find that the partnership behavior of Japanese firms is more consistent with a CS than with a THH view.

Limitations – This is a conservative test of THH behavior since JVs can dissolve for other reasons than the knowledge-stealing behavior of their Japanese partners.

Value of the Paper – This is, as far as we know, the only study that has investigated the evolution of the population of Japanese–European JVs in Europe and has derived implications for the validity of the THH and CS views of JVs.

Purpose – To investigate the effects of headquarters (HQ) involvement in innovation development and transfer at unit level.

Methodology/approach – We develop a theoretical model that we test on a sample of 71 innovations belonging to 52 business units located throughout Europe, Asia, and the USA. The data were collected by personal interviews and analyzed using the partial least squares (PLS) technique.

Findings – While HQ involvement in innovation development enhances the effects on the unit engaged in the development, it is detrimental to performance of the innovation transfer process. We also find higher HQ involvement in the innovation development process and stronger innovation impact on the subsidiary to be associated with higher HQ involvement in the transfer process.

Research limitations/implications – There is a significant beneficial effect of HQ involvement in the development process in terms of the increased impact of the innovation in the unit, and a harmful influence on the specific performance associated to the transfer process.

Practical implications – HQs will benefit from improved performance if they become more involved in important innovations while limiting their direct engagement in the transfer of “marginal” innovations. It might also be wise for the HQs to rethink their involvement at unit level by separating the development process from the transfer process in their decision framework.

Originality/value of the paper – This is one of the first attempts to empirically connect the processes of innovation development and transfer at unit level in MNCs and to show the implications of HQ involvement in innovation projects at subsidiary level.

Purpose – The study examines the roles of external facilitation in the internationalization process of high-tech firms.

Methodology/approach – The study elaborates on the roles of external facilitation through a case study of two small high-tech firms that took part in a partly governmentally financed facilitation program.

Findings – The study illustrates the internationalization of a high-tech firm as a process that includes actions of both the facilitating actors and the high-tech firm. It defines the primary roles of external facilitation over the facilitated internationalization process of firms.

Research limitations/implications – The internationalization was followed only during the time that the firms participated in a facilitation program. The external facilitation under study is of a program type; therefore the process followed is not a spontaneous one but the facilitation has certain planned phases. Future research should be conducted on the entire internationalization processes of these firms and on the utilization of various types of external facilitation.

Practical implications – The study shows how high-tech firms can benefit from external facilitation in their internationalization. It gives insight into how the type of the company and its background are related to the roles of external facilitation.

Originality/value – The study extends the existing research on the internationalization of small high-tech firms by focusing on the roles of external facilitation in their internationalization. There are numerous institutions and actors who aim to facilitate the internationalization of small firms, but there is a limited amount of research on the roles of these facilitators.

Purpose – The main research question of this contribution is whether local market concentration influences R&D and innovation activities of foreign affiliates of transnational companies.

Methodology/approach – We focus on transition economies and use discriminant function analysis to investigate differences in the innovation activity of foreign affiliates operating in concentrated markets, compared to firms operating in nonconcentrated markets. The database consists of the results of a questionnaire administered to a representative sample of foreign affiliates in a selection of five transition economies.

Findings – We find that foreign affiliates in more concentrated markets, when compared to foreign affiliates in less concentrated markets, export more to their own foreign investor's network, do more basic and applied research, use more of the existing technology already incorporated in the products of their own foreign investor's network, do less process innovation, and acquire less knowledge from abroad.

Research limitations/implications – The results may be specific to transition economies only.

Practical implications – The main implications of these results are that host country market concentration stimulates intranetwork knowledge diffusion (with a risk of transfer pricing), while more intense competition stimulates knowledge creation (at least as far as process innovation is concerned) and knowledge absorption from outside the affiliates' own network. Policy makers should focus their support policies on companies in more competitive sectors, as they are more likely to transfer new technologies.

Originality/value – It contributes to the literature on the relationship between market concentration and innovation, based on a unique survey database of foreign affiliates of transnational corporations operating in Eastern Europe.

Purpose – The main purpose of this paper is to analyze the major problem faced by exporting subcontractors from emerging markets on how to leap over the barrier of low technology and high dependency. The second purpose is to develop a theoretical framework for this analysis.

Methodology – The paper builds on a holistic multiple case study of eight internationalizing small- and medium-sized enterprises (SMEs) in the Baltic Sea Region (BSR). Interviews were performed with managers of four West European SMEs and four East European SMEs all crossing the Baltic Sea. In addition, interviews were performed with each firm's intermediaries/customers on foreign soil.

Findings – The study identifies two main international business marketing strategies for small subcontractors in emerging country markets enabling such firms to escape the trap of low-cost production and high dependency. The first is a traditional subcontractor strategy of integrating more into the contractors' production process. The second strategy is labeled the marketing route. Here, the subcontractor becomes more independent by moving further upstream in the value chain or the vertical customer network to develop its own products.

Practical implications – How a small subcontractor in a low-cost country can learn from more experienced exporters on how to develop their international business marketing network capabilities.

Originality – The study is unique in that it applies the perspective of the low-cost country subcontractors. Traditionally subcontracting is studied from the contractors' point of view.

Purpose – This study explores the role of local employees, external partners, and public authorities in supporting and providing information to foreign firms in the context of foreign investment in Southeast Europe (SEE), and the effects on foreign market success.

Methodology – This quantitative study assessed the perception of managers of Austrian companies with business activities in SEE by applying ordinary regression analysis. The hypotheses are tested using survey data of 80 Austrian firms operating in SEE countries.

Findings – Results indicate that information provision by external partners has a positive and significant influence on firm performance, while no significant relationship between information provision by public authorities and firm performance could be found. The results also show that proactivity of local employees facilitates information provision by external partners.

Research limitations – The conclusions drawn are only preliminary as the study did not control for differences in information internalization, was focused on a narrow set of variables determining market performance, and did not control for cultural contingencies of the results.

Practical implications – Western companies operating in the region have to recognize the importance of drawing on external information holders as well as the role of proactive employees in this process for market success.