Internationalization From a Small Domestic Base: An Empirical Analysis of Foreign Direct Investments of Icelandic Firms

Zusammenfassung

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Iceland is like a black hole in the study of foreign direct investment (FDI) from the Nordic countries; there is a gap in the literature about FDI from Iceland. This paper is the first empirical study that addresses the outward foreign direct investment of Icelandic firms. The purpose is to demonstrate how Icelandic companies have invested abroad through foreign direct investments. The overall objective of this paper is to describe the key characteristics of Icelandic multi- national corporations and to gain a deeper understanding of the internationalization processes of firms with a small domestic base. Many Icelandic companies have been investing heavily abroad over the last six years. Some have acquired companies that are relatively larger than themselves, at least in terms of the number of employees. The main motive for this increase in FDI is access to a new market. The Icelandic market is simply not large enough for companies to be categorized as medium or large companies in the global environment.

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Auszug

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Internationalization From a Small Domestic Base: An Empirical Analysis of Foreign Direct Investments of Icelandic Firms

If a metaphor were used to describe the process of the internationalization of Icelandic firms, it would be appropriate to liken Icelandic FDI to the volcanic activity for which the island nation is famous. Much like the run-up to a volcanic eruption, the Icelandic business environment bubbled in pre-investment seismic activity from around 1946 to 1999. Businesses knew of this seismic activity but it was not until 2000, when the Icelandic investment volcano exploded, that the outside world knew of the activities. One can assert that the volcanic activity changed the business environment in Iceland for good; its lava has cooled to form a new landscape which will shape the economy for years to come.

Introduction and Background

The internationalization process has traditionally been understood as an incremental and gradual process. More recent international business (IB) research has shown, however, that the internationalization of firms is often a swift process - one in which firms skip several entry modes and enter remote markets soon after their establishment. This paper aims to discuss the internationalization of firms from a small domestic base, with special emphasis on the experience of the internationalization of Icelandic firms, an almost unknown phenomenon until the late 1990s. The internationalization of Icelandic firms is an interesting subject to study because Iceland is one of the smallest economies in the world. Despite its relatively small GDP - in fact, Iceland has the smallest economy of the OECD nations - Iceland has made proportionately significant foreign direct investments since 2000. Iceland invests almost 60 percent of its GDP in foreign direct investments (EDI), a higher proportion than any other OECD nation (OECD, 2006). According to the Central Bank of Iceland (2006), the flow of foreign direct investment between 1998 and 2005 increased from 55.2 million euros to 4,669.2 million euros. This is nearly an 85-fold increase in just seven years and a remarkable annual outward FDI flow in 2005: Over 43 percent of GDP, accounting for 6,783.7 million euros.1 The increasing advance of Icelandic firms into foreign markets is attributable to several factors. It is safe to say that the economy has undergone ...

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