A cost-based explanation of gradual, regional internationalization of multinationals on social networking sites.
| Verfasser | Pogrebnyakov, Nicolai |
| Posten | RESEARCH ARTICLE |
Abstract This paper examines firm internationalization on social networking sites (SNS). It systematically examines costs faced by an internationalizing firm and how firms react to these costs according to "distance-dependent" (gradual and regional) and "distance-invariant" (born-global) explanations of internationalization. Data on 5827 country pages of 240 multinational firms on Facebook, the most popular SNS today, is used. Creating a foreign country-specific Facebook page is considered the SNS equivalent of opening a physical subsidiary in that country. The data show that multinationals exhibit internationalization behavior described by distance-dependent explanations, rather than the distance-invariant view, despite seemingly lower internationalization costs. Specifically, firms start internationalizing to institutionally closer countries, and gradually expand to more institutionally distant countries. They also tend to internationalize within their home region. The results point to the relevance of distance-dependent explanations of internationalization even in a seemingly low-friction environment of SNS, and the importance of explicitly accounting for internationalization costs in studies of cross-border expansion.
Keywords Multinational corporations * Internationalization * Regional strategy * Global strategy * Social networking sites * Facebook
1 Introduction
Entering new national markets traditionally has been seen as advantageous for firms, with benefits including access to new markets, resources and economies of scale (Ruigrok and Wagner 2003; Hitt et al. 2006). However, the specific process through which firms expand across borders has been extensively debated. The debate occurs between two broad views. What can be labeled the distance-dependent view of internationalization sees it as a gradual process, with firms expanding into less familiar countries as they gain experience (Johanson and Vahlne 1977). Further, most firms stay primarily within the boundaries of a single geographic region (Ghemawat 2003; Rugman and Brain 2003). By contrast, the more recent born-global view maintains that some firms internationalize quickly into many new and unfamiliar markets (Knight and Cavusgil 2004). If there is any common ground among the two views, it is that large multinational enterprises (MNCs) appear to follow a staged distance-dependent process, while the born-global approach is predominantly used by small and medium firms, particularly in some industries (Ruigrok and Wagner 2003).
A major enabler of the born-global strategy is information and communication technologies (ICTs) (Knight and Cavusgil 2004). Many studies of born-globals underscore the importance of ICT in quickly reaching out to new markets, lowering communication, operating and transaction costs (Zhang and Tansuhaj 2007). This allows even small firms to internationalize quickly and at low cost, as well as successfully maintain operations abroad (Axinn and Matthyssens 2002).
Of course, MNCs also invest heavily in ICTs. Depending on the industry, IT spending varies from 1 % in construction to 6.7 % in software as percentage of revenue (Hinchcliffe 2015). ICT investment continues to grow: e.g., in 2013 70 % of Fortune 500 companies had a Facebook presence, up by 4 % from 2012 (Barnes et al. 2013). ICTs are used throughout the whole value chain of an MNC, from research and new product development, to production or service delivery, to after-sales service, often in an integrated manner (Panetto and Molina 2008). Clearly, established MNCs also face higher internationalization costs compared to small born-globals. Examples of such costs include the need to coordinate activities among a diverse base of subsidiaries and the costs of adapting products to a wide range of local markets (Contractor 2007; Ruigrok and Wagner 2003). It can be expected that, as for small born-globals, ICTs would lower at least some internationalization costs for MNCs as well. This may facilitate further internationalization. And if MNCs are placed in an environment that by itself lowers at least some of the internationalization costs, even MNCs may start exhibiting internationalization behavior similar to that of born-globals. In that case, staged theories of internationalization may lose their relevance.
I test this argument by exploring MNC internationalization on social networking sites (SNS), an environment that may lower internationalization costs. SNS are web-based services that allow individuals and organizations to create profiles, establish connections with other users and view connections established by themselves and by others (Boyd and Ellison 2008; Lin and Lu 2011). Empirically, data was collected on Facebook, which is the most popular SNS today (Gelles and Isaac 2016). As in the physical world, MNCs can "enter" various countries by opening presence ("pages," or "accounts") for these countries. (The exact mechanism of how internationalization proceeds on SNS is reviewed below.) In such environment it can be expected that costs of coordinating activities across subsidiaries may be lowered because of, e.g., uniform, instantaneous communication (Dong-Hun 2010).
More specifically, this paper has two goals. First, it systematically reviews costs of internationalization derived from institutional theory, the transaction cost approach and the resource-based view. The paper then analyzes the possible impact of SNS on these costs, showing that there is no coherent perspective on whether internationalization costs on SNS are low or high. Second, departing from these inconsistencies, the paper aims to determine whether costs of internationalization on SNS are lower to the extent that MNCs do not follow a staged internationalization process but behave more like born-globals. If that is the case, as ICTs develop and lower internationalization costs further, we may expect the significance of distance-dependent explanations of internationalization to diminish in the future. However, studies in other seemingly "frictionless" environments such as equity trading and information system adoption showed the importance of distance (Barrot et al. 2008) and the continuing relevance of distance-dependent internationalization models (Beugelsdijk and Frijns 2010). The second goal is, therefore, to determine the applicability of either distance-dependent or distance-invariant explanations of internationalization to a new domain where they have not been explored: SNS.
The results indicate that it is the distance-dependent logic, rather than the distance-invariant born-global explanation, that explains MNC internationalization on SNS, however this effect diminishes with time.
Achieving these goals allows the paper make three contributions. First, the paper systematically investigates the impact of SNS on internationalization costs, an underexplored but increasingly important area as many companies integrate SNS into their business models. Second, it determines the applicability of two explanations of internationalization in the SNS environment, which at first glance may reduce internationalization costs. It was found, however, that distance-dependent explanations are supported by the data. This result therefore extends internationalization theories into a new, previously underexplored domain: SNS. Third, the study explores broad patterns of the use of one (and currently the largest) SNS platform, Facebook, by MNCs from several industries.
2 Literature Review
At a very general level, theories and frameworks of firm internationalization can be grouped into two major categories depending on importance they place on cross-country differences in firm internationalization. The first group of frameworks advocates distance-dependence. It includes, for the purposes of this paper, staged models such as the internationalization process model (Johanson and Vahlne 1977) and models based on similar logic (Petersen and Pedersen 1999). This group also includes various explanations of differences between countries, e.g., cultural distance (Yildiz 2014) or institutional distance (Kostova 1997). This group also includes the regional internationalization (Rugman and Brain 2003) and the semi-globalization (Ghemawat 2003) perspectives. The second, distance-invariant, group consists of various flavors of the born-global perspective (Knight and Cavusgil 1996; Oviatt and McDougall 2005). The born-global framework has been applied primarily to small and medium-sized enterprises (SMEs), to a large extent because newly formed SMEs may be subject to lower internationalization costs than established, large firms.
A wide variety of studies have highlighted benefits and costs of internationalization for the firm (Ruigrok and Wagner 2003; Contractor 2007). The balance between the two has repeatedly been shown to be non-linear, typically with greater costs in the beginning (as the firm gains experience) and in the end (as it reaches the limit of its internationalization space) of its theoretical internationalization process (Ruigrok and Wagner 2003; Contractor 2007).
This paper focuses on specific internationalization costs and the ways in which these costs can be mitigated. This review will show that SNS may lower these costs for MNCs as well and thus the distance-invariant born-global logic may appear a viable explanation for MNE internationalization in the SNS space.
2.1 Costs Faced by an Internationalizing Firm
According to distance-dependent explanations of internationalization, firms do not internationalize rapidly over space and time because of some constraints associated with the internationalization process (Hymer 1960/1976). At the organizational level, which is the focus of this paper, issues of firm internationalization are viewed variously through the lens of institutional theory (Contractor 2007), the transaction cost approach (Ruigrok and Wagner 2003) and the resource-based view...
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