How well do traditional theories explain the internationalisation of service MNEs from small and open economies?--case: national telecommunication companies.
| Verfasser | Laanti, Riku |
| Posten | RESEARCH ARTICLE |
Abstract and Key Results:
* This paper discusses international market and operation strategies of service MNEs from small and open economies (SMOPECs). The focus in the analysis will be on the special challenges that these type of companies face in their internationalisation process.
* A conceptual framework and propositions are developed based on earlier research of internationalisation of manufacturing companies and companies in different service sectors. A multicase study of four service MNEs, which are telecommunications operators (telcos), is used to illustrate and test the propositions.
* International processes of the case companies deviate in many areas from those suggested by traditional theories, especially their market strategies. Several industry specific characteristics played an important part in this, as they further enhanced many challenges common to internationalising companies from smaller countries.
Keywords: Internationalisation Process * Market Strategy * Operation Strategy * Foreign Direct Investments (FDI) * Services * Telecommunications * Small Countries * Small and Open Economies (SMOPECs)
Introduction
Background and Research Gap
Firms' international market and operation strategies have been an area of wide research interest in international business for decades. Traditionally, the research on firms' internationalisation has been covered in two main research streams: 'Economic' and 'process' streams of internationalisation (Benito/Welch 1994, Liesch et al. 2002). Dunning (2000) argued that regardless of some disparities, most of these economic and process theories are complementary and together they contribute to the overall knowledge on internationalisation theories.
Despite the fact that the original internationalisation process models were developed three decades ago, and attracted considerable criticism over the years, they still seem to offer important concepts to help understand internationalisation as a dynamic process. Moreover, Liesch et al. (2002) even argued that the development of these models is still at the very early phase, and there are still many under-researched areas in how companies internationalise.
One such area is research on the internationalisation of service MNEs from small countries. Many of the existing theories on FDI and internationalisation are developed based on research of large MNEs from large countries (Larimo 2003), and this applies especially to internationalising service MNEs. However, there is evidence to suggest that companies from smaller countries often face specific challenges in their internationalisation. In some industries, such as network industries with high capital investments, these challenges can be very significant.
Objectives of the Research
This cross-border multiple-case study will analyse in depth four companies from small and open economies (SMOPECs), which operate in a capital intensive service industry, the telecommunications industry. SMOPECs are small countries that have opened their borders into international trade with no, or only limited trade barriers (Kirpalani/Luostarinen 1999, Benito et al. 2002, Maitland/Nicholas 2002, Merrett 2002, Larimo 2003, Luostarinen/Gabrielsson 2006) (1). These countries are similar in that MNEs originating from them face special challenges similar to each other, thus also providing opportunities to learn from each other (Liesch et al. 2002, Dick/Merrett 2007).
Objectives of the research are to analyse how the market and operation strategies of these companies vary from those suggested by traditional theories developed in the context of manufacturing companies, and from the strategies of other service sector companies. Also, the factors influencing these strategies will be analysed. This will address the call by several researchers (e.g., Clark et al. 1996, Lovelock/Yip 1996, Westhead et al. 2001), to extend the existing theories of internationalisation by studying industries and sectors that have not been the focus of earlier research, and/or which have recently faced significant changes in their business environment.
The underlying aim is to extend the research on the internationalisation of services and MNEs from smaller countries, and to contribute to the development of a more comprehensive framework to analyse the internationalisation process of a firm in general. It is argued in this paper that the internationalisation patterns of SMOPEC MNEs may also serve as a model to MNEs from other, less developed small countries. Due to SMOPECs relatively early participation in the internationalisation developments valuable longitudinal data of MNEs from these countries is available for the analysis.
The findings should be useful for managers of telecommunications companies and other network industries, and for policy makers in small countries. Often the importance of MNEs for their home country is relatively much greater for small countries, than it is for the larger countries, as any major challenge that these companies face has a potential to influence the whole national economy (Benito et al. 2002). The types of companies studied in this paper are among the largest companies in their country, and more generally, these industries are very important to the economic development of the whole country, making this research topic very relevant.
The paper is organised as follows. First, the literature on the internationalisation of a firm, including discussion of recent challenges to traditional theories, is reviewed. The internationalisation of services and challenges that small country MNEs face in their internationalisation process will be discussed, and the telecommunications industry reviewed. Building on this discussion the conceptual framework and propositions are developed, and the methodology introduced. The case study findings are reported and analysed, and results discussed. Finally, conclusions are drawn, and theoretical and managerial implications presented.
Review of Internationalisation Theories
Traditional Internationalisation Theories
Most theories of the internationalisation of the firm were developed after World War II, largely between 1960 and 1990. This was a natural consequence of the rapid rise in foreign direct investments (FDI) in the 1950s and 1960s (Dunning 2006). Since then the internationalisation of the firm has been one of the central themes within international business research (Buckley/Casson 1993).
Most of the seminal theories on internationalisation, with their background in economics, are often referred to as FDI-theories and have focused on the reasons and motivations for large MNEs to exist, giving rise to such theories as: The product cycle theory (Vernon 1966); transaction cost theory (Williamson 1979, Anderson/Gatignon 1986); internalisation theory (Buckley/Casson 1976, 1982); and the eclectic paradigm (Dunning 1971, 1988). The emphasis in these theories has been on physical assets and rational economic actions, with less focus on human environment and behaviour (Benito/Welch 1994, Dunning 2006).
In contrast to the economic theories, internationalisation process theories focused on the dynamic changes in internationalisation over time (Benito/Welch 1994). This research is best illustrated by the internationalisation stages models developed in Nordic countries, including the Uppsala Model (Johanson/Wiedersheim-Paul 1975, Johanson/Vahlne 1977, Johanson/Vahlne 1990) and Luostarinen's (1979, 1994) research in Finland; and the US based Innovation Related models and theories (Bilkey/Tesar 1977, Czinkota 1982, Cavusgil 1984). All of these process models have emphasized the gradual and incremental nature of the firm's internationalisation. The concept of psychic distance, consisting of cultural and physical distance (Johanson/Wiedersheim-Paul 1975, Johanson/Vahlne 1977, Johanson/Vahlne 2006), is one of the key concepts in the process models.
Challenges to Traditional Internationalisation Theories
Despite their seminal position in international business research, these traditional theories have also faced some criticism, in that they were not able to explain the internationalisation of all type of industries and companies in every situational context. Subsequent research attempted to extend these early theories, such as for instance Johansson and Mattson's (1988) network approach, Dunning's (1995) findings of alliance capitalism in contrast to the dominance of large MNEs, studies on born global companies (Knight/ Cavusgil 1996), and research on internationalisation of services (Erramilli 1990, Clark et al. 1996). There have also been studies that have argued that internationalisation is so context specific that no clear patterns can be identified (Reid 1983, Turnbull 1987).
It could be argued that some of these reported challenges and deviations to the internationalisation processes of firms may be related to general globalisation developments (Forsgren 2002), although it seems that there are several other factors influencing these processes. Many of the internationalisation theories seem to be more context specific than perhaps has been previously acknowledged: Country specific factors of home country and host country, the industry factors and the nature of the product, and company specific characteristics all seem to be very relevant in relation to the internationalisation of a firm (Dunning 2000). Thus, there is a need to extend the existing theories by studying industries and sectors that have not been the focus of earlier research, or which have recently faced significant changes in their business environment.
Internationalisation of Services and Network Industries
Internationalisation of Services
The last few decades have demonstrated significant changes in regard to the internationalisation of service industries. The importance of services to the world economy has increased rapidly, and most service industries have increased their international...
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