Internationalization of Service Firms and Their Interactions with Socio-Political Actors.

VerfasserChidlow, Agnieszka

1 Settings the Research Arena

The interplay between society and political organization in the internationalization process of multinational enterprises (MNEs) has become a crucial issue in international business (IB) research (Shirodkar et al. 2018). While there has been extensive research on internationalization of industrial firms (Clark and Rajaratnam 1999; Zaefarian et al. 2015) and recently on the role of political and social organizations (Ghauri et al. 2015), there are shortcomings on studies that cover the internationalization of service firms interfacing social and political organizations (Hadjikhani et al. 2016; Wickert 2016). Regarding industrial firms there has been some attention to research on interaction between MNEs, society and political (Hadjikhani et al. 2001, 2012) and in the field of Corporate Social Responsibility (CSR) which is elaborated since 1930s (Berle and Means 1932; Ghauri et al. 2015; Okoye 2009). However, even in the field of industrial MNEs it is only recently that firms have realized the unavoidable influence of socio-political actors on their legitimate market position (Ghauri et al. 2012). Whether it is industrial firms or service firms, researchers like Polonsky and Jevons (2009), Ghauri et al. (2012) and Marquina and Morales (2012) have a consensus and explain that management of social and political environments is the key for marketing strategy and that it influences competition, market image and success in entry and expansion in foreign markets. Despite the increasing number of Service Multinational Enterprises (SMNEs), there are significant shortcomings as to how these firms interact with socio-political units. A further research is therefore, required (Ghauri et al. 2012; Oh et al. 2013). Moreover, it is crucial to understand international strategies and activities of SMNEs due to an increasing proportion of services in international trade and investments in the extensive globalization of services.

We hope this paper will contribute toward new knowledge and encourage researchers to embark on further research using interdisciplinary approaches to examine SMNEs. In line with these thoughts, this paper will first discuss the setting of this tradition and then elaborate how an integrative view among these three fields (business, policy and society) contribute new knowledge and how they are connected.

2 Boundary Setting of the Field

The topics under concern of this research hold the three research fields of; SMNEs, political units and society as depicted in Fig. 1. Each of these fields has attracted several researchers but with different theoretical grounds and empirical settings. A brief research on the number of articles connected to these topics covering more than 3 decades discloses interesting facts. For example, in the search of the articles in EBSCO host (2018-06, A and B) dealing with MNEs and their interaction with political actors, studies on SMNEs are much less than on manufacturing firms (i.e., 33,765 for manufacturing firms and articles dealing with the interaction between SMNEs, socio and political actors are 879). The search for articles in the internet library, EBSCO, business source complete, (2018-06, B) also indicates that the studies on SMNEs covers different fields like consulting firms, hotels, banks and knowledge firms. While the combination of topics like international service firms and political organizations hits 879, the combination of SMNE, society and policy become much less, 128 (2018-06, C). This search demonstrates the lack of research in the field of SMNEs connected to socio-political units.

Although, there are few studies that reveal the interesting issues concerning the varieties in the theoretical grounds and the empirical settings. Recently several researchers have introduced views on the interaction between the firms, and sociopolitical actors and the complexity of this relationship (Hadjikhani et al. 2016). They pinpoint that SMNEs can improve their market position by taking appropriate managerial actions towards socio-political organizations. In fact, this provokes research to understand the interaction between service firms and socio-political organizations in both local and foreign markets.

3 Internationalization of Service Firms

The role of service firms in the economy and society has captured the attention of recent studies. These studies show, that the service sector in USA accounts for 80% of GDP and private and non-farm employment (Clark and Rajaratnam 1999; Hadjikhani et al. 2016; Ross and Crossan 2012). However, despite the increasing proportion of services, there is a dearth of research in this field. During the last 4 decades the number of articles is about 0.4% of the total published papers in the management field (EBSCO 2018).

The changing landscape of IB, globalization and a further internationalization of services pose new challenges. Moreover, the heterogeneous nature of the type of services from banking to retailing, has led to questions that whether existing theories based on internationalization of manufacturing firms can equally explain the internationalization of services firms or not? As stated by Clark and Rajaratnam (1996, 1999) what these theories have in common is the implicit concern as to how and why services cross national boundaries. In such theories, modes of entering foreign markets are vital for clear understanding of services. In line with these thoughts an inspection of previous classification schemes reveal four idealized types:

  1. Contract-based services represent firms, for example, consultancy services where consumers and producers from different countries come close for transactions.

  2. Vehicle-based services in this type of firms' communications between domestic and international market is directed through, vehicles such as satellites and wires or TV.

  3. Asset-based services, this type of firms require platforms, such as banks, where services cross borders with FDI.

  4. Object-based services manifest integrated services with physical objects (like DVD, information/manuals for machinery services etc.).

    Given the diversity the services and mode of delivery, Richardson (1987) states that no single theory is probably suitable. However, the above classifications scheme may serve as a starting point for employment of a variety of theories. Authors like Clark and Rajaratnam (1999) connect the selection to the types and the nature of services. In other words, the classification schemes become related to the degree of (a) intangibility, (b) heterogeneity, (c) perishability and (d) inseparability. While the first characteristic (contract-based) is the purest type, as it exhibits the classic nature of services, the other types manifesting this with varying degrees. These types also manifest the varieties of connections with political units and society. Vehicle-based services, for example, allow producers to be present without actually crossing the borders. Although, the governments try to exercise some control over, for example, communication transmitted across their boundaries (Chandran and Pandiyan 1987; Ross and Crossan 2012). A service is thus internationalized when it operates in foreign country using any of the above classifications. These classifications also determine how the services become interconnected to business, society and political issues in foreign countries. Comparatively, internationalization of products follows the same path, however, services are both varied and complex and/or move easier and faster (Yuliani and Ashly 2017).

    Quite different to this line of thought and similar to the studies in manufacturing firms some authors uncover that SMNEs' behavior is (a) customer following, (b) follow the leader or (c) market seeker (Cardone-Riportella et al. 2003). Lovelock and Yip (1996) classify services into three groups depending on society involvement: (a) people-processing, involving tangible services like restaurant and healthcare which requires presence in the foreign market, (b) possession-processing that holds intangible actions like transportation, appliance repair in which the customer is not involved in the process, and (c) information-based in which the service firms provide a value for the customer (like collection of data, analysis, accounting, and insurance) which may or may not involve customers in the foreign market. Beside the degree of society involvement, the classifications manifest the degree of intangibility and the heterogeneities in the types of service firms. This classification is sometimes also explained to be related to if the service firms are capital-intensive or knowledge intensive (Abdelzaher 2012).

    Challenging the nature of heterogeneity in SMNEs' choice of foreign commitment mode authors like Blomstermo et al. (2006) and Gronros (1999) divide the services into hard and soft. The distinction is connected to the service production and consumption which in soft category occurs almost simultaneously. Soft group is viewed as internationalizing via contractual entry modes like licensing and franchising. In contrast, the hard service, the consumption and production are decoupled (Blomstermo et al. 2006). Because of this nature, scholars found similarities between hard service and manufacturing firms and large difference between soft service and manufacturing firms' internationalization.

    4 SMNEs and Political Connections

    There seem to be an extensive research on the role of government in banking industry (Kizys et al. 2016; Ting 2017) and hotel industry (Auliandri and Angraeny 2017; Wang and Chaudhry 2018). However, the attention of researcher on the topic of connection between SMNEs and political units appears to be rather limited (Hadjikhani et al. 2014) as it is only during the last 3 decades that studies have initiated new thoughts on theorizing this relationship (Rjavalgi and Grossman 2014; Ross and Crossan 2012).

    One crucial aspect raised in the...

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