Speed of internationalization of new business units: the impact of direct and indirect learning.

VerfasserHutzschenreuter, Thomas

Abstract To date, surprisingly little research has been devoted to speed, which is arguably one of the most important time-based dimensions of a firm's internationalization process. We address this gap, focusing on the learning processes during internationalization of established MNEs' new business units, in particular their accumulation of business knowledge and internationalization knowledge and the temporal order of their knowledge acquisition. We argue that new business units benefit from the corporate environment of the parent MNE into which they are born as this may enable them to acquire business knowledge and internationalization knowledge not only by means of direct learning but also by means of indirect learning. Thus, we hypothesize that (1) internationalization speed increases with new business units' relatedness to their parent MNEs' portfolio of businesses, (2) new business units will increasingly rely on indirect learning to obtain business knowledge as relatedness increases, and (3) that the positive effect of direct learning of internationalization knowledge decreases the more new business units have been relying on indirect learning to obtain business and internationalization knowledge during the ramp-up process. We examine the internationalization of 788 new business units of 90 established German MNEs and find support for our arguments.

Keywords Internationalization process * Speed of internationalization * Learning sequences * Direct learning * Indirect learning * New business units

1 Introduction

Firm internationalization is typically conceptualized as a process (Welch and Luostarinen 1988; Hewerdine and Welch 2013; Steen and Liesch 2007; Johanson and Vahlne 1977; Welch and Paavilainen-Mantymaki 2014). Given that process refers to the progression of events over time (Langley 2007), time should play a central role within firm internationalization research. However, with few exceptions (for example, Vernon 1966; Buckley and Casson 1981; Pedersen and Shaver 2011; Jones and Coviello 2005; Hashai 2011), research has typically given little explicit consideration to time (Casillas and Acedo 2012). As Eden (2009, p. 535) has reasoned, the dominant paradigms in international business have focused on 'why', 'where', and 'how' questions, with little attention to 'when'. However, George and Jones (2000, p. 658) proposed that although time may often be considered only as a boundary condition (Whetten 1989), "it can and should play a much more important and significant role in theory and theory building because time directly impacts the what, how, and why elements of a theory".

With the emergence of international entrepreneurship research and the 'born-global' phenomenon, scholars have explicitly acknowledged time as a central issue in firm internationalization (Jantunen et al. 2008). In particular, speed of firm internationalization--which is arguably among the most important time-based dimensions--has become the focus of substantial research (Hurmerinta-Peltomaki 2003; Prashantham and Young 2011; Hewerdine and Welch 2013; Weerawardena et al. 2007; Chetty et al. 2014). However, despite the considerable attention which internationalization speed has received in international entrepreneurship research, the concept of speed has still, by and large, been overlooked in internationalization research on established firms (for notable exceptions see, for example, Vermeulen and Barkema 2002; Chang and Rhee 2011; Pedersen and Shaver 2011; Casillas and Moreno-Menendez 2014). An underexplored question therefore is: What explains differences in internationalization speed in the context of established firms?

The paper makes the following contributions: First, we explicitly investigate the speed of internationalization in the context of established firms, in particular, established multinational enterprises (MNEs) and their newly founded business units (NBUs). Second, our theory focuses on the learning sequence that is based on the temporal order of acquiring business knowledge before internationalization knowledge. We test hypotheses about the influence of the learning modes--direct and indirect learning--on the speed of internationalization.

In more detail, our reasoning is as follows. In order to sustain growth, established MNEs found new business units, which in our context are defined as newly founded lines of business focusing on a product market in which the respective MNEs have not been previously active (e.g., Chang 1995; Lee and Lieberman 2010). Typically, these NBUs are incorporated in a single market and subsequently expand internationally. We contend that due to their embeddedness in the corporate environment of their established parent MNEs, NBUs face substantially different conditions as compared to newly founded firms, as established MNEs usually possess more resources and more experience than newly founded firms (Knight and Liesch 2002). We propose that the ability to engage in knowledge transfer with the existing business units of their parent MNEs affects NBUs' speed of internationalization, since support from the parent MNEs may boost NBUs' internationalization readiness (Tan et al. 2007). In particular, we hypothesize that speed of internationalization increases with NBUs' relatedness to their parent MNEs' portfolio of businesses.

Our hypotheses are based on organizational learning theory, especially the tradition of the Uppsala model of firm internationalization (Johanson and Vahlne 1977), which posits that experience that grows out of a firm's current activities is pivotal to the firm's learning process and, by extension, its internationalization process (Johanson and Vahlne 2009, p. 1415). The Uppsala model has been one of the most influential theories in international business research and several scholars have challenged and extended the model's assumptions (for example Andersen 1993; Fletcher and Harris 2012). Forsgren (2002), for example, criticized the Uppsala model for concentrating on experiential learning and largely neglecting other learning modes. Our study addresses these criticisms. We incorporate more recent organizational learning contributions that focus on the temporal aspects of acquiring knowledge. Bingham and Davis (2012) introduced the term 'learning sequence' to describe the effect of the temporal order between different learning processes, in particular between direct and indirect learning. In the context of NBUs we focus on direct or indirect learning of business knowledge and the subsequent direct learning of internationalization knowledge and the effect on the NBUs internationalization speed. Our focus on NBUs--which are born into the corporate environment of their parent MNEs--enables us to explore the possibility that NBUs acquire knowledge by means of indirect learning from other areas of the MNE; a clear distinction to the Uppsala model which focuses on direct learning through the firm's own experience. As indirect learning can be assumed to occur faster than direct learning, NBUs which receive knowledge from related business units of their parent MNE are able to set up their business within a country more quickly. These NBUs are consequently enabled to move forward and enter an additional foreign market at a higher speed, as compared to NBUs that have to rely to a greater extent on direct learning through their own experience.

We examine the international expansion activities of 788 NBUs of 90 established German MNEs in the period between 1985 and 2007 using event history analysis. We find support for our hypotheses. We find that the speed of internationalization is significantly faster for NBUs with the highest possible relatedness to the already existing portfolio of business units of their respective parent MNE. We also find that NBUs' own internationalization experience significantly increases the speed of internationalization. Finally, we find significant evidence that the more an NBU relies on indirect learning during the ramp-up process, the lower the positive effect of its internationalization experience that it has obtained by means of direct learning.

In advance, it seems appropriate to point to an important limitation regarding the methodology of our study: We ground our theoretical framework in organizational learning theory. However, we do not directly observe and measure the direct and indirect learning processes that may occur in the new business units within our research setting. This shortcoming is mainly due to our longitudinal research setting, encompassing more than two decades. Though such a longitudinal approach is necessary in order to explore internationalization processes over time, it also inhibits primary data collection by means of, for example, interviews or direct observation. As such, we are left with the same problem faced by comparable studies: for example, Chang (1995) or Autio et al. (2000). Hence, given that we are not able to directly assess and measure direct and indirect learning processes, we have to infer from NBUs' actual internationalization behavior.

2 Theoretical Background and Hypotheses

2.1 Knowledge Acquisition Processes

Following previous research, we define organizational learning as the change in a firm's behavior or cognition that occurs as the firm acquires experience (Steen and Liesch 2007; Levitt and March 1988; Cyert and March 1963). The acquisition of experience, in turn, is associated with changes in the firm's knowledge base, which may include both explicit and tacit components (Argote and Miron-Spektor 2011). A firm's knowledge is regularly stored in what has been called routines, which may be defined as the "forms, rules, procedures, conventions, strategies, and technologies around which organizations are constructed and through which they operate" (Levitt and March 1988, p. 380).

In the context of firm internationalization the types of knowledge stored within these routines have been...

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