Academic journal article Management International Review

The Strategy of Internationalization and the Success of UK Transnational Manufacturing Operations in the European Union

Academic journal article Management International Review

The Strategy of Internationalization and the Success of UK Transnational Manufacturing Operations in the European Union

Article excerpt

Abstract

* This paper explores the performance of transnational manufacturing operations within a model which encompasses corporate planning, corporate experience, resources and the form of ownership.

* A study of 47 transnational manufacturing operations in the European Union suggests that corporate planning is an adequate substitute for previous experience in the market, permitting rapid and successful market penetration. However, unplanned stepwise developments may only be viable if preceded by operational experience of the specific venture.

Key Results

* Planning can act as adequate substitute for operational experience. Joint Ventures increase the probability of success but only if the parent has prior operational experience of the foreign partner.

Until recently, studies of the internationalisation process have emphasised its stepwise nature (2) whereby firms increase their commitment to a specific foreign market in stages (from exporter, through agents and sales subsidiaries to manufacturing). Johansen and Vahlne (1977) and the `Nordic School' (see Welch/Luostarinen 1988) explain this process within a behavioural framework, in which firms undertake unplanned opportunist or reactive stepwise investments in response to feedback from the specific foreign market. Such strategies are argued to reduce risk in an environment characterised by uncertainty. However, more recent studies suggest that the strategy of internationalisation is substantially determined by the characteristics of the parent company (planning capability, its resources and corporate experience) (Turnbull 1993, Millington/Bayliss 1990, Sullivan/Bauerschmidt 1990). Thus it has been found that firms in the early stages of international development rely on a stepwise but unplanned process, while mature international companies may be able to `leapfrog' all or some stages of the stepwise process, substituting international experience and formal planning for local market experience.

In this paper we seek to determine whether corporate planning and international experience are satisfactory substitutes for the local market knowledge which underpins the stepwise process. The results have significant implications for corporate market penetration strategies. If planning and international experience enable companies to undertake successfully manufacturing operations in the foreign market without prior local market knowledge, the firm will be able to accelerate the process of internationalisation, circumventing stages in the stepwise process. In this case the parent company will benefit from speed of entry into the foreign market as well as a wider range of investment opportunities.

Although the process of internationalisation forms the basis of a substantial body of literature, the relationship between performance and the differing strategies of internationalisation has not been satisfactorily explored. Most studies of international performance focus either on the links between planning and corporate performance (e. g. Welge/Kenter 1988, Davidson 1984, Jones et al. 1992) or on the relationship between the performance of the foreign subsidiary and policy implementation (e.g. Newbould/Buckley/Thurwell 1988, Kitching 1973)(3). Although Newbould et al. (1988) and Hedlund and Kvernelund (1993) have investigated the relationship between stepwise development and foreign subsidiary performance, the role of planning was not investigated within a multivariate framework which controlled for the influence of corporate experience and resources(4).

The analysis in this paper is based on 47 transnational manufacturing operations where a UK based parent company manufactures in another EU country through a subsidiary or joint venture activity. In this study the term TNO is used to describe a manufacturing subsidiary or joint venture activity located outside the domestic country. The relationship between the performance of the TNO and formal corporate planning is established within a binomial logistical regression which permits the role of planning to be established as well as identifying the contributory effects of corporate experience and corporate resources. …

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