Academic journal article Journal of International Business Research

The Globalization of Northern California's Biotechnology Industry

Academic journal article Journal of International Business Research

The Globalization of Northern California's Biotechnology Industry

Article excerpt


The biotechnology (or biomedical) industry is becoming one of the most global industries in the United States. Biotech firms that used to export or license their products to foreign countries have begun outsourcing their production, clinical trials and testing; some have started acquiring foreign manufacturing plants, and increasingly more have entered into international production alliances and joint ventures (Loceff, 2011; Stevens, 2011; Quakenbush, 2011; Verel, 2011). The North Bay of the San Francisco Bay area in northern California is being heavily impacted by this shift.

In the face of global competition, North Bay biotech firms are faced with the decision of which foreign market entry mode to choose. Dunning (1980) in his eclectic paradigm of international production provides a framework to explain the 'why', 'where' and 'how' of international production (foreign direct investment) through his theories on ownership, location and internalization (OLI) advantages. According to his internalization theory, a multinational enterprise (MNE) can choose to expand abroad either through foreign direct investment (retaining knowledge-based firm-specific assets), or it can choose another form of entry, such as licensing, joint ventures, or alliances (all of which lead to potential dissipation of the knowledge-based firm-specific asset of the MNE) (Rugman, 2010). Following Dunning's theories, much work has been done on why firms internationalize and studies have found that firms across many industries expand internationally to seek markets, cost efficiencies, strategic assets and resources in host countries, or to escape from regulations and restrictions in the home market.

However, the process of how firms internationalize or what foreign market entry mode they choose has been relatively underexplored. This is particularly true in the case of biotech firms. Gurau and Ranchhod (2006) conducted a comparative analysis between U.S. and U.K. small- and medium-sized enterprises (SMEs) in the biotech industry; however, their study analyzed the impact of the domestic market on the internationalization of the biotech firms. Gassmann and Keupp (2007) study the competitive advantages of biotech firms in Switzerland, Germany and Australia but focus only on 'born global' SMEs and they acknowledge that because there is a lack of an integrative and theoretical framework, they use case study analysis. There is no known study, in the authors' knowledge, that has specifically examined the strategy choice of biotech firms in the North Bay area as they try to expand internationally. This study is an attempt to fill in this research gap and rests on the premise put forward by Andersen (1997), Brouthers & Brouthers (2001) and Luo (2001) that the choice of entry mode in a foreign market is one of the most important strategic decisions in a company's internationalization process.

Specifically, this study examines the heterogeneous international strategies the North Bay biotech firms employ to expand globally. It seeks to determine patterns of internationalization based on factors such as firm size, age, product category and industry sectors. It also seeks to unveil the various international location clusters with which North Bay biotech firms are having a business relationship. We borrow from the location and internalization aspects of Dunning's (1980) and Rugman's (2010) theories to examine 'where' North Bay biotech firms in the San Francisco Bay area are expanding internationally and which foreign market entry mode ('how') they are implementing during the 2006-2011 period.

The North Bay biotech firms have special characteristics that make them particularly interesting, for example, they represent approximately 8 percent of the biotech employment in the San Francisco Bay area; some of them have been in business for more than 60 years, and larger biotech firms have been adopting rather different expansion strategies and lines of businesses compared to smaller ones. …

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