Academic journal article Multinational Business Review

Internalization Theory, Entrepreneurship and International New Ventures

Academic journal article Multinational Business Review

Internalization Theory, Entrepreneurship and International New Ventures

Article excerpt

Introduction

Oviatt and McDougall's (1994) analysis of international new ventures (INVs) has inspired a substantial number of empirical studies in the fields of international business and entrepreneurship (Gamboa and Brouthers, 2008; Schildt et al. , 2006; Young et al. , 2003). INVs' distinctive characteristic is that they supposedly internationalize at inception or shortly thereafter, thereby often having (too) limited time to build up non-location-bound (NLB) firm-specific advantages (FSAs) resulting from R&D/patents at the upstream side or advertising/brand name creation at the downstream side. NLB FSAs are a critical precondition for international expansion abroad (Rugman and Verbeke, 1992; Rugman and Almodóvar, 2011; Verbeke and Yuan, 2010; Verbeke, 2013).

There has been a debate in the literature on the linkages between INV thinking and conventional internationalization theory, i.e. the Uppsala model of staged internationalization. Advocates of the INV-type foreign expansion as the common case (sometimes mistakenly referred to as "born globals"; most INVs actually adopt a narrow geographic focus) have argued that the Uppsala model does not offer a convincing rationale for early new venture internationalization. The Uppsala model portrayal of foreign expansion could indeed be viewed as focusing primarily on the internationalization paths of mature firms that are "experienced" enough to go abroad, whereas the empirical evidence suggests that such experience may sometimes be lacking, and that many new ventures are actually associated with early internationalization, i.e. foreign expansion before any organizational experience (e.g. resulting from R&D activities or brand name creation) has been built up in this venture.

The international expansion patterns described by both INV thinking and the Uppsala model can be explained fully by internalization theory, which is the general theory of the firm, with solid conceptual foundations derived from three fields: resource-based view (RBV) thinking, transaction cost economics (TCE) and entrepreneurship[1]. RBV thinking in the Penrosean sense (Penrose, 1959) is critical in internalization theory because ownership, control and/or a superior combination of not fully utilized resources must be present as a first foundation for successful international expansion in terms of value creation and capture. TCE is equally critical here, as the choice of the comparatively most efficient foreign operating mode, as well as the related deployment and coordination of resources abroad (whether embodied in final products, or transferred as intermediate products to contracting parties such as licensees or to equity-based production units), must be driven by the "economizing properties" of the various operating modes at hand (Buckley and Casson, 1976; Rugman, 1981). In other words, the propensity of each governance mode to reduce bounded rationality and bounded reliability matters (Verbeke and Greidanus, 2009). Finally, entrepreneurial judgment is essential, with owners or entrepreneurial managers having to make specialized decisions on how to combine and deploy resources to serve both economizing purposes and related value-creating and value-capturing goals. Here, managing the innovation process in its entirety (from idea generation to final product delivery) is essential (Casson, 1982; Verbeke, 2013).

Given the above, any international expansion choice by a firm, whether in terms of scale, entry mode or location, but also in terms of its timing, will be conditioned by its FSAs, both existing ones (allowing successful "exploitation" of existing resource combinations) and future ones (requiring "exploration", in the sense of crafting new resource combinations, with extant FSAs as partial ingredients). Any process of creating new FSAs can be viewed as the equivalent of gaining valuable experience, to the extent that these FSAs result from value-creating decisions and actions associated with resource accumulation and combination. …

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