Reviewing the Role of International Experience to Firm Internationalization. Traditional Assumptions and Selected Deviations

Seminar Paper, 2015

15 Pages, Grade: 1,0



I Content

1 Introduction

2 Literature review on international experience
2.1 Terminology
2.2 Decomposition
2.3 Multidimensional construct

3 The traditional model: the role of international experience in the Uppsala internationalization

4 The role of international experience on the choice of entry mode

5 Analysis of deviating phenomena: Born Globals and the soft service sector
5.1 Born Globals
5.2 Soft service sector

6 Conclusion

II References

1 Introduction

Expanding onto foreign markets and being successive abroad is often considered as the peak of business success of a firm. Unsurprisingly, the process of firm internationalization received a lot of attention from scholars (e.g. Johanson and Vahlne, 1977; Dow and Larimo, 2011; Pla-Barber et al., 2014). A major influence to the pace and pattern of firm internationalization is international experience and resulting knowledge (e.g. Johanson and Vahlne, 1977). In fact, knowledge is considered to be a main driver for competitive advantages (Meyer et al., 2009, p. 558). However, in spite of its identified importance, literature has yet to present a unifying theory which explains its exact role and impact to the process of internationalization. This noble aim may be aggravated by the fact that different types of firms appear to be effected dissimilarly by accrued international experience (e.g. Mohr and Batsakis, 2014; Knight and Cavusgil, 1996; Pla-Barber et al., 2014). Moreover, international experience is gained, processed and exploited in various ways resulting in diverse firm specific advantages (e.g. Clarke et al., 2013, p.271). These differences in experiential learning further contribute to the complexity on grasping the issue. Finally, the process of internationalization itself includes many different aspects and hence does the effects of international experience to such. Just to name a few, scholars reviewed the role of international experience to the choice of entry mode (e.g. Pla-Barber et al., 2014; Clarke et al., 2013; Meyer et al.), establishment mode (Dow and Larimo, 2011), market selection (Drogendijk and Martin, 2008) or pace of interncts of the process of internationalization, ationalization (Mohr and Batsakis). The resulting assumptions regarding international experience are broad and, unfortunately, often contradicting (e.g. Dow and Larimo, 2011, p. 325; Knight and Cavusgil, 1996).

This paper attempts to review selected deviating effects of international experience from the traditional frameworks and analyze their specifications. By doing so, one may be able to bridge gaps to traditional models or further highlight insufficiencies of such. When referring to the traditional framework of firm internationalization, this paper refers to the seminal work of Johanson and Vahlne (1977), as well as supporting models, and their theory regarding the role of knowledge development and market commitments in the process of internationalization. Furthermore, more recent studies regarding the role of knowledge on the choice of entry mode are being reviewed. The reviewed literature covers a time span of almost 40 years and opposes scientifically established work to most recently published articles from renowned outlets. This paper does not intend to give a detailed overview of the aforementioned models but focus on the role and effects of international experience to them and, thus, providing the reader with deep insights to the concept of international experience. The intention, after all, is to analyze documented deviations to these established theories and check for possible explanations in respect to the concept of international experience. This study will therefore, in a next step, inspect the properties of international experience in general, then move on to the model of Uppsala internationalization as well as a model of entry mode choice. Afterwards, the two deviating phenomena are being introduced, namely Born Globals and the soft service industry, and analyzed before, finally, the conclusion summarizes the most important aspects of this study.

2 Literature review on international experience

2.1 Terminology

First and foremost, it is of note to differentiate the terms of international experience, experiential knowledge and experiential learning in the setting of firm internationalization, which are all relevant to this study. According to Penrose (1995), knowledge derives from learning. In that sense, she differs between two different types of knowledge: objective (1) and knowledge through experience (2). Although the line between these both forms of knowledge is blurry, she attempts to distinguish them by the fact that objective knowledge is transmittable whereas experience is not. However, the gained or „learned“ knowledge from experience may be transformed to objective knowledge, to a certain degree, and hence transmitted (Penrose, 1995, pp. 51-56). Penrose (1995) further describes the effects of gaining experience as following: „Increasing experience shows itself in two ways - changes in knowledge acquired and changes in the ability to use [existing as well as future] knowledge.“ (ibid., p.53). Experiential knowledge therefore contributes to objective knowledge and vice versa (ibid., pp. 51-56).

Although her implications originally meant to describe the growth of managerial services, Johanson and Vahlne (1977) identified this experiential knowledge as crucial for firm internationalization as it cannot be acquired as easy as objective knowledge and has to be successively increased, e.g. through operations abroad (Johanson and Vahlne, 1977, p. 28). To conclude this terminology, one could state that experiential knowledge is processed international experience, where the processing can be defined as experiential learning. Therefore this study employs, at later paragraphs, the term experiential knowledge as a result of international experience. However, literature offers further refinement to the concept of international experience and the resulting experiential knowledge.

2.2 Decomposition

Johanson and Vahlne (1977) distinguish between general and market-specific knowledge. Whereas market-specific knowledge only concerns insights about a specific national market, general knowledge is applicable to actions and operations irrespective of their geographical context (Johanson and Vahlne, 1977, p. 28). This decomposition of international experience is employed by various scholars in the course of their scientific reviews (e.g. Dow and Larimo, 2011; Pla-Barber et al., 2014; Clarke et al., 2013). Dow and Larimo (2011) refer to the two parts as general internationalization knowledge and cluster-specific experiential knowledge. The first includes knowledge about „general processes which are not specific to one country or a group of countries“ while the latter „concerns tacit knowledge which is specific to one country or a limited set of countries, and would include knowledge about such things as local languages, religions, cultural and business practices, and political and administrative systems.“ (Dow and Larimo, 2011, p. 326). In their course, Pla-Barber et al. (2014) adopt this differentiation and modify it for the needs of their analysis of entry mode choice. As entry mode is just one aspect or action of the internationalization process, they only distinguish between host country experience and entry mode experience, where the first is the specific knowledge and the second is the general knowledge. In this case, the latter refers to the general accrued knowledge by employing a particular entry mode (i.e. how to negotiate with suppliers) (Pla-Barber et al., 2014, pp. 624 f.). In their review of firm specific advantages deriving from international experience, Clarke et al. (2013) further lay stress on the multidimensionality of the construct of international experience.

2.3 Multidimensional construct

According to them, literature often fails to properly operationalize international experience as an at least 4-dimensional construct consisting of the dimensions of length (1), scope (2), diversity (3), and intensity (4). In that matter, length of international experience describes the time-based experience expressed through the number of years a firm has been present in a specific market. (Clarke et al., 2013, p. 268) Scope relates to „the geographic diversity of the firm´s international experience, which is typically operationalized by the number of foreign countries in which the firm operates.“ (ibid., p. 268). The third dimension of international experience - diversity refers to the variety of the firm´s experience in products, distribution, customers, or more broadly, the variety of firm´s activities. Intensity, on the other hand, is determined by the volume of the firm´s activities (instead of the variety) in a foreign market (ibid., p. 268). These four dimensions describe quantitative attributes of international experience. At a later point, this study will come back to qualitative attributes of international experience. Having this background information about international experience in mind, in a next step, one needs to analyze its importance to the process of firm internationalization.


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Reviewing the Role of International Experience to Firm Internationalization. Traditional Assumptions and Selected Deviations
University of Dalarna
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firm internationalization, international experience, international knowledge, Born Globals, experiential learning, entry mode, general and market-specific knowledge, Uppsala, Uppsala model, Soft service sector, resource-augmenting, resource-based, extension of foreign operations, knowledge accrual, hotel firms
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