Frame of references
At this stage, earlier research on internationalization will be discussed and analyzed under following headings. Due to practical impossibility to review all the concepts, models and strategic choices on internationalization, we have selected a theory that best explains the internationalization of well established manufacturing companies. Furthermore, the IP model was initially formulated in Sweden and based its findings on the local manufacturing companies.
As far as we are further interested in drawing a connection between internationalization and entrepreneurship, we have used the frame of reference to address the next emerging issue – Entrepreneurial Orientation and its implications. The basic idea of these theoretical acknowledgements is to bring up leverage spots that explicitly and implicitly connect Internationalization and Corporate Entrepreneurship. Besides, to meet the requirements, we have included the section with models which are based on the theory presented in the frame. In addition, own model was designed to bring up our understanding about the studied phenomena.
The phenomenon of internationalization
Internationalization is defined as – the process of increasing involvement in international operations across borders (Jones, 1999; Welch and Luostarinen, 1988). Therefore, internationalization is a major dimension of the ongoing strategy process for the most successful business firms. The strategy process determines the ongoing development and change in the international firm in terms of scope, business idea, action orientation, organizing principles, nature of managerial work, dominating values and converging norms (Melin, 1992).
Strategy and entrepreneurship scholars argue that firms succeed by building and retaining a competitive advantage (Porter, 1985, 1990). Ireland, Hitt, and Sirmon (2003) proposed theories from the strategy and entrepreneurship disciplines to explain the process of advantage development and sustaining. They noted that firms succeed by identifying and exploiting new opportunities and by deploying their resources in ways that allow them to create value (following Penrose’s logic, 1959). Some of these opportunities lie in foreign markets, requiring strategies that leverage companies’ skills and capabilities.
The following view is consistent with Dunning’s (1988, 2001) paradigm that presents that firms internationalize their operations in order to capitalize on differences in factor endowments across countries. The scale of internationalization indicates the extent to which a firm’s activities depend on foreign markets. A large scale of foreign operations allows firms to leverage their domestic skills abroad and acquire their market share rapidly (Bartlett & Ghoshal, 1998).
Still, for many companies, building a large scale of international operations is challenging because of the diverse skills needed and the costs involved (Hill et al., 1990). Success also requires integrating foreign operations, adopting new technologies, introducing control systems, and ensuring effective coordination (Porter, 1986). Franko (1989) argues that there are still serious risks of not internationalizing. Consequently, companies that fail to internationalize may lose their competitiveness, especially when their home markets are small, as in the case of Sweden.
The models in the field of international business describe the internationalization process as a gradual development taking place in distinct stages and over a relatively long period of time (Melin, 1992).
Theoretical model of internationalization
“Mainstream” internationalization theory tends to describe a process of progressive expansion from domestic markets into neighboring countries facilitated through a series of incremental structured decisions (Hooley et al. 1998). Examples of these include the so called stage theories such as the Uppsala internationalization model / Internationalization process model (Johnson & Vahle, 1977, 1990), internationalization (Buckley & Ghauri, 1994; Buckley & Casson, 1976) and other economic theories, resource based approaches and Dunning’s eclectic paradigm (Dunning, 1993). We have identified that Uppsala model describes the most prominent aspects of the firm’s internationalization process.
A key feature of the International Process model is its logical sequence of the expansion strategy steps. Presented stages, naturally tend to foster international commitment, and thus may involve implication of sub-motivating forces which main assignment is to accelerate the movement towards greater foreign market commitment. Our data collection approach has been designed to reveal information, which was vital for a gradual fulfillment of these stages. The formation of the internationalization development chart was one of the basic issues we wanted to address. Besides, apart from the theoretical perspective of the model, it has concentrated and turned our data collection into the planned frame, which has been fruitfully mirrored on the accuracy or the gathered information.
Internationalization Process Model
The earliest insights about internationalization came more that three decades ago. Johanson and Wiedersheim-Paul (1975) and Johanson and Vahlne (1977) made the most prominent contribution to this area of studies. The model is often characterized as the Uppsala Internationalization Model, U-Model or Internationalization process model (IP). Johanson and Wiedersheim-Paul (1975) investigated four Swedish cases, where they were observing the behavior companies tend to follow during international expansion. The authors found empirical evidence for the gradual nature of the internationalization process, which follows a number of steps in the establishment chain (Johanson & Wiedersheim-Paul, 1975).
The first international engagement comes in the form of export to another country. When export operations established and hold a substantial part of the company’s sales, the next stage gradually maintains the operations with agents, who participate as local representatives of the exporting company on spot. A firm progresses from agents approach to the establishment of local subsidiaries or business outlets and finally ends it penetration setting up a manufacturing facility.
1.1 Research background
1.2 Problem identification
1.4 Key concepts
1.5 Structure of the thesis
2.1 Research method
2.2 Data collection
2.2 Approaching qualitative data
3. Frame of references
3.1 The phenomenon of internationalization
3.3 Theoretical models connecting entrepreneurship and internationalization
4. Empirical findings
4.1 NEFAB AB
4.2 ESBE AB
4.3 ITAB AB
5.1 Internationalization development in three cases
5.2 Testing analytical model
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“International Entrepreneurship in Swedish well established companies”