Drivers of Internationalization ACKNOWLEDGEMENT The purpose of this research ie to identify the drivers of globalisation and their role to motivate

the decision makers i.e entrepreneurs or executive management. Its natural desire of small firms or businesses to explore the new markets overseas to become global exporters. Generally it is supposed that internationalization is the strategy of the larger firms. As it seems to be challenge for small firms to enter into world market. Thats the reason most SMEs are mainly operating in their home markets. It is a craze of every type of firm to enter into world market for specific objectives behind i.e. profit, competitive advantage etc. There is need of experiential practice for firms to enter in global market. Past experience of global markets, forign scoiety relations, skills of relation building.active management and knowledge about market location, competitors, prices and technology have a profound impact on how the firm is seen to approach foreign markets. Actually these are the actual drivers. Firms which intend to go abroad suffer from lack of knowledge about how to conduct a business in a foreign market. So the firms tend to handle this risky problem by trial and error and by the gradual acquisition of information about foreign markets. While practicing in foreign activities firms gain confidence in performing abroad. Knowledge assets behave as both push and pull forces for SMEs into international markets. The push dimension pertains to the importance of managers previous international experience and related management capacity factors including R&D investment, innovation capabilities, unique product or technology, and language skills; and firm resource base, as indicated by such proxies as size, age, and experience. This experience can surely be counted as knowledge.Another stimuli for moving ahead into overseas markets is the excessive working capital,It has been observed that those firms which have excess of capital they proceed, It is not only the knowledge, capital and experience but another important factor is of skillful management which is capable of handling the foreign country branches of their organisation. only the active management can cope up with the varied customer demand and social requirements, The whole credit of expanding the foreign business goes to the active members of managements, If the management lacks these skills then the capital is of no use.Moreover there are network/social ties and supply chain links in triggering

Drivers of Internationalization SMEs first internationalisation step and extending their internationalisation processes. Technology has its uniqe value for approaching massive and standardised production. It is the knowledge (information; either technological or managerial/entrepreneurial) with the help of which firms gain competitive advantage from their competitors. Knowledge includes unique information about production, market research, information of foreign market, information of foreign country and its environment. This market specific knowledge becomes the motivational driver for the firm to go abroad. Firms overseas venturing decision also seems to be motivated by a need for business growth, profits, an increased market size, a stronger market position, and to reduce dependence on a single or smaller number of markets. The drivers just have to attract the decision makers.the entrepreneur is there to tke the risk of forward steps.these motivators are just involved in decision making before they have triggered. Once the action ha sbeen taken t hen its upto business how it survives otherwis ethe motivators were jus t to stimulate the business desire to be globalised. In other words we can say that availabilty of one or more than one driving ersources is actually the motivator. Sometimes many drivers are involved together to lead the entrepreneur. Its up to decision maker how he links these stimulis and utilizes them.

Drivers of Internationalization INTRODUCTION Research question In this global context many firms want to be internationalised themselves by exporting and opening their manufacturing units abroad. Among the other important issues, in this project we want to find the answer for the following question: What are the forces that drive firm in its process of internationalisation? We know from our understanding that a small firm adopts the process of internationalisation for becoming big one and the different type of factors drives it during this process, for this we are interested in knowing what actually motivates a firm in this process of internationalisation. In order to solve our research question we have chosen among the other theories of internationalisation, the Uppsala model of internationalisation of the firm. We want to understand the internationalisation process of this firm and the factors motivating it in its internationalisation process. Structure The paper follows a logical sequence of thought. entrpreneurs for globalized business. Background The history of trade shows began during the early medieval era when two major trading unions were founded in Europe; one in the southern parts of Europe and the second in the northern parts of Europe. The most common goods sold in the southern parts of Europe were jewelry, ivory, gold and textiles from the Far East, whereas in the north, trade included necessities such as fish, wool, tar, salt and iron. This new way of trade constituted the foundation for international trade shows. During the trade shows, buyers Firstly, the key drivers of

internationalisation are identified and discussed. The motivators motivating the

Drivers of Internationalization and sellers would meet for a few weeks every year to present new products but also to look at what competitors had to offer. A further reason was to exchange experiences among the traders. Since the participants of trade shows came from different countries, a special currency was needed and consequently developed (Flodhammar, 1990). The last decades have been characterized by a significant growth in the number of firms which start internationalizing at their inceptioninternational new ventures, INV (McDougall, Shane, & Oviatt, 1994; Oviatt & McDougall, 1994, 1997), or in their first years of activityearly internationalizing firms, EIF (Knight, Madsen, & Servais, 2004). The phenomenon has been extensively studied both from a conceptual and an empirical perspective, giving rise and substantial improvement to the recent field of studies on the socalled born global firms (Rialp, Rialp, & Knight, 2005). The processes of early internationalization are the result of complex interactions among changes in the international markets environment (Evans & Wurster, 1999) and diffusion of a managerial and entrepreneurial class, characterized by stronger international vision (Andersson, 2003; Sahlman & Stevenson, 1992). This paper focuses on early international firms(EIFs), i.e. firms which become international, through export or any other entry mode, in their first three years of life (Madsen & Servais, 1997). EIFs thus comprise INVs, and maybe born global firms too (but not necessarily) according to the Oviatt and McDougall (1994) definition: in fact, the aim of this paper is to propose an analysis of the drivers of precocity in internationalization but not of the modes, activities or scope of early international firms.We want to discover the forces behind a firm in its process of internationalisation and for this we have chosen a very famous model in this field: Uppsala model developed in 1977 by Johansson and Vahlne at Uppsala university. Among the other theories in the field of internationalisation, Uppsala model (Stage theory) is the most well developed one. The theory considers that firm in its internationalisation process proceeds in four sequential stages (of course firms are not so rigid in following these stages), with every step the experiential knowledge of the manager/entrepreneur increases. This experiential knowledge is the major driving force behind its internationalisation process. The existing theories of the internationalisation are mainly concerned with external factors and therefore Uppsala model was developed at Uppsala University, which focuses on the internal factors for motivating the firms to

Drivers of Internationalization go abroad. Drivers of Internationalisation There are many drivers towards internationalisation, but collectively they can be divided into two areas, internal factors and external factors. The internal factors include unsolicited foreign orders, managerial influence, excess capacity and product life cycle issues. External factors include awareness of opportunities, competitor activity, physical closeness, and government activity. Companies rarely decide to enter new markets Within these internal and external factors, Jatusripitak (1986) and without careful planning or some internal and external stimuli, which influence a firms decision to export (Jatusripitak 1986, p. 9). firms can be influenced by both push and pull factors.

Hollensen (1998) outline that many export push or proactive motives encourage global trade.Hollensen (2007) explains that internationalization occurs when a company has decided to expand some of its business activities into an international market. Activities that can be internationalized for example are R&D, production as well as selling. For SMEs the internationalization process often is discrete, which means that the management regards each internationalization undertaking as distinct and individual (ibid). Coviello and Munro (1997, p.115) define internationalization as: *+ the process by which firms both increase their awareness of direct and indirect influences of international transactions on their future, and establish and conduct transactions with other countries. Firms which have decided to internationalize usually do so to make money according to Hollensen (2007). This alone, seldom is the only reason as a lot of other factors have to be taken into account when making such a decision. A lot of internationalization motives exist and are divided into proactive and reactive motives. Proactive objectives focus on implementing a strategy change to exploit new market opportunities. Reactive motives show that the firm is reacting on pressures or threats in its home market or foreign market and in relation to this changes its activities over time (ibid). The major proactive objectives for internationalization of a business involve profit and growth goals, a managerial urge to start the firms internationalization, technology competence or the possession of a unique product. Moreover, foreign market opportunities and economies of scale as well as tax benefits are included in the category

Drivers of Internationalization of proactive motives. Reactive motives, on the other hand, are about that the firm feels pressure from its competitors who have succeeded in their internationalization or that the domestic market has become saturated and growth opportunities thereby limited. Furthermore, overproduction and unexpected foreign orders can be included to reactive objectives. A seasonal demand in products could also be a reason for exporting as well as the physical and psychological closeness to the foreign markets (Hollensen, 2007). Chetty and Campbell-Hunt (2003) further describe that the attitude of the decision makers, the managements expectations on growth as well as the managers commitment towards internationalization are important influences when the firm desires to expand its business to foreign markets. The authors argue that it is not enough for a firm to have the right product, the firm also needs to have the right attitude (ibid). On the other hand, nondriving forces for internationalization are present, which include insufficient knowledge about foreign markets, a lack of international experience as well as inadequate language skills. Other firms may not have any intentions at all to expand their business abroad (Chetty & Campbell-Hunt, 2003).

Internal Stimuli: A firm who is in receipt of unsolicited foreign orders may commence internationalisation strategies (Hollensen 1998). However, where the importance of unsolicited export orders has been found in studies, it is usually not enough to push a firm into exporting. Factors such as adverse home market conditions and management attitudes may be key drivers of global trade (Jatusripitak 1986).

Attitude of Internal Managers Jatusripitak (1986) outlines the findings from various research studies on internal drivers towards export markets. He concludes that the attitude and orientation of the key strategic decision makers is a key internal driver towards global or international strategies. Langston and Teas (1976, as cited in Jatusripitak 1986, p. 9) conducted a study

Drivers of Internationalization to determine the origins of this international orientation and found several drivers of an international attitude. These include a period of time spent living abroad, whether a foreign experience was considered an attractive prospect or whether the manager had studied a foreign language. Further, Simpson and Kujawa (1974, as cited in Jatusripitak 1986) found a significant difference in the level of education between decisions makers in exporting and non-exporting firms, where the export oriented decision makers had a higher level of education. Since the publication of Stephen Hymer's thesis in 1960, the economic theory of foreign direct investmenht as beend rivenn ot by country-levevl ariables,s ucha s differences in interest rates, but by industry- and firm-level variables [Hymer 1960]. Industry-levevl ariablesr eflectb arrierst o entrya nd patternso f oligopolistic behavior.F irm-levelv ariablesa re relatedt o the concepto f transactionco sts, wherebyt he transfero f specializeda ssetsb etweenf irmsi s mpededb y market failures,t hus necessitatingt he expansiono f the firm (in some cases across bordersi)n ordert o internalizteh e transferT. o the extentt hatt he samev ariables influencew hethert o enterb y foreignd irecti nvestmentl,i censing,o r exporting, the choice of the mode of entryi s jointly and simultaneousldy etermined.

Need to Utilise Excess Capacity Other internal factors include the need to utilise excess capacity or other in-house competencies that lend themselves to international exploitation (Jatusripitak 1986, Hollensen 1998) A firm may have a competitive advantage due to some core competency or first mover advantage that may be equally effective in many markets. These factors may act as push factors, driving the firms decision to export for reasons of efficiency. There are, however, many benefits of internationalisation that can act as pull factors. Marketers may have access to customers with higher quality standards than in the home country, for example the Japanese market (Cateora & Graham, 2002). Tougher targets can allow a company to perform to its maximum potential. Having a diversity of markets may also bring additional financial benefits, as increasing the portfolio of a firm

Drivers of Internationalization encourages stability of revenues and operations (Cateora & Graham, 2002).

Product Life Cycle Theory Product life cycle theory offers key reasons for internationalisation. A firm may need to extend the product lifecycle of products that may have reached the saturation level in the domestic market share. A firms proficiency in producing the product can be exploited for longer durations by exploring new markets. Similarly, a firm can extend their sales of seasonal products by exporting to foreign markets (Hollensen 1998).

External Stimuli Opportunity Recognition The drive towards export markets may be stimulated by either problem recognition or an awareness of opportunities (Jatusripitak 1986). The firms environment has been found to be an important factor stimulating export (Jatusripitak 1986, p. 9). Tesar (1975, as cited in Jatusripitak 1986) found that the exporting performance of competing firms plays an integral part in motivating a firm to export themselves. The decision by longstanding competitors to engage in international marketing may spur similar actions. The increase in profits earned by competitors can have domestic market implications as they may reinvest the earnings into domestic endeavours.

Competitor Activity One of the most important drivers towards new markets is the saturation of domestic markets due to competitor activity (Pavord and Bogart 1975, Hollensen 1998; Jatusripitak 1986). Some firms in relatively small markets may be unable to sustain sufficient economies of scale unless they include foreign markets in their marketing strategy (Hollensen 1998). Certain firms may have invested heavily in new technologies, and

Drivers of Internationalization may export in order to take advantage of economies of scale (Hollensen, 1998).

Johansson (1997) suggests because customers in different countries have the same basic needs, exposed to similar messages and diverse cultures, there is a compulsion to supply to this wider market, as many products can be standardised and still acceptable in foreign markets. Further, marketing practises are basically the same in each country making the sale of the product easier once it has actually entered the market (Johansson 1997).

Closeness to Market Physical and psychological closeness to the international market may push a decision to export (Hollensen 1998). European firms may easily consider exporting to their neighbouring countries due to the relative proximity of these markets.

Government Support Foreign Governments may offer assistance and incentives through favourable trade policies, acceptance of foreign investment, compatible technical standards (Johansson 1997), and tax benefits (Hollensen 1998). A number of surveys examining the drivers of SME internationalisation have become available from private and public sources across OECD and APEC member economies and some of the countries involved in the OECD enlargement or enhanced engagement process have been undertaken since the completion of the 2007 OECD-APEC study. The specific OECD economies covered in these recent studies include Australia, Belgium, Canada, France, Germany, Greece, Ireland, Italy, Netherlands, Poland, Portugal, Spain, Sweden, UK and USA . The non-OECD member economies investigated are Chile, India and Indonesia. A few of these studies provided sub-national and sectoral insights on motivations for SME internationalisation. Table below, outlines the countries covered, the main motivations identified, and the authors involved.

Drivers of Internationalization Table . Recent Research Findings on SME Internationalisation Drivers Country Australia Motive/stimulus Author

Grow market; control supply EFIC, 2008 chain, reduce cost

Belgium, Greece, UK Canada

France, Italy,

Germany, Market position; knowledge Kocker and Buhl, 2007

Netherlands, and relationship search

Poland, Spain, Sweden, and

Growth, management capacity Orser et al., 2008 factors, immigrant investment, size/age/experience, domestic market social links, capital, R&D firm limited

Ireland and India Portugal (Azores Islands) Spain

Knowledge resources Social networks/ties Managers size/age; regional

Garvey and Brennan, 2006 Camara and Simoes, 2008 previous Lopez, 2007 location;

international experience, firm country/regional image Spain (Catalan region) Managers international previous Stoian, 2006 experience,

growth and profit expectations, social and business networks, and domestic market saturation/stagnation Sweden Growth, managers previous Rundh 2007 international experience, unique product or technology,

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Drivers of Internationalization limited domestic market UK UK Growth, profits, market size Growth, profit, to Barnes et al., 2006

reduce Reynolds, 2007

dependence on a single or smaller number of markets USA Profits UPS, 2007

Growth Motives Growth opportunities associated with international markets were identified as a key driver of firm internationalisation in several recent studies. Orser et al. (2008), for example, reported that after allowing for the impacts of firm size and sector, Canadian firms whose owners had expressed growth intentions were more than twice as likely to export, than those whose owners did not indicate growth ambitions. The possibility of growth in other markets and increased profit opportunities from international expansion were highlighted as key stimuli for exporting among the Australian, British, Spanish, Swedish, and US firms investigated in recent studies. Firms overseas venturing decision also seems to be motivated by a need for business growth, profits, an increased market size, a stronger market position, and to reduce dependence on a single or smaller number of markets.

Knowledge-related Motives Firms which intend to go abroad suffer from lack of knowledge about how to conduct a business in a foreign market. So the firms tend to handle this risky problem by trial and error and by the gradual acquisition of information about foreign markets. While practicing in foreign activities firms gain confidence in performing abroad. Recent research findings suggest that knowledge assets both push and pull SMEs into international markets. The push dimension pertains to the importance of managers previous international experience and related management capacity factors, as observed

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Drivers of Internationalization in studies among Canadian firms, Spanish firms, and Swedish firms. There are also related findings from a number of OECD countries (Canada, Ireland, and Sweden) and non-OECD economies (Chile, India and Indonesia) on the internationalisation triggering effects of knowledge aspects, including R&D investment, innovation capabilities, unique product or technology, and language skills; and firm resource base, as indicated by such proxies as size, age, and experience. Search for knowledge assets may also pull SMEs into international markets, as suggested by Kocker and Buhls findings that firms internationalise to obtain missing know-how required to maintain their lead in technological development.

Experience and Market Selection From a normative standpoint, several factors are considered to be important in assessing the potential attractiveness of a foreign market: market size and market growth [Stobaugh 1969; Davidson 1980a], competition [Knickerbocker 1973], servicimg costs [Davidson 1982], and the host country's social, political and economic environment [Root 1987; Toyne and Walters 1989]. Papadopoulos and Denis [1988] provide an excellent review of numerous qualitative and quantitative market-selection techniques incorporating these variables. They conclude, however, that there is little evidence firms (small, medium or large) use any such methods on a systematic basis to choose target markets in practice. In fact, empirical research on actual business practices has consistently highlighted only one major determinant of market selection: market similarity, i.e., similarity of the foreign market to the firm's home market or to markets it is currently serving. As apadopoulos and Denis [1988: 44] conclude: in an overwhelming number of cases ..[choices of markets].. are still based on such nonsystematic criteria as 'psychic' distance... 'cultural' distance..., and geographic distance. Several studies show that U.S. exporters have a strong bias for markets such as Canada and U.K. (see Bilkey [1978]: Reid [1981]). Investigations involving U.S. multinational corporations, too, found sharp preferences for Englishspeaking countries, preferences that were not warranted on economic grounds alone [Davidson 1980b, 1982, 1983]. Parallel findings have been reported in studies on service firns, such as banks [Khoury 1979] and advertising agencies [Weinstein 1977].

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Drivers of Internationalization Firms prefer entry into similar markets because it facilitates transfer of technology and managerial resources, assures ready demand for their products, and helps reduce uncertainty [Davidson 1983]. This last reason is particularly relevant to the present study. Davidson [1982: 118] argues that when "the firm has little confidence in its ability to estimate or predict costs, demand, competition or environmental conditions in various markets it can minimize uncertainty in its selection decisions by choosing markets about which it has best information." Preference for similar markets, however, appears to be conditioned by the firm's international experience. Reviewing patterns of foreign activity by U.S. multinational corporations, Vernon [1966] noticed a "gradual fanning out from geographically and culturally familiar to the geographically and culturally remote areas of the world." Likewise, Uppsala School researchers insist that exporting begins with "psychologically close" countries and extends incrementally to "psychologically distant" countries as the firm gains experience [Johanson and Wiedersheim-Paul 1975; Johanson and Vahlne 1977; Wiedersheim-Paul, Olson and Welch 1978]. Explaining the relationship between preference for similar markets and experience, Davidson [1980a] argues that with increasing experience, firms acquire greater confidence in their ability to gauge customer needs, to estimate costs and returns, and to assess the true economic worth of foreign markets. Thus market selection, dominated by concerns of uncertainty in the early phases of international expansion, increasingly becomes a function of economic opportunity as the firm gains experience. The basis for relating uncertainty reductions to experience originates in Johanson and Vahlne's [1977] argument that uncertainty in international markets is reduced only through actual operations in the relevant markets and not through acquisition of "objective" information. Davidson [1983: 453] supports this contention by concluding that "direct experience and not market research activities now provides the principal inputs in market selection decisions." In his studies of the foreign direct investment practices of U.S. MNCs, Davidson [1980a, 1980b, 1983] made several important discoveries. First, American MNCs' attraction for countries such as Canada, U.K. and Australia, very high

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Drivers of Internationalization in their early forays into foreign markets, declined perceptibly over time. Second, firms with extensive experience exhibited less preference for near, similar and familiar markets. Markets that were initially perceived as less attractive because of high uncertainty were given increased priority as the firm's experience rose. Finally, the presence of existing manufacturing facilities in a particular market had a positive impact on subsequent entries into the same country. Davidson concluded from these findings that both general and country-specific experience factors played a role in market selection. In the service sector too, Weinstein [1977] found investments made by U.S. multinational advertising agencies in the late 1950s and the early 1960s were primarily in highly developed, culturally familiar areas of the world. He discovered, however, that "as the agencies grew in size and overseas experience, their investments switched from Canada and Europe to Latin America and the Far East" [Weinstein 1977: 86]. Terpstra and Yu [1988] investigated the FDI behavior of U.S. multinational advertising agencies after 1970 (by which time, presumably, most of these agencies were highly experienced in foreign markets) and, indeed, found support for their hypothesis that geographic proximity (and hence "similarity') had no significant impact on an agency's decision to invest in a certain country. The literature is not, however, entirely free of discord. Maclayton, Smith and Hair [1980] found overseas business experience, measured in number of years, to have no relationship with firms' evaluation criteria of foreign markets. Based on evidence drawn from case studies, Sharma and Johanson[1987] likewise concluded that the concept of "psychic" distance did not explain the international expansion of technical consultancy firms. Experience and Entry Mode Choice Once a firm decides to enter a certain foreign market it has to choose a mode of entry, i.e. select an institutional arrangement for organizing and conducting international business transactions [Anderson and Gatignon 1986; Root 1987]. As entry modes have a major impact on the firm's overseas business performance, their choice is regarded as a critical international business decision [Wind and Perlmutter 1977; Anderson and Gatignon 1986; Root 1987; Terpstra 1987; Hill et al. 1990]. Firms can often choose from a variety of entry modes. For example, exporting firms have two alternative modes: exports through independent intermediaries, and exports via integrated (company-owned) channels [Anderson and Coughlan 1987]. Alternately, firms can produce their products

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Drivers of Internationalization overseas, either through contractual modes (e.g., licensing and franchising) or via foreign direct investment (joint ventures and wholly owned subsidiaries). Entry modes differ from each other on several dimensions, one of which is the degree of control they allow the foreign market entrant [Root 1987]. Traditionally, control has been perceived by researchers as flowing from ownership.1 Thus the greater the firm's level of ownership, the greater the control it enjoys over its international transactions [Anderson and Gatignon 1986]. For this reason, company-owned channels, wholly owned foreign subsidiaries and branches are designated asfull- control modes. There is some evidence to indicate that international experience may have not have any effect on degree of control. Kogut and Singh [1988] observed that experience (as measured by the firm's pre-entry presence in the host country, and degree of multinationality) played no significant role in explaining why foreign entrants into the United States used joint ventures in preference to wholly owned acquisitions. Similarly, Sharma and Johanson [1987] could see no evidence of "incremental"in ternationalizationin their case studies of Swedish technical consultancy firms, suggesting experience may not be a determinant of entry mode choice. Some writers suggest even a negative relationship between the firm's international experience and its desire for control. Daniels et al. [1976] observed a tendency among companies investing overseas to start with complete control and share it after the operation became established. Taking a comparative perspective, Shetty [1979] argued that European MNCs were more agreeable to joint ventures than their American counterparts because their longer overseas experience made them more adept at dealing with foreign partners. Davidson and McFetridge [1985] found the probability of using a wholly owned affiliate by U.S. MNCs decreased with increasing number of prior technology transfers. Stopford and Wells [1972] analyzed the first five manufacturing investments outside the U.S. and Canada by American MNCs to determine if these companies preferred joint ventures in the early stages of their international evolution. To their surprise, the authors found almost three-fourths of these initial ventures were wholly owned. Two theoretical explanations may be advanced to explain the observed negative relationship between experience and desire for control. One is the ethnocentric argument. It has been suggested that many international neophytes tend to be ethnocentric in their orientation demanding to have their own nationals in key positions in foreign ventures

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Drivers of Internationalization [Weichmann and Pringle 1979; Anderson and Gatignon 1986]. Since these demands can be rarely satisfied in shared-control arrangements, novices may decide to assume full ownership and control. Experienced firms, on the other hand, grow more polycentric in their orientation and, consequently, more confident of their ability to advantageously exploit local expertise [Shetty 1979]. As such, they may be more eager to accept shared ownership and control. Alternately, transaction cost analysis suggests that when internal uncertainty is high (say, due to lack of experience), the firm may find it difficult to accurately assess the performance (output) of agents or partners [Williamson 1985]. The firm may, therefore, find it easier to monitor the effort (input) of its employees, making fully integrated operations more desirable. In short, the findings reported in the literature on entry mode selection are conflicting and confusing. Below, we attempt to reconcile the divergent viewpoints and make predictionsc oncerningt he relationship between experience and entry mode choice.

Network/Social Ties and Supply Chain Links A number of recent studies have highlighted the importance of network/social ties and supply chain links in triggering SMEs first internationalisation step and extending internationalisation processes. These include research among American, Australian, Canadian and Portuguese businesses. Both North American studies particularly reported the stimulating effect on export activity of firms soft assets, including social and network capital, some of which may have accrued through managers immigrant background and associated links. The study among fish exporters from the Azores Islands, an autonomous Portuguese archipelago in the North Atlantic, some 900 miles from the European mainland, highlighted the importance of family and social ties with emigrant communities in global markets in driving SME internationalisation (see Boxes 3 and 4). Kocker and Buhl also observed that taking advantage of collaborative links is a common motive among the firms they investigated across ten OECD countries. Finally, it is important to mention the value of the linkages back to their birth countries that migrants can bring in arranging exporting opportunities [OECD

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Drivers of Internationalization CFE/SME(2008)5/PART1/REV1]. Domestic/Regional Market Drivers. There is also support from recent relevant research on the push effects of firms limited or stagnating domestic market on internationalisation behaviour. For example, both Rundh and Orser and colleagues found this to be the case based on their respective studies of Swedish and Canadian firms. A regional, or sub-national, dimension was reported by Lopez, who found that Spanish firms from different regions differed significantly in their export tendency, with export propensity increasing in regions with less favourable domestic conditions, local incentives to export and good export infrastructure. The Spanish study also identified the favourable country/region of origin image enjoyed by Spanish agricultural products in international markets as an additional stimulus for the internationalisation of the firms investigated. Recent evidence from Chile and Indonesia further suggests a greater tendency to export among firms from sectors characterised by high levels of export intensity and presence of foreign buyers. The Indonesian finding on the importance of foreign buyers presence is significant as it reinforces the earlier observed need to boost SMEs role in global value chains through facilitating their integration into production/supply systems of foreign affiliates of larger firms (OECD, 2008). AVAIABILITY OF WELL MANAGEMENT: With continued globalizationo f the world'se conomies,j oint ventures( JVs) have becomea n importante lemento f many firms' internationals trategies. These ventures involve two or more legally distinct organizations (the parents), each of which actively participates in the decisionmaking activities of the jointly owned entity [Geringer 1988]. If at least one parent organizationi s headquarteredo utside the JV's country of operation, or if the venture has a significant level of operations in more than one country, then it is considered to be an international joint venture (IJV). An alternativet o wholly-owneds ubsidiaries,I JVs are commonly used by firms as a means of competing within multidomestic or global competitive

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Drivers of Internationalization arenas [Porter & Fuller 1986; Harrigan 1988]. Increasingly, they are perceived strategic weapons,a s one of the elementso f an organization's business units network [Harrigan 1987]. To the extent that scholars have devoted attention to control in IJVs, the ultimate objective should not be limited to the study of the control concept itself. Rather, the underlying rationale should be improved understanding of the relationship of control to IJV performance. Thus, this section will review the approaches that have been employed in examining this critical relationship, as well as the studies' findings. Tomlinson [1970], often considered the first scholar to empirically study the control-performance relationship of or IJVs, did not directly examine parent control, but rather the "attitude of parents toward control." From a sample of seventy-one IJVs in India and Pakistan, Tomlinson found that IJVs evidenced higher levels of profitability when theirU .K.parents assumed a more relaxed attitude towards control.However, the validity of these results may be questionable, since Tomlinson used return on investment as the measure of profitability. Utilization of this measure for a multi-industry sample does not appear adequate and may have produced bias in the results. Variations in the financial performance of IJVs could be caused, for example, by industry differences rather than differences in the attitude toward control. To evaluate control, he relied on the importance given by MNC parent firms to standardization and to the centralization of decisionmaking, particularly for marketing policy issues. Furthermore, the author's dependent variable, changes in JV ownership structure, fails to provide a clear sense of the JV's absolute or relative success or of the achievement of the JV's objectives, and therefore of the performance of the JVs. Because ownership may also be a control mechanism, utilization of this constructm ay resulti n confusion regardingt he meaningo f ownership changes. It is open to conjecture whether these changes are indicative of modificationsin

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Drivers of Internationalization the controlo f the JV,o r of its poor performanceD. espite these concerns, Franko made a significant contribution by examining the JV controlperformanceli nk using the "strategy-structure"co nceptual framework.W ithin this perspectivet, he degreeo f parentalc ontrol as well as the JV's performance (or its stability) is presumed to be contingent on the MNC's strategy and structure. Unfortunately, despite the potential insightsf rome mployingt his frameworkn, o researcherhs avey et attempted to extend Franko's work in studying the control-performance relationship for IJVs. The studies that constitute the "mainstream" of research on control and performance of IJVs have adopted a different, but not necessarily incompatible, approach than that employed by Franko [1971]. For example, Killing [1983] asserted that, among his three JV categories, dominant partner JVs are more likely to be successful, at least compared to shared management ventures. His argument was essentially as follows: since the presence of two (or more) parents constitutes the major source of management difficulties in JVs, dominant partner JVs, in which the venture's activities are dominated by a single parent, will be easier to manage and consequently more successful. This argument is especially easy to interpret within a transactionc ost analytical framework. To justify use of these variables rather than financial indicators, Killing [1983], like Rafii [1978], explained that the profitability of the JV for a parent firm is not based solely on the JV's profits, but also on transfer prices, royalties and management fees not included in traditional financial performancem easuresD. ue to this deficiencyt, raditionafl imanciaml easures were, consequently,j udged to be inadequatef or use within a JV context. Consistent with his hypothesis, Killing found that dominant partner JVs tended to be more successful, on both measures, than were shared management

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Drivers of Internationalization ventures. Independent JVs also exhibited superior levels of performance. In this latter case, Killing suggested that the JVs' autonomy was more a resultt han a cause of theirp erformanceH. owevert, he evidencep resented in support of this assertion was inconclusive. It did not completely rule out that autonomy, or the absence of parental control, was the stimulus rathert han the responset o higherJ V performanceF. urthermoren, o formal statistical tests were used to support the assertion. Similar to Killing [1983], Anderson and Gatignon [1986] proposed that entry modes offeringg reaterc ontrol, as measuredv ia the relativel evel of ownership, wouldb e more efficient for highlyp roprietaryp roductso r processes. However,t he work of other researchersh as not providedm uch evidence to support Killing's [1983] contention that JVs dominated by one parent exhibited superiority in performance. For instance, Janger [1980] used a classification schema similar to Killing's, yet did not find that one type of JV tended to be more successful than another. Similarly, Awadzi, et al., [1986]f ailed to find any relationshipb etweene xtento f parentc ontrol and the performance of IJVs. Beamish [1984] also attempted to test Killing's hypothesis. Using Killing's [1983] data, he used a chi-square test to examine the relationship between type of JV and its performance, but found no significant relationships evident at the 0.05 level. Beamish subsequently utilized Killing's control scale and performance measures for twelve JVs in less developed countries (LDCs). Unsatisfactory IJY performance was found to be correlated. Using the notion that parent firms seek control over specific activities as a conceptual starting point, Schaan [1983] extended that argument as well as identifying several subtleties regarding the phenomenon. In particular, Schaanc oncludedt hat ventures uccess,o r the extentt o whichp arentale xpectations for the IJV were met, was a function of the fit among three variables: the parent's criteria for success, the activities or decisions it controlled and the control mechanisms which were utilized. He concluded that IJVs in which parents achieved this "fit" would evidence better performance. Schaan failed to provided etails regardingt he underlyingr ationalef or his conclusions. However, one can imagine that a parent firm not adequately exercisingc ontrol over activitiesj udged as critical for the achievemento f its objectives could ultimately suffer from ineffective strategy

20

Drivers of Internationalization implementation and strategic inflexibility. Thus, despite its conceptual appeal, the relationship between dominant controla nd IJV performancea ppearst o be far morec omplexa nd less direct than scholars may have originally perceived. Janger [1980] suggested that the organization of a JV has only a small direct influence on its performance. According to him, it would not be "the structure alone that makes for a successful organization, but how well the structure fits the strategy and power situation in the venture" (p. 32). Despite such comments, most prior research has been limited to a direct test of the IJV controlperformancer elationshipw ithoutt akinga ccounto f or controllingf or other variables such as the parents' strategy and structure, as Franko [1971] did. Subsequenti nconsistenciesin resultsm ay thereforeb e an outgrowtho f this situation. Furthermoret, he tendencyo f prior researcht o evidenced ifferencesb oth in the object of study and in the operationalizationo f performancem ay also help explaint he conflictingr esultsf ound in the literatureO. n one hand, scholars have focused either on developed country JVs [Killing 1983; Geringer 1988], on less developed country JVs [fomlinson 1970; Friedman & Beguin 1971; Renforth 1974; Raveed 1976; Dang 1977; Rafli 1978; Schaan 1983; Beamish 1984], or on both types of JVs [Franko 1971; Janger 1980]. As demonstratedb y Beamish [1985],l ess developedc ountryJ Vs typically have purposes and dynamics quite different from those of developed country JVs. For instance, the motives underlying their formation have often been tactical in nature, or limited to the desire either to obtain knowledge about the local environment or respond to foreign ownership legislation. On the other hand, no consensus on the appropriate definition of IJV performance has yet emerged. A variety of objective measures for IJY performanceh aveb een used, rangingf rom financiali ndicators[ omlinson 1970; Good 1972; Dang 1977; Renforth 1974], to the survival or liquidation of the venture [Franko 1971; Raveed 1976; Killing 1983], its duration [Harrigan 1988; Kogut 1988a], and instability of (or significant changes in) its ownership [Franko 1971; Gomes-Casseres 1987]. However,

21

Drivers of Internationalization these objectivem easuresm ayn ot adequatelyr eflectt he extenta n IJV has achieved its objectives. Despite poor financial results, liquidation, or instability, an IJV may nevertheless have attained the objectives of its parents-for example,o f transferrinag technology-and thus be considered" successful" by one or all of the parents. Likewise, IJVs may be viewed as "unsuccessful," despite achieving good financial results or continued stability in ownership or governance structures. Because of such concerns, Killing [1983], and later Schaan [1983] and Beamish [1984] used a perceptual measure based on a single-item scale measuring the parent's satisfaction vis-a-vis the performance of an IJV. The main advantage of this type of measurei s its ability to providei nformationr egardingt he extentt o which the IJV has achievedi ts objectives.M oreoverb, y collectingd ata from each parentr egardingt heir level of satisfaction,a s done by Schaan [1983]a nd Beamish[ 1984],r esearchercs an help overcomem ethodologicall imitations associated with the use of such perceptual measures. The measure's reliability may also be enhanced if data is collected from multiple time periods, or from more than one respondent per firm, although such efforts may confront a myriad of logistical and cost barriers. In short, the above review suggests that the empirical evidence regarding the control-performancer elationshipi n IJVs is still limited. The importance and direction of this relationship have yet to be established, tested, and clarified.

Global Market Entry Modes Having decided on the country or market that it wishes to enter, a firm must consider the implementation of its global marketing strategy. A company committing itself to foreign market entry must consider carefully which entry mode is most appropriate for the market (Keegan and Schlegelmilch, 2001). Areas of concern for the company are the level of control they want in the market, the finances they are willing to submit and the knowledge attainable through the venture (Keegan and Schlegelmilch, 2001). Entry modes are commonly referred to as direct and indirect exporting (McAuley, 2001 and Jeannet & Hennessey, 2001). Direct entry modes are active forms of entry that are comprised of domestic and international based intermediaries (McAuley, 2001). Indirect entry modes are those that are considered to be passive forms of entry into a foreign

22

Drivers of Internationalization market (McAuley, 2001).

Direct Market Entry Modes Direct exporting is a more active form of exporting with a heightened commitment on behalf of the company (McAuley, 2001). Sales Subsidiary Setting up a sales subsidiary in a foreign market requires a direct involvement and commitment of the company to the foreign market (Jeannet and Hennessey, 2001). The company must set up a sales subsidiary and employ staff in the country to manage the sales in the market. The company has a wide degree of control, as they employ all those involved with the product or service. The cost of the sales subsidiary is considered to be higher than indirectly exporting (Jeannet and Hennessey, 2001). The wholly owned sales subsidiary is most appropriate for a company that has a large sales volume in the foreign market (Jeannet and Hennessey, 2001).

Strategic Alliances Strategic alliances are increasingly being used as a method to gain entry into a foreign market. (Jeannet and Hennessey, 2001). Two or more firms embark on an alliance in which each firm bring the benefit of a skill or experience to the relationship (Jeannet and Hennessey, 2001). The companies skills are usually complimentary to each others goals and each is expecting to benefit finically form the other company (Jeannet and Hennessey, 2001). The alliance does not necessitate the formation of a separate company and goes beyond the boundaries of a joint venture (Jeannet and Hennessey, 2001). A problem relating to SAs is the loss of control and the company know how (Johansson, 1997). The following are the most common types of alliances:

23

Drivers of Internationalization Technological or R&D Alliances are the most common reasons for embarking on a technological alliance are the access to markets, the exploitation of complementary technology and a need to reduce the time of innovation within a firm (Jeannet and Hennessey, 2001). Such an alliance may give a company their competitive edge (Johansson, 1997). A technological or a biotechnological-based company would be best suited to such an arrangement (Jeannet and Hennessey, 2001).

Production-Based Alliances-A production-based alliance is used primarily for two reasons. Firstly, companies may source key components in a bid to gain increased efficiencies (Jeannet and Hennessey, 2001). Secondly, a joint production or development venture for companies that are producing similar products (Jeannet and Hennessey, 2001). This type of alliance is particularly evident in the car manufacturing industry (Jeannet and Hennessey, 2001). The alliance saves money and time in that they do not have to set up their own production facility (Johansson, 1997). Problems may occur if the partners alter their strategic direction in a manner that the other is unwilling to follow (Jeannet and Hennessey, 2001).

Distribution Alliances-Distribution alliances are becoming more prominent in the business environment (Jeannet and Hennessey, 2001). Companies are beginning to set up alliances with others that have a good distribution network in a perspective market (Johansson, 1997). In this manner the company does not have to carryout as much ground work into the distribution systems within the potential markets, as the new partner has already the competencies in this area (Johansson, 1997). A drawback is that the partners may limit their growth through this strategy, as they may wish to produce a product that competes with the others product line (Johansson, 1997). Therefore if the goal is for product expansion, the alliance is not expected to last long (Johansson, 1997). In return the company may offer the distribution partner remuneration or a sharing of their capabilities.

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Drivers of Internationalization Joint Ventures Under a Joint Venture (JV) the company undertakes an arrangement with a separate company to share stock ownership in the new unit (Jeannet and Hennessey, 2001). A JV involves the transfer of capital, manpower and technology from the company to an existing firm in the foreign country (Johansson, 1997). The participation of each partner varies each time depending on the cost, stock needs and control needs of the partners involved (Jeannet and Hennessey, 2001). A JV is normally undertaken as a means of providing a competitive advantage for each of the firms involved (Doole and Lowe, 2001). A company may choose a JV to enter the foreign market as a method of minimising the risk in foreign entry (McAuley, 2001). With a JV the risk is shared among the partners (Jeannet and Hennessey, 2001). The foreign partner will be aware of the cultural norms and political barriers and this is a method of overcoming them (McAuley, 2001). The companies may also be able to benefit from the skills and The additional partner may experience of each other (Jeannet and Hennessey, 2001).

have good contacts within the chosen country that the company may benefit from (Jeannet and Hennessey, 2001). Tensions may arise between the companies that may cause a potential conflict, which should be monitored closely (McAuley, 2001). Conflicts often arise in JVs and the companies involved will find greater success if they share similar goals (Jeannet and Hennessey, 2001).

Manufacturing Subsidiaries A consideration of market entry modes is manufacturing within the chosen country (Jeannet and Hennessey, 2001). This entry mode requires a high level of commitment on behalf of the company as it will require a time and resource commitment (McAuley, 2001). The company may choose the mode due to cost savings or as a means to overcome restrictions in the foreign market (Jeannet and Hennessey, 2001). The company may decide to manufacture in a foreign country solely for the benefits of cost saving that may be realised in the country (Jeannet and Hennessey, 2001). A company may choose to hire manufacturer representatives in order to arrange shipping and

25

Drivers of Internationalization handling of goods (Ceteora, 1993).

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Drivers of Internationalization

Contract manufacturing-A company arranges to have their products manufactured by a company in the market they wish to penetrate (Jeannet and Hennessey, 2001). The manufacturer is solely in control of production and takes no responsibility for any additional services. The products are passed back to the company who use them for the international market. This concept of contract manufacturing differs from licensing in the contract terms. The manufacturer is given no guarantee as to the amount of orders or the quantity. It is taken on an order-by-order basis (Jeannet and Hennessey, 2001). This method of manufacturing is best suited to countries with low volumes or high tariff protection (Jeannet and Hennessey, 2001).

Assembly-A method of gaining access to a foreign market is assembly in a foreign market (Jeannet and Hennessey, 2001). A company may choose to have the final stages of manufacture in the foreign country (Jeannet and Hennessey, 2001). Larger companies generally abide by this method (McAuley, 2001). The company does not have to embark in a large financial outlay but it opens up an otherwise guarded market (Jeannet and Hennessy, 2001). The transportation cost would be greatly reduced through this method (McAuley, 2001). The company has also the opportunity to take advantage of lower labour costs (Jeannet and Hennessey, 2001).

Full Scale Integrated Production-This method of entry into a foreign market is one that requires a great commitment from the company (Jeannet and Hennessey, 2001). The company is required to invest in the building of a plant and so the initial financial outlay is significant (Jeannet and Hennessey, 2001). The entry mode is best applicable to a company that has a guaranteed market in the country (Jeannet and Hennessey, 2001). The company may be able to take advantages of lower cost production or eradicate high transportation costs (Jeannet and Hennessey, 2001). Mergers and Acquisitions

27

Drivers of Internationalization A company seeking to expand to a foreign market may decide that a merger or an acquisition may be the best option available to them, depending on the availability of such a firm (Doole and Lowe, 2001). This from of market entry assumes that growth will be easier to achieve in an established firm than waiting for it to grow organically (Doole and Lowe, 2001). The foreign company will have already an established distribution network that the company can take advantage of (Johanessen, 1997). The disadvantages include re-educating the employees (Johansson, 1997). It may also be difficult to find a company that fits the companys needs (Johansson, 1997). The company may encounter resistance to the takeover, which may result in a poor company image (Doole and Lowe, 2001).

Marketing Subsidiary A company may decide to carryout their own marketing activities if the believe that the agents are not sufficient to cover the market (McAuley, 2001). The method would allow the company to have contact with the end customer (McAuley, 2001).

Freight Forwarders A company may decide to use freight forwarders if they do not possess the necessary skills internally to carryout the appropriate paperwork for the exportation (McAuley, 2001). The freight forwarder provides all the appropriate information on shipping, routing, schedules, charges, labelling, certification, and customer requirements (McAuley, 2001). The freight forwarder has the benefits of economies of scale and can therefore offer a more cost effective price (McAuley, 2001).

Consortium Exporting A group of companies may come together and combine their skills and resources in order to bid for contracts, while remaining independent (McAuley, 2001). This form of foreign

28

Drivers of Internationalization market entry is particularly relevant to the construction industry (McAuley, 2001).

Export Department A large company may have the resources to have an export department based in their own company that have the direct responsibilities for setting up foreign sales (McAuley, 2001).

Indirect Market Entry Modes Indirect market entry has been referred to as passive exporting, as it has the result of the firm beginning exporting activities due to a pull from the customers (McAuley, 2001). It can take many forms, such as those outlined below:

Unsolicited Orders A company may begin their initial exporting through customers seeking the product. It demonstrates that there are potential markets for the company that may be profitable (McAuley, 2001). Problems may occur if this is a once off activity for the company, as it may be deemed costly due to low economies of scale (McAuley, 2001).

Licensing Licensing is a form of exportation involving a company to assigning their patents or trademarks to another company in return for royalties (Jeannet and Hennessey, 2001). The royalty would be based on a percentage of sales or profits (McAuley, 2001). The exporting company does not have the commitment of a financial investment in the foreign market (Jeannet and Hennessey, 2001). The licence is signed for a designated time after which time the licence is reviewed (Jeannet and Hennessey, 2001). If the cost

29

Drivers of Internationalization of the licence is substantial the time length of the contract must also be large, as the licensee must have the sufficient time to regain the initial cost of investment (Jeannet and Hennessey, 2001).

The advantages of licensing include a time and resource saving on behalf of the licensing company (Jeannet and Hennessey, 2001). The licenser does not require the heightened amount of market research or knowledge (Johansson, 1997). The licenser avoids the complications of any political unrest in the chosen country and they overcome barriers to entry, which may come in the form of restrictions on foreign company set-ups (Jeannet and Hennessey, 2001). The licenser avoids any tariffs or levies that may have otherwise been imposed (Johansson, 1997). The disadvantages of licensing include the dependence of the licenser on a local licensee (Jeannet and Hennessey, 2001). The licenser must ensure that their technologies are not passed on to competitors and this requires a supervision cost (McAuley, 2001). The success of the licensing is dependent on the performance, the skill and the product quality of the licensee (Jeannet and Hennessey, 2001). The threat of training a potential competitor is also a pertinent concern for the licenser as the licensee may develop new technologies that cause a threat to the company (McAuley, 2001).

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Drivers of Internationalization Franchising Franchising is a heightened form of licensing in that it is the transfer of the companys total marketing programs including brand name, logo, operations and products (Jeannet and Hennessey, 2001). The franchising agreement is usually much more comprehensive than a license agreement due to the nature of the transfer of all operations. It allows a higher degree of control than licensing (Johansson, 1997). Franchising of the companys operations does not require a direct investment in the foreign market be the company (McAuley, 2001). (Johanessen, 1997). Franchising is one of the fastest growing modes of exporting Franchising is a low cost entry method and it aids the brand

recognition of the company (McAuley, 2001). Many companies have benefited from this type of agreement such as McDonalds and Kentucky Fried Chicken (Jeannet and Hennessey, 2001). The customers are aware of the company and are expecting the same quality from each of the outlets, which can be a danger as it is difficult to maintain the same quality in lots of outlets (Johansson, 1997). They are also control problems pertinent to franchising, which arise when the goals of the companies do not match (McAuley, 2001).

Independent Distributor An independent distributor is a method a company can use to pass their products on to a distributor in order for them to distribute in a foreign market (Jeannet and Hennessey, 2001). The production company is not involved in the foreign market, but they get the benefit of increased sales. A disadvantage of this form of exportation is the cost incurred by the producer as the distributor earns a margin of the sales (Jeannet and Hennessey, 2001). The production company will also suffer from a loss of control, as they are not directly involved in the foreign market (Jeannet and Hennessey, 2001). The use of an independent distributor is best advised when a company is expecting a low sales volume of the foreign market (Jeannet and Hennessey, 2001).

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Drivers of Internationalization Middlemen Assuming a company does not wish to set up a subsidiary in a foreign market there are some choices of middlemen that facilitate the selling of goods in a foreign market.

Agent Middlemen-Agent middlemen are selected as a means to sell goods in a foreign market (Cateora, 1993). They do not take title to the goods and the company sets out pricing and policy guidelines. The agent must report sales and customers information to the company (Cateora, 1993). The agents are paid in the form of commission on sales (Cateora, 1993). The advantage of this form of exporting is that the agent will have expertise in the area and access to the markets (McAuley, 2001). The company has a relatively high degree of control over the agent. An important consideration for the company is relationship with the agent. Bad agents exist and if a company has signed an agreement it may be difficult to get out of it (McAuley, 2001). The type of agent middlemen can include the following:

Export Management Company (EMC) EMCs are specialist companies that act as an export department for the company (Doole & Lowe, 2001). The EMC contacts potential customers and negotiates sales (Cateora, 1993). The EMC are a home country based middleman (Cateora, 1993). This is a form of indirect market entry (McAuley, 2001). The EMC is particularly appropriate for small companies that have a small volume or do not want to involve their personnel in international trade. The EMCs offer a personal service for the manufacturer (McAuley, 2001). This method requires little investment and little effort on behalf of the producer (Cateora, 1993). The EMC can rarely establish long-term distribution for the products, as they require an immediate payout to remain sustainable (Cateora, 1993).

Manufacturers Export Agent (MEA) The MEA is a short-term agent for the company. The selling arrangement is for a limited scope, in time or products and is based

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Drivers of Internationalization on a straight commission basis (Ceteora, 1993). The MEA trade in their own name and not that of the exporting company (Ceteora, 1993).

Home Country Broker A broker specialises in bringing buyers and sellers together (McAuley, 2001). 1993). They facilitate relationship building but rarely maintain contact with the parties, with the exception of some of the large producers (Ceteora,

Buying Offices Buying offices have a role in sourcing and buying products for principals (Ceteora, 1993). The buying office organises the exports of the goods on behalf of the principal buying the goods (McAuley, 2001). They do not provide a continuous service or representation to the principals and they source from different vendors but they do not provide a selling function as such (Ceteora, 1993). Additionally there are separate selling groups (Ceteora, 1993).

Export Jobbers Export jobbers take title to the goods but they do not take procession of the goods (McAuley, 2001). They deal mainly in commodities goods (Ceteora, 1993). They arrange the transportation of the goods and work on a job lot basis (Ceteora, 1993).

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Drivers of Internationalization A major advantage to the above types of exporting is that they tend to be low costing, and by using the expertise of others it is expected that the deal will run smoothly. However, it does not allow the company to develop any skills in the field and they do not have any customer involvement (McAuley, 2001).

Merchant Middlemen-Merchant middlemen take title to the goods (Cateora, 1993). They are involved in the buying and reselling of the goods in foreign countries, and because of this the company has little control over the merchant middlemen (Cateora, 1993). Merchant middlemen are used due to the minimised credit risk, the ease of contact and the eradication of problems in dealing with a foreign market (Cateora, 1993). The major advantage of this type of exporting for the company is the fact that the exporter is guaranteed a cash flow (McAuley, 2001). The merchant is highly concerned with profit maximisation and is criticised for being a poor ambassador for the companys goods (Cateora, 1993). The company receives no information as to who the end user of the product is or what it is being charged at (McAuley, 2001). The following are types of merchant middlemen:

Trading Companies - Trading companies accumulate, transport and distribute goods from many countries (Ceteora, 1993, p.448). They are home country middlemen (Ceteora, 1993). This is a form of indirect market entry (McAuley, 2001). Trading companies can cover a large geographical area, which is beneficial to the exporting company (Ceteora, 1993). The trading companys main functions include importing and exporting goods, they offer assistance and advice, manufactures goods, financing and the development of joint ventures (Ceteora, 1993). The companies generally have a large product range (McAuley, 2001). The companies have extensive contacts, which allow them to trade in difficult areas (Doole and Lowe, 2001). The company does not directly deal with the customers and so are losing out on valuable market knowledge (Doole and Lowe, 2001). The company also suffers from a lack of control with this method (Doole and Lowe, 2001).

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Drivers of Internationalization

Piggybacking/Complementary Marketers A company with a wide distribution network and marketing facilities may wish to widen their product portfolio and seek additional product lines (McAuley, 2001). Additionally an existing customer of the distributing company may request the product (McAuley, 2001). When such an arrangement is made it is referred to as piggybacking (Ceteora, 1993). This is an indirect market entry method (McAuley, 2001). Agent or merchant middlemen can use the method, but it is generally through merchant middlemen (Ceteora, 1993). The arrangement is usually between companies that have complementary product ranges, so as to avoid any competitive dilemmas within the distributing company (Ceteora, 1993). Problems may occur if a contract was poorly considered so companies often try trial runs (Doole and Lowe, 2001). If either company changes their strategic track it may cause conflict for the company (Doole and Lowe, 2001).

Distributors A foreign distributor often has exclusive rights in a particular country or region (Ceteora, 1993). They have a high degree of dependence on the manufacturer so the relationship is usually long term with the manufacturer having a large degree of control over the agent (Ceteora, 1993).

Dealers Dealers are middlemen that have a long-term relationship with a supplier (Ceteora, 1993). They are involved in the distribution of goods and act as the last notch in the distribution channel. They often have exclusive dealer relationships within a certain geographic location. The most successful dealerships tend to be in the automotive industries (Ceteora, 1993).

Import Jobbers, Wholesalers and Retailers Import Jobbers purchase goods directly from the manufacturer and sell to wholesalers and retailers (Ceteora, 1993). The wholesalers are then involved in the redistribution to smaller sellers (Ceteora, 1993). The

35

Drivers of Internationalization wholesaling method is more common in non-US companies (Cateora, 1993). In addition to this, Ceteora (1993) notes that government agencies are becoming increasingly important in the establishment of entry modes for companies. Merchant middlemen are rarely involved in the selling of goods to government agencies (Ceteora, 1993). Companies should be aware of this change in perspective in some countries. LITERATURE REVIEW Most of the frameworks developed so far have tended to focus on the firm passing through a number of stages as it develops from the small omestic based firm to the multinational enterprise.Results will show that for industry sectors dominated by the smaller firm, together with the impact of product and lifestyle issues, this progression is not necessarily observed. Attempts to apply existing theory to such firm behaviour therefore tends to break down. In addition to adaptation of existing internationalisation frameworks, alternative visualisations are needed in order to portray behaviour more accurately. This paper builds on literature review in order to propose a theoretical framework of the causes driving the early internationalization of the firms. A deeper understanding of the causes of internationalization and of their inter-relationships could enable policy makers to establish under which conditions SMEs are likely to flourish and thus to concentrate their intervention selectively on their support in order to favor the transition from early to rapid internationalization. Internationalisation has been used to describe the outward movement or increasing involvement in a firms or larger groupings international operations [1, 2]. With more and more smaller firms now internationalising, Yakhlef and Maubourguet [3] focus on the reasons for this, such as gaining access to increasing amounts of tangible and intangible resources in order to establish firm-specific global advantages.

Internationalisation Theory_The Uppsala internationalization model: The Swedish researchers, Johanson and Wiedersheim-Paul (1975) and Johanson and

36

Drivers of Internationalization Vahlne (1977) from the University of Uppsala conducted a lot of research during the 1970s on the internationalization process. The researchers studied the internationalization of Swedish manufacturing firms and in connection to this they implemented a model of the firms market choice and foreign entry mode. One of the first observations they made was that firms tended to internationalize towards nearby foreign markets and stepwise, with growing experience, entered 14 more distant markets. The second observation made by the researchers, was that companies had a tendency to enter new markets through exports. Very few firms entered new markets with their own sales organizations or production plants (Hollensen, 2007). According to Armario, Ruiz and Armario (2008) firms develop their business in domestic markets and internationalization occurs in line with incremental decisions, which are limited by two factors, namely resources as well as insufficient information. This means that the two factors constitute a major barrier for expanding to foreign markets. Nevertheless, SMEs can overcome these barriers by joining business networks as this will give them access to more resources at the same time as the firm will benefit from being larger in size through the network (Chetty & Campbell-Hunt, 2003). Johanson and Wiedersheim-Paul (1975) have recognized four different international entry modes for a firm; each stage representing a higher experience and higher degree of market commitment. The following model illustrates the Uppsala internationalization model, which is followed by a description of the four stages: Time Stage 1: No regular export activities, meaning that the firm does not have enough resources or information about the foreign market. Stage 2: Export occurs through independent representatives. Stage 3: The firm establishes a foreign sales subsidiary. Stage 4: Foreign production or manufacturing units are being established (ibid).

Companies start their international business on markets with low uncertainty (Armario, Ruiz & Armario, 2008). According to Johanson and Wiedersheim-Paul (1975) firms tend

37

Drivers of Internationalization to internationalize their business towards close markets which are easily understood and which have a low degree of psychic distance. Psychic distance refers to differences in language, culture and political systems; factors that can influence the communication between the firm and the foreign market. Only gradually, firms will enter markets with a greater psychic distance (ibid). Armario, Ruiz and Armario (2008) explain that as soon as the firm has gained sufficient international experience, further decisions on entering new markets will be based upon factors such as market size or the global economic climate. The Uppsala model is an incremental internationalization process, accelerated by a stronger commitment and experience of the foreign market (ibid). Johanson and Vahlne (1977) 15 argue that market knowledge and market commitment are closely related. According to the authors, knowledge can be seen as a resource, which means that the more knowledge the firm has about a market, the more valuable become the resources. This leads to that the firms commitment to the market gets stronger (ibid). The Uppsala model has nevertheless encountered critique according to Nordstrm (1991). Not every firm is following the concept of the model, as some firms tend to leapfrog certain stages of it. This means that companies enter markets with a greater psychic distance in an early stage. Nevertheless, it is claimed that internationalization processes of firms generally occur in a faster pace today (ibid). Born globals are emerging on the market; firms that have the ability to internationalize much faster than firms with a long experience from their home market. It is common for born globals to be established in international networks before the company has been founded. This means that the companys internationalization process is eased due to their earlier experience and knowledge from foreign markets (Johanson, Blomstermo & Pahlberg, 2002). The various theories of internationalisation seek to illustrate the configurations which companies adopt, while also prescribing a normative approach to internationalisation decision making. Tookey [28] and Wind et al. [29] were some of the earliest proponents of the stages approach, while Johanson and Wiedersheim-Paul [5], Johanson and Vahlne [1] and Bilkey and Tesar [6] produced works which still form the basis for much research today. However, there have been various criticisms made regarding the theoretical

38

Drivers of Internationalization validity of the concept while empirical evidence from other studies has also tended to contradict these findings [30]. Hurmerinta- Peltomaki [31] senses that the days of stages theory are numbered and that there is a moving away from its linear time based approach to a more primitive concept of cyclical time with no fixed direction. Bell et al. [32] also review the criticisms of the stages approach while Moen et al. [33] provide a useful critique of the process models of internationalisation in a study of internationalising small computer software firms. Westhead et al. [34] examine the internationalisation strategies of SMEs in rural and urban areas. This has particular relevance to the craft sector discussed later in this paper where many internationalising firms are rurally based. Difficulties arise when endeavouring to derive a general definition of internationalisation and also when trying to classify the various stages of the process [35]. A number of studies focus on internationalisation through export activity and export orientation and, although they are related, they are not identical. Turnbulls research of British companies show that the internationalisation stage is determined by the operating environment, the industry structure and the marketing strategy of the company. The stages concept should therefore only be used as a classification framework and not as a means of learning how firms internationalise. Bilkey [14] undertook a review of the literature concerning export behaviour of the firm, covering areas such as export initiation,motivations for exporting, firm size effect and export models. He concluded that exporting is a developmental process and that export profiles should be used together with export behaviour models to achieve meaningful results. This procedure is adopted in the investigation of smaller craft firm internationalisation detailed later in this paper.

Exporting as a Path to Internationalisation Key research themes relating to the exporting SME include the investigation of the process itself [36, 37], market entry and the role of the entrepreneur [38], SMEs and globalisation [39], exporting stimuli [40], export problems and barriers [41, 42], the link between firm/managerial characteristics and exporting competencies [43] and export

39

Drivers of Internationalization stimulation measures [44]. Other issues investigated include comparisons of nonexporters versus exporters [45], networking and the entrepreneurial exporter [15, 46], the impact of the internet on SME domestic and export behaviour [47], export market information gathering [48] and the use of creativity to overcome resource constraints [49]. A growing related field is that of international entrepreneurship which acknowledges changing patterns in internationalisation behaviour and connects with born global and instant international phenomena [50]. Exports through outside intermediaries, contractual transfers and joint ventures are termed shared-control modes. Much of the literature investigates entry mode hoice in terms of the degree of control desired by firms [Stopford and Wells 1972; Anderson and Gatignon 1986; Gatignon and Anderson 1988]. The pertinent question here is: Does experience have positive, negative or no effect on the degree of control a firm takes? The literature is somewhat ambiguous on this question and provides support (in different degrees) for all three options. Gatignon and Anderson [1988] found that the manufacturing MNC's propensityt employ wholly owned subsidiarieisn creasedw ith increasingc umulative international experience (measured as number of foreign market entries to date). Similarly, Davidson [1980a, 1982] noticed that aggregate experience (as measured by the number of market entries or product transfers already executed), and prior manufacturing experience in the recipient country increased the firm's relative preference for wholly owned subsidiaries. The theoretical explanation for a positive relationship between experience and degree of control centers on uncertainty and how firms cope with it. Less experienced firms perceive considerable uncertainty, overstate risks and understate returns [Davidson 1982], and, consequently, shy away from making significant resource commitments and assuming control [Johanson and Vahlne 1977]. With increasing experience, however, firms acquire knowledge of foreign markets, perceive less uncertainty, and become more confident of their ability to correctly estimate risks and returns and manage foreign operations [Johanson and Vahlne 1977; Davidson 1982]. As a result, they become more aggressive in committing resources and assuming

40

Drivers of Internationalization control [Anderson and Gatignon 1986]. It is commonly accepted assumption that firms can improve their profitability by entering in to international expansion (Mintzberg, 1989). As (Varmeluen and Barkama, 2002) mentions that the potential benefits of internationalising of a firm depend upon the dynamic process of internationalisation, in which time and history matters. Firms can internationalise by adopting either upstream or downstream approach. Internationalisation by upstream activities means acquiring international experience through import (inputs) activities, activities related to production (transformation). In downstream approach, the firm can internationalise itself by adopting two ways: either proactive (internationalisation via ethnic links) or reactive response (foreign company induced internationalisation.) In proactive approach the initiator is the exporter to other markets. The product of the firms is first developed in home and after doing market search it is exported to other countries. The downstream approach is the core of the stage theory: that firms first start exports with countries, which are psychological close to them (Johansson and Widershiem Paul 1975).

Internationalisation and Firm Size One of the key effect of internationalisation of firm size on internationalisation behaviour. As he firm grows it becomes motivated to conquer markets. it tries to cover up its growth through high sales.After feeding up their home market they desire to move towards foreign markets.Perceptions vary as to what constitutes a small, medium or large firm. The majority of the literature is derived from USA studies where definitions of size differ from the United Kingdom, Europe and elsewhere. The transferability of findings and replicability of studies is therefore difficult to achieve, given these differences. In addition, much of the existing theory today is still dominated by early conceptualisations, with many textbooks continuing to promote the use of these frameworks as an aid to understanding internationalisation of the firm several decades after the initial work was carried out [25, 26], although Hollensen [27] provides a useful comparison of several more contemporary approaches. In order to move theory forward, both testing of existing

41

Drivers of Internationalization conceptualisations and forming of new frameworks based on industry specific studies and emerging behavioural patterns are needed. Much of the theory developed so far has examined industries where firms can progress to carrying out mass production and mass specialisation. From here the greater size of firm may be concluded as a motive for firms to mmove outwards.

The importance of knowledge in internationalization theories One of the pioneers within the research area of firm internationalization, Sune Carlson, started from the simple fact that firms which intend to go abroad suffer from lack of knowledge about how to conduct a business in a foreign market (Carlson, 1966). His research question was directed to the issue of how firms can handle uncertainty due to this lack of knowledge by shaping their investment behavior in a specific way. Carlsons focus became the foreign decision process. He first formulated the hypothesis that the firm tends to handle this risky problem by trial and error and by the gradual acquisition of information about foreign markets. He argued that once the firm has passed the cultural barriers and had its first experience of foreign operations, it is generally willing to conquer one market after another (Carlson, 1966). Carlson acknowledged that foreign risk, in combination with a desire to keep control over the foreign operations, must be included in a model of firms internationalization. Firms handle the risk problem through an incremental decision-making process, where information acquired through foreign investment in one phase is used in the next phase to take further steps. Through this incremental behavior the firm can keep control over its foreign venture, and gradually build up its knowledge of how to conduct business in different foreign markets. Carlsons reasoning laid the foundation for what later came to be known as the Uppsala Internationalization Process Model (Johanson & Vahlne, 1977, 1990; Johanson & Wiedersheim-Paul, 1975). The Uppsala Model deals with knowledge acquisition, i.e. with learning. How the organizations learn and how their learning affects their investment behavior are the

42

Drivers of Internationalization central issues for the model (Johanson & Vahlne, 1977, 1990). It has been the object of several empirical tests during the last two decades (for an overview see Bjorkman & Forsgren, 1997; Johanson & Vahlne, 1990; Young, Hamill, Wheeler, & Davis, 1989). But as pointed out by Hadjikhani (1997), surprisingly little work has been carried out so far to check the validity of the theoretical core of the model (for notable exceptions, see Andersen, 1993; Barkema, Bell, & Pennings, 1996; Eriksson, Johanson, Majkgard, & Sharma, 1998; Pedersen & Petersen, 1997, 1998). Organizational learning is conceptualized in the Uppsala model. The reason is twofold: first, organizational learning plays a major role and deeply affects its prediction of the internationalization behavior of firms; and secondly, since the model was presented in 1977, a considerable amount of research has been carried out about organizational learning and organizational behavior. It is reasonable to relate this research to how learning is applied, and explore whether later research can possibly contribute to development of the model. It consists of four parts. In the first part the concept of learning as used in the Uppsala Model is scrutinized in the light of recent research on this phenomenon. It is argued that the model uses a more narrow interpretation of learning than that allowed by the literature, which also leads to a relatively narrow and specific prediction of the internationalization behavior. In a subsequent section, the way the firm as an organization is perceived, is discussed. It is claimed that the loosely coupled perspective on the organization, which is an important assumption in the model, is problematic in relation to the discussion about how market knowledge and market commitment affect subsequent internationalization behavior. This means that the internationalization process involves an increasing pace of the firms investments made in a certain market. If experiential learning has a strong and direct impact on market knowledge and consequently on the need for incremental behavior, the cautious character of the internationalization process will weaken after some time. This conclusion is supported by research that indicates a positive relationship between the market knowledge and the pace by which firms commit resources in foreign markets (Pedersen & Petersen, 1998). This reasoning is also in line with the notion that experiential learning favors simultaneous rather than sequential entry strategies (Casson,

43

Drivers of Internationalization 1993). Experience leads to higher confidence in the mind of the decision maker and therefore reduces the expected cost of entry. The propensity to postpone the entry into different markets will therefore decrease with an increasing experience. Although the builders of the Uppsala Model point out that to a certain extent market experience can be bought from outside, the model implies that market nowledge is acquired mainly through experience from a firms own activities. This factor is an important reason why internationalization is often a slow process Johanson & Vahlne, 1977, p. 32). However, if we consider grafting (Huber, 1991) as an alternative way to acquire market knowledge, it becomes obvious that the internationalization process can be shaped differently. For instance, by acquiring local units that already possess the necessary market knowledge, the slow process of learning through ones own experience can, at least partly, be avoided. As a matter of fact, the high degree of foreign acquisition in firms internationalization ehavior is often motivated by the need for market-specific knowledge, often manifested by the networks of customers controlled by the acquired firm. It has also been shown that the propensity to internationalize through making acquisitions can be explained by adopting a learning perspective (Barkema & Vermeulen, 1998). Thus, internationalization behavior often seems to be characterized by a combination of learning through experience and learning through the incorporation of units, which already have the knowledge. Although the latter type of learning has its own problems, for instance in terms of learning about other organizations and how to combine heterogeneous resources, the main point here is that it sometimes enables the internationalization to take place more quickly and to explore more avenues than the one predicted by the Uppsala Model. This reasoning can be related to the notion in the recent FDI theory that investment abroad is not only a question of exploiting firm-specific capabilities, but also of learning new capabilities by locating activities in certain areas abroad (Almeida, 1996; Cantwell, 1990). The Uppsala model and the concept of experiential learing

44

Drivers of Internationalization For presenting the concept of internationalisation process of a firm among the other theories of internationationalisation process of a firm, we have chosen a very famous model in this field: Uppsala model developed by Johansson and Vahlne (1977). As Uppsala model is based on the assumption that firms start their process of internationalisation in culturally close markets first and later set up in the more distant markets. Johansson and Vahlne (1977) found that large and small firms go through distinctive stages when they internationalise. This model, which is also known as the stage theory of internationalisation, explains the four stages of a firm in its process of internationalisation. In this paper these four stages and motivational factors during a firms internationalisation process will be presented. We have chosen the case of Sonex ceramics Company. A basic assumption of the Uppsala Model is that lack of knowledge about foreign markets is a major obstacle to international operations, but such knowledge can be acquired (Johanson & Vahlne, 1977, p. 23). However, because of the tacit character of market knowledge, the main source is inevitably the firms own operations (Johanson & Vahlne, 1990, p. 12). Acquiring knowledge is first of all a question of being active in the new environment rather than of collecting and analyzing information. By operating in the market, the firm not only acquires information about that market, but also becomes closely connected to the market in such a way that it is difficult to use its resources for other purposes. Hadjikhani has coined the expression intangible commitments when analyzing this phenomenon (Hadjikhani, 1997). A second important assumption is that decisions and

implementations concerning foreign investments are made incrementally due to market uncertainty. Incrementalism can be seen as a management learning process in which learning by doing is the basic logic (Johnson, 1988; Lindblom, 1959; Quinn, 1980). The more the firm knows about the market, the lower the perceived market risk will be, and the higher the level of foreign investment in that market. The firm postpones each successive step into a certain market until the perceived risk associated with the new investment is lower than the maximum tolerable risk (Johanson & Vahlne, 1977, p. 34).

45

Drivers of Internationalization The perceived risk is primarily a function of the level of market knowledge acquired through ones own operations. A third assumption is that knowledge is highly dependent on individuals and therefore difficult to transfer to other individuals and contexts. Or as the model builders maintain by referring to Penrose (1958): experience itself can never be transmitted, it produces a changefrequently a subtle changein individuals and cannot be separated from them (Johanson & Vahlne, 1977, p. 30). Consequently, the problems and opportunities intrinsic to a certain market will be discovered primarily by those who are working in the market, e.g. people in a sales subsidiary or some other frontline unit. For them, the adaptation and extension of the present operations will be the natural solution to a problem or the reaction to an opportunity (Johanson & Vahlne, 1977, p. 33). Experience generates business opportunities and is supposed to work as a driving force in the internationalization process (Johanson & Vahlne, 1990, p. 11).Market knowledge and market commitment at a certain point of time are assumed to affect the commitment decisions and how the activities are carried out in the subsequent period, which in turn will influence market knowledge and market commitment at later stages. On the basis of these four concepts, and by making the assumption of incrementalism, the model predicts that the basic pattern of firms internationalization is: (1) to start and continue to invest in just one or in a few neighboring countries, rather than to invest in several countries simultaneously; and (2) that the investments in a specific country are carried out cautiously, sequentially and concurrently with the learning of the firms people operating in that market. Firms are supposed to enter new markets with successively greater psychic distance and the market investments develop according to the so-called establishment hain (Johanson & Vahlne, 1990). The Uppsala Model deals with how organizations learn and the impact of learning on organizational behavior. The main emphasis is on experiential learning through the ongoing activities. However, research during the two last decades indicates that organizational learning includes several imensions with consequences for firms behavior. For instance, it has been pointed out that, through their business relationships, organizations can gain access to the knowledge of other firms, without having to go through exactly the same experiences as these firms (Eriksson et al., 1997, 1998; Hansen, 1999; Kraatz, 1998; umar & Kofi, 1998; Lane & Lubatkin, 1998; Levitt & March, 1988). Imitative learning, i.e. learning by

46

Drivers of Internationalization observing other firms with high legitimacy and acting in a similar way, has also been focused upon by many researchers as a common learning mechanism (Bjorkman, 1990, 1996; Di Maggio & Powell, 1983; Haveman, 1993; aunschild & Miner, 1997; Huber, 1991; Lewitt & March, 1988). Different short-cuts to get knowledge by acquiring other organizations or hiring people with the necessary knowledge have also been included in the concept of organizational learning (Barkema & Vermeulen, 1998; Huber, 1991). Finally, it has also been aintained that organizations can learn by conducting a focused search for new information rather than through experience from own activities (Huber, 1991). A closer look at the literature also reveals that organizational learning has two different meanings in connection with an organizations effectiveness. The first of these stresses that learning, if it is positive, increases the organizations knowledge about the possible alternatives. It clearly emphasizes that learning does not have to increase the organizations effectiveness, or even its potential effectiveness. New findings can always overturn what was previously known to be true (Huber, 1991, p. 126). The more the range of alternatives is enhanced, the more the organization has learnt, and the larger the number of potentially useful alternatives in the future.2 While this perspective highlights the information aspect of learning, the other meaning focuses on competence. Over time, the organization learns to carry out its operations with an increasing degree of effectiveness. This process is often thought of in the context of a learning curve and of an accumulation of knowledge and the basic point here is the change of potential alternatives rather than an increase in the alternatives.Learning is supposed to increase the performance and reduce the variation in the performance (March, 1991). By doing more of the same the number of alternatives are reduced over time, as the organization becomes more and more proficient at its current activities, procedures and technology. It has sometimes been argued that, at the extreme, the result is a competence trap (Huber, 1991; Lewitt & March, 1988). The Uppsala Model deals more or less exclusively with experiential learning. This is stated explicitly by the model builders in relation to their discussion of market knowledge, which emanates from personal experience and arises from their current activity (Johanson & Vahlne, 1977, p. 56). Consequently, learning

47

Drivers of Internationalization through imitation, learning through incorporating people or organizations, or searching and scanning for new information have a limited impact on how the firms internationalization behavior is modeled. In the model, learning has very much in common with the learning curve thinking. The model emphasizes that learning is linked to current activities in specific markets. That is, by continuing to do what it is already doing a firm learns more about the actual business, and increases its competence to continue with and deepen its activities in that particular market. Therefore, it will prefer to stick to a certain market and learn more about that market rather than to try new alternatives. The learning curve perspective is also reflected in the way the concept of market commitment is used in the model. Investment in current activities will increase the commitment to other actors in the market and reduce the alternative uses of the committed resources. The decision maker prefers to reduce uncertainty by learning more about the existing business rather than exploring new business alternatives. One can also argue that the Uppsala Model employs a reactive rather than proactive perspective of experiential learning. By reactive learning, we mean acquiring more knowledge about the already identified solutions, while proactive learning focuses on the search for new solutions. This distinction is significant as the various forms of search might be carried out by different types of organizational unit or through different types of search process (Huber, 1991). The distinction also reflects the fact that the stimulus of learning can be a problem or an opportunity (Fredrickson, 1985). The reactive nature of the model is reflected by its concern with problemistic search, based on the reasoning by Cyert and March (1963). An organization is supposed to start its learning when a problem arises that is related to current activities. The solution of the problem is sought in the neighborhood of existing solutions. When a satisfactory solution is found, learning is terminated. We can conclude that the application of organizational learning in the Uppsala Model is limited to certain aspects, leaving out the other aspects. This has certain implications for the models ability to explain and predict the internationalization behavior accurately.

effective way of coping with the increasing competitive and technological challengeso f

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Drivers of Internationalization today's environment[ Perlmutter& Heenan 1986]. However, despite their potental contributions, IJVs are not without their drawbacks. The presence of two or more parents can make IJVs difficult to manage and often characterizedb y poor performance[ Drucker1 974; Young & Bradford 1977; Janger 1980; Killing 1983; Geringer 1986]. A critical determinant of IJV performance appears to be the control exercised by parentso vera venture'sa ctivities[ Rafli 1978;K illing1 983;S chaan1 983]. Yet, particularlyin comparisont o wholly-owneds ubsidiariest, he exercise of effective control over IJVs may represent a more difficult proposition for the parent organizations because they are often unable to rely solely on their ownership position to determine the IJV's behavior and management, instead requiring recourse to other modes of influence. Furthermorea, firm that agreest o participatei n an IJV inevitablyc omplicates its life. Although each partner must, by definition, relinquish some control over an IJV's activities, such a move is often accompanied by great consternation.A firm may avoid relinquishingc ontrolo ver some or all of its activities for reasons intimately related to its corporate strategy and objectivesA. ttainmento f a firm'so bjectiveso vert he long termi s contingent on its ability to implement a strategy which exploits its distinctive competenciesa long one or severalc riticald imensionso f corporatea ctivity.I nsufficient or ineffective control over an IJV can limit the parent firm's ability to coordinate its activities, to efficiently utilize its resources and to effectively implement its strategy [Stopford & Wells 1972; Lorange, et al. 1986; Anderson & Gatignon 1986]. In turn, exercising control over some or all of the activitieso f an IJV helps protectt he firm from prematuree xposure of its strategyt,e chnologicacl oreo r otherp roprietaryco mponentst o outside groups. Even if its products or processes are protected by patents or copyrights, a firm may nonetheless fear damaging "leakage" of unprotected innovationso r know-howi f sharedw ith partners.S uchd isclosuresb, etween the partnerso r to organizationso utsidet he venture,m ayh aves eriouse ffects on the competitive position of a parent or the IJV, possibly creating new competitors or otherwise limiting the IJV's or parent's overall efficiency [Parry 1985; Rugman 1985; Reich & Mankin 1986]. It is from this perspective that we

49

Drivers of Internationalization will present a review and synthesis of the principal research addressing the issue of the control of IJVs. The discussion's emphasis will be on the similarities and differences in prior conceptualizations and operationalizations of IJV control, and in the approachesu sed to examinet he control-performancree lationshipf or IJVs. The paper will conclude with the presentation of a new conceptualization of IJV control and a conceptual framework for studying control of IJVs.

Effects on performance Concerning export performance, studies show both direct and indirect effects of internal and external factors. The majority of studies assert that export performance is directly affected by internal and external factors (Donthu and Kim, 1993; Holzmullerr and Kasper, 1991; Louter et al., 1991; Madsen, 1989). However, Cavusgil and Zou (1994) found that some factors, also have an indirect effect on export performance, through their impact on export marketingn strategy (Lages, 2000). In light of this, it is proposed that the analysis of possible links associated with the direct relationships should be extended by adding an analysis of the indirect impact (through choice of strategy) of internal and external factors on export performance. When linking the effect of internal/external factors on strategy to the phenomenon of export performance it is suitable to adopt the theoretical perspective of strategy-environment coalignment (Aldrich 1979; Porter 1980; Venkatraman and Prescott 1990). Co-alignment, also termed contingency, consistency or fit, maintains that the fit between strategy and its context, whether it is the external environment or organisational characteristics such as structure (Chandler, 1962; Rumelt 1974), administrative systems (Lorange and Vancil,1977; Galbraith and Nathanson, 1978) and managerial characteristics (Gupta and Govindarajan, 1984) have significant positive implications for performance. Many organisational theorists in their studies have asserted that organisational performance is an outcome of such a fit (Miller and Friesen, 1983; Pfeffer and Salancik, 1978; Venkatraman and Prescott 1990). The degree of fit between organisational strategies and its external environment has thus been correlated with the level of organisational efficiency and effectiveness. For this

50

Drivers of Internationalization reason the concept of fit has become an important tool to build theories and knowledge on organisational effectiveness and strategic management. Furthermore, it indicates that no one strategy is appropriate in all situations, as the effects of various firm characteristics on performance are dependent on the specific context of the firm. Factors such as industry and market conditions are expected to mediate the influence of the various firm characteristics, strategies, and/or competencies on export performance (Cavusgil and Zou, 1994; Reid, 1987). In the discussion leading to hypotheses 1a - 1d we concluded that firms in the various windows of the framework, based on a fit between the degree of preparedness for internationalisation and the level of globality within the industry, preferably should choose different strategies. Following the co-alignment arguments (and the results of several researchers such as Miller and Friesen, 1983; Pfeffer and Salancik, 1978; Venkatraman and Prescott 1990) we thus expect:

The stages theory of internationalisation also postulates that, in order to develop their international operations, firms use a stepwise approach along an organisational continuum. The Uppsalla School views internationalisation as having four stages while it has also been modelled with five and six. Although the number of incremental steps may differ, there is general agreement that with each subsequent step comes increasing involvement in international operations. However, due to increasing globalisation, chaotic market conditions and technology effects, it is believed that such stepwise advancement is not generally exhibited in SMEs and that alternative modelling of microenterprise behaviour is needed in order to account for emerging modes of behaviour. Long standing conceptualisations such as transaction cost analysis and the eclectic paradigm fail to satisfactorily explain smaller firm internationalisation behaviour. Recent conceptualisations have, for example, centred on the network approach which more accurately portrays SME behaviour. Analysis of the literature shows that internationalisation research originally focused on the activities of the multinational enterprise before shifting attention to a certain extent to the behaviour of the small and

51

Drivers of Internationalization medium sized enterprise due to its increasing influence on international markets through globalisation and technology effects. Research has also shown that there are sectoral differences in internationalisation behaviour.The countries with availability of advanced technology are more globalised in business as compared to those countries which have less technolgy. The Uppsala Model deals with knowledge acquisition, i.e. with learning. How the organizations learn and how their learning affects their investment behavior are the central issues for the model (Johanson & Vahlne, 1977, 1990). It has been the object of several empirical tests during the last two decades (for an overview see Bjorkman & Forsgren, 1997; Johanson & Vahlne, 1990; Young, Hamill, Wheeler, & Davis, 1989). But as pointed out by Hadjikhani (1997), surprisingly little work has been carried out so far to check the validity of the theoretical core of the model (for notable exceptions, see Andersen, 1993; Barkema, Bell, & Pennings, 1996; Eriksson, Johanson, Majkgard, & Sharma, 1998; Pedersen & Petersen, 1997, 1998). This paper addresses how organizational learning is conceptualized in the Uppsala model. The reason is twofold: first, organizational learning plays a major role and deeply affects its prediction of the internationalization behavior of firms; and secondly, since the model was presented in 1977, a considerable amount of research has been carried out about organizational learning and organizational behavior. It is reasonable to relate this research to how learning is applied, and explore whether later research can possibly contribute to development of the model.

52

Drivers of Internationalization METHODOLOGY The research conducted is exploratory type of research.there are no empirical findings regarding the numerical values. General business questions were asked by different entrepreneurs. The responses of entrepreneurs tell about the role of these motivators to lead the business overseas. The informal interviews proved the validity of these factors to be true.actually the drivers present as internal and external business opportunities. The only required is to just to recognise these opportunities. There are no any cases in which not a single one of above disscussed factor is not present and still then the had moved towards globalisation. Either the excess of capital had forced the entrepreneur to go abroad or his/her global relations had helped, the divers are essentially attached with every situation. Whether or not the decision maker is beawared of these factors. but they are involved in stimulating the business to go abroad.

CONCLUSION We think that the general characteristics of the model fit nicely with empirical observations given earlier. In order to validate it empirically we intend to make two kinds of empiricals tudies. Firstly, Verification we shall make one or two intensive case studies to see if the mechanism can be used for explanation in empirical situations. In those case studies, we shall try to measure the internationalization variables, market commitment and market knowledge, and investigate how they develop duringt he internationalizatioonf the firm. Secondly, we intend to make comparatives tudies of the internationalizatiocno urses of different firms. Assuming that such factors as firm size, technology, product line, home country, etc., via the mechanism discussed affect the character of the internationalizatioinn differentw ays, we will investigate whether firms that differ with respect to those factors also differ with respect to the patterns of internationalizationS. uch studies will require more systematic discussions of the expected influence of the factors. The present model will constitute the framework of such discussions.

53

Drivers of Internationalization We conclude that, for the performance of marketing activities, both kinds of experience are required; and in this area it is difficult to substitute personnel or advice from outside for current activities. The more the activities are production-orientedo, r the less interactioni s required between the firma nd its markete nvironmentt, he easier it will be to substituteh ired personnelo r advice for current activities; and consequently the easier it will be to start new operations that are not incremental additions to the former operations. It should be remembered, however, that even production activities are dependent on the general business climate, which cannot easily be assessed in ways other than performance of business activities. As the firm grows it becomes motivated to conquer markets. it tries to cover up its growth through high sales.After feeding up their home market they desire to move towards foreign markets.Perceptions vary as to what constitutes a small, medium or large firm. The majority of the literature is derived from USA studies where definitions of size differ from the United Kingdom, Europe and elsewhere. The transferability of findings and replicability of studies is therefore difficult to achieve, given these differences. From here the greater size of firm may be concluded as a motive for firms to mmove outwards. In the same manner experiential learning has a strong and direct role in market knowledge and consequently in the need for incremental behavior. This conclusion is supported by research that indicates a positive relationship between the market knowledge and the pace by which firms commit resources in foreign markets (Pedersen & Petersen, 1998). We can also say that experiential learning favors simultaneous rather than sequential entry strategies (Casson, 1993). Experience leads to higher confidence in the mind of the decision maker and therefore reduces the expected cost of entry. The propensity to postpone the entry into different markets will therefore decrease with an increasing experience. According to uppsala model the basis of these four concepts, and by making the assumption of incrementalism, the model predicts that the basic pattern of firms internationalization is: (1) to start and continue to invest in just one or in a few neighboring countries, rather than to invest in several countries simultaneously; and (2) that the investments in a specific country are carried out cautiously, sequentially and

54

Drivers of Internationalization concurrently with the learning of the firms people operating in that market. Firms are supposed to enter new markets with successively greater psychic distance and the market investments develop according to the so-called establishment hain (Johanson & Vahlne, 1990). The Uppsala Model deals with how organizations learn and the impact of learning on organizational behavior. The main emphasis is on experiential learning through the ongoing activities.

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Drivers of Internationalization REFERENCES Aharoni, Y. The Foreign Investment Decision Process. Boston, 1966. BIBLIOGRAPHY Andersson, S. (2003). The entrepreneur and the internationalization of the firm. Proceeding in 7th Vaasa International Business Conference, Vaasa, Finland. Andersson, S. (2003). The entrepreneur and the internationalization of the firm. Proceeding in 7th Vaasa International Business Conference, Vaasa, Finland. Behrman,J . Some Patterns in the Rise of the Multinational Enterprise. Chapel Hill,1969. Brooke,M . & H. Remmers.1 978. The strategy of multinational enterprise. London:pitman Bruce Kogut and Harbir Singh: The effect of national culture on the choice of entry m Ian Filiis: The internationalization process of smaller firms, J intl. bus studies, 2008 vol1ode. Academy of management journal, Strategic management journal 1998. Buckley,P . & M. Casson. 1988. A theoryof cooperationi n international business.I n F. Contractor & P. Lorange,e ds., Cooperative strategies in international business,3153.Toronto: Lexington. Calof, J. L. (1994). The relationship between firm size and export behavior revisited. Journal of International Business Studies, Carlson, S. Investment in Knowledge and the Cost of Information. Acta Academiae Regiae Scientiarum Upsaliensis: Uppsala, 1974. Caves, R.E. "International Corporations: The Industrial Economics of Foreign Investment." Economics (1971): vol. 38. ChandlerA, .D. 1962.Strategy and structure:Chapters in the history of the American industrial enterprise. Cambridge, Mass: MIT Press. Cyert, R. M., & March, J. G. (1963). A behavioral theory of the firm. New York: Prentice Hall.

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Drivers of Internationalization Cyert, R.M. & March, J.G. A Behavioral Theory of the Firm. Englewood Cliffs, 1963. Cyert, R.M., March, J.G., 1963. A Behavioral Theory of the Firm. Englewood Cliffs, NJ. Davidson, W.H. 1982. Global strategic management. New York: Wiley Dow, D., 2000. A note on psychological distance and export market selection. Journal of International Marketing Drucker,P . 1974.Management: Tasks, responsibilities,promise. New York: Harper & Row Fenwick, M., Edwards, R., Buckley, P.J., 2003. Is cultural similarity misleading? The Experience of Australian Manufacturers in Britain, International Business Review Franko,L .G. 1971. Joint venture survival in multinational corporations. New York:P raeger Friedmann,W .G.& J.P. Beguin. 1971. Joint international business ventures in developing countries. New York: Columbia University Press. G. Palamara, S. Denicolai and Antonella Zucchella: The drivers of the early internationalization of the firm, journal of world business. Gatignon,H . & E. Anderson. 1987. The multinational corporation's degree of control over foreign subsidiaries: An empirical test of a transaction cost explanation. Report *8703. Cambridge: Marketing Science Institute. George Tesar: The export behavior of smaller sized firms. Classified Directory of Wisconsin Manufacturers, 1974. Geringer,J .M. 1986. Criteria for selecting partners for joint ventures in industrialized market economies. Ph.D. dissertation, University of Washington, Seattle. H. Singh. 1987. Entering the United States by joint venture: Industry structure and competitive rivalry. I n F. Contractor& P. Lorange,e ds., Cooperative Strategies in International Business. Lexington, MA: Lexington Press

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Drivers of Internationalization Hollensen, S. (1998) Global Marketing: A Market-response Approach, Hertfordshire: Prentice Hall Europe. Huber, G. P. (1991). Organizational learning. The contributing processes and the literatures. Organization Science, 2(1). Ian Filiis: The internationalization process of smaller firms, J intl. bus studies, 2008 vol1. Jhon Jhanson and Jan Erik vahlne: The internationalization process of the firm"-A model of knowledge development and increased foreign market commitment. Journal of international business studies. Johanson, J. & J.E. Vahlne. 1977. The internationalization process of the firm-A model of knowledge development and increasing foreign market commitments. Journal of International Business Studies. Johanson, J. & Wiedersheim-Paul, F. "The Internationalization of the Firm - Four Swedish Cases." Journal of Management Studies, 1975. Johanson, J., & Vahlne, J. -E. (1977). The internationalization process of the firma model of knowledge development and increasing foreign market commitments. Journal of International Business Studies, Johanson, J., & Vahlne, J. -E. (1977). The internationalization process of the firma model of knowledge development and increasing foreign market commitments. Journal of International Business Studies, Johanson, J., & Vahlne, J.-E. (1990). The mechanism of internationalisation. International Marketing Review, Johanson, J., & Wiedersheim-Paul, F. (1975). The internationalization of the firm-four cases. Journal of Management Studies. Killing, J.P. 1983. Strategies for joint ventures success. New York:P raege Kogut, B. 1987. Joint ventures: Theoretical and empirical perspectives. Strategic

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Drivers of Internationalization Reid, S. D. (1981). The decision-maker and export entry and expansion. Journal of International Business Studies, Ronen, S., Shenkar, O., 1985. Clustering countries on attitudinal dimensions: a review and synthesis. Academy of Management Review . Rosenzweig, P.M., Nohira, N., 1994. Influences on human resource management practices in multinational corporations. Journal of International Business Studies Tesar, G. (1975) Empirical Study of Export Orientations Among Small and MediumSized Manufacturing Firms, PhD dissertation, The University of Wisconsin, Madison. as cited in Jatusripitak, S. (1986) The Exporting Behaviour of Manufacturing Firms, (2nd ed.) UMI Research Press, Michigan.

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