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Article Summary International Strategy
- Instelling
- Tilburg University (UVT)
Complete summary of all examinated articles for the edition of 'International Strategy'
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Articles International Business StrategyArticles included are:
Benito, G.R.G. 2015. Why and how motiee etttl matee.
Geant, R.M. 1991. Poetee’e ‘Compettie adiantage of natone’’ An aeeeeement. Steategic
Management Jouenat 12, 535-548.
Biekinehaw, J. & Hood, N. 1998. Muttnatonat eubeidiaey eiotuton’ capabitity and chaetee
change in foeeign-owned eubeidiaey companiee. Academy of Management Reiiew 23 4l, 773-
795.
Le Bae, C. & Sieeea, C. 2002. ‘Locaton ieeeue home countey adiantagee’ in R&D actiitee’
Some fuethee eeeutte on muttnatonate’ tocatonat eteategiee. Reeeaech Poticy 31, 589-609.
Kedia, B.L. & Mukheejee, D. 2009. Undeeetanding ofehoeing’ A eeeeaech feamewoek baeed on
dieintegeaton, tocaton and exteenatizaton adiantagee. Jouenat of Woetd Bueineee 44, 250-
261.
Mudambi, R. & Venzin, M. 2010. The eteategic nexue of ofehoeing and outeouecing decieione.
Jouenat of Management Studiee 47 8l, 1510-1533.
Hitt, C.W.L., Hwang, P. & Kim, W.C. 1990. An ectectc theoey of the choice of inteenatonat
entey mode. Steategic Management Jouenat 11, 117-128.
Bondy, K. & Staekey, K. 2014. The ditemmae of inteenatonatizaton’ Coepoeate eociat
eeeponeibitity in the muttnatonat coepoeaton. Beiteh Jouenat of Management 25 1l, 4- 22.
,Benito (2015) – Why and How Motives (Still) Matter
Introduction: companies engage in cross-border activities in many different forms and for
many different reasons, be it product market access, (natural) resource inputs, or knowledge inputs.
Whatever companies do beyond the boundaries of their home country, they (hopefully) do it for a
solid reason; their internationalization is purposeful and goal-oriented, but does not always succeed.
Put differently, a company’s internationalization, what it involves, how it unfolds, and how it is
organized and managed, is inextricably linked to the motives underlying it. These motives remain
(key) elements of international business theory as they help organizing our understanding of firms’
internationalization. If the motives for internationalization are not made clear and explicit, this leads to
imprecision. This imprecision tends to result in overly general and sweeping descriptions and
explanations.
Specifically, the author argues that:
1. They remain useful as a basis for identifying important location and internationalization
factors.
2. They characteristically relate to different sectors and industries.
3. They typically involve different types of (value) activities.
4. They have fundamental implications for how to assess performance.
Motives: the classical discussion of internationalization motives can be traced back to John Dunning
(1993), who distinguished between four main motives:
1. Market-seeking. i.e. companies that venture abroad to find customers.
2. Efficiency-seeking. i.e. companies that venture abroad to lower their costs of performing
economic activities, and/or that aim at rationalizing their already existing operations in various
locations.
3. Resource-seeking. i.e. companies that venture abroad to access resources that are not readily
available at home or that can be obtained at a lower cost abroad.
4. (strategic) asset seeking. i.e. companies venture abroad to obtain strategic assets, which may
be critical to their long-term strategy, but that are not available at home.
Much of the literature, these motives are typically called foreign direct investment (FDI)
motives. However, FDI, the setting up of an organizational unit abroad that is owned by a company
domiciled elsewhere, is only one of several ways in which companies can access customers, resources,
and assets or achieve greater efficiency. For example, companies can engage in exporting and
importing, licensing agreements, and joint venturing. Hence, motives per se do not provide a sufficient
justification for either FDI, or any other form of business activity across borders. Motives clarify
above all the why-question in international business, and are as such applicable across the various
forms through which international business activities can be organized.
Motives and the where of internationalization: because companies go abroad for different reasons,
it is also likely that they go to different places. Distance is likely to be particularly significant for
companies that sell to other companies and not end consumers, because closeness is crucial in
business-to-business relationships. When companies venture abroad for lower cost purposes, the
decisive location factor change to cost levels and availability of human capital, whereas resource-
seeking companies are more constrained in their choices, as resources are not evenly distributed
geographically. Finally, companies seeking out opportunities to develop or acquire new strategic
assets are likely to look for factors such as the existence of vibrant clusters, a high level of
development, urban centers, etc. in their search for suitable locations for their activities. The crucial
point is that strategic asset seeking is forward-looking.
,Motives and the how of internationalization: an essential decision is determining how to organize
and operate international business activities. According to internalization theory (note: not
internationalization, but internalization), these choices are fundamentally about finding the most
efficient (cost minimizing) way of operating abroad. e.g. since setting up a subsidiary abroad is costly,
potentially risky, and commits resources from other possible uses, companies are wise not to make
FDIs unnecessarily. Internalization theory argues that the in-house option is superior only in
circumstances where the alternatives either do not provide a social context among those involved in an
activity that is advantageous to its performance, or entails using proprietary assets and resources (firm-
specific advantages) whose value could be exploited by outside parties without due compensation.
For market-seeking companies, as their basis for international expansion is often that they own
brands or trademarks that are valuable when expanding in new markets, expanding abroad by setting
up own subsidiaries is a way of safeguarding branded assets. For efficiency-seeking, the assets at risk
are often the substantial investments in production and logistical systems and hardware to gain
economies of scale, scope, and time, making them vulnerable to hold-up and under-investment
problems if not safeguarded under common ownership.
Resource-seeking companies experience challenges regarding hold-up as well as under-
investment that are similar to those of efficiency-seeking companies. After all, investment is required
in order to be able to exploit resources. However, a distinctive difference for resource-seeking
companies is that they often refer to the actions of governments and other political actors in the
countries where they operate, which leaves the safeguards provided by ownership at risk.
Strategic asset-seeking companies focus on developing or acquiring new resources and
capabilities that provide future streams of revenue. Their key concern is often to get there first.
Companies that venture abroad for strategic asset-seeking motives are likely to prioritize control over
their foreign operations, perhaps overriding other relevant concerns.
Are the various motives equally prevalent across different parts of an economy? Probably not.
Market-seeking is a typical driver of companies’ internationalization in consumer goods and many
services. Efficiency-seeking has traditionally occurred in manufacturing industries, though services are
following this as well, e.g. payrolling and IT services. Simultaneously, there are also differences
across motives regarding which value activities that are typical for them. Marketing and sales
activities are logically associated with market-seeking; manufacturing with efficiency-seeking;
extraction and production with resource seeking; and research/development and other innovation
oriented activities with strategic asset seeking.
Since what companies try to achieve in their various internationalization actions varies,
arguably, the assessment of their performance should vary accordingly. Success in pursuing new
market opportunities abroad can be measured in terms of volume sold, sales growth, and market share.
Efficiency-related performance measures include cost-profit margins, or productivity, etc.
Combinations of motives: companies are not necessarily focused and single-minded in their
internationalization. Firstly, companies may evolve in their internationalization over time. Initially, a
company may be focused just on expanding abroad for market-seeking purposes. However, as
momentum builds up, internationalization may start to cover more activities, e.g. production, R&D,
etc. one important aspect of the internationalization process of firms is that it becomes more complex
as it develops over time. Another aspect is that it sometimes beings with inward activities, e.g.
machinery purchases, which provide future opportunities for outwardly oriented internationalization.
Second, some companies do a variety of activities abroad concurrently, but for different
reasons and without one given motive necessarily dominating others. Companies that aspire to
compete globally are often inclined to pursue several motives at the same time, and such companies
have to calibrate their internationalization strategies accordingly. This is especially the case for
, companies that follow the classic global strategy in the strict sense of combining a highly standardized
marketing approach with a highly coordinated, yet dispersed, activity set. Such companies are driven
as much by market-seeking as they are driven by efficiency-seeking.
Closing remarks on motives and internationalization theories: emerging market companies stand
for an increasing share of international activities. These companies venture abroad, often with an
accelerated pace, in order to secure resources, to access markets, and to obtain new capabilities and
competitive assets by acquiring local firms in advanced economies. While their international
expansion makes the internationalization process model ever more outdated, it seemingly remains
fully compatible with internalization theory and its emphasis on developing, using and protecting firm-
specific advantages. However, the advantages of emerging market companies can be different from
those typical for companies from developed countries, e.g. their superior ability to deal with adverse
political and institutional conditions, which results from having to deal with similar circumstances in
their home countries.
A key point is that beyond their apparent descriptive value as classificatory devices, motives
serve at least two additional useful functions in theories. First, motives are associated with central
aspects of internationalization in a systematic, yet differentiated manner. That makes them relevant
variables to include when looking at direct and/or moderating effects on firms internationalization.
Second, they serve as key markers for the conceptual domains of theories of firms’
internationalization. Hence, if anything, we need a renewed, not a reduced, interest in
internationalization motives.
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