Theories & Research in International Business: Networks ... · Theories and Research in...

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Theories & Research in International Business: Networks and Internationalization

KATAJA/FIGSIB Course Turku University, School of economics

20th October 2015 Jan-Åke Törnroos

School of Business and Economics Åbo Akademi University

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Theories and Research in International Business 2015

Structure of the day

•  11- 12.30 Introduction: Internationalisation theory, antecedents to a network approach

•  12:30 -13.30 Lunch •  13:30-14:15 Network approaches to corporate

internationalisation + group-work themes •  14.15 -14.30 Coffee break & socialising (+ G-work)

•  14.30 -15.00 Group-work •  15-16.00 Final presentations, comments and

critics

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Velocity in our time -  A small world getting smaller as enabling technologies

reduce the friction of time and space - digitization -  National and industrial deregulation breaking down

protective walls -  Globalization leading to increasing competition -  The emergence of new regional markets -  New demands for ever higher quality, lower prices and

faster deliveries -  Shorter product life cycles and faster time to market -  Radical changes - discontinuities – ‘surprises’ – short

and ‘nervous’ moves. -  New actors enter the scene (NGOs, New firms and

businesses and societal-ecological demands)

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Dominating views

•  1960s Internationalization •  1970s Internationalization Process •  1980s Networks (1st phase) •  1990s Entrepreneurship •  2000s Conflict/Integration, Int.

Process, INV – Born Globals •  2010s Networks (2nd phase)


Based partially on Vahlne 2008

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When and where? – theory development Initially dominated by economic-based theories and models

•  Growth as a motive (Penrose 1959) •  The scale economics of the firm (internal &

external) •  The role of core products •  Innovation-based models (after Rogers1965) •  Deregulation of world trade (external

environments)

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Approaches…

•  “The Economic-man perspective” and classical markets based the theory in this type of reasoning. – The role of management :

•  Managerial skills and their successful absorption.

•  Imperfect markets •  Minimisation of transaction costs. •  Optimum size & scale of production in

operations in individual locations.

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Economic theories

Economic-based – The ’Theory of the Growth of the

Firm’ (E. Penrose 1959) –  Internalisation motives (Hymer 1976,

Buckley & Casson 1976) – The PLC-approach (Vernon 1966, -76) – The Eclectic Approach (Dunning

1980, 1988) – TCE (Hennart 1982)

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Theories

•  Behavioural/stepvise/incremental stages approaches to corporate internationalisation – Decision process model by Aharoni

(1966) –  ‘Nordic’ models

•  Johanson & Vahlne 1977, 1990 •  Luostarinen 1979, Luostarinen & Welch

1988

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Behavioural

•  “It should be reiterated that a human being is not a mathematical programming machine. He has limited faculties and limited ability to focus his attention. A multiplicity of reasonable alternatives always exists. His priorities are driving his time and attention among them depends on many factors. .. What factors make an organization veer off its ‘normal’ path and look abroad?” (Aharoni 1999, 13).

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Johanson & Vahlne 1977, 1990

•  Uncertainty (liability of foreignness) •  Organisational learning •  Commitment

– These consisted basic factors of the model

– + psychic distance and experiential learning through a gradual development process

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The Uppsala model

Market knowledge

Market commitment

Commitment decisions

Current activities

Johanson & Vahlne 1977

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More models….

•  Innovation process models (Bilkey & Tesar 1977)

•  The ‘Born Globals’ perspective & Entrepreneurial & SME-networks (Madsen & Servais 1997, Oviatt & McDougall 1994)

•  The network approach to internationalisation (Johanson & Mattsson 1988, 2009, 2010, Coviello 2006)

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Why network views?

ü  Increasing global interdependence ü  Internationally/globally oriented business

and competition and “co-opetition” ü  Large economic spheres/blocks have

emerged - the so called “Triad” Specific core areas for business development and core competencies (regional networks)

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Why network views?

ü Environmental issues, sustainability and ethics are important + NGOs & other external actors emerge

ü “Borders” of different kinds are eroding, outsourcing strategies of MNCs

ü From hierarchies to collaborative markets, joint value creation

ü “Transition” emerging economies and developing novel networks in business


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The business network approach

•  Basic premises – Network:

•  ’A set of connected exchange relationships’ (Cook & Emerson 1978), or

•  ’A set of interconnected dyads’ (Ford et al. 2006)

– Based on business relationships – Heterogeneity of resources –  Social dimensions (trust, commitment, social

bonds, ”atmosphere”) •  Key research: The IMP Group, www.impgroup.org)

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•  Process characteristics; – Stability as well as change – Evolving structure (past & future) – Value co-creation in and over time – Often long lasting relationships –  Investments in win-win relations – Opportunity and resource-seeking

processes

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How to tackle the dynamics of networks?

Source: Halinen & Törnroos 1995, 2005

Environment

History Future

Context

Network

Present

Individual

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The network approach

•  Each firm is embedded in a web of relationships

•  Exchange of knowledge, output and money forms key activities

•  Joint construction of new knowledge

•  Investments based on trust produce commitments

•  Relationships are resources – offering opportunities

•  Heterogeneous resources and output

•  Networks are ‘borderless’….


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•  Network embeddedness – A business network is nested and

forming a part of larger settings and structures

•  Spatially •  Economically •  Temporally •  Structurally •  Technologically

(Halinen-Törnroos 1998)

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A network approach (a)

•  Johanson & Mattsson’s (1988) model: – Based on the internationalisation of the

market, and – Different types of internationalised

firms: •  The Early Starter •  The Late Starter •  The Lonely International •  International Among Others

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The model by J & M -88

Degree of internationalisation of the market (the production net)

low high

Degree of low The Early Starter The Late Starter internationalisation of the firm high The Lonely The International International Among others

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Johanson-Vahlne 2009 (b)

•  The role of new concepts –  Liabilities of ‘outsidership’ instead of

‘foreignness’ (psychic distance) – The network position (incl. role?) and

change driving internationalization – A processual, learning approach but a more

relational process of commitment for new market activities abroad

– What is new?? Discuss!


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The New Model by J & V 2009


Knowledge opportunities

Network position

Relationship commitment

decisions

Learning Creating

Trustbuilding

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Effectuation & entrepreneurial theory & networks (c) •  The unintentional aspects of networking by

internationalizing SMEs (Galkina & Chetty 2015). •  How managers network with partners, rather

than carefully selecting international actors within predefined goals.

•  SMEs who network effectively enter markets where there are opportunities, and commit to network relations and increase their means to do business.


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Event network internationalisation (d) •  Another process view..

– The event-network approach (Hedaa & Törnroos 2002, 2008)

– Events are driving firms to internationalise •  Events are connected to past events and future

expected events •  Actors are causing events and affected by them

See the Special Issue in Industrial Marketing Management About process in network research (2012) (Halinen et al. (Eds.)

The emergence of business events

Supra-macro and macro-developments

Micro and business related change

T e c h n o l o g y

Macro perspectives: ° The”Triad” in the world economy ° Free trade development ° Capital markets ° FDI and MNC-developments ° Global sourcing and production ° Regional markets within regions

Micro: ° New management systems (BPR, JIT, KAM etc.) ° Vertical disintegration of firms ° Stiffer competition ° Outsourcing ° Relationship-orientation

N a t u r e

[Source: Hedaa & Törnroos 2008]


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Network drivers for internationalisation

Incremental development

Finding ‘sticky’ locations and following others

Event-based development

Global-based business (Born International)

INTENTIONALLY UNINTENTIONALLY driven driven

NET

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NEC

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Past Present Future © J-Å Törnroos 2002

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Networks and embeddedness processes (e)

–  Internationalisation through network embeddedness (Barrett & Fletcher 2001, Fletcher 2007)

•  Gradual change in network connections, bonds & commitment across borders

•  Critical events outside & inside firms (connected events)

•  Positions & roles change over time •  Often not “manageable” processes but firms are “floating into event-streams”

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Implications

•  The network perspective: –  Basics are mainly developed in

the 1980s –  Through what channels and

with which end results have firms developed their international activities?

–  Lack of theoretical models and concepts

–  How intentional is internationalisation?

–  How are positions in networks of relationships gained via interaction?

–  What is the role of internal drivers and networking inside the company and outside events “event-based internationalisation”

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Network approaches to IB & internationalisation

•  Johanson & Mattsson 1988 - ‘Position in international market’ (a)

•  Johanson & Vahlne 2009 – ‘Outsidership’ (b) •  Chetty & Blankenburg-Holm 2000, Galkina &

Chetty 2015, Chetty 2006 ‘SME, Entrepreneurial & Effectuation theory approach’ (c)

•  Törnroos 2002 – ‘Event networks’ (d) •  Fletcher & Barrett 2001, Fletcher 2007 –

‘Embeddedness approach’ (e)


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Conclusions •  Research of

internationalisation of the firm has not developed very rapidly

•  The role of globalisation “Born Globals” – still vague

•  The network approach needs to be developed in many ways

•  Is the Internationalisation theory still “running out of steam?” (Buckely 2002)

•  Both cases & cross-sectional studies are needed

•  Mixing methods for new conclusions and insights

•  New markets and types of networks needs to be explored

•  New actors emerging •  Critics – Buckley 2015

(forthcoming)

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“Unanswered questions?”

1.  Governance of the MNC 2.  Locations theory (space?) 3.  Dynamics (role of time?) 4.  Networked multinationals 5.  Innovation 6.  Entrepreneurship 7.  Firm, network, global system (?)


Buckley 2015 (forthcoming)

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Theories and Research in International Business 2015s

Conceptual and contextual complexity

Industrial networks

Social networks

Structure

Nodes Network internationalization Technology

Relationships Alliances

Bonds

Resource dependence

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Group discussion themes

1.  What are the key strenghts of the business network approach and what are its key weaknesses concerning internationalisation of the firm?

2.  What specific issues come to the fore when adopting a network view in China compared to Western Europe?

3.  What methodologies and methods are preferable to a Network approach and why?

4.  What alternatives to the network approach are available? Discuss other potential avenues for research and motivate your choices!

Ontology/perspective Theories of internationalisation

Some key constructs

Economic-based • Positivist/logical

empiricist • Quantitative • Nomological

• Internalisation theory • Theory of the growth

of the firm • PLC-theory • Transaction cost

theory

• Internalising & control • Productive opportunities • Economic man • Transaction costs • Control & co-ordination • PLC • Economic efficiency

Behavioural ontology • Managers satisfying

decision-making • Bounded rationality • Partly socially constructed

reality

• FDI-decision models • The “Uppsala school” • The ‘Finnish variant’ • Innovation process

models

• Market knowledge • Market & firm commitment • Stepwise approach to more extended

international operations • ‘Lateral rigidity’ • ‘Confined choice’ • ‘Psychic distance’ • Innovation processes

Internationalisation is a process and takes place through networks of relationships • Social construction • The reality is embedded in

relationships & networks • Social capital, trust &

‘human’ variables in decision-making

• The network approach to internationalisation

• “Born Globals” • SME effectuation

theory

• Connected exchange • Relationships and networks in

management • Interdependence • Connections takes firms abroad • Global markets • World-wide opportunities • Information technology impacts • “Borderless” organisations • The “hollow corporation”

Internationalisation is a many-sided and complex, but an economic rational decision process -spatial factors -internal markets in MNCs -ownership issues

• The Eclectic model of FDI/MNE

• Locational advantages • Ownership advantages • Internalising advantages of MNCs

Source: Based on Törnroos 2002 Theories and Research in International Business 2015

Theories & Research in International Business: Networks ... · Theories and Research in...

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