The evolution of internationalization: towards a new theory?

ARTIGOS / ARTICLES The evolution of internationalization Towards a new theory? ANTÓNIO CARRIZO MOREIRA ABSTRACT: The theories of internationalization encompass a wide variety of explanatory elements that follow the firms’ responses to distorted, imperfect markets. Whilst traditional theories were concentrated on foreign direct investment and on how multinationals enlarged their involvement in international markets, recent theories have focused their attention on small to medium businesses following either a staged model or a networked approach. There has been wide disagreement regarding all theories of internationalization. This paper provides a brief literature review on the main theories of internationalization and concludes that due to the emergence of a new polycentric economic world a new theory encompassing new important factors is in strong demand. Key words: Theories of Internationalization, Internationalization, Multinational Firms, SMEs TÍTULO: A evolução da internacionalização: a caminho de uma nova teoria? RESUMO: As teorias da internacionalização agregam uma ampla variedade de elementos explicativos das respostas que as empresas têm dado a mercados imperfeitos. Embora as teorias tradicionais se tenham concentrado no investimento directo do estrangeiro e as multinacionais tenham alargado o seu envolvimento em mercados internacionais, as teorias mais recentes têm focalizado a sua atenção nas pequenas e médias empresas, seguindo, principalmente, duas abordagens: o modelo sequencial e o modelo em rede. A discussão em torno das teorias da internacionalização tem sido ampla. Este artigo fornece uma breve revisão da literatura das principais teorias da internacionalização e conclui que, devido à emergência de um novo mundo policêntrico, uma nova teoria que envolva tanto as pequenas e médias empresas como o novo policentrismo é necessária. Palavras-chave: Teorias da Internacionalização, Internacionalização, Multinacionais, PME ANTÓNIO CARRIZO MOREIRA Professor Auxiliar no DEGEI, Universidade de Aveiro. Assistant Professor at DEGEI, University of Aveiro. 41 ANTÓNIO CARRIZO MOREIRA There have been a variety of different approaches to explain the internationalization of business activities. They normally concentrate on distinct aspects of the reasons for, and results of, enterprises operating in more than one environment and have changed dramatically throughout the last decade. Whereas traditional theories have focused their attention on the internationalization of production and foreign direct investment (FDI) where the multinational enterprise (MNE) played a central role, recent theories have approached internationalization as a process in which firms increase their involvement in international operations adapting their strategies, resources and structure to new investments. The focus of recent theories has centred on small and medium-sized firms (SMEs). The internationalization of firms, the liberalization of the world economy and the globalization of business have brought about new interdependencies among firms along the value chain as well as among countries. With the pervasive changes imposed by this new international environment, the literature about internationalization has remained partially scattered focusing different non-related topics. Clearly, there is almost no general theory of internationalization of a firm. As a consequence, the main objective of this paper is to assess the evolution of the main theories of internationalization in order to pave the way for a new theory of internationalization that takes into account SMEs, MNEs, Nation-State interests, a process view of internationalization and the eclectic paradigm. This paper is divided into eight sections. The first is the introduction. The second examines neo-classical theories of FDI. The third section deals with the approaches studying the international production: the market power approach and the internalization approach. The macroeconomic approaches to FDI are addressed in the fourth section of the paper. The fifth section stems from the notion of absorptive capacity and the cumulative process of technological development. The sixth section deals with a synthesis of the other theories of international production: the eclectic paradigm, which attempts to analyze the whys and wherefores of firms’ decisions in terms of ownership, locational and internalization advantages. Section seven addresses the internationalization of SMEs following two main strands: the Uppsala model and the network approach, which are concentrated on SMEs. Finally, section eight summarizes the different theories put forward throughout the paper and concludes with a proposal for a new theory incorporating Nation42 THE EVOLUTION OF INTERNATIONALIZATION: TOWARDS A NEW THEORY? States, SMEs, a new blend of the eclectic paradigm and a networking view of the relationship of SMEs-MNEs in the value chain. NEO-CLASSICAL THEORIES OF INVESTMENT Hymer’s (1976) presented the first theory of foreign direct investment. A considerable amount of literature existed on foreign investment but no difference was made between portfolio investment and foreign investment. According to neo-classical theories, FDI is the consequence of comparative advantages held by host countries. Therefore, the differences in production factorprices are seen as one of the main motives for the localization of MNEs in developing countries. Like the neo-classical theory of trade, the neo-classical theory of foreign investment also assumes that countries are differently endowed in abundance of capital and labor. In the traditional neo-classical approach, economically advanced countries tended to export goods requiring capital-intensive production methods to less-advanced labor-abundant countries. It was also assumed that salary differentials between home and host countries were the main motives for attracting FDI, which was afterwards dismissed not only because the productivity/salary cost relation proffers a more appropriate explanation of the location of MNEs in several countries (Andreff, 1995), but also because most MNE salaries are higher than local firms in host countries (Rainelli, 1979). Due to the assumptions of the neo-classical approach (perfectly competitive markets, identical production functions in different countries, and perfect knowledge and certainty), it is unsuited to explain today’s activities of the MNEs: they neglect production functions, firms and product and service differentiation. Consequently, as technological mastery allows firms to evolve from their initial factor-endowments, comparative advantages should not be regarded from the static viewpoint because they are dynamic in nature. THEORIES OF THE FIRM The Market Power Approach One of the first theories addressing the issue of international production is Hymer’s (1976). The theory was the first to leave behind the articulation of international production with international (...truncated)