The mechanism of internationalisation

5/26/2018 The mechanism of internationalisation

Internationalisation

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Th e Mech an i sm o fI n t e r n a t i o n a l i s a t i o nJan JohansonUniversity of Uppsala,and

Jan-Erik VahlneStockholm School of Economics, SwedenIn the last decade, we have witnessed a growing amount of research aboutthe internationalisation offirms.Evidently, this expanding research reflects anincreasing internationalisation offirmsand industries. This internationalisationprocess is manifested in a number of different ways. It can be seen in theestablishment of foreign subsidiaries,ininternational joint ventures,inlicensingagreements, in international advertising campaigns, in international trade,exhibitions and a multitude of other events and actions.Although the eclectic theory combining economic theories of monopolisticcompetition, location and transaction costs has been the dominant line in thisresearch,anumber ofstudies havebeen basedonmore behavioural approaches.One such theoretical line has focused on the process of internationalisation oftheirmJohansonand Vahlne,1977;Bilkey,1978;Wiedersheim-Paulet al.,1978;Cavusgil, 1980; Welch and Luostarinen, 1988). The following description anddiscussion of the mechanism of the internationalisation processone of themost widely adopted concepts in thefieldReid and Rosson, 1987)is basedonJohanson and Vahlne's model. This line of research is later contrasted withthe eclectic theory, and ideas for further development of this theory areproposed.The Uppsala Internationalisation Modelthis model, the internationalisation of the firm, whichhasits theoretical basein the behavioural theory of the firm (Cyert and March, 1963;Aharoni, 1966)and Penrose's (1959) theory of the growth of the firm, is seen as a processin which the enterprise gradually increases its international involvement. Thisprocess evolves in an interplay between the development of knowledge aboutforeign markets and operations on one hand and an increasing commitmentof resources to foreign markets on the other.Adistinctionismade between state and change aspects of internationalisation.The state aspects of internationalisation are market commitment and marketknowledge; the change aspects are current business activities and commitmentdecisions. Market knowledge and market commitment are assumed to affectdecisions regarding commitment of resources to foreign markets and the waycurrent activities are performed. Market knowledge and market commitmentare, in turn, affected by current activities and commitment decisions (Figure1).Thus, the process is seen as causal cycles.


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Following Penrose (1959), two kinds of knowledge are distinguished: objectiveknowledge which can be taught, and experiential knowledge which can onlybe acquired through personal experience.Acritical assumption is that marketknowledge, including perceptions of market opportunities and problems, isacquired primarily through experience from current business activities in themarket. Experiential market knowledge generates business opportunities andis consequentlyadriving forceinthe intemationalisationprocess.But experientialknowledge is also assumedtobe the primarywayof reducing market uncertainty.Thus,in a specific country, the firm can be expected to make stronger resourcecommitments incrementally as it gains experience from current activities inthe market. This market experience is to a large extent country-specific, i.e.it can be generalised to other country markets only with difficulty.The model implies that additional market commitment will be made in smallsteps with three exceptions. First, when firms have large resources theconsequences of commitments are small. Thus,bigfirms or firms with surplusresources can be expected to make larger intemationalisation steps. Second,when market conditions are stable and homogeneous, relevant market knowledgecan be gained in ways other than through experience. Third, when the firmhas considerable experience from markets with similar conditions it may bepossible to generalise this experience to the specific market.

A characteristic of the intemationalisation process model is that the firm isviewed as a loosely coupled system in which different actors in the firm havedifferent interests and ideas concerning the development of the firm (Cyertand March, 1963; Weick, 1969; Pfeffer, 1981). In particular those who areengaged in a foreign marketwillsee opportunities and problems in that market,they will seek solutions to the problems in that market and they will promotethose solutions. Thus, the model expects that the intemationalisation process,once it has started,willtend to proceed regardless of whether strategic decisionsin that direction are made or not.



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The internationalisation process model can explain two patterns in theinternationalisation of the firm (Johanson and Wiedersheim-Paul, 1975). Oneis that thefirm sengagementinthe specific country market develops accordingto an establishment chain, i.e. at the start no regular export activities areperformed in the market, then export takes place via independentrepresentatives, later through a sales subsidiary, and eventually manufacturingmay follow. In terms of the process model, this sequence of stages indicatesan increasing commitment of resources to the market. It also indicates currentbusiness activities which differ with regard to the market experience gained.Thefirststage gives practically no market experience. The second stage seesthe firm as having an information channel to the market and receiving fairlyregular but superficial information about market conditions. The subsequentbusiness activities being performed in the market lead to more differentiatedand wide market experience, which even may include factor markets.

The second pattern explained is that firms enter new markets withsuccessively greater psychic distance. Psychic distance is defined in terms offactors such as differences in language, culture, political systems, etc., whichdisturb the flow of information between the firm and the market (Vahlne andWiedersheim-Paul,1973).Thus firms start internationalisationby goingto thosemarkets they can most easily understand. There they will see opportunities,and there the perceived market uncertainty is low.Observe, however, that these patterns are manifestations of the process inthe internationalisation of the firm . The process is a theoretical model basedon assumptions about the relations between the concepts of marketcommitment, market knowledge, current business activities, and commitmentdecisions. The patterns can be seen as operationalisationsof theprocess modelwith the stages and the psychic distance as possible indicators. O ther indicatorsmay also be possible. Market commitments can be indicated by the size of theinvestment in the market or the strength ofthelinks with the foreign markets,i.e. the degree of vertical integration. Other patterns may be derived as well,such as regarding joint ventures or acquisitions versus greenfield investments.The process model has grown out ofempiricalresearch, based on traditionalmicroeconomic and marketing theory, about Swedish firms competinginternationally (Carlson, 1966, 1975). It could be expected that the model'svalidity is limited to countries like Sweden which are rather small and highlyindustrialised. Later research from other countries has reported empiricalobservations in support of or consistent with the model. Empirical researchby Wisconsin researchers about export behaviour provides a similar picture(Bilkey,1978;Bilkey and Tesar, 1977; Cavusgil, 1980,1984). Consistent resultshave also been reported from extensive export research in Mannheim (Dichtletal.,1984). Davidson (1980,1983) and Denis and Depelteau (1985) have alsoreported supporting results from empirical studies of market selections of USfirms going abroad. Similar resultshavealso been obtainedinstudies of Hawaiianexport firms (Hook and Czinkota, 1988), Japanese firms' export strategiesQohansson and Nonaka, 1983), Turkish exporters (Karafakioglu, 1986), andAustralian firms (Barrett, 1986). A study of US entry by acquisitions



and joint ventures gives robust results supporting the model (Kogut and Singh,1986).Fordetal.(1987) report in a study of export development of firms fromless developed countries that export entries are first made in culturally closecountries and subsequently in the developed countries. Inastudy ofUSfirmsexporting at industrial shows, Bello and Barksdale (1986) found strong supportfor the model.Overall, the model has gained strong support in studies ofawide spectrumof countries and situations. The empirical research confirms that commitmentand experience are important factors explaining international business behaviour.In particular, the model receives strong support regarding export behaviour,and the relevance of cultural distance has also been confirmed.Critical ViewsCriticism of various kinds has also been put forward. One criticism is that themodel is too deterministic (Reid, 1983; Turnbull, 1987; Rosson, 1987). Thisis primarily directed at what is sometimes called the stages theory , whichis one of the manifestations of the internationalisation process . The argumentis that the firm has the option ofmaking astrategic choice as to modes of entryand expansion. Reid argues that suchachoiceiscontingentonmarket conditions,and a transaction cost approach is superior to the process model in explainingdiversity and variations in internationalisationbehaviour.This view is supportedby Turnbull's (1987) studies of export organisation in some British industries.This argument is quite plausible but should perhaps not be primarily anargument against the process modelunless itisdirected at the manifestationsof the modelbut rather an argument for development and differentiation ofthe model. This means that the critique should be directed at the very partialnature of the model, which is the consequence of a very conscious effort bythe model builders to catch one single, and so far rather unnoticed, mechanismwith strong explanatory power regarding a wide spectrum of manifestationsof the internationalisation of the firm.It has also been argued that the process model says something importantonly about the early stages of internationalisation when lack of market knowledgeand market resources are still constraining factors (Forsgren, 1989a). Whenthe firm already has activities in several countries, these factors are no longera problem. In that situation, the firm can allocate resources to internationalactivities on the basis of the real market conditions rather than in responseto the unknown. This view is consistent with the fact that most oftheempiricalsupport has come from studies oftheearly stages of internationalisation. Thiscritique concerns the range of validity of the model and should be shared withthe direct investment theory in which a basic assumption is the disadvantagea foreign firm has compared with domestic firms.In a study of Swedish firmsinJapan,Hedlund and Kverneland (1985) foundevidence that the development patterns of thosefirmswere not in accordancewith those expected on the basis of the internationalisation process model.The reason for this, they argued, is that there has been a general inter-



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nationalisation of industries and markets so that the lack of market knowledgeis no longer a factor limiting the pace and patterns of internationalisation offirms. Assuming that internationalisation is an irreversible process, theirconclusion is that the model of the firm internationalisation process will beincreasingly less valid in the future. Their reasoning seems, however, moreconvincing than their interpretation of the data which are surprisingly consistentwith the process model.Nordstrom (1990) argues that the worldhasbecome much more homogeneousand that consequently psychic distance has decreased. He expects that recentstarters are willing and able to enter directly into large markets as some ofthese are now as close to Sweden in a cultural sense as are the Scandinaviancountries. The explanatory value of psychic distance would in that case havedecreased. Nordstrm's preliminary results seem to confirm this argument.Britain, Germany and the US have become as common a target for the veryfirst establishment ofsalessubsidiaries as the Scandinavianneighbours.Otherenvironmental changes such as improved information supply and more efficientmeans of transmitting information, less fragmented markets (cf. Nordstromand Vahlne, 1985), increased emphasis on R&D, all have an impact on theinternationalisation process.It has also been argued that the model does not take into accountinterdependencies between different country markets (Johanson and Mattsson,1986).This is both a conceptual and an explanatory problem. The conceptualproblem is that it seems reasonable to consider afirmmore internationalisedif it views and handles different country markets as interdependent than if itviews them as completely separate entities. The explanatory problem is thatinterdependencies between markets can be expected to have a strong impacton the internationalisation of the firm.Studies have shown that the internationalisation process model is not validfor service industries. A study of the internationalisation process of Swedishbanks suggests that their foreign establishments are not governed by culturaldistance (Engwall and Wallenstal, 1988). Nevertheless, like Tschoegl's (1982)study of bank entry into Japan and California, this study showed that marketentry was made in small steps. On research about the internationalisation ofSwedish technical consultants a typical service industry it has beendemonstrated that the cumulative reinforcement of foreign commitments impliedby the process model is absent (Johanson and Sharma, 1987).Aprocess view of internationalisation differs radically from the internalisationmodel both in its assumptions and its predictions. Forsgren (1989b) used thetwo models to analyse how international expansion via foreign acquisitions orgreenfield investments is influenced by such factors as degree of internationalisation, diversification and R&D intensity. In an empirical analysis of theacquisitions of Swedish multinationals, the process model was stronglysupported.The Eclectic ParadigmThe internationalisation model explains and predicts the mode and pattern of the



internationalisation process whereby nationalfirmsare transformed into beingmultinational. It is of interest to relate this model to direct investment theory.As we perceive th e eclectic paradigm to be the most widely acceptedframework within this area of theoretical thought, we have chosen it as ourframe of reference.The condensed version of the eclectic paradigm given below is based onDunning(1988).This paradigm sets out to explain the extent, form and patternof international production which relies on three distinct sets of advantages.The first set is ownership-specific advantages. Dunning makes the distinctionbetween advantages stemming out of structural and transactional marketimperfections. The former relate to the company's possession of, for example,superior technology oracharacteristic such as multinationality. The transactiontype advantage implies that the multinational organisation, as compared withthe market mechanism, can enjoy lower transaction costs.

The second set of advantages, internalisation advantages, refer to themultinational enterprise's (MNE's) ability to transfer ownership-specificadvantages across national borders within its own organisation rather thanexploiting the advantage by selling it. Again, imperfect markets explain whythe company, for example, prefers to exploit technology by using it as an inputin its own foreign manufacturing unit, rather than to sell the right to use thattechnology to an indigenous firm in that same market.The internalisation advantage should be distinguished from the transactionadvantage mentioned above. In Dunning's words (1988): We believe it is notonly useful but logically correct to distinguish between the capability of MNEsto internalise markets, and their willingness to do so. For while the latter(internalisation advantages) may explain why hierarchies rather than externalmarkets are the vehicle by which transactional ownership advantages aretransferred across national boundaries, it is the former (ownership advantages)which explainswhythese advantages are exploitedbyone group of MNEs ratherthan another, or by MNEs rather than firms indigenous to the country ofproduction .The third set of advantages are locational advantages, again of two types:structural and transactional. The former relates, for example, to differencesin factor costs while the latter refers to enhanced arbitrage and leverageopportunities . Itisthen the juxtaposition of the ownership-specific advantagesoffirmscontemplating foreign production, or an increase in foreign production,the propensity to internalise the cross-border markets for these, and theattractions ofaforeign location for production which is the gist of the eclecticparadigm of international production (Dunning, 1988).The Eclectic Paradigm and the Internationalisation Model ContrastedAccording to Dunning, the eclectic paradigm se ts out to explain th e extent,form and pattern of international production , while the internationalisation modelaims at explaining the pattern and mode of establishing marketing-orientedoperations (including manufacturing for the local market). Pat te rn implieschoice of location. The eclectic paradigm predicts that production will be



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established where advantages can be enjoyed. The internationalisation modelpredicts, taking onlypsychicdistance into account, thatfirmswillstartbyinvadingneighbouring inthe cultural sense) markets and later, as experience grows,more distant markets will be entered. It is thereby assumed, of course, thatthe firmwould not enter markets where there is not some demand foritsoutput.Obviously, timing is also an important aspect of the pattern.One might suspect, as is confirmedbyempirical research, that the explanatoryvalue of the internationalisation model in this regard is high in the very earlystages of the internationalisation process, while the explanatory value of theeclectic paradigm is high for global (in the sense ofhavingexperience frommany regions of the world) firms. The internationalisation model rests onbehavioural theories while the theoretical underpinnings oftheeclectic paradigmassume that the decision makers have access to perfect information. The formerassumption is obviously more true for inexperienced firms and the latter forexperienced. On this point the two frameworks are obviously inconsistent, butit is interesting to note that when Dunning discusses to what extent the eclecticparadigm allows forfirm-specificbehavioural differences, he asks for moreresearch on the a ttributes offirmswhich can have an impact on their responseto any particular configuration ofthethree types of advantages.Wewould arguethat the commitment and the amount and quality of experience gained, areexamples of such attributes.Asecond explained variableinboth frameworks is the mode or form, internalor external to thefirm.Again, the eclectic paradigm predicts that the companywill optimise rationally, while the internationalisation model, placing uncertaintyavoidance in the centre, assumes that no optimisation will occur. Unless theconstraints in terms of lack of knowledge of the foreign market and lack ofestablished relationships to various parties, especially customers,onthe foreignmarket (which makes it possible to calculate costs andrisks)are included amongthe explanatory firm characteristics, the eclectic paradigm cannot explain theshifts in mode explained by the internationalisation model. In other words, anexperienced decision maker will perceive future transaction costs differentlythan the inexperienced decision maker.In terms of explanatory variables the difference is dramatic. Theinternationalisation model in its original version explicitly used only onethefirm's knowledge. Implicitly therewasanotherrelationships to other bodieson the foreign market. This is now made explicit in the presen t article. Thereis no ambition to increase the number of explanatory variables, as our aim isreally to contribute to an understanding of the incremental nature of theinternationalisation process. The eclectic paradigm on the o ther hand has theobjective of giving a full-fledged explanation of the firm's foreign operations,thereby relying on all relevant exploratory factors.Itisinterestingtocompare the underlying mechanism of the two frameworks.According to Williamson (1981) transaction costs are affected by uncertainty,bounded rationality and opportunism. When transaction costs reach a certainsize, it pays to internalise. Transaction costs are, for example, high fortechnologically complex products. Consequently, the propensity to rely on



own sales organisations rather than agents are higherinfirmswith those kindsofproducts(cf. Hrnell and Vahlne,1973).But these typicallyalsorely on outsidemiddlemen in the early stages of the internationalisation process for reasonsexplained above. The company at this stage is neither able nor willing tointernalise the activities performed by the middleman. Once uncertainty fallsbelow a certain level, the ability to internalise is there but the willingness todo it may not exist until something triggers the decision. Alternatively, whenuncertainty is eliminated extemalisation might be feasible. The main differencebetween the two frameworks is that the internationalisation model recognisesthat transaction costs change over time, while the eclectic paradigm assum esthe decision makers involved are rational and well-informed right from the startof the internationalisation process.The eclectic paradigmisbasically staticinnature, while the internationalisationmodel is dynamic paying explicit consideration to changes in the explanatoryvariables as the process proceeds. But, of course, the internationalisation modelis extremely partial, deliberately excluding many relevant explanatory factors.Clearly, the two frameworks in their present shape are inconsistent as the basicassumptions are so different.Industrial NetworksSome of the deficiencies of the process model will be discussed by relatingthe internationalisation process to the concept of industrial networks. Empiricalresearch has demonstrated thatfirmsn industrial m arkets establish, develop,and maintain lasting business relationships with other business actors(Hakansson, 1982; Turnbull and Valla, 1986; Hallnet al. 1987).This researchhas shown that relationships develop through interaction in which the partiesbuild mutual trust and knowledge, and that interaction means strong commitmentto the relationships (Ford, 1979).The relationships are connected by networks which develop asaconsequenceof the interaction between firms. The specific firm is engaged in a networkof business relationships comprising a number of different firmscustomers,customers' customers, competitors, supplementary suppliers, suppliers,distributors, agents and consultants as well as regulatory and other publicagencies. Similarly, industries can be regarded as networks of businessrelationships comprising a number of different business actors. In any specificcountry, different industrial networks can be distinguished. Such differentindustrial networks may be more or less international to the extent that theconnections between networks in different countries are more orlessextensive.Evidently, business relationships and consequently industrial networks aresubtle phenomena, which cannot easily be observed by an outside observer,i.e. a potential entrant. The actors are tied to each other through a numberof differentbonds:technical, social, cognitive, administrative, legal, economic,etc.The outsider can only achieve a very superficial comprehension of sucha complex and fluid network. The relationships and the networks can only beunderstood through experience from interaction inside, and especially so if thereis a cultural distance between the actors. Thus, in relation to the inter-


Intemationalisation

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nationalisation process model it can be assumed that market (i.e. network)knowledge is based on experience from current business activities, or currentbusiness interaction.The network view implies thatallactors inanetwork are more or less activeand that the establishment of new relationships and the development of old,is a result of interaction between active parties.Toenteranetwork from outsiderequires that other actors have to be motivated to engage in interaction,something which is resource demanding, and which may require several firm sto make adaptations in theirwaysof performing business. Thus, foreign market,or network, entry ofthefirmmayverywellbe the result of interaction initiativestaken by other firms which are insiders in the network in the specific country.However, the chances of being the object of such initiatives are much greaterfor an insider. An extension of the intemationalisation process model to takeinto account the network aspect should consequently make the conceptscommitment, knowledge, current activities and commitment decisions asmultilateral rather than unilateral as in the original model. Thatis,the processis also inter-organisational and not just intra-organisational (Figure 2).

Thislineofthinking isrelatedtothat of Porter(1980),whoargues that switchingcosts make it expensive foracustomer to change supplier. The higher th esecosts are, the more difficult it will be for a potential alternative supplier toconvince the buyer to change, and it will require some time.The networks in a country may well extend far beyond country borders. Itcan be assumed that there are differences between countries as to theinternational extension of the networks in the country. Likewise it can beassumed that there are differences between products regarding the inter-nationalisation of the relevant networks. It can also be expected that theinternational extension of these networks has strong implications for theintemationalisation of the firm.Thus,in relation to the intemationalisation ofthefirm the network view arguesthat the internationalisingfirms initially engaged inanetwork whichisprimarilydomestic. In term s of networks, intemationalisation means that the firm



develops business relationships in networks in other countries (Johanson andMattsson, 1988). This can be achieved: (1) through the establishment ofrelationships in country networks that are new to the firm, i.e. internationalextension; (2) through the development of relationships in those networks, i.e.penetration; and (3) through connecting networks in different countries, i.e.international integration.The relationships ofafirm can be used as bridgestoother networks. Considerthe firm which is engaged in international business relationships. Theserelationships can help the firm in getting inside networks in foreign countries.In some cases they can even force the firm to enter foreign networks (Johansonand Sharma, 1987). This is the case when the customer demands that thesupplier followshimabroad ifhewants to keep the business athome.Generally,it can be assumed that direct or indirect bridges exist betweenfirmsand differentcountry networks. Such bridges can be important both in the initial steps abroadand in the subsequent entry of new markets.The character ofthetiesin anetworkispartlyamatter ofthefirmsnvolved.This is primarily the case with technical, economic andlegalties.To animportantextent, however, the ties are formed between the persons engaged in thebusiness relationships. This is the case with social and cognitiveties.Industriesas well as countries may differ with regard to the relative importance of firmand person relationships. But it can be expected that the personal influenceon relationships is strongest in the early establishment of relationships. Thisconforms closely to thefindinghat cosmopolitans are often important in thefirs t steps abroad (Simmonds and Smith, 1968). Later in the process, routinesand systems will become more important.

Correspondingly, it can be expected that personal relationships and networksare especially important in turbulent, high technology industries (Laage-Hellman,1989). A study of the internationalisation process of small high-tech firmsindicates that some of these companies follow the traditional internationalisationpatterns, while others behave differently (Lindqvist, 1988). They go directlyto more distant markets and more rapidly set up their own subsidiaries. Onereason seems to be that the entrepreneurs behind those companies havenetworks of colleagues dealing with the new technology. Internationalisation,in these cases, is an exploitation of the advantage this network constitutes.The Advantage Package and th e dvantage CycleIn a research project on Swedish multinationals, the concepts ofthe advantagepackage and the advantage cycle were used (Sandn and Vahlne, 1976).The advantage package is designed as the aggregated amount of strengths andweaknesses ofacompany,evaluatedinrelationto aspecific set of circumstances,such as a particular environment, set of competitors and objectives. In principle,allrelevant attributes ofthecompany should be taken into consideration. Certainattributes, which in other situations might have constituted a streng th, can beregarded as a weakness. In this particular situation, the relative size of theadvantage package and the composition of the package will have an impact onthe characteristics of the internationalisation process.



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The advantage cycle proposes that the size and composition of the packagechanges over time. In these terms, the internationalisation model can bedescribed in the following way. A company, performing activities in a foreignmarket, interacts not only with potential and actual customers but alsoauthorities, suppliers, etc. In this way, knowledge is accumulated andrelationships established, the company improves on certain attributes, and anadvantage is created. This is not free ofcost.In principle it should be regardedas an investment, but many companies do not, and the assets created cannotbe incorporated in the balance sheet. The cost for building the new advantageis covered by exploiting the previous advantages whether access to technologyor something else. If the value of the previous advantage decreases becauseoftheexploitation, it is really an advantage cycle. Ifnot,the package increasesin valuebut there isstill achangeinthe composition of the package. The changedcomposition of the package will have an impact on the continued developmentofthecompany as new or different opportunities can be exploited. For example,joint product development between supplier and customers might lead to thecreation ofnewtechnology that can be utilisedbythe supplier elsewhere. Also,the location of the new advantage in terms of units within the multinationalorganisationwill changethepower balancewithinthecorporation. Those decisionmakers controlling critical resources will have a say concerning, for example,investment decisions (cf. Forsgren, 1989a).

An example of the advantage cycle is Sandvik's switch from being amanufacturer of steel to products made of cemented carbide. Towards the endof the last century, Sandvik was an unprofitable producer of steel. It managedto acquire the right to use the newly invented Bessemer process, which wassuperiortoother available methods in terms ofthequality oftheoutput. Restingon this advantage, Sandvik built a network of agents and established a strongposition with individual customers. The size of the original packagedidnot permitSandvik to establish its own sales organisation directlythatis,to internalisethe sales operations. But as sales volume grew, experience was gained andrelationships established, and the size ofthepackage permitted internalisation.Later, methods superiortothe Bessemer process were developed and Sandvik'smain advantage became its distribution network in foreign markets andrelationships established with customers. These, in spite of the technologicaldisadvantage, allowed Sandvik to sustain profitability. Parts of these resourceswere used to develop cemented carbide technology, a new product range waslaunched andagain a new advantage wasborn.Utilising itsnetwork of subsidiariestoday, Sandvik supplies systems for performing cutting operations, incorporatingsoftware adjusted to the needs of the individual customer. Successful distributionof this type of system clearly benefits from lower transaction costs connectedwith the internalisation of sales and service activities.

Seeninthis way, the internationalisation process through the advantage cycleis clearly linked to the network view on markets. As discussed earlier,internationalisation is to a large extent a matter of establishing relationshipsin foreign markets. We are admittedly biased in this respect as Swedishcompanies went abroad almost exclusively for market reasons, in which case



establishment of relationships may be more important than in other cases.Application of the concepts of the advantage cycle and advantage packageare,however, not limited to this type of intemationalisation.Asin the somewhatsimplistic case of Esselte, the Swedish office equipment supplier, the advantagewas possession of a large sum of cash, which was used to acquire a numberof companies abroad to create a whole new set of advantages.Relaxing some ofthe neoclassical assumptions, thereby making room forsome of the most striking features of the area of international business andusing the concepts of the advantage package and advantage cycle, would goa long way to dynamise the eclectic paradigm and make it useful to explainstates and changes in the early phases oftheintemationalisation process also.ConclusionAlthough the intemationalisation process has captured the interest of manyresearchers, there have been only a few attempts at developing the concept.This is easily understandable as the basicideasaredrawnfrom several theoreticaltraditions economic theory, organisation theory and marketing theoryand most researchers feel at home in onlyone.Wethink, however, that futureresearch about this process can be very fruitful. It can enrich our understandingabout how basic changes in the international business arena take place.Wesuggest that researchers should investigate howfirmntemationalisationprocesses are related to surrounding processes, i.e. market or networkintemationalisation, industry intemationalisation, technical development,concentration as well as deconcentration processes. It is important to rememberthat firm intemationalisation is embedded in an ever-changing world.Another field of study worth attention concerns intemationalisation strategies.Basically the process model is rather sceptical in regard to strategy.Nevertheless, we think that intemationalisation processes are the result of amixture of strategic thinking, strategic action, emergent developments, chanceand necessity. We believe it is worthwhile to analyse the intemationalisationof firms with an open mind with regard to these factors.R e f e r e n c e sAharon i, Y. (1966),TheForeignInvestmentDecisionProcess,Harvard Business School, Boston.Ba rre tt, N.J. (1986), A Stud y of the Internationalization of Australian Firms , unpublished

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The mechanism of internationalisation

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