Welch L. S. & Luostarinen, R. (1988) Flashcards
Internationalization. Evolution of a concept
What is the definition of internationalization according to Welch & Luostarinen (1988)?
The process of increasing involvement in international operations, including both outward and inward activities.
🔹 Key Idea: Firms expand beyond domestic markets in progressive steps or through rapid internationalization.
Countertrade
Definition: A system where international transactions involve barter, buybacks, or offsets instead of cash payments.
It forces companies to integrate both inward and outward trade activities
Leapfrogging in Internationalization
Some firms skip early stages (like exporting) and go straight to FDI or acquisitions.
Key Idea: Happens when firms already have foreign market knowledge or urgent strategic goals.
What is the primary focus of early research on internationalization?
The spread of multinational corporations and foreign investment
What risk-reducing strategy do firms commonly adopt when entering a foreign market for the first time?
Establishing a low-commitment entry mode like exporting via an intermediary
Why do firms tend to target culturally or geographically closer markets first?
It reduces uncertainty and perceived risk
Foreign Operation Methods
The different ways a firm expands internationally, ranging from low to high commitment.
🔹 Key Idea: Firms start with less risky methods (exporting) and may shift to more committed operations (FDI, subsidiaries) over time.
What are the 6 dimension of Foreign Operation Methods?
- Sale Objects (What)
- Target Markets ( Where)
- Organisational Capacity
- Personnel
- Organisational Structure
- Finance
Sales Object (What)
The products and services a firm sells in foreign markets.
🔹Key Idea: Firms often start with simple product exports and later expand to services, technology, and system solutions.
Target Markets (Where)
🔹 Definition: The countries and regions where a firm expands its international operations.
🔹 Key Idea: Firms start with nearby or culturally similar markets before entering more distant and complex markets.
Organizational Capacity
The firm’s ability to handle international expansion based on resources, skills, and experience.
🔹 Key Idea: A firm with strong international knowledge and networks expands faster and more efficiently.
Personnel (Who)
🔹 Definition: The people involved in managing and executing international operations.
🔹 Key Idea: Firms need internationally skilled employees who understand foreign markets, cultures, and languages.
Organizational Structure
The internal setup of a firm to manage international activities (e.g., export divisions, subsidiaries, HQ coordination).
🔹 Key Idea: More advanced firms create dedicated international divisions to handle complex global operations.
Finance
🔹 Definition: The financial resources a firm uses to support internationalization, including funding sources and capital allocation.
🔹 Key Idea: Firms with better financing options (e.g., international loans, reinvested profits) can expand more aggressively.
Commitment & Control in Internationalization
Definition: Firms seek greater control over international operations as they expand, leading to higher resource commitments.
🔹 Key Idea: Control increases from indirect exporting → direct exporting → subsidiaries → full ownership.
As companies increase commitment to internationalization they tend to chnage tyheir operation methods, what characterizes the most common third step in this evolution?
a. no exports
b. A sales subsidiary
c. Exporting vi an agent
b.
There is a tendenccy for the sales objects of a company to chnage with increasing international operations, in what way?
a. Expansion within exsisting, or into a new product line
b. Fasciliotating the rise of countertrade in its various guises.
c. Putting a heavier emphasis on international finance
a.
According to the authors, what factor often influences early internationalization decisions?
Psychic distance between home and foreign markets
What is one of the major criticisms of early internationalization research?
a. It underestimated the role of government regulations
b. It assumed all firms followed the same internationalization path
c. It focused too much on foreign investment rather than the process leading up to it
c.
