Extending the Internationalization Process Model

Increases and Decreases of MNE Commitment in Emerging Economies

Grazia D. Santangelo, Klaus E. Meyer

Research output: Contribution to journalJournal articleResearchpeer-review

Abstract

The internationalization process model suggests that firms internationalize by building positions in foreign markets and networks, following iterative cycles of learning and changes in commitment. However, as subsidiaries evolve, commitments may be decreased as well as increased, a phenomenon that has rarely been studied. Moreover, it remains an open question why strategic intentions at the outset of an investment project differ from the actual operations established. We address these questions by extending the model and combining it with Mintzberg and Waters’ framework of strategy formation. Specifically, we suggest that commitment decisions correspond to statements of intended strategy, while network positions correspond to realized strategies. The processes of learning, opportunity creation and trust building triggered by commitment decisions are, however, moderated by institutional influences that lead to divergences between realized and intended strategies. We test propositions derived from this framework on a survey data set of subsidiaries of multinational enterprises in Hungary, Lithuania and Poland, and find that institutional voids and institutional uncertainty affect subsidiary strategy implementation, but in opposing directions. Under high institutional uncertainty, investors prefer low commitment but flexible modes that enable later commitment increases, whereas institutional voids increase up-front information search and adaptation costs that reduce the likelihood of early post-entry adjustments. Our analysis reinforces the need for more differentiated theoretical analyses of how institutions affect business strategies over time.
Original languageEnglish
JournalJournal of International Business Studies
Volume42
Issue number7
Pages (from-to)894–909
Number of pages16
ISSN0047-2506
DOIs
Publication statusPublished - 2011
Externally publishedYes

Keywords

  • Internalization theory
  • Institutional theory
  • Subsidiary strategies
  • MNE–host country relations
  • Institutional context
  • Subsidiary development, expansion and growth

Cite this

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abstract = "The internationalization process model suggests that firms internationalize by building positions in foreign markets and networks, following iterative cycles of learning and changes in commitment. However, as subsidiaries evolve, commitments may be decreased as well as increased, a phenomenon that has rarely been studied. Moreover, it remains an open question why strategic intentions at the outset of an investment project differ from the actual operations established. We address these questions by extending the model and combining it with Mintzberg and Waters’ framework of strategy formation. Specifically, we suggest that commitment decisions correspond to statements of intended strategy, while network positions correspond to realized strategies. The processes of learning, opportunity creation and trust building triggered by commitment decisions are, however, moderated by institutional influences that lead to divergences between realized and intended strategies. We test propositions derived from this framework on a survey data set of subsidiaries of multinational enterprises in Hungary, Lithuania and Poland, and find that institutional voids and institutional uncertainty affect subsidiary strategy implementation, but in opposing directions. Under high institutional uncertainty, investors prefer low commitment but flexible modes that enable later commitment increases, whereas institutional voids increase up-front information search and adaptation costs that reduce the likelihood of early post-entry adjustments. Our analysis reinforces the need for more differentiated theoretical analyses of how institutions affect business strategies over time.",
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Extending the Internationalization Process Model : Increases and Decreases of MNE Commitment in Emerging Economies. / Santangelo, Grazia D.; Meyer, Klaus E.

In: Journal of International Business Studies, Vol. 42, No. 7, 2011, p. 894–909.

Research output: Contribution to journalJournal articleResearchpeer-review

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