Timing and speed of internationalization: Evidence from African banks
Introduction
This study investigates the factors that influence the timing and speed of internationalization using a multiple case study of 23 top African banks. International business scholars have strived to explain why and how firms, particularly from developed economies and subsequently emerging economies, enter foreign markets. The dominant theories and models include the international theory (Buckley & Casson, 1976), the Uppsala internationalization model (Johanson & Vahlne, 1977), the eclectic theory (Dunning, 1980), resource-based view (Penrose, 1995; Wernerfelt, 1984), the linkage, leverage, and learning framework (Mathews, 2006), and the springboard investment framework (Luo & Tan, 1997).
The internalization theory (Buckley & Casson, 1976) explains how firms, given the imperfections of the intermediate product markets—knowledge flows and flows of components and raw materials—strive to protect their knowledge from opportunists. Firms enter foreign markets by selecting the best method of operation (exporting, licensing, alliances, green-fields, or acquisitions) to benefit from the existing technological advantage depending on the ease of contract creation, the specificity of assets, and the ease of protection against opportunism.
The Uppsala internationalization process model (Johanson & Vahlne, 1977) posits that firms become international by incremental stages that emphasize two core features: “psychic distance” or liability of foreignness and perceived risk in international markets. The internationalization occurs in order of ascending risk and knowledge: exporting, subsidiaries and offshoring. In the revised model, Johanson and Vahlne (2009) emphasize the web of relationships that characterize the business environment. The liability of foreignness is replaced by the liability of outsidership. The knowledge of opportunities influences firms to exploit their relationships to enter new markets. Learning, creating, and building trust processes help firms enhance their network position.
The eclectic theory (Dunning, 1980) suggests that firms transfer ownership (O) advantages to benefit from location (L) advantages of other countries and become multinationals if there are internalization (I) advantages in the transfer of advantages and coordination of operations within the firm rather than using the market. The resource-based view focuses on firms' internal capabilities that enable firms to compete in global markets. Firms can use these core competences across countries when they become international. An extension of this view is the knowledge-based view (Nonaka, 1994) and institution-based view (Peng, Wang, & Jiang, 2008) that highlight the importance of institutions in the firm's internationalization process.
The linkage-leverage-learning (Mathews, 2006) suggests that latecomers and newcomers in emerging economies develop business models to acquire resources externally through the establishments of international links (linkage) as a source of advantage. Once the links are established, the focus is on further developing these links (leverage). The combination of linkage and leverage results in the firm learning how to effectively perform its international operations (learning). The springboard investment framework (Luo & Tan, 1997) suggests that emerging markets multinational enterprises (MNEs) systematically and recursively use international expansion as a springboard to acquire critical resources needed to compete more effectively against their global rivals at home and abroad and to reduce their vulnerability to institutional and market constraints at home.
The theories of internationalization highlight the relevance of entry mode for MNEs and the implications for organizational structure, control, resource commitments, and investment risk exposure (Zhao, Luo, & Suh, 2004). The rise of new MNEs from emerging and developing economies brought about the temporal and spatial expansion dimensions of internationalization explicitly emphasized by the international theory (Buckley & Casson, 1976; J.-F. Hennart, 1982) and the Uppsala internationalization model (Johanson & Vahlne, 1977), but only implicitly considered by other traditional theories of internationalization (Hitt, Li, & Xu, 2016).
The timing and speed of internationalization have recently been the focus of international business research. Some attempts have been made to examine the internationalization process of African firms, drawing from extant theories (Ibeh & Makhmadshoev, 2018; Luiz, Stringfellow, & Jefthas, 2017; Narteh & Acheampong, 2018). Indeed, these studies have helped improve our understanding of the internationalization of African firms. However, more research is needed to further understand the participation of African firms in global economies and the extent to which this participation informs extant theories (Mol, Stadler, & Ariño, 2017). In this perspective, the present study analyzes the timing and speed of international expansion in the context of 23 African banks using data from corporate annual reports, company websites and media reports from the period ranging from 2010 to 2018. The findings suggest that entry timing is influenced by the firm's ownership structure and board members' experience and diversity. The findings also show three factors that increase the speed of internationalization: (1) learning from observing trends in the banking industry, extending organizational capabilities to explore new markets and exploiting these capabilities to capitalize on identified opportunities; (2) following the African diaspora specifically in developed countries; and (3) acquiring assets from other banks as well as entering strategic alliances with foreign partners. Our results suggest that the timing and speed of international expansion of African banks present similarities but also fundamental differences compared with MNEs from developed countries and those from emerging economies.
In the following sections, we first summarize the literature on the timing and speed of internationalization. Then, we describe the methodology we applied in collecting and analyzing the data. The descriptive statistics and findings of study are then presented. We conclude with a discussion of the theoretical implications of the findings and offer future directions for research.
Section snippets
Literature review
The timing and speed of internationalization are considered two closely related but distinct issues of entry modes (Autio, Sapienza, & Almeida, 2000). The timing of internationalization is conceptualized as the time lag between the founding of a firm and its initiation of international operations (Autio et al., 2000, p. 909). Many conceptualizations of speed exist. Chetty, Johanson, and Martín Martín (2014) defined speed as the relationship between the internationalization distance covered and
Methods
We conducted an inductive analysis based on multiple case study of the internationalization process of 23 top African multinational banks. First, this method is well adapted to empirical study surrounding contemporary phenomena requiring a qualitative approach (Yin, 2008). Second, the case study method makes it possible to analyze these phenomena from different perspectives and delve diligently into new or relatively unexplored issues (Hammersley, 2010). Finally, case comparisons facilitate
Descriptive statistics
Table 2 lists the 23 firms analyzed based on The Africa Report's ranking, illustrating in effect the country of origin, the year of the foundation, the year of the first international expansion and the number of foreign markets in which each company operates. Five South African banks are among the 200 Africa's largest according to Africa Rank: Standard Bank Group (#1), ABSA Group (#2), Nedbank Group (#3), Firstrand Banking Group (#4), and First National Bank of South Africa (#5). Three
Results
Table 5 depicts the timing of internationalization of the 23 top African banks analyzed. As discussed earlier, timing refers to the time lag between the founding of a firm and its initial internationalization (Autio et al., 2000). For banks founded in the 1890s–1900s, more than 100 years elapsed between inception and first year of internationalization. Nearly 20 years on average were sufficient for those founded in the 1970s–1980s to enter foreign markets. Banks founded in the post-1980s waited
Discussion
The empirical findings reported contribute to the growing literature on the timing of internationalization of MNEs from emerging and developing economies. The firms' documents we reviewed reveal that banks owned by a combination of domestic private–public and foreign shareholders engaged in early internationalization than banks with a different ownership structure. This adds to previous research on the speed of internationalization. For instance, Gaba et al. (2002) found that large firm size,
Conclusion
While the timing and speed of internationalization have recently been the focus of international business research, studies on the African MNEs are not abundant. To fill this gap, this study analyzes the timing and speed of internationalization of 23 African banks using data from corporate annual reports, company websites, and media reports from the period ranging from 2010 to 2018. The findings from the qualitative analysis suggest that entry timing is influenced by the firm's ownership
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2023, Japan and the World EconomyCitation Excerpt :Cross-border banking has grown significantly within the last four decades following the removal of investment restrictions on capital flows, deregulation, financial integration, technological progress, and financial innovations (de Jonghe et al., 2015; Gulamhussen et al., 2017; Mulder and Westerhuis, 2015). Consequently, the question of why and how banks internationalize has received considerable attention in the literature (Batten and Szilagyi, 2011; Gulamhussen et al., 2016; He et al., 2019; Hsieh et al., 2010; Kabongo and Okpara, 2019; Mariotti and Piscitello, 2010; Mariscal et al., 2012; Mulder and Westerhuis, 2015; Qian and Delios, 2008; Yamori, 1998; Zapotichna, 2017). According to the resource exploitation theory (also called Dunning’s eclectic theory), multinational banks (MNBs) with superior technology and financial power expand to international markets to exploit location-specific, ownership-specific, and internalization-specific factors that enable them to maintain a competitive advantage over the financial institutions of host countries (He et al., 2019; Mariotti and Piscitello, 2010; Mariscal et al., 2012).