Abstract
We study the causes of the difficulties faced by firms when they internationalize in search of new markets. We build on the resource-based theory to argue that the difficulties in internationalization can be separated into three main sets based on their relationship to advantage: loss of advantage provided by resources transferred abroad; creation of a disadvantage by resources transferred abroad; and lack of complementary resources required to operate abroad. In each set, we further distinguish difficulties that are specific to a firm from those that are common to a set of firms. We argue that only a few of the resulting types of difficulties of internationalization are exclusive to the cross-border expansion, and propose solutions that address the root cause of each type.
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Notes
Empirical studies have analyzed the consequences of these difficulties, finding that subsidiaries of foreign firms have lower performance (Zaheer, 1995), are more likely to exit markets (Zaheer and Mosakowski, 1997), face more lawsuits (Mezias, 2002a), and are less efficient (Miller and Parkhe, 2002) than domestic firms. However, foreign firms are not always at a disadvantage; some studies find that domestic and foreign firms have similar chances for survival (Mata and Portugal, 2002), and that foreign firms acquire better-performing companies than do their domestic counterparts (Goethals and Ooghe, 1997).
Another form of international expansion is licensing (Buckley and Casson, 1976). Licensing is typically initiated by the licensee in the foreign market, who bears the costs of the various liabilities if the licensed technology or brand fails to deliver. The licensor is generally paid up-front and therefore avoids difficulties in internationalization. We thank an anonymous reviewer for this suggestion.
Although the term ‘liability of foreignness’ was initially introduced as a synonym for the costs of doing business abroad or overall difficulties (Zaheer, 1995), in later studies it was narrowed to represent difficulties that arise from the lack of social relationships abroad (Zaheer, 2002). Here we adopt the narrower definition of the term.
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The paper was created when the first author was Assistant Professor and the second and third authors were PhD students at the University of Minnesota. The financial support of the University of Minnesota is gratefully acknowledged. The comments of Scott Johnson, Miguel Ramos, Kendall Roth, Annique Un, Sri Zaheer, anonymous reviewers, the associate editor Nicolai Foss, and participants at the Research Seminar at the University of Minnesota, Academy of Management annual meeting, European International Business Academy annual meeting, and Academy of International Business annual meeting, helped improve previous versions of the paper. All errors remain ours.
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Accepted by Arie Y Lewin, Editor-in-Chief, and Nicolai Juul Foss, Departmental Editor, 20 April 2007. This paper has been with the authors for two revisions.
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Cuervo-Cazurra, A., Maloney, M. & Manrakhan, S. Causes of the difficulties in internationalization. J Int Bus Stud 38, 709–725 (2007). https://doi.org/10.1057/palgrave.jibs.8400295
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DOI: https://doi.org/10.1057/palgrave.jibs.8400295