Classic Theories
According to classic theories, e.g. Uppsala research and the Innovation research the internationalization of the comapnies happen gradually as their perceived risk of foreign market decreases.
The gradual internationalization theory postulates that firms take the entry mode that requires less resource commitment (e.g. exporting) in the beginning of foreign market entry and then shift to another entry mode that demands more resource commitment (e.g. wholly owned subsidiary) as the perceived risks in the foreign market decrease (Uppsala).
Moreover, the gradual internationalization theory implicitly believes that firms enter markets that are psychically close to home market first and then gradually expand into other markets that have a higher psychic distance from the home market (Uppsala). Differences in language, culture, business environment, political and social system, and other factors that are heterogeneous in two markets may contribute to the psychic distance. It has been believed to be one of the most important factors that determine the gradual internationalization process of firms.
Internationalization of US business portals
The gradual internationalization theory postulates that firms take the entry mode that requires less resource commitment (e.g. exporting) in the beginning of foreign market entry and then shift to another entry mode that demands more resource commitment (e.g. wholly owned subsidiary) as the perceived risks in the foreign market decrease (Uppsala).
Moreover, the gradual internationalization theory implicitly believes that firms enter markets that are psychically close to home market first and then gradually expand into other markets that have a higher psychic distance from the home market (Uppsala). Differences in language, culture, business environment, political and social system, and other factors that are heterogeneous in two markets may contribute to the psychic distance. It has been believed to be one of the most important factors that determine the gradual internationalization process of firms.
Internationalization of US business portals
According to the Kim's (2003) research there are two proxy psychic distance indices adopted. The first index is the cultural distance index between the USA and other countries. It tests whether the internationalization pattern of Internet firms follows the gradual internationalization of firms.
Another variant of psychic distance is socio-cultural distance. It postulates that the uncertainty and risk a firm perceives on a foreign market tend to increase as the socio-cultural distance increases just like the psychic distance.
The four firms analyzed tend to form joint ventures before they launch the localized services to audiences from a specific country.
The Internet firms tend to enter strategically important countries first. Especially, Japanese and German markets were frequently selected. This can be explained by the importance of these two markets in their respective regions.
The strategic markets also play an important role as a locus of international expansion by introducing the localized services in multiple markets near the locus. Unlike the offline business, Internet firms tend to enter multiple markets around the strategic locus in a fairly short period of time. This could have been possible by the nature of their services that do not require a heavy incremental investment for each market whether it is financial or time investment. It may also have been made possible by the nature of their services that require a relatively short period of time in building a country-specific database for each country especially with local or regional joint ventures.
It was also found that different Internet firms use slightly different strategies in entering major continents (e.g. Europe, Asia, North America and Latin America). One possible explanation for this phenomenon would be that the Internet firms are tempted to follow business networks or the potential of partners rather than the market potential of each country or the psychic distance especially in the beginning of their internationalization.
In electronic commerce, particularly with the Internet portals, it seems that local sales (e.g. advertisement sales) and location-specific services including local information and language are important.
The gradual internationalization theory can be applied to electronic commerce with some limitation. This also implies that understanding psychic distance between host country and home country is critical for the success of international ventures in electronic commerce.
The two different indices that represent the differences in terms of economic, cultural, and social dissimilarities were tested at the same time and evaluated the appropriateness of each index for the purpose of testing the gradual internationalization theory in electronic commerce. The comparison between them reveals that the socio-cultural distance index tends to explain the gradual internationalization of Internet firms significantly better than the cultural distance index does as discussed so far.
The study has some weaknesses as well. First, the internationalization patterns found with the four cases are not strong enough to generalize the findings. In addition, cases adopted are all service-oriented Internet portals.
Another variant of psychic distance is socio-cultural distance. It postulates that the uncertainty and risk a firm perceives on a foreign market tend to increase as the socio-cultural distance increases just like the psychic distance.
The four firms analyzed tend to form joint ventures before they launch the localized services to audiences from a specific country.
The Internet firms tend to enter strategically important countries first. Especially, Japanese and German markets were frequently selected. This can be explained by the importance of these two markets in their respective regions.
The strategic markets also play an important role as a locus of international expansion by introducing the localized services in multiple markets near the locus. Unlike the offline business, Internet firms tend to enter multiple markets around the strategic locus in a fairly short period of time. This could have been possible by the nature of their services that do not require a heavy incremental investment for each market whether it is financial or time investment. It may also have been made possible by the nature of their services that require a relatively short period of time in building a country-specific database for each country especially with local or regional joint ventures.
It was also found that different Internet firms use slightly different strategies in entering major continents (e.g. Europe, Asia, North America and Latin America). One possible explanation for this phenomenon would be that the Internet firms are tempted to follow business networks or the potential of partners rather than the market potential of each country or the psychic distance especially in the beginning of their internationalization.
In electronic commerce, particularly with the Internet portals, it seems that local sales (e.g. advertisement sales) and location-specific services including local information and language are important.
The gradual internationalization theory can be applied to electronic commerce with some limitation. This also implies that understanding psychic distance between host country and home country is critical for the success of international ventures in electronic commerce.
The two different indices that represent the differences in terms of economic, cultural, and social dissimilarities were tested at the same time and evaluated the appropriateness of each index for the purpose of testing the gradual internationalization theory in electronic commerce. The comparison between them reveals that the socio-cultural distance index tends to explain the gradual internationalization of Internet firms significantly better than the cultural distance index does as discussed so far.
The study has some weaknesses as well. First, the internationalization patterns found with the four cases are not strong enough to generalize the findings. In addition, cases adopted are all service-oriented Internet portals.
Source: Kim (2003): The Internationalization of US Business Portals: Does it Fit the Process Model of Internationalization? Marketing Intelligence & Planning, 21, 1, pp. 23-36
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