Institutional Distance and the Internationalization Process: The Case of Mobile Operators

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tiJournal of International Management 17 (2011) 68–82

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Journal of International Management

Institutional distance and the internationalization process: The case of mobile operators Nicolai Pogrebnyakov a,⁎, Carleen F. Maitland b
a b

Department of International Business and Management, Copenhagen Business School, Frederiksberg 2000, Denmark College of Information Sciences and Technology, The Pennsylvania State University, University Park, PA 16802, United States

a r t i c l e

i n f o

a b s t r a c t
This paper applies the institutional lens to the internationalization process model. It updates the concept of psychic distance in the model with a recently developed, theoretically grounded construct of institutional distance. Institutions are considered simultaneously at the national and industry levels. It also aims to understand whether the internationalization process of service firms is different from the behavior predicted by the model, which was developed for the manufacturing context. We empirically test the model using proportional hazard analysis with 130 instances of entry and presence of mobile operators in Europe and South America over 13 years. Influences of regulative, normative and cognitive institutional aspects were disaggregated and shown to have differing effect on internationalization. This suggests that institutional distance is a viable alternative to other distance measures used in the internationalization process research. The results also indicate that the internationalization behavior of this type of service firms might differ from the staged process predicted by the internationalization process model. © 2011 Elsevier Inc. All rights reserved.

Available online 26 January 2011 Keywords: Internationalization Foreign market entry Institutional distance Mobile operators Survival analysis

1. Introduction The significance of institutions has been highlighted in the different aspects of organizational behavior (Scott, 1995). However, the question of how much they influence market choice of internationalizing firms remains largely unanswered. This facet of the internationalization process has grown drastically in significance. Only three decades ago market choice was not an issue of prime importance, since the majority of the world was either not accessible or not significant for multinational firms. Geopolitical changes combined with economic liberalization that occurred in many countries have dramatically increased the number of available markets for entry and the number of firms in the new markets vying to expand to the outside world. Thus, most countries today are both accessible and important markets, which brings the problem of market choice to the fore for the internationalizing firm (Fink et al., 2002). And with much attention devoted to institutions, it is remarkable how few studies have statistically examined their influence on internationalization over time. Further, the number and value of cross-border market entries has grown remarkably in the past several decades. The opening of new markets has been paralleled by a structural shift in the world economy from manufacturing to services. With 70% of the world GDP accounted by services in 2007 (World Bank, 2009), many economies today are service-based. Many of the firms in the newly opened markets are in service industries, as is the majority of foreign direct investment: two-thirds of FDI is now in services (UNCTAD, 2004), and while this sector has experienced the most drastic decline during the crisis, it is also expected to drive the recovery in FDI (UNCTAD, 2009). Much research has been dedicated to internationalizing firms. However, many of the existing theoretical frameworks were developed for the manufacturing sector, and the shift from manufacturing to services has been reflected in research to a lesser ⁎ Corresponding author. Tel.: +45 3815 2332; fax: +45 3815 2500. E-mail addresses:...
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