VOLUME 17 • NUMBER 4 Temporal and Geographical Patterns … · Thomas Hutzschenreuter, Richard D'Aveni, and Johannes Voll 45. THE MULTINATIONAL BUSINESS REVIEW is an outsider. The

VOLUME 17 • NUMBER 4

Temporal and GeographicalPatterns of Internationalization -

An Exploratory Analysis

Thomas Hutzschenreuter, Richard D'Aveni, and fohannes Voll

Abstract: Internationalization is of high relevance and has been dis-cussed intensively. However, different internationalization paths havebeen proposed by theoretical models and have been observed in reality.In this study, we examine the internationalization path of 52 Gennanfirms over a period of ten years using comprehensive and rich data onall new ventures established by these companies within this period. Wefind four distinct patterns of internationalization and propose a stagemodel of internationalization based on these findings. Our results showdifferent challenges for managers depending on the stage of interna-tionalization and render interesting starting points for further research.

INTRODUCTION

International expansion is a topic on the agenda of almost every large com-pany. There are many reasons for internationalization, including access tounique resources, access to growth markets, exploitation of econom ies ofscale, or benefits from differences in factor costs (e.g., Zhao and Levary 2002;Kogut and Zander 1993; Kogut 1985; Dunning 1977). However, intemaHonalexpansion is a complex task. During intemational expansion, a firm starts tooperate subsidiaries in countries with which it is unfamiliar and in which it

Thomas Hntzxchenrrutcr is Professor and Dietmar Hopp Endowed chair of corporate strategy in die department

icDrganizatiunatthe WHU-OttoBeeheim5diOolof MaxugEment. His research interests include inlemationalization and di-

versification strategies, strategy [»ocesses, and timing strategies. E-mail: thSwhu.edu, WdiPage: ht^r//www.whu.eiiu/ue.

Richard D'Aveni is Professor of Strategic Management al the Tuclt School of Business at Dartmoulh College. His research

inteiEât5 indude hypercompelition, growth strategy, and commoditizaKon. He publiiiied four books and has a fifth. Beating

the Commodtty Trap, coming oui tn 2010 wHh Harvard Business Pniss. E^naib ridtard.aJ'aveniShick.dartmouth.edu. Web

Page: http://www.tuck,dartjiiouth.edu.

Johannes VoU work» in Ihe strategy departmoit of Henkel Adhesive Techntdogies. Before, he was icseaidiassodate of cotpo-

rate strategy in Che department of Strategy & Organizadim at the WHU ~ Otto Beisheim Schock of tAanaganent His research

interests include intemationalizatlan strategies and internationalization paths of companies. E-Mail: Johannes.voU&urhu.edu.

Web Page, http-//www whu,edu/ue.

The authors are grateful for valuable cominents and suggestions received from the two arvjnymousMBR reviewers and foimei'

MBR editor, Hcngxin John Zhao, which have significantly improved this article.

Thomas Hutzschenreuter, Richard D'Aveni, and Johannes Voll 45

THE MULTINATIONAL BUSINESS REVIEW

is an outsider. The firm lacks knowledge for doing business in the new envi-ronment, for example, knowledge about customer preferences and competi-tors or knowledge about how to interact with local govemments, unions,or employees (Vermeulen and Barkema 2002). This knowledge is gainedthrough experiential leaming by doing business in the new environmentor by acquiring and integrating local units possessing the necessary knowl-edge (Forsgren 2002). Due to this requirement, some scholars propose an in-cremental steady path where firms increase their intemational involvementin subsequent small steps (e.g., Johanson and Vahlne 1977; Johanson andWiedersheim-Paul 1975), and other researchers suggest a more revolution-ary internationalization pattem with bursts of internationalization moves(e.g., Macharzina and Engelhard 1991; Knickerbocker 1973). Hence, despitemore than three decades of research, there still remains inconclusiveness onthe temporal pattern of intemational growth. Therefore, we conduct an ex-plorative analysis on the intemational expansion paths of German firms toshed more light on the intemational expansion pattems. Our methodologyis based on the approach of Maitland et al. (2005) using a clustering mea-sure. In addition, we analyze the regional dispersion of cross-border activi-ties. According to Rugman and Verbeke (2004) as well as Rugman and Brain(2004, 2003), most of the companies are regional. While their conclusions areprimarily based on the status of firms and thus on static data, we expand theview by observing the regional dispersion over time.

To sum up, this paper seeks to explain possible pattems of internationaliza-tion in consideration of the two key dimensions, time clustering and regionaldispersion. The choice of time and space as the two dimensions of analysis isbased on the consideration that firms face two basic decisions when makingforeign direct investments: 1) when and how fast to undertake cross-bordersteps, and 2) where to internationalize. We combine the two aspects of tem-poral and regional characteristics of internationalization paths to answerthree questions: 1) What pattems do companies typically use to expand in-ternationally? 2) What factors influence whether a company expands inter-nationally with a certain pattern? 3) What can be learned from these pattemsfor the management of intemational expansion? To answer these questions,we structure the paper as follows. We first review the literature on inter-nationalization, highlighting the importance of temporal and geographicalaspects. Next, we present the data and r^earch methods. Based on the find-ings of our quantitative and qualitative analysis, we discuss the identifiedpattems of intemationalization and propose a stage model. We finish with adiscussion on the implications for intemational management, limitations ofour study, and concluding remarks.

46 Temporal and Geographical Pattems of Intemationalization - An Exploratory Analysis


LITERATURE REVIEW

A considerable amount of research has been conducted to explain differentaspects of the phenomenon of internationalization such as location, mode,or timing of foreign market entry. Among these aspects, the temporal andgeographical dimensions of internationalization have been discussed as keyfactors. Referring to Dunning (1998) and Eden and Lenway (2001), Floresand Aguilera {2007:1187) state that the "[...] process of internationalizationof MNCs and the rationale of their foreign location choice are at the core ofIB research." Thus, given the decision to internationalize, besides the ques-tion of when and how fast the firm should take a cross-border step, it has todecide where to internationalize. While there can be questions about entrymode, for example, and other aspects of implementation, our study is fo-cused on the temporal and geographical dimensions that constitute a usefulframework to evaluate patterns of internationalization.

The importance of temporal aspects has been discussed by many research-ers (e.g., Andersson and Mattsson 2006; Iones and Coviello 2005; Vermeulenand Barkema 2002; Kutschker and Baeurle 1997; Johanson and Vahlne 1977).According to Jones and Coviello (2005: 290) "[...] time is [...] fundamentalto internationalization research in that each firm has a history composed ofinternationalization events occurring at specific points in time [...]" Sinceinternationalization is comprised of changes in the international activities ofa firm over time, it can be considered a dynamic process that implies a timesequence in which cross-border activities take place. Vemon's (1966) prod-uct life cycle model of internationalization is one of the first approaches toexplain the internationalization process of firms. He assumes a gradual in-crease of cross-border activities and proposes a three-staged model in whichfirms export their products into developed countries first, intensify their ex-port activities and begin to invest in other developed countries in the secondstage, and finally invest in developing countries in the third stage.

The notion of an incremental expansion of international activities can alsobe found in the internationalization process model of Johanson and Vahlne(1977), which is based on the empirical work done by Johanson and Wieder-sheim-Paul (1975). In the so-called "Uppsala-Model," Johanson and Vahlne(1977) argue that due to the required leaming process conceming foreignmarkets, firms tend to expand internationally with an incremental steadypath where they increase their international involvement in subsequent smallsteps. They put forward that companies first enter more proximate countries(i.e., countries with similar culture, language, business practices, and politi-cal systems) before they enter countries with higher psychic distance, and

Thomas Hutzschenreuter, Richard D'Aveni, and Johannes VoU 47


that companies mcrementally increase their resource commitment in foreignmarkets. In addition to the internationalization process model of Johansonand Vahlne (1977), other research, namely the so-called "innovation relatedinternationalization models," also postulates an incremental international-ization process (Cavusgll 1984,1980; Reid 1981; Bilkey and Tesar 1977). Forexample, Bilkey and Tesar (1977) propose a six-staged model of export be-havior, where firms expand their export activities over time from "close"foreign markets to "distant" markets by means of achieving foreign knowl-edge. In his review of internationalization process theories, Andersen (1993)summarizes the incremental approaches and discusses both the "Uppsala-Model" and the "innovation related internationalization models." He statesthat they do not present any conditions that determine the initialization ofthe internationalization process or possible factors influencing the process.Some studies support the incremental increase of cross-border activities offirms. For example, Chang (1995) shows that Japanese companies first enterthe US with those businesses in which they have the strongest competitiveadvantage to local rivals. In the following, they also increase their commit-ment in other businesses based on the experience gathered incrementally.Song (2002) finds that sequential foreign investments are firm-specific, evo-lutionary processes in which previous investments in capabilities serve asplatforms for future upgrading of activities.

While the aforementioned theories and studies respectively identify an incre-mental, regular process of internationalization, another research stream indi-cates that firms internationalize rather in a revolutionary, irregular manner^"leapfrogging" one or more stages. For example, in the Gestalt Approach ofInternational Business Strategy (GAINS) developed by Macharzina and En-gelhard (1991) and based on the "Gestalt" approach of organization theory(Miller and Friesen 1980,1978), the internationalization process is character-ized by batch-wise, revolutionary changes between phases of stability. Thesechanges are due to a misfit between managerial, organizational, and envi-rorunental variables, which lead to inefficient behavior. In addition, studiesshow internationalization paths that diverge from the incremental increaseof psychic distance (Benito and Gripsrud 1992) and increased resource com-mitment (Hedlund and Kvemeland 1985). Knickerbocker (1973) identifiesexpansion patterns, which also include multiple simultaneous investmentsin different countries. Recent empirical research has found very differentpatterns of the international expansion of companies, and it has been shownthat firms' internationalization paths include both peaks of rapid, burstingexpansion followed by periods of inactivity as well as incremental expan-sion processes (Maitland et al. 2005).

48 Temporal and Geographical Patterns of Internationalization - An Exploratory Analysis


Furthermore, the internationalization debate is enriched by research on in-temational new ventures (INV) or the so-called "bom-global" phenomenon(e.g., Zhang and Tansuhaj 2007; Sharma and Blomstermo 2003; Moen andSer\'ais 2002; Autio et ai. 2000; McDougall et al. 1994). Contrary to the as-sumptions in the evolutionary approach that firms become intemationallong after formation, the "bom-global" firms "[...1 are intemational fromthe time of their formation [...]" (McDougall et al. 1994: 470) largely due toglobalization that includes factors such as deregulation, falling trade barri-ers, more homogenous customer needs, globalizing competitors, etc. (Laan-ti et al. 2007). They are particularly characterized by their use of resourcesand sale of outputs in multiple countries to derive significant competitiveadvantages (Oviatt and McDougall 1994). In conclusion, previous researchdoes not give a uniform picture of the temporal dimension of intemation-alization. Because of the different temporal pattems of internationalization,no general pattem Ccin be proclaimed.

While most of the studies have primarily focused on the development ofintemationa! activities over time regarding various path variables such asthe competitive situation in the host markets (e.g., Bogner et al. 1996; Chang1995), cultural distance (e.g., Barkema et al. 1996; Benito and Grisprud 1992)or the political environment (Delios and Henisz 2003), little research has ex-plicitly focused on the variables that characterize the temporal dimensionof the intemationalization process such as the regularity or speed in whichfirms internationalize. These characteristics are picked out in recent studiesas central issues (e.g., Hutzschenreuter and Voll 2008; Wagner 2004; Vermeu-len and Barkema 2002). For example, Vermeulen and Barkema (2002) suggestthat multinational enterprises with an expar\sion process that is balanced interms of speed, scope, and regularity stand to benefit more from interna-tionalization. They show, in particular, that the regularity in which firmsestablish new foreign subsidiaries has an impact on the potential benefitfirms get from intemational expansion. They also reveal that the geographi-cal dispersion of the intemational activities affects profitability, highlightingthe importance of the geographical dimension, which will be discussed inthe following section.

Besides the temporal aspect, the decision of a firm to intemationaiize si-multaneously implies the question of where the firm will operate. The im-portance of the geographical dimension of intemationalization has beendiscussed by many researchers (e.g., Flores and Aguilera 2007; Galan et al.2007; Kaynak et al 2006; Erdal and Tatoglu 2002; Pantzalis 2001; Zaheer andManrakhan 2001; Zhao and Zhu 2000; Dunning 1998,1980,1977). Firms arefacing increased competition due to the consequences of globalization, such



as the falling of trade barriers, the reduced costs of transport and communi-cations, and the integration of capital markets (e.g., Wiersema and Bowen,2008; Gupta and Wang 2004; Lemak and Arunthanes 1997). In this context,Galan et al. (2007) postulate, that "[...] the new competitive landscape re-quires managers to be constantly prepared to reach decisions on the choiceof the most advisable host countries for locating such investments. In fact,it is currently believed that the location decision in foreign direct invest-ment (FDI) is probably one of the most common and key decisions, yet atthe same time one of the most complex, that most managers in any countrymust take, especially MNE managers." (Galan et al. 2007: 975). However,firms expanding in foreign markets are confronted with unfamiliar demandcharacteristics and different competitors, suppliers, and partners (Barkemaand Vermeulen 1998). Most difficulties are created by distance. According toGhemawat (2001 ), distance does not exist only in the physical sense, but alsoimplies economic, institutional, and cultural elements. Thus, firms expand-ing in markets that are geographically distant from their home country mayface different economic, institutional, and cultural settings. At the same time,the environment becomes more complex for those firms because they have tohandle a higher number of different external elemente simultaneously (Scott1992). Recent research has proposed that most companies pursue regionalstrategies focusing on their home region instead of global strategies and thatrelatively few companies are truly global companies (Rugman and Verbeke2004; Rugman and Brain 2004, 2003). However, this research has primar-ily taken a static perspective and has looked at the status of companies ina specific year. Therefore, the question remains how companies reach thisstatus and why some firms obviously are willing and able to become globalcompanies while others stick to regional strategies. Furthermore, Rugmanand Verbeke (2004) consider three regions ia their study, namely the marketsof NAFTA, the European Union, and Asia. A more detailed segmentation ofregions could help give a more differentiated picture of the internationaliza-tion patterns of firms.

Only in very recent research have the first attempte been made to combinegeographical and temporal aspects. For example, Hutzschenreuter and Voll(2008) identify "added cultural distance" as a source of complexity result-ing from the location choice, and they show that the level of added culturaldistance taken on by intemational expansion moves per unit of time andvariations in that level within particular time periods have negative effectson firm performance. According to this, the geographical scope, as well asthe interrelated aspects concerning distance between the home market andthe foreign markets and the dispersion of the cross-border activities, respec-tively, represents a critical issue with regard to the internationalization offirms. However, these issues resulting from the "where to" decision in inter-



nationalization are not per se problematic for the intemationalizing firm; italso depends on the "when and how fast" decision as to whether a firm isable to handle the complexity associated with the choice of location.

In summary, the literature review highlights both the importance of thetemporal dimension and the geographical dimension of the intemationalexpansion of firms. Although a multitude of research has been done on theintemationalization process, no clear results have been derived. In addition,little research has explicitly paid attention to temporal characteristics of theintemationalization process. Therefore, we analyze in our explorative studythe regularity of intemationalization activities as a major variable of thetemporal dimension. Furthermore, we take into account regional dispersionas another important part of the intemationalization pattem and expand theconcept of 'regionalism' (Rugman and Verbeke 2004) using the construct ofregional dispersion over time, thereby taking a dynamic view. By inquiringthe reasons for certain intemationalization pattems, we also address Ander-sen's (1993) call for more scholarly attention to the question of why intema-tionalization takes place.

EXPLORATIVE ANALYSIS OF INTERNATIONALIZATION PATTERNS

Data ConsiderationsThe data used to explore the possible pattems of intemationa liza tion andtheir reasons must meet two major requirements. First, we need data onintemational expansion for a considerably long period of time. Second, thedata has to be rich, exceeding the purely quantitative data that can be ex-tracted from commercial databases. Analyzing annual reports seems to bea solution for gathering this kind of data. On the one hand, it contains thenecessary in-depth information. On the other hand, a questionnaire as theonly altemative would make it improbable to gain the necessary informa-tion for a long period of time.

Therefore, we examine the international expansion by foreign direct invest-ments of 52 German-listed companies from the HDAX segment of the Ger-man Stock Exchange. The HDAX contains 110 firms and is a combined in-dex consisting of the main indices of the German Stock Exchange (DAX30,MDAX, and TecDAX). We choose our sample starting with all companiesthat have been included in the HDAX segment in at least one point of timebetween the initial composition of this index in 1994 and the end of our anal-ysis in 2004. We choose this approach to capture companies that declinedand are removed from the index, as well as companies that were establishedor grew and were included for all or part of the ten-year period (Hutzschen-



reuter and Voll 2008). From the resulting list of companies, we exclude all fi-nancial institutions and retailers (45 companies) as well as eight cross-listednon-German firms. Out of the remaining 129 companies, 21 companies hadmerged or were taken over and, therefore, could not be contacted directly.We contact all remaining firms and request historical annual reports since1985. Moreover, we compile historical annual reports for both active andnon-active companies from different public archives for the same period.During the data collection, it becomes obvious that many companies are notable or willing to provide their reports for the time prior to the mid-ninetiesand that public sources are fragmentary. Overall, choosing a period of tenyears is the best tradeoff between sample size and period length. Choosingthis period, we end up with 52 companies for which we were able to com-pile annual reports. From these annual reports, we extract rich data and casedescriptions on the status of the companies in the beginning of our periodof analysis, as well as on all new ventures of these companies during ourperiod of analysis.

Basic Pattems of Intemational Expansion:Regularity and Regional DispersionTo answer our first research question on the specific pattems of intemation-alization that may exist, we look at two dimensions of the internationaliza-tion path of the companies in our sample: the temporal dimer«ion and thegeographical dimension.

To analyze the regularity of the expansion process as a major part of thetemporal dimension, we measure the temporal clustering of establishingnew intemational subsidiaries using a clustering measure based on statisti-cal process control. This approach is introduced and thoroughly describedby Maitland et al. (2005). In essence, we construct a measure that identifiesinter-temporal clustering of new foreign subsidiary formation based on de-viations from the average ten-year rate of new subsidiary formation and de-viations in the annual rate from pre- and post-year rates. Greater deviationsindicate more clustering of activity (sporadic expansion).

To construct this measure, we plot a chart for every company that shows thenumber of new foreign subsidiaries per year. We then calculate the ten-yearmean of the number of new subsidiaries per year and the standard deviationof the number of subsidiaries per year and add the following seven lines tothe charts: mean, mean +/- one standard deviation, mean +/- two standarddeviations, and mean +/- three standard deviations. We then assign scoresto each year for a company, determined by the distance of the number ofnew subsidiaries in a specific year to the mean as well as by the contributionof the year to a bunching pattem. Assigning points captures the within-year

92 Temporal and Geographical Patterns of Intemationalization - An Exploratory Analysis


variation of the number of new subsidiaries. However, to examine a pos-sible temporal clustering, each year has to be seen with regard to the yearsnext to it. Therefore, for all consecutive years on the same side of the mean,the points for each year are added to the points from the previous year. Theaccumulation ends when a year sits on the opposite side of the mean andthe mean is crossed. Obviously, this measure is relatively complicated andnot extraordinarily intuitive. However, it has some important advantagescompared to simpler measures. First, this measure is independent from thetotal number of new foreign subsidiaries of a firm. Second, it does not onlycapture the overall variation of the number of subsidiaries per year, but alsotakes into account the variation between consecutive years.

To analyze the geographical dimension of the internationalization paths ofthe firms in our sample, we compute the regional dispersion of all newlyestablished subsidiaries. This is calculated as a Herfindahl entropy mea-sure using the number of new subsidiaries in different regions. To do so, wedefine seven different regions, based on geographical proximity, economicand political integration, as well as cultural blocks. In detail, we define thefollowing regions: Westem and Central Europe; Eastern Europe and SouthEastern Europe; Northern America (NAFTA); Central and South America;Eastern and South Eastern Asia; Middle East and South Asia; and Africa.We work with an entropy measure instead of a pure count of countries orregioris, as the entropy measure is able to refiect the spread over the variousregions in a better way. A measure based on pure counting would not reflectthe importance that different regions could have on the firms. A single firmmight be active around the globe with single subsidiaries, while in fact, it isstill very home-region focused with the majority of its subsidiaries.

To identify groups of companies with distinct internationalization patterns,we conduct a cluster analysis based on the two variables describing the in-ternationalization. We pursue a two-step approach where we first use hi-erarchical algorithms to define the number of clusters and their centroids.Then we use these results as starting points for a non-hierarchical clusteranalysis (Ketchen, Jr. and Shook 1996). In our analysis, we use standardizedvalues of our two clustering variables to avoid a bias due to the differentscales of the two variables (Harrigan 1985). While there is no such thing asan optimal procedure for selecting the appropriate number of clusters in ahierarchical cluster analysis and such a procedure would leave much roomto the judgment of the researcher, the inspection of dendogramms suggestsa four-cluster solution. The four distinct patterns of international expansioncan be described as sporadic regional expar\sion, sporadic dispersed expan-sion, continuous regional expansion, and continuous dispersed expansion.Figure 1 shows the plot of the companies in our sample and the clusters



identified. The firms with sporadic regional expansion in the upper left showirregular intemational expansion paths that are regionally focused. Sporadicdispersed expansion is found for the firms in the upper right, which havean irregular expansion path in that they invest in many regions. The firmsin the lower left are building subsidiaries steadily and regularly, while theyare focusing on a specific region and thus show continuous regional expan-sion. Finally, firms in the lower right also show a steady intemationalizationpath but are building new subsidiaries in many different regions, thus, weobserve continuous dispersed expansion.

Figure 1 : Distinct Patterns of Internationalization

0-5

Regional Dispersion1.0

The findings of the cluster analyses are relatively insensitive toward themethod used for defining the clusters in the hierarchical cluster analysis. Weuse Ward's minimum variance procedure, average linkage procedure, andcentroid clustering procedure altematively (Ketchen, Jr. and Shook 1996).

Quantitative Analysis of Similarities within and Differences betweenPattemsAs we have shown, cluster analysis reveals four distinct pattems of intema-tional expansion according to temporal clustering and regional dispersion.To leam more about the different expansion pattems, we analyze the differ-ences in each pattem's speed of expansion and entry mode, two important

Temporal and Geographical Patterns of Intemaäonalization - An Exploratory Analysis

VOLUME 17 - NUMBER 4

variables that have been discussed frequently in the literature on interna-tionalization paths (Vermeulen and Barkema 2002; Wagner 2004).

To measure the speed of expansion, we calculate the ten-year average num-ber of new foreign subsidiaries per year, showing the overall level of inter-national expansion activity. To measure entry mode, we use two additionalvariables. Companies expanding with new subsidiaries face two basic deci-sions (Barkema and Vermeulen 1998; Chang and Rosenzweig 2001). First,they can either build a new subsidiary from scratch or they can acquire anexisting entity. Second, they either can have total ownership of the new sub-sidiary or they can share the ownership with a partner. Therefore, we intro-duce the variable "acquisitions" to capture the first choice (Hutzschenreuterand Voll 2008). This variable is calculated as the percentage of entries byacquisitions on all entries within the period of analysis. Hence, one minusthe percentage of entries by acquisitions yields the percentage of greenfieldinvestments on all intemational expansion steps. To include the second as-pect, we introduce the variable "total ownership," which is the percentageof intemational expansion steps with total ownership on all intemationalexpansion steps in the period of analysis.

So far, we have only taken path variables into account. However, the interna-tionalization path described by these variables starts from a certain startingposition. As this starting position may have an infiuence on the further pathof internationalization, we also include several starting position variablesinto the analysis. First, we look at the internationality of the firms at thestarting point. Companies that are already active globally might feel a lesserneed to internationalize than 'late starters.' Also, globally active companiescould have gathered knowledge in intemational environments that allowsthem to internationalize even further with lesser problems than a companythat is less intemational (Barkema et al. 1996).

Therefore, we analyze the starting status of the companies at the beginningof our analysis period. We calculate starting interna tionality using an entro-py measure (Herfindahl index) based on the number of existing subsidiariesin the different regions. We use an entropy measure instead of a measurebased on a count of regions or countries, following the same logic as in thecase of the path variable. A measure counting the regions or countries a firmis active in does not reveal how home-region oriented a firm is. In addition,we analyze the starting product diversity of the companies in our sample, asthis might be interdependent from the starting interna tionality variable. Forexample, specialized firms in a niche might need to internationalize to growfurther, while on the other hand, a conglomerate might have more marketopportunities within its existing regional scope. We calculate the product



diversity with an entropy measure similar to the measure for intemational-ity. We assign four-digit industry codes to each subsidiary of a firm and cal-culate the entropy using the number of subsidiaries of a company that wereactive within a specific four-digit industry code. Often times, the method ofcounting industry codes of a firm is used in the literature. However, lookingat the firms in our sample, we strongly believe that the use of an entropymeasure is appropriate to address the following aspects. We have firms witha clear focus on a single business but few subsidiaries in others, sometimesas a legacy from acquisitions. A pure count would describe these firms ashighly diversified while they are in fact relatively focused. Other firms inour sample are active in relatively few different industries. However, theirsubsidiaries are almost spread evenly across those industries. With an en-tropy measure, these firms are described as the diversified firms they are.Overall, using the method of counting industry codes would not have madefull use of our rich set of data where we were able to assign industry codesto each of the firms' subsidiaries. Finally, we also take into account the start-ing size of the companies using sales. Alternatively, we also use total assets.Table 1 shows the descriptive statistics of and the correlations between allvariables discussed.

Table 1: Descriptive Statistics and Correlations

l ,T.mp»r, IOu.,chn8.. fP«h

ï . (tcogniphic DLipcnkn arPalh

} . Atcrngs Sptol

4. AcqutsiHons

5, TiHsl OMtcnhlp

6. Inlcnutianalily Sun

7. Pnduci Divcniiy Sun

9, S i« Sun '

mean

10,60

0,43

3,74

a.«i

0,74

DJSD.U

•..471,65 1

•,,d.

4,59

0.25

3,79

0,37

0,31

0,23

0,24

1.220.07

1.

1,00

.0.14

•d.OD

U.33

0.13

«.11

«,01

•0,11

2

1,00

0,10

•033

03Í

0,48 "

0,03

0.10

1,00

.0.25

0,14

0,01

0,11

0,21

1.0O

-0,37

0.IO

0.09

«,02

1.00

0 3 2 '

«.13

«,os

1.00

•O.]1

0,17

1.00

O.ÎÎ

' in Million Etms' p •; 0,01'p-;O.0S

As the correlations indicate, companies with a sporadic pattem of intema-tionalization tend to use more acquisitions, as might be expected. Moreover,speed of expansion is surprisingly associated with less use of acquisitionscind more greenfíeld investments. One reason for this might be that rap-idly intemationalizing firms are expanding based on intellectual propertysuch as product irmovation. They would then make use of this in their owngreenfield investments and would not need to acquire other firms. Anotherpossible reason might be that these rapidly expanding firms expect the inte-gration of an acquisition to be more time consuming than establishing theirown greenfield investment. Finally, companies with a higher percentageof acquisitions tend to establish more subsidiaries with partial ownership.

56 Temporal and Geographical Pattems of Intemationaiization - An Exploratory Analysis


However, none of the additional variables is correlated with one of the di-mensions leading to the four types of paths that we have identified.

Table 2 shows the means and standard deviations of the additional pathvariables for each of the four expansion pattems. We also conduct pair-wisecomparisons with Mann-Whitney U-tests. The use of t-tests and ANOVA isnot possible as these assume normal distribution, which was not the case.These comparisons indicate that firms showing continuous dispersed ex-pansion are different from the other companies in one regard; they seem toexpand with a higher speed and intensity. This is also confirmed by Mann-Whitney U-tests that compare the firms with continuous dispersed expan-sion with the rest of the sample and show a significant (p < 0.05) differencebetween the two groups. Neither of our two expansion pattem dimensionsis correlated with any of the additional path variables and as Table 2 sug-gests, we cannot find any other significant differences between the clustersregarding these additional variables.

Table 2: Comparison of Path Variables

Sporadic Regional Expansion

SpOfsdic Dispersed Expansion

Coniinuous Regional Expansion

Continuous Di^Kfsed Expansion

Means.d.

Means.d.

Means.d.

Means.d.

Average Speed

328

4.S8

3.241.90

2-632.25

S.133.77

Acquisitions

0.730.27

0.620.23

0.590.26

0,490.26

Total Ownership

0.770.24

0.760.12

0.610.27

0.750.17

Regarding the influence of the starting point on the firms' future expansionpattems, only one variable is correlated with any of the path variables: com-panies that show higher intemationality in the first year of analysis have anintemationalization path with higher regional dispersion later on. In Table3, we show the means and standard deviations of the status variables foreach of the four expansion pattems. As this table indicates, companies withan intemationalization path of high regional dispersion seem to be startingfrom a position in which they are already active internationally. This is alsocor\firmed by a Mann-Whitney U-test comparing regionally and dispersedexpanding companies. As Table 3 already suggests, no other significant dif-



ferences between any of the four clusters could be found with pairwise com-parisons.

Table 3: Comparison of Status Variables

Internationa I ity [*roduc[Start Diversity Start

Size Start

Sporadic Regional Expansion

Sporadic Dispersed Expansion

CoDtinuous Regional Expansion

Continuous Dispersed Expansion

Means.d.

Means.d.

Means.d.

Means.d.

0.300.28

0.410.19

0.170.18

0.460,15

0.650.30

0.650.21

0.630.30

0.680.17

5,799.7010,98ä.O]

5^04.607.794.02

8,589.9915,345.55

6,960.4511.776.88

The industry in which a firm is active could have an influence on its pattenïof internationalization. Therefore, we classify our firms by industry, We usethe WZ-code, an industry code provided by the Federal Statistical Office ofGermany, for this classification. The more common SIC-, NAICS- or NACE-codes are not available for the companies within our sample and/or theperiod of our analysis. Since we exclude all retailers and financial institu-tions from our sample, our sample firms are mainly active in manufacturingindustries. Table 4 gives an overview of the industries our sample firms areactive in according to the WZ industry classification.


VOLUME 17 NUMBER 4

Table 4: Industries of Sample Firms

industrv

Mining

Food

Textile & Clothing

Paper Products

Chemicals

Rubber and Plastic Products

Ceramics, Cement, Concrete

Metal and Metal Products

Machinery & Equipment

Eiectronics

Automotive Industry

Utilities

Construction

Transport & Telecommunication

Software

Health Care

# of Firms

1

2

2

1$

222

11

5

4

2

4

3

11

As Table 4 illustrates, the firms in our sample vary considerably in terms ofindustry. However, we have a high percentage of firms in the chemicals andmachinery & equipment industries, which is in line with the overall pictureof the HDAX segment from which our sample was taken. We try to identifya possible influence of industry membership on the intemationalization pat-tem of our sample firms. We could not detect any significant influence ofthe industry a firm is active in, neither separately on temporal clustering orgeographical dispersion, nor on the cluster to which it belongs.

Qualitative Analysis of Similarities within and Differences betweenPattemsTo gain a deeper understanding of the companies in our sample, we also in-vestigate each of the 52 firms by looking at their individual intemationaliza-tion decisions and the context. Besides the analyses of the quantitative dataon path and starting position, we also extract rich case descriptions from theannual reports. We scan all text within the reports and collect all statementsregarding reasons for intemationalization, reasons for specific entry modes,pattems, and any other informafion associated with intemafionaiizafion. We



also go beyond the pure metric measures of regional dispersion and look ateach individual portfolio of countries and regions. As this analysis reveals,firms with different patterns of intemationalization seem to internationalizedue to different reasons and with different motives.

Firms with sporadic regional expansion have almost no overseas investmentsin the beginning of our period of analysis, or they are focusing only on Ger-many and its neighboring countries. Their subsequent expansion path is alsofocused on these regions and only a few of these companies start to engagein investments outside this region during tlie subsequent ten years. These se-lected, infrequent overseas investments have very specific reasons. Some ofthese companies are suppliers for OEMs and follow the internationalizationof these OEMs. They set up new international plants next to new produc-tion sites of their customers. Other companies within this group build sub-sidiaries overseas to get access to resources. Their overseas subsidiaries aremostly mines and similar supply operations. Besides these special reasonsfor overseas investments, intemationalization of the companies within thegroup of focused clusterers is mainly driven by domestic pressures. Someare active in very difficult industries with fierce competition or are active inshrinking and cyclical industries hit by overall economic recession. Othersface increased competition by firms from low cost countries entering theirhome market and attacking their position. These firms react to this pressureand are looking for ways to cut costs. This leads to investments in low costcountries in order to profit from low labor costs. Typically, these firms enterEastern European countries neighboring or close to Germany, such as Po-land, the Czech Republic, or Slovakia. -'

Firms with continuous dispersed expansion are active in many different coun-tries and have many and important intemational operations. However,most of these activities are located within Europe. Nevertheless, many ofthese companies have subsidiaries in other parts of the world. The compa-nies within this group pursue an active and aggressive strategy of intema-tionalization. Many of them state intemational growth as a primary strate-gic goal. They describe intemational expansion and a strengthening of theirglobal position as key to their success and even as crucial for their survival.However, this aggressive intemational expansion seems to require extensivefinandal commitment. While some of the firms seem to have deep pocketsor are financing the expansion from cash flows generated in successful busi-ness units, others pursue an increase in equity capital in order to finance theaggressive intemational expansion. In the implementation of intemational-ization, many of the firms use a decentralized approach in which local head-quarters drive the expansion in their respective regions. Another approach

60 Temporal and Geographical Patterns of intemationalization - An Exploratory Analysis


to rapid intemationalization, that can be observed, is the systematic acquisi-tion of former partners, licensees, or independent distributors.

Firms showing sporadic dispersed expansion already have a strong internation-al presence. In fact, many companies in this group have a very strong pres-ence especially in markets outside Europe, mainly in the US. Many of themgenerate a higher percentage of sales outside Europe than within Europe.The reasons why these companies build new intemational subsidiaries arecompletely different from the reasons of the firms discussed before. Thesecompanies invest internationally in order to acquire specific knowledge orpatents, to acquire brands, or to complete their product portfolio in specificmarkets. Moreover, they enter selected growth markets, mostly in emergingcountries such as India or China.

Finally, firms belonging to the group with continuous regional expansion arestrongly focused on Germany and its neighboring countries in the begin-ning of our period of analysis. While very few have subsidiaries in the US,the others mainly do business in Europe and some are even purely nationalcompanies. Overall, these companies also stay focused on these regions inthe subsequent period and overall do less intemational investments thantheir counterparts within the other three groups. While these companies donot explicitly state reasons for this behavior, some conclusion can be drawnfrom their situation. For example, one company within this group is a mo-bile network operator that is only a few years old and invests heavily ininfrastructure within Germany. Some other companies within this groupundergo long and hard phases of restructuring in almost all areas of theiractivity. However, there are also some firms in this group that apparently donot attempt to further internationalize although there is no obvious reasonwhy. These companies build new subsidiaries and stay more or less withinthe region in which they are already active.

DISCUSSION OF FINDINGS

Reasons for Different Pattems of InternationalizationFigure 2 summarizes what we have learned from the analyses of quantita-tive and qualitative data on the differences between and similarities in thefour groups of intemationalization pattems.



Figure 2: Comparison of Clusters

u

sporadic Regional Expansion

• Mostly focused on Gemnany or Europe inthe beginning

• Expansion steps mostly within Europe,some exceptions to get access to naturalresources or to follow customers

• More acquisitions than non-clusterer- Active in difficult economic environment,

cost pressure, intemationalization to gaincost advantages

• Failure of Intemationalization projects

Continuous Regional Expansion

• National companies or focused onEuropean countries

• Low level of international expansion

Sporadic Dispersed Expansion

• Already globally active in the beginning,strong presence in US

• Acquisitions to get brands, patents, or knowhow or to complete product range in certainmarkets

• Entry into selected growth markets, mostlyemerging countries

Continuous Dispersed Expansion

• Intemational companies, but strong focuson Europe Some single subsidiariesoverseas

• Intemationalization as main strategic goal• High rate of expansion, aggressive

intemational expansion• Expansion steps all over the vrorld

1

low Rsgional Dispersion High

The internationalization of firms showing sporadic regional expansionseems to be mainly driven by external stimuli. They either react to cost pres-sure and are forced to internationalize, or they take cross-border steps tomeet the requirements of customers they are dependent on. Another reasonis the access to natural resources they cannot find elsewhere. These firmsdo not seem to pursue a proactive intemationalization strategy, but they goabroad when they think they have to and they do this with a concentratedburst of activity. Overall, they do not have much intemational experience,as in the begirming of the period of analysis; they only have limited interna-tional operations close to their home country. In fact, the following intema-tionalization also happens in regions that are close to countries where theyare already active. Only in some exceptional cases do they invest outside Eu-rope if they follow customers or are looking for natural resources. Interest-ingly, among this group of firms with relatively little intemational activity,the companies that dare to take the step overseas seem to be the ones withthe higher intemational experience. For some of the companies within thiscluster, the high irregularity is caused by a period of inactivity that followssome unsuccessful intemationalization steps. For some companies this fail-ure is a result of unforeseeable hazard (e.g., a water inflow in a potash mine).



For others, this failure results from their own mistakes (e.g., a bad valuationof an acquisition target leading to heavy write-downs). These companiesseem to have T^umed their fingers' on some internationalization projects,which results in caution and skepticism, causing a period of internationalinactivity.

While the firms showing sporadic regional expansion seem to be 'forcedout', there is some evidence that firms with continuous regional expansionare forced to stay put. However, while the internationalization of the formeris driven by external stimuli, the constraints that hamper the international-ization of the later seem to be internal in nature. These companies seem tobe stressed by other projects so they either do not want to or are not able toengage in internationalization projects. Moreover, they do not have much ifany international experience that they could use for further internationaliza-tion. For some of these firms, there are no obvious reasons why they staywhere they are. One possible explanation might be that they are in goodshape cind earn money in their current activities so they do not feel a strate-gic need to further internationalize.

If we look at the two groups on the right side of the matrix in Figure 2, wesee that these companies differ from those on the left side by their higherstatus of intemationality and their higher levels of international experience.Based on this international experience, these firms are internationalizing inmore diverse regions than others. However, while the firms with continuousdispersed expansion are focused in Europe and have only a few subsidiar-ies outside Europe, the ones with sporadic dispersed expansion are activeglobally. This helps explain the differences in their internationalization path.While the sporadically and dispersed expanding companies have reached aglobal position, the continuously dispersed expanding companies are obvi-ously trying to reach this global position. This is reflected by many pas-sages in their annual reports stating that further internationalization and astrengthening of their positions outside Europe is a main strategic goal. Toreach this goal, these firms expand aggressively and at a high pace.

The companies that already have reached a global position are obviouslypursuing other goals. They are systematically strengthening their positionin the different markets by acquiring companies to get access to their know-how, their brands, or their products. They do this sporadically wheneverthere seems to be an interesting target. These occasional acquisitions causean irregular expansion pattern. Due to this approach, they rely mainly on ac-quisitions and exercise relatively few greenfield investments. Greenfield in-vestments are mainly used to enter new markets that are perceived as prom-ising growth markets. Overall, one could argue that their broad knowledge



due to their intemational experience enables these firms to pursue furtherintemafionalization. On one hand, it makes it easier to idenfify, acquire, andintegrate potential intemafional acquisition targets, but on the other hand,these companies use their international know-how and their strengths todeploy in new interesting markets w ith greenfield investments.

A Life Cycle of Intemationalization Pattems?Summarizing the discussion from the previous paragraphs, we see four dif-ferent groups of companies that differ in degree of intemationality, interna-tional experience, and strategic situafion. The four pattems of intemation-alizafion seem to be the result of the different situafions of the companies.In one group, we have companies with a low degree of intemational expe-rience that are not engaged in many, if any, intemafionalization acfivifies.This pattem results in a steady path on a low level of activity that is nar-rowly focused on the home country and its neighbors. In another group,we see companies with a similarly low degree of intemationality that reactto stimuli or pressure and engage in bursts of intemationalization to meettheir strategic needs. Since they have relafively little intemationa) experi-ence, they mainly engage in neighboring countries of Germany. This resultsin an irregular pattem with high geographical focus. However, some ofthese firms - apparently the ones with a more intemational experience - alsoestablish some subsidiaries overseas, in the third group, we find companiesthat have reached a strong posifion within Europe and in some cases alreadyhave some overseas subsidiaries. They have a considerable amount of inter-nafional experience and they follow an aggressive intemationalization strat-egy to strengthen their posifion outside Europe and to become a truly globalplayer. This aggressive strategy results in a steady intemafionalization pat-tem with a high pace and a high geographical spread. In the fourth andlast group, we see firms that have reached a strong global position. Thesefirms pursue their intemationalization acfivifies to further strengthen theirposition by sporadically acquiring interesting intemafional targets and byselecfively entering promising growth markets. This strategy results in anirregular pattem with a high geographical spread.

If we look at the summary of our findings, we see that the firms with contin-uous dispersed expansion start at a position where they have strong inter-national acfivifies mainly in Europe and in some cases a few overseas sub-sidiaries. This posifion looks like the one that firms with sporadic regionalexpansion reach as a result of their intemafionalization pattem. These firmsstart with a few subsidiaries in Europe, and during their path they add moreEuropean subsidiaries and in some cases single overseas investments. Get-ting back to the firms expanding continuously and dispersed, these firmsstart an aggressive intemafional expansion to become a global player. The


VOLUME 17 NUMBER 4

companies we observe in the group with sporadic dispersed expansion arethis kind of global player. They start from a global position, and their inter-nationalization pattem is a result of their attempt to strengthen this globalposition. Overall, these findings suggest a stage model of intemationaiiza-tion pattems where different patterns are a result of the stage reached by afirm and reflect the path towards the next stage. However, the companieswith a focused and continuous path play a slightly different role than theother groups. Their path does not reflect a move from one stage to the other,but rather a desire or need to remain in their current core position. In somecases, this is due to the fact that they are not able to intemationalize andinstead they seem to restructure their activities in their core region. In othercases, they apparently just do not want to internationalize. The proposedstage mode) is summarized in Figure 3. - ~ ^

Figure 3: Stage Model of Internationalization Patterns

Global PUyir

• Suady Inlemrton-atizaäad Bl high pac«

• High wgtonal

Sporadic Di*p«n«dExpansion

' StrengVwnlng or portion i Mspomflc aajulväon« andw M c M emrtM Mo gnw«i

• High rsglanal difiBision o(äüdli

dfh«n by BXtsmal«tmuR or pr««ur*

• Irregular expartson• R«gional tocus of

Eaily tnMrtMtfonatContinuoui

Exp«n*h>n

' RemMn regional locua• Suliiadbconstrain« U M . expansign• No iRitiillon to intomaOonaJlze

The challenges for the intemationalizing firms vary in the different stages ofintemationalizahon and paths between stages,. For the further intemational-izing Early Intemationals, a main requirement is to gain further intemation-alization knowledge and to implement early intemational projects. Withinthis group, we see several companies with failing intemational activities.



some where the companies picked bad acquisition targets due to lack ofknowledge. For companies that become Regional Powers, the challenges aredifferent. Knowledge is still important for their intemationalization process,but they seem to have gained considerable intemationalization knowledgeof benefit. Instead, they face the problem of resource requirements to matchtheir rapid pace of intemationalization. This includes the need for finan-cial and managerial resources to implement the expansion. Obviously, thesefirms look for ways to organize their intemationalization resources as spar-ingly as possible. They delegate the expansion to local headquarters or theyexpand by buying players they already have done business with and so theintegration should be relatively easy. For firms that have reached a globalposition, intemationa] expansion is used to secure this position. Expandinginternationally is not the main driver for most of their acquisitions. Theyare, however, pursuing the acquisitions to strengthen their competitive po-sition in certain markets. They are levering their broad knowledge base insearch of acquisition targets all over the world. However, they are also usingtheir broad knowledge to pick and then enter promising growth markets.Overall, the challenges for these companies are less specific to intemationalexpansion but include challenges like identifying new technological trends,arising competitors, interesting market opportunities, etc.

These results axe consistent with the pattems of geo-product expansionfound by D'Aveni (2001), based on his application of the principles of inter-nafional relations and the history of multinational empires to large multina-tional corporations. He finds that global multinational firms create global"spheres of influence" - a collection of geo-product markets that give themsubstantial influence over and multimarket-contacts with other major globalfirms - in sequences, starting with building a strong "core". Subsequently,they build defensive "buffer zones" and offensive "forward positions" inmarkets necessary to protect their core markets against competitive threats.Finally, with secure cores and surrounding defensive and offensive posi-tions, global firms move to "pivotal positions", which are in large or growthmarkets that will determine the "balance of power" among global competi-tors in the long run.

Conceptualizing intemationalization as a stage model leading to a globalsphere of influence, international expansion can be seen as a path-dependentprocess, which enhances the market power of the globalizing firm. The posi-tion of a firm infiuences its further path and affects the possibilities for fur-ther expansion, which influences the resource allocation decisions and pat-tems of how and where rivals will globalize {Hutzschenreuter et al. 2007).As knowledge is an important enabler of intemational expansion, each newsubsidiary delivers new options for the expanding firm. This reasoning is in

66 Temporal and Geographical Pattems of Intemationalization - An Exploratory Analysa


line with the main arguments of the Uppsala-Mod el, which also perceivesleaming as an important driver and enabler for intemationalization Gohan-son and Vahlne 1977). However, we also see that the proposed incrementalintemationalization path cannot be generally observed. Instead, we see thatthere is no such thing as a general pattem of intemationalization as alreadystated in the literature. Moreover, the pattems used are dependent on thestage and the accumulated intemationai knowledge a company has reachedand the competitive pressures it faces. For example, Wiersema and Bowen(2008) show in their study that firms confronted with heightening foreigncompetition in their domestic markets are likely to increase their intema-tional activities, in particular their geographical scope. Luo and Tung (2007)state that global competition leads multinational enterprises from emerg-ing markets to expand intemationally and enter the home markets of theirglobal competitors. International expansion can also ser\'e to avoid competi-tion, for example, when non-dominant fírms intemationalize to avoid directcompetition with industry leaders that have limited intemational activities(Mascarenhas 1986). _ - . • _ _

In our proposed stage model, we are missing a first stage. We start our modelwith firms that already have some international subsidiaries. Therefore, thequestion remains how firms reach the stage of moderate intemationaliza-rion when coming from the stage of a purely domesfic company. With thisstudy, we are unfortunately not able to answer this question, as our sampledoes not contain any firms starting as a purely domestic company. This isprobably due to the fact that we rely on a sample of listed companies andthat these compaiües already have reached a certain size and already haveestablished some intemational subsidiaries by the time they go public. As ithas been argued that the incremental path proposed by the Uppsala-Modelmight especially be valid for firms in very early stages of intemationaliza-tion (Johanson and Vahlne 1990), it could very well be that firms followedthis incremental approach in the time prior to our analysis.

Implications for the Management of IntemationalizationThe results of our exploratory analysis have several implications for manag-ers. For example, managers should bear in mind the path dependency ofinternational expansion. Every step of intemationalization generates knowl-edge and therefore new opportunities. It leads to a status of intemationaliza-tion, which determines the possibilities of further expansion. Regarding thefact that the firms in early stages of intemationalization seem to intemation-alize due to extemal stimuli and pressure, these eariy stages should be usedto carefully gather intemationalization knowledge, to assess the experiencesmade, and to draw conclusion from them. The knowledge base developedduring these early stages can later be used for further intemationalization



when the company does not only react but pursues an active and aggres-sive internationalization strategy. This active internationalization strategyin later stages poses different challenges than the earlier activities. As theexamples in our sample shows, internationalization in these stages requiresa lot of resources, both financial as well as managerial. Therefore, the mainchallenges are to provide financing and implement expansion in a resourcesparing way. While one possibility to ensure the necessary funds is a capitalraise, another possibility is to build a strong cash-generating position in thehome region. This strong position can deliver the resources that are neededfor further international expansion towards becoming a global player. More-over, to reduce the strain of managerial resources and the necessary efforts,managers should find resource-sparing ways to implement foreign expan-sion. This might include the acquisition of targets that are familiar to thefirms, such as of former alliance partners or independent distributors. In thelast stage of internationalization, firms are already global players and aretrying to secure this position. For management, the challenges in this stageare different than those earlier stages. To secure the firm's position, it needsto be able to pick the right acquisition targets to complement its portfolioand to select promising growth markets.

Limitations and Suggestions for Further ResearchAlthough our results suggest a kind of stage model, our conclusion is nei-ther drawn from panel data with firms all starting in the same place norcompletely from longitudinal data. We study firms in different stages pur-suing certain paths of international expansion, but we could not observefirms going through several stages of the proposed model. This could be theobject of further research to examine firms over a longer period of time tovalidate the findings from this explorative study. Also, quantitative empiri-cal analysis could test the proposed model or aspects from this model onlarger samples. However, for the sake of an explorative study, we had tomake a trade off between sample size, period length, and richness of data.The insights revealed from this explorative approach might now serve as abasis for further research.

The results of our explorative study are limited in terms of generalizabilityas our sample consists of firms from a single country. However, it has beenshown that country environments effect internadonalizaHon. Porter (1990)explains intemationalizafion as the result of competitive advantages thatfirms from specific industries in specific countries have due to the conditionsin these countries. Moreover, research has shown that firms from smallerand open economies tend to internationalize more than their counterpartsfrom larger countries (Benito et al. 2002). Also, we exclude firms from thefinancial services sector as well as retailers for the sake of comparability be-

Temporal and Geographical Patterns of Intemadonalization - An Exploratory Analysis


tween the firms in our sample. However, these kinds of firms could showspecific pattems of intemafionalizafion. Exploring the intemafionalizafionpattems of firms from other countries and from the industries excluded inthis study and comparing them with our results would be interesting.

We draw our conclusions from data extracted from annual reports since thisprocedure promised to result in the best possible trade-off between richnessof data and both number of firms and period length. However, statementsin the reports might not necessarily be exhaustive and they could be framedto meet and shape expectafions of investors. One possible altemafive forgathering comparably rich data would be interviews. On the one hand, onecould try to avoid framing biases by interviewing several execufives perfirm, this approach to data coUecfion raises other problems. Eirst, one wouldhave to ask for events in the past, and managers might not fully recall theseevents and informafion would remain fuzzy. Second, there would be thedanger of ex-post rafionalizafion in this kind of approach. Last, it wouldhardly be possible to gather data on a sample large enough to identify differ-ent pattems of international expansion. However, further research might tryto investigate single cases of companies showing one of the proposed inter-nationalization pattems with other methods of data collection than extract-ing it from annual reports to derive a more detailed picture of the reasonsfor certain pattems.

Tn our study, we focus on intemationalization with foreign direct invest-ments. However, other modes such as exporting or licensing can be used toenter foreign markets. While the annual reports allow drawing a detailedand exhaustive picture of the foreign direct investments of the firms in oursample, the information given on other modes of intemationalization israther scarce. Nevertheless, these modes of internationalization might playa role within our context and within our proposed stage model. For exam-ple, exports can be a considerable source of leaming and experience for anintemationalizing firm (Johanson and Vahlne 1977). Therefore, firms couldskip certain paths and move right on to a steady and speedy intemationalexpansion if they have gained knowledge through exporting and thereforedo not need to rely on knowledge gained by first direct investments. Hence,including other forms of intemationalization and studying their influence inthe intemationaiization path against the background of the proposed modelseems appropriate for further research.



CONCLUSION

In an explorative analysis of quantitative and qualitative data on the interna-tional expansion of 52- listed German firms, we find four distinct pattems ofintemational expansion. The different pattems seem to reflect different driv-ers of intemationalization, different goals of intemationalization and are aresult of different states of intemationality in the begiiuiing of our period ofanalysis. Overall, these results suggest a stage model of internationalizationpaths in which certain paths are used to move from one stage of intemation-ality to the other. This helps explain the differences in the internationaliza-tion paths found by previous research that has shown steady, incrementalinternationalization as well as bursts of activity and periods of inactivity.Overall, our results suggest that the intemationalization path is contingenton the stage of intemationality a firm has reached and the stage it attemptsto reach. Our results also underline the importance of knowledge for in-temationalization, as it has been suggested by many prior studies. Firmsseem to be more able and willing to pursue further intemationalization andexpansion in more dispersed regions, if they already have a considerableamount of intemational experience. While firms in early stages are inter-nationalizing due to pressure, firms with more experience start to pursueaggressive intemationalization. Our results suggest that during internation-alization, firms face different challenges depending on their stage of inter-nationalization. Lacking knowledge and experience seems to be the majorproblem at lower levels, while finandal and managerial resources seem tobe the major issue in the transition from a local power to a global player.This barrier might explain why so many firms pursue a regional strategyinstead of a global one. These firms might not have the resources to furtherexpand. Overall, the results of this study not only show that challenges dur-ing intemationalization change for managers, but also might serve as a basisfor further research. This research might critically assess the proposed stagemodel in order to enrich, improve, or revise it.

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