Early Internationalization by Firms in Transition Economies into Developed Markets: The Role of International Networks

• DOI: http://doi.org/10.1002/gsj.1077
• Author: Martina Musteen,John Francis,Deepak K. Datta
• Date: 01 August 2014
• Published date: 01 August 2014

EARLY INTERNATIONALIZATION BY FIRMS IN

TRANSITION ECONOMIES INTO DEVELOPED

MARKETS: THE ROLE OF INTERNATIONAL

NETWORKS

MARTINA MUSTEEN,1* DEEPAK K. DATTA,2and JOHN FRANCIS1

1College of Business Administration, San Diego State University, San Diego,

California, U.S.A.

2College of Business Administration, University of Texas at Arlington,

Arlington, Texas, U.S.A.

Based on a sample of 104 firms in the Czech manufacturing sector that engaged in interna-

tionalization into developed markets, our study examines the relationship between reliance on

international networks and early internationalization by Czech manufacturing SMEs. Our

findings indicate that while, as expected, reliance on international networks facilitates early

internationalization, the relationship is contingent on firms’ emphasis on technological inno-

vation and perceived environmental hostility. Implications of our study findings from the

standpoint of theory, practice, and future research are discussed. Copyright © 2014 Strategic

Management Society.

INTRODUCTION

Changes in the political and institutional environ-

ments over the past two decades have motivated

many firms in emerging and transition economies to

seek international markets soon after their establish-

ment. With important implications for survival and

growth, early internationalization represents a

dilemma for such firms (Zhou, Wu, and Barnes,

2012). On the one hand, internationalization pro-

vides firms with opportunities to grow and profit

from valuable opportunities in foreign markets. On

the other hand, early internationalization entails sub-

stantial risks that may endanger firms’ survival

(Sapienza et al., 2006). To address this dilemma, a

body of research has emerged on the relatively new

phenomenon of early internationalization. However,

much of this research has been conducted in the

context of high-technology firms in developed

economies. In contrast, very few studies have

expressly investigated the determinants of early

internationalization in the context of firms in emerg-

ing and transition economies (EE). As Kiss, Danis,

and Cavusgil (2012: 267) note in their review of the

literature, there is a definite need to understand the

‘mechanisms that have driven more than a quarter of

the world’s firms to derive substantial revenues from

international markets early in their existence; of

these firms many are founded in various emerging

economies . . .’ Our study seeks to fill this void.

Kiss et al.’s (2012) observations are particularly

salient in the context of firms in Central and East

European (CEE) countries. In the 1990s, these coun-

tries instituted major political reforms aimed at

transitioning toward a market economy, liberalizing

trade, and privatizing state-owned enterprises. While

economic liberalization saw the emergence of new

ventures in transition economies, resource con-

straints and environmental threats posed significant

Keywords: early internationalization; transition economies;

international networks; international entrepreneurship; interna-

tionalization; born globals

*Correspondence to: Martina Musteen, College of Business

Administration, San Diego State University, 5500 Campanile

Dr., San Diego, CA 92182-8238, U.S.A. E-mail: mmusteen@

mail.sdsu.edu

Global Strategy Journal

Global Strat. J., 4: 221–237 (2014)

Published online in Wiley Online Library (wileyonlinelibrary.com). DOI: 10.1002/gsj.1077

Copyright © 2014 Strategic Management Society

challenges faced by these firms in their early years.

However,such challenges did not dent their desire to

actively seek positions in global markets (Luo and

Tung, 2007). This apparent contradiction has led

scholars (e.g., Guillén and García-Canal, 2009; Li,

2003; Matthews, 2006) to question the applicability

of traditional internationalization theories to interna-

tionalization among emerging and transition

economy firms. This has led to a debate on whether

extant theories developed in the context of interna-

tionalization by firms in developed economies (e.g.,

the OLI or the internationalization process model)

are useful in explaining the internationalization

efforts of firms in emerging economies (Hennart,

2012; Narula, 2012). While some researchers have

argued that internationalization of emerging

economy firms requires a new theoretical approach,

others have argued that current theories can be

meaningfully extended toward explaining this rela-

tively new phenomenon (Cuervo-Cazurra, 2012). In

this study, we draw primarily (although not exclu-

sively) on the alternative theoretical perspective in

the form of the Learning-Leverage-Linkage (LLL)

framework (Li, 2007; Matthews, 2006), which views

firms from emerging economies as following a

somewhat different internationalization trajectory

given different ownership advantages and home

country conditions (Ramamurti, 2012). Our study

seeks to contribute to the growing literature on early

internationalization by firms from transition and

emerging economies seeking markets in developed

economies. Grounded in the LLL perspective, it

posits that a key motivation underlying the early

internationalization of firms in transition economies

into developed markets is ‘learning’ from their pres-

ence in such markets (Narula, 2012). Such learning

takes place via ‘links’ with foreign partners and the

‘leveraging’ of their unique firm-specific resources

in the form of networking capabilities.

In this study, we use the LLL framework to argue

that early internationalization by firms in the Czech

Republic hinges on their cross-border networks

facilitating such internationalization. In addition, we

posit that the role of international networks in influ-

encing early internationalization is likely to be more

pronounced among firms that place greater emphasis

on technological innovation and operate in a domes-

tic industry environment characterized by greater

hostility. In effect, international networks, in the

unique context of a transition economy, provide

firms with the ability to enter and learn in advanced

economies, while their technological orientation and

domestic environment conditions represent two

important factors that influence their motivation to

use that ability for the purpose of early internation-

alization (Li, 2010).

Specifically, our study seeks to address two inter-

related questions. First, does existence and reliance

on firm international networks facilitate early inter-

nationalization of Czech SMEs into developed coun-

tries? Second, are such networks more valuable in

the context of firms that emphasize technological

innovation and those that operate in environments

characterized by higher levels of hostility? In

addressing these two issues, our study contributes to

the literature on firm internationalization by provid-

ing a better understanding of the role of cross-border

networks in facilitating early internationalization of

firms in emerging and transition economies into

developed countries. In addition, our study extends

extant research on the early internationalization of

firms in emerging countries (e.g., Bangara, Freeman,

and Schroder, 2012; Kiss et al., 2012) by providing a

glimpse into the conditions under which network ties

are best exploited in the internationalization process.

Our article is organized as follows: first, we

discuss the extant literature on early international-

ization by firms in CEE/EE countries. In addition,

this section also discusses the study context, namely

the transition economy of the Czech Republic. Fol-

lowing that, we develop the specific hypotheses

examined in our study. Next, we describe the meth-

odology and present the results of our analyses. In

the final section, we discuss the findings and their

implications for theory and practice, and we also

identify possible avenues for future research.

LITERATURE OVERVIEW AND THE

RESEARCH CONTEXT

While early internationalization has received consid-

erable research attention over the past two decades,

only recently have researchers begun to ask whether

the internationalization phenomenon may be some-

what different for firms in emerging and transition

economies (Bangara et al., 2012; Kiss et al., 2012).

That may be particularly so when it comes to early

internationalization (Narula, 2012). For one, domes-

tic environments in emerging and transition econo-

mies are often characterized by high levels of

uncertainty, often resulting in firms seeking market

opportunities in developed countries to reduce their

dependence on home markets. This is particularly

222 M. Musteen, D. K. Datta, and J. Francis

Copyright © 2014 Strategic Management Society Global Strat. J., 4: 221–237 (2014)

DOI: 10.1002/gsj.1077