The World is Spiky: An Internationalization Framework for A Semi‐Globalized World

• Author: Ruth V. Aguilera,Jin Uk Kim
• Date: 01 May 2015
• DOI: http://doi.org/10.1002/gsj.1094
• Published date: 01 May 2015

THE WORLD IS SPIKY: AN

INTERNATIONALIZATION FRAMEWORK FOR A

SEMI-GLOBALIZED WORLD

JIN UK KIM1* and RUTH V. AGUILERA2,3

1College of Business, University of Illinois at Urbana-Champaign,

Champaign, Illinois, U.S.A.

2D’Amore-McKim School of Business, Northeastern University, Boston,

Massachusetts, U.S.A.

3ESADE Business School, Universitat Ramon Llull, Barcelona, Spain

Firms operate in a semi-globalized world wherein opportunities and constraints arise at both

the country and regional levels; however, extant theories of firm internationalization focus

mostly on country-level determinants. We aim to overcome this deficiency by developing a

theoretical model that explicates the mechanisms driving firm internationalization in a semi-

globalized world. Integrating the organizational learning literature with research on semi-

globalization, we argue that firms internationalize through the interplay among three

mechanisms: (1) intraregional exploitation; (2) intraregional reconfiguration; and (3) inter-

regional exploration. We define and integrate these three mechanisms to derive two ideal

typical internationalization trajectories that firms follow in a semi-globalized world: home

regionalization and multiregionalization. We then elaborate on how macro-level contingencies

moderate these two ideal types and conclude with implications for future research. Copyright

© 2015 Strategic Management Society.

INTRODUCTION

International diversification is a central phenomenon

of interest for international business (IB) researchers

and managers of multinational enterprises (MNEs).

By expanding across borders, firms may gain access

to new markets (Hymer, 1976 [1960]), achieve

economies of scale and scope (Porter, 1986), engage

in learning opportunities (Hitt, Hoskisson, and Kim,

1997; Ruigrok and Wagner, 2003), and utilize low-

cost factor inputs (Makino, Lau, and Yeh,2002). Yet,

in order to realize these benefits, firms must overcome

liability of foreignness (LOF) by modifying their

extant capabilities according to the demands of each

foreign market (Anand and Delios, 1997; Zaheer,

1995). Hence, IB research has paid substantial atten-

tion to understanding how firms engage in a cumula-

tive process of organizational learning in the process

of building their foreign operations (Johanson and

Vahlne, 1977, 1990, 2009).

Recent research, however, suggests that IB’s tra-

ditional focus on country-level opportunities and

constraints is insufficient in terms of capturing how

firms internationalize in today’s global economy.

Most notably, scholars working within the rubric of

semi-globalization argue that MNEs increasingly

face opportunities and constraints at the regional

level, composed of institutionally and geographi-

cally proximate nation states, because the global

economy is unevenly and imperfectly integrated

across geographies (Flores et al., 2013; Ghemawat,

2003, 2005, 2007; Rugman and Verbeke, 2004,

2007). In terms of opportunities, geographic and

Keywords: internationalization process; organizational learn-

ing; semi-globalization; exploration; exploitation

*Correspondence to: Jin Uk Kim, College of Business, Univer-

sity of Illinois at Urbana-Champaign, 350 Wohlers Hall, 1206

S. Sixth St., Champaign, IL 61820, U.S.A. E-mail: jkim198@

illinois.edu

Global Strategy Journal

Global Strat. J., 5: 113–132 (2015)

Published online in Wiley Online Library (wileyonlinelibrary.com). DOI: 10.1002/gsj.1094

Copyright © 2015 Strategic Management Society

sociocultural proximity, as well as supranational

political arrangements (e.g., North American Free

Trade Agreement (NAFTA)), offer an integrated

platform for firms to operate on a regional basis

(Buckley and Ghauri, 2004; Enright, 2005). Thus,

MNEs may gain substantial synergies at the regional

level by leveraging their assets and capabilities

within a well-integrated group of nation-states

without having to incur a high degree of LOF

(Ghemawat, 2003). But, semi-globalization also

means that internationalizing firms face an addi-

tional layer of constraint when expanding beyond

their home regions as they encounter liability of

regional foreignness (LORF), the extra cost of doing

business in a foreign region (Asmussen, 2009;

Asmussen and Goerzen, 2013). The presence of

LORF means that the ‘liability of intra-regional

expansion . . . (is) . . . much lower than the liability

of interregional expansion’ (Rugman and Verbeke,

2007: 201), making home-regionalization an attrac-

tive solution to the question of appropriate MNE

geographic scope.

Building on these insights, a growing number of

scholars have explored how regional dimensions

influence various facets of MNE activities, such as

foreign location choice (Arregle et al., 2013; Flores

and Aguilera, 2007), geographic scope (Banalieva

and Dhanaraj, 2013), MNE performance (Li, 2005;

Qian et al., 2010; Qian, Li and Rugman, 2013), and

subsidiary-level strategies (Nguyen, 2014). These

efforts havesignificantly advanced our understanding

of how MNEs operate and perform in a semi-

globalized world. However, extant research has not

yet met the important challenge of formalizing a

theoretical framework that explicateshow the process

of firm internationalization unfolds in a semi-

globalized world. The original Uppsala model

(Johanson and Vahlne, 1977, 1990), arguably the

most influential theory of internationalization

process, is inadequate for this task since it focuses on

how firms manage constraints and opportunities

arising at the country level through a single mode

of organizational learning—experiential learning

of country-specific knowledge (Axinn and

Matthyssens, 2002). An internationalization process

model based on a single organizational learning

mechanism is not comprehensive enough to account

for the complexity involvedin building and managing

foreign operations in a semi-globalized world

(Forsgren, 2002).

Against this backdrop, the aim of the current

article is to propose a new theoretical model that

encompasses the key mechanisms involved in the

process of cross-border diversification in a semi-

globalized world. In constructing our model, we

retain the key assumptions of the original Uppsala

model: bounded rationality, uncertainty, incremental

adaptation, and experiential learning as the main

engine driving firm internationalization (Johanson

and Vahlne,2009). Yet,we expand the organizational

learning involved in the firm internationalization

process into three distinct mechanisms: (1)

intraregional exploitation—exploit old certainties

and leverage capabilities within the region; (2)

intraregional reconfiguration—recombine accumu-

lated region-specific knowledge; and (3) inter-

regional exploration—explore new possibilities in a

foreign region. We develop these concepts by inte-

grating research on semi-globalization (Ghemawat,

2003; Rugman, 2005; Rugman and Verbeke, 2004)

with insights from the organizational learning litera-

ture (March, 1991; O’Reilly and Tushman, 2008;

Siggelkow and Levinthal, 2003) in order to demon-

strate how the internationalization process in a semi-

globalized world unfolds through the dynamic

interplay among these three mechanisms.

The rest of the article is structured as follows: we

begin by summarizing the Uppsala model and high-

lighting its shortcomings within the context of semi-

globalization. We elaborate on the need for an

updated model that incorporates a more expansive

set of learning mechanisms. Next, after defining the

three modes of organizational learning, we integrate

them in order to derive two ideal typical internation-

alization trajectories. We then illustrate the utility of

our proposed framework by applying it to the case

study of Hyundai Motors’ European expansion. In

the penultimate section, we further specify our pro-

posed model by identifying boundary conditions and

important contingencies that may moderate the inter-

nationalization trajectories explicated in the two

ideal types. We conclude by highlighting our contri-

butions as well as assessing the implications and

potential application of our theoretical framework

for future studies.

INTERNATIONALIZATION AS A

CYCLE OF LEARNING AND

COMMITMENT DECISIONS

The Uppsala model draws its basic assumptions—

uncertainty, incremental adaptation, and bounded

rationality—from the behavioral theory of the firm

114 J. U. Kim and R. V. Aguilera

Copyright © 2015 Strategic Management Society Global Strat. J., 5: 113–132 (2015)

DOI: 10.1002/gsj.1094