A contingency perspective on the drivers
of firms’ internationalization: The role
of home-country technological
development
A region, industry and firm level analysis
Robin Kester
Student Number: 11152338 Submission date: 23 June 2017
MSc. Business Administration - International Management University of Amsterdam Business School
First reader: Dr. Niccolò Pisani
Page 2 of 65 STATEMENT OF ORIGINALITY
This document is written by Student Robin Kester, who declares to take full responsibility for the contents of this document.
I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it. The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.
Page 3 of 65
ABSTRACT
This thesis focusses on the firm, industry and regional level effects on the internationalization of the MNE. In specific employee internationalization, industry concentration and regional integration. Besides this analysis, the paper focusses on the novelty of adding home country technological development as a moderating effect. Where precedent research focusses on these levels individually, this work aims to offer an integrated framework that combines these factors and analyses how they relate to the internationalization of the MNE. By looking at the 500 largest publicly listed companies this study suggest that MNEs which are more regionally integrated are also subjected to more internationalization. Furthermore, results show that state-owned companies are less likely to internationalize than their counterpart who is not state-owned. Another suggestion based on the results of this thesis is the moderating effect home country technological development has on the relation between employee internationalization and the internationalization of the MNE. Last, no proof was found that supports the hypothesis that employee internationalization or industry concentration has a significant relation to the internationalization of the MNE.
Keywords: Firm, Industry, Region, MNE, Home Country Technological Development, Internationalization, State-owned, Innovation.
Page 4 of 65 TABLE OF CONTENT ABSTRACT ... 3 1. INTRODUCTION ... 5 2. LITERATURE REVIEW ... 8 2.1 FIRM LEVEL ... 8 2.2 INDUSTRY LEVEL ... 13 2.3 REGIONAL LEVEL... 16 2.4 TECHNOLOGICAL DEVELOPMENT ... 18 2.5 RESEARCH GAP ... 20 3. HYPOTHESIS DEVELOPMENT ... 21 3.1 FIRM LEVEL ... 21 3.2 INDUSTRY ... 23 3.3 REGIONAL LEVEL... 25 3.4 TECHNOLOGY AS A MODERATOR ... 27 4. DATA ANALYSIS ... 30 4.1 VARIABLES ... 30 4.1.1 INTERNATIONALIZATION ... 30 4.1.2 EMPLOYEE INTERNATIONALIZATION ... 30 4.1.3. INDUSTRY RIVALRY ... 31
4.1.4. HOME REGION INTEGRATION ... 31
4.1.5 TECHNOLOGICAL ADVANCEMENT ... 31 4.2 CONTROL VARIABLES ... 32 4. RESULTS ... 33 5. DISSCUSION ... 38 5.1 ACADEMIC RELEVANCE ... 39 5.2 MANAGERIAL IMPLICATIONS ... 42
5.3 LIMITATIONS AND SUGGESTIONS ... 43
6. CONCLUSIONS ... 44 ACKNOWLEDGEMENTS ... 45 APPENDIX ... 46 APPENDIX 1 ... 46 REFERENCES ... 47 LIST OF FIGURES Figure 1: Conceptual Model……….…….28
LIST OF TABLES Table 1: Operationalization of variables in the models……….31
Table 2: Descriptive statistics and pairwise correlations..……….32
Table 3: Multicollinearity statistics………...34
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1. INTRODUCTION
Historically, the firm’s international expansion has been conceptualized as an incremental process in which multinational enterprises first conquer home market before going overseas (Dunning, 1988; Johanson & Vahlne, 1977). This international expansion of the MNE is of utmost importance for international business theory. A big part of research has been devoted to the internationalization of the firm as it answers key questions about the strategy, performance and structure of the organization. Classic factors that have been linked to internationalization are those of the liberalization of economies, international finance and the technological revolution (Garrett, 2000).
Precedent research on internationalization theory is plentiful and already highlighted the importance of several drivers behind the internationalization of the MNE. In specific, previous research has focused on firm factors such as the top management team, size and international experience (Kirca, Hult, Deligonul, Perryy, & Cavusgil, 2012; Onkelinx, Manolova, & Edelman, 2016), industry factors such as the rivalry, avoidance of competition and intangible assets (Briggs & Park, 2014; Fernhaber, McDougall, & Oviatt, 2007a; Grøgaard, Gioia, & Benito, 2013a; Wiersema & Bowen, 2008), and regional factors such as institutional complexity, diversity and regional integration (Arregle, Miller, Hitt, & Beamish, 2013a, 2016; Banalieva & Dhanaraj, 2013). These are just some of the factors that have been studied in the field of internationalization theory. Moreover, recent work of Kraus, Mitter, Eggers, & Stieg (2016) distinguishes between two different main principles regarding firms’ internationalization. These principles are the pull and push factors that are present for a multinational firm. Push factors are described as country factors that have a negative impact on the firm and therefore push a company towards other markets (Gankema, Snuif, & Zwart, 2000; Kula & Tatoglu, 2003). Pull factors are favorable conditions in foreign markets which attract a firm to operate outside their home territory. Pull factors include a positive market outlook and
Page 6 of 65 strong influential institutional structures. These pull factors are usually obtained by setting company goals and strategy (Gankema et al., 2000; Kula & Tatoglu, 2003).
Especially in a world that is becoming more technological dependent, it is important to evaluate novel drivers of internationalization (Kraus et al., 2016). Drivers that have historically influenced MNE’s during their international expansion, might be less effective in a world of innovation and development. To further highlight this, this paper aims to find out if the changing global landscape affects the relation of the precedent drivers of internationalization. Increased information access, global integration and trading around the clock change the perception of internationalization (Garrett, 2000) and can therefore also influence the drivers.
So, what could be of potential influence in a more technological developed global economy? Recent empirical work of scholars show that internationalization is driven by factors such as the size of the home market, their production capacity and the level of competition (Fan & Phan, 2007). For example, a larger home market will reduce the risk of firms to go international, the greater the production capacity of the firm, the more likely it will go international. And finally, the level of competition influences the decision to go global as well. Firms that experience a lot of competition are more likely to internationalize (Fan & Phan, 2007). Other motives for internationalization can be found in an appropriate market selection, proactive motives and a long-term scope (Kraus et al., 2016). These motives highlight the companies’ ability to undertake the search for business opportunities (Kraus et al., 2016). As shown, drivers for MNEs internationalization are constantly evolving and international business theory is still extended due to the evolving global playfield (Cavusgil & Knight, 2015; Jiang, Kotabe, Hamilton III, & Smith, 2016; Kirca et al., 2012).
While the previous research has given us insight in the rationale behind the internationalization of the firm, there is still a large field that is unexplored and requires a more in-depth analysis on new possible drivers (Hitt, Tihanyi, Miller, & Connelly, 2006). Precedent
Page 7 of 65 research have already highlighted the importance of employee internationalization, industry rivalry and home-region integration (Anand & Kogut, 1997; Banalieva, Santoro, & Jiang, 2012; Onkelinx et al., 2016), so while this relation is interesting to research, the novelty of this paper will be found in the moderating aspect of technological development of a country. This paper seeks to answer the existing gap of knowledge in the literature which contains the question whether the drivers of internationalization mentioned above are affected by a countries development. In other words, what is the difference for these factors considering the technological development of the home country. In addition, this work aims to look at the reason for internationalization at three factor levels instead of focusing on one specific aspect. Keeping a broad horizon, makes it possible to study the effect of all factors in a regression analysis in order to find recent drivers of today’s MNEs internationalization. By proposing a technological development moderating effect on three levels of analysis, this paper tries to answer the importance of the technological development of the home country in combination with the internationalization of the MNE (Ramamurti, 2016).
This thesis aims to extend the current literature about internationalization theory by trying to answer the question; what the drivers are for a firm’s internationalization today and what the effect is of home country technological development. This paper will do so by looking at the problem from three distinct levels: firm, industry and regional level. It will test these levels on the moderating variable, which is home country technological development. This thesis is structured in the following way. First the current literature is reviewed to find out what drivers of the firm’s international expansion already have been reviewed. With this information, a gap in the literature can be defined and a research question will be drafted. Next, there is a description of the data which is comprised of the Fortune Global 500 Firms. With this data, an analysis can be conducted that gives insight on three levels of analysis and the relation to internationalization. These levels are then considered based on the contingency of home country
Page 8 of 65 technological development. After the analysis, several conclusions can be drawn. These conclusions will then be discussed regarding their limitations. Finally, recommendations are given for future research and explanation is given how this piece of work adds to theory of international business.
2. LITERATURE REVIEW
Internationalization can be driven by a variety of factors. These factors can be classified in different subsections; firm-level, industry-level, regional-level, home country-level and subsidiary-level. A normal one level approach to data is linked with biased estimates (Aitken, 1973; Burstein, Linn, & Capell, 1978), a multilevel analysis enables to take into account the correct and efficient estimates (Maas & Hox, 2004; Snijders & Bosker, 1999). All these factors influence the firm’s internationalization in a unique way on a specific level. As mentioned in the previous paragraph, this thesis will focus on three levels of analysis; regional, industry and firm level. The novelty of this work is found in the combination of all individual aspects and the contingency approach of the influence of home country technological development.
2.1 FIRM LEVEL
One of the most crucial factors that influence a firm’s international performance at the firm level are the resources a firm possesses. The founder of the resource based view, Barney (1996) stated the importance of resources as a competitive advantage for a company. This view is further extended by Peng (2001), who highlights the need for specific resources when expanding internationally. Unique resources directly influence the international strategy of the firm and its entry into new markets. Peng (2001) states that MNE’s expand internationally to new markets to augment their resources or exploit them. Firms with unique and valuable resources are therefore more likely to venture internationally than firms who lack these characteristics. This means that there is a relation between firm resources and the internationalization process (Peng, 2001). The conclusion that resources matter is also drawn
Page 9 of 65 by Hymer (1960), who states that firms need firm specific advantages to enter the global market. Firm specific advantages include characteristics such as; excellent management, superior knowledge, high quality resources and intangible assets (Siripaisalpipat & Hoshino, 2000). These firm specific advantages can be exploited when an MNE internationalizes. The reason why this can be exploited is that an MNE faces liability of foreignness, or the cost of doing business in a foreign country. These cost include adaptation and learning costs (Zaheer, 1995). Firms can overcome liability of foreignness by leveraging firm specific advantages (Rugman, Verbeke, & Nguyen, 2011) Therefore, just as resources, firm specific advantages have a relation to the internationalization of the firm.
To apprehend firm-specific advantages, firm size has been used a proxy (Lu & Beamish, 2004). The size of a firm has a positive effect on performance as larger firms can leverage economies of scale and scope by the blocking access to suppliers, consumers, markets and valuable resources. They are able to do this by outbidding and investing quicker than new competition (Gaba, Pan, & Ungson, 2002; Kobrin, 1991). Larger firms are also capable to follow more intrusive investment methods and spread costs amongst a larger business line than their smaller counterpart. This allows them to undertake riskier endeavors such as the expansion of the firm beyond domestic borders (Cohen & Klepper, 1996). Finally, larger firms possess larger portfolios. This allows to learn from multiple investment and spread the risk among more individual portfolios. They are also able to exploit government relations and institutions compromises due to the impact on society (Brewer, 1993). Kirca, Hult, Deligonul, Perryy, & Cavusgil (2012) also found a positive relation between the firm size and the degree of internationalization of the MNE. Since MNEs can act with more risk and before their competition, internationalization can be achieved.
Another characteristic at the firm level is the international experience a firm has accumulated. This theory is established in the early 80’s by Johanson & Vahlne (1977). They
Page 10 of 65 stated that internationalization of the MNE can be seen as a gradual expansion towards more distant countries. To overcome liability of foreignness as mentioned above, firms should learn from markets that are a close resemblance to the domestic market before moving incrementally further (Johanson & Vahlne, 1977; Zaheer, 1995). MNEs with a lot of international experienced are able to leverage scale economies quicker, can obtain valuable resources and capabilities better, and learn quicker than their competitors (Hennart, 2007). MNEs that have a considerable amount of internationalization are also able to handle their resources and can skillfully pick opportunities by evaluating past experiences. Their firm knowledge and intelligence provide an excellent basis for further internationalization (Goerzen & Beamish, 2005). Data consistent with this theory was also found in the paper of Kirca, Hult, Deligonul, Perryy and Cavusgil (2012). International experience was found to be the dominant characteristic explaining the degree of internationalization.
The most frequent firm characteristics in internationalization are factors such as size, experience, age and ownership (Kirca et al., 2012). While the two firm characteristics size and experience are mostly positively associated with the degree of internationalization of a firm (Gaba et al., 2002; Goerzen & Beamish, 2005; Hennart, 2007; Johanson & Vahlne, 1977; Kirca et al., 2012; Kobrin, 1991; Lu & Beamish, 2004), the effect of firm age on internationalization is open for debate. Older firms are generally more subjectable to rigorous rules, restrictions and bureaucracy which lead to a reduction of innovative ideas which can be implemented outside domestic markets. In essence, firm inertia causes constraints on the capabilities of the organization which decreases internationalization (McDougall & Oviatt, 1996; Reuber & Fischer, 1997). However, another school of thought highlights the importance of older firm characteristics such as the development of talent and experience in international markets which increase progressively with the age of the firm. Besides, older firms do not face liability of newness, which is the disadvantage firms receive for being a newcomer in the market
Page 11 of 65 (Stinchcombe & March, 1965). Experience that is accumulated throughout the years is also beneficial for the access to new international markets, older firms have a higher change to possess factors which allow expansion into international uncertain and riskier markets. Experience is consequential for international expansion as international experience, as described in the paragraph above, is key for the degree of internationalization of the firm (Kirca et al., 2012; Oviatt & McDougall, 1997).
Another factor that influences the internationalization decision of the company is the human capital one. Human capital is the knowledge, skills, talent and experience which can be used to provide value for a firm (Fletcher, 2004). Again, in line with the resource based view (Barney, 1996), the increase of human capital has a positive effect on internationalization as the performance of high human capital firms is better than its competition. Outperforming competition is a valid reason for internationalization (Athanassiou & Nigh, 2002; Coleman, 1988; Herrmann & Datta, 2005; Javalgi & Todd, 2011; Loscocco, Robinson, Hall, & Allen, 1991). The possession of tangible and intangible resources of MNEs allow them to be efficient in the transition of assets across borders. This is facilitated either through foreign direct investment or by the products and services of the MNE (Buckley & Casson, 1976; Kirca et al., 2012).
The last facet which will be discussed in this paper is the effect the top management team (TMT), or the top ranking executives of an organization such as the managing director and CEO’s (Wiersema & Bantel, 1992), has on the degree of internationalization of the MNE. TMT are conceptualized to affect the degree of internationalization due to numerous factors. According to Sanders & Carpenter (1998), the size of the TMT is ought to have a positive effect on internationalization as larger teams are generally more diverse and have the potential to answer more questions and solve challenges. Larger teams are also expected to have more resources, which are important to overcome tricky situations and decisions. Collectively, the
Page 12 of 65 team can do more than the individual. Larger TMTs have the tangible finances, extensive networks, comprehensive worldviews and cognitive capabilities which are needed for looking beyond the domestic market. Therefore, larger TMT should have a positive effect on the degree of internationalization of the firm (Sanders & Carpenter, 1998). However, Finkelstein & Hambrick (1996) argue that this is a poor measurement as it only includes size. This is extended by Kirca et al (2012) who found an insignificant relation between TMT size and internationalization. In the same paper, a significant relation is found between the international experience of the TMT and the degree of internationalization of the MNE. The ability to handle challenging situations and face conflicts abroad is improved with the exposure of international decisions alike. Besides, if TMT ventures oversees, they not only receive international experience themselves, but the firm itself as well. This experience can be leveraged as a firm specific advantage when internationalization happens again. Furthermore, the TMT’s international expansion creates new connections. While not all of them will be positive, the ones that are can be used again in the future (Kirca et al., 2012; Tihanyi, Ellstrand, Daily, & Dalton, 2000).
Another aspect of TMTs that influences the internationalization of the MNE at firm level is the TMT industry-specific knowledge which is positively related to the degree of internationalization of the firm. The reason behind this is that managers with experience can assess threats and opportunities better than managers who lack this expertise (Sanders & Carpenter, 1998). Lastly, the academical achievement of the board of directors also influence the degree of internationalization. Internationalization is related to the amount of information that is presented and how one acts upon this (Barroso, Villegas, & Pérez-Calero, 2011). More information to one’s disposal should result in better knowledge and therefore more understanding about internationalization. Therefore, the higher the academical degree, or Master degrees, the higher the likelihood of internationalization (Barroso et al., 2011). Between
Page 13 of 65 industry specific knowledge and degree of education, no significant relation has been found but they appear to have a positive relation with the degree of internationalization of the firm (Kirca et al., 2012).
2.2 INDUSTRY LEVEL
The view that rivalry has a relation to internationalization was already stated by Knickerbocker (1973) in the early 1970’s. According to oligopolistic reaction, firms are very influenced by their competition. If one company decides to internationalize this will cause its competition to do so as well.
At the industry level analysis, a multiplicity of factors has been identified to influence the internationalization of the MNE. The first and most prominent factor is the industry rivalry. It was Porter (1990) who highlighted the importance of the industry and gained widespread recognition for his findings. Where other scholars looked at firm level (Barney, 1996) and institution levels (Peng, Sun, Pinkham, & Chen, 2009), Porter focusses his attention on the influences of industry characteristics such as rivalry and innovation. Industry rivalry can have a positive effect on internationalization when firms compete to create improved products. A better product would automatically generate attention worldwide, and will pull the MNE towards internationalization since their product is craved on the global market (Porter, 1990). This view is extended by Wiersema & Bowen (2008), who state that international market competition has an impact on the internationalization of the firm and its diversification strategy. An increase in competition in the MNE’s industry causes the company to diversify internationally and therefore increase their global activities. Further highlighting the role industry rivalry has on internationalization.
Another aspect that influences internationalization on the industry level is research intensity. Grøgaard, Gioia, & Benito (2013) posit that besides industry concentration, research
Page 14 of 65 intensity is key for internationalization. MNEs that possess high technological expertise are more likely to have the resources and capabilities that are required for internationalization. There are multiple studies that state that innovative companies are likely to expand to foreign countries (Basile, Giunta, & Nugent, 2003; Wakelin, 1998). Reason for this is, that in order to support the research and development activities and acquire qualified and trained personnel, MNEs need to look beyond their home country (Kobrin, 1991). Besides, MNEs move outside their home market to monitor and gain access to technological developments which are not present at the home market (Criscuolo & Narula, 2007; Patel & Vega, 1999).
Besides technological factors, characteristics at the firm level relationship for internationalization can be found in the tangibility of resources in the industry. Tangibility is explained as a physical form, an intangible asset is in a non-physical form (Čater & Čater, 2009). Manufacturing firms have an increased internationalization pattern over service firms which have remained more locally (Contractor, Kundu, & Hsu, 2003). Reason for this is that, historically, manufacturing firms have been on a quest to find novel resources at the most economical way. Relocation of factories and facilities for production have been driven by cost reduction and access to distribution channels (Dunning, 2001; Vernon, 1966). The service industry is more dependent on consumer interaction. Where large manufacturing MNEs can standardize the process, service MNE’s must focus on consumer care and involvement. This process takes a lot of time and has high market entry cost when going international. Therefore, the tangibility of the product has a direct influence on the internationalization of the MNE.
Other internationalization factors, are the dynamic areas or clusters in an industry. These areas create increased competition, technological development and innovation in geographical concentrated areas packed with specialized suppliers, service providers and related industries (Brown & Bell, 2001; Porter, 1998). Clusters both attract and propel foreign direct investment. Firms are likely to operate in clusters to stimulate learning, since MNEs look for information
Page 15 of 65 and technological know-how. Firms are likely to expand outside the clusters because MNEs increased their capabilities from the knowledge that is present in a cluster, and want to leverage it outside their home market. Therefore, a cluster has a positive relation on the internationalization of an MNE (Benito, Larimo, Narula, & Pedersen, 2002; Brown & Bell, 2001; Enright, 2000; Håkanson, 2005; Mariotti & Piscitello, 2001; Porter, 1998).
The next industry factor that has been scrutinized by scholars is the evolution of the industry and the role this has on the internationalization of the firm. The evolution of the industry is described as the stage in which it evolves. The path of evolution starts at emergence and finishes in maturity. In the introduction stage, high uncertainty and low demand are present. In the maturity phase, competition is established and there is little change in competition, products and technology (Anderson & Zeithaml, 1984; Oster, 1999). It is conceptualized that during the initial stages however, firms internationalize and try to seek benefits from a new emerging product market. This is also why product market cycles are related to the internationalization of the MNE. Companies operating in the introduction stage of a product are therefore more likely to internationalize to leverage the innovative capabilities that are needed to operate in a new product market (Eisenhardt & Schoonhoven, 1990; McDougall, 1989; Oster, 1999; Preece, Miles, & Baetz, 1999).
The final factor that drives internationalization at the firm level is the use of patents. Due to the high innovation caused by patent expenditure, firms have a higher probability to operate in an international market place. The increase in intangible assets by investing in patents has a positive effect on internationalization of the firm in the form of licensing and exporting (Briggs & Park, 2014). The rationale behind this is that industries with strong patent portfolios are capable to leverage this knowledge outside their home market and therefore go internationally (Nam & An, 2017).
Page 16 of 65 2.3 REGIONAL LEVEL
With the increased focus on today’s globally integrated world (Garrett, 2000), the importance of regions has also received recognition. Scholars highlight the influences that regional institutions, integration and commercial agreements can have on the internationalization of the firm (Ghemawat, 2003; Rugman & Verbeke, 2003, 2004).
Arregle, Miller, Hitt andBeamish (2013), focus primarily on the institutional part of regional importance on internationalization. Underlining the relevance of institutions by North (1990), the paper focusses on three aspects of regional institutions. Arregle, Miller, Hitt and Beamish focus on regulatory control, political democracy, capital investment, the relationship these three factors should have on semi globalization and therefore the MNE’s internationalization. Regulatory control is found to influence globalization by limiting the firm’s activities due to requirements of regional rules. An increase in control has a negative impact on the MNE’s internationalization into the country, by creating extra cost for the company that overset any positive outcomes by the regulations. Political democracy also has a negative impact on MNE’s selection of internationalization due to the need for MNEs to create increase efficiency. The lack of autocratic governments would be a hurdle to negotiate positive terms of the company. Capital investment was found to have a positive impact on MNE’s internationalization. Regional capital investment would attract companies by motivating foreign investments (Arregle et al., 2013).
Another regional aspect that has influence on the internationalization decision of the firm is the complexity of the regional institutions. By looking at 700 MNEs that are operating across 49 countries, Arregle, Miller, Hitt and Beamish (2016) found that regional institution diversity has a negative U-shape relation to the international expansion of the MNE. To clarify, at shallow and elevated levels of institutional complexity the MNE is less likely to internationalize, however, at moderate institutional complexity the MNE is positively related to the internationalization of the MNE. The rationale behind this relationship is that in countries
Page 17 of 65 that have a moderate institutional complexity, firms have arbitrage and real options that they can leverage. These decisions can be leveraged by exploiting the firms regional firm specific advantages (Arregle et al., 2016).
Another aspect on the regional level that influences the internationalization of the firm is the political hazards that firms might experience when internationalizing. Delios & Henisz (2003) state that when they are internationalizing, firms should give the same amount of attention to political hazard as to social or institutional factors. Political hazards can best be defined as when makers of rules and policies can act autonomously or have an increased certainty that servants or allies will support their actions on the topic of legislation or juridical actions. This would mean that future rules and regulations are more volatile in response to exogenous impacts then low political hazard countries. Regions with a high change of political hazard are therefore ill-advised for internationalizing MNE’s (Delios & Henisz, 2003). This view is supported by Agarwal & Feils (2007) who state that regional political risk factors have a direct impact on the FDI in a country. Meaning that the internationalization of a firm is less likely to take place in countries which are political risky. The most crucial factor that was found to have a relation to internationalization is the quality of bureaucracy, or the likeliness of bribery (Jackson & Deeg, 2008). Therefore, the higher the uncertainty in regional political stability, the less likely a firm is expected to internationalize towards this region.
Another factor that influences the degree of internationalization on the regional level is the institutional diversity of a firm. Institutional diversity at the regional level can be seen as the difference between institutional climate across countries that are located in the home region (Jackson & Deeg, 2008). Potentially, institutional diversity can create difficulties in the decision process and increase transaction cost because processes are not standardized (Kostova & Zaheer, 1999). New situations require learning and information cost and increase the difficulty of the learning experience for the firm by maneuvering through different business environments
Page 18 of 65 (Hitt, Hoskisson, & Kim, 1997). Uniform institutions can create learning patterns which can be leveraged in similar situations in the future. However, variance in institutions however can reduce these learning patterns (Chan, Isobe, & Makino, 2008). Therefore, as institutional diversity increases, firms will have no incentive to look at the home region and will look internationalize (Banalieva & Dhanaraj, 2013).
2.4 TECHNOLOGICAL DEVELOPMENT
The ownership of resources has been identified with the competitiveness of the firm and their internationalization (Barney, 1996; Rugman et al., 2011). Especially for technological intensive companies, the possession of (in)tangible technological resources is incredibly important for their competitiveness and are highly important assets to the firm (Hall, 1993; Itami & Roehl, 1991). These intangible resources also influencethe internationalization of the MNE (Rialp, Rialp, & Knight, 2005). When it comes to internationalization patterns technological resources have been scrutinized extensively (McDougall, Oviatt, & Shrader, 2003; Oviatt & McDougall, 2005; Zahra, Matherne, & Carleton, 2003). Enterprises that possess strong technological resources are linked to elevated levels of survival in the international landscape. A higher change of survival means higher changes of further internationalization (Mudambi & Zahra, 2007).
Furthermore, in internationalization firms can use technological resources to overcome disadvantages such as liability of foreignness and a lack of experience (Evangelista, 2005). The resources allow MNEs to market individually profitable goods or services, acquiring an advantage due to their innovation over more skilled and resourceful local and MNE rivals (Oviatt & McDougall, 1995). The ownership of this specific knowledge allows a solid basis for innovation. Which in return leads to a competitive differentiation which can improve the MNE’s performance in the international market. Therefore, MNEs with high technological resources are expected to have better chances on the international market. It is therefore
Page 19 of 65 expected that enhancing these resources will have a positive effect on the internationalization levels (Lee, Kelley, Lee, & Lee, 2012).
Technological resources are fostered by the technological environment in which they are developed. A favorable environment creates increased technological resources which can be used by MNEs during their internationalization to overcome liabilities (Zaheer, 1995). A home country that is rich in technological development and innovation is therefore hypothesized to influence the internationalization relationship. Especially in a more technological intense world, the role of technology is becoming increasingly important (Affairs, 2007). On the other hand, scholars argue that the technological development of the home country is neglectable as the transfer of technology and knowledge does not dependent on the country in which the enterprise is present. Instead, it is the MNE that is important for the transfer of knowledge. The MNE’s network of affiliates and subsidiaries allow transfer of skills and technological resources between the network, and are therefore less dependent on the home country (Blomström & Kokko, 1998). This thesis will propose an answer to the home country development as a moderating factor in the relationship between the three factor levels of analysis and the internationalization of the firm.
Page 20 of 65 2.5 RESEARCH GAP
Preceding research on the three factors of analysis that are central to this thesis have been fruitful, but there is no clear consensus on the significance of the effects. Firm level factors are influencers of internationalization according to Barney & Hymer (1996;1960) as they are firm specific advantages (FSA). Therefore, according to Peng & Rugman et al (2001; 2011), the internationalization of the workforce, which is a FSA, can have a positive effect on the internationalization of the firm. This is however, not in line with more recent findings of Onkelinx, Manolova and Edelman (2016) who found that the effect of an international workforce does not have a significant relation to the internationalization of the firm. This paper seeks to settle this debate by assessing the role of an international workforce amongst the 500 largest companies in the world, to find out if this relation is present.
As highlighted before, this thesis looks at the entire picture. Individual factors such as regional complexity (Arregle et al., 2016), board of directors (Barroso et al., 2011) industry rivalry (Grøgaard et al., 2013) and international intention (Ibeh, 2003) all have been researched with their possible relation to the internationalization of the firm. There is substantially less research devoted to the investigation of a multiple level analysis (Banalieva & Dhanaraj, 2013; Banalieva et al., 2012; Onkelinx et al., 2016). There is even less research that combines these three specific levels of interest and links them to internationalization (Kirca et al., 2012). This paper will investigate the three drivers -employees-internationalization, industry rivalry and regional integration—to highlight their potential influence on each other.
Moreover, this paper seeks to fill the gap in the literature regarding the important moderating effect technological development of the home country can have. In a technological changing world, it is of utmost importance to find out how technology affects internationalization of the firm (Bosco, 2007; Garrett, 2000; Wakelin, 1998). While numerous drives have been scrutinized before, the possible effect that technological innovation has on them is investigated to a lesser degree (Zahra et al., 2003). This work will take a contingency
Page 21 of 65 approach to explain if home country technological development can influence the internationalization of the MNE. The effect of the contingency of technological development of the home country will be done for all drivers of interest in this thesis. The main contribution to the international theory will be found in the novelty of the moderating effect of home country technological development, but also in the combination of the three characteristic levels.
To summarize, this paper seeks to extent current international business theory by giving a contemporary view using three levels of analysis described previously and the moderating factor home country technological development has on these characteristics. Therefore, the research question of this paper will be: “What is the role of home-country technological development on the drivers of firms’ internationalization”.
3. HYPOTHESIS DEVELOPMENT
3.1 FIRM LEVEL
The first analysis of this paper focusses on the firm level. Yamao and Sekiguchi (2015) recently investigated the role of English proficiency and the commitment to the firm. They found that English language proficiency has a direct effect on the commitment to the firm’s globalization, especially in MNEs that are based in non-Anglophone countries. The authors state that the foreign language and therefore foreign employees can have a negative impact on the firm if the employees have low proficiency levels in the English language. Low English proficiency would lead to reduced globalization (Yamao & Sekiguchi, 2015).
This leads to the questions if diversification of a firms’ employees influences its globalization. According to the research of Caligiuri, Lazarova and Zehetbauer (2004), the top management team diversity has a relation to the internationalization of the firm. The study looked at the United Nations Conference on Trade and Development (UNCTAD) (United Nations, 1996) which uses three dimensions to describe a firms internationality; foreign sales to total sales, foreign assets to total assets and foreign employees to total employees. The paper
Page 22 of 65 concluded that the more diverse the top management team is, the higher the internationalization of an MNE. Therefore, it is conceptualized that if the employee base is more international, so is the firm (United Nations, 1996). The paper of Caligiuri, Lazarova and Zehetbauer uses another measurement for foreignness of employees, top management team. They state that the foreignness of the TMT is related to the internationalization of the firm, a more diverse TMT can tackle problems differently and has more knowledge for potential challenges. It is found that firm’s TMT diversity has a positive effect on internationalization (Caligiuri et al., 2004).
This view is extended by Lee and Park (2006) who found that more diverse TMTs make more use of international alliances. Lee and Park look at the same measurement for internationalization, the TMT, and link this to the use of international alliances. If a company makes use of more international alliances it is obviously more subjectable for international trade.
Internationalization brings a lot of challenges regarding the decision making process (Prahalad, 1990). These challenges arise from; difference in law, currency (and therefore exchange rate), heterogeneity in culture and competition (Bartlett & Ghoshal, 1998). The complex structure of globalization requires the firm to have access, collect and process information sources from scattered business operations (Sanders & Carpenter, 1998). One of these differences is the difference in cultural background, which can influence the decision-making process. Problems are experienced and solved differently depending on the background of the actor. It is therefore understood that teams that experience cultural diversity have the ability to look at problems differently, and solve them differently (Williams & O’Reilly, 1998). According to Lee & Parker (2006), the diversity of TMT also reduces the concern and the attitude towards differences between home and host country, or in other words distance (Ghemawat, 2001). Distance has a negative impact on the international expansion of a firm
Page 23 of 65 (Johanson & Vahlne, 1977). Overcoming the distance can be done by having a diverse TMT or employee base (Lee & Park, 2006; Zaheer, 1995).
The international management of an international diverse workforce can lead to a better-quality solution to brainstorming tasks, displays more cooperative behavior, relative to homogenous groups, and can raise organizational efficiency, effectiveness and profitability (McLeod, Lobel, & Cox, 1996; Wilson & Iles, 1999). However, it can also open the access to challenging or new markets by mimicking diverse markets (Cox & Blake, 1991; Gardenswartz & Rowe, 1998; Iles, 1995). Shen, Chanda, D’Netto, & Monga (2009) offer a conceptual framework on how to do this. By appreciating diversity and making use of it, firms can overcome distance and internationalize. By obtaining a vision, a mission and a strategy that values diversity, the strategic level of human resource management maximizes the possibility for profitable outcomes. In return, having the highest possibility to use diversity to explore new market opportunities (Shen et al., 2009).
A more international workforce has the potential to overcome distance (Lee & Park, 2006; Sanders & Carpenter, 1998; Zaheer, 1995), look at challenging situations differently (Shen et al., 2009) and solve them in multiple ways (Gardenswartz & Rowe, 1998; McLeod et al., 1996; Wilson & Iles, 1999). Therefore, a more international workforce is conceptualized to have a positive relation on the international expansion of the firm:
H1: Employees’ level of internationalization is positively related to the firm’s level of
internationalization.
3.2 INDUSTRY
The industry analysis of the paper will focus on the effect that rivalry has on the internationalization of the firm and the mediating effect of technology. In industries rich in technological opportunities, competition among firms induces them to invest in research and development, which augments their technological capabilities (Anand & Kogut, 1997). The
Page 24 of 65 view that rivalry has a relation to internationalization was already stated by Knickerbocker (1973) in the early 1970’s. According to oligopolistic reaction, firms are strongly influenced by their competitors. If one company decides to internationalize this will cause its competitors to do so as well. This view is shared by international business scholars that reviewed the global integration vs local responsiveness issue. Competition has effect on this phenomenon, and could therefore also have an impact on internationalization (Barlett & Ghoshal, 1989; Roth, 1988).
Porter (1990) posits that a nation can gain a competitive advantage when the firms in the environment of the nation are subjected to intense rivalry. This rivalry will cause firms to compete on the highest level, which will create superior products. These firms can leverage this product outside the rivalling industry as well. The chances are that this product is from far higher quality in this foreign industry. This was also hypothesized recently in the paper of Grøgaard, Gioia and Benito (2013), who argued that the level of firms’ globalization is positively related to the rivalry in an industry by looking at the industry concentration, research intensity and tangibility of the products. Competitive areas strengthen the firms and improve their value-added activities and in return their chance to operate on the international market. Therefore, rivalry causes a firm to internationalize to leverage its superior product outside the home market as well (Porter, 1990).
Porter (1990) also states that what is key for sustaining the competitive advantage, and therefore the ability to leverage this internationally, is innovation. Without the never-ending process of innovation, companies will inevitably get outperformed by their competition. Innovation can be achieved by investing in research and development (R&D) or licensing the technology (Porter, 1990b). Industries that rely on technology have become increasingly global as technology causes innovation, which is a significant driver for international competition and expansion (Porter, 1985). Access to new research is not always present in the home market.
Page 25 of 65 Firms are therefore pushed towards internationalization to acquire the needed research and development on the global market. High rivalling industries are more innovative and this effect positively influences the internationalization degree of the firm (Criscuolo & Narula, 2007; Patel & Vega, 1999). An extension on this view is the one from Kobrin (1991) who notes that in the domestic market there is simply not enough support for the competitive level of R&D that is needed. Leading to the internationalization of technology based firms. This trend in globalization has sparked the competitive rivalry between firms in the technology based industries (Brahm, 1995).
Another way to look at the rivalry/internationalization relationship is the view that companies internationalize to avoid their competition. Especially smaller companies internationalize to reduce the fierce competition at the home country. Firms chose to internationalize at a much faster rate than their counterpart who is not receiving competitive pressure in the home market (Fernhaber, McDougall, & Oviatt, 2007; Ito, 1997; Mascarenhas, 1986).
Empirical studies show that a competitive home market environments increase the chance of the successful internationalization of firms (Wan & Hoskisson, 2003).
Therefore, it is conceptualized industries with a lot of competition increase the degree of the firm’s internationalization:
H2: The level of industry rivalry is positively related to firm’s level of internationalization.
3.3 REGIONAL LEVEL
As already highlighted in one of the paragraphs above, semi-globalization is crucial for MNEs to keep in mind (Arregle, Miller, Hitt, & Beamish, 2013; Ghemawat, 2003; Kim & Aguilera, 2015). At the regional level of internationalization analysis, the most attention is given to institutions. North (1990) describes them as the humanly devised constraints that structure human interaction and the effect these have on internationalization (Arregle et al.,
Page 26 of 65 2013; Peng, Sun, Pinkham, & Chen, 2009). Besides institutions, the strategic approach to local responsiveness also has an influence on the regional analysis level of internationalization (Barlett & Ghoshal, 1989; Doz & Prahalad, 1991). Therefore, it is likely that regions play an important role in the internationalization of an MNE (Barlett & Ghoshal, 1989; Blomstrom & Kokko, 1997; Doz & Prahalad, 1991; Rugman & Verbeke, 2003). For this paper, the relation between regional integration and internationalization of the firm is investigated.
A form of regional integration are regional trade agreements. Regional trade agreements affect foreign activity of an MNE (Büthe & Milner, 2008). Trade agreements are described by Mansfield, Milner, & Rosendorff (2002) as; “(1) a public commitment by leaders to a less protectionist policy than otherwise would be implemented, and (2) an institutional device that credibly conveys that a state's obligations have been violated in the event of unilateral abrogation.”. In other words, it is a commitment of a country to lower its trade barriers and that the violation of such agreement is noted by other influences or monitoring organizations.
Baier and Bergstand (2007) argue that the effects of free trade agreements between region members can have a positive effect on trade flows. Their research tries to answer the debate between scholars if the effect of trade agreements is positively related to import and export (Aitken, 1973; Bergstrand, 1985; Brada & Méndez, 1985; Frankel, Stein, & Wei, 1995). According to the findings of the authors, regional trade agreements have the potential to double the trade between nations with the implementation of trade agreements in 10 years (Baier & Bergstrand, 2007). Carrѐre (2006) extends this view by looking at the data of regional trade agreements from 130 countries during the period 1962-1996. A significant increase in trade was noted between members that participated in the regional trade agreements. This was often at the expense of the rest of the world (Carrère, 2006).
Besides trade agreements, another part of the analysis is the regional integration level of the MNE. Regional economic integration is commonly defined as the reduction of regional
Page 27 of 65 trade barriers and constraints on foreign direct investment (FDI) (Blomstrom & Kokko, 1997). Not all integration agreements have the intention to gain monetary benefits through trade, there are exceptions with focus on politics as well. However, it is clear that the majority is driven by economic incentives.
This is also the case for Regional Integration Agreements (RIA). Examples of these agreements are the European Union, North American Free Trade Agreement and the Asian-Pacific Economic Cooperation. The idea of these arrangements are that in the short run the intra-regional trade is stimulated and in the long run the competition and the allocation of resources will increase the growth of the participating nations (Blomström & Kokko, 1997).
Research by Blomström and Kokko (1997) indicates that the advantages of RIA’s are largely dependent on the location advantages of the engaging nations and industries. The findings indicate that the best outcome on FDI happens when RIAs are present at the same time as domestic liberalization and macroeconomic stabilization in the engaging member nations. International agreements have the possibility to improve commitment of FDI as it is costly to break investment projects. The regional level of integration therefore is conceptualized to have a positive effect on the degree of internationalization of the firm:
H3: Firm’s home region integration is positively related to firm’s level of internationalization.
3.4 TECHNOLOGY AS A MODERATOR
For the firm level of analysis, the focus of this paper is given to human capital, and in specific the role that employee diversification has on the degree of internationalization of the MNE. Technology and innovation foster the development of human capital (Onkelinx et al., 2016). Extending the resource based view (Barney, 1996), employees are seen as a valuable resource. The development of this resource is key to be able to leverage this firm specific advantage overseas (Rugman et al., 2011). A high skilled workforce can understand problems on various levels better and is able to leverage their quality outside their domestic market. A
Page 28 of 65 more international workforce will therefore create more international opportunities due to diverse knowledge. This effect is elevated by strong home country technological development as a technological developed home country will provide access to numerous information sources. This will in return increase the access to information about international problems (von Hippel, 1994). Employees that can access sources that help solve these problems are therefore theorized to increase the MNE’s levels of internationalization, due to the increased problem-solving ability of the international workforce.
H4a: Home countries level of technological development positively moderates the relationship
hypothesized in H1.
For the industry level of analysis, this paper focusses on the effect industry rivalry has on the degree of internationalization of the firm. As described before, technology has a positive effect on the rivalry in an industry (Bosco, 2007; Brahm, 1995; Porter, 1985). An increase in the need for research and development causes companies to compete on the technological front to become the market leader in their respective industry (Porter, 1990). Thus, while concentrated industries are driving companies to internationalize, this paper conceptualizes that this effect is positively influenced by a technological developed home country as technological industries are more competitive. A more technological intense industry will result in more competition and thus elevated levels of internationalization (Zahra et al., 2003). It is therefore conceptualized that the technological development of the home country of a MNE has a positive effect on the relation between industry rivalry and internationalization:
H4b: Home countries level of technological development positively moderates the relationship
hypothesized in H2.
For the last analysis, on the regional level analysis, this paper focuses on regional integration. Technological advancement brings several challenges, one of these is the protection of patents (Nam & An, 2017). Technological intense countries and regions are expected to have
Page 29 of 65 strong institutions to protect the rights of the MNE on the matter of patents. This would therefore mean, that counties and regions with a high technological development would have strong institutions and regional integration. As mentioned in the regional level analysis paragraph of this paper, regional integration is ought to have a positive relation with the internationalization of the firm. High degrees of home country technological development bolster the relation by demanding a more regional integrated environment to perform business in. Therefore, technological development is conceptualized to have a positive effect on the relation between regional integration and MNE internationalization:
H4c: Home countries level of technological development positively moderates the relationship
hypothesized in H3.
Combined, previous hypothesis will lead to the conceptual model below displayed in Figure 1:
Figure 1. Conceptual Model: The role of employee internationalization, industry rivalry and regional integration on internationalization and the moderating role of home country technological
Page 30 of 65
4. DATA ANALYSIS
The source of this paper is a set of data which contains information about the largest 500 enterprises globally (Fortune, 2016). The 500 largest companies in the world generate an amazing 27.6 trillion dollars in revenue and their profits of 1.5 trillion. Combined, the companies employ 67 million employees and have a presence in 33 countries. The information about the companies is retrieved from the ‘Fortune Global 500’, ranging from Wallmart at number 1, to Old Mutual at number 500. The list is updated yearly and offers information about all industries (Fortune, 2016). As anticipated, not all data is suitable for analysis due to external problems in the data gathering. The final set of data which will be used for this paper consists of 462 observations. The data set incorporates all industries and international activities and is widely recognized to be reliable as it has been used in preceding studies (Rugman & Brain, 2003; Rugman & Oh, 2007; Rugman & Verbeke, 2003; Sklair, 1999).
4.1 VARIABLES
4.1.1 INTERNATIONALIZATION
Internationalization is best described as the activity MNEs undertake outside their home country, not only sales but also R&D, employment and import (Johanson & Wiedersheim-Paul, 1975). The most recognized measurement for internationalization is the ratio of foreign sales to total sales, which includes the sales generated internationally and the sales generated by foreign affiliates (Almodóvar & Rugman, 2014; George, Wiklund, & Zahra, 2005; Grøgaard et al., 2013). While this ratio has been critiqued to be too bulky (Sullivan, 1994), it provides an adequate measurement on whether the firm’s operations are focused domestically or globally. This ratio will be labelled ‘internationalization’ and will be the dependent variable of this research.
4.1.2 EMPLOYEE INTERNATIONALIZATION
Employee internationalization captures the degree to which MNEs have employees outside their home country. A more international workforce is hypothesized to have a positive
Page 31 of 65 impact on the internationalization of the MNE (Onkelinx et al., 2016). The way this will be measured is by using the ratio of foreign employment to total employment to determine how internationally oriented the MNEs employee base is (Dörrenbächer, 2000).
4.1.3. INDUSTRY RIVALRY
Industry rivalry is best described using the Herfindahl-index, this index provides a ratio which is a common measurement for industry rivalry or concentration. The Herfindahl-index takes the largest four, eight or fifty firms in the market and looks at their market share. By squaring these market shares and summarizing them an index number is found. This number says something about the industry concentration (Kwoka, 1985). An index which is above 1000 is considered to be moderately concentrated, an index above 1800 is considered highly concentrated (Department of Justice, 2017). For this paper, the industries will be ranked according to the figures reported by the US consensus report (U.S. Census Bureau, 2002) which gives a concentration ratio for all manufacturing industries in the world. Industries below 1000 index points will receive a 0, between 1000 & 1800 a 1, and above 1800 a 2.
4.1.4. HOME REGION INTEGRATION
Home region integration measures the degree to which the MNE is integrated in its region of origin. Looking at precedent research, this is measured by looking at the trade agreements that are present within the region. For this research, the same approach will be used as in the paper of Banalieva et al (2012). Regional policy integration is captured by understanding the increasing progression of policy-coordination amongst each level of regional trade agreement. In this paper a 0 is assigned for APEC, a 1 for the NAFTA, and a 2 for the EU (Balassa, 1961; Nye, 1968). A higher level of home region integration is hypothesized to have a positive effect on internationalization of the firm.
4.1.5 TECHNOLOGICAL ADVANCEMENT
For the technological advancement, the global innovation index will be used. In this report, the world’s nations have been ranked in order of technological development. The list
Page 32 of 65 ranges from Switzerland to Yemen and all nations have been ranked accordingly. For the data set each country will receive their respective rank to determine whether home countries technological advancement will have a mediating effect on the hypothesis given in this paper (Dutta, Lanvin, & Wunsch-Vincent, 2016).
4.2 CONTROL VARIABLES
This paper adds multiple control variables which might explain the relation which is investigated in this research. First to find out if experience has an influence on internationalization, age is included in the analysis. Similar to precedent studies on the matter of internationalization, age is added to account for the experience (Fernández & Nieto, 2006). The size of the firm is included to account for the spread of risk (Coviello & McAuley, 1999; Kirby & Kaiser, 2003) and the quantity of resources available (George et al., 2005; Lu & Beamish, 2001). Size is measured by the number of employees in previous studies (Pisani, Caldart, & Hopma, 2016), the same will be done in this paper. Another control variable that is added is related to the ownership of the enterprise. This paper places MNEs in two categories; family owned and state owned. Two dummy variables will be added to determine whether a company is family owned or state owned to investigate the effect this has on the internationalization of the firm (Cerrato & Piva, 2012). Below in table 1 the variables that will be used in the models will be explained and also the way to measure this is described.
Page 33 of 65 Table 1:
Operationalization of variables in the models.
Variable Operationalization Dependent
Internationalization Foreign sales divided by total sales
Independent
1. Employee internationalization Foreign employees divided by total employees 2. Industry concentration Categorical listing of concentration ratio
3. Regional integration Categorical variable which ranks whether a firm is regionally integrated by looking at regional origin (2 = EU; 1 = NAFTA; 0 = APEC)
Moderator
Technological development Ranking of nations by their technological development. Looking at the technological development, innovation and research list provided by the Innovation Index.
Control
Age Number of years after incorporation, from creation till the year of publication Size Number of employees
Family Dummy variable which states whether a firm is a family business or not (1 = Yes; 0 = No) State owned Dummy variable which states whether a firm is
a state owned or not (1 = Yes; 0 = No)
4. RESULTS
Table 2 contains the descriptive statistics and the correlations that are present between the control, dependent and independent variables. To check the hypothesis of this paper a regression analysis was performed. When performing statistics, and in specific for a multiple regression analysis, a check should be made for collinearity. Collinearity can be explained by two variables being highly correlated to each other. Which means that one variable influences the outcome of another variable. To measure multicollinearity, the data were reviewed for variance inflation factors (‘VIF’ from now onwards) and tolerance levels (Dormann et al., 2013). VIF levels which are above 2.5 are subjectable to multicollinearity and levels above 10 indicate it. The same can be said for tolerance levels below 0.2 (Field, 2013). As shown in appendix 1 (table 3), there were no multicollinearity issues for this thesis. The VIF levels were far below the threshold of 2,5. The tolerance level was also above 0,2 which means that for this thesis there were no multicollinearity issues.
Page 34 of 65 Table 2
Descriptive statistics and pairwise correlations.
Variable Mean Std.Dev. N 1 2 3 4 5 6 7 8 9
1. Internationalization 0,4713 0,32787 287 1 2. Employee Internationalization 0,74 3,807 151 0,004 1 3. Industry Concentration 0,6559 0,75565 465 0,161** 0,031 1 4. Regional Integration 0,8581 0,82868 465 0,304** -0,076 -0,027 1 5. Technological Development 16,0970 14,83011 464 -0,143** -0,013 0,093* -0,425** 1 6. Firm Age 90,5302 244,19331 464 0,182** 0,020 -0,075 -0,044 0,019 1 7. Firm Size 130811,3664 162356,5457 453 0,107 -0,026 0,66 0,015 -0,014 0,023 1 8. Family Owned 0,0635 0,24405 457 0,176** 0,001 -0,50 0,116* 0,080 -0,024 0,205** 1 9. State Owned 0,2105 0,40813 456 -0,205** -0,063 0,140** -0,423** 0,460** -0,131** 0,111* -0,135** 1 Note: Statistical significance: *p < .1, **p < .05, ***p < .01, ****p < .005
Page 35 of 65 Looking at the descriptive statistics, 47% of the Fortune Global 500 sales are present outside the domestic country. For the employment factor of this paper, 74% of the employees which are enrolled at 151 of the Global Fortune 500 companies, are working outside the home county of the multinational. For the industry concentration, the average is 0,66. This means that on average most companies are operating in a very competitive marketplace. At the regional level, 86% of the sales is happening inside the home region of the multination, which means that on average the companies in this data set are operating in their home market.
To test the hypothesis, a linear regression was used to find out the relation between the MNE’s internationalization and the three independent variables; employee internationalization, industry concentration and regional integration. However, first the control variables have been taken in consideration to find out if these explain the relation between those and the internationalization of the MNE. This gave a representation of the control variables’ effect on the dependent variable without the relation effect of the independent variables. This has been done in the first model of this thesis. After the check for control variables the hypothesis has been tested using a model which included the independent variables in the second model. This included employee internationalization, industry concentration and regional integration respectively. Model 3 included the moderating variable home country technological development and included all variables to determine the effect they could have on each other.
Page 36 of 65 Table 4
Fixed effects panel data regression models.
Note: Statistical significance: *p < .1, **p < .05, ***p < .01, ****p< .005
Dependent Variable: Internationalization Model 1 Model 2 and Hypothesis 1, 2 & 3 Model 3 and hypothesis 4 Constant 0.436 (0.056)**** 0.217 (0.069)**** 0.216 (0.099)**** Independent variables Employee internationalization 0.003 (0.006) 0.263 (0.156) Industry concentration 0.044 (0.033) 0.043 (0.047)* Regional Integration 0.153 (0.035)**** 0.106 (0.065) Moderator variable
Home country technological development 0.001 (0.003)
Interaction terms
Home country technological development x Employee internationalization -0.016 (0.010)* Home country technological development x Industry concentration 0.000 (0.002) Home country technological development x Regional integration 0.002 (0.003) Control variables Firm Age 0.001 (0.000) 0.000 (0.000) 0.000 (0.000) Firm Size 0.000 (0.000) 0.000 (0.000) 0.000 (0.000) Family Owned 0.186 (0.124) 0.120 (0.115) 0.167 (0.120) State Owned -0.256 (0.103)** -0.105 (0.100) -0.073 (0.107) Model Fit N 108 105 101 R2 0.118 0.277 0.317 Adj R2 0.085 0.228 0.243 F-stat 3.614 5.734 4.264 P-Value 0.000 0.000 0.000
