An explorative study on the effect of digitization on experiential knowledge in the internationalization process

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An Explorative Study on the Effect of Digitization on

Experiential Knowledge in the Internationalization Process

By

Sophie Grade Maria Nijenhuis

Supervisor: dr. M.P. Paukku Student Number: 11953918

Date: 17th of August 2018

Research Area: Management of Digital Business, Knowledge, and Data Amsterdam Business School, University of Amsterdam

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S.G.M. NIJENHUIS 17-8-18 AN EXPLORATIVE STUDY ON THE EFFECT OF DIGITIZATION ON EXPERIENTIAL KNOWLEDGE IN THE INTERNATIONALIZATION PROCESS

STATEMENT OF ORIGINALITY

This document is written by Sophie Grade Maria Nijenhuis 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.

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ABSTRACT

This research investigates the effect of digitization on the internationalization process of traditional companies, with a special focus on the influence of digitization on the entry-mode decision-making. More specifically, the research investigates whether the importance of experiential knowledge within the internationalization is affected by the uprising use of digitization, as information and knowledge is nowadays widely available through the internet and big data. The research is based on the Uppsala model by Johanson and Vahlne (1977) and has added the phenomenon digitization to the model to study the research area. The study is an exploratory research, which has made use of a multiple case study, where data was collected through semi-structured interviews with Dutch and French companies operating in the consumer goods industry. The results show that digitization has become of great relevance in the internationalization process of companies, that digitization has accelerated the process, and that digitization assists companies in their entry-mode decision-making. Nevertheless, it has not been proven that it has overtaken the importance of experiential knowledge (yet), as the results indicate that companies still strongly rely on the knowledge developed during previous experiences in their internationalization process and their entry-mode decision-making. Digitization is currently merely used as an accompanying tool that helps to optimize the internationalization process of companies.

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1. Introduction

Digitization is a worldwide increasing phenomenon, and the opportunities digitization brings should be noticed and responded to by companies (Saxena, 2018). Digitization influences companies in various ways, however, this paper will specifically focus at the impact of digitization on a company’s internationalization strategy, or more explicitly the paper will investigate the way digitization influences a company’s entry-mode decision-making process. The Oxford English Dictionary refers to digitization as “the action or process of digitizing; the

conversion of analogue data into digital form”. In this study, digitization is referred to as the

following: the use of data and information in digital form by companies; where this data can be acquired through the internet or through big data. A lot of research has been done on internationalization strategies, as well as on digitization, nevertheless the interaction between these two has been researched limitedly. Digitization is more and more becoming a part of the standard way of doing business, where doing business can be described as the activities associated to the production and performance of a good or service to serve customer needs (Weske, 2012; Kirchmer, 2017; von Scheel, von Rosing, & Scheer, 2014). Companies incorporate digitization as it can help to improve efficiency and performance.

Throughout the last few decades’ multiple internationalization strategies have been developed. Internationalization strategies are used to explain a company’s expansion, and include location, pace, rhythm, and entry-mode decision-making regarding the internationalization of a company. A few of the most well-known internationalization strategies are the following: The Transaction Cost theory by Williamson (1985); the Network model by Johanson and Mattsson (1988); and, the Uppsala model by Johanson and Vahlne (1977). These theories all explain a company’s expansion process differently, using either a company’s resources, transaction costs, or experiences as main factors determining the internationalization process. For example, the Uppsala model states that lack of experiential knowledge about the

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foreign market is the main reason why companies fail their international operations (Hutzschenreuter & Matt, 2017), thus that experiential knowledge is the main driver behind successful internationalization. Nevertheless, whether the current theories are still relevant and applicable in today’s increasingly digitized and technological advanced world remains unclear. Even though numerous internationalization theories exist, for the purpose of this study, the Uppsala model is the internationalization theory used to provide an insight on the influence of digitization on entry-mode decision-making.

This research will investigate how corporations adjust their internationalization strategies to the pressures of digitization. As digitization is becoming increasingly important and woven into today’s everyday business, its influence on the way companies operate outside the home country is of interest. Digitization has transformed multiple processes within companies, such as: communications, transactions and distribution, and where and when business operates (Hagberg, Sundstorm & Egels-Zandén, 2016). E.g. Patrutiu-Baltes (2016) states that without active online business communications, a company is doomed to failure. Furthermore, digitization offers great opportunities that should be taken advantage of (Benson-Armer, Gast, van Dam, 2016). Companies should be aware that digitization could possibly lead to more beneficial entry modes, which are different from the ones companies have applied in previous eras. For example, how does digitization influence the internationalization process of companies? Do companies incorporate digitization in their internationalization process? Is the pace of the internationalization process influenced by digitization? Does digitization influence the entry-mode decision-making process? These are some examples of questions that arise after going through previous literature. And, finding answers to these questions mentioned above could help companies in their decision-making regarding entry-mode strategies in today’s increasingly digitized world. Furthermore, finding answers to these questions is of relevance to finding the answer to the main research question which will be mentioned below.

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Whether digitization creates new internationalization strategies, follows the traditional ones, or whether it rehashes traditional strategies is a topic that has been relatively little explored. Several researchers have tried to explain parts of the influence of digitization on internationalization strategies, nevertheless no clear outcome has been indicated yet. Because, scholars disagree whether digitization creates a new strategy or rehashes a traditional one (Coviello, Kano & Liesch, 2017). This research will specifically look at the effects of digitization on the internationalization process, and whether it is incorporated in the entry-mode decision-making of companies. In the end, the results will be compared to the Uppsala model developed by Johanson and Vahlne (1977), one of the most widely used internationalization theories. The model has been revisited multiple times by Johanson and Vahlne (2009; 2017), but nevertheless this study will research whether the traditional theory is still of relevance to companies nowadays. It is of relevance for managers to be aware of the influence on digitization, as adjustments in their internationalization strategies due to digitization pressures might be necessary to improve efficiency and create optimization.

Therefore, theories that explain internationalization strategies might change by including digitization, and companies should be aware of the influence of digitization on their way of doing business. More specifically, the paper will look at the influence of digitization on the entry mode decision-making process of companies. Moreover, the aim of this research is to discover whether digitization, thus knowledge and information available through the internet and big data, has caught up, or even overtaken the importance of experience and experiential knowledge in the internationalization process of companies, and more specifically in their entry-mode decision-making. According to the Uppsala Model, companies make internationalization decisions based on experiential knowledge (Johanson & Vahlne, 1977). This paper will research whether such experiential knowledge is still relevant in the

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decision-S.G.M. NIJENHUIS 17-8-18 AN EXPLORATIVE STUDY ON THE EFFECT OF DIGITIZATION ON EXPERIENTIAL KNOWLEDGE IN THE INTERNATIONALIZATION PROCESS

making process in today’s increasingly digitized world. This paper will contribute to both theory and practice by trying to find an answer to the following research question:

How does digitization influence the importance of experiential knowledge in the entry-mode decision-making process within the Uppsala entry-model?

To investigate the research question above, a multiple case study was developed. The cases include Dutch and French companies operating in the consumer goods industry. The cases operate in various markets, differing from developed, to semi-developed, to developing markets, and in different segments within the industry, varying from flowers, to toiletries, to fashion. The differences and similarities between the cases ensure an interesting composition of the sample and will be used to present a valuable study.

This paper is structured as follows, firstly a detailed literature review will be presented, including all relevant concepts. Hereafter, the theoretical framework will be given, which includes the working propositions that are derived from the literature review. Next, the research design will be introduced, which will explain how evidence regarding the research question will be gathered. Fourthly, after performing all necessary tests regarding the working propositions, the results will be presented. Where after these results will be evaluated and discussed in the discussion section. Finally, a conclusion will be presented, which includes limitations, managerial implications and suggestions for future research.

2. Literature Review

2.1 Digitization

‘Digital is the new normal’ (TNS, 2012). And, especially the internet is expected to impact the business world majorly, e.g. through its global reach (Business Week, 1996; The

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Economist, 1999; Sivadas, Grewal and Kellaris, 1998). In this study, digitization is referred to as:the use of data and information in digital form by companies; where this data can be acquired through the internet or through big data. It is essential for companies nowadays to understand the value of digital knowledge from early on, as digitalization brings opportunities, as well as threats (Wittmott, 2014). Digitization can be described as the process where information is converted into a digital format, which indicates that information is organized into data (Rouse, 2007). The concept of information includes the information a company gathered through experience, as well as searching or scanning for new information specific to a market (Forsgren, 2002). Moreover, it is the application of information technology to increase human performance (McDonald, 2015). Digital technologies are full-time available to companies (day and night), it offers personalized treatment, and it lowers costs and risks by the delivery of standardized offerings (Knight & Liesch, 2016).

Digitization changes the current business landscape rapidly, forcing companies to adjust their business models to meet new growth opportunities, customer demands, and operating realities (Saxena, 2018). Digitization is changing a company’s strategic context: it alters the structure of competitors, the conduct of business, and firm performance (Hirt & Wittmott, 2014). Furthermore, digitization changes the production, sales, and logistics of a company, and it revolutionizes a company’s integration with its customers (Acker, Gröne, Lefort & Kropiunigg, 2015). Digitization provides the necessary information for knowing what, when, and how to efficiently produce products and services (Fulkerson, 2000). Furthermore, digitization simplifies many of a company’s processes as it eliminates repetitiousness and difficulties (Richnák & Porubanová, 2017). Digitization also lowers entry barriers and increases the amount of information available continuously due to big data (Hirt & Wittmott, 2014). And additionally, digital technologies itself know no borders. This creates new market entrants that develop rapidly and at a lower cost than the original players (Hirt & Wittmott, 2014), making

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it important for original players to stay ahead or keep up with the digitization of new entrants, and possibly learn from their internationalization strategies. Furthermore, companies should be aware that international market entry is easier for highly digitized firms compared to their traditional counterparts (Yonatany, 2017). This indicates that an increase in the use and application of digitization of traditional companies could possibly ease the market entry of traditional firms as well. In conclusion, digitization impacts companies on many different levels and in various ways, and these effects should not persist unnoticed. Companies should incorporate the opportunities created by digitization to make sure they remain competitive in today’s globalizing market. This study will investigate the effect of digitization, or more specifically the effect of information available via the internet and via big data, on the internationalization process of companies.

The next two paragraphs will be dedicated to the importance of the internet and big data in businesses seperately, as the definition of digitization used for this study includes both the relevance of the internet as well as big data. In the recent years, digital technologies have increasingly been diffused and integrated in all areas of life (Dregger, Niehaus, Ittermann, Hirsch-Kreinsen, ten Hompel, 2016). Especially the rise of the internet has created a new distribution channel, which has introduced a change to how accessible things are, and how revenues are generated and shared (Wunsch-Vincent, 2013). The internet has created the possibility to receive and use material that was not available to everyone previously (Cancro, 2016). Kahin (2016) describes the internet as a genuinely global tool, that is basically available everywhere and to everyone. Furthermore, the internet can be described as a research tool, that can be used to gather information and to evaluate secondary sources of information (Hewson & Stewart, 2016). The internet, and its accessibility to people and businesses, has created great opportunities for companies communication wise, as well as eased the opportunity to reach necessary information. In this study, mainly the accessibility of secondary sources of

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information and to what extent it is used is of relevance, as this information could be of great relevance in the internationalization process of companies, and their entry-mode decision-making.

Baessens, Bapna, Marsden, Vanthienen and Zhao (2016) claim that big data is becoming increasingly important and is changing the world dramatically. De Mauro, Greco and Grimaldi (2016) dedicated their research to finding a thorough definition for the term big data. Their definition can be described as follows: big data is an information asset, that is characterized by velocity, variety and high volume, and requires specific technologies and analytical methods to transform it into understandable and valuable information. Baesens et al. (2016) explain that big data can be defined by 4 V’s: volume, variety, veracity, and velocity. It is these four V’s that make sure that we work with valid data. Big data offers the opportunity to acquire valuable information from a large amount of data, that has been collected through various sources (Hashem, Chang, Anuar, Adewole, Yaqoob, Gani, Ahmed & Chiroma, 2016). Furthermore, Antunes (2016) states that big data has the possibility to impact the decision-making process, when it is interpreted correctly. Big data has several effects on businesses. Firstly, it impacts the business processes. Secondly, in the commercial world, it rebalances the power of relations in decision-making. And thirdly, it alters the scale and scope of optimization challenges (Baesens et al., 2016). Big data has become a useful research tool in management, as it deals with multiple amounts of sources and data (Rojas, Vega, Robayo, Montoya, & Piedrahita, 2016). From this it can be concluded that big data can be used as a useful research tool to collect necessary data and analytics, moreover, when the data is interpreted correctly, it can have a great influence on the decision-making of managers.

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2.2 Internationalization Strategies

One of the strategic decisions that companies are confronted with is which entry-mode to choose for internationalization (Lu, 2002). Moreover, selecting the right entry-mode decision is key to successful internationalization (Keegan, 1984; Root, 1987). Numerous internationalization strategies have been developed throughout the previous decades, with all a different view on what, how, and why firms internationalize. Three of such theories are the Network model, the Transaction Cost theory, and the Uppsala model. The Network model, developed in 1988 by Johanson and Mattsson, explains that a company relies on the resources of other firms’ in the same network when internationalizing. The TCE was developed by Williamson in 1985, and explains that firms internationalize when costs favor markets as the correct governance structure. The Uppsala model developed by Johanson and Vahlne in 1977 is used to describe the effects and influence of digitization in this paper. Therefore, this theory will be discussed in more detail below.

The Uppsala model is a well-known internationalization theory developed by Johanson and Vahlne (1977), which explains the internationalization method of a company. More specifically, the model considers the incrementally increasing commitment, and the gradual acquisition and integration into foreign markets. The model consists of two patterns. Firstly, internationalization starts in countries that are psychically close, and over time after evolving experience, companies enter markets that are psychically more distant. A second pattern of the Uppsala model is the chosen entry mode. According to the Uppsala model, firms typically start internationalizing through the entry mode that contains the least commitment, namely, exporting. Hereafter, again due to the development of experience, companies gradually internationalize through sales subsidiaries, and eventually through manufacturing plants (Johanson & Vahlne, 1977). Thus, based on the Uppsala model, it can be stated that entry-mode

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company’s experience subsequently leads to an increase in psychic distance and resource commitment. Thus, by gaining experiential knowledge, the company is willing to take more risks when expanding abroad.

Recently, Johanson and Vahlne (2017) published an updated and augmented version of their Uppsala model. In this updated version, the authors explain the evolution of international companies in general, without narrowing to the characteristics of the internationalization process. They explain that for the Uppsala model, the focus on process is its most distinctive feature, which indicates the processes of increased resource commitment and knowledge development throughout expansion. The processes indicate that in general, companies start expanding through low-risk entry-modes (e.g. exporting), and over time, as their experience and knowledge grows, risk decreases, and companies increase their resource commitment by applying higher-risk entry-modes (e.g. wholly owned subsidiary). This indicates that risk decreases as companies gain more experience, and subsequently companies will increase their resource commitment for future expansions. Thus, it all starts with a low resource-commitment mode, and as experiential knowledge gains, companies move to higher commitment modes (Carneiro, da Rocha & Ferreira da Silva, 2008). This illustrates that experiential knowledge is one of the main mechanisms used by companies to expand internationally following the Uppsala model, as experience builds a company’s market knowledge (Johanson & Vahlne, 1977; Levitt & March, 1988; Gavetti & Levinthal, 2000). This paper will investigate potential changes in the relevance of experiential knowledge due to digitization, and therefore this section will mainly focus on the knowledge development process of the model.

As discussed above, by developing experiential knowledge, a company will subsequently increase its psychic distance and resource commitment when expanding abroad. Knowledge development relies upon two concepts: the first being social construction, which implies that managers learn and make use of inputs to make information understandable and

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useful (Berger & Luckmann, 1966; Gavetti & Levinthal, 2000). The second concept is sense-making, which indicates that the knowledge development process resides in the tacit experience of managers and in enactment of the collective (Brown & Duguid, 1991). Knowledge development, or more specifically experiential knowledge comes from repeated practice (Teece, 2007; Eisenhardt & Martin, 2000). It unfolds over time, as the learning has to be consolidated in the minds of employees, in the company’s routines, and in its capabilities. Thus, experiential knowledge can be gained through personal experience only rather than be taught (Whitelock, 2002), and is critical to internationalization according to Johanson and Vahlne (1977). However, Barkema and Drogendijk (2007) found that mainly companies with above-average international experience benefit from experiential knowledge, and companies whose international experience is below-average do not. For learning to be successful, companies have to develop joint social capital (Johanson & Vahlne, 2017), which can be defined as the resources gained from relationships (Lollo, 2012). In 1990 Johanson and Valhne suggested three exceptions to their model, which mainly diminish the importance of experiential knowledge for the internationalization of companies. Firstly, firms with large resources might take larger internationalization steps than indicated by the model. Second, relevant market knowledge does not necessarily come from experience when market conditions are homogeneous and stable. And thirdly, experience from similar markets makes knowledge generalization possible. These exceptions affect the importance of experiential knowledge in the internationalization process of companies, and offer possibilities for different motives behind the way companies internationalize.

Forsgren (2002) states that there exist various ways to learn. Moreover, Nelson and Winter (2002) explain that knowledge development comes from trial-and-error cumulative learning, exercised by individuals, companies and society as a whole. Johanson and Vahlne (2017) agree that at the moment a radical transformation of the entire context of international

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business is happening due to the increasing development of information technologies. Nevertheless, they maintain to believe that the Uppsala model continues to be a useful guidance in the international expansion of companies. The authors believe that the knowledge development process, and more specifically experiential knowledge remain of value for the entry-mode decision-making process (Johanson & Vahlne, 2017), regardless of the influence of digitization on the decision-making process.

The Uppsala model presents an overview of how companies expand by means of experiential knowledge, and covers the whole internationalization process (including pace, location and type of entry-mode). Therefore, the rest of this paper will use the Uppsala model as the traditional internationalization strategy, and will look at specific modifications within the strategy that may have occurred due to digitization. More specifically, the paper will look at the entry-mode decision-making process of the Uppsala model, and whether experience and experiential knowledge development used to gradually increase psychic distance and resource commitment throughout the expansion process are still of relevance.

As mentioned above, entry-mode decision-making is based on a company’s experiential knowledge according to the Uppsala model (Johanson & Vahlne, 1977). Experiential knowledge can be described as all the knowledge accumulated by firms through their activities in foreign markets, and it implies that through this knowledge, people are able to search, analyze, and react to difficulties in the foreign market. The use of experiential knowledge helps in the detection of errors and to implement corrective action (Blomstermo, Eriksson, Lindstrand & Sharma, 2004). Experiential knowledge is tacit and develops over time, and can only be acquired through personal experiences. Internationalization decisions made by companies are a response to the risks and opportunities in the market, which are based on experience (Yonatany, 2017). As a company’s internationalization experience increases, it will subsequently increase the psychic distance and resource commitment of its following

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expansions. Whereas psychic distance covers the location selection of a company when expanding, the increase in resource commitment explains the entry-mode selection. To expand on this, Johanson and Vahlne (1977) describe resource commitment as the product (entry-mode) that evolves from the size of the investment times its degree of inflexibility (e.g. dedication to customer needs). Companies frequently start their expansion with exporting. The next step would be to enter through deals with intermediaries, which, if successful, will be replaced by a self-owned sales organization. Subsequently, manufacturing plants would be opened to overcome trade barriers (Johanson & Vahlne, 1977). Thus, as international expansion is successful and experience increases, companies will subsequently increase their resource commitment by eventually selecting high-commitment entry-modes for international expansion. This study will focus on companies that have already experienced parts of this internationalization process, but that are not fully saturated globally. Furthermore, the study challenges Johanson and Vahlne’s (2017) statement that experiential knowledge will remain of value for the entry-mode decision-making process, as changes may arise due to the rise of digitization. Thus, this study believes that knowledge which has become available through digitization, could become of greater relevance in the internationalization process of companies, than the relevance of experiential knowledge as mentioned by Johanson and Vahlne (1977). The following section will discuss the concepts of digitization and internationalization simultaneously and will investigate what previous research has discovered about the effects of digitization on internationalization strategies.

2.3 Digitization and The Uppsala Model

Digitization in the sense of using the internet for business processes, has been widely adopted globally and should become the essence of current and future business strategies. Thus,

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production and performance of a good or service to serve customer needs (Weske, 2012; Kirchmer, 2017; von Scheel, von Rosing, & Scheer, 2014). Furthermore, transforming businesses by including digital makes sense, as consumers are becoming increasingly aware of the opportunities of digitization and create new demands (McDonald, 2015). For firms to derive value from the increasing availability of big data, it is necessary that companies are aware how to make effective decisions in the current digital economy (Dhar & Sundararajan, 2007). BarNir, Gallaugher, and Auger (2003) researched the field of internet commerce and found that firms differ in the way they digitize business processes through the internet, depending on a firm’s age and size, as they found that the relationship between digitization and strategy is stronger for new and smaller firms, compared to established and larger firms. Furthermore, digitization and the use of the internet are both associated with low cost and innovation strategies. Additionally, this implicates that numerous firms appear to use the internet to support strategic objectives.

Appropriate entry-mode decision-making is critical to ensure the success and endurance of an international operation (Root, 1994; Terpstra & Sarathy, 2000). This study looks at the market-seeking behavior of companies, and more specifically focuses on what type of information is used to make decisions regarding the entry-modes these companies use to enter new markets. Market-seeking investments generally involve the physical location of the company abroad (Zaheer & Manrakhan, 2001). Market-seeking companies enter new markets to increase their global presence, and to gain a substantial international market position. Companies use market-seeking behavior to sustain their existing markets, or to exploit new markets (Cui, Meyer & Hu, 2014). Furthermore, it is used to strengthen the market position of the firm, and to intensify competition in the home market (Cui et al., 2014). For market-seeking companies to successfully operate abroad a few necessities exist: the company has to find

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partners to cooperate with, it has to detect the needs of the host country, and it has to establish relations with firms abroad (Majkgård & Sharma, 1998).

Digitization has dramatically changed the nature of businesses, therefore also influencing the adequate entry-mode strategies (Ekeledo & Sivakumar, 2004). Nowadays, when discussing entry-mode, technology and digitization are important factors to consider for traditional firms (Ekeledo & Sivakumar, 2004). Ekeledo and Sivakumar (2004) developed a framework for (service) firms to understand the impact of e-commerce on entry-mode strategies. They found that the level of digitization influences both the location choice as well as the level of control, whereas the latter determines the entry-mode strategy. In the end, the appropriate entry-mode strategy depends on a combination of internal factors (e.g. assets, competencies, and strategic considerations), external factors (e.g. economic environment), and e-commerce technologies. Furthermore, digitization dramatically decreases transaction costs (Coase, 1037; Ellram, Tate, & Billington, 2008), which is an important factor influencing the entry-mode decision (Williamson, 1993). The question remains to what extent digitization has an influence on the current internationalization strategies of MNEs, and whether these strategies are similar to the traditional strategies, whether these strategies are slightly adjusted due to digitization pressures, or whether completely new strategies are applied by companies to incorporate digitization in their internationalization process.

In the following paragraphs, literature about the influence of digitization on the Uppsala model will be discussed. Yonatany (2017) found that highly digitized companies or born globals’ experience a different internationalization process, compared to the traditional firm’s process. According to his research, the choice of host market becomes less important, because digitization decreases the influence of psychic distance and liability of foreignness, whereas liability of foreignness can be described as a disadvantage of the company entering a country compared to local companies within the country. This argument diminishes one of the main

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concepts of the Uppsala model, namely expanding to psychically close countries at the beginning, and gradually expanding as experience increases. Welch, Nummela and Liesch (2016) claim that in today’s digitized world it has become easier to overcome challenges regarding costs and access to information in the internationalization process than it was back in the 1970s when the Uppsala model was developed. Nevertheless, even though research has occurred regarding the effect of digitization, these researches do not indicate whether traditional companies have also increasingly incorporated digitization into their internationalization process and their entry-mode decision-making, which is being researched in this study. And, the advantages and disadvantages these companies perceive regarding the effect of digitization. The greater access to knowledge has decreased the time lag between firm foundation and the initial international expansions. Coviello et al. (2017) describe the effect of digitization as the creation of a worldwide market for economic and social transactions, and for tangible and intangible elements. And, they try to investigate whether this new digital worldwide market still fits the process of the Uppsala model. Some researchers argue that new highly internationalized companies do not apply the steps of the Uppsala model, whereas other argue that they represent special cases of the Uppsala model (Coviello et al., 2017). Marsh (2017) agrees that firms evaluated in the Uppsala model are utterly different from nowadays highly digitized companies, and therefore the Uppsala model cannot explain the internationalization process of these highly digitized companies.

The application of digitization by firms, and the eased access to market information has not proven to guarantee successful market entry (Welch et al., 2016). Access to information can create an illusion of understanding the market (Nummela, Saarenketo & Loane, 2016), whereas information alone is not knowledge. And, for the information to become valuable it must be absorbed, learned, processed and acted upon (Welch et al., 2016). Nevertheless, whether successful market entry could ever be guaranteed, independent of whether digitization was

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incorporated or not, is questionable. Furthermore, to what extend companies incorporate digitization and what they perceive as the advantages and disadvantages regarding digitization remains unclear, and will hopefully be clarified to a certain extent by means of this study. According to Coviello et al. (2017), digitization can influence the internationalization process in many other ways as well, such as: the timing, rhythm and pace, the location and entry-mode decision-making, and overcoming the liability of foreignness. This can be explained by the reduction of transaction costs and reshaping of boundaries due to technological advances (Chen & Kamal, 2016). Even though benefits can come from digitization, highly digitized firms, such as born globals, can still experience similar country barriers as traditional companies (Coviello et al., 2017). What differs between digital and traditional firms is the actual process of internationalization, including the FSA transfer, recombination and exchange (Coviello et al., 2017). Furthermore, new digitized firms appear to be engaged in business exchange rather than production (Coviello et al., 2017), nevertheless, traditional firms that operate in production rather than business exchange also experience effects of digitization. In conclusion, even though scholars do not fully agree about the impact of digitization on the Uppsala model, in general they suggest an updated version of the Uppsala model, rather than the development of a new internationalization strategy. The following section will more specifically focus on the influence of digitization on the experiential knowledge process of the Uppsala model.

2.4 Digitization and Experiential Knowledge

In the Uppsala model, knowledge development or experiential knowledge is one of the main mechanisms used during international expansion (Johanson & Vahlne, 2017). Nevertheless, this paper aims to research whether this knowledge process remains of interest, or whether digital technologies such as the internet and big data diminish the importance of

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becoming increasingly available through the internet and databases, the importance of previous experiences and the developed experiential knowledge might decrease. Johanson and Vahlne (1977, 2009) state that gaining experience, or more specific learning and accumulating knowledge, are the heart of the Uppsala model. The Uppsala model states that lack of experiential knowledge about the foreign market is the main reason why companies fail their international operations (Hutzschenreuter & Matt, 2017). As lack of knowledge of the foreign market increases liability of foreignness, which subsequently increases operational risk (Hutzschenreuter & Matt, 2017). The experiential knowledge gained from previous expansions is used for further internationalization of the company. However, this study wonders whether previous experiences remain as relevant in the decision-making process, when all necessary information is becoming increasingly available digitally. An example of the type of information that can nowadays be acknowledge online or via big data, without being present in a foreign market, is country-specific knowledge necessary for expansion, such as market standards, legal requirements, consumer behavior, norms and values, and legislations.

Companies nowadays increasingly rely on digital knowledge technologies by means of information technologies (Sambamurthy, Bharadwaj, & Grover, 2003). The ability to digitally store information has created the opportunity for companies to generate competencies and knowledge at any location within the MNE (Sambharya, Kumaraswamy, & Banerjee, 2005), which can provide assistance during the internationalization process. Liu and Ravichandran (2015) found that information technologies positively moderate the integration of experience. This indicates that due to digitization, knowledge and information about new markets is integrated within a company faster, which subsequently accelerates the internationalization process. Furthermore, companies significantly invest in information technologies to support their knowledge development (Choi, Lee, & Yoo, 2010). Digitization reshapes business models, which in the future might lead to the replacement of less efficient business models by

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digitized business models (Loebbecke & Picot, 2015). Even though nowadays information technologies are mainly used to support knowledge development, previous literature shows positive signs that in the future digitization could possibly overtake knowledge development and become the main driver behind internationalization.

Regarding the internet, Petersen, Welch, and Liesch (2002) found that specifically the internet has a range of effects on international expansion, from limited impact to, in most cases, rapid widespread expansion. The authors found that the internet challenges the use of experiential knowledge, which is of interest as they found that experiential knowledge is used as a propelling factor for companies to expand. This would indicate an influence of the internet on the importance of experiential knowledge, or even a possible replacement. Nevertheless, the authors do emphasize that experiential knowledge remains a propelling factor in the expansion process of companies. They claim that the internet improves market transaction efficiency, and thereby reduces the amount of knowledge needed. Alon and Cannon (2000) state that the current advances of digitization have made foreign resources more accessible as they can be found and explored through the internet. Thus, digitization supports expansion through the internet, and subsequently decreases the risks of operating in a foreign country. As the internet increasingly provides all information necessary when expanding, the necessity of experiential knowledge may become less relevant as complications and obstacles can be overcome through thorough digital research. The results of Alon and Cannon (2000) would indicate that at the moment digitization has not replaced experiential knowledge yet, but that the internet is diminishing the amount of experiential knowledge needed, and may replace experiential knowledge in the future. Nevertheless, not all scholars agree. In the updated version of the Uppsala model by Johanson and Vahlne (2017), the authors once again emphasized the importance of experiential knowledge in the expansion process of companies. This study will provide additional data to the debate regarding the relevance of the Uppsala model in todays

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digitized world, and will investigate the effect of digitization on the use of experiential knowledge in the internationalization process and entry-mode decision-making of traditional companies. Moreover, if possible a new perspective regarding the importance of experiential knowledge and digitization will be provided.

According to Brennan and Garvey (2009) born globals have already found another driver for internationalization, rather than experiential knowledge, namely their technological advantages. However, they also notify that internationalization experience, together with the ability to integrate knowledge acquired through international network relationships remain to moderate the pace and pattern of the internationalization of traditional firms. Nevertheless, the internet appears to have a positive impact on internationalization and organizational growth (Davis & Harveston, 2000), thus the substitution of experiential knowledge by the internet in the future remains contingent. Because, the internet has the potential to reduce one of the greatest obstacles of doing business in foreign markets, namely uncertainty.

3. Theoretical Framework

In this section, the information discussed in the literature review will be reviewed, summarized and the main issues underlying this research will be presented. In section 3.1 the conceptual framework underlying this study can be found, as well as the working propositions. This information is the basis of the research and will be used as the starting point of further analysis.

Digitization has created the opportunity to access great amounts of data more easily, and has eased international communications and expansion. Especially in the internationalization process companies should acknowledge the influence of digitization, as international growth appears to be easier for highly digitized firms compared to traditional companies (Yonatany, 2017). Thus, becoming more digitized could possibly bring international

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growth opportunities to traditional companies as well. This study claims that traditional firms already start to incorporate digitization increasingly within their internationalization process, and investigates whether it has become the main source underlying the entry-mode decision-making within companies. Furthermore, due to digitization, changes in the current business landscape are occurring, which subsequently forces companies to modify their business models and entry-modes to digital pressures to be able to meet customer demands, growth opportunities, international expansion, and operating realities (Saxena, 2018). In the past, mainly experiences and experiential knowledge have been the main sources used by companies in the internationalization process. Nevertheless, for traditional firms to remain successful in the future it is important to incorporate the opportunities offered by digitization in their internationalization process. In this research digitization is described as the usage of the internet and big data by companies to gather relevant knowledge and information. More specifically, the study looks at the effect of digitization on the entry-mode decision-making within the internationalization process. Thus, whether information obtainable via the internet and/or big data affects the entry-mode selection by companies entering (new) markets, and whether this type of information/knowledge has overcome the importance of experiential knowledge.

A great number of traditional companies follows the Uppsala model for their international expansion process, which indicates that through experience and experiential knowledge they expand their business by increasing psychic distance and resource commitment (Johanson & Vahlne, 1977). As can be read above, digitization has become an important factor in the internationalization process of companies (Ekeledo & Sivakumar, 2004). Therefore, the question arises whether the applicability of the Uppsala model remains the same, whether adjustments are necessary, or whether the theory is no longer of relevance in the future. For example, Coviello et al. (2017), argue that the actual internationalization process differs due to digitization, and that the Uppsala model should not be eliminated, but needs to be adapted to

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current digitization developments. More specifically, this paper will focus on the essence of experience and experiential knowledge in the Uppsala model, and whether this remains of essence with the rise of digitization. Thus, whether digitization influences the importance of experience and experiential knowledge when internationalizing, and whether this subsequently influences the entry mode decision-making process of companies. More specifically, this paper will investigate whether experiential knowledge remains one of the main drivers behind international expansion, or whether digitization replaces the fundament of experiential knowledge.

In this section, all concepts discussed above will be combined as the relationship between digitization, the Uppsala model, and the importance of experiential knowledge will be described. Digitization can affect the internationalization process by influencing the timing, rhythm and pace, the location, the entry-mode decision-making of a company, and more (Coviello et al., 2017). Digitization does so by decreasing transaction costs and reshaping existing boundaries (Chen & Kamal, 2016). Moreover, using digitization during the internationalization process has become inevitable (Ekeledo & Sivakumar, 2004). The process of the Uppsala model may be challenged by digitization. Experiential knowledge is one of the main factors underlying the Uppsala model, as when experiential knowledge increases, a company increases the psychic distance and resource commitment in its internationalization process. Nevertheless, the importance of experiential knowledge is challenged in this research due to the rise of digitization. The internet has helped companies to expand more rapidly and widespread, due to an improvement in market transaction efficiency (Petersen, et al., 2002). Furthermore, foreign resources, including local knowledge, have become more accessible due to digitization, which decreases the risk of operating abroad (Alon & Cannon, 2000). Moreover, Petersen et al. (2002) found that the internet challenges the use of knowledge, as it is nowadays used as a propelling factor for companies to expand. In conclusion, decreasing the risks and

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uncertainty of expansion could possibly decrease the importance of experiential knowledge when expanding abroad. Nevertheless, based on the literature it seems that at the moment digitization has not replaced the importance of experiential knowledge yet, however, the internet is diminishing the amount of experiential knowledge necessary for international expansion.

After analyzing the literature, it can be concluded that digitization certainly affects internationalization strategies to some extent. Whether a completely new strategy should be developed or whether digitization rehashes the existing theory remains unclear, as scholars share different views. Digitization most probably has an influence on the importance of experiential knowledge, but whether digitization will ever replace experiential knowledge remains unclear. Nevertheless, what can be concluded is that links can be made between digitization, experiential knowledge and entry-mode decision making, and that an effect of digitization is highly certain.

3.1 Conceptual Model and Working Propositions

This section provides the conceptual model and the working propositions developed specifically for this study. The conceptual model presented in figure 1 below is an extension of the Uppsala Model by Johanson and Vahlne (1977), as their model is used for comparison in this study. Digitization was added as it is expected to be an influential factor in the entry-mode decision-making process of companies nowadays.

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Figure 1: The Uppsala Model (Johanson & Vahlne, 1977), including the Influence of

Experiential Knowledge and Digitization.

The traditional Uppsala model is similar to the model presented in figure 1, excluding the arrow aligning digitization. The focus of this study is on the box of the relationship commitment decision, or rephrased on the decisions made regarding the entry-mode during expansion. The traditional model by Johanson and Vahlne (1977) claims that experiential knowledge is the main mechanism used in the entry-mode decision-making process. This study challenges the importance of experiential knowledge by the rise of digitization, as information and knowledge is becoming increasingly available through the internet and big data. Thus, the research questions whether the importance of experiential knowledge in the internationalization process as described by Johanson and Vahlne (1977) remains reliable, or whether knowledge provided through digitization covers the importance of experiences knowledge. Therefore, to demonstrate the influence of digitization on the entry-mode decision-making process (the digital availability of necessary information), the mechanism digitization is added to the framework. More specifically, this research investigates whether the mechanism of experiential knowledge including the arrow remains of importance within the Uppsala model, or whether it

Market Knowledge Opportunities Market Commitment/ Network Position Relationship Commitment Decisions Learning, Creating, Trust-Building Experiential Knowledge Digitization State Change

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will be replaced by digitization. Whether experiential knowledge remains of importance, or whether this mechanism is overtaken by digitization in the internationalization process will be researched by means of a multiple case study. The study will evaluate how digitization is incorporated in the internationalization process, and whether experiential knowledge is still the main mechanism used in a company’s internationalization process and its entry-mode decision-making process, or whether it is overtaken by digitization.

The working propositions composed for this study are aligned with the research field (sections 2 and 3), the conceptual model and research question of this paper. The working propositions are presented in table 1 below.

Table 1: Working propositions Working Propositions

1 Digitization is increasingly being incorporated in a traditional company’s

internationalization strategy.

2 Digitization is increasing the pace of a traditional company’s internationalization

process.

3 Digitization diminishes the importance of experience and experiential knowledge in

the internationalization process (the Uppsala model).

4 Digitization influences the entry-mode decision-making process of companies.

The first working proposition focuses on the use of digitization to an increasing extent. As digitization is rising, this working proposition expects that companies subsequently increasingly incorporate the use of digitization in their internationalization process.

The second working proposition is slightly more concentrated, as it looks at the increasing pace of the internationalization process due to digitization. The literature suggests that one of the major effects of digitization on the internationalization process is the increased pace of the total process. Working proposition 2 is therefore developed to research whether this also accounts for Dutch and French companies operating in the consumer goods industry.

The third working proposition is focused on the diminishing importance of experience and experiential knowledge in the internationalization process due to the rise of digitization. It

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suggests that digitization is becoming one of the main mechanisms in the internationalization process, rather than experiential knowledge.

The last working proposition, working proposition 4 states that digitization is of influence in the entry-mode decision-making process. According to the Uppsala model by Johanson and Vahlne (1977), the main mechanisms influencing the entry-mode decision-making process remains experience and experiential knowledge. Nevertheless, this paper suggests that digitization has become of relevance within this process as well.

4. Research Design

This section will discuss the research design used for answering the research question of this study. The research question is as follows: How does digitization influence the

importance of experiential learning in the entry-mode decision-making process within the Uppsala model? The research design used to answer this question includes what type of

research will be conducted, the research strategy, and which instruments and procedures will be used.

This paper will conduct a qualitative inductive research. The research strategy is a multiple case study, where data and evidence for answering the research question will be collected through multiple cases by means of interviews, as interviews can be used to provide information of how companies coop with digitization in their entry-mode decision-making process. The research is a descriptive and explorative study and is executed cross-sectional. For the data collection, a single method is used, as data will be collected only by means of a case study. The paper focuses on Dutch and French companies in the consumer products industry. Thus, companies that produce products specifically for consumers, such as clothing, toiletries and flowers. All of the interviewed companies have an international sales format (McGurr, 2002), indicating that they are all operating and selling their products internationally,making

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the industry interesting and suitable to this research. The different segments within the consumer goods industry help to provide different insights, and to provide all together generalizable results for the consumer goods industry. Furthermore, the availability of consumer goods companies in the Netherlands and France is of relevance for the choice of this industry. Moreover, the consumer goods industry is affected by digitization through e-commerce pressures, as well as in their business processes and internationalization strategies. This study will focus on how companies expand abroad, thus the entry-mode decision-making process of companies. This also implies that the companies included in the cases have previous experiences with operating abroad. Furthermore, the case companies plan to expand even further in the (near) future. Thus, companies with international expansion experience, but that are not saturated globally (yet). This type of company can provide information about the influence of digitization when they first started expanding, and the way they incorporate digitization in their internationalization decision-making process nowadays.

The companies that were reached out to are internationally active, but not globalized. Dutch and French companies were reached out to, to collect appropriate data and evidence. The selection of multiple companies or cases rather than one ensures reliability of the research. On the downside, even though generalizability within the Dutch and French consumer goods industry may be accomplished, international generalizability within different industries cannot be ensured by using this sample. Regarding the interviews, within these companies, the persons associated with the internationalization process, such as business development managers, were reached out to. These individuals were reached out to by means of LinkedIn or via e-mail. People associated with the internationalization process (e.g. business development managers) were selected as these persons deal with a company’s expansion, and thus are involved in the entry-mode decision-making process. Moreover, the interviewees provided this paper with information regarding the influence of digitization on the importance of experiential knowledge

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within the entry-mode decision-making process. Digitization in the sense that the necessary information can nowadays be found through the use of big data, and the availability of information on the internet. The case companies provided information regarding the incorporation, the usage, and the importance of experience and experiential knowledge, and digitization in the entry-mode decision-making process of internationalization.

4.1 Research Method

For the person responsible for the internationalization of a company (e.g. the business development manager) to be able to provide sufficient answers, interviews were conducted. These interviews included (semi-)structured questions. The questions were based on the interview guide approach by Patton (2002). Three cases (DFG, Lamazuna, and Pretty Wild Lingerie II) provided their answers via e-mail due to time constraints of the company, whereas with the other three cases (G-Star Raw, Vlisco, and Pretty Wild Lingerie) either face-to-face or skype interviews were conducted. For these last three cases, with each individual one interview was conducted, that lasted about half an hour to an hour, depending on the extension of the interviewee’s answers. Furthermore, the interviews were recorded, transcribed and codified afterwards. The interview questions can be found in table 2 below. The working propositions described in section 3.1 were the baseline for the interview questions. How the working propositions and the interview questions align is described below.

The questions accompanying WP 1 cover the theme of digitization: the internet and big data. WP 1 claims that digitization is nowadays increasingly incorporated in the internationalization process of traditional companies. The accompanying interview questions therefore focus on the usage of digitization by companies in their internationalization process, and their perception of the importance of digitization in the internationalization process.

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The answers provided to the interview questions accompanying WP 2 were developed to provide the necessary information to confirm or reject WP 2. WP 2 focuses on the increased pace of the internationalization process due to increasingly incorporated use of digitization and digitally acquired knowledge by companies. Therefore, the aligning questions ask the cases about their opinions regarding digitization, and whether it has, in their opinion and in their company, eased and/or fastened the pace of the internationalization process.

WP 3 claims that the rise of digitization has diminished the importance of experiential knowledge in the internationalization process. More specifically, it supposes that knowledge available through digital channels, such as the internet and big data, has become of greater importance than knowledge gained through previous experiences. The interview questions accompanying WP 3 focused on obtaining the opinions of the cases regarding whether they believe that digitization has overcome the importance of experiential knowledge, or whether for the current business landscape experiential knowledge remains of greater importance than digitization within their internationalization process.

The final working proposition, WP 4, focuses on the influence of digitization on the mode decision-making. WP 4 assumes that digitization has an influence on the entry-mode decision-making, which according to the Uppsala Model is mainly based on previous experiences, thus experiential knowledge. The interview questions accompanying WP 4 investigate whether digitization is of importance for the entry-mode decision-making, and why the cases believe this mechanism is of importance in the process

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Table 2: Interview questions

Interview Questions WP 1 WP 2 WP 3 WP 4

General Questions

Could you shortly introduce [company]?

Does [company] plan to further expand operations abroad in the future?

Could you explain the internationalization process of [company]?

What do you expect the main future development within the internationalization process will be?

Experience and Experiential Knowledge

What is your perception about the use of previous expansion

experience in the internationalization process of [company]? X

Do you believe that previous experience of expanding abroad is of importance in the subsequent expansions abroad of

[company]? If yes, why? X

Digitization: The Internet and Big Data

What is your perception about the use of the internet and/or big

data in the internationalization process of [company]? X Does [company] make us of the internet and/or big data when

researching a target market? X

Is information provided online used as the main source of information that is used when expanding abroad? If yes, why?

If not, why? X

Do you believe that digitization, or more specifically the internet and/or big data, has eased the internationalization

process of [company]? If yes, how? X X

Has digitization/the internet/big data increased the pace of the expansion process of [company]? Thus, has the

decision-making time when expanding abroad decreased? X X

Do you believe that digitization will become increasingly

important within the expansion process of [company]? X X

Do you believe that digitization to some extent has weakened

the importance of previous expansion experience? X X

Do you believe that digitization to some extent has replaced the

importance of previous expansion experience? X X

Entry-Mode Decision-Making

Is previous experience of expanding abroad of importance in

the selection of an entry-mode for [company]? If yes, why? X

Is digitization of importance in the selection of an entry-mode

for [company]? If yes, why? X

The interview questions above, more specifically the answers to these interview questions provided by the interviewees, will be used to derive an answer to the research question of this paper. Furthermore, by using these accurately composed interview questions that focus on providing an answer to the paper’s research question, credibility and validity of the research can be ensured.

An explorative study on the effect of digitization on experiential knowledge in the internationalization process