The role of knowledge and learning on the relationship between internationalization and performance

Master thesis

The role of knowledge and learning on

the relationship between

internationalization and performance

A case study at a Dutch knowledge -intensive business service firm

By

CASPER HOVING

University of Groningen

Faculty of Economics and Business

MSc International Business & Management

July 2014

c.i.hoving@student.rug.nl

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ABSTRACT

This paper is a response to the call from literature to gain more insight on the predictors of internationalization and performance of knowledge-intensive business service (KIBS) firms. The purpose of this study is to explore, describe and analyze how knowledge and learning affect the link between internationalization and performance, as indicated by the three-stages of internationalization model of Contractror et al. (2003). This research will contribute to, and extend, existing literature by linking the influence of the knowledge dimensions and experiential knowledge and learning to the relationship between internationalization and performance. Based on existing literature a conceptual model is constructed indicating the role of knowledge in the different stages of internationalization. A case study research at a Dutch KIBS firm has been conducted to test the conceptual model. It is found that the knowledge dimensions together with experiential knowledge and organizational learning, and knowledge leveraging all have an influence on the internationalization-performance relationship of KIBS firms. For knowledge intensity, tacitness, source of knowledge, experiential knowledge and organizational learning it is found that they moderate the internationalization-performance relationship, where as knowledge leveraging is found to be a mediator. This research and the conceptual model that emerged out of it can help management identify how and what different knowledge dimensions should be used and deployed in the internationalization process of KIBS firms.

Keywords: Internationalization; performance; knowledge; organizational learning;

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TABLE OF CONTENT

KNOWLEDGE-INTENSIVE BUSINESS SERVICE FIRMS ... 11

INTERNATIONALIZATION AND PERFORMANCE ... 12

Performance ... 13

Internationalization ... 14

Internationalization-performance relationship ... 15

THE INFLUENCE OF KNOWLEDGE AND LEARNING ON THE INTERNATIONALIZATION-PERFORMANCE RELATIONSHIP ... 16

KNOWLEDGE DIMENSIONS ... 17

Knowledge intensity ... 17

Tacitness ... 19

Source of knowledge ... 21

EXPERIENTIAL KNOWLEDGE AND ORGANIZATIONAL LEARNING ... 23

KNOWLEDGE LEVERAGING ... 25

CONCEPTUAL MODEL – THE INFLUENCE OF KNOWLEDGE AND LEARNING ON THE INTERNATIONALIZATION -PERFORMANCE RELATIONSHIP ... 26

RESEARCH DESIGN ... 28

METHOD ... 28

CASE STUDY:LEASEWEB... 29

DATA COLLECTION AND ANALYSIS ... 30

RESEARCH FINDINGS ... 32

INTERNATIONALIZATION AND PERFORMANCE BY LEASEWEB ... 32

KNOWLEDGE DIMENSIONS ... 34

Knowledge intensity ... 35

Tacitness ... 36

Source of knowledge ... 38

EXPERIENTIAL KNOWLEDGE AND ORGANIZATIONAL LEARNING ... 39

KNOWLEDGE LEVERAGING ... 41

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CONCEPTUAL MODEL – THE INFLUENCE OF KNOWLEDGE AND LEARNING ON THE INTERNATIONALIZATION

-PERFORMANCE RELATIONSHIP ... 44

DISCUSSION ... 46

REFERENCES ... 49

APPENDICES ... 57

APPENDIX A–NETWORK MAP LEASEWEB 2014 ... 57

APPENDIX B–LEASEWEB NETWORK 2013 ... 58

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“Knowledge and the accumulation of knowledge via experiential learning are fundamental to the success of a firm’s internationalization.”

(Autio et al., 2000; Casillas et al., 2009; Denicolai et al., 2014; Liesch & Knight, 1999, Scott-Kennel and Von Batenburg, 2012, p. 1667)

INTRODUCTION

The service industry has developed itself into the fastest growing sector of the global economy (Doh, et al., 2009; WTO, 2014) and as a result of an increasingly boundary-less world (Brock and Alon, 2009) more and more service industry firms have started to internationalize their operations (Pla-Barber and Ghauri, 2012). However, literature on the internationalization of service firms, despite increasing scholarly attention in recent years, is still rather scarce (Buckley, et al., 1999; Kundu, 1994; Li, et al., 2011; Merchant and Gaur, 2008; Pla-Barber, et al., 2010). The specific and heterogeneous characteristics of services underscore the importance of further research as the established literature on manufacturing internationalization cannot be fully generalized towards the internationalization of service industry firms. Contractor et al. (2003) go even further by stating that “services are fundamentally different from manufacturing” (p. 9), and in comparison with manufacturing firms their internationalization processes and preconditions are totally different (Boddewyn, 1986; Buckley et al., 1999, Contractor et al., 2003).

6 internationalization’ framework (Figure 1) illustrates the internationalization process for KIS and will form the basis of this MSc thesis research.

FIGURE 1 – THREE STAGES OF INTERNATIONALIZATION (CONTRACTOR ET AL., 2003) An important factor in the internationalization process that is especially essential to these KIS firms is the role of knowledge and organizational learning, and their effect on performance. Despite the fact that literature has acknowledged knowledge and learning as fundamental factors for a firm’s success in internationalization (Casillas, et al., 2009; Liesch and Knight, 1999), relatively few studies comprehensively investigate the influences of knowledge and organizational learning on a firm’s internationalization (Ball, et al., 2008; Eriksson, et al., 2000; Lord and Ranft, 2000; Mattsson, 2000; Scott-Kennel and Von Batenburg, 2012). For a knowledge-intensive organization (Løwendahl, et al. 2001; Netland and Alfnes, 2007; Von Nordenflycht, 2010) it can be argued that there is “much to gain from a clearer understanding of the role of knowledge and learning in the internationalization process” (Scott-Kennel and Von Batenburg, 2012, p. 1667). Scott-Kennel and Von Batenburg (2012) conducted a single case study at a specialized New Zealand weather forecast service provider. In doing so, they made an initial attempt to find out “whether and how knowledge dimensions, experiential knowledge and learning, and knowledge leverage mechanism influence internationalization” (p. 1677). However, Scott-Kennel and Von Batenburg (2012) merely study the effect of knowledge on internationalization without linking it to the performance of the firm.

7 internationalization of professional service firms, a subset of KIFs, which has delivered some interesting new insights, although with limited support for generalizability. However, they do not place their findings in a framework that identifies the specific stages of international expansion, nor do they link the degree of internationalization to performance. Placing their findings within an international expansion framework could help firms identify what types of knowledge require extra investment in the specific internationalization stage they are currently in. For instance, a firm that is in the state of ‘over-internationalization’ can invest tremendous amounts of resources in order to gain additional relational knowledge in new markets, but is better served by investment in location-specific knowledge to become more competitive in its current markets. This is very closely related to a next point that is lacking in Scott-Kennel and Von Batenburg’s (2012) research, namely the link between internationalization and performance. Internationalization can be a very interesting business; however this is only the case when it also leads to better overall performance. This MSc thesis will address these shortcomings by looking at the effect of knowledge on the relationship between internationalization and performance in the different stages of internationalization, as presented by Contractor et al. (2003).

Research Objective

8 This paper is a response to the call from literature to gain more insight on the predictors of internationalization and performance of knowledge-intensive business service (KIBS) firms (Hitt, et al. 2006; Løwendahl, 2000), a subcategory of KIS firms (Strambach, 2008). This research will contribute to, and extend, existing literature by linking the influence of the knowledge dimensions and experiential knowledge and learning to the relationship between internationalization and performance. Thereby, this research will provide an extension to Contractor et al.’s (2003) framework by indicating how specific dimensions of knowledge play a role in this framework. Thereby, these contributions will not only extend the existing literature, they will also lead to useful implications for management, as it becomes clear how the different dimensions of knowledge can, or even should be used and deployed during the internationalization process of KIBS firms.

Research Question

Following this logic, the main research question of this paper will be:

How do knowledge and learning affect the link between internationalization and performance of knowledge-intensive business service firms?

The main research question is interesting to management theory, as it is testing a completely new effect on the relationship between internationalization and performance of KIBS firms. Especially since the increasing importance of knowledge of KIBS firms, as indicated earlier, in the current and future economy, this research not only further tests previous findings and contributes to the existing literature by introducing a new conceptual model, but can also lead to important implications for managers and firms, as indicated above.

In order to answer the main research question, six sub-questions will be addressed: Sub-questions:

1. What is the relationship between internationalization and performance for KIBS firms?

2. In what way does knowledge intensity influence the link between internationalization and performance for KIBS firms?

9 4. In what way does the source of knowledge influence the link between

internationalization and performance for KIBS firms?

5. In what way do experiential knowledge and learning influence the link between internationalization and performance for KIBS firms?

6. In what way does knowledge leveraging influence the link between internationalization and performance for KIBS firms?

The first of these sub-questions has been extensively researched and will therefore be addressed in the literature review. The remaining five sub-questions will be answered through a combination of assumptions based on literature and data obtained through a case study, as these investigate the effect of knowledge in a way that has not been done before.

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LITERATURE REVIEW

Before we emphasize on the relationship between internationalization and performance, it is important to have some knowledge about the field we are concentrating on, namely the services industry, with a special focus on knowledge-intensive business services. As explained by Rodríguez and Nieto (2012): “To analyze the internationalization of KIBS we must first understand the nature of services” (p. 1059).

Service Industry

The distinctive characteristics of services, together with an industry that consists of many different sectors, differing from transportation and construction, hotels and restaurants, medical service and hospitals, finance and legal services, accounting and consultancy, etc., make the services industry a very complex and broad field of research. As a result, most of the literature on services is very industry specific (Blomsterno, et al., 2006; Flodin and Jansson, 2012). One can for example think about the hotel industry (Gannon and Johnson, 1997), banks (Drogendijk and Hadjikhani, 2009), engineering consultants (Li, et al. 2011), law firms (Brock and Alon, 2009), and weather forecast service providers (Scott-Kennel and Von Batenburg, 2012).

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Knowledge-Intensive Business Service Firms

The focus of this paper will be on the internationalization process of knowledge-intensive business services. “For knowledge-intensive services (KIS) … knowledge is the main production factor and the good they offer” (European Commission, 2012, p. 6). A subcategory of KIS is the knowledge-intensive business services (KIBS) firms. These specific KIBS distinguish themselves from other KIS, in that KIBS are mainly concerned with providing knowledge-intensive inputs to the business processes of other organizations, so these types of firms have emerged to deal with specific demands from firms for external knowledge sources. (Miles, 2005; Muller and Doloreux, 2007). Examples of KIBS are firms that are active in computer services, R&D services, legal, accountancy and management services, architecture, engineering and technical services, advertising and market research.

Like often in academic research, there is no consensus on one clear definition of what a KIBS consists of. In their 1995 article, Miles et al. introduced three basic characteristics of KIBS: 1) they rely heavily upon professional knowledge; 2) they either are themselves primary sources of information and knowledge or they use knowledge to produce intermediate services for their clients' production processes; and 3) they are of competitive importance and supply primarily to business. Following these characteristics, Miles et al. (1995) came up with the following definition: “KIBS involve economic activities which are intended to result in the creation, accumulation or dissemination of knowledge” (p. 18). Other terms that are used in literature to describe KIBS include ‘expert service providing companies’ (Toivonen, 2006), ‘professional knowledge to supply knowledge based intermediate products’ (Hertog, 2000), and ‘customized service or product solutions to satisfy the client’s needs’ (Bettencourt et al, 2002). When listing all the academic definitions of KIBS, three core elements stick out, namely: business services, knowledge intensive and knowledge intensive firms (Muller and Doloreux, 2007). Basically these elements are self-explanatory. Business services relates to the services demanded by (potential) clients, knowledge intensive refers to the extent to which labor is highly skilled (Scott-Kennel and Von Batenburg, 2012) or to the terms of conditions of transactions (Hauknes, 1999), and knowledge intensive firms refers to firms where human capital plays an important role in the intellectual activities or operations of the firm.

12 distinction through which KIBS can be categorized is by the characteristics of innovation in services, where ‘soft’ represents the more traditional P-KIBS and ‘hard’ represents the T-KIBS (Rodríguez and Camacho Ballesta, 2010). This categorization has put emphasis on the similarities between KIBS and high-tech manufacturing firms, as both are characterized by high R&D intensity in combination with the development of a substantial number of product and/or process innovations (Rodriguez and Camacho Ballesta, 2010).

Despite how they are categorized, KIBS play an important role in the ‘knowledge economies’, as the performance of KIBS inevitably affects the performance of their client firms (Miles, 2005). Consequently, the dynamism of the KIBS sectors has an impact on the entire economy. Dynamic growth of knowledge-intensive services in Europe supports this statement, as is shown that regional wealth and knowledge-intensive service employment are highly related (European Commission, 2012). This growth in KIBS is expected to sustain. Increasing amounts of firms are outsourcing parts of their operations to specialized service providers so that they can focus on their core competences. For the KIBS industry this results in opportunities in terms of economies of scale, efficiency and effectiveness that come from experience, and possibilities to learn from multiple clients (Miles, 2005). Another industry driver for KIBS sector growth is the rapid advancement of technological developments, where especially computer and information technology (IT) services benefit as clients cannot keep up with these technologies themselves (Miles, 2005). Additionally, there are pressures for KIBS firms to internationalize their own operations, i.e. to follow their clients into new markets, to find new markets themselves, to sustain market share against other KIBS who enter more and more countries, and/or some informational elements, like remote management and coordination of service processes (Miles, 2005).

Internationalization and Performance

13 research in different industry sectors; and differences on the phases of internationalization of firms, industries, or even products.

Therefore, in order to investigate this relationship it is important that both concepts, internationalization and performance, are clear and can be measured.

Performance

“Key performance indicators (KPIs), both financial and non-financial, are an important component of the information needed to explain a company’s progress towards its stated goals” (PWC, 2007, p. 3). In other words, performance indicates if firms are successful. A distinction that is often made is between two types of performance measures, namely financial ones and non-financial ones. However, although firms' mission statements will likely communicate strategies as maximizing customer experience, or attracting and retaining the best and brightest people, many boards of directors are more interested in the financial performance indicators (PWC, 2007). This is not strange, as most analysts and investors tend to focus on return on equity (ROE) as their primary measure of company performance (Hagel III et al., 2010). Financial performance indicators provide insights in the financial situation of the firm, whereas non-financial performance indicators provide, i.e. customer, market and employee insights.

Financial performance indicators (FPIs) are the ones that are most often used in academic research. Since they consist of numerical values, they can be measured relatively easy, and, maybe even more important, very precise. Thereby, financial performance data of publicly traded firms is widely available as these firms have to present annual and quarterly reports containing their key figures. Another benefit of this numerical data for researchers is that it can be used for quantitative research and statistical testing. Examples of financial performance indicators are, among others: Revenue; Growth; Gross Profit Margin; EBITDA; Return on Equity (ROE), Return on Investment (ROI), Return on Assets (ROA), Return on Sales (ROS), Debt-to-Equity (D/E) ratio; and Tobin’s Q1.

Non-financial performance indicators (NFPIs) receive relatively less attention from research. One of the main reasons for this is that this type of indicator is, especially compared to

14 financial indicators, relatively hard to measure as it often consists of qualitative data. Thereby, this type of data is generally not widely available and thus requires substantially more effort, and resources from researchers. Additionally, different NFPIs are also hard to compare among each other, as they often measure completely different subjects. However, despite the lack of interest from research in NFPIs, and the focus of company boards on FPIs, NFPIs still play a key role in ensuring the success in particular areas, such as: the management of human resources; product and service quality; and brand awareness and company profile (Kaplan, 2012). Examples of non-financial performance indicators are, among others: Net Promoter Score (NPS)2; Customer Satisfaction Index; Market Share; Brand Equity; Employee Satisfaction Index; and Average Employee Tenure.

Contractor et al. (2003) decided to measure performance, like previous authors, based on ROS and ROA.

Internationalization

Internationalization (i.e. Rodríguez and Nieto, 2012), international diversification (i.e. Lu and Beamish, 2004) or the degree of multinationality (Contractor et al., 2003) all describe the concept of firms starting operations in other countries than their home country. In this research paper, the term internationalization will be used when discussing this concept. Contractor et al. (2003) found that internationalization can be measured in two ways, namely by focusing on: the ‘depth’ of internationalization, mainly through the use of financial measures; or, the ‘breadth’ of internationalization, mainly by examining the number or geographical dispersion of operations across countries (Kogut, 1985). Financial measures that are commonly used to measure internationalization are ratios of foreign to total sales (Geringer et al., 1989); of foreign to total assets (FATA) (Ramaswamy, 1993); or of employees in foreign locations to total employees (FETE) (Kim et al., 1989). Non-financial measures offer another possibility of measuring internationalization. Kogut (1985) examined the number or geographical dispersion of operations across countries, where Ramaswamy (1993) measured internationalization by looking at the number of overseas plants. Contractor

2 _{Net Promoter Score (NPS) is calculated by asking customers the following question: ‘How likely are you to}

15 et al. (2003) combine the FATA, FETE and the number of foreign offices to total offices as factors for their internationalization variable, degree of internationalization (DOI).

Internationalization-performance relationship

Contractor et al. (2003) have developed the three-stages of international expansion model for KIS firms, after investigating the internationalization activities of over 600 US service firms, both capital intensive and knowledge intensive. In their model (Figure 1), the degree of internationalization (DOI), or multinationality, of a firm along the horizontal axis is plotted against the performance of that firm, along the vertical axis.

In the initial stage, stage 1 ‘Early Internationalizers’, firms must incur costs associated with acquiring new market knowledge and the liabilities of foreignness associated with entering a new market resulting in a negative slope, thus negative performance during this stage (Contractor, et al., 2003). Thereby, the large administrative overhead burden is resulting in costs that, in this specific stage of the internationalization process, can only be spread over a few countries, resulting in a high burden of overhead per nation (Contractor et al., 2003). In stage 2, ‘Mid-Stage Internationalizers’, after further internationalization (higher DOI) an inverted-U relationship is observed, since firms can achieve higher performance, up to a certain threshold of DOI, due to i.e. economies of scale, scope, learning and risk diversification. Then, comes stage 3, ‘Highly Internationalized Firms’ characterized by a steeper downward curve when compared with stage 1 due to ‘over-internationalization’, resulting in high coordination and governance costs and the entering of distant, tertiary and peripheral markets, and thus bad performance. As a result, the costs will outweigh the benefits and performance will decline.

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The Influence of Knowledge and Learning on the Internationalization-Performance Relationship

Over time, many moderators of the internationalization-performance relationship have been identified. Bausch and Krist (2007) conducted a meta-analysis to present an overview of the moderators that have been identified over the years, namely: R&D intensity, product diversification, country of origin, and firm age and size. A moderator that received a lack of research attention is knowledge, which is strange as “knowledge constitutes one of the main factors behind a company’s international behavior” (Casillas et al., 2009, p. 311), and “knowledge and the accumulation of knowledge via experiential learning are fundamental to the success of a firm’s internationalization” (Autio et al., 2000; Casillas et al., 2009; Denicolai et al., 2014; Liesch & Knight, 1999, Scott-Kennel and Von Batenburg, 2012, p. 1667).

17 findings on a mix of industries, whereas this master research will specifically focus on knowledge-intensive business services.

Thus, this research paper will answer to the call from Gray and McNaughton (2010) to explore how knowledge influences internationalization patterns and its outcomes, and address the wide gap in research literature that exist on the internationalization-performance relationship in knowledge-intensive services (Contractor et al., 2003; Li et al., 2011; Rugman and Verbeke, 2008; Scott-Kennel and Von Batenburg, 2012). This research will focus on how knowledge acts as a moderator or mediator for the internationalization-performance relationship, by looking at the key knowledge dimensions intensity, tacitness, and source, as introduced by Scott-Kennel and Von Batenburg (2012), as well as organizational learning and the leveraging of knowledge throughout the organization.

Knowledge Dimensions

In their 2012 article, Scott-Kennel and Von Batenburg introduced and researched three key dimensions of knowledge “that influence the pace and direction of a firm’s internationalization process” (p. 1669). They find that “internationalization is influenced by the characteristics of the firm’s knowledge base (knowledge dimensions) as well as experiential and professional knowledge of individual employees” (p. 1685). What their researched lacked was the link with performance, thus, how these knowledge dimensions influence the internationalization-performance relationship. Building on their findings, this master thesis research will address this gap.

Knowledge intensity

18 the pace of internationalization and knowledge intensity. In line with this suggestion, Autio et al. (2000) reason that knowledge-intensive firms, in contrast to firms that rely more on investment in fixed assets, can exploit international opportunities in a more flexible way since they are less inhibited by distance and national borders. Contractor et al. (2003) dedicate the faster internationalization of knowledge-intensive firms to three advantages: “(1) they have a lower burden of tangible asset investment, (2) they have clients already established abroad, and (3) they possibly have a greater global standardization, which lowers the cost per foreign entry, and enables the net benefits of foreign expansion to be reaped sooner” (p. 15).

Besides differences in the pace of internationalization between capital-intensive and knowledge-intensive service firms, research has also indicated that there are differences between the internationalization methods. Shukla and Dow (2010), for instance, found that KIS firms, in comparison to CIS firms, increase resource commitments in international markets almost twice as fast. Thereby, they discovered that KIS firms tend to follow an evolutionary international growth pattern, whereas CIS firms tend to follow a more revolutionary international growth pattern. These findings are supported by Ball et al (2008), who also find that KIS firms have greater flexibility over their entry modes into foreign markets. However, when the high knowledge intensity is embodied in human capital, KIS internationalization may be hindered due to the lack of transferability (Brock and Alon, 2009; Scott-Kennel and Von Batenburg, 2012).

Scott-Kennel and Von Batenburg (2012) found that knowledge intensity is not per se driving factor behind internationalization, but that during the internationalization process the importance of different types of knowledge is changing. Knowledge intensity, engendered in human and relational capital (Hitt et al., 2006) “underlies the core competence of the firm throughout the internationalization process” (Scott-Kennel and Von Batenburg, 2012, p. 1683), of KIS firms. However, as internationalization progresses the relative importance of explicit professional and technical knowledge lessens, whereas location specific knowledge and relational capital complement the existing knowledge at the firm (Scott-Kennel and Von Batenburg, 2012).

19 knowledge factor as it consists of knowledge that is already possessed by the firm before the internationalization and it plays a vital role in the product and service development. It should be organized in a way that it can positively affect the internationalization-performance relationship. In the second stage of internationalization knowledge intensity is still expected to positively influence the relationship as “knowledge intensity remains central to inputs/outputs throughout internationalization” (Scott-Kennel and Von Batenburg, 2012, p. 1682). Especially for KIBS, where knowledge is both a key input and output. For the final stage of internationalization, the stage of ‘over-internationalization’, There is no reason to believe that knowledge intensity will have a negative impact on the internationalization-performance relationship, as it is still at the base of product and service development, and is therefore expected to be positive.

Tacitness

The second knowledge dimension expected to influence the internationalization-performance relationship is the tacitness of knowledge, which refers to knowledge that is embedded in a firm’s culture, processes and people in the organization and is difficult to detect measure, and codify (Denicolai et al., 2014; Freeman et al., 2010; Scott-Kennel and Von Batenburg, 2012). These specific characteristics make tacit knowledge hard to transfer between individuals and between organizations (Brock and Alon, 2009; Lindsay et al., 2003; Scott-Kennel and Von Batenburg, 2012). It includes specific know-how that is embedded in the professionals as well as the context and is often an important source for competitive advantages. The equivalent of tacit knowledge is explicit knowledge, which refers to knowledge that can be written down in organizational rules and routines.

The inimitability of tacit knowledge is on the one hand a benefit, since it prevents competitors from copying this type of knowledge (Spencer and Grant, 1996). On the other hand, however, the inimitability also hinders the transferability of this type knowledge within the firm, and thus hinders the internationalization process of the firm (Abdelzaher, 2012). As a result of the difficulty to transfer tacit knowledge, transfer costs are often high. In order to overcome these difficulties, firms opt for high control, high cost entry modes when entering international markets (Scott-Kennel and Von Batenburg, 2012).

20 the relationship between internationalization strategy and performance, for traditional professional services, is moderated by intangible resources engendered in human and relational capital, whereas Li et al. (2011) found that tacit knowledge leads to “greater and accelerated engagement in international markets” (Scott-Kennel and Von Batenburg, 2012, p. 1671). According to Hitt et al. (2006), knowledge intensive firms are able to achieve higher performance due to strong human capital that is able to organize international expansion and exploit internationalization advantages. Mejri and Umemoto (2010) are the first authors who address the fact that in different stages of internationalization, different types of knowledge may be required. They indicate that explicit knowledge may be the most important in the early stages of internationalization, whereas tacit knowledge becomes the most important in the later stages of internationalization. Johanson and Vahlne (2009) support this finding as they find that once a firm has established an international foothold, its willingness and ability to increase commitment to international markets will grow. The same goes for Scott-Kennel and Von Batenburg (2012) who find that “both tacit and explicit knowledge influence the internationalization process” and that “the importance of tacit vs. explicit knowledge changes over the course of internationalization” (p. 1678). They also find that international growth and success is based on the ability of firms “to acquire new, tacit, knowledge and apply this knowledge to commercial opportunities” (p.1678).

21 identify commercial opportunities. Besides, tacit knowledge, especially when acquired during the internationalization is “critical to product development, sales, competitive advantage, reputation and future internationalization (Scott-Kennel and Von Batenburg, 2012). For the final stage of internationalization the same argument is used as for knowledge intensity; there is no reason to expect that tacit knowledge will have a negative influence on the internationalization-performance relationship and is thus expected to be positive.

Source of knowledge

22 2009), and modification to local institutions and culture (Faulconbridge, 2006). Petersen et al. (2003) however, argue, in line with the findings of Scott-Kennel and Von Batenburg (2012), that internalization of external knowledge is difficult and time consuming, and thus hard to be included for internationalization decision-making. Denicolai et al. (2014) support this finding and go even further by stating that “externally-generated knowledge assets may have a positive impact upon international performance, but that the impact is mediated by the absorptive capacity of the firm” (p. 60). The absorptive capacity of firms depends on the capabilities of internally generalized knowledge to make use of external knowledge. Denicolai et al. (2014) suggest that the optimal combination of internal vs. external resources for the internationalization process lays around 50/50. “Externally-acquired assets are valuable and may have a positive impact on international performance, but they need to be balanced with internally-generated know-how lest the firm does not have sufficient absorptive capacity to capitalize effectively on its acquisitions” (Denicolai, 2014, p. 60).

23 External knowledge is expected to be one of the main influencers of this negative trend in the final stage of internationalization. Denicolai et al. (2014) indicated an optimal level of the internal vs. external knowledge ratio, wherein too much external knowledge cannot be absorbed by the firm and results in high coordination cost and higher probability of bad decision making (i.e. decisions based on the wrong external data). Consequently, the role of internal knowledge is becoming more important and thus expected to have a positive influence.

Experiential Knowledge and Organizational Learning

Besides the expectations that three key knowledge dimensions will influence the internationalization-performance relationship, another knowledge aspect expected to influence this relationship is that of experiential knowledge and organizational learning. Experiential knowledge refers to “knowledge that firms accumulate by being active in foreign markets” (Blomstermo et al., 2004, p. 356). Organizational learning is widely considered to be key to the success of utilizing knowledge in the internationalization process (Abdelzaher, 2012; Denicolai et al., 2014; Faulconbridge, 2006; Hitt et al., 2006; Hsu and Pereira, 2006; Johanson & Vahlne, 2009; Scott-Kennel and Von Batenburg, 2012; Tuppura et al., 2008) and refers to the situation that require a combination of existing knowledge resources, to internationalize, and new knowledge acquired during the internationalization process (Scott-Kennel and Von Batenburg, 2012). The learning processes in international activities allow firms to gather a variety of knowledge, which helps to reduce uncertainty and develop an even broader absorptive capacity for opportunities (Faulconbridge, 2006; Scott-Kennel and Von Batenburg, 2012). Continuous learning is key to a firm’s survival and a fundamental capability for continued international expansion (Abdelzaher, 2012; Scott-Kennel and Von Batenburg, 2012).

24 deployment and leveraging of (internationalization) strategies, and thus influences performance (Hsu and Pereira, 2006). Thereby, Hsu and Pereira (2006) argue that gradually learning may diminish the liability of foreignness and that learning activities may help determine how to handle the foreign environment and determine what choices have to be made. They find statistical evidence for the moderating effect of social and market learning activities, but find no evidence for the moderating effect of technological learning on the internationalization-performance relationship. One explanation they provide for the fact that technological learning does not influence the internationalization-performance relationship is that they believe that “market and social ties may be more sensitive to the geographical and cultural diversity created by internationalization, whereas technology is less so” (p. 201). Literature also suggests that organizational learning is linked to an incremental internationalization strategy. Li et al.’s (2011) meta-analysis shows that strong human capital in combination with past internationalization activities of a firm is an important predictor of international activities, and Eriksson et al. (2000) find support for path-dependency in the internationalization of service industry firms. The experiential knowledge structure is already affected by the first international activities of a firm (Eriksson et al., 2000). Consequently, it was found that firms benefit from the experience in a country when starting a new venture in that same country, a finding that does not go for firms that followed a random internationalization pattern (Barkema et al., 1996).

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Knowledge Leveraging

A final aspect of knowledge that is expected to influence the internationalization-performance relationship is knowledge leveraging. Knowledge leveraging mechanisms have the important task of making sure that knowledge spreads through the organization in order to obtain competitive advantages, and thus opportunities for future internationalization (Scott-Kennel and Von Batenburg, 2012). “In order for experiential knowledge to be useful in the process of internationalization, accumulated knowledge in the form of ‘best practice’ needs to be leveraged within the firm” (Faulconbridge, 2006; Scott-Kennel and Von Batenburg, 2012, p. 1674). Løwendahl et al. (2001) identified several steps that have to be undertaken in order to leverage knowledge, namely: learning; then management; transfer; integration or internalization; circulation; organization; and application (use) of knowledge internationally (Scott-Kennel and Von Batenburg, 2012). Anderson and Skinner already indentified in 1999 that to be able to use knowledge and organizational learning in a firm’s internationalization process, knowledge first has to be successfully transferred, applied and integrated. “Yet, few studies focus on mechanisms that enable knowledge leveraging to occur in the process of internationalization” (Scott-Kennel and Von Batenburg, 2012, p. 1674).

26 Based on the literature above, it is expected that knowledge leveraging has a different effect on the internationalization-performance relationship. Where the previously discussed knowledge factors are expected to act as moderators, knowledge leveraging is expected to act as a mediator between the moderating knowledge factors (the knowledge dimensions plus experiential knowledge and organizational learning) and the internationalization-performance relationship; a so-called mediated moderation (Baron and Kenny, 1986; Wu and Zumbo, 2008). A lack of a proper knowledge leveraging mechanism will have a negative influence on the relationship, whereas the existence of these mechanisms can result into a negative effect, no effect at all or a positive effect, depending on the effectiveness of the mechanisms in place. In the first stage of internationalization there is not a lot of additional knowledge that has to be leveraged, and thereby, the knowledge that has to be leveraged only has to be spread over a few countries. Therefore, knowledge leveraging is expected to have a positive influence on the internationalization-performance relationship in the first stage, but is expected to become more important in the latter stages of internationalization. Especially in the second and third stage knowledge leveraging is expected to become of great importance, since the further a firm internationalizes, the more important it becomes that it is able to leverage internal, external, tacit and experiential knowledge throughout the organization. It is important to create internal codified knowledge in order to utilize and create new knowledge in the internationalization process. Accurate knowledge leveraging might even help firms to remain in the second stage of internationalization, and thus result in no declining performance.

Conceptual Model – The Influence of Knowledge and Learning on the Internationalization-Performance Relationship

27 internationalization-performance relationship will be. A + symbol indicates a positive influence on the internationalization-performance relationship, whereas a ++ indicates that one knowledge factor might be more important, in that specific internationalization stage, than another factor; the same goes for the – symbols indicating a negative influence. A +/- symbol indicates that a specific knowledge factor will have no expected significant influence on the relationship.

The proposed conceptual model looks as follows:

FIGURE 2 – PROPOSED CONCEPTUAL MODEL – THE INFLUENCE OF KNOWLEDGE ON THE INTERNATIONALIZATION-PERFORMANCE RELATIONSHIP

(BASED ON CONTRACTOR ET AL. (2003)) Legend:

- Abbreviations: Knowledge Intensity = KI ; Tacit Knowledge = KT ; Source of Knowledge – Internal = KSI ;

Source of Knowledge – External = KSE ; Experiential Knowledge and Organizational Learning = KE ; and

Knowledge Leveraging = KL (mediator).

28

RESEARCH DESIGN

In order to investigate the influence of knowledge and learning on the relationship between internationalization and performance it is important to take into account that knowledge is a very abstract and complex concept, posing challenges in the investigation (Denicolai et al., 2014). A case study is selected as the research method, as this fits with Yin’s (1989, p. 23; 2009) statement that: “A case study is an empirical inquiry that investigates a contemporary phenomenon in depth and within its real-life context, especially when the boundaries between phenomenon and context are not clearly evident”. This approach is suitable as that knowledge (especially, tacit knowledge) and learning are both concepts that have to be perceived in the context. Also, there is a high number of variables of interest and the ideas benefit from the prior development of theoretical propositions (knowledge dimensions and experiential knowledge and organizational learning from Scott-Kennel and Von Batenburg (2012), and the three-stages of international expansion model from Contractor, et al. (2003)) as suggested by Yin (2009). Thereby, the case study approach suits with an open research question, and thus an inductive research approach.

The fact that it is hard to generalize on the basis of one individual case, and that for that reason the contribution to scientific development is often taken into question, has been considered (Scott-Kennel and Von Batenburg, 2012). Flyvjberg (2011) however, argues that this is a misconception and even a single case can glean valuable phenomenological insights for theory building. Thereby, Benbasat, et al. (1987) argue that the single case method is well suited to exploration of research questions as it allows for the investigation of unanticipated phenomena, and provides better understanding of the inter-dependencies among factors. Also, a case-study can be very useful as it offers the possibility to test in the context of the firm’s internationalization process, which is central to understanding how tacit knowledge is leveraged internationally (Scott-Kennel and Von Batenburg, 2012). With a quantitative study this would not be possible. Finally, a case study is suitable to build an explanation of a case. By stating propositions or hypotheses about the topic being studied, the fit between the evidence from the case and the propositions can be assessed (Thomas, 2004). As a result, it can form the basis for new theory.

29 firm that was in the first or second stage of Contractor et al.’s (2003) framework, because logically it is then easier to recall events on the impact that knowledge had during the internationalization process. The fact that the Netherlands is the 5th knowledge-based economy of the world (Schwab, World Economic Forum, 2012) may contribute the generalizability of the findings for other knowledge-based economies.

Case Study: LeaseWeb

The firm selected for this research is LeaseWeb, a Dutch infrastructure-as-a-service (IaaS) provider. As its core business the company provides hosting solutions to customers all around the world. LeaseWeb currently has a highly skilled, highly trained and motivated international workforce of over 300 employees working in a flat organizational structure (LeaseWeb, 2014c). The company’s product portfolio consists of hosted infrastructure solutions including Public Cloud, Private Cloud, Bare Metal Servers, CDN, Colocation and Managed Hosting (LeaseWeb, 2014b). LeaseWeb offers its products and services through resellers, including value-added resellers (VARs), solution providers, managed services providers, and system integrators, and serves clients in various industries, such as accounting, banking, engineering, finance, financial services, consumer products, healthcare, manufacturing, marketing, and technology (Bloomberg Businessweek, 2014). With about 70.000 hosted servers (R. Olde Olthof, managing and operations director LeaseWeb Global Services, personal communication, April 30, 2014) and over 17.500 clients, ranging from SMEs to multinationals, LeaseWeb is one of the largest - and fastest growing hosts in Europe and rates among the world’s best hosting providers. All its products are backed by a first-class worldwide network with a network uptime of 99.9999% and capacity of 4.0 Tbps (LeaseWeb, 2014b).

30 which designs, builds and manages modular datacenters (OCOM, 2014). This case study will solely focus on LeaseWeb (especially LeaseWeb Global Services), which is on its own responsible for roughly 85% of the turnover of the OCOM Holding (F. Hemminga, channels and marketing manager LeaseWeb Global Services, personal communication, April 30, 2014).

In 2010, LeaseWeb established an international footprint by acquiring the German hosting provider Netdirekt. Although LeaseWeb already made a substantial amount of its sales at international organizations, this acquisition leads to the first LeaseWeb subsidiary abroad. Currently, LeaseWeb’s growing infrastructure spans six datacenters in The Netherlands, Germany, United States, and Singapore, connecting with major telecom carriers (Bloomberg Businessweek, 2014). The international entities, LeaseWeb Nederland B.V., LeaseWeb USA, Inc., LeaseWeb Deutschland GmbH, and LeaseWeb Asia Pacific PTE. LTD., all operate as subsidiaries of LeaseWeb Global Services Ltd., which is headquartered in Amsterdam, the Netherlands. Besides these datacenters, LeaseWeb has 29, so-called, Points-of-Presence (PoP) around the world (see Appendix B). These PoPs could be described as network nodes which are essential components of a network as they facilitate network traffic, but since these PoPs can operate reasonably stand-alone (H. Plantenga, managing director LeaseWeb Germany GmbH, personal communication, April 30, 2014); they require no local workers and will therefore during this research not be considered as international offices. However, they do play an essential role in the product and service development of LeaseWeb’s offerings, and are thus considered to be important.

Data Collection and Analysis

31 process, and i.e. the subsidiary’s role in strategy development). All these requirements were fulfilled as interviews were held with:

 René Olde Olthof, managing and operations director at LeaseWeb Global Services;

 Freek Hemminga, channel and marketing manager at LeaseWeb Global Services;

 Herke Plantenga, managing director at LeaseWeb Germany GmbH.

Qualitative interviews are conducted as these provide the best opportunities for the study of processes (Eriksson and Kovalainen, 2008) and variables not suited to quantification (such as tacit knowledge and learning) (Spencer and Grant, 1996). The interviews will be recorded and transcribed prior to analysis. Cross-checking will take place between responses in order to reinforce the validity of the results. Secondary data will be collected through i.e. product reviews, memos, web publications, press releases, technology reports, Internet data providers, social media post, etc. Qualitative data management software program NVivo will be used for coding, categorizing, comparison and pattern-matching of the transcribed interviews. NVivo is a categorizing tool which enables segments (nodes) of larger blocks of data to be coded, categorized, and linked into hierarchical patterns (trees) on the basis of the research model and of thematic linkages appearing in the data (Scott-Kennel and Von Batenburg, 2012). The NVivo software made it possible to make comparisons between the interviews and the secondary data and in such a way contributes to the validity and reliability of the findings. During the coding process data was subscribed to themes based on the research question and the sub-questions. This analytic induction process consisted of repeated careful reading, assessment and, in some cases, re-categorization of data to identify and consolidate key themes (Scott-Kennel and Von Batenburg, 2012). This enabled not only confirmatory and explanatory analyses but also kept the analysis open to new insights from the data (Scott-Kennel and Von Batenburg, 2012).

32 firm, the extension of its product line, the ratings of its products and services, and the development of new products. As a result, it will be possible to indicate how knowledge influences the internationalization-performance relationship of KIBS firms.

RESEARCH FINDINGS

Due to a lack of available financial data, it is not possible to place LeaseWeb perfectly in the internationalization-performance framework as introduced by Contractor et al. (2003), as they use FATA, FETE and the number of foreign offices to total offices as factors for their internationalization variable, and use ROA and ROS to measure performance. However, as indicated, a cross-checking of data that was available made it possible to make a clear estimate of LeaseWeb’s internationalization and performance. All findings are substantiated through a combination of data sources in order to come up with solid answers to the research questions and to test the proposed conceptual model.

Internationalization and Performance by LeaseWeb

“Internationalization has contributed to the performance of LeaseWeb. All entities, except the youngest one, contribute to sales and are also profitable.”

(R. Olde Olthof, managing and operations director LeaseWeb Global Services, personal communication, April 30, 2014)

33 shortly at the time, and because LeaseWeb nowadays on its own is still responsible for roughly 85% of the turnover of the OCOM Holding (F. Hemminga, channels and marketing manager LeaseWeb Global Services, personal communication, April 30, 2014). However, these sales make LeaseWeb nothing more than an exporter firm. Another international activity performed by LeaseWeb is that of PoPs, which are basically network nodes necessary for the offering of a global network. The company currently operates 52 PoPs worldwide, in comparison to 27 in 2013 (LeaseWeb, 2013, 2014a). “A network PoP can operate reasonably stand-alone, and if one of those nodes fails the network is so resilient that it remains running, so that is not a big problem” (H. Plantenga, managing director LeaseWeb Germany GmbH, personal communication, April 30, 2014). In other words, physical presence of employees is not required as you do not manage the physical infrastructure.

The third international activity by LeaseWeb is the datacenters, which will be considered as international offices during the remaining of this paper. LeaseWeb made its first international expansion through the acquisition of the German hosting provider Netdirekt in 2010. Through the acquisition LeaseWeb would be better able to reach German speaking customers and markets (i.e. Germany, Austria, Switzerland), which hosts many multinational corporations. Another reason was the requirement of IP-space3. The latter was a key reason to decide upon the acquisition of Netdirekt, a firm that possessed substantial amount of IP-space (Plantenga, personal communication, April 30, 2014). Around the same time LeaseWeb ‘followed clients’ to the US, in order to build up a datacenter from scratch, which opened in Manassas in 2011 (Leaseweb.com). Both entry modes are high cost and high control, which is typical for KIS firms (Scott-Kennel and Von Batenburg, 2012). In line with Contractor et al. (2003), LeaseWeb’s initial international expansion was not a direct success. Integration problems in Germany and the high costs of building a datacenter completely from scratch resulted in decreasing performance (Hemminga, Plantenga, and Olde Olthof, personal communication, April 30, 2014). By the end of 2014 LeaseWeb will operate eight datacenters spread over the Netherlands, Germany, the US, and Singapore.

Despite the fact that there is hardly any financial performance data available for LeaseWeb, there are plenty of reasons to believe that the company’s performance benefits from the internationalization. First of all, since interviews at the firm made clear that

3

34 “internationalization has contributed to the performance of LeaseWeb” (Olde Olthof, personal communication, April 30, 2014) and that the estimate is that “now the firm has a few overseas markets, economies of scale start to come. So [LeaseWeb] is in the ascending line of the second stage at the moment” (Plantenga, personal communication, April 30, 2014). Thereby, since the opening of the Singapore entity, LeaseWeb can now offer a total network capacity of 4.0 tbps and the firm hosts about 70.000 servers, compared to 25.000 in January 2010 (LeaseWeb, 2014a). Additionally, LeaseWeb is the most popular hosting company in the Netherlands and the 22nd hosting company of the world, according to real-time statistics of myip.ms, an IP-traffic database. Furthermore, HostReview.com awarded LeaseWeb with the 10th place of best hosting providers in March 2014, and the Dutch magazine Emerce ranked LeaseWeb 2nd in the field of ISP, Hosting, and Data-infrastructure, in 2014. Finally, the internationalization has contributed to development of many new and improved products and services, of which CDN4 is the most worth mentioning.

Based on all this data we can conclude that LeaseWeb’s internationalization pattern can be compared to that of Contractor et al.’s (2003) internationalization-performance framework, whereas LeaseWeb is currently probably in the beginning of the second stage.

Knowledge Dimensions

LeaseWeb includes all the features of a KIBS firm as set out by Muller and Doloreux (2007), namely: business services, knowledge intensive and knowledge intensive firms. Business services refer to specialized services demanded by firms; LeaseWeb provides hosting and IT-infrastructure services that firms cannot, or will not, handle themselves and thus outsource. Knowledge intensive can refer to highly skilled, highly educated labor or to the terms and conditions of transactions. Both apply to LeaseWeb as it develops and sells knowledge-intensive products and services. The final feature, the knowledge knowledge-intensive firm relates to LeaseWeb as well, as the development of its products and services depends on highly skilled human capital. When looking at the distinction between P-KIBS and T-KIBS it is obvious that LeaseWeb is a technological knowledge-intensive business service firm. It is therefore highly expected that the different knowledge dimensions are present and recognized at LeaseWeb.

4 _{Content Distribution Network (CDN) – refers to a large distributed system of servers deployed in multiple data}

35 Mr. Olde Olthof (personal communication, April 30, 2014) emphasizes the importance of knowledge by stating that “knowledge allows LeaseWeb to internationalize” and that it is “the driver of internationalization.”

Knowledge intensity

Knowledge intensity was defined as the extent to which firms depend on complex knowledge of an intellectually skilled workforce that constitutes their main input, output, a core competence, or strategic resource (i.e. Scott-Kennel and Von Batenburg, 2012). At LeaseWeb, knowledge intensity is fundamental for the production and development of products and services, but also for advice on what infrastructure is best suited to the client, what server configuration is needed, as well as for providing support, i.e. troubleshooting infrastructure that is not functioning properly. LeaseWeb is developed from the technology which you strongly recognize in the enormous technical development drive at all levels of the organization (Hemminga, personal communication, April 30, 2014) and human capital plays an important role within LeaseWeb (Olde Olthof, personal communication, April 30, 2014). “Ultimately, it must come from the people, with only intellectual property (IP) you cannot make it. You do have your IP, but if you do not have people who can translate that; that potentially has a negative impact on your performance” (Hemminga, personal communication, April 30, 2014).

36 The fact that LeaseWeb only started its international operations four years ago makes it that the firm has probably just arrived at the second stage of internationalization. When addressing the second sub-question on how the internationalization-performance process is affected by knowledge intensity, only a limited answer can be provided. Mr. Plantenga (personal communication, April 30, 2014) states that knowledge intensity has a positive influence on performance: “It is of course true that we are a knowledge-intensive business so our workforce is fairly expensive. On the one hand, that suppresses the performance, but we have a fairly unique position in the market, making it pretty hard for newcomers to obtain these economies of scale. That compensates the expensive workforce and does lead to good performance.” Knowledge intensity definitely influences the internationalization-performance relationship, especially in the first internationalization stage. This is indicated by Mr. Plantenga (personal communication, April 30, 2014) who stated that “the conservation of the services is very knowledge intensive, so providing support, troubleshooting infrastructure that is not functioning properly and those kind of things. In particular, the network is very knowledge intensive” Thereby, Mr. Olde Olthof (personal communication, April 30, 2014) indicated that LeaseWeb “thinks of the network themselves, they invent the products themselves, if something goes wrong they do their own trouble shooting, so they almost never hire someone for it. This indicates that knowledge intensity plays an important role in the development of products and that human capital plays an important role within LeaseWeb”. Thus, knowledge intensity remains important, also when the firm further internationalizes, as it is central to inputs and outputs of the firm. However, knowledge acquired outside of the firm, together with relational capital and market knowledge play an important role in the development and improvement of products and services. Mr. Hemminga (personal communication, April 30, 2014) believes that “development can be centralized, depending on how that looks in terms of cost efficiency, but how you bring that to the market depends very much on the cultural and market differences.” Thus, when unfamiliar markets are targeted, knowledge intensity has to be complemented by other knowledge sources in order to positively influence the internationalization-performance relationship.

Tacitness

37 important source for competitive advantages. Tacit knowledge at LeaseWeb was initially present in the skilled human capital of the firm. Mr. Olde Olthof (personal communication, April 30, 2014) explained that particular specific technological knowhow, i.e. about the network, is only present at a part of the workforce. This is reflected in products and services, since the knowledge-intensive products and services of LeaseWeb require very specialized software teams. Every product or service has its own specialized software team which is all centralized at HQ (Plantenga, personal communication, April 30, 2014). Since the products and services can be transferred across borders, it is believed that centralized development can be beneficial as it reduces costs. Thereby, a “software team is actually in place to manage the products and the x amount of servers, and to make them easy to use for people with only a standard IT background. So ultimately, the entire organization is focused on simplifying knowledge that is in essence difficult to understand. In this way it is possible to deliver a standardize product” (Plantenga, personal communication, April 30, 2014). As a result of internationalization, LeaseWeb wants to cover the entire IT-infrastructure portfolio. This requires expanding the current product groups and expanding the network, and thus development teams are extended with new people (Olde Olthof and Plantenga, personal communication, April 30, 2014). The relational capital brought in by new employees extends the (tacit) knowledge base of the firm and thus contributes to development, improvement and extension of competitive advantages. This strengthens the position of the firm in the market and thus influences the internationalization-performance relationship, be it in a later stage of internationalization.

38 Both tacit knowledge and explicit knowledge have a positive influence on the internationalization-performance relationship of LeaseWeb, however explicit knowledge was the most relevant when entering the German market (first stage of internationalization). However, as a consequence of internationalization tacit knowledge is extended with relational and other external knowledge increasing its influence on the relationship. Tacit knowledge is especially becoming more important centrally, because the software development teams are covering more areas to make it easier to start exporting the tacit knowledge (second stage of internationalization). “The more you have already written and captured in methods and software packages, the easier it is to open a new location. The moment you have completed a roll-out, then the second one is just a copy of it, but adapted to local conditions. This knowledge is more specific to a particular product and not a country” (Plantenga, personal communication, April 30, 2014).

Source of knowledge

39 however, up to the moment that this balance is obtained, internal knowledge has the strongest influence on this relationship.

Despite the fact that LeaseWeb pays some more attention to external sources of knowledge, for the development and improvement of products and services and the strategic decision making, internal knowledge is still indicated as the most important. Although it is recognized that external knowledge sources can contribute to these processes, the company only infrequently uses data from, per example, business analysts or market researches. LeaseWeb does not succeed in internalizing many external knowledge sources and as a result the impact remains relatively low. Relational capital on the other hand works as a complementary source for LeaseWeb’s products, as it is possible to buy products in combination with i.e. a Dell computer or Huawei hardware. The collaboration with highly recognized brands positively affects sales and brand awareness for LeaseWeb. However, this relational capital will always be depended on contracts with firms and can thus not be internalized. Despite the fact that it cannot be internalized, this type of relational capital may have a positive influence on the internationalization-performance relationship.

The fact that LeaseWeb USA is part of partnership between technology firms and a US university on the west coast, and the fact that LeaseWeb is involved with the ROC5, are signs that LeaseWeb recognizes knowledge from outside the firm as an important knowledge source.

Experiential Knowledge and Organizational Learning

Besides the expectations that three key knowledge dimensions will influence the internationalization-performance relationship, another knowledge aspect expected to influence this relationship is that of experiential knowledge and organizational learning. Experiential knowledge refers to “knowledge that firms accumulate by being active in foreign markets” (Blomstermo et al., 2004, p. 356) and organizational learning is widely considered to be key to the success of utilizing knowledge in the internationalization process.

One area where organizational learning and experiential knowledge plays an important role on the internationalization-performance relationship is in the general internationalization

40 process of the firm. The land-and-expand strategy is a process that LeaseWeb first used in the US, but which now is used as a blueprint for further internationalization, whereby the intercultural mismatch and difficulties during the first time are considered, evaluated and implemented in the current internationalization process. “In particular the land-and-expand story, that is really a learning curve for the organization” (Hemminga, personal communication, April 30, 2014). These include for instance the general market knowledge, laws and regulations and social knowledge of new markets. Mr. Plantenga (personal communication, April 30, 2014) states that the experience will make it easier to further internationalize but there is also still room for improvement: “We have experience and know how the initial set-up goes, so the rollout goes faster. Eventually, the suitcase is now packed with good things, and that is because the first two times you forgot to pack. It is better prepared already, but a really well-grounded playbook of where to go and who, that we do not have yet. That's the ultimate goal, of course.” Per example, the company now has knowledge on the German market and culture and knows that “it's really important that you can offer your entire product line and support in German” (Hemminga and Plantenga, personal communication, April 30, 2012). Having this additional knowledge during internationalization will positively influence the relationship with performance.

Interestingly, technological knowledge does not influence the internationalization-performance relationship for LeaseWeb, even though its products are knowledge intensive. A simple explanation is that technology is cultureless and borderless, “technology is technology” (Hemminga, personal communication, April 30, 2012). What is important for technological knowledge is knowledge on the market; how should the technology be introduced to the market in the different countries. Technological knowledge is however important for development of the latest products by LeaseWeb.