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Edited by Markus Reihlen and Andreas Werr
Chapter 14: A network approach to the internationalization of business service firms
In today’s globalizing economy, more and more business service firms drive or are driven by the need to expand their business to international markets to seek market share, critical resources, cost efficiency or strategic assets. Since the 1960s, economic and management theory have developed a range of conceptual approaches to explain the internationalization of the multinational firm in general. Today, however, internationalization has become more complex than initially theorized in these mainstream approaches. Internationalization has become a key area of entrepreneurial activity. The example of the born-global companies which are launched from the very beginning as transnational enterprises might serve as one illustration (Chetty & Campbell-Hunt, 2004) of a new variety of internationalization processes. Therefore, the notion of a transnational firm today is more complex than the traditional model of the post-war multinational company (Jones, 2003). Moreover, conventional internationalization theory has developed along with the global expansion of large manufacturing corporations. But today a myriad of service industries, especially business services such as investment banking, legal services, advertising, accounting and management consulting, increasingly go global (see also Chapter 13). Does conventional theory suffice to understand the internationalization of business services firms? This chapter reframes the shortcomings of conventional theories of firm internationalization and develops an alternative account of the internationalization process tailored to respond to the characteristics of business services. Specifically, the chapter explores the relation between the organizational mode of entry in a target country and the context in which a business service firm takes the decision to internationalize. A mixed approach of qualitative and quantitative fieldwork is used to examine the impact of the context of the social network of a firm on its choice of organizational form of market entry. The empirical analysis focuses on management consulting as one of the most important and most internationalizing industries in business services. The argument proceeds as follows. In the next section, foreign direct investment (FDI) theories and stage theories of internationalization are criticized for their atomistic perspective on firm decisions and international expansion. The following section argues for a relational perspective on the entrepreneurial activity of internationalization and introduces network theory as an alternative approach. Departing from its limitations, a relational theory of international market entry is developed which is grounded in ethnographic fieldwork in three major European cities. A statistical model lends further support to this theory, before the final section summarizes the evidence and draws conclusions.
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