3. Heterogeneity and international involvement 3.1 INTRODUCTION This chapter addresses one of the aspects of the issue of heterogeneity and internationalisation, that is the relationship between ﬁrm diversity and international involvement. The notion of international (or foreign) involvement has been used by Lall (1980) with reference to the choice between exports and direct investment of US manufacturing industries. Indeed, the same notion can be extended to comprise a wider set of strategies which ﬁrms can jointly or separately use to serve foreign markets, and/or to gain access to valuable assets available abroad. Besides exports and FDIs, these strategies include licensing and other agreements with foreign partners, the creation of networks of sales agents, and the setting up of commercialisation aﬃliates abroad. Bearing this notion in mind, in this chapter we address questions such as ‘How do ﬁrms diﬀer in their choices of internationalisation strategies?’ and ‘How do they perform according to their degree of international involvement?’. Recent developments in trade theory have placed at centre stage the relationship between diﬀerent modes of internationalisation and intraindustry heterogeneity. The key prediction emerging from this literature is that ﬁrms will resort to distinct international activities according to their productivity levels (Helpman et al. 2004). This interpretation has important, albeit not fully acknowledged, connections with a more consolidated view emerged in the theory of international production. Based on the seminal contributions of Hymer (1960), the latter stream of literature has developed a comprehensive analysis of the nature and determinants...
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