Causes of the difficulties in internationalization
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Causes of the difficulties in internationalization Alvaro Cuervo-Cazurra1, Mary M Maloney2 and Shalini Manrakhan3 1 Moore School of Business, University of South Carolina, Columbia, SC, USA; 2Department of Management, Opus College of Business, University of St Thomas, Minneapolis, MN, USA; 3 Faculty of Engineering, University of Mauritius, Reduit, Mauritius
Correspondence: A Cuervo-Cazurra, Sonoco International Business Department, Moore School of Business, University of South Carolina, 1705 College Street, Columbia, SC 29208, USA. Tel: þ 1 803 777 0314; Fax: þ 1 803 777 3609; E-mail: [email protected]
Received: 20 February 2004 Revised: 23 October 2006 Accepted: 20 April 2007 Online publication date: 5 July 2007
Abstract We study the causes of the difficulties faced by firms when they internationalize in search of new markets. We build on the resource-based theory to argue that the difficulties in internationalization can be separated into three main sets based on their relationship to advantage: loss of advantage provided by resources transferred abroad; creation of a disadvantage by resources transferred abroad; and lack of complementary resources required to operate abroad. In each set, we further distinguish difficulties that are specific to a firm from those that are common to a set of firms. We argue that only a few of the resulting types of difficulties of internationalization are exclusive to the cross-border expansion, and propose solutions that address the root cause of each type. Journal of International Business Studies (2007) 38, 709–725. doi:10.1057/palgrave.jibs.8400295 Keywords: cost of doing business abroad; liability of foreignness; internationalization; multinational enterprises; resource-based theory
Introduction In 1986, Lincoln Electric Company, a US arc-welding firm, started internationalizing aggressively and ran into difficulties despite the firm’s distinctive manufacturing capabilities and incentive system, which had made it the leader in its field in the US. When Donald Hastings was appointed CEO he realized that, despite having superior operations and products, the firm faced multiple challenges that limited its ability to succeed abroad: its effective incentive system was often unsuited to foreign operations; managers at headquarters lacked experience in international markets and knowledge in running a complex, dispersed firm; managers of foreign operations convinced managers at headquarters that products made in the US would be rejected in Europe; and Lincoln lacked adequate distribution, relationships in the marketplace, and a sales force that could understand and help customers abroad (Hastings, 1999). The problems that Lincoln experienced in its internationalization illustrate the numerous difficulties firms face when expanding abroad in search of new markets. These difficulties in internationalization – the problems that a firm encounters as it expands across borders – have traditional
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