This paper examines the extent to which the theory on internationalization strategies explains the patterns observed in Italian medium sized firms in recent years. We focus on stage theory because it seems most appropriate to explain the patterns of internationalization in small and medium sized enterprises (SMEs). Stage theory (Cavusgil, 1980) assumes that the process of internationalization follows a prescribed path from lighter mode of entry (typically based on indirect export) to more intensive investment (typically in the form of foreign direct investments - FDI). Although this assumption has been challenged on both the theoretical and empirical levels, some studies (Gankema et al., 2000) have found out that stage theory can be applied to explain SMEs behavior. More information on the validity of this explanation would be of interest to both firms and policymakers. Because of the lack of empirical evidence on the internationalization of Italian SMEs and the theoretical models explaining their international activities, this paper aims to analyze the characteristics and recent evolution in the patterns of internationalization among Italian medium sized firms and to assess the extent to which the observed patterns are compatible with the predictions of stage theory. The focus on medium sized companies is justified by their increasing role in the Italian manufacturing system (Brioschi et al., 2002; Balloni and Iacobucci, 2004; Coltorti, 2004). The empirical analysis refers to 242 manufacturing companies and groups located in the North-East-Center of Italy (the so-called NEC regions or ‘third Italy’). This area was chosen because of its peculiarities in terms of the organization of manufacturing activities, which is based on industrial districts: i.e. local systems of small and medium sized firms, specialized in the same sector (Cainelli and Zoboli, 2004). The SMEs located in these regions have demonstrated remarkable ability to penetrate international markets through export (Menghinello, 2004), but found it difficult to develop stable forms of internationalization through productive or commercial units abroad. It is one of the aims of this paper to assess whether medium sized firms can change the internationalization patterns observed so far in Italian SMEs, from export to FDI. We find that size does not affect average export intensity, but is important for FDI-based strategies. Size affects the “magnitude” and intensity of investment in foreign markets, but not the willingness to develop internationalization activities abroad: indeed, smaller companies experienced faster growth in terms of the number of foreign subsidiaries in the period considered. In general, investing abroad tends to be complementary to and not a substitute for export, within a gradual approach to internationalization. In terms of geographical span of operations, over time, FDI activities moved from closer to more distant locations, confirming a ‘process approach’ to internationalization driven by knowledge acquisition. Overall, the evidence accords with the propositions based on stage theory; however, we also found some conflicting facts. When we looked at companies that in 2001 had not embarked on the process of internationalization, we found that the majority jumped directly to an FDI approach, rather than starting with a less intensive mode of internationalization, such as export. We did not expect the internationalization strategies of these firms, which we refer to as “Pioneers”, to be successful. However, this was only partially confirmed by the data as the majority of Pioneers survived in the same stage at the end of the period. The paper is organized as follows. Section 2 reviews the current literature on the internationalization strategies of firms, with a specific focus on the stage theory hypothesis. We highlight the predictions of different approaches and discuss the problems that have emerged from empirical work. Finally, we list and discuss the hypotheses relating to firm behavior that can be deduced from stage theory. Section 3 describes the empirical methodology we use, and gives information on the data, the sample and the variables considered in the quantitative analysis. Section 4 discusses the results of the empirical analysis, and Section 5 provides some conclusions.

Internationalization in Italian medium sized firms: does stage theory explain the observed patterns?

SPIGARELLI, Francesca;
2010-01-01

Abstract

This paper examines the extent to which the theory on internationalization strategies explains the patterns observed in Italian medium sized firms in recent years. We focus on stage theory because it seems most appropriate to explain the patterns of internationalization in small and medium sized enterprises (SMEs). Stage theory (Cavusgil, 1980) assumes that the process of internationalization follows a prescribed path from lighter mode of entry (typically based on indirect export) to more intensive investment (typically in the form of foreign direct investments - FDI). Although this assumption has been challenged on both the theoretical and empirical levels, some studies (Gankema et al., 2000) have found out that stage theory can be applied to explain SMEs behavior. More information on the validity of this explanation would be of interest to both firms and policymakers. Because of the lack of empirical evidence on the internationalization of Italian SMEs and the theoretical models explaining their international activities, this paper aims to analyze the characteristics and recent evolution in the patterns of internationalization among Italian medium sized firms and to assess the extent to which the observed patterns are compatible with the predictions of stage theory. The focus on medium sized companies is justified by their increasing role in the Italian manufacturing system (Brioschi et al., 2002; Balloni and Iacobucci, 2004; Coltorti, 2004). The empirical analysis refers to 242 manufacturing companies and groups located in the North-East-Center of Italy (the so-called NEC regions or ‘third Italy’). This area was chosen because of its peculiarities in terms of the organization of manufacturing activities, which is based on industrial districts: i.e. local systems of small and medium sized firms, specialized in the same sector (Cainelli and Zoboli, 2004). The SMEs located in these regions have demonstrated remarkable ability to penetrate international markets through export (Menghinello, 2004), but found it difficult to develop stable forms of internationalization through productive or commercial units abroad. It is one of the aims of this paper to assess whether medium sized firms can change the internationalization patterns observed so far in Italian SMEs, from export to FDI. We find that size does not affect average export intensity, but is important for FDI-based strategies. Size affects the “magnitude” and intensity of investment in foreign markets, but not the willingness to develop internationalization activities abroad: indeed, smaller companies experienced faster growth in terms of the number of foreign subsidiaries in the period considered. In general, investing abroad tends to be complementary to and not a substitute for export, within a gradual approach to internationalization. In terms of geographical span of operations, over time, FDI activities moved from closer to more distant locations, confirming a ‘process approach’ to internationalization driven by knowledge acquisition. Overall, the evidence accords with the propositions based on stage theory; however, we also found some conflicting facts. When we looked at companies that in 2001 had not embarked on the process of internationalization, we found that the majority jumped directly to an FDI approach, rather than starting with a less intensive mode of internationalization, such as export. We did not expect the internationalization strategies of these firms, which we refer to as “Pioneers”, to be successful. However, this was only partially confirmed by the data as the majority of Pioneers survived in the same stage at the end of the period. The paper is organized as follows. Section 2 reviews the current literature on the internationalization strategies of firms, with a specific focus on the stage theory hypothesis. We highlight the predictions of different approaches and discuss the problems that have emerged from empirical work. Finally, we list and discuss the hypotheses relating to firm behavior that can be deduced from stage theory. Section 3 describes the empirical methodology we use, and gives information on the data, the sample and the variables considered in the quantitative analysis. Section 4 discusses the results of the empirical analysis, and Section 5 provides some conclusions.
2010
9780415460712
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11393/40804
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