Abstract
International expansion of business firms has often been seen as a choice among various international investment opportunities (e.g. Young, 1989). These investment opportunities are characterised by different probability distributions of returns that are initially unknown. As the firm acts, more information about returns is gathered and the firm gains a clearer picture of the alternatives (Arrow, 1974; Radner, 1979; Radner and Rotschild, 1975). The decision maker is supposed to choose the investment opportunity with the highest expected return, unless that opportunity poses a higher risk. Risk is a variation in outcome that can be calculated and considered when deciding. There are, however, several problems with this view of optimal decision-making behaviour. For example, managers do not consider all alternatives; they tend to search in the vicinity of the current problem (Cyert and March, 1963). Moreover, people assess the same situation differently which means that risk is in the eye of the beholder.
Keywords
- Foreign Direct Investment
- International Business
- Foreign Market
- International Experience
- Business Opportunity
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.
This is a preview of subscription content, log in via an institution.
Buying options
Tax calculation will be finalised at checkout
Purchases are for personal use only
Learn about institutional subscriptionsPreview
Unable to display preview. Download preview PDF.
References
Anderson, J. C., and Narus, J. A. (1990). A Model of Distributor Firm and Manufacturer Firm Working Partnerships. Journal of Marketing, 54, 42–58.
Arrow, K. J. (1974). The Limits of Organization, New York: Norton.
Bandura, A. (1986). Social Foundations of Thought and Action, Englewood Cliffs, NJ: Prentice-Hall.
Barkema, H. G., and Vermeulen, F. (1998). International Expansion through Start-up or Acquisition: A Learning Perspective, Academy of Management Journal, 41 (1), 7–26.
Barkema, H. G., Bell, J. H. J., and Pennings, J. M. (1996). Foreign Entry, Cultural Barriers and Learning Strategic Management Journal, 17 (2), 151–66.
Beckermann, W. (1956). Distance and the Pattern of Intra-European Trade, Review of Economics and Statistics, 38, February, 31–40.
Benito, G. R. G. and Gripsrud, G. (1992). The Expansion of Foreign Direct Investments: Discrete Rational Location Choices or a Cultural Learning Process? Journal of International Business Studies, 23, 461–76.
Blankenburg Holm, D., Eriksson, K. and Johanson, J. (1996). Business Networks and Cooperation in International Business Relationships, Journal of International Business Studies, 27 (5), 1033–53.
Cavusgil, S.T. (1980). On the Internationalization Process of Firms, European Research, 8, 273–81.
Chen, H. and Chen, T-J. (1998). Network Linkages and Location Choice in Foreign Direct Investment, Journal of International Business Studies, 29 (3), 445–68.
Coleman, J. (1990). Social Capital in the Creation of Human Capital, American Journal of Sociology, 96, S95–S120.
Coviello, N. E. and Munro, H. J. (1995). Growing the Entrepreneurial Firm. Networking for International Market Development, European Journal of Marketing, 29 (7), 49–61.
Cyert, R. M. and March, J. G. (1963). A Behavioural Theory of the Firm, Englewood Cliffs, NJ: Prentice-Hall.
Davidson, W. H. (1980). The Location of Foreign Direct Investment Activity: Country Characteristics and Experience Effects, Journal of International Business Studies, 12 (Fall), 9–22.
Delios, A. and Beamish, P. (1999). Ownership Strategy of Japanese Firms, Transactional, Institutional and Experience Influences, Strategic Management Journal, 20 (10), 915–933.
Denison, D. R., Dutton, J. E., Kahn, J. A. and Hart, S. L. (1996). Organizational Context and the Interpretation of Strategic Issues: A Note on CEOs’ Interpretations of Foreign Investment, Journal of Management Studies, 3 (4), 453–74.
Dow, D. (2000). A Note on Psychological Distance and Export Market Selection, Journal of International Marketing, 8 (1), 51–64.
Engwall, L. and Wallenstål, M. (1988). Tit for Tat in Small Steps: The Internationalization of Swedish Banks, Scandinavian Journal of Management, 4 (3/4), 147–55.
Eriksson, K., Johanson, J., Majkgård, A. and Sharma, D. D. (1997). Experiential Knowledge and Cost in the Internationalization Process, Journal of International Business Studies, 28 (2), 337–60.
Eriksson, K., Johanson, J., Majkgård, A. and Sharma, D. D. (2000). Effect of Variation on Knowledge Accumulation in the Internationalization Process, International Studies of Management and Organizations, 30, 26–44.
Erramilli, K. M. (1991). The Experience Factor in Foreign Market Entry Behaviour of Service Firms, Journal of International Business Studies, 22 (3), 479–501.
Erramilli, K. M. (1996). Nationality and Subsidiary Ownership Patterns in Multinational Corporations, Journal of International Business Studies, 26, 225–48.
Ford, D. (1990). Understanding Business Markets: Interaction, Relationships and Networks, San Diego: Academic Press.
Ghoshal, S. (1987). Global Strategy: An Organizing Framework, Strategic Management Journal, 8, 425–40.
Granovetter, M. (1985). Economic Action and Social Structure: The Problem of Embeddedness, American Journal of Sociology, 78, 1360–80.
Hair, J. F., Anderson, R. E., Tatham, R. L. Black, W. C. (2000). Multivariate Data Analysis, New York: Macmillan.
Håkansson, H. (1982). International Marketing and Purchasing of Industrial Goods: An Interaction Approach, Chichester: Wiley.
Håkansson, H. and Johanson, J. (1992). The Network as a Governance Structure: Interfirm Cooperation beyond Markets and Hierarchies, in G. Grabher (Ed.) The Embedded Firm, London: Routledge, 35–51.
Hofstede, G. (1980). Cultures Consequences: International Differences in Work-related Values, Beverly Hills, CA: Sage.
Hofstede, G. (1983). The Cultural Relativity of Organizational Practices and Theories, Journal of International Business Studies, 2, 75–89.
Hofstede, G. (1991). Cultures and Organizations: Software of the Mind, Berkshire, England: McGraw-Hill.
Hörnell, E., Vahlne, J-E. and Wiedersheim-Paul, R (1973). Export and Foreign Establishments (Export och utlandsetableringar), Stockholm: Almqvist … Wiksell.
Hymer, S. (1976). The International Operations of National Firms: A Study of Direct Investment, Cambridge, MA: MIT Press.
Johanson, J. and Vahlne, J-E. (1977). The Internationalization Process of the Firm — A Model of Knowledge Development and Increasing Foreign Market Commitments, Journal of International Business Studies, 8 (1), 23–32.
Johanson, J. and Vahlne, J-E. (1990). The Mechanism of Internationalisation, International Marketing Review, 7 (4), 11–24.
Johanson, J. and Wiedersheim-Paul, F. (1975). The Internationalization Process of the Firm — Four Swedish Cases, Journal of Management Studies, 12 (3), 305–22.
Jöreskog, K-G. and Sörbom, D. (1993). LISREL 8: Structural Equation Modelling with the SIMPLIS Command Language, Hillsdale, NJ, Lawrence Erlbaum Associates Publishers.
Kirzner, I. M. (1973). Competition and Entrepreneurship, Chicago: University of Chicago Press.
Kogut, B. and Chang, S. J. (1996). Platform Investments and Volatile Exchange Rates: Direct Investment in the U.S. by Japanese Electronic Companies, The Review of Economics and Statistics, 78, 221–31.
Kogut, B. and Singh, H. (1988). The Effect of National Culture on the Choice of Entry Mode, Journal of International Business Studies, 19 (3), 411–32.
Levinthal, D. A. and March, J. G. (1993). The Myopia of Learning, Strategic Management Journal, 14 (8), 95–112.
Linneman, H. (1966). An Econometric Study of International Trade Flows, Amsterdam. North-Holland.
Lu, J. W. and Beamish, P. W. (2001). The Internationalization and Performance of SME’s, Strategic Management Journal, 22, 565–86.
Lumpkin, G. T. and Dess, G. G. (1996). Clarifying the Entrepreneurial Orientation Construct and Linking it to Performance, Academy of Management Review, 21, 135–72.
Madhok, A. (1996). Know-how-, Experience- and Competition-related Considerations in Foreign Market Entry: An Exploratory Investigation, International Business Review, 5 (4), 339–66.
Madhok, A. (1997). Cost, Value and Foreign Market Entry Mode: The Transaction and the Firm, Strategic Management Journal, 18 (1), 39–61.
Mariotti, S. and Piscitello, L. (1994). Information Costs and Location of FDIs within the Host-country: Empirical Evidence from Italy, Journal of International Business Studies, 26 (4), 815–41.
Nelson, R. R. and Winter, S. G. (1982). An Evolutionary Theory of Economic Change, Cambridge, MA: Harvard University Press.
Nordström, K. A. (1991). The Internationalization Process of the Firm — Searching for New Patterns and Explanations. Dissertation, Institute of International Business (IBB), Stockholm School of Economics.
Nordström, K. A. and Vahlne, J-E. (1992). Is the Globe Shrinking? Psychic Distance and the Establishment of Swedish Sales Subsidiaries during the Last 100 Years, Conference paper presented at the International Trade and Finance Association’s Annual Conference, April 22–25, Laredo, Texas.
Oviatt, B. M. and McDougall, P. P. (1994). Toward a Theory of International New Ventures, Journal of International Business Studies, 25, 45–64.
Penrose, E. T. (1959). The Theory of the Growth of the Firm, Oxford: Basil Blackwell.
Radner. R. (1979). Rational Expectations Equilibrium: Generic Existence and the Information Revealed by Prices, Econometrica, 47, 655–78.
Radner, R. and Rotschild, M. (1975). On the Allocation Effort, Journal of Economic Theory, 10, 358–76.
Reuber, A. R., Fischer, E. (1997). The Influence of the Management Team’s International Experience on the Internationalization Behaviours of SMEs, Journal of International Business Studies, 28, 807–25.
Ronen, S. and Shenkar, O. (1985). Clustering Countries on Attitudinal Dimensions: A Review and Synthesis, Academy of Management Review, 10, 435–54.
Schumpeter, J. A. (1949). Change and the Entrepreneur, Cambridge, MA: Harvard University Press.
Shane, S. (2000). Prior Knowledge and the Discovery of Entrepreneurial Opportunities, Organization Science, 11(4), 448–69.
Sharma, S. (1996). Applied Multivariate Techniques, New York: John Wiley … Son.
Shenkar, O. (2001). Cultural Distance Revisited: Towards a More Rigorous Conceptualization and Measurement of Cultural differences, Journal of International Business Studies, 32 (3), 519–35.
Stöttinger, B. and Schlegemilch, B. B. (1998). Explaining Export Development through Psychic Distance: Enlightening or Elusive? International Marketing Review, 15 (5), 357–72.
Sullivan, D. and Bauerschmidt, A. (1990). Incremental Internationalization: A Test of Johanson and Vahlne’s Thesis, Management International Review, 30 (1), 19–30.
Turnbull, P. W. and Valla, J.-P. (1986). Strategies for International Industrial Marketing: The Management of Customer Relationships in European Industrial Markets, London: Croom-Helm.
Walker, G., Kogut, B. and Shan, W. (1997). Formation of An Industry Network, Organization Science, 8 (2), 109–25.
Yip, G. S., Biscarri, J. G. Monti J. A. (2000). The Role of the Internationalization Process in the Performance of Newly Internationalizing Firms, Journal of International Marketing, 8 (3), 10–35.
Young, S. (1989). International Market Entry and Development: Strategies and Management, Hemel Hempstead: Harvester Wheatsheaf.
Zahra, S. A., Kuratko, D. F. and Jennings, D. F. (1999). Guest Editorial: Entrepreneurship and the Acquisition of Dynamic Organizational Capabilities, Entrepreneurship Theory and Practice, 23 (3), 5–10.
Editor information
Editors and Affiliations
Copyright information
© 2005 Pervez Ghauri, Amjad Hadjikhani and Jan Johanson
About this chapter
Cite this chapter
Hohenthal, J., Lindbergh, J. (2005). International Experience and the Recognition of Business Opportunities in Foreign Markets — A Study of SME’s International Experiences and Choice of Location. In: Ghauri, P., Hadjikhani, A., Johanson, J. (eds) Managing Opportunity Development in Business Networks. Palgrave Macmillan, London. https://doi.org/10.1057/9780230379695_8
Download citation
DOI: https://doi.org/10.1057/9780230379695_8
Publisher Name: Palgrave Macmillan, London
Print ISBN: 978-1-349-52457-0
Online ISBN: 978-0-230-37969-5
eBook Packages: Palgrave Business & Management CollectionBusiness and Management (R0)