The Relevance of Internationalization Theories: a Contingency Framework

Abstract

This chapter discusses different theoretical perspectives on the internationalization behaviour of firms and in particular, incremental internationalization/stages theory, transaction cost economics (TCE) and the network approach. Although these three established theories are all concerned with entry modes in international markets, their core constructs and assumptions differ as well as their conclusions and findings, both descriptive and normative. A fourth approach to internationalization theory, called ‘global management’, is introduced. By building on existing literature, the chapter supports and explains this concept which is developed because the global competitive environment presents new and different requirements as regards both theory and practice (Hamel and Prahalad, 1985; Porter, 1986; Hill et al., 1990; Yip, 1992). Logically, all theories incorporate the interplay between internal and external forces, but their emphasis on these dimensions varies greatly. These differences seem to be the source of a substantial amount of criticism of the theories and, in particular, raise the question of the potential for generalization.