The Network Approach to Business Internationalization

The Network Approach to Internationalization

This approach explains the internationalization process through the interaction of a firm with other firms in its network, such as suppliers, customers, and competitors. Success is a combination of the Competitive Advantages of the firm + Competitive Advantages of the network + Competitive Advantages of the countries.

Firm Archetypes in the Network Model

• Early Riser: Characterized by penetration in close markets with a low level of commitment and a sequential development process.
• Lone Ranger: Faces less risk when entering new markets and makes more committed investments. This type often promotes the internationalization of the entire network.
• Left Behind: The network can drive the firm's internationalization.
• In a Global Network: The firm's position is conditioned by other network members. Sales and production subsidiaries are the norm, and markets are viewed as a whole.

Key Conditions for International Strategy

Industry-Specific Factors

• Domestic Rivalry: Strong domestic rivalry forces firms to innovate, leading to a process of learning and continuous improvement. The existence of strong national competitors often compels firms to pursue international expansion.
• Conditions of Domestic Demand: The size of the demand is important, but other factors also play a crucial role:
  • Consumers with specific or sophisticated needs drive innovation in quality and differentiation.
  • Rapid growth of internal demand and early saturation of the home market encourage continuous innovation through investments to further develop the product.
  • National customers that operate internationally may wish to buy similar products from their national suppliers abroad.
• Network of Firms: Interrelations between industries and networks of firms influence international competitiveness through the sharing of resources and information.

Country-Specific Factors

• Factor Conditions (Resources): This involves not just the endowment of factors, but also their continuous improvement.
  • Basic factors (e.g., natural resources, capital, unspecialized workforce) vs. Advanced factors (e.g., specialized workforce, a country's scientific system, infrastructure).
  • General factors (e.g., highway network, educational system) vs. Specialized factors (e.g., R&D centers).
  • Investment in advanced and specialized factors that are scarce and difficult to imitate is crucial.
• Role of Public Policies and Policymakers: Governments should stimulate the aforementioned factors rather than creating artificial competitive advantages. Key actions include:
  • Creating specialized and advanced factors.
  • Stimulating demand for sophisticated products and increasing customers' levels of demand.
  • Facilitating relations between companies in related industries.
  • Enhancing rivalry between companies in the same industry and preventing monopolies.