THE INTERNATIONALIZATION OF FOREIGNOWNED ENTERPRISES IN ESTONIA A NETWORK PERSPECTIVE

1、dissertationes rerum oeconomicarum universitatis tartuensis 8 the internationalization of foreign- owned enterprises in estonia: a network perspective tiia vissak tartu 2003 table of contents introduction.4 1. the theoretical context of the internationalizaton of foreign-owned firms.11 1.1. the upps

2、ala, innovation-related and the target country internationalization process models.11 1.1.1. the uppsala model.11 1.1.2. innovation-related internationalization models.14 1.1.3. the target country internationalization process model.18 1.1.4. the importance and limitations of the uppsala, innovation-

3、related and the target country internationalization process models .22 1.2. studies in fdi and their impact on foreign-owned companies internationalization.25 1.2.1. studies in foreign direct investments.25 1.2.2. studies in the impact of fdi on foreign-owned companies internationalization.30 1.2.3.

4、the importance and limitations of studies in fdi and their impact on foreign-owned companies internationalization.35 1.3. the network approach (to internationalization).40 1.3.1. the network approach .40 1.3.2. the network approach to internationalization.46 1.3.3. the importance and limitations of

5、the network approach (to internationalization).51 1.4. studies in multinational corporations, networks, entrepreneurship and internationalization .53 1.4.1. studies in multinational corporations as inter-organizational networks .53 1.4.2. studies in entrepreneurship and internationalization.57 1.4.3

6、. the importance and limitations of studies in multinational corporations, networks, entrepreneurship and internationalization.62 2. the impact of networks on the internationalization of seven foreign-owned companies in estonia.64 2.1. the research outline for exploring the impact of networks on the

7、 internationalization of foreign-owned firms in estonia.64 2.1.1. the background of estonian companies internationalization .64 2.1.2. three propositions for empirical analysis.67 2.1.3. case study methodology.72 2.2. the internationalization of seven foreign-owned enterprises in estonia: a case stu

8、dy.75 2.2.1. the case firms internationalization process .75 2.2.2. the impact of (foreign parent companies) networks on the internationalization of the selected firms .86 2.2.3. the impact of the other factors on the case firms internationalization.96 2.3. discussion of the studies in the role of f

9、oreign ownership in host country firms internationalization in the context of seven estonian cases.105 2.3.1. theoretical implications of the studies in internationalization.105 2.3.2. theoretical implications of the studies in fdi and their impact on foreign-owned companies internationalization.111

10、 2.3.3 theoretical implications of the studies in networks, mncs, entrepreneurship and internationalization.121 conclusions and recommendations for future research .129 references.141 appendices.188 appendix 1. an overview of relevant theories/models/approaches.188 appendix 2. innovation-related int

11、ernationalization models.195 appendix 3. the importance and limitations of the research themes discussed in the subchapter 1.1.200 appendix 4. the oli paradigm post 2000 .204 appendix 5. the needs and bargaining power of multinationals and host countries.207 appendix 6. the product (life-) cycle and

12、 the “flying-geese” models .208 appendix 7. the importance and limitations of the research themes discussed in the subchapter 1.2.209 appendix 8. the classification of organization forms.219 appendix 9. reasons for participating in and avoiding networks and strategic partnerships.220 appendix 10. th

13、e importance and limitations of the research themes discussed in the subchapter 1.3.222 appendix 11. the classification of subsidiary roles.226 appendix 12. the importance and limitations of the research themes discussed in the subchapter 1.4.233 appendix 13. the global environment in the end of the

14、 20th and beginning of the 21st century .236 appendix 14. an overview of the economic situation in cee in the beginning of 1990s .238 appendix 15. the investment climate indicators in 2002 in the baltic sea region.239 appendix 16. changes in the estonian investment climate since the initial investme

15、nt, perceived by foreign-owned exporters .240 appendix 17. estonias direct investment stock by countries and fields of activity by the end of the 3rd quarter 2002.241 appendix 18. balance of payments of estonia .242 appendix 19. estonian foreign trade by groups of goods .243 appendix 20. estonian fo

16、reign trade by main trade partners.244 appendix 21. estonian exports* by type of ownership in selected industries.245 appendix 22. problems hindering estonian local exporters and foreign-owned exporters*.246 appendix 23. basic conclusions for making proposition 1.247 appendix 24. basic conclusions f

17、or making proposition 2.248 appendix 25. basic conclusions for making proposition 3.250 appendix 26. the purposes and types of theory-building activities.252 appendix 27. the case study method: importance and limitations .253 appendix 28. the (mail) survey method: importance and limitations .256 app

18、endix 29. the seven case firms: short description.257 appendix 30. the case firms internationalization: additional evidence.263 appendix 31. some examples of previous case studies on firms internationalization, networks and/or entrepreneurship .265 appendix 32. questionnaire used for interviews (pre

19、-prepared questions).266 kokkuvte.267 introduction the motivation of the research the internationalization1 process of the firm has been widely researched for over the last four decades. during the period, many different views about the companies increasing foreign involvement have emerged. some of

20、them have described internationalization as a sequential process, while the others have stressed the importance of network2 relationships, foreign direct investments3, managers entrepreneurial behavior4 and so on. despite the variety of concepts, there is no common theory concerning the interaction

21、between trade, fdi and international production networks (ernst and guerreri 1998). there is also still much to be learned from examining the network approach in the context of an entrepreneurial firm (coviello and munro 1995). the foreign direct investment theory, the internationalization models or

22、 the network perspective, when examined independently, cannot fully describe the (foreign-owned) firms complex internationalization process. consequently, future research should attempt to develop an all-inclusive perspective (coviello and mcauley 1999). by viewing internationalization as a holistic

23、 process, we are more likely to develop theory with predictive ability, rather than fragmented explanations of specific components of internationalization (jones and coviello 2002). the need to understand the factors affecting the firms internationalization process is especially important in case of

24、 transition economies. in estonia, 1 internationalization is the process of increasing involvement in international operations (welch and luostarinen 1988). 2 a business network is a set of connected relationships between actors controlling business activities (forsgren and johanson 1992). 3 foreign

25、 direct investments (fdi) reflect the objective of obtaining a lasting interest by a resident entity in one economy in an entity resident in another economy. the lasting interest implies the existence of a long-term relationship between the direct investor and the enterprise and a significant degree

26、 of influence on the management of the enterprise. the numerical guideline of ownership of 10 per cent of ordinary shares or voting stock determines the existence of a direct investment relationship (oecd 1999). the management dimension distinguishes foreign direct investments from portfolio investm

27、ents in stocks, bonds and other financial instruments (wto 1997). 4 entrepreneurial behavior is a combination of innovativeness, proactivity, risk- seeking, autonomy and competitive aggressiveness (lumpkin and dess 1996). foreign trade deficit is relatively high. in 2001, it was 13.8 billion eek5 (b

28、ank 2002a). the size of the country (a population of less than 1.4 million) can mean that even very young companies have to internationalize quickly. this is not easy especially for recently established smaller local enterprises due to a lack of resources, capabilities and contacts. for older and/or

29、 larger companies, internationalization has also been relatively difficult: after the dissolution of the soviet union, many trading arrangements broke down and most of these firms were forced to find new foreign buyers and suppliers. consequently, in estonia, both older and newer enterprises may oft

30、en require external assistance to internationalize. as one way to improve the estonias foreign trade deficit, the government has tried to attract as much foreign direct investment inflows as possible. by the end of september 30th 2002, estonia had received 61.9 billion eek of fdi inflows (bank 2002c

31、). it has been demonstrated in earlier studies that in estonia, foreign-owned firms export more than local enterprises. unfortunately, the mechanism of the impact of fdi on the internationalization of foreign- owned firms in estonia has still received relatively little attention. it has yet to be sh

32、own, whether and how the internationalization of foreign-owned companies differs, how participating in the foreign owners networks influence the firms internationalization and how foreign-owned firms managers can impact the companies internationalization process. this thesis will be based on seven c

33、ase studies and nine research themes within the framework of internationalization models, foreign direct investment studies, the network approach, and entrepreneurship literature6 (see appendix 1). it will seek to provide an understanding of foreign-owned estonian firms internationalization from the

34、 network perspective. we will also analyze the impact of subsidiary and, to a smaller extent, parent company characteristics, home, host country and global environment factors on these companies internationalization (see figure 1). in addition, the thesis will demonstrate how different streams of in

35、ternationalization research can contribute to the overall understanding of the internationalization process of foreign-owned firms and what are their limitations. this should improve the comprehension of the internationalization of foreign-owned firms not only in estonia, but also in other countries

36、. in addition, the results of this thesis could be used for analyzing or making changes in the estonian economic policy or drawing managerial implications. 5 in june 1992, the estonian currency, kroon (eek) was pegged to the german mark at the rate 1dm= 8eek. since january 1999, it has been pegged t

37、o the euro at the rate 1eur=15,65eek, an equivalent to the former exchange rate. 6 in this thesis, the terms model, theory, approach, paradigm and so on are used about each research stream on the basis of what is mostly used in the literature or by the authors belonging to the stream. foreign-owned

38、firm (management)s characteristics and behavior network a foreign-owned firms home, host country and membership internationalization global environment factors parent company characteristics and behavior figure 1. the main framework of the thesis the aim and research tasks the aim of this thesis is

39、to prove that the impact of foreign investors networks on the outward internationalization of foreign-owned companies in estonia depends on the foreign-owned firms characteristics, their managers behavior and other factors. to achieve the aim, the following five research tasks have been set. to anal

40、yze the conclusions, importance and limitations of internationalization models, foreign direct investment studies, the network approach and entrepreneurship literature. to highlight the general trends in the world economic environment and analyze the general characteristics of estonia from the aspec

41、t of foreign- owned companies outward internationalization. based on the theoretical studies and the conclusions about the estonian and global economic environment, to draw research propositions about the foreign-owned companies outward internationalization and the impact of network membership and t

42、heir characteristics on it. to test the propositions by using case study analysis about seven foreign- owned companies in estonia. based on the results, to analyze the importance and limitations of different theoretical concepts in the context of the outward internationalization of foreign-owned com

43、panies in estonia. research methodology in estonia, mostly surveys have been used to study firms internationalization. unfortunately, due to a limited space, mainly closed-ended questions7 have been asked, which has limited the comprehension of this process. in the other countries, case studies have

44、 been widely used for analyzing different aspects of firms internationalization. in estonia, some later studies have also applied this method (for example, see reiljan 2002 and roolaht 2002). this empirical part of this thesis will be primarily based on case studies as this method allows to get a de

45、eper understanding of the impact of fdi on the foreign-owned firms internationalization, it is generally accepted as a tool for generating new theory or criticizing and specifying already researched topics and allows the researcher to study a topic as a dynamic process. using this method, theoretica

46、l reading and empirical research can be done at the same time. new theories can be added during the study. this type of research can also provide richly detailed information from a variety of sources, both qualitative and quantitative. in addition, it allows the researcher to better understand the c

47、ausality between elements and enables to study a firm from multiple perspectives rather than the influence of a single variable. in the thesis, seven foreign-owned firms in estonia from different industries, having different foreign owners and levels of internationalization will be examined. this sh

48、ould ensure theoretical replication8. the case study data are verified by survey data and several other sources of information: newspapers, the companies homepages, annual reports and so on. this allows triangulation9 and secures construct validity10. this thesis builds theory according to the follo

49、wing model (see figure 2). the left half of the model represents inductive construction of the theory from observations. the right half represents the deductive application of the theory to observations. the top half represents theorizing. the bottom half of the model represents empirical research (

50、handfield and melnyk 1998). this thesis begins with the theories. then it proceeds to propositions, observations, proposition- testing and empirical generalizations about the impact of foreign direct investment inflows on the internationalization of foreign-owned companies in estonia. finally, it en

51、ds with the discussion of the importance and limitations of theories in the context of estonia. 7 for example, a closed-ended question is “does your firm export to finland?” an open-ended question is “why did the company start exporting to finland?” 8 theoretical replication means producing contrast

52、ing results but for predictable reasons (yin 1994). 9 triangulation is the approach of using different data-collection methods. when the results converge (agree), it can be concluded that we are getting a true understanding of the reality (gillham 2001). 10 construct validity means that selected mea

53、sures are suitable to study the specific concepts (yin 1994). theories concept and proposition formation and arrangement logical deduction logical deduction empirical generalization decisions to accept/reject hypotheses/propositions hypotheses/ propositions measurement, sample summari- zation, param

54、eter tests of hypotheses/propositions interpretation, instrumentation, scaling and sampling estimation observations figure 2. the principal information components, methodological controls and information transformations of the scientific process (source: based on handfield and melnyk 1998, p. 323 an

55、d wallace 1971, p. 18) the structure of the thesis this thesis is composed of two parts, the first of them consisting of four and the second of three chapters with three-four subsections per chapter. the first part of the thesis will provide a theoretical context of the role of foreign owners networ

56、ks and other factors in the outward internationalization of foreign-owned companies. the first chapter analyzes the three most popular approaches to firms internationalization process: the uppsala, innovation-related and the target country internationalization process models. it will demonstrate how

57、 firms internationalize, what steps they follow and which factors determine this process. in addition, the models importance and limitations will be examined. the second chapter proceeds with studies in fdi and their impact on foreign affiliates internationalization. it introduces nine concepts: the

58、 industrial organization approach, the transaction-cost/internalization approach, the eclectic paradigm, the product (life-) cycle model, the technology gap trade theory, the “flying-geese” model, the investment development path, studies in the impact of organization of foreign production on exports

59、 and the research on the relationships between fdi and trade. it will analyze the reasons of fdi and the role of firm-, home- and host country- specific factors in the selection of entry mode, production location and the impact of fdi on the subsidiary. it will demonstrate how firms can benefit from

60、 having foreign owners: for example, acquire access to foreign markets, receive technology and know-how and, as a result, quicker their internationalization. in addition, the importance and limitations of the nine above-mentioned concepts will be analyzed. in the third chapter, the network approach