Monday, April 22, 2013

International Strategy and its Redefinition in the Context of the Economic Crisis: Insights from a Study of Basque Firms

CASANOVA Lourdes, ELOLA Aitziber
Read the working paper
INSEAD Working Paper 2013/53/ST

Over the last three decades there has been a spectacular acceleration in the globalization of the economy. With domestic markets facing stagnation and/or saturation, internationalization is essential for firms in advanced countries to preserve and enhance their competitiveness. Since firms worldwide need to adapt to this new reality, an opportunity to review, adjust and/or change their internationalization strategies seems timely. In this paper we examine how the economic crisis and the emergence of a new world order is challenging previous internationalization strategies of firms, and how new ones are emerging. We highlight how recent research is challenging established frameworks in internationalization theory. Firstly, the notion of being ‘born global’ brings into question the idea of a gradual internationalization of the firm. Secondly, regarding geographic expansion, it is generally accepted that internationalizing firms focus first on their nearest markets (in terms of psychological distance). However, the recent growth of the so-called BRICS has pushed firms to expand into markets, which are more culturally distant. Third, we review the literature on the drivers of internationalization. Taking the aforementioned review into account, we conduct an in-depth analysis of the internationalization strategies of eight Basque firms over time, focusing on how the current economic crisis is affecting their performance and how they are reconsidering their strategy in the light of the new world order. Our analysis shows that both in terms of exports and foreign direct investment (FDI) most of them are still too centered on the European market, with serious consequences in an era when European markets are stagnating. Those firms that show higher levels of geographical diversification will overcome the effects of the economic crisis more quickly and reinforce their competitive position thereafter. In terms of drivers of internationalization, contrary to the common view that firms internationalize for the sake of efficiency, we find that accessing new markets is the main driver, although it coexists with efficiency and knowledge drivers in some cases.