Born Global Firms and Classic Internationalization Theories

Introduction

Thirty years ago, the multinational was distinct from national organizations both in its geographical reach and in the managerial complexity it confronted. Over time, the barriers to internationalization have fallen and the population of multinationals has mushroomed. Today there are few, if any, large commercial organizations that are entirely national in the scope of their operations — from supply chains to customers. Consequently, the distinction between multinational enterprise and "big business" has effectively disappeared (Wetzel, 2005). Many new firms are now "born global," especially in digital markets. For the purposes of organizational studies, interest has shifted into what can more generally be called corporate strategy. How can one satisfactorily explain the causes of firms' long-run performance? (MacMillan et al., 2005).

These questions share the common theme that it is not structure per se that shapes performance, but rather the informal structures — the underlying processes and the people. The field of strategy has moved well beyond the tenets of industrial economics. It is no longer held that industry structure is the prime determinant of firm performance: the variance of performance around the industry mean is simply too great. Besides, it is much less clear today than thirty years ago where the boundaries of an industry lie (Aspelund & Moen, 2001). US banks now channel less than 20% of the nation's money flow, having given way to new competitors such as supermarkets and pension fund managers. Similarly, competitors with similar strategies, structures, and resources will experience quite different outcomes. One must look at the "dominant logic" a management team has adopted to understand how resources are both created and allocated.

Early work in this area was done at a time when just a few multinationals were beginning to experiment with some form of matrix organization. These were the multinationals at the extremes of complexity in the array of products, technologies, geographies, and cultures assembled to deliver returns to shareholders (Moen & Servais, 2002). They faced the most severe managerial challenges. Since then, many others have joined those pioneers. Indeed, Knight and Cavusgil's (2009) "transnational" organization — a development of the early "grid" model — was presumed to be the ideal goal for multi-industry players. More recent evidence, however, has shown that the ensuing complexities for firms such as ABB acted to reduce margins and erode competitiveness over time. Even attempts to create a "mental matrix" rather than a structural solution have lacked conviction.

In organizations that have been dubbed "metanational," new approaches are visible to the old problem of managing the core asset of the firm: knowledge (MacMillan et al., 2005). Better ways to create and integrate knowledge across internal boundaries may in turn inspire a whole new generation of organizational solutions to the management of complexity. If the limits of both scale and complexity are pushed back, then perhaps the trillion-dollar corporation will become a reality (Madsen & Servais, 2007).

In addition to these internal process developments, complexity is also being addressed as managers choose different ways to draw a boundary around the assets they plan to own. This is an age of outsourcing, indirect supply chain management, and, most notably, strategic alliances. One does not need to own an asset in order to control it, or at least gain benefit from its existence under someone else's ownership. Whereas earlier debates about organization concerned markets versus hierarchies, today the role of contracts must also be considered. It is becoming commonplace for managers to talk about their "asset ecologies" — those assets that help create value for them (McNaughton & Bell, 2000). Microsoft, it has been estimated, owns a mere four percent of the assets that create its value, with the rest coming from contracts such as those with IBM. The consulting firm Accenture estimated that strategic alliances of all types could contribute more than $25 trillion to the revenues of US firms by 2004, and that a substantial number of Fortune 500 firms would have 40% of their revenues and profits from alliances (Lumme et al., 1998).

Should this occur, many firms would have to modify their approaches to organization quite seriously. The dominant logic of organizing a hierarchy — albeit a flattening one — is quite different from that required to manage collaborative arrangements. Whereas many firms currently regard their alliances as exotic options at the periphery of their empires, tomorrow they will have to create alliance management capabilities as a central plank of their strategies. All these options may serve to add new complexity for management until the governance provisions and logic are sorted out clearly. How managers go about this task will provide a fruitful and challenging domain for future research (Lautanen, 2000).

The internationalization process model, Vernon's product life cycle model, and various theories of corporate control and coordination have been examined to ascertain what insights they offer toward understanding the relationship between FDI and strategy (Mason & Harrison, 1999). The mechanistic nature of the product life cycle and internationalization process models meant they did not offer a role for strategic decision-making in either mode choice or locational choice. The literature addressing corporate governance systems, on the other hand, suggests that FDI — especially that funding wholly-owned subsidiaries — is likely in MNCs that have adopted integrated global governance structures, because of the control this mode offers. Such control is essential in highly integrated MNCs to ensure that interdependent subunits behave in a mutually supportive manner.

Identification of a Research Agenda

Research examining the internationalization of the Australian economy has focused primarily on macroeconomic aggregates such as the levels of imports and exports and the growing importance of these to Australian GDP (Aspelund & Moen, 2001). Relatively little attention has been given to the internationalization of the economy through offshore production by Australian firms or through production within Australia by foreign multinationals — the exceptions being McKinsey and Company (1993), Yetton, Davis and Swan (1991), the Department of Industry, Science and Technology (1994), and the Bureau of Industry Economics (1995) (McAuley, 1999). The dynamic nature of internationalization, and associated financing methods such as FDI, calls for research that is responsive to the longitudinal character of internationalization as a development process through time. While it is valuable to study individual events, a more complete picture is supplied when the whole development of a firm from its founding to the present is examined (Knight, 2006). Hence, a rich, broadly focused study resulting from careful examination of a few organizations over a long period of time may be superior to statistically rigorous but narrowly focused studies (Knight & Cavusgil, 2009).

Stage models of internationalization — including those of Vahlne and Johanson, Vernon, and evolutionary models of international structure including those of Stopford and Wells, Franko, and Bartlett and Ghoshal — are based on surveys of manufacturing firms. The internationalization of service firms and firms that combine goods and services requires more attention (Landstrom, 2004). This observation is highly relevant for Australian scholars, as the majority of Australian FDI abroad has been directed toward service firms (Johanson & Vahlne, 1990).