Explaining gradually increasing resource commitment to a foreign market

Abstract

A large number of studies has examined the pattern of firms' internationalization in terms of the sequence by which a firm introduces various operation methods to a foreign market. With few exceptions, the studies seek to establish whether or not the observed patterns of internationalization are `incremental'. Looking at the internationalization process in relation to the firms' resource commitment to foreign markets, the point taken in this study is that the internationalization process of any firm will display some element of `incrementalism'. However, the pace by which firms commit resources may differ substantially. By looking at the pace of commitment instead of the pattern (`the establishment chain') the study leaves behind the crude dichotomy of incremental-versus-instantaneous resource commitment to a foreign market. Instead, the focus of the study is on the factors which hold the potential of explaining the pace of resource commitment to a foreign market. LISREL algorithm results, based on retrospective observations of 165 Danish companies' involvement in one specific foreign market, confirm that the companies' internal accumulation of foreign market knowledge is a determinant of pace of commitment. But the empirical analyses also suggest that the inclusion of other internal and external factors provide a more complete explanation of the pace by which a firm commits resources to foreign markets.