Foreign Operation Modes Research Articles

Outward foreign direct investment operation modes and reverse technology spillovers: Implications for the quality of economic growth

This study delves into the nuanced relationship between China's outward foreign direct investment (OFDI) and the enhancement of economic growth quality, with a focus on the reverse technology spillover effect. Our findings reveal that OFDI contributes significantly to the efficiency and sustainability of economic growth. Notably, we observe a time-lag effect in the positive impact on growth quality, indicating a delayed manifestation of reverse technology spillovers. Furthermore, heterogeneity analysis suggests that OFDI in high-economic-level host countries, by firms with fewer branches and those in trade sales, enhances the quality, efficiency, and sustainability of China's economic growth, albeit with limited stability impact. Additionally, we uncover a mediating effect wherein OFDI-induced scale expansion elevates domestic human capital levels and research and development intensity, narrows the technology gap, and substantially increases the quality of China's economic growth. This research not only sheds light on the strategic value of China's OFDI in global economic dynamics, but also offers actionable insights for policymakers and businesses to harness OFDI for sustainable and quality-driven economic advancement.

Under which conditions do manufacturing companies choose FDI for service provision in foreign markets? An investigation using fsQCA

Studying the provision of services from the point of view of manufacturing firms has been highlighted by many researchers in different fields. Besides, research on international business on the internationalization of either goods or services is vast, but rare on the combination thereof. While some studies have shown that firm-, country- and offering-specific factors can influence the foreign operation mode (FOM) of goods-related services, only a few have examined how these factors interrelate. The purpose of this study is to detect different configurations of conditions leading to a same decision. To answer this, the present study draws on the configurational approach and examines how combinations of different conditions lead to the choice of foreign direct investment (FDI) for service provision.A state-of-the-art fuzzy set qualitative comparative analysis (fsQCA) is applied to a sample of 111 Swiss and German industrial goods manufacturers. Choosing FDI for the provision of goods in foreign markets constitutes a necessary condition for service FDI. From the sufficiency analysis, several causal paths are detected. Companies with a servitization strategy choose FDI for their service resources only in digitally ready countries. The results furthermore show that differences between base, intermediate and advanced services exist. Also, the digital readiness of the country is found to be an important influence factor on the FDI decision.

The hows and whys of foreign operation mode combinations: The role of knowledge processes

Despite evidence that firms often combine more than one operation mode in a foreign market and that these mode combinations change over time, this phenomenon remains understudied. Drawing on the knowledge-based view, in this process study we explore how and why foreign operation mode combinations change over time. We build on a longitudinal case study, spanning 21 years of a firm's development in three Latin American countries, to identify and analyse four different mode combinations. Our findings show how operation modes are combined to enable several knowledge processes simultaneously, and that these combinations change in response to changing knowledge needs.

Foreign operation mode flexibility: tradeoffs and managerial responses

Firms’ ability to change foreign operation modes appears highly desirable in an increasingly volatile and unpredictable global environment. We propose and discuss mode flexibility as a management capability, with the aim at curbing the potential downsides of flexibility; in particular, the extra costs of coordination and contracting as well as revenue losses due to diminished partner commitment. We model the balancing and shifting of essential tradeoffs in relation to the two dimensions of mode flexibility – multiplicity and switchability – and highlight modularization and reciprocal use of real options as examples of tradeoff-shifting mechanisms that may improve the cost-benefit balance of mode flexibility.

Learning from foreign operation modes: The virtuous path for innovation

In this article, we analyze the impact of learning from internationalization on small and medium enterprises’ (SMEs) performance along different development paths. Drawing on the exploitation versus exploration logic, we use an alternative view of foreign operation modes (the learning perspective) to provide insights into the impact of such learning on technological and organizational innovation as well as overall performance. Our results, which are derived from a sample of 132 SMEs active in traditional manufacturing industries, point to a path to superior performance that entails resource-augmenting operation modes and organizational innovation. JEL CLASSIFICATION: O31; F23; L25; M10; M16

Changes in foreign operation modes: A review and research agenda

This paper addresses the growing but fragmented research area of changes in foreign operation modes. Previous research claims this field to be under-researched and at the same time more complex than hitherto assumed. Moreover, a majority of studies investigating mode change include the topic rather inexplicitly. In consequence, literature on mode change is fragmented across different research streams and is characterized by incoherent nomenclature, a variety of research foci as well as results that are hard to compare. By conducting a structured literature review we consolidate existing findings, provide a deeper understanding of firms’ foreign operation mode change, related theoretical perspectives, and its antecedents and consequences. Based on our findings we discuss relevant areas for future research in this research field.

The global value chain and internalization theory

In a research note in this issue, Strange and Humphrey discuss how a global value chain (GVC) approach serves to usefully move internalization theory towards a better understanding of the increasingly important ‘middle ground’ between markets and hierarchies in the contemporary highly globalized international business scene. After a brief recount of their main arguments, we argue that their discussion needs to the extended, as it does not adequately recognize important differences between internalization theory and the GVC approach. Specifically, the approaches differ on the notions of efficiency, opportunism, and level of analysis. We then argue that internalization theory can benefit from the systemic view implied in the GVC approach, and discuss the role of trust as a coordinating mechanism in international business. This leads to a more general discussion of internalization theory and the difficulty of encompassing dynamic considerations such as learning and foreign operation mode combinations and flexibility within value chain interdependencies. We conclude with a research agenda that flows from our discussion.

SMEs’ Foreign Operation Mode Package Development

This paper aims to provide a theoretical explanation to the observed phenomenon that SMEs develop a foreign operation mode (FOM) package. The findings demonstrate that SMEs’ FOM package was developed based on an opportunity development logic. Specifically, SMEs develop multiple opportunities sequentially and simultaneously which end up as a FOM package. The authors identify the antecedents - existing knowledge and networks, and additional influential factors of affordable loss and the level of commitment to develop a theoretical explanation. Practitioners can apply opportunity development logic to evaluate a SMEs FOM decision.

Limits to international entry mode learning in SMEs

Despite extensive research, the literature is unclear about the circumstances under which a firm learns from its past foreign entry modes and how this experiential learning is related to future mode choices. Building on the internationalization process (IP) model and the idea that some experiential learning is location-bound, while other learning is non-location-bound, we develop and test theory to explain how experiential learning about foreign operation modes and markets impact future mode choices in new foreign markets. Overall, we argue that mode-based experiential learning is limited. Through the repeated use of a specific operation mode firms develop routines and processes that are non-location-bound and can be replicated in new foreign markets, leading to the use of this same mode type in new locations. But when complemented by experiential learning about a target market/region firms opt for operation modes with greater commitment in new foreign markets. Drawing on a sample of German SMEs and examining four different types of entry modes we find some support. However, we also identify a number of notable exceptions to our theory. In this way, we help provide unique new insights informing future IP model, experiential learning, and international entry mode research.

To elevate or to duplicate? Experiential learning, host-country institutions, and MNE post-entry commitment increase

A multinational enterprise’s (MNE) decision to commit more resources to a host country operation is a key aspect of internationalization. MNEs can change their foreign operation mode in several ways in order to increase host-country commitment after initial entry, but existing theory on mode changes provides little guidance on what drives MNEs to increase commitment in a certain way over another. In this paper, we differentiate between mode duplication, whereby an MNE replicates an existing operation mode in a host country, and mode elevation, whereby an MNE establishes a new, different mode of operation either in lieu of or in addition to an existing one. We subsequently leverage learning theory to argue that both deeper international experience and broader international experience increase the likelihood of implementing a mode elevation rather than a mode duplication due to the higher complexity of the former. We further argue that these relationships are not uniform across different levels of host-country institutional quality. We test our hypotheses in a primary dataset of 80 Austrian MNEs implementing 527 mode changes while internationalizing into 21 countries in Central and Eastern Europe over 24 years, and find support for our theory. Overall, this study contributes to the international business literature on mode changes by offering theory and evidence regarding the drivers of whether an MNE increases foreign commitment by establishing a new operation mode or by duplicating an existing one in a host country.

Value creation logics and internationalization of service firms

Purpose– While mainstream theories in international business and management are foundedeither explicitly or implicitly on studies of manufacturing firms, prior attempts to develop theoryon the internationalization of service firms are sparse and have yet to establish solid andcomprehensive frameworks. The thrust of this study is that value creation logics, a constructoriginally developed by Stabell and Fjeldstad (1998) can assist us in better understanding why and how service firms internationalize. The authors extend this construct and propose that the internationalization of service firms must be based on a thorough understanding of the fundamental nature of these firms.Design/methodology/approach– Theoretical study.Findings– The authors put forward propositions concerning the pace of internationalization and the default foreign operation modes in service firms.Research limitations/implications– The use of value creation logics can be a useful complement to the conventional approaches to the study of service firms’ internationalization. However, the fact that most firms encompass more than one value creation logic complicates the use of firm databases and industry statistics.Practical implications– The authors suggest that managers in service firms should consider primarily the nature of the value creation logic(s) in their firms when deciding and designing an internationalization strategy.Originality/value– The study presents a novel theoretical approach and a set of propositions on service firm internationalization founded on the specific characteristics of the service activities.

Retailers׳ expansion mode choice in foreign markets: Antecedents for expansion mode choice in the light of internationalization theories

Whenever a retail company expands its store network in a foreign market, decisions have to be made about how this can be achieved. Existing studies of retail internationalization have usually analyzed the “entry mode” choice as an end in itself, and not as the start of a firm׳s international development. In addition, there is much debate in the academic literature about the antecedents for retail foreign operation mode choice and the relevance of generic internationalization theories to international retailing. Therefore, the objectives of this research are (1) to investigate the paths of entry and subsequent expansion modes pursued by retailers in international markets and (2) to develop and test a model of expansion mode antecedents in the light of generic business internationalization theories. This is achieved on the basis of data collected from 43 French fashion retailers and a PLS-SEM approach. Results show that (1) retailers clearly differentiate between entry and expansion modes; (2) the international marketing plan, the perceived attractiveness of the foreign market, and strategic and ownership conditions are the key antecedents for the choice of an expansion mode. After comparing the results with the explanations proposed by the generic internationalization theories, a multi-theoretical framework is proposed which draws from the Uppsala internationalization process model, network theory and the born-global theory. The findings provide a wealth of information for retailers׳ use in choosing appropriate foreign operation modes.

The pop-up store as a foreign operation mode (FOM) for retailers

Purpose– The purpose of this paper is first, to describe the characteristics of a pop-up store in an international context, second, to investigate the motivating factors for its choice and third, to analyze its role in the retail internationalization process.Design/methodology/approach– A multiple-case study was adopted. Research was carried out using secondary data sources, social media observation and semi-structured interviews with senior managers in charge of the international development and management of pop-up stores. A conceptualizing content analysis was conducted both manually and with NVivo software.Findings– The main results cover the following aspects of an international pop-up store and highlight the differences between this choice of FOM and other store formats: key characteristics: location, design and atmosphere, merchandise mix, and store events are very creative in order to attract foreign consumer attention; choice motivations: three motivations were found, which were first, to test and adapt the concept with foreign consumers possibly unfamiliar with such a store concept, second, to raise and sustain the international profile of a retail brand, and third, to develop relationship networks with stakeholders in foreign markets; role in the retail internationalization process: a dynamic approach is adopted as role varies from mode switch at the entry stage to mode combination at the further expansion stage.Research limitations/implications– The results of this research suggest avenues for future research, particularly in relation to how the concept of the international pop-up store will evolve over time.Practical implications– This research provides guidelines for international retail managers wishing to choose a pop-up store as a foreign operation mode (FOM).Originality/value– This research provides a new insight into the characteristics, choice motivations and management of a pop-up store in an international context.

Offshore outsourcing: A dynamic, operation mode perspective

Based on a case study of the Danish company SimCorp and the development of its operations in Kiev, Ukraine, we analyze offshore outsourcing in a broader, longitudinal foreign operation mode context, and how it may contribute to mode change in the host country over a certain span of time. SimCorp had outsourced part of its software development work to two Ukrainian companies. The case study approach allowed us to explore the dynamic processes in depth. The study shows that involvement in the foreign market generates learning in various forms that provide a foundation for eventual mode development or change—beyond outsourcing specific learning. At the same time, restrictions on 3rd parties’, that is, independent vendors’ access to confidential client data, as well as protection of specific investments in human assets, may eventually become a driver for mode change, as in the SimCorp case, to ensure more effective control of the foreign operation. Finally, the case study shows how outsourcing can be used proactively as a springboard to deeper and changed operation mode activities in a foreign market.

Mode Combinations and International Operations

An enduring characteristic of extant literature on foreign operation modes is its discrete choice approach, where companies are assumed to choose one among a small number of distinctive alternatives. In this paper, detailed information about the operations of six Norwegian companies in three key markets (China, UK and USA) is used as the basis for an exploration of the extent to which, and how and why, companies combine clearly different foreign operation modes. We examine their use of foreign operation mode combinations within given value activities as well as within given countries. The study reveals that companies tend to combine modes of operation; thereby producing unique foreign operation mode “packages” for given activities and/or countries, and that the packages are liable to be modified over time—providing a potentially important optional path for international expansion. The data show considerable variation across cases; ranging from extensive use of mode combinations to a singular focus on a specific mode of operation. The study contributes to a refinement of our understanding of the path of internationalisation, and throws up a number of awkward theoretical questions about the process.

Offshore Outsourcing: A Dynamic, Operation Mode Perspective

While the extant literature on offshore outsourcing at the firm level basically deals with this operation mode in isolation, in this paper we address the issue of outsourcing in the context of the broader question of how companies choose and use outsourcing as part of their operation mode development in foreign markets. Based on a case study of the Danish company SimCorp and the development of its operations in Kiev, Ukraine, we analyze offshore outsourcing in a broader, longitudinal foreign operation mode context, and how it may contribute to mode change in the host country over a certain span of time. The case study approach allowed us to explore the dynamic processes in depth. The study shows that involvement in the foreign market generates learning in various forms that provide a foundation for eventual mode development or change – beyond outsourcing specific learning. At the same time, restrictions on 3rd parties’, that is, independent vendors’ access to confidential client data, as well as protection of specific investments in human assets, may eventually become a driver for mode change, as in the SimCorp case, to ensure more effective control of the foreign operation. Finally, the case study shows how outsourcing can be used proactively as a springboard to deeper and changed operation mode activities in a foreign market.

Changes in foreign operation modes: Stimuli for increases versus reductions

This article explores the reasons leading executives to change foreign operation modes by contrasting mode increases and reductions. Our study is grounded on stimuli identified through in-depth interviews by a former IBR study which we employ through two different measures in the course of analyzing data from 265 German firms on 320 mode changes. The results show that executives recognize a wide range of reasons for mode change, but the importance and magnitude of those stimuli differ for mode increases and reductions. While performance and external environment increase the likelihood of mode reductions, internal environment and managerial attitudes induce mode increases. Moreover, stimuli for incremental and radical mode changes differ as well.

Towards more realistic conceptualisations of foreign operation modes

We address a long-standing discrepancy between theory and practice regarding how firms choose, use, and modify their modes of operation in foreign markets. Theory typically treats foreign operation modes as choices between well-specified, discrete alternatives. Observation of business practice reveals a “messier” reality. We commonly observe mode packages, within-mode adjustments and mode role changes, yet by and large these aspects of international business development have been relatively ignored in the literature, and in theoretical and empirical research. We propose richer and more realistic conceptualisations of foreign operation modes, and look at their implications for theory and practice.

Organizing foreign market activities: From entry mode choice to configuration decisions

This article takes a critical look at the extant foreign entry mode research and argues that a richer and more and dynamic view is needed in order to provide a realistic presentation of how firms organize their foreign activities. While researchers have typically assumed a very limited range of foreign operation modes, we propose a systemic rather than a myopic view of foreign operation modes by modeling the entry mode decisions of the firm as a corporate-level process. We substantially broaden the scope of mode choice, thereby moving toward a configuration decision approach. We model and provide numerical examples of how international interdependencies impact mode configuration, and then extend the analysis by incorporating dynamic aspects.

Export channel dynamics: an empirical investigation

AbstractWe investigate the dynamics of export channel arrangements by modelling foreign operation method decisions as the interplay between factors that motivate switches and factors that deter them. Our model extends previous analyses by looking simultaneously at (1) no change of channel arrangement, (2) replacements of foreign intermediaries (within‐mode shifts), and (3) integration of the sales function abroad (between‐mode shifts). We use a multinomial logit model on longitudinal data from a sample of Danish exporters that had entered foreign markets through intermediaries. The results suggest that the decision to carry out within‐mode shifts (i.e. to replace an existing intermediary) is driven by a different set of factors than the decision to switch to another foreign operation mode (i.e. to in‐house operations). Copyright © 2005 John Wiley & Sons, Ltd.