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Department of International Economics and Management, Copenhagen Business School Working Paper Series, Department of International Economics and Management, Copenhagen Business School

No 5-2000:
INTERNATIONALIZATION REVISITED: THE "BIG STEP" HYPOTHESES

Torben Pedersen and J. Myles Shaver

Abstract: We refine the prominent of the process by which firms expand internationally - internationalization theory. By argumenting the behavioral theory of the firm (which is the basis of internationalization theory) with theories of foreign direct investment, we argue that international expansion is not a gradual incremental process as argued by internationalization theory. Rather, we hypothesize that international expansion is a discontinuous process characterized by an initial "big step." We expect that the differences of operating in one`s home country versus abroad are the major difficulties faced by foreign firms, and subsequently the differences between foreign countries are only marginal. As a result, we hypothesize that the internationalization process will be characterized by the following observations: (a) firms take a long period of time to make their first international investment; (b) firms take shorter but constant periods of time for subsequent investments; (c) no relationship between time to expansion and the cultural distance of the target country will exist. We examine the international expansion activities of 176 Danish firms over 150 years and find support for these arguments.

Keywords: Internationalization; Globalization; Expansion; Firm beahvior; Culture differences; International investment; Denmark; (follow links to similar papers)

32 pages, March 7, 2000

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