Experiential knowledge and cost in the internationalization process

TL;DR: In this paper, the authors consider the impact of market-specific experiential knowledge on the cost of the internationalization process and the choice of a mode for entering foreign markets.

Abstract: In furthering our understanding of the dynamics of the internationalization of firms, process models have played a significant role [Bilkey and Tesar 1977; Cavusgil 1980, 1984; Czinkota 1982; Johanson and Vahlne 1977, 1990; Luostarinen 1980; Reid 1983]. In these models, market-specific experiential knowledge is central in explaining the firm’s internationalization process. A vast amount of research, using the concept of experiential knowledge, on the internationalization process and the choice of mode for entering foreign markets has been accumulated [Barkema, Bell and Pennings 1996; Beamish 1990; Calof and Beamish 1995; Erramilli 1990, 1991; Erramilli and Rao 1990, 1993; Hirsch 1993; Kogut and Singh 1988; O’Grady and Lane 1996; Reid 1984; Root 1987; Sharma and Johanson 1987; Wiedersheim-Paul, Olson and Welch 1978]. Surprisingly, none of the above-mentioned work has explicitly dealt with the cost of the internationalization process. This is surprising since the management of internationalization unavoidably gives rise to the question of cost [Carlson 1974]. An internationalization process entails risk and the investment of resources. Here the issue of the effects of the critical experiential knowledge on the cost of the internationalization process becomes important. Cost aspects have a bearing on the profit generated by firms [Bilkey 1982], on a firm’s inclination to enter foreign markets [Dichtl, Koeglmayr and Mueller 1990], and on the selection or changing of foreign market entry mode [Calof and Beamish 1995].