can the internet serve as an alternative to physical internationalization?

Internet - alternative path to internationalization? 1

The Internet as an alternative path to internationalization?

Noemi Sinkovics, Manchester Business School, UKRudolf R Sinkovics, Manchester Business School, UKRuey-Jer ‘Bryan’ Jean, National Chengchi University, Taiwan


Agenda

I. Background and motivation

II. Conceptual background

III. Methodology

IV. Findings

V. Conclusions

VI. Limitations and future research


Background and motivation

Internet - alternative path to internationalization?

Background and Motivation

4

Background

Motivation

• To contribute to the SME „internetalization“ literature by presenting empirical data to facilitate theorizing about two alternative internationalization paths:

Internet as a sales channel and Internet as alternative to physical presence

• Despite their unprecedented potential to reach customers and reduce trade barriers

ICTs’ anticipated positive impact on firms’ performance could not be empirically supported to the expected degree

There is little empirical and theoretical work on the role of the Internet in firms‘ internationalization process


Conceptual background


Conceptual Background

• Existing empirical results on the contribution of ICT deployment to export performance are contradictory.

• Dimensions that had a significant positive or negative impact on export performance were implicitly or explicitly connected to

• capability development (Moon and Jain 2007; Morgan-Thomas 2009; Morgan-Thomas and Bridgewater 2004) .

• or to the expectation that the Internet represents a resource-advantage (Lu and Julian 2007)

The actual relationship between the Internet as an alternative internationalization path and firms‘ financial performance has not been sufficiently explored


Internet as an alternative to physical presence I

• Smaller firms are regarded as inherently resource poorer than large firms (e.g. Hodgkinson, 2008). According to transaction cost economics theory (Williamson, 1975) » the Internet as an alternative to physical presence refers to the extent to which

firms use electronic integration to replace functions previously conducted by foreign distributors or agents. Thus, electronic integration can serve as an effective interorganizational governance mechanism without ownership (Wang, Tai, and Wei, 2006).

» TCE also argues that environmental uncertainties are key drivers of firms’ use of vertical integration (Williamson, 1975).

• Hence, firms are expected to opt for the Internet as an alternative to physical presence if...: » ... the host country is perceived to be culturally different» ... the host country is perceived to have significantly different business practices» ... the host country is perceived to have a highly turbulent market environment» ... the firm is highly market oriented» ... the firm perceives the Internet as the right medium to attract customers


H1a

H2

H3H4

H5 +

+ +

+Internet as alternative

to phys. presence

Market respon-sivenessEnviron-

mental turbulence

Internet as exp. barrier reduction

Customer acquisition potential

Business Practicesdistant

Business Practices

close

National Culture distant

National Culture

close

H1b

H1c

H1d

+

+

-

-


Internet as an alternative to physical presence II

• According to the RBV, firms possess capabilities that are valuable, rare, inimitable and non-substitutable, which enable them to achieve a competitive advantage.

• Information systems (IS) research has started to apply the RBV to examine how IT resources – either alone or in conjunction with non-IT resources – impact on firm performance (e.g. Wu et al., 2006).

• The Internet as an alternative to a physical presence, a form of electronic integration, can be treated as a key IT resource that leads to better performance.


Export perf.

H1a

H2

H3H4

H5

H6

+

+

+ +

+Internet as alternative

to phys. presence


mental turbulence




Business Practices

close


National Culture

close

H1b

H1c

H1d

+

+

-

-

Conceptual framework


Inernet as a sales channel (a complement to physical channels)

• According to the RBV, the Internet as a sales channel can be defined as an IT resource stock, which is related to how advanced a firm’s IT is in supporting its export marketing.

• The RBV also argues that organizational culture leads to higher capabilities.

• Thus, entrepreneurial orientation can be expected to be a key organizational culture that leads firms to develop better IT resources in export marketing, by using the Internet as a sales channel.


Export perf.

H1a

H2

H3H4

H5

H6

+

+

+ +

+

+

+

Internet as alternative

to phys. presence

Internet as sales

channel


mental turbulence



Entrepre-neurial

disposition


Business Practices

close


National Culture

close

H1b

H1c

H1d

H7

H8

+

+

-

-



Conceptual Background II

• Yamin and Sinkovics’ (2006) notion of the “virtuality trap”, argues that firms with stronger commitment to online internationalization may fall into the trap of generalizing their scant learning about foreign markets and customers from their online interactions, while actually not fully appreciating the complexities and thus retaining a physical and relational distance from the host markets.

The virtuality trap may lead to a firm’s poor performance in foreign markets.

• We control for born-globalness, industry affiliation, export experience and Internet experience


Export perf.

H1a

H2

H3H4

H5

H6

+

+

+ +

+

+

+


to phys. presence

Internet as sales

channel


mental turbulence



Entrepre-neurial

disposition


Business Practices

close


National Culture

close

H1b

H1c

H1d

H7

H8

+

+

-

-


Born Globalness

Low-tech/Hich-tech industry

Internet experience

Export experience


Methodology


Methodology & research design

• First order FA, constrained FA, reliabilityMeasure Purification

Data Collection

• Established scales & newly created • EO, Communication, Relationship building, IT-

advancement, IT use, International barrier reduction, Performance

• Partial Least Square Modeling (SmartPLS)• Convergent validity, Discriminant validity• Bootstrapping methodology for significance• Blindfolding for prediction ability

Model Testing

Questionnaire-Design

• Population: 8,605 UK SMEs from FAME database with overseas turnover

• Sample: random sample of 1000 firms• Response: 115, 11.5%


Findings


Born-globalness:

1. Export ratio > 25%2. Export to 3 continents3. International within 3 years

of inception(following Sundqvist et al., 2010)

Company characteristics

Dimension Number of firms

Percentage of firms

Born-globalness BG 58 50.43%non-BG 57 49.57%

Industry Low-tech 54 46.96%High-tech 61 53.04%

Employees 1-9 2 1.74%10-49 27 23.48%50-149 63 54.78%150-250 22 19.13%

Export ratio <10m 13 11.30%10-24.99m 18 15.65%25-49.99m 33 28.70%50-74.99m 30 26.09%>75m 19 16.52%

Revenue 1.00 < 1m 2 1.74%2.00 1m - 4.99m 21 18.26%3.00 5m - 9.99m 31 26.96%4.00 10m - 24.99m 36 31.30%5.00 25m - 50m 19 16.52%


Company characteristics organised by industry and born-globalness of firms

Industry Born-globalness

Internet experience (in years)

Firm age (in years)

Export experience (in years)

Export ratio (%)

Revenue (in million £)

Mean Mean Mean Mean MeanLow-tech Non-BG 11 47 28 32.99% 10.70

BG 9 29 24 48.80% 11.85High-tech

Non-BG 10 60 29 32.22% 16.66BG 11 31 31 63.08% 9.97


Overall model evaluation

AVE Highest squared correlation

Composite Reliability

R Square Cronbachs Alpha

BP close 0.9514 0.5507 0.9833 0 0.9744BP distant 0.8906 0.5809 0.9606 0 0.9386EO 0.572 0.0567 0.799 0 0.6436NC close 0.9091 0.6722 0.9756 0 0.9713NC distant 0.7285 0.6722 0.9129 0 0.9387alt phys pres 0.6359 0.0503 0.8741 0.1284 0.8061barrier 0.9999 0.0503 0.9999 0.6602 0.9997cust acqu 0.6069 0.0513 0.8209 0 0.6821env turb 0.804 0.0210 0.8911 0 0.7693market resp 0.7377 0.0503 0.848 0 0.6644sales channel 0.9998 0.4436 0.9999 0.0567 0.9998Export perf. 0.729 0.4436 0.9294 0.4664 0.9586


Findings full sample I

• H1a and H1b is supported • when firms perceive a host country as psychically distant in terms of business

practices, they tend to rely on the Internet to reduce export barriers, especially the cost of exporting through intermediaries

• when firms perceive a host country as psychically close in terms of business practices they rely less on the Internet to reduce export barriers

• H1c not supported and H1d significant but positive• Contrary to expectations, firms rely more on the Internet to reduce export

barriers when exporting to a psychically close country in terms of culture• H2 (positive relationship between export barrier reduction

potential of Internet and use of Internet as alternative to physical presence) not supported

• H3 (positive relationship between firm‘s market responsiveness and use of Internet as physical presence) supported

Noemi Pezderka

a potential explanation is that when the business practices are very different, firms trust intermediaries less because they dont know what to expect, hence it is easier to do it over the Internet

Noemi Pezderka

Here the motivation is probably less trust-related, most probably they think they can do it without intermediaries themselves and more cost effectively


Export perf.

Born Globalness


Internet experience

Export experience


to phys. presence

Internet as sales

channel


mental turbulence



Entrepre-neurial

disposition


Business Practices

close


National Culture

close

0.7346*

- 0.9762*

-0.1880

0.7478*

0.062

-0.169* 0.247*

0.220*0.151a

0.676*

0.238*

R2=0.493

R2=0.128

R2=0.466

R2=0.057*... significant at 0.05 levela ... significant at 0.10 level

Results of the PLS structural model for N = 115

H3 ✔

H2

H1a ✔H1b ✔

H1c

H1d ✔!


Findings full sample II

• H4 significant but negative• Contrary to expectations there is a negative relationship between market

turbulence and Internet use as an alternative to a physical presence• H5 (positive relationship between customer acquisition

potential and use of the Internet as alternative to physical presence) supported

• H6 (positive impact of Internet as alternative to physical presence on performance) weakly supported

• H7 (positive impact of Internet as sales chanel on performance) supported

• H8 (positive relationship between EO and Internet as sales channel) supported

Noemi Pezderka

The expectation was that the Internet may be an effective tool for customers to communicate their preferences and needs so that the firm can fulfill them quickly. However, it seems that the contrary is true, when market turbulence is high firms prefer to be physically presence in the market, probably to build good customer relationships and trust.


Export perf.

Born Globalness


Internet experience

Export experience


to phys. presence

Internet as sales

channel


mental turbulence



Entrepre-neurial

disposition


Business Practices

close


National Culture

close

0.7346*

- 0.9762*

-0.1880

0.7478*

0.062

-0.169* 0.247*

0.220*0.151a

0.676*

0.238*

R2=0.493

R2=0.128

R2=0.466


Results of the PLS structural model for N = 115

H4 ✔!

H5 ✔

H6 ✔∼

H7 ✔

H8 ✔


Control variables full sample control variables born globalness industry export experience Internet experience

BG non-BG low-tech high-tech less 50% more 50% < 10 yrs > 10 yrsexport performance N = 115 N = 58 N = 57 N = 54 N = 61 N = 65 N = 50 N = 46 N = 69 R2 = 0.4664 R2 = 0.1041 R2 = 0.4477 R2 = 0.4440 R2 = 0.0241 R2 = 0.9918 R2 = 0.1867 R2 = 0.9859 R2 = 0.0732alternative to phys. presence 0.1512a -0.2925* 0.1972a 0.2116* 0.0685 -0.0105 0.3555* 0.0056 0.2247 a

sales channel 0.6762* 0.1037 0.6555* 0.6533* 0.1331 0.9947* 0.2355* 0.9937* 0.1292 a

sales channel N = 115 N = 58 N = 57 N = 54 N = 61 N = 65 N = 50 N = 46 N = 69 R2 = 0.0567 R2 = 0.2556 R2 = 0.1031 R2 = 0.1407 R2 = 0.0992 R2 = 0.1129 R2 = 0.1646 R2 = 0.1952 R2 = 0.1201 Entrepreneurial disposition 0.2381* 0.5056* 0.3210* 0.3752* 0.3149* 0.3360* 0.4057* 0.4418* 0.3465*

alternative to phys. presence N = 115 N = 58 N = 57 N = 54 N = 61 N = 65 N = 50 N = 46 N = 69 R2 = 0.1284 R2 = 0.3167 R2 = 0.1416 R2 = 0.2523 R2 = 0.2025 R2 = 0.2398 R2 = 0.3238 R2 = 0.3199 R2 = 0.1192cust acquisition 0.2204* 0.1435* 0.1836* 0.0723 0.4118* 0.0668 0.1299* 0.0653 0.1985*environmental turbulence -0.1695* -0.1246 a -0.1627* -0.3399* -0.0166 0.1162* -0.0466 -0.1848 a -0.1948*market responsiveness 0.2474* 0.3546* 0.2719* 0.2615* 0.2509* -0.2301* 0.0949 0.3811* 0.2017*barrier reduction 0.0622 0.4482* 0.0809 0.3043* 0.0931 a 0.3896 0.5084* 0.3042* 0.0690

barrier reduction N = 115 N = 58 N = 57 N = 54 N = 61 N = 65 N = 50 N = 46 N = 69 R2 = 0.4926 R2 = 0.0536 R2 = 0.6297 R2 = 0.0444 R2 = 0.9998 R2 = 0.9607 R2 = 0.0369 R2 = 0.0986 R2 = 0.5136BP close -0.9762* 0.3012 a -0.9546* 0.1775 -0.9746 -0.4262 a -0.2366 0.3446 -0.8974*BP distant 0.7346* 0.1133 0.6573 a -0.073 -0.0079 0.2281 -0.1966 -0.4917 0.6982*NC close 0.7478* 0.1439 0.9478* 0.1957 0.9682 0.6110* 0.5074 -0.6133 0.8952*NC distant -0.1880 0.1014 -0.1965 -0.0929 0.0035 0.7528* -0.3223 0.5156 -0.3564 a


Findings control variables I

• Born-globals don‘t seem to reap financial benefits from the Internet as sales channel

• Born globals seem to even incur losses when they rely on the Internet as an alternative to physical presence» In contrast to non-born globals (and the results for the full

sample), born globals tend to rely on the Internet as alternative to physical presence as a means of export barrier reduction

» Rely on Internet for customer acquisition» Tend to follow a high market responsiveness strategy

Noemi Pezderka

virtuality trap


Export perf.

Born Globalness


to phys. presence

Internet as sales

channel


mental turbulence



Entrepre-neurial

disposition


Business Practices

close


National Culture

close

0.4482*

-0.1246a 0.3546*

0.1435*-0.2925*

0.1037

0.5056*

R2=0.0536

R2=0.3167

R2=0.1041


Results of the PLS structural model for born globals

0.1133

0.3012a

0.1439

0.1014

H1a

H1b ✔∼

H1c

H1d

H7

H4 ✔!∼

H2 ✔

H5 ✔

H3 ✔

H6 ✔!

H8 ✔


Findings control variables II

• Low-tech firms reap benefits from both Internet as a sales channel and Internet as an alternative to physical presence» Tend to rely on Internet as alternative to physical presence as a

means to reduce export barriers» Tend to follow a high market responsiveness strategy» Only rely on the Internet as alternative to physical presence

when there is no high market turbulence» Dont rely on Internet as a means of customer acquisition

• High-tech firms» Dont seem to reap benefits from either Internet as physical

presence nor Internet as sales channel

Noemi Pezderka

this may be a critical factor, low-tech firms dont rely on the Internet for customer acquisition, maybe they have specific strategies to gain customers --> born globals on the other hand seem to rely on the Internet for customer acquisition --> it seems that it does not work out too well




sales channel 0.6762* 0.1037 0.6555* 0.6533* 0.1331 0.9947* 0.2355* 0.9937* 0.1292 a





Findings control variables III

• Export experience» Firms with more export experience (>50% of sales) benefit from

both internationalization strategies • they use the Internet as alternative to physical presence as a means to

reduce export barriers and • they rely on the Internet as to acquire customers

• Internet experience» F irms with less Internet experience (<10 years) seem to

benefit from the Internet as sales channel but not as an alternative to physical presence

» Firms with more Internet experience (>10 years) seem to benefit from both strategies, however the results are only significant at a 0.10 level




sales channel 0.6762* 0.1037 0.6555* 0.6533* 0.1331 0.9947* 0.2355* 0.9937* 0.1292 a





Conclusion & future


Conclusions

• The Internet can be a lucrative alternative to physical presence under certain conditions (low-tech industry affiliation, high export experience, high Internet experience)

• While using the Internet as a complement to other channels does not seem to bring about losses, using the Internet as an alternative to physical presence DOES, if not pared with the right capabilities

• Born globals seem to be more susceptible to fall into the virtuality trap

• Psychic distance seems to impact on the perception whether or not the Internet can be used to reduce export barriers. » HOWEVER, the barrier reduction potential of the Internet seems to

drive pure online internationalization independently of psychic distance perceptions

Noemi Pezderka

In the instances where there was a positive significant relationship between barrier reduction and Internet as alternative to phyisal presence, there was no significant relationship between psychic distance perceptions and barrier reduction. And vica versa.


Limitations and future research

Limitations: Small sample size Some of the firms that qualified as born globals are

already past their start-up phase

„messy“ model Scales taken from literature – some of them are not

„ideal“ Future Research

Development of better scales

Comparing born-globals in their infancy with

adolescent and grown-up born globals.

Larger sample


Reference

Sinkovics, Noemi, Rudolf R. Sinkovics, and Ruey-Jer

“Bryan” Jean (2013), "The internet as an alternative

path to internationalization?," International

Marketing Review, 30 (2), 130-155. (DOI:

10.1108/02651331311314556).

http://dx.doi.org/10.1108/02651331311314556

can the internet serve as an alternative to physical internationalization?

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