Editing Internationalization (section)

== Traditional approaches ==
[[File:The Porter Diamond.svg|thumb|400px|The Porter diamond<ref name="traill01">{{cite book |others= [[Michael Porter|Porter]] (1990, p. 127) |title= Competitiveness in the Food Industry |last= Traill |first= Bruce |author2=Eamonn Pitts |year= 1998 |publisher= Springer |isbn= 0-7514-0431-4 |page= 19  |url= https://books.google.com/books?id=-g_iw4ocyAgC }}</ref>]]

=== Diamond model <small>''(Michael Porter)''</small> ===
{{Main|Diamond model}}
The diamond model is an economical model developed by [[Michael Porter]] in his book ''The Competitive Advantage of Nations'', where he published his theory of why particular industries become competitive in particular locations.<ref name="traill">{{cite book |title= Competitiveness in the Food Industry |last= Traill |first= Bruce |author2=Eamonn Pitts |year= 1998 |publisher= Springer |isbn= 0-7514-0431-4 |pages= 301 |url= https://books.google.com/books?id=-g_iw4ocyAgC }}</ref>

The diamond model consists of six factors:<ref name="traill" />

* Factor conditions
* Demand conditions
* Related and supporting industries
* Firm strategy, structure and rivalry
* Government
* Chance

The Porter thesis is that these factors interact with each other to create conditions where innovation and improved competitiveness occurs.<ref name="traill" />

=== Diffusion of innovations <small>''(Rogers, 1962)''</small> ===
{{Main|Diffusion of innovations}}
Diffusion of innovation is a theory of how, why, and at what rate new ideas and [[technology]] spread through cultures. [[Everett Rogers]] introduced it in his 1962 book, ''Diffusion of Innovations'', writing that "Diffusion is the process by which an innovation is communicated through certain channels over time among the members of a social system."<ref>Rogers, Everett M. (2003).''Diffusion of Innovations'', 5th ed.. New York, NY: Free Press.</ref>

=== Eclectic paradigm <small>''(John H. Dunning)''</small> ===
{{Main|Eclectic paradigm|John H. Dunning}}
The eclectic paradigm is a theory in economics and is also known as the OLI-Model.<ref name="hagen">{{cite book |title= Deutsche Direktinvestitionen in Grossbritannien, 1871–1918 |last= Hagen |first= Antje |year= 1997 |publisher= Franz Steiner Verlag |location= Jena |isbn= 3-515-07152-0 |page= 32 |url= https://books.google.com/books?id=BqjhLmKdj0AC |format= Dissertation |language= de }}</ref><ref name="twomey">{{cite book |title= A Century of Foreign Investment in the Third World |last= Twomey|first= Michael J. |year= 2000 |publisher= Routledge |isbn= 0-415-23360-7 |page= 8 |url= https://books.google.com/books?id=2uZFPyqHMGcC |format= Book}}</ref> It is a further development of the theory of internalization and published by [[John H. Dunning]] in 1993.<ref name="falkenhahn">{{cite web |url= http://www.uni-weimar.de/medien/management/sites/ws0102/int_man/int_man_content/eklektisches_paradigma_falkenhahn_stanslowski.pdf |title= Das Eklektische Paradigma des John Dunning |access-date= 2009-02-19 |last= Falkenhahn |first= Alexander |author2= Roman Stanslowski |date= 2001-11-27 |work= Seminar paper |language= de }}{{dead link|date=November 2017 |bot=InternetArchiveBot |fix-attempted=yes }}</ref> The theory of internalization itself is based on the [[Transaction cost|transaction cost theory]].<ref name="falkenhahn" /> This theory says that transactions are made within an institution if the transaction costs on the free market are higher than the internal costs. This process is called ''internalization''.<ref name="falkenhahn" />

For Dunning, not only the structure of organization is important.<ref name="falkenhahn" /> He added three additional factors to the theory:<ref name="falkenhahn" />

* Ownership advantages<ref name="hagen" /> (trademark, production technique, entrepreneurial skills, returns to scale)<ref name="twomey" />
* Locational advantages (existence of raw materials, low wages, special taxes or tariffs)<ref name="twomey" />
* Internalisation advantages (advantages by producing through a partnership arrangement such as licensing or a joint venture)<ref name="twomey" />

=== Foreign direct investment theory ===
{{Main|Foreign direct investment}}
Foreign direct investment (FDI) in its classic form is defined as a company from one country making a physical investment into building a factory in another country. It is the establishment of an enterprise by a foreigner.<ref name="o'sullivan01">{{cite book |last1 = O'Sullivan |first1 = Arthur |author-link =Arthur O'Sullivan (economist) |first2=Steven M. |last2=Sheffrin |title = Economics: Principles in Action |url = https://archive.org/details/economicsprincip00osul |url-access = limited |publisher = Pearson Prentice Hall |year = 2003 |location = Upper Saddle River, New Jersey 07458 |page = [https://archive.org/details/economicsprincip00osul/page/n567 551] |isbn = 0-13-063085-3}}</ref> Its definition can be extended to include investments made to acquire lasting interest in enterprises operating outside of the economy of the investor.<ref>''Foreign Direct Investment'', United Nations Conference on Trade and Development, www.unctad.org</ref> The FDI relationship consists of a parent enterprise and a foreign affiliate which together form a [[multinational corporation]] (MNC). In order to qualify as FDI the investment must afford the parent enterprise ''control'' over its foreign affiliate. The [[International Monetary Fund]] (IMF) defines control in this case as owning 10% or more of the ordinary shares or voting power of an [[Incorporation (business)|incorporated]] firm or its equivalent for an unincorporated firm; lower ownership shares are known as [[portfolio investment]].<ref>[[International Monetary Fund]], 1993. Balance of Payments Manual, fifth edition (Washington, D.C.)</ref>

=== Monopolistic advantage theory <small>''(Stephen Hymer)''</small> ===
{{Main|Monopolistic advantage theory|Stephen Hymer}}
The monopolistic advantage theory is an approach in international business which explains why firms can compete in foreign settings against indigenous competitors<ref name="bürgel">{{cite book |title= The internationalisation of British start-up companies in high-technology industries |last= Bürgel |first= Oliver |year= 2000 |publisher= Springer (Zentrum für Europäische Wirtschaftsforschung) |isbn= 3-7908-1292-7 |page= 48 |url= https://books.google.com/books?id=HRFODHxjNYsC }}</ref> and is frequently associated with the seminal contribution of [[Stephen Hymer]].<ref name="bürgel01">{{cite book |others= [[Stephen Hymer|Hymer]] (1976); Hymer's original thesis was completed in 1960, but it was only after his death, in 1976, that it was published by the [[Massachusetts Institute of Technology|MIT]]. By that time, his ideas had already found widespread acceptance. |title= The internationalisation of British start-up companies in high-technology industries |last= Bürgel |first= Oliver |year= 2000 |publisher= Springer (Zentrum für Europäische Wirtschaftsforschung) |isbn= 3-7908-1292-7 |page= 48 |url= https://books.google.com/books?id=HRFODHxjNYsC }}</ref>

Prior to Stephen Hymer’s doctoral thesis, The International Operations of National Firms: A Study of foreign direct Investment, theories did not adequately explain why firms engaged in foreign operations.
Hymer started his research by analyzing the motivations behind foreign investment of US corporations in other countries. Neoclassical theories, dominant at the time, explained foreign direct investments as capital movements across borders based on perceived benefits from interest rates in other markets, there was no need to separate them from any other kind of investment (Ietto-Guilles, 2012).
 
He effectively differentiated Foreign Direct Investment and portfolio investments by including the notion of control of foreign firms to FDI Theory, which implies control of the operation; whilst portfolio foreign investment confers a share of ownership but not control. Stephen Hymer focused on and considered FDI and MNE as part of the theory of the firm.  (Hymer, 1976: 21)
 
He also dismissed the assumption that FDIs are motivated by the search of low costs in foreign countries, by emphasizing the fact that local firms are not able to compete effectively against foreign firms, even though they have to face foreign barriers (cultural, political, lingual etc.) to market entry. He suggested that firms invest in foreign countries in order to maximize their specific firm advantages in imperfect markets, that is, markets where the flow of information is uneven and allows companies to benefit from a competitive advantage over the local competition.
 
Stephen Hymer also suggested a second determinant for firms engaging in foreign operations, removal of conflicts. When a rival company is operating in a foreign market or is willing to enter one, a conflict situation arises. Through FDI, a multinational can share or take complete control of foreign production, effectively removing conflict. This will lead to the increase of market power for the specific firm, increasing imperfections in the market as a whole (Ietto-Guilles, 2012)
 
A final determinant for multinationals making direct investments is the distribution of risk through diversification. By choosing different markets and production locations, the risk inherent to foreign operations are spread and reduced.
 
All of these motivations for FDI are built on market imperfections and conflict. A firm engaging in direct investment could then reduce competition, eliminate the conflicts and exploit the firm specific advantages making them capable of succeeding in a foreign market.
 
Stephen Hymer can be considered the father of international business because he effectively studied multinationals from a different perspective than the existing literature, by approaching multinationals as national companies with international operations, regarded as expansions from home operations. He analyzed the activities of the MNEs and their impact on the economy, gave an explanation for the large flow of foreign investments by US corporations at a time where they were incomplete, and envisioned the ethical conflicts that could arise from the increase in power of MNEs.

=== Non-availability approach <small>''(Irving B. Kravis, 1956)''</small> ===
{{Main|Non-availability approach|Irving Kravis}}
The non-availability explains international trade by the fact that each country imports the goods that are not available at home.<ref name="gandolfo01">{{cite book |others= Irving B. Kravis (1956) |title= International Trade Theory and Policy: With 12 Tables |last= Gandolfo |first= Giancarlo |year= 1998 |publisher= Springer |isbn= 3-540-64316-8 |pages= 233–234 |url= https://books.google.com/books?id=IOtnekHjoJgC }}</ref> This unavailability may be due to lack of natural resources (oil, gold, etc.: this is ''absolute'' unavailability) or to the fact that the goods cannot be produced domestically, or could only be produced at prohibitive costs (for technological or other reasons): this is ''relative'' unavailability.<ref name="gandolfo">{{cite book |title= International Trade Theory and Policy: With 12 Tables |last= Gandolfo |first= Giancarlo |year= 1998 |publisher= Springer |isbn= 3-540-64316-8 |pages= 544 |url= https://books.google.com/books?id=IOtnekHjoJgC }}</ref> On the other hand, each country exports the goods that are available at home.<ref name="gandolfo" />

=== Technology gap theory of trade <small>''(Michael Posner)''</small> ===
{{Main|Technology gap|Michael Posner (economist)|label2=Michael Posner}}
The technology gap theory describes an advantage enjoyed by the country that introduces new goods in a market. As a consequence of research activity and entrepreneurship, new goods are produced and the innovating country enjoys a monopoly until the other countries learn to produce these goods: in the meantime they have to import them. Thus, international trade is created for the time necessary to imitate the new goods (''imitation lag'').<ref name="gandolfo01" />

=== Uppsala model ===
{{Main|Uppsala model}}
The Uppsala model<ref name="elgar01">{{cite book |others= Johanson & Wiedersheim-Paul (1975), Johanson & Vahlne (1977) |title= Learning in the Internationalisation Process of Firms |last= Elgar |first= Edward |year= 2003 |isbn= 1-84064-662-4 |page= 261 |url= https://books.google.com/books?id=e_gkLdF1ocwC |access-date= 2009-03-21}}</ref> is a theory that explains how firms gradually intensify their activities in foreign markets.<ref>{{cite book|last=Blomstermo|first=Anders|author2=Dharma Deo Sharma|title=Learning in the internationalisation process of firms|publisher=Edward Elgar|year=2003|pages=36–53|isbn=978-1-84064-662-7}}</ref> It is similar to the POM model.<ref name="elgar02">{{cite book |others= Luostarinen (1979) |title= Learning in the Internationalisation Process of Firms |last= Elgar |first= Edward |year= 2003 |isbn= 1-84064-662-4 |page= 261 |url= https://books.google.com/books?id=e_gkLdF1ocwC |access-date= 2009-03-21}}</ref> The key features of both models are the following: firms first gain experience from the domestic market before they move to foreign markets; firms start their foreign operations from culturally and/or geographically close countries and move gradually to culturally and geographically more distant countries; firms start their foreign operations by using traditional exports and gradually move to using more intensive and demanding operation modes (sales subsidiaries etc.) both at the company and target country level.<ref name="elgar">{{cite book |title= Learning in the Internationalisation Process of Firms |last= Elgar |first= Edward |year= 2003 |isbn= 1-84064-662-4 |page= 261 |url= https://books.google.com/books?id=e_gkLdF1ocwC |access-date= 2009-03-21}}</ref>

=== Updated Uppsala model ===
{{Main|Uppsala model}}
The Updated Uppsala model<ref>{{cite journal |last1=Johanson |first1=J. |last2=Vahlne |first2=J.-E. |date=2009 |title=The Uppsala internationalization process model revisited: From liability of foreignness to liability of outsidership. |url=https://link.springer.com/article/10.1057/jibs.2009.24 |journal=Journal of International Business Studies |volume=40 |issue=9 |pages=1411–1431 |doi=10.1057/jibs.2009.24 |s2cid=17711333 |access-date=April 29, 2021|url-access=subscription }}</ref> is a further progression of the original Uppsala model. Like the Uppsala model, the Updated Uppsala model is a theory that explains firm internationalization as a process of gradual commitment. However, instead of an increased commitment to other markets, the theory posits that firms commit to business networks.<ref>{{cite journal |last1=Johanson |first1=J. |last2=Vahlne |first2=J.-E. |date=2013 |title=The Uppsala model on evolution of the multinational business enterprise: From internalization to coordination of networks |url=https://www.emerald.com/insight/content/doi/10.1108/02651331311321963/full/html |journal=International Marketing Review |volume=30 |issue=3 |pages=189–210 |doi=10.1108/02651331311321963 |access-date=April 29, 2021|url-access=subscription }}</ref> Firms thereby utilize the established relationships with other firms to internationalize within their network, e.g. by localizing production at a foreign production site of the client.<ref>{{cite journal |last1=Hertenstein |first1=P. |last2=Sutherland |first2=D. |last3=Anderson |first3=J.|date=2017 |title=Internationalization within networks: Exploring the relationship between inward and outward FDI in China's auto components industry |url=https://link.springer.com/article/10.1007/s10490-015-9422-3 |journal=Asia Pacific Journal of Management |volume=34 |pages=69–96 |doi=10.1007/s10490-015-9422-3 |s2cid=55924013 |access-date=April 29, 2021}}</ref>

=== Learning portal model ===
The Learning portal model <ref>{{cite journal |last1=Hertenstein |first1=P. |last2=Alon |first2=I. |date=2021 |title=A learning portal model of emerging markets multinationals |journal=Global Strategy Journal |volume=12 |pages=134–162 |doi=10.1002/gsj.1400 |doi-access=free }}</ref> is a new theory that was originally developed to explain the emergence and catch-up of multinational firms from the emerging markets. The theory explains that latecomer firms (from both, advanced and emerging markets) can use springboarding strategies to leapfrog certain technological development stages and accelerate their catch‐up with incumbent leading firms in their industry. To do so, the catching-up firms establish learning portals in knowledge hubs to acquire knowledge and assets, which they exploit to compete in global markets.