The internationalisation maturity of the firm : a business relationships perspectice 9781527509009, 1527509001

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The Internationalisation Maturity of the Firm

The Internationalisation Maturity of the Firm: A Business Relationships Perspective Edited by

Krzysztof Fonfara, Łukasz Małys and Milena Ratajczak-Mrozek

The Internationalisation Maturity of the Firm: A Business Relationships Perspective Edited by Krzysztof Fonfara, Łukasz Małys and Milena RatajczakMrozek This book first published 2018 Cambridge Scholars Publishing Lady Stephenson Library, Newcastle upon Tyne, NE6 2PA, UK British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Copyright © 2018 by Krzysztof Fonfara, Łukasz Małys and Milena Ratajczak-Mrozek All rights for this book reserved. No part of this book may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the copyright owner. ISBN (10): 1-5275-0900-1 ISBN (13): 978-1-5275-0900-9

TABLE OF CONTENTS

List of Illustrations ................................................................................... viii List of Tables ............................................................................................... x Preface ........................................................................................................ xi Introduction .............................................................................................. xiii Krzysztof Fonfara, àukasz Maáys, Milena Ratajczak-Mrozek Chapter One ................................................................................................. 1 The Essence and Scope of Business Relationships 1.1. Interpretation of Business Relationships ......................................... 1 àukasz Maáys 1.2. Characteristics of Business Relationships ....................................... 8 Aleksandra Hauke-Lopes 1.3. Actors in Business Relationships .................................................. 17 àukasz Maáys Chapter Two .............................................................................................. 22 Approaches to the Company’s Internationalisation Process 2.1. The Internationalisation Process – an Interpretation Attempt ....... 22 Krzysztof Fonfara 2.2. Systematisation of Internationalisation Models ............................ 28 Milena Ratajczak-Mrozek and Marcin Soniewicki

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Chapter Three ............................................................................................ 38 Determinants of Competitive Advantage 3.1. Interpretation of the Firm’s Competitive Advantage .................... 38 Milena Ratajczak-Mrozek and Miáosz àuczak 3.2. Classical and Relational Determinants of Competitive Advantage ................................................................... 44 Bartosz DeszczyĔski 3.3. Influence of Business Relationships on Firm’s Performance – State of the Art ..................................................................................... 52 Adam Dymitrowski Chapter Four .............................................................................................. 59 Firm Maturity in the Context of Internationalisation 4.1. Interpretation and Features of Firm Maturity Related to Internationalisation ............................................................. 59 Krzysztof Fonfara and Adam Dymitrowski 4.2. Methodology of Empirical Research ............................................ 65 Miáosz àuczak and Marcin Soniewicki 4.3. Identification and Modification of Components of Firm Maturity Related to Internationalisation ................................. 77 Krzysztof Fonfara 4.4. Influence of Components of Firm Maturity Related to Internationalisation on Performance – Results of the Empirical Study............................................................. 85 Milena Ratajczak-Mrozek, àukasz Maáys, Adam Dymitrowski, Aleksandra Hauke-Lopes, Marcin Soniewicki and Marcin Wieczerzycki

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Chapter Five ............................................................................................ 113 The Influence of the Firm’s Internationalisation Maturity on its Competitive Advantage 5.1. The Impact of Components of the Firm’s Internationalisation Maturity on its Competitive Advantage – a Generalisation Attempt ................................................................... 113 Krzysztof Fonfara, àukasz Maáys and Milena Ratajczak-Mrozek 5.2. Possibilities and ways of Developing the Firm’s Internationalisation Maturity ............................................................. 121 Krzysztof Fonfara, àukasz Maáys and Milena Ratajczak-Mrozek Conclusions ............................................................................................. 137 Krzysztof Fonfara, àukasz Maáys and Milena Ratajczak-Mrozek Notes....................................................................................................... 140 Bibliography ........................................................................................... 141 Contributors ............................................................................................ 162 Index ....................................................................................................... 167

LIST OF ILLUSTRATIONS

Fig. 1-1. Conditions for the establishment of a business relationship ........ 2 Fig. 1-2. Determinants and characteristics of relationships in business networks ........................................................................... 10 Fig. 2-1. The process approach to internationalisation of the firm ........... 24 Fig. 2-2. The internationalisation process – the cooperation perspective................................................................. 27 Fig. 3-1. Firm’s intellectual capital........................................................... 47 Fig. 3-2. Firm’s intellectual capital adjusted for the use of relational capital in international business .......................................... 50 Fig. 3-3. Indirect influence of business relationships on the firm’s performance ........................................................................................ 53 Fig. 4-1. Influence of relational characteristics and determinants in the internationalisation process on the firm’s competitive advantage ...... 63 Fig. 4-2. Impact of the firm’s internationalisation maturity on its competitive advantage ........................................................................ 65 Fig. 4-3. Development of the concept of internationalisation maturity – identification, modification and verification of the set of relational characteristics and determinants ......................................................... 66 Fig. 4-4. Performance of companies in each cluster distinguished on the basis of the character of the internationalisation process ......... 91 Fig. 4-5. Performance of firms in each cluster distinguished on the basis of characteristics of cooperation in the internationalisation process .............................................................. 102 Fig. 4-6. Performance of companies in each cluster distinguished on the basis of the scope of cooperation in the internationalisation process .............................................................................................. 110 Fig. 5-1. The impact of internationalisation maturity on competitive advantage – a conceptual model ....................................................... 114 Fig. 5-2. Progress in internationalisation maturity associated with the duration of the internationalisation process ........................ 126 Fig. 5-3. Progress in internationalisation maturity associated with the level of formalisation in the internationalisation process .... 127 Fig. 5-4. Progress in internationalisation maturity associated with the level of advancement of forms of internationalisation ........ 128 Fig. 5-5. Progress in internationalisation maturity associated with openness to cooperation .................................................................... 130

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Fig. 5-6. Progress in internationalisation maturity associated with the level of trust in relationships ............................................... 131 Fig. 5-7. Progress in internationalisation maturity associated with the level of conflicts in the process of internationalisation ............... 132 Fig. 5-8. Progress in internationalisation maturity associated with psychic distance ........................................................................ 133 Fig. 5-9. Progress in internationalisation maturity associated with cooperation with external partners ............................................ 134 Fig. 5-10. Progress in internationalisation maturity associated with internal partners ........................................................................ 135

LIST OF TABLES

Table 1-1. Organisational levels and types of existing relationships ........ 18 Table 2-1. Most popular typologies of internationalisation models ......... 29 Table 2-2. Stage models ........................................................................... 31 Table 3-1. Comparison of the position-based and resource-based approach .............................................................................................. 41 Table 3-2. Main effects of business relationships..................................... 54 Table 4-1. Description of companies selected for the verification of the preliminary set of characteristics and determinants of business relationships during the third research stage .................... 68 Table 4-2. Firms sampled for the quantitative study in the fourth research stage by size .......................................................................... 70 Table 4-3. Firms sampled for the quantitative study in the fourth research stage by industry ................................................................... 70 Table 4-4. Firms sampled for the quantitative study in the fourth research stage by ownership ............................................................... 70 Table 4-5. Description of companies selected for case studies in the fifth research stage .................................................................... 72 Table 4-6. Areas and components of internationalisation maturity .......... 84 Table 4-7. Characteristics of clusters distinguished on the basis of components of the character of the internationalisation process ......... 90 Table 4-8. Characteristics of clusters distinguished on the basis of components of cooperation in the internationalisation process......... 101 Table 4-9. Characteristics of clusters distinguished on the basis of the scope of cooperation in the internationalisation process......... 110 Table 5-1. The impact of components of internationalisation maturity on performance – an overview of empirical results .......................... 116 Table 5-2. The impact of components of internationalisation maturity on creating the firm’s competitive advantage ................................... 117 Table 5-3. Mean performance evaluations for companies performing better, same and poorer than competitors ......................................... 119 Table 5-4. Impact of components of internationalisation maturity on creating competitive advantage in the three groups of firms ............ 120

PREFACE

Considerations presented in this book are the outcome of the research project entitled “The maturity of the company internationalisation and its competitive advantage (network approach)” financed by Poland’s National Science Centre. The project team consisted of 10 researchers whose area of expertise includes relationships and business networks, aspects of innovation, knowledge management, relationships in consumer markets, customer relationship management, information and communication technologies, relationship marketing etc. from the perspective of the internationalisation of the business activities and networking behaviours of companies. Although the project itself was carried out in the period 2014–2018, its members had been involved in the research topic for much longer. The analyses and conclusions described in the book have been inspired by earlier experiences and findings made by members of the project team. They are in fact a summary of nearly 30 years of research in the field of internationalisation and business networks conducted by the participants of the project, who have taken part in 15 national and 4 international research projects financed from grants obtained on a competitive basis. The most important of these projects include: 1. two international ACE research projects financed by The European Union on market orientation in Central and Eastern Europe, conducted during 1992–2000 together with partners from Aston Business School in the UK, Maribor University in Slovenia, the University of Economics in Sofia, Bulgaria, Corvinus University of Economics in Budapest, Hungary and Trinity College, Dublin, Ireland (project leader in Poland was Professor Krzysztof Fonfara); 2. three research projects financed by Poland’s Ministry of Science and Higher Education: “Behaviour of companies in the process of internationalisation (network approach)” conducted during 2006– 2008 (project leader – Professor Krzysztof Fonfara); “The role of knowledge transfer in the process of foreign market entry” conducted during 2007–2010 (project leader – Aleksandra HaukeLopes PhD); and “Development of network relationships in the process of companies’ internationalisation” conducted during 2010–2012 (project leader – Professor Krzysztof Fonfara);

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3. a research project commissioned by Poland’s Ministry of Economy entitled “Cooperation of Polish companies” conducted in 2010 (project leader – Milena Ratajczak-Mrozek PhD); 4. an international research project financed by The Norwegian Seafood Research Fund–FHF entitled “Integration and cooperation in pelagic export markets” conducted in 2012 (project leader in Poland – àukasz Maáys PhD); 5. six research projects financed by the Poland’s National Science Centre: “The impact of network relationships in the process of internationalisation on company performance” conducted during 2011–2013 (project leader – àukasz Maáys PhD); “The impact of innovations created in the process of internationalisation on company performance” conducted during 2011–2013 (project leader – Adam Dymitrowski PhD); “The role of knowledge orientation in the process of achieving competitive advantage by a company involved in the process of internationalisation process” conducted during 2012–2015 (project leader – Marcin Soniewicki PhD); “The global and local dimension of business networks” conducted during 2013–2016 (project leader – Milena RatajczakMrozek PhD); “The maturity of corporate relationship management and competitiveness” conducted during 2016–2019 (project leader – Bartosz DeszczyĔski PhD); and “The role of integrating market and technical knowledge in the process of creating innovation by high-tech and medium high-tech companies in the context of globalisation – the network approach” conducted during 2017– 2020 (project leader – Marcin Soniewicki PhD). Members of the project team have also written a number of scientific publications, including 14 monographs on topics related to the subject of the present book and 4 monographs devoted to other business-related issues. Some of them have also provided consulting services for companies. Altogether, members of the project team have been involved in over 30 consulting projects related to internationalisation, business cooperation and customer relationship management.

INTRODUCTION KRZYSZTOF FONFARA, àUKASZ MAàYS AND MILENA RATAJCZAK-MROZEK

Most modern firms are, to a large extent, connected with the international environment, for in order to survive and develop, they very often have to expand their operations beyond the local market and venture into international markets. Moreover, most companies directly or indirectly purchase foreign products. Firms can import final products or their components (either physical products or services). In the 21st century, even very small firms can afford to reach attractive customers located in different, often remote, parts of the world via the Internet. In fact, internationalisation of companies has become a common phenomenon that affects the majority of businesses, which is contributing to considerably intensified competition in foreign markets. Given easy access to information and a rapid transfer of knowledge, even between direct competitors, competing product offerings provided by various companies are becoming increasingly similar. A firm which manages to gain a temporary advantage by marketing a new idea or launching a new product will soon have to compete against skilful imitators. Faced with high costs of innovation, some competitors choose to cooperate. This is reflected by the growth of coopetition. Another trend is the progressive unification of product-service offerings, which can be observed in more and more industries. Firms offer similar products at similar prices using similar distribution channels. For this reason, managers, driven by the obvious desire to surprise competitors with innovative products, are also looking for other ways of differentiating themselves from their rivals. One solution to this problem which is being recognised by a growing number of firms is the significant role of relationships with other entities (e.g. customers, suppliers, competitors, influential bodies) in the process of creating competitive advantage in an increasingly competitive international environment. The literature emphasises numerous determinants of a company’s competitive advantage, e.g. product quality, price and knowledge of the

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markets. Much less attention, however, is paid to such aspects as the nature, scope and role of relationships with various entities in the internationalisation process. Undoubtedly, the task of determining the impact of business relationships on performance poses a considerable research challenge. That is why in this book we have tried to operationalise the concept of business relationships by identifying a set of their key characteristics and determinants which influence the company’s competitive advantage. We refer to these characteristics and determinants as components of the company’s internationalisation maturity. In the book we argue that a higher level of internationalisation maturity increases the firm’s likelihood of achieving relatively better results than those of its closest competitors. This hypothesis was tested using data from a quantitative and qualitative study conducted thanks to the financial support from Poland’s National Science Centre as part of the project “The maturity of a company’s internationalisation and its competitive advantage (network approach)” (project leader: Professor Krzysztof Fonfara, Decision no. DEC-2013/09/B/HS4/01145). The choice of mixed methodology, combining quantitative and qualitative research, is justified by the different goals associated with each type. Qualitative research is supposed to identify the subject of study and answer the question “how and why” certain phenomena occur in economic reality (Marchan-Piekkari and Welch 2004). In contrast, the purpose of quantitative research is to enable more general conclusions and to support statements about the scale of the phenomena of interest. Both types of research were used at different stages of the research process, which were completed in the period 2014–2017. The first stage of qualitative research involved brainstorming sessions with a group of 5 senior managers and a preliminary case study analysis of 10 companies. The findings from those studies helped to identify the research problem and, combined with theoretical analysis, provided the input for questions included in the survey questionnaire, which was to be used in the quantitative study. The second stage of the research process consisted of the quantitative study conducted as a postal and internet survey. The survey questionnaire contained questions about the assessment and relevance of identified characteristics and determinants of relationships and their influence on the firm’s competitive advantage. In all, 179 questionnaires were returned by the end of September 2015, which accounts for 10.2% of the sample. The total number of correctly completed questionnaires was 278, which was sufficiently large to enable statistical analysis.

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The research process was concluded with another qualitative study, consisting of 30 in-depth interviews with firm representatives, which yielded data for another 30 case studies. This study was used to obtain answers to questions that had not been explained by statistical analysis. Companies analysed in these case studies represent various industries, sizes and organisational structures (i.e. formally independent firms and units of multinational enterprises). The qualitative and quantitative studies should be treated as complementary, providing a comprehensive view of firm maturity in the process of internationalisation, supported by the results of statistical analysis and insights from the in-depth case studies. The book consists of five chapters. The first one deals with the question of business relationships. One of the key points raised in the chapter is an attempt to differentiate business relationships from other types of connections maintained by firms and to classify various types of relationships established by market entities. A large section of the chapter is devoted to an overview of variables characterising business relationships which can facilitate detailed analysis. There is also a description of the different types of entities that firms can have relationships with. The second chapter provides a systematic overview of knowledge about the process of internationalisation, including the most important research issues investigated in this context. One section includes a description of the most commonly cited models of internationalisation, which are divided into stage, network and strategic models. The third chapter addresses the subject of competitive advantage, focusing on the definition and interpretation of the concept and a detailed analysis of its determinants from the classical and relational perspective. The chapter also includes an attempt to systematise existing knowledge about the influence of business relationships on company performance (as well as methods of measuring business relationships). The fourth chapter presents the results of the two studies. It starts with a description of the concept of firm maturity related to internationalisation, taking into account the development and modifications made in the course of research work. The main part of the chapter is devoted to the presentation of results and conclusions from the empirical studies (qualitative and quantitative) with respect to the 3 identified areas of firm maturity related to internationalisation as well as their 9 components. The fifth chapter provides a summary of the considerations presented in the book. In particular, it is an attempt to describe how particular components of firm maturity related to internationalisation affect a firm’s

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competitive advantage. This presentation is summarised in the form of a conceptual model illustrating the growth of firm maturity related to internationalisation. This book could not have published in its present form without the kindness and disinterested help of the many companies involved in the conceptual phase of the research, in the empirical studies, in the assessment and interpretation of the results and in the case-study analyses. The authors would like to express their gratitude for these contributions and hope that this joint effort will increase the body of knowledge concerning company behaviour in the internationalisation process and will serve to inspire enterprises pursuing success in foreign markets. Krzysztof Fonfara àukasz Maáys Milena Ratajczak-Mrozek

CHAPTER ONE THE ESSENCE AND SCOPE OF BUSINESS RELATIONSHIPS ŁUKASZ MAŁYS AND ALEKSANDRA HAUKE-LOPES

1.1. Interpretation of Business Relationships Over the last several decades, the problem of business relationships has become a topic of debate, which is reflected by the emergence of numerous business concepts and guides, scientific publications and conceptual systems. Business relationships and management of their development is also an important task in business practice. However, discussions concerning business relationships are often plagued by a lack of understanding stemming from different interpretations of this phenomenon. The problem is further compounded by, among other things, the ambiguity and complexity of this term, the wide range of entities that can be involved in business relationships, the number of organisational levels at which connections can develop, differences in the scope and intensity of relationships, or the very nature of relationships. Given all these factors, a good starting point for the following discussion will be a systematic overview of various perspectives of interpreting the phenomenon of business relationships, particularly in terms of terminology. It seems crucial in this context to distinguish interactions (episodes, events) in business from business relationships. The term “interaction” refers to a single event or action undertaken by entities at a given time and place. It can involve a single transaction, negotiating terms of business, sending a quotation, etc. (Easton 1992, 4). One common misunderstanding in research and business practice results from treating every single contact (i.e. a single interaction) as a business relationship. In contrast, a business relationship existing between two entities is a general, continuous phenomenon, by its very nature extending over a

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Chapter One

longer period. Relationships develop through interactions between entities, but they also affect interactions by determining the roles of partners and ways of resolving conflicts, etc. (Easton 1992, 4). It is the fact of relationships developing through interactions that is the main source of misunderstandings, for it is difficult to unambiguously determine the exact moment when a real business relationship is established. In this context, it is more common to talk about the process of relationship development without specifying the exact moment of its establishment (cf. Ford 1980; Dwyer, Schurr and Oh 1987; Wilkinson 2008). However, it is arguably possible to identify certain minimum conditions that must be met for business relationships to be established. These include a history of cooperation, the prospect of future interactions and mutual recognition of partners (Fig. 1-1). Fig. 1-1. Conditions for the establishment of a business relationship

Prospect of future interactions

History of cooperation

Mutual recognition

BUSINESS RELATIONSHIP A history of cooperation refers to interactions which have taken place between entities in the past. In business relationships, the history of cooperation between entities determines the roles of partners and desired behaviour. It enables partners to predict outcomes of interactions by predicting the behaviour of the other participant of a business exchange. It is assumed that the longer and more intensive the history of cooperation is, the better the mutual recognition of the partners and the stronger the

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relationship between them. It should be emphasised, though, that even a single interaction can be treated as the history of cooperation. Another condition for the establishment of a business relationship is the prospect of future interactions. Unlike the history of cooperation, this condition concerns the future and assumes the cooperation will continue. The condition is what differentiates repeated interactions (in particular transactions) from business relationships. The prospect of future interactions to a large extent shapes the partners’ behaviour by enabling the development of relational norms. The third condition for a business relationship to be established is mutual recognition of the partners. This is a situation where both sides of a relationship can recognise each other and have a similar awareness of the existence of interactions. This condition clearly implies that the existence of business relationships is much more common in the business-to-business market (B2B market, institutional market). In the business-to-consumer market (B2C market, consumer market), the situation where a company is aware of interactions with individual customers, known by name, is quite rare (although in business practice there are attempts to change this). It does not seem difficult to satisfy the three conditions necessary for the establishment of business relationships. In the B2B market, business relationships can be established after a few initial interactions, provided partners intend to continue cooperation in the future. It should be noted, however, that individual relationships that a particular company establishes can vary considerably in terms of strength or quality (Hausman 2001, 600). Differences in particular relationships result from their characteristics (e.g. the level of trust), which will be discussed in more detail in Section 1.2. It should be noted that characteristics of a relationship develop over time, so they require frequent interactions to reach a high level. Knowing the differences between interactions and relationships, it is useful to distinguish three types of relationships that can prove important for companies in business settings. These are business relationships, social relationships (interpersonal relationships, informal contacts) and institutional relationships (Johanson and Kao 2010). Business relationships, extending beyond the scope of transactions, are among the most commonly analysed connections between companies and other entities in the business environment (Johanson and Kao 2010). In the analysis of business relationships, emphasis is placed on relationships between customers and suppliers, which are said to be frequently part of complex business networks. The main purpose of business relationships maintained by companies is gaining access to resources and actions controlled by other business entities. It is assumed that companies can

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Chapter One

control resources directly (via ownership) or indirectly (in this case control is based on relationships with other actors who control resources directly) (Håkansson and Johanson 1992, 28–34). Actions include the process of finding, developing, exchanging and creating resources or assets. Two main kinds of actions are distinguished: transformation and transfer of resources. Transformation tends to be controlled directly by one entity. During actions of transfer, direct control over resources is transferred from one entity to another. In this way, transfer combines processes of transformation controlled directly by companies. Exchange between companies can involve goods and/or services, technology, financial resources and knowledge (Fonfara 2012). It is crucial to note that research on business relationships focuses on individual companies and their relationships developed at the organisational level. Unlike business relationships, social relationships refer to connections developed between individual employees of companies involved in a business exchange. Particularly important in this respect are relationships between members of top-level management, often business entrepreneurs/ owners. It is emphasised that these types of relationships are not necessarily developed in the business context but can originate at school, through membership in organisations, etc. (Johanson and Kao 2010). In early research on relationships between companies and entities in the environment, social relationships were ignored or treated as playing a supporting role in the actual exchange, part of what was referred to as “informal contacts”. However, subsequent studies have shown their significant role in identifying opportunities and threats, knowledge transfer (Sharma and Blomstermo 2003), gaining information about partners’ intentions and strategic plans (Ellis 2011) or in the process of internationalisation, particularly in the case of born global firms. Institutional relationships connect companies with institutions other than their customers and suppliers. Two groups of such entities can be distinguished (Johanson and Kao 2010). The first one includes profitdriven actors other than customers and suppliers, e.g. banks or consulting firms. The second group includes non-profit actors, such as authorities, business associations and chambers of commerce. It should be stressed that institutional relationships are classified by some authors as business relationships. This is especially the case in studies aimed at analysing the entire body of a company’s relationships with its business environment and their influence on its business activity. The existence of close business relationships in real market settings is reflected in theory. Two major theories explaining the development of longterm connections are transaction cost theory and social exchange theory.

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Generally speaking, transaction cost theory deals with mechanisms of selecting governance structures in which economic exchange takes place. The choice of governance structure depends on the criterion of effectiveness. Effectiveness in turn is connected with minimising both the total cost of producing a good (providing a service) and transaction costs. The range of possible governance structures (Coase 1937, 387–388; Williamson 1998, 29–30) includes markets (controlled by the price mechanism), hierarchies (controlled by instruction, i.e. the company’s management), and hybrid governance (connections between independent actors which extend beyond purely market-related considerations). The selection of an appropriate governance structure taking into account the criterion of effectiveness depends on the nature of the transactions involved and the resulting transaction (governance) costs. Analysis of transaction costs is based on two behavioural assumptions about human nature which breathe life into the concepts of neoclassical economics: bounded rationality and opportunism. Bounded rationality refers to the fact that economic entities have the intentions of rational behaviour; however, owing to their limited ability to acquire, store and process information and solve complex problems, they are not able to achieve the complete rationality postulated in neoclassical economics. Nonetheless, they do not act irrationally but try to make the best possible decisions (Simon 1982). The second assumption of transaction cost theory is the opportunism displayed by participants of business exchanges. Opportunistic behaviour consists in seeking ways of furthering one’s own interest. It includes “selfinterest seeking with guile” (Williamson 1979, 234; Williamson 1998, 60– 62). This kind of behaviour can involve lying, deception or failure to honour the terms of a contract. Williamson (1981, 554) indicates that not all actors need to be regarded as opportunistic, but it is extremely difficult to distinguish opportunistic from non-opportunistic ones ex ante. The necessity to account for transaction costs in the analysis of effectiveness results from the co-occurrence of bounded rationality and the possibility of opportunistic behaviour. Under conditions of complete rationality, it would be possible to draw up a contract accounting for all possible situations. The phenomenon of bounded rationality only enables incomplete contracting, which would make effective business exchange feasible if market entities were not given to opportunism (Williamson 1998, 44). Hence, the effectiveness of individual organisational structures depends on calculating the total cost of producing goods (providing services) and transaction costs. The size of transaction costs in turn

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Chapter One

depends (given opportunism and bounded rationality) on the type of transaction. Transactions which justify the establishment of business relationships are characterised by recurrence and a mixed character of investments supporting exchange, which can be situated somewhere between universal and transaction-specific investments (Williamson 1979, 239). Universal investments facilitate the production of goods (provision of services) in the same form regardless of the buyer. In the exchange of this kind of goods (services), it is possible to quickly change a supplier without incurring high costs. Transactions of this kind are made in the context of the market. Specific investments are those where the value of a particular transaction is high but declines for other transactions (or those that cannot be used in other transactions at all). As a result of specific investments, parties to a transaction become “attached to one another”. A supplier cannot utilise an investment in other transactions and has to continue cooperation with a given buyer. At the same time, the buyer cannot easily change supplier because the cost of purchasing the product from an unspecialised supplier could be much higher. Asset specificity can be motivated by location, material resources or the labour factor. Transaction-specific investments are made within hierarchical structures (in the case of occasional transactions in the framework of trilateral governance) (Williamson 1981, 555–556). The most effective way of making recurrent transactions based on mixed investments is ensured in the context of bilateral governance. The mixed nature of investments, on the one hand, decreases the effectiveness of the market mechanism by increasing production costs (as a result of limiting benefits derived from economies of scale) and increases external transaction costs. On the other hand, this situation enables external procurement (through transactions outside the organisation), since investments are not entirely specialised. However, effective transactions in this context require a structure that extends beyond the market framework – a structure created as a result of frequent exchanges between trading partners. Transaction cost theory focuses on transactions and the selection of the most effective governance structures. In its classic form, however, it does not address in greater detail the question of social or relational norms, which to some extent guarantee certain behaviours of exchange partners (Williamson 1979). Issues of this kind are taken into account in social exchange theory. According to social exchange theory, exchange between actors is embedded in social structures and is socially conditioned (cf. Homans 1958; Granovetter 1985). It is based on four main premises (Lambe, Wittmann and Spekman 2001, 6):

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1. exchange interactions result in economic and/or social outcomes; 2. these outcomes are compared to other exchange alternatives to determine dependence on the exchange relationship; 3. positive outcomes over time increase companies’ trust in their trading partners and their commitment to the exchange relationship; 4. positive exchange interactions over time produce relational exchange norms that govern the exchange relationship. Exchange between entities can bring economic and social benefits. Benefits derived from a given exchange relationship are compared with costs that have to be borne in order to maintain that relationship. If the benefits exceed the costs, the relationship is viewed as beneficial (Homans 1958, 598–606; Thibaut and Kelley 1959, 18–19, 31–50). The exchange outcome (difference between benefits and costs) is additionally compared with the actors’ (economic and social) expectations about a given exchange, which make up a desired standard, known as a comparison level. The desired comparison level is established on the basis of past and present outcomes obtained in similar relationships. If the exchange outcome exceeds the comparison level, the actor is satisfied with the exchange. If it is lower, the result is dissatisfaction (Thibaut and Kelley 1959, 21–24). Relationship outcomes are also compared with a comparison level of alternatives, which determines the level of (economic and social) benefits that a given actor can derive from participating in the best alternative relationship to the ones currently maintained. As long as the benefits from current relationships surpass the comparison level of alternatives, the actor is, to a certain extent, dependent on the current relationship, as it offers greater benefits than other relationships. The comparison level of alternatives is the minimum level of relational outcome that an actor is willing to accept and still continue cooperation (Thibaut and Kelley 1959, 100–125). An exchange relationship generates trust between trading partners. This is because a large part of an exchange relationship is based on obligations and is not governed by formal contracts. By providing the trading partner with benefits, one trusts that he or she will reciprocate this behaviour. If this is indeed the case, the level of trust increases. According to postulates of social exchange theory, trust building is a gradual process. Initially, trust-based obligations involve small, relatively insignificant transaction elements. As time goes on and the exchange based on obligations generates positive outcomes, trust increases.

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Chapter One

Trust existing between trading partners fosters commitment to the existing relationship. Commitment provides favourable conditions for investing in the relationship with the intention of gaining mutual benefits. In turn, positive benefits derived by both sides increase commitment (Lambe, Wittmann and Spekman 2001, 10–11). According to social exchange theory, relationships between trading partners produce norms governing the exchange. Norms refer to clearly defined or informally emerging patterns of behaviour, developed in the course of interactions and accepted by both sides in order to regulate the exchange without the need to exert influence or exercise power. Norms increase the effectiveness of exchange by reducing the level of uncertainty. In addition, they largely safeguard the interests of both trading partners without the need to resort to legal measures or arbitrage solutions (Homans 1958, 600–601). The premises of social exchange theory have been used to study relationships in the B2B market. They have proved particularly useful in identifying differences between market transactions and partnerships (cf. Easton 1992), creating models of how relationships between legally independent entities develop (cf. Ford 1980; Dwyer, Schurr and Oh 1987) and in studies of relationships intended to identify factors that contribute to relational success (cf. e.g. Anderson and Narus 1984, 1990; Morgan and Hunt 1994; Mitręga 2008). The question of business relationships is also discussed in the context of the resource based view (RBV). According to the RBV, a company is viewed as a “bundle of resources” (Penrose 1959). Nowadays, business relationships are treated as firms’ key resources (Barney 1991). Their special significance results from the fact that they enable access to external resources which are controlled by other companies. The resource-based view will be discussed in more detail in Sections 3.1 and 3.2 of the book. One key problem in the analysis of business relationships is to determine their quality (also strength and closeness), as this can affect the benefits derived by trading partners and prevent unfavourable phenomena. Relationship quality depends on levels of business relationship characteristics, which will be discussed in the next section of the book.

1.2. Characteristics of Business Relationships Companies operating in foreign markets need to cooperate with other entities to achieve their business goals. The main partners that international companies establish relationships with include suppliers, intermediaries, distributors, competitors or companies providing services

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and products necessary for the company’s operation (more on partners in the business relationship in Section 1.3 of the book). As a result of establishing and intensifying cooperation, firms create and develop exchange-specific relationships (Hauke-Lopes 2014). They have various characteristics (also known as relational variables) which describe the specific character of cooperation between business partners (e.g. the level of trust) and stem from diversified relationships that emerge and are developed in the course of cooperation. These relationships result from the existence of many influencing factors (like partner’s strength or length of cooperation), that is they are determinants. Relationships are also affected by factors independent of trading partners, such as the cultural or legal environment in which they operate and the number of competitors or producers of complementary goods. Firms do not have full control over relationships maintained with trading partners in a given market. They can try to control many aspects of relationships, but existing interactions and the effect of the abovementioned determinants give rise to connections that are specific to a given situation and firm. Business relationships due to diversified determinants and characteristics can constitute a major resource that enables a company to achieve competitive advantage in a foreign market in the process of internationalisation. To facilitate more in-depth analysis and determine how relationships help firms succeed in a foreign market, they should be studied in a wider context, taking into account the abovementioned determinants and characteristics. This approach provides more definitive and insightful conclusions about the way relational determinants and characteristics affect the performance of firms in the process of internationalisation. Given the growing interest in this topic, there is a large body of research that addresses various aspects of the subject (cf. e.g. Beijou et al. 1996; Crosby et al. 1990; Kumar et al. 1995; Lagace et al. 1991; Małys 2013, Naudé and Buttle 2000; Ratajczak-Mrozek 2017; Walter at al. 2003). Nonetheless, there are no comprehensive studies of how determinants and characteristics of business relationships affect the performance of firms in the process of internationalisation. In order to extend the field of research and bridge the existing gap, the following section will be devoted to presenting results of a literature review on business relationships from the perspective of their characteristics (relational variables) and determinants (relational factors). Results of an empirical study of the impact of relational characteristics and determinants on business performance achieved in the process of internationalisation will be presented in Chapter 4 of this book. Characteristics and determinants of business relationships affect results achieved by a company operating in a foreign market and

Chapter One

10

therefore determine its ability to achieve competitive advantage. They can be identified with components of thematic areas describing the internationalisation process, which are presented in Section 2.1. Relational characteristics affect, above all, cooperation between trading partners in a foreign market whereas relational determinants shape business relationships by contributing to the emergence of certain characteristics (Małys 2013). Fig. 1-2 shows the key determinants and characteristics of business relationships proposed in the literature. It should be noted that there is no agreement in the literature on how to distinguish between relational determinants and characteristics. The following discussion is intended as an attempt to fill the research gap concerning the effect of relational characteristics and determinants on business performance achieved in the process of internationalisation. Fig. 1-2. Determinants and characteristics of relationships in business networks

RELATIONSHIPS IN BUSINESS NETWORKS

RELATIONAL DETERMINANTS            

communication atmosphere satisfaction from cooperation informal links customer satisfaction duration of the relationship attitude to cooperation willingness to invest ethics reputation professionalism psychic distance

RELATIONAL CHARACTERISTICS        

trust commitment mutuality openness in relationships respect level of conflicts financial involvement size of transaction costs

In the literature, characteristics of business relationships are typically considered from two perspectives: social/relational and economic/ transactional (cf. i.a. Donaldson and O’Toole 2000; Małys 2013). Viewed from the social perspective, business relationships are most commonly described in terms of two main characteristics: trust and commitment

The Essence and Scope of Business Relationships

11

(Barry et al. 2008; Crosby et al. 1990; de Cannière 2010; Dorsch et al. 1998; Małys 2013; Smith 1998; Walter et al. 2003). In addition to these two variables, some authors also mention mutuality (Dobrow et al. 2011, Holmlund and Törnroos 1997; Lee and Trim 2012; Małys 2013), though according to some others it is regarded as a determinant (Campbell 1997; Blankenburg Holm et al. 1999). Other relational characteristics listed in the social approach include openness in a relationship and respect (Andersen and Krach 2013; Sirdeshmukh et al. 2002). Analysed from the economic perspective, relational characteristics include partners’ financial involvement and the size of transaction costs (Małys 2013). Determinants of business relationships affect cooperation as well as the relationships of a company in the process of internationalisation. The most commonly listed determinants include communication (Fynes et al. 2008; Kumar et al. 1995; Lang and Colgate 2003), atmosphere (Fynes et al. 2008; Song et al. 2012; Su et al. 2008), satisfaction from cooperation, informal links, partners’ satisfaction, customer satisfaction (de Cannière 2010; Dorsch et al. 1998; Lang and Colgate 2003; Brock 1986), quality of services provided (Song et al. 2012), duration of a relationship, attitude to cooperation, willingness to invest in a relationship, partners’ business ethics, partners’ reputation, staff professionalism (Dorsch et al. 1998; Kumar et al. 1995 Lagace et al. 1991; Walter et al. 2003), cultural differences and psychic distance (de Búrca et al. 2004; Fynes et al. 2008). The multiplicity of determinants is associated with the firm’s scope of operation (local, regional, international), the number of collaborating partners and their experience or attitude to cooperation. Given the multidirectional and complex nature of relationships, the literature often emphasises the difficultly in identifying the effect of a single determinant on a given relationship. It is therefore recommended that determinants should not be analysed separately but should be combined or grouped in aggregate measures in order to obtain more definitive conclusions (cf. i.a. de Búrca et al. 2004; Małys 2013; Naudé and Buttle 2000; Song et al. 2012). For this reason, some authors suggest that determinants should be measured using cluster analysis (Naudé and Buttle 2000). Others postulate combining determinants taking into account three dimensions: social, technical and economic. The social dimension includes such determinants as professionalism, understanding and integrity. In the technical dimension one can distinguish such determinants as technical information and time required to offer technical assistance. Determinants classified into the economic dimension include profitability, efficiency and effectiveness (de Búrca et al. 2004, 67).

12

Chapter One

Of the numerous relational characteristics and determinants proposed in the literature, the following, three most commonly mentioned have been selected for detailed analysis in this section: trust (e.g. Morgan and Hunt 1994; Blois 1999; Johnson and Grayson 2005; Golicic 2007), commitment (e.g. Morgan and Hunt 1994; Hausman 2001; Barry, Dion and Johnson 2008; Ratajczak-Mrozek 2017) and, additionally, the incidence of conflicts in a relationship (e.g. Skarmeas 2006; Greer et al. 2011; Lau and Crobb 2010). It has been concluded that these variables have a major influence on the character of cooperation in a foreign market and affect the pace at which new solutions or improvements are introduced. In the course of cooperation, trading partners gain information about each other (often very detailed), which in turn allows them to provide products that meet expectations. Good cooperation contributes to lowering the risk of negative outcomes, such as looking for other partners or opportunistic behaviours, and reduces the risk of conflicts. The characteristics and determinants described below were also used in the empirical study mentioned earlier, in addition to other characteristics and determinants included in order to improve the analysis of business relationships and their effect on achieving competitive advantage. A detailed description of relational characteristics and determinants used in the empirical study is presented in Chapter 4 of the book. The first characteristic described in this section is trust, which can be defined as “the belief, attitude or expectation of a party that the relationship partner’s behaviour or its outcomes will be for the trusting party’s own benefit” (Walter et al. 2003, 161). Applied to business relationships, it can be understood as the belief that a partner will take actions that will benefit the company and will avoid unexpected actions that may produce undesirable results (Lau and Crobb 2010). Trust and relationship development are closely related: trust fosters cooperation, and consequently enables the relationship to develop; in turn, cooperation contributes to the development of trust. One can distinguish three elements of trust: interdependence, a means of coping with uncertainty in the exchange and a belief that vulnerability resulting from the acceptance of risk will not be exploited by the partner (Batt 2004). Thanks to trust and interdependence, the risk of conflicts, the level of operational costs and the possibility of opportunistic behaviour on the part of trading partners may be considerably reduced (Hauke-Lopes 2017). This situation strengthens the business relationship and reduces the uncertainty of operating in a competitive, international business environment. Trust in business relationships can be classified into two categories (Lau and Crobb 2010). The first one is calculus-based trust (CBT), which

The Essence and Scope of Business Relationships

13

is the result of a rational and systematic cognitive evaluation of the partner’s intentions and abilities of completing the transaction. The second type is relationship-based trust (RBT), which refers to an affective form of trust, based on relationships between business partners and the belief that both parties have the same perception of each other’s reliability and dependability (Lau and Crobb 2010). To assess the level of trust, some authors propose using three parameters: honesty, benevolence and competence (Walter et al. 2003, 164). Trust in business relationships has a strategic character – it is relationspecific and instrumental in helping business partners achieve their goals. Moreover, it plays a crucial role in creating an organisational culture that fosters knowledge sharing. A high level of trust facilitates knowledge transfer, particularly this more sophisticated and specialist one. Trust takes a long time to develop but is quickly destroyed; this is why organisational culture should always support its development through, for example, integration, the creation of social networks, informal meetings or joint participation in projects. Another key characteristic of business relationships is commitment. Partners’ commitment to cooperation changes the nature of business exchange. It can be defined as the willingness of partners to make shortterm sacrifices in order to maintain long-lasting, stable and profitable relations (Anderson and Weitz 1992). Other authors define it more generally as “a kind of lasting intention to build and maintain a long-term relationship” (Walter et al. 2003, 160). In the literature, it is emphasised that commitment is the basic element that both fosters the creation of and strengthens long-term relationships. The level of commitment reflects the degree of cooperation in a relationship. A high level of commitment means that partners are actively involved in sustaining and developing cooperation (de Búrca 2004). Commitment results from a belief shared by both parties that their relationship is important and worth investing resources to maintain. Consequently, partners are more willing to cooperate, to comply with each other’s requirements, to compromise, to share information and to engage in solving conflicts (Tellefsen 2002, 645). It is possible to distinguish two kinds of commitment: affective commitment and behavioural commitment (Zaefarian et al. 2016). Affective commitment results from good cooperation between business partners, which they are willing to continue. The second kind of commitment – behavioural – stems from visible manifestations of a relationship and its associated investments (Zaefarian et al. 2016). To complement this section, two more types of commitment can be mentioned – instrumental commitment, which refers to the level of investment (in the form of time

14

Chapter One

and resources) made in a given relationship; and temporal commitment, which is associated with the duration of a relationship (Walter et al. 2003, Gundlach et al. 1995). Trust strengthens a relationship and increases partners’ interdependence. As trust and commitment develop, negative outcomes of cooperation become increasingly unlikely – since both partners are committed to cooperation and development, they do not plan actions that could undermine the relationship. In addition, commitment makes partners more willing to remain in the relationship and more reluctant to look for opportunities with other partners, given the investments already made in the relationship. The level of commitment can be measured using such criteria as the number of strategic, tactical and operational meetings, the number of issues discussed jointly, and the speed and effectiveness of actions aimed at solving problems and carrying out operational activities (Nowak 2012, 272). Other researchers suggest measuring commitment by analysing partners’ loyalty, willingness to make short-term concessions, attitude to cooperation duration or willingness to invest in the relationship (Walter et al. 2003). Based on the literature review, the level of conflicts in a relationship was chosen as the key relational characteristic. Conflicts, an inherent element of cooperation, can be defined as “tension between social entities due to real or perceived differences” (Skarmeas 2006, 568). The most typical sources of conflicts include cultural differences, personal differences, the partner’s status and power, problems emerging in social networks, communication problems, reluctance to invest and adapt, and inappropriate organisation of work and cooperation. According to the classification proposed in the literature, conflicts can be divided into task, process and relationship conflicts (Greer et al. 2011; Lau and Crobb 2010). A task conflict occurs when there are different opinions concerning actions undertaken in the course of cooperation, as well as their aims and scope. A process conflict arises from misunderstandings related to task accomplishment. Sometimes this type of conflict is analysed together with task conflicts. Finally, a relationship conflict results from misunderstandings between employees which are not associated with tasks they perform. Such conflicts can be caused by their different personalities, systems of values or beliefs. It is assumed that a task conflict may have a big, positive influence on the company’s performance, while the impact of relationship conflicts on performance is negative (Lau and Crobb 2010).

The Essence and Scope of Business Relationships

15

Conflicts have a considerable impact on relationship durability, sometimes even putting an end to cooperation. Negative effects of conflicts include a decline in partners’ loyalty, limited scope of cooperation and partners’ reluctance to exchange resources, which can lead to poorer performance of their companies and sometimes even to the end of cooperation. Conflicts can be perceived as obstacles, which should be mitigated or even eliminated in order to retain a relationship. However, sometimes a conflict can be seen as an asset and an instrument which can serve to strengthen a relationship, if used properly (Vaaland and Håkansson 2003). From this point of view, conflicts can be the basis for a more in-depth analysis of relationships, which can be used to improve “relationship competence and parties’ sensitivity” (Vaaland 2004, 453). By adopting a proper approach to conflict resolution, business partners can strengthen their relationships and gain competences needed to navigate in a turbulent foreign environment. Another positive effect of a conflict is the fact that partners come to view their relationship as more valuable. In addition, relationships strengthened by conflicts can become a source and an instrument for obtaining and developing new assets (Finch et al. 2013, 1071). Conflicts tend to weaken relationships but, if properly managed, they can contribute to developing a relationship and to gaining through partners new competences of relationship management. It can therefore be concluded that relationships without conflicts cannot develop, which ultimately leads to stagnation. In most cases, firms manage to resolve conflicts and maintain their relationships. Among the reasons why companies decide to continue cooperation are “attenuating factors”, which include lost relational investments, dissolution process costs, possible sanctions for future business, network limitations, and set-up costs (Tähtinen and Vaaland 2006, 15). To facilitate an in-depth analysis of determinants and characteristics of business relationships, one should consider how they can be used to measure business relationships. Several components have been used for this purpose in studies conducted to date. The most commonly used variables include level of commitment, volatility, closeness, communication, respect and trust (Fleming et al. 2016; Larson and Kulchitsky 1999). Other researchers have measured relationships by combining quantitative elements (e.g. duration of cooperation, number of common areas of cooperation, number of meetings concerning key areas of activity, value of supply in the cooperation) with qualitative elements (e.g. level of trust, partners’ commitment to cooperation) (Nowak 2012). Taking into account these two dimensions, the following measures of

16

Chapter One

business relationships were proposed: trust, business integrity and ethics, goal setting, communication, approach to conflict resolution, norms and procedures, coordination and synchronisation of activities, financial terms, and prospects for cooperation development (Nowak 2012, 273). However, the dominant view in the literature is that business relationships should be measured by means of aggregate indices that focus on the quality and strength of relationships (i.a. Donaldson and O’Toole 2000; Małys 2013; Ratajczak-Mrozek 2017; Brock 1986). The quality of business relationships affects the duration of cooperation between partners. It is influenced by such components as partner’s expertise, ethical orientation, relationship duration, customer orientation, and selling orientation (Bejou et al. 1996; Crosby et al. 1990; Lagace et al. 1991). In the literature, it is recommended that business relationships should be measured using such determinants and characteristics as adaptation, atmosphere (Song 2012, Ratajczak-Mrozek 2017), trust, commitment, satisfaction (Barry et al. 2008; de Cannière et al. 2010; Dorsch et al. 1998; Kumar et al. 1995; Ratajczak-Mrozek 2017), conflict level, willingness to invest, expectation of continuity (Kumar et al. 1995) and mutuality (Ratajczak-Mrozek 2017). Out of the relational determinants and characteristics listed above, some authors single out trust and commitment as key components (Walter et al. 2003). Based on the existing body of research, it can be concluded that an increasing quality of a business relationship is associated with an improved performance of the cooperating firms. At the same time, the partners become less willing to seek alternative, complementary relationships (Walter at al. 2003) and more interested in maintaining the existing relationship. This is because a good atmosphere fosters cooperation and the development of existing business relationships (Fynes et al. 2004). As cooperation develops, partners get to know each other’s preferences, which enables them to react faster and adapt their products more effectively to the partner’s requirements. Thanks to implemented adaptations, existing trust and a high level of commitment, they can introduce new solutions more quickly and be more effective in reducing the risk of a crisis. In this way, a higher relationship quality fosters higher effectiveness of cooperation (Song et al. 2012). Relationship strength is defined as an “aggregate measure of the character of a firm’s interorganisational connections, including both social and economic relational variables” (Małys 2013, 112). Strength of business relationships can also be defined as the intensity of a relationship between partners, which is reflected by its duration and the intensity of cooperation (de Cannière et al. 2010, 88). It measures motivations and

The Essence and Scope of Business Relationships

17

assumptions that underlie partners’ behaviour. Moreover, relationship strength reflects the intensity of interactions between partners, which affect the structure of a business relationship (Donaldson and O’Toole 2000). According to the above definition, relationship strength can be measured by relational and economic variables. Relational characteristics include commitment or good will. In contrast, economic characteristics for measuring relationship strength include calculative commitment and the possibility of reducing transaction costs (Małys 2013, 110). Relationship strength can also be measured by analysing partners’ attitudes or behaviours in the course of cooperation (Moore et al. 2012). Other authors suggest alternative approaches based on analysing partners’ attitudes to change and their willingness to look for other partners, or their willingness to invest and their shares of purchases (Barry et al. 2008). Data from the analysis of relationship strength can be used to classify business relationships. One of the classifications proposed in the literature consists of four types: bilateral, recurrent, dominant partner and discrete (Donaldson and O’Toole 2000). The above review of studies suggests that there is no single methodology for measuring relationships, and many different measures are used for this purpose. In addition, they are composed of different characteristics. Given the complex and multi-faceted nature of relationships and the significant influence of intangible characteristics on relationships (such as trust, openness, commitment and closeness), it is common practice to use aggregate measures for more universal results. Taking into account the literature review and the lack of a single, commonly accepted approach to measuring business relationships, it seems reasonable that they should be analysed using the above mentioned relational characteristics and determinants. This kind of analysis can provide a contribution to further considerations on the role of business relationships in the process of internationalisation and their effects on the performance of a company operating in a foreign market.

1.3. Actors in Business Relationships As indicated in previous sections, business relationships can be developed between various types of actors. It seems this variability stems from:  an actor’s position in the organisational structure;  actor type and its function in the value chain;  the existence of external and internal actors in business practice.

Chapter One

18

In Section 1.1, three kinds of business relationships were distinguished, one of which is social relationships, maintained between employees of cooperating firms. From the perspective of the actors in business relationships, this is equivalent to building connections between different posts (employees) within the organisational structures. More commonly, however, analysis is conducted at an institutional level and involves entire companies or their departments (e.g. business relationships developed in the area of production). There are three levels at which relationships are created and developed in companies (see Table 1-1). Table 1-1. Organisational levels and types of existing relationships Organisational level entire company section or department individual employee

Types of relationships business or institutional relationships business relationships social relationships

At the level of an entire organisation (company), business relationships are established with key suppliers and customers. Additionally, depending on the needs, institutional relationships are created with important organisations that support business activity (trade organisation, associations of companies) or central or regional authorities. At the level of departments or sections, there are business relationships that are significant for a given department or section. At the level of individual posts, employees can build social relationships. Another criterion of relationship classification associated with cooperating actors is their type and function in the value chain. Considering all possible groups of actors that companies can cooperate with, most studies have focused on examining the buyer–supplier relationship, which confirms the significance of business relationships (see Håkansson, Johanson and Wootz 1976, 319–332; Ford 1984, 101–113; Gadde and Snechota 2000, 305–316; Hollensen 2003, 197–254; Golicic 2007, 719–739; Barry, Dion and Johnson 2008, 114–135). Institutional relationships can, however, also involve other kinds of stakeholders. There are several theoretical approaches to the classification of stakeholders that companies can maintain relationships with. One particularly interesting division is proposed by Morgan and Hunt (1994, 21–22). The authors classify relationships into four groups: 1. supplier partnerships involving suppliers of goods and services; 2. buyer partnerships involving intermediate customers and ultimate customers;

The Essence and Scope of Business Relationships

19

3. lateral partnerships with competitors, government agencies and non-profit organisations; and 4. internal partnerships involving business units, functional departments or individual employees. From the viewpoint of relationship building, buyer partnerships are the most important area of activity for companies. Their activities in this respect should be focused on retaining existing customers by building close relationships. This is particularly important in the business-tobusiness market, which, in comparison with the consumer market, has fewer buyers (Fonfara 2014b, 67–77). The ability to retain existing customers leads to a growth in profitability. Nowadays it is often argued that suppliers should be treated as equal partners and that companies should develop close, mutually beneficial, long-term relationships with a selected group of suppliers. This strategy ensures that a company keeps improving the quality of its products, has lower operational costs, and ultimately, becomes more competitive. In the context of cooperation with suppliers, one of the strategies focuses on the possibility of obtaining preferred customer status. By acquiring this status, a supplier invests its most valuable assets in cooperation with specific customers. This can involve delegating the most competent employees to work with key customers, adjusting products to meet custom requirements, supplier-initiated innovation and/or providing key customers with privileged access to innovation, signing exclusivity agreements, etc. (Steinle and Schiele 2008, 3–14). The role of preferred customer status is particularly important in industries characterised by a limited number of suppliers and the significance of innovation. This strategy reverses the traditional roles of supplier and buyer where suppliers compete for buyers (Schiele 2012, 2). The actors involved in lateral partnerships include competitors, nongovernmental organisations (NGOs) and government agencies. This can be extended to include other types of stakeholders. The possibility of cooperation and the specific types of stakeholders that a firm might cooperate with in this type of relationship depends on the characteristics of the company involved: industry, size, target markets, segments, etc. In addition to competitors, this group of stakeholders includes producers of complementary goods, government agencies, opinion-forming bodies, influential entities, universities and other educational centres, and social organisations. Cooperation between market competitors is known as coopetition (see Bengtsson and Kock 2000; Cygler 2009; Dagnino and Rocco 2009). This

20

Chapter One

kind of cooperation requires special skills from companies in order to establish effective relationships. The benefit of coopetition is the emergence of a more competitive system compared to firms that remain outside it. At the same time, firms involved in coopetition have to make an extra effort to prevent their key skills and assets from being taken over by their competitors. By cooperating with competitors, companies indirectly strengthen their market position, which can be a factor that discourages coopetition (Hollensen 2003, 237–242). Companies involved in coopetition tend to maintain relationships within selected functional areas. They gain access to partners’ assets but, at the same time, can take actions aimed at building up their own competitive position (Bengtsson and Kock 1999, 180–182). Equally important are relationships with producers of complementary goods, services or processes. Complementors include legally independent entities which are neither suppliers nor end buyers. Given the profile of their business activity, they are also not competitors of the given company (Hollensen 2003, 231–237). Cooperation with complementors is motivated by technological, functional or product-related interdependencies, which result from the preferences of buyers, for whom it is beneficial to have access to products from two or more complementary suppliers than to rely on just one supplier (Wilkinson 2008, 15). To operate effectively, companies also need to take actions in the labour market in order to facilitate the development of an adequately trained labour force. In the context of building relationships in the business-to-business market, this may require relationships with specialised employment agencies etc. (Fonfara 2014b, 67–77). The Six Markets Model (see Payne, Ballantine, Christopher 2005) takes into account relationships with influential entities and opinionforming organisations. Their type and significance depends on the industry in which a given company operates, and its characteristics (size, area of operation, etc.). This group of entities can include government agencies, public offices, media and PR agencies, in addition to the company’s buyers and employees. In order to manage institutional relationships in the business environment, a firm should identify key influential and opinionforming entities and develop an action plan for establishing relationships with them. Companies should bear in mind that it may take a long time for the effects of such relationships to appear. Internal partnerships involve relationships with employees, departments and business units within a larger organisation. In the context of internationalisation, internal cooperation within a company, particularly between business units, can be especially important. In international

The Essence and Scope of Business Relationships

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exchange, such units can function as internal consultants or buyers responsible for delivering products to end customers or to an external trade agent. In internal exchange, often regulated by the concern’s HQ, internal partnerships can shape the directions of expansions or the scale of the company’s international activity. In summary, the actor-oriented analysis of internal cooperation involves distinguishing key internal entities, and in particular, identifying dependencies on internal suppliers and buyers.

CHAPTER TWO APPROACHES TO THE COMPANY’S INTERNATIONALISATION PROCESS KRZYSZTOF FONFARA, MILENA RATAJCZAK-MROZEK AND MARCIN SONIEWICKI

2.1. The Internationalisation Process – an Interpretation Attempt Internationalisation is typically understood as a situation when a company ventures outside the local market and starts operating in foreign markets. This often means that a company needs to collect information about and adjust to a foreign environment, in the cultural, legal, economic, technical and institutional dimension. Before a company can decide to go international, it needs to have appropriate resources, including the knowledge necessary to operate in a foreign, international environment. Internationalisation interpreted as an expansion outside the local market and maintenance of contacts in a foreign environment does not encompass and/or refer to all “foreign” manifestations of the company’s activities. Two examples worth mentioning in this context include subcontracting and import activity. In the first case, firms can develop large-scale exports (which are, by definition, anonymous) and not be directly involved in foreign markets. Their contacts with foreign ordering parties are limited to formal transactional connections. A foreign customer often receives products from a subcontractor in its local market and then sells them under its own brand. In the case of import activities, the situation is similar and can involve contacts with foreign firms crossing the borders of the country where the company is based. Any discussion of the so-called “classic” interpretation of internationalisation also needs to take into account the role of new media in the development of

Approaches to the Company’s Internationalisation Process

23

international trade relationships. Thanks to the Internet, many international sales transactions take place without the firm’s physical presence in the foreign market or face-to-face contact with a foreign customer. When analysing the way modern companies function, one can conclude that almost all of them are “internationally embedded” (Ratajczak-Mrozek 2017), since they have either direct (through export) or indirect (e.g. through import) connections with foreign markets. Therefore, in the analysis of the phenomenon of internationalisation, one should specify whether the term refers to the firm’s “international embeddedness” or whether it is understood in line with the classic definition as an expansion outside its local market. Research focused on how a phenomenon takes place over time is usually conducted according to the process approach (Halinen, Medlin and Törnroos 2012). It is emphasised in this context that the main difficulty in any empirical analysis of a process is its multi-faceted nature, which often poses challenges for researchers attempting to study and understand it (Andersson and Mattsson 2010). This is true in the case of research on the process of internationalisation of the firm. Most commonly, particularly in textbooks, the internationalisation process is analysed by directly referring to sequential internationalisation models, which assume that a company moves from simple forms of foreign expansion (e.g. indirect export) to more sophisticated forms of activity in foreign markets (e.g. direct export, foreign direct investments) (see Conconi, Sapir and Zanardi 2016). This is, undoubtedly, a simplified perspective on the internationalisation process of the firm. In fact, the internationalisation of the firm should be analysed from different points of view. It should be made clear from the start whether one is analysing the phenomenon of internationalisation in the context of the entire company, specific foreign markets or selected foreign customers. In the process approach to internationalisation, it is necessary to take into consideration different analytical perspectives on how the process develops over time. Apart from the forms of internationalisation mentioned above, it is a good idea to focus on the development of internationalisation, stages of internationalisation and the way decisions about internationalisation are made (Fig. 2-1).

Chapter Two

24

Fig. 2-1. The process approach to internationalisation of the firm

The way decisions on internationalisation are made

The development of internationalisation over time Development of internationalisation growth deinternatio-nalisation

Phases of internationalisation

Forms of internationalisation

The internationalisation process of the company

A decision to start internationalisation can be made formally, and then the process of internationalisation is a reflection of the firm’s formal strategy. Internationalisation can also take place spontaneously and involve many persons and/or departments of the firm, both initially and throughout its development. It can therefore be assumed that the process of internationalisation refers both to organised internationalisation, which is formally implemented, and spontaneous internationalisation, frequently based on subjective decisions (Fonfara 2009).

Approaches to the Company’s Internationalisation Process

25

The development of internationalisation is usually understood as its intensification (the firm’s increasing involvement in the process of internationalisation). In practice, one can also observe temporary or permanent limitations known as deinternationalisation. Commonly known models of internationalisation, which present consecutive stages of the process, emphasise the firm’s growing involvement in activities in an international environment. The models tend to overlook the possibility of the firm’s complete or temporary withdrawal from foreign operations. In order to identify the process of internationalisation in its entirety, it is therefore necessary to account for deinternationalisation. This cannot be done without first defining the concept and explaining how it should be interpreted. The phenomenon can be classified into absolute deinternationalisation and relative deinternationalisation, taking into account, i.a., the scope of internationalisation (Fonfara 2014a, 42–44). Absolute deinternationalisation refers to complete or partial reallocation of the firm’s assets from the foreign market to the local market and the firm’s withdrawal at all organisational levels from foreign operations. Since this aspect of the process of internationalisation has not been the subject of in-depth studies to date, there is no information about the scale of absolute deinternationalisation. This first type of deinternationalisation should be distinguished from relative deinternationalisation, which is interpreted very broadly and can refer, for instance, to the fact of a company’s withdrawal from a specific region or foreign market, withdrawal of a product or brand, or a change in the form of internationalisation (replacing production in a foreign market with export). It should be stressed that relative deinternationalisation need not mean that the firm’s international development is limited. In practice, withdrawal from a given market or the withdrawal of a specific product can enable the company to develop activities in other foreign markets. This tends to boost the process of internationalisation at the level of the entire company rather than limit it. It is important to note that internationalisation can take place at different speeds (Chetty and Johanson 2014; Ratajczak-Mrozek 2015). In practice, this is manifested as a relative acceleration or deceleration. A change of pace can refer both to the entire process of internationalisation and to its particular stages. Additionally, as already mentioned, the pace of internationalisation can be related to the entire company, its activity in specific foreign markets, its specific products, etc. Because the process of internationalisation develops over time, it makes sense to distinguish its different stages (Johanson and Kao 2010). It is, for example, possible to identify the initial stage and the development stage. The specific stages of internationalisation can also be described in

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more detail. For example, in addition to the initial stage, one can distinguish the stage of continuous development, the stage of advanced development and the stage of maturity (Fonfara 2012). Frequently, stages of internationalisation are presented in the context of different forms of internationalisation. According to the Uppsala model of 1977, the firm’s involvement in the process is viewed sequentially as reflecting consecutive forms of internationalisation, starting from indirect export and ending with the firm’s direct presence in foreign markets marked by the establishment of a manufacturing or sales subsidiary. It should be noted that, in practice, the process of internationalisation can centre around a single form of activity, e.g. export. In this case, the process of internationalisation can involve various forms of export, in particular direct export, indirect export, or sale of unbranded or branded products. In addition, companies undergoing internationalisation can implement various forms of internationalisation in different markets. In one case, it can be a sales subsidiary, in others, “only” indirect export. The choice of a particular form of internationalisation may be motivated by e.g. different levels of competition in different foreign markets, existing legal restrictions or strategic decisions of the company. Fig. 2-1 shows the process of internationalisation of the firm over time, where three aspects are highlighted: development of internationalisation (the possibility of growth or decline) and its stages, different levels of advancement of various forms of internationalisation and various degrees to which internationalisation is formalised. These three aspects are assumed to determine the character of the internationalisation process. However, this presentation is not intended as an exhaustive and comprehensive description of internationalisation. One inherent feature of internationalisation is cooperation between different entities/actors in the international environment. Cooperation in turn necessitates interactions and, consequently, entails the development of relationships between cooperating entities. The development of these relationships is crucially affected by such universal factors as, e.g. openness to cooperation, trust in cooperation or cooperation-related conflicts. Moreover, the process of internationalisation is associated with aspects that are specific to the international environment, such as psychic distance. It can be assumed that these selected features determine the course of cooperation in the process of internationalisation. As already mentioned, the process of internationalisation involves establishing relationships with various entities. For many years, research on cooperation has concentrated mainly on the analysis of relationships between suppliers and buyers (Anderson, Håkansson and Johanson 1997). More recent

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studies have indicated that a company’s effectiveness, also in foreign markets, does not depend exclusively on its cooperation with buyers. To achieve its goals, the firm needs to cooperate and develop relationships with other entities, such as suppliers, competitors, influential entities or opinion-forming bodies (Peck et al. 1999). Given that many firms have complex organisational structures, a considerable part of their cooperation takes place within an internal business network (Fonfara 2015). In such settings, relationships occur between entities that are formally dependent but frequently conduct market activities that are independent, at least to a certain extent, from the firm’s head office. In view of the above, the firm’s cooperation in the process of internationalisation refers both to external and internal relationships with selected entities (Ahmed and Rafiq 2002; Cropper et al. 2010) and results from the contemporary phenomena of externalisation and internalisation of the internationalisation process (Fonfara 2014a). For a more comprehensive understanding of internationalisation, it is necessary to account for cooperation and relationship development between external and internal entities/actors.

The internationalisation process of the company

Fig. 2-2. The internationalisation process – the cooperation perspective

The character of the internationalisation process

The nature of cooperation in the internationalisation process

The scope of cooperation in the internationalisation process

Company performance

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The internationalisation process of the firm viewed from the perspective of cooperation (Fig. 2-2) can be analysed in three areas: the character of the internationalisation process, the nature of cooperation and the scope of this cooperation in the internationalisation process. Each of the areas can consist of specific relationship-based components which determine the analytical framework of the internationalisation process of the firm. The method of implementation of these components affects the firm’s performance. It is assumed that the components will be identified within the empirical studies. The problem of the dependence between internationalisation and performance has been the subject of numerous studies. Most of them highlight the positive effect of internationalisation on performance (Hennart 2007; Väätänen, Podmetine and Pillania 2009). Rather, these studies tend to emphasise the role of “classic” sources of success, such as attractive product offering, strong brand, unique system of distribution, etc. (Hooley, Piercy and Nicoulaund 2008; Kotler and Keller 2012). The role of cooperation is much less recognised, particularly with respect to the way the firm’s relationships affect the creation of its competitive advantage. It turns out, however, that in practice, relationships can significantly affect a firm’s effectiveness and performance (Hausman 2001; Berckhan 2015).

2.2. Systematisation of Internationalisation Models By definition, a model is a simplified description of a process or system, which functions as a tool designed to assist, among other things, calculations and predictions (Oxford Dictionaries 2017). Similarly, models of internationalisation are created to describe processes of internationalisation under certain assumptions. These assumptions are crucial for each model. Economics is a social science based on human actions, which are not completely predictable. In contrast, model assumptions are often based on observations of past actions or the assumption of human rationality. Unfortunately, predictions based on observations of past phenomena are not always accurate, and the assumption of human rationality is not always true. In the literature, the phenomenon of internationalisation is viewed from different perspectives. Authors of various theories focus on specific aspects and recognise the importance of other aspects, which they also regard as relevant. One characteristic of internationalisation models is the fact that they describe a situation at a specific moment; nowadays, however, as a result of globalisation, economic conditions are changing at an increasing rate (Daszkiewicz 2013, 33).

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Many different models of internationalisation have been proposed in the literature. Different authors usually identify and analyse the most important ones. The most popular model typologies are shown in Table 2-1. Table 2-1. Most popular typologies of internationalisation models Johanson and Vahlne (1990) Coviello and McAuley (1999) Rundh (2001)

Ruzzier, Hisrich and Antonic (2006)

Fonfara (2009)

Karasiewicz (2013)

- the eclectic paradigm, - the Uppsala model (sequential approach), - the network approach to internationalisation. - foreign direct investment theory, - stage models, - the network approach. - incremental models, - the network approach, - the business strategy approach. - theories of internationalisation focusing on multinational enterprises, - internalisation theory, - transaction cost theory, - the eclectic paradigm, - monopolistic advantage theory, - stage models, - innovation models, - networking models, - resource-based view, - international entrepreneurship theory. - the Uppsala model (and other stage models), - the eclectic paradigm, - the network approach, - the strategic model. - economic models, (theory of monopolistic advantage, oligopolistic reaction, location, internalisation and eclectic theory of international production), - product-based models (theories of international product life cycle and appropriation), - financial models (optimum currency areas theory, Hirsch model and theories of diversification, real options and portfolio), - behavioural theories (the Uppsala model, innovation models, the strategic and the network approach), - resource-based models (evolutionary approach, the born-global concept, the model of organisational capabilities and the Linkage, Leverage and Learning model).

As can be seen from the table, the first three typologies are relatively similar. In contrast, the classification proposed by Karasiewicz (2013) contains two levels and is more detailed. He distinguishes a group of

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behavioural models, which includes models listed in typologies created by Johanson and Vahlne (1990), Fonfara (2009) and partially those mentioned by Rundh (2001) and Ruzzier, Hisrich and Antonic (2006). The most commonly mentioned models of internationalisation include stage models, network models and strategic models. These are believed to provide a description and explanation of the context of international activities of the firm (Ruzzier, Hisrich and Antoncic 2006, 486). It should be emphasised that sequential models can be as useful as network models, especially when it comes to traditional areas, such as transport, where geographical distance plays a major role, or in those areas where companies produce physical goods and foreign activity usually involves capital commitment, and consequently risk, such as the food industry. Internationalisation of the firm viewed in the light of the stage models is a process consisting of a sequence of various forms of foreign activity. Stage models describe subsequent stages of internationalisation which are causally linked with one another – achievement of one stage enables the firm to move to the next higher level of international activity (Limański and Drabik 2010, 60). The most frequently cited stage model is the Uppsala model proposed by Jan Johanson, Jan-Erik Vahlne and Finn Wiedersheim-Paul. The model was created on the basis of empirical observations of Swedish companies. According to the Uppsala model, a firm starts foreign activity in relatively familiar markets, given its lack of assets and knowledge (Johanson and Wiedersheim-Paul 1975, 305–306). In the next stage, it gradually develops its activity by gaining knowledge of foreign markets and, consequently, by minimising the risk associated with operating in these markets. The authors distinguish four main stages of foreign expansion: irregular export activities, export via independent sales representatives, establishment of a foreign sales subsidiary, and finally, establishment of a foreign manufacturing subsidiary (Johanson and Wiedersheim-Paul 1975, 307). The Uppsala model was further developed by Johanson and Vahlne (1977; 1990). Apart from the Uppsala model, there are a number of other stage models, which are presented in Table 2-2.

Johanson and WiedersheimPaul (1975) 1. Irregular export activity. 2. Export via independent sales representatives. 3. Establishment of a sales subsidiary. 4. A manufacturing subsidiary. Bilkey and Tesar (1977) 1. No interest in export activity. 2. Readiness to fill unsolicited foreign orders; no attempts to engage in active exporting. 3. Exploration of the feasibility of active exporting. 4. Experimental export activity to psychologically close countries. 5. The firm is an experienced exporter. 6. The firm explores the feasibility of exporting to more psychologically distant countries.

Pavord and Bogart (1975)

1. Irregular export activity. 2. Passive export activities. 2. Minor export activity. 3. Aggressive export activity.

Table 2-2. Stage models

1. New exporters. 2. Exporting activities initiated by buyers. 3. Carelessly planned export market ventures. 4. Carefully planned export market ventures. 5. Experienced exporters’ market ventures. 6. Exports through own sales subsidiary. 7. Export ventures located in communist countries.

Khan (1978)

Wiedersheim-Paul, Olson and Welch (1978) 1. The firm is domestically-oriented and has limited resources for collecting and transmitting information. 2. The firm is not very willing to start exporting – “passive pre-exporter”, but still has limited resources for collecting and transmitting information. 3. The firm is willing to start exporting and has sufficient resources for collecting and transmitting information.

Approaches to the Company’s Internationalisation Process

1. Export awareness in the firm; problem of recognising exporting opportunities. 2. Export intention – attitudes, motivation and beliefs and expectations about export. 3. Export trial – the process of gaining exporting experience. 4. Export evaluation. 5. Export acceptance – adoption or rejection of exporting.

Reid (1981)

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Czinkota (1982)

Moon and Lee (1990)

Lim, Sharkey and Kim (1991) 1. The firm explores exporting opportunities and has misgivings. 2. The firm is interested in exporting as part of strategic development. 3. The firm intends to start exporting. 4. The firm undertakes export trials and then starts exporting.

Chapter Two Rao and Naidu (1992)

Crick (1995) Fonfara (2000)

1. Importer 1. Lack of interest in 1. The firm 1. The firm 1. NonI. Anonymous pull: the firm exporting; no analyses in this with a low conducts no exporters. strategy receives orders area. level of exports and is 2. Passive 1. The firm is a from foreign 2. The firm is partly export not interested exporters. subsupplier to companies. interested in exporting. involvement. in foreign 3. Active many foreign 2. Basic Exports in response to 2. The firm activity. exporters. customers. production unsolicited orders. with an 2. The firm 2. The firm is a capacity 3. The firm explores foreign average conducts no specialised marketing. markets – active and planned level of exports but is subsupplier. 3. Advanced activity and attempts to export willing to get II. Brand-oriented production exploit export opportunities. involvement. involved in strategy: capacity 4. Experimental export 3. The firm foreign 1. The firm creates marketing. activity; the firm conducts with a high activity. its own brand. 4. The firm planned exports, positive level of 3. The firm 2. The firm markets attitude of management export conducts focuses on products 5. Experienced but small involvement. occasional improving the through exporter; the firm is actively export product. channel push. involved in exporting. activity. 3. The firm tries to 5. The firm 6. Experienced and large 4. The firm achieve a leading markets exporter; positive attitude to conducts position in the products exporting and its regular export international through development. activity. market. customer pull. Source: based on Johanson and Wiedersheim-Paul (1975); Bilkey and Tesar (1977); Wiedersheim-Paul, Olson and Welch (1978); Reid (1981); Moon and Lee (1990, 19); Andersen (1993, 213); Crick (1995, 90–92); Morgan and Katsikeas (1997, 73–74); Fonfara (2000).

Wortzel and Wortzel (1981)

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33

The stage models shown in Table 2-2 differ from one another in many respects. One of the reasons for these disparities is the fact that they were created in different periods. The main difference is the number of stages, ranging from two to six. This is most likely the result of the view expressed by Johanson and Wiedersheim-Paul (1975, 307) in their first article on the Uppsala model in which they point out that the four stages described in the model are what they believe to be the main ones, but other stages can be distinguished as well (Johanson and Wiedersheim-Paul 1975, 307). This statement opened the way for other divisions of the internationalisation process. The crucial difference between the theoretical proposals is the fact that individual stage models highlight different aspects of the firm’s foreign activity, e.g. interest, strategy, misgivings, the role of exports, experience (duration of international involvement), orientation, size, and regularity of export activity. The models share a number of features as well. All of them assume constant growth in the intensity or significance of the firm’s foreign activity. All of them also assume that the firm will increase its involvement in foreign markets. It should be noted that each of the models is suited to the period in which it was created and sometimes also to specific industries. Most of them focus on firms manufacturing products in their country of origin and then exporting them at an increasing rate. Another thing worth pointing out is the fact that in practice, the firm need not always gradually increase its level of internationalisation. Some models account for the possibility of decreasing foreign involvement, while others do not. Nowadays, stage models are rather more useful when applied to companies operating in traditional manufacturing industries. This is associated with the fact that these industries are limited by various barriers (e.g. geographical), which are less relevant in the case of virtual products or services. For an IT company, it makes no real difference whether its services are provided to a customer located 500 or 5000 km away, since its activities are typically conducted via the Internet. In the case of physical goods, geographical distance plays a crucial role and often requires a large capital involvement, which increases business risk considerably. For this reason, when dealing with companies offering virtual products, it may be more beneficial to apply other “simplifications of reality”, such as network models. Network models of internationalisation emerged along with the creation of the network approach to analysing business activity. According to this perspective, the firm’s internationalisation depends crucially on its

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relationships with other companies and on business networks it can develop. The network model of internationalisation is usually identified with the network approach to internationalisation proposed by Johanson and Mattsson (1988). However, since its initial presentation, a lot of research has been done on the role of networks and relationships in the process of internationalisation, in which specific factors, processes and effects of internationalisation have been analysed in the light of networks and relationships. In fact, the original Uppsala model of internationalisation (Johanson and Vahlne 1977) was revised by Johanson and Vahlne in (2009) in an attempt to account for the role of networks. According to network models, the process of internationalisation is determined by long-term relationships established in the international context of business networks, which replace the traditional business environment (Chetty and Blankenburg Holm 2000a; Fletcher 2008; Hadley and Wilson 2003). In this way, network models imply a reduced degree of strategic freedom that companies undergoing internationalisation can enjoy (Johanson and Kao 2010). As already mentioned, the network model of internationalisation is typically identified with the network approach to internationalisation (Johanson and Mattsson 1988). In Johanson and Mattsson’s view, the process of a company’s internationalisation “means that the firm establishes and develops positions in relation to its counterparts in foreign networks” (Johanson and Mattsson 1988, 296). The process is the result of the firm trying to achieve and strengthen its position in the network by expanding its relationships beyond the borders of its country of origin. The network position, the central concept of the model, is determined by the firm’s past interactions and relationships and simultaneously affects the future shape of its existing relationships. The firm’s network position reflects opportunities (such as acquisition of necessary resources) and threats associated with its relationships. In their model, Johanson and Mattsson (1988) take into account both the company itself and the network it belongs to, thus distinguishing between the level of the firm’s internationalisation and the level of the network’s internationalisation. A higher level of the firm’s internationalisation implies that it maintains more and stronger relationships with companies from other countries. An increased level of the network’s internationalisation implies more and stronger relationships between different elements of the international network (e.g. between the subsidiaries of a global corporation). The level of internationalisation of the firm and its network determines the possibility of it acquiring international knowledge and international

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resources and, consequently, affects its ability to achieve a position in the network and develop internationally. Moreover, the level of internationalisation of the firm and its network also determine the most appropriate forms of internationalisation. The second major development of the network model is the 2009 Uppsala model (Johanson and Vahlne 2009), known as the business network internationalisation process model. It is a version of the original 1977 model, modified by Johanson and Vahlne.1 Like Johanson and Mattsson (1988), Johanson and Vahlne (2009) view internationalisation as a process of network development, which is associated with the firm’s position in the network. Internationalisation is defined as an activity aimed at strengthening the firm’s international position. In their view, “insidership in relevant network(s) is necessary for successful internationalisation, and so by the same token there is a liability of outsidership” (Johanson and Vahlne 2009, 1411). The idea of “liability of outsidership” argues that “the disadvantage of being a market-entering firm is not simply related to its nationality, but also where it is located in the network” (Johanson and Kao 2010, 13). Thus, according to Johanson and Vahlne, the role of psychic distance between countries is less relevant for the process of internationalisation. Moreover, the form of internationalisation should no longer be treated as an important indication of the level of the firm’s internationalisation, since contextual aspects are far more significant. Johanson and Vahlne (2009) maintain that relationships are the key factor in decisions to start internationalisation and in the selection of specific foreign markets and forms of internationalisation. Through relationships, companies learn, identify and exploit opportunities, build mutual trust and control their commitment, thus creating the necessary conditions for internationalisation. In fact, the process of internationalisation starts based on the knowledge, trust and commitment associated with specific relationships. In summary, it should be emphasised that relationships are the key element in the development and internationalisation of companies. According to these models, the business environment is determined by business networks, in which companies are connected by a multitude of complex and diverse relationships which are often hard to identify (Johanson and Vahlne 2009). The process of internationalisation, and consequently its speed and forms, depends on the international context of the network and the firm’s network position. Compared to other models, 1

It should be noted, however, that the authors did recognise the role of relationships in their earlier studies (Johanson and Vahlne 1992; Johanson and Vahlne 2003).

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network models are certainly capable of to providing a more realistic and dynamic representation of internationalisation. However, they do not explain how companies overcome problems in relationships within the network. Nor do they adequately account for the emergence of the networks themselves and the establishment of relationships used by companies; networks are treated as pre-existing entities (Loane and Bell 2006). Network models enable a very good and systematic analysis of the process of internationalisation from the network perspective, but have limited applications in supporting specific (especially future) decisions of managers concerning internationalisation. The strategic approach to internationalisation focuses on its role in shaping the firm’s strategy (Witek-Hajduk 2010, 67). The main representatives of the strategic approach include Reid (1981; 1983) and Root (1987). A strategic model reflects decisions made in the firm which are determined by two main factors: the firm’s assets and the attractiveness of foreign markets. One of the most important features of the strategic approach is its formal character and the fact that the firm’s overall strategy takes into account its internationalisation (Fonfara 2009, 15). The strategic approach focuses on relatively large international firms (Galan, Galende and Gonazalez-Benito 1999, 780). In view of the above, the model highlights characteristics of the firm’s management, such as managers’ education, their knowledge and their motivation. All of these factors determine how the firm’s opportunities in foreign markets are perceived (Reid 1981, 109; Fonfara 2009, 15). The strategic approach has its advantages and drawbacks. As far as advantages are concerned, the strategic approach can be applied to firms irrespective of their type, size or country of origin. It also takes into account a large number of factors that determine the choice of internationalisation strategy as well as characteristics of the resources required to enter a foreign market. Another advantage is the fact that directions of expansion are determined based on the assessment of the potential and attractiveness of different foreign markets. However, the strategic approach is limited by its static, rather narrow and not fully realistic perspective, which has not been empirically verified and does not account for the firm’s relationships with other market entities (Karasiewicz 2013, 142–143). Models of internationalisation represent the paths along which companies achieve internationalisation and its underlying mechanisms. Three major groups of models have been presented in this section, which highlight different aspects of internationalisation. Stage models emphasise a deterministic progression towards internationalisation, assuming one

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path consisting of consecutive stages representing gradual involvement in foreign markets. This perspective, despite its simplicity and clarity, is not always compatible with the complex and changing reality in which real firms operate. This shortcoming is addressed by network models, which present a more dynamic and flexible approach to internationalisation which depends on contextual aspects, relationships, interactions and the network position. Although network models provide a more complex description of reality, they have limited application in guiding managers’ decisions. This gap is filled by the third group of models, which focus on strategic and management decisions made in the process of internationalisation, taking into account subjective and objective aspects of decision-making. However, owing to its rather narrow and not completely rational perspective, this approach is also limited. Remembering that each model is a simplified representation of reality, one cannot avoid drawbacks and limitations resulting from the way the firm’s activity in domestic and foreign markets is perceived.

CHAPTER THREE DETERMINANTS OF COMPETITIVE ADVANTAGE MILENA RATAJCZAK-MROZEK, BARTOSZ DESZCZYŃSKI, ADAM DYMITROWSKI AND MIŁOSZ ŁUCZAK

3.1. Interpretation of the Firm’s Competitive Advantage The phenomenon of competition has always been an inherent part of activities undertaken by individuals and societies. In the economy, competition is one of the key issues studied by practitioners and theorists of economic sciences. The concept of competitiveness in the context of a free market refers to the analysis of behaviours exhibited by market participants. These behaviours include confrontation, rivalry and competition. Competitiveness is associated with the ability to compete, that is to take actions ensuring survival in a competitive environment. This in turn involves a continuous search for new sources and methods of building advantage over other market participants. From this perspective, the repertoire of possible behaviours that can improve competitiveness includes cooperation and coopetition (Bengtsson and Kock 2000; Le Roy and Czakon 2016). Competitiveness is an abstract notion which cannot be directly identified. It can be attributed to any entity one chooses to analyse. Therefore, it needs to be decomposed, which means that its constituent dimensions should be defined and described in terms of observable variables. Due to the multi-faceted character of competitiveness, research on this subject is associated with a large body of definitions. This is, first of all, the result of the complex and holistic nature of competitiveness, which captures in one term a number of concepts describing the totality of actions taken by firms under competitive conditions. The second reason

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for the existing definitional variety is the theoretical nature of the notion itself, which is an abstract, scientific term. Modern concepts of competitiveness aim to identify factors that determine the firm’s competitive position and variables that can be used to determine competitive advantage. In addition, dimensions of competitiveness include such concepts as competitive potential and competitive strategy (Stankiewicz 2005). The growing interest in competitiveness that can be observed nowadays is motivated by economic changes: trade liberalisation, progressive internationalisation and globalisation, and the growing role of interorganisational cooperation. Faced with emerging opportunities, organisations are constantly looking for new ways of competing; at the same time there is a growing multiplicity of related terms that need to be systematised and defined. Generally speaking, competitive advantage can be defined as “being better than others”. According to Barney (2011, 15), competitive advantage is achieved when a firm can generate more economic value than other competitors. The state of competitive advantage can only be identified by comparing one firm with another one. Competitive advantage can be defined by referring to the configuration of all elements of competitive potential (related to tangible and non-tangible resources), which contribute to the creation of competitive advantage and can be exploited in effective competition (Stankiewicz 2005). For this reason, analysis of competitive advantage is usually associated with the concepts of competitive position, competitive potential and competitive strategy. A firm needs to create a competitive advantage in order to gain a good competitive position, which is defined as ex-post competitiveness. The firm’s competitive position to a certain extent determines its competitive potential, strengthening or weakening its ability to compete over a longer period. The competitive potential determines what kind of strategy is available to the firm under specific conditions. The firm’s competitive potential depends on its resources and competencies, its ability to exploit opportunities in its environment, and, crucially for further analysis in Chapter 3, its relationships and business networks. The firm’s competitive strategy comprises activities aimed at improving competitiveness ex-ante. Specific strategic goals and assumptions determine the choice of instruments (tools) of competition, which are specific ways of implementing the competitive strategy. By using these instruments appropriately, the firm is able to create value more effectively than its competitors (Stankiewicz 2005). Historically speaking, the notion of competitive advantage emerged relatively slowly and was the consequence of the growing interest in the

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way companies can differentiate themselves in the market. The origin of the concept is often traced back to Alderson (1937), who suggested that a firm’s specialisation is the key aspect adapting to competitive conditions in order to meet diverse demand. Alderson believed that differential advantage could be achieved by such alternative actions as lowering prices, targeted advertising or product improvement and innovation. The modern concept of competitive advantage refers to neoclassical economics (Veblen 1900, 261). The basic tenet of this approach was the principle of diminishing marginal utility, proposed independently by Menger (Grundsätze der Volkswirtschaftslehre 1871), Jevons (Theory of Political Economy 1871) and Walras (Éléments d'économie politique pure: ou, Théorie de la richesse sociale 1873–1877), which became the basis of static equilibrium theory. Given a strictly specified supply of available factors of production (over a short period), the objective is to allocate them in alternative applications in order to achieve optimal results. The process of achieving market equilibrium resembles a game, in which individual market players make economic decisions based on subjective evaluations of (marginal) cost benefit analysis. Their objective, under specific technological and market conditions, is to combine available factors of production to maximise profit and minimise costs. Under the classical approach, the concept of economic rent was mainly applied to land. Nowadays, the term refers to all rare and unique factors of production. Economic rent is the return for the use of a factor in excess of the cost of alternative use of resources (Mahoney 1995) or the difference between the expected and present value generated by the organisation (Rokita 2005). Historically, research on sources of competitive advantage over other companies, including economic rent, led to the emergence of two main analytical approaches: position-based and resource-based. The positionbased approach originates from Porter’s theory of generic strategies. His work on competitive strategies and competitive advantage was deeply rooted in economic theories, especially industrial economics, and was an attempt to integrate classical microeconomics with ideas proposed by theorists of management sciences. Porter’s theory (1980, 1985) emphasises the role of the firm’s industry-specific environment and the impact of external factors on its financial results. The business environment determines the possibility of achieving above-average financial results. The origins of the resource-based approach can be traced back to Penrose’s theory of endogenic growth and subsequent concepts integrated in the form of the resource-based view (RBV) (Wernerfelt 1984; Barney 1991; Prahalad and Hamel 1990). According to the resource-based view,

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the firm is perceived as a collection of unique resources, or idiosyncratic attributes that differentiate it from its competitors. Competition between companies is the result of unequal access to resources and their limited mobility. Competitive advantage results from the firm’s ability to generate greater economic rent from available resources than the weakest competitor operating in a given market and achieving results above the breakeven point (Peteraf and Barney 2003). The resource-based view will be described in more detail in Section 3.2. Table 3-1 includes a comparison of the main tenets of the positionbased and resource-based approaches, which are often presented as opposing views. The main difference between them is what they perceive as the source of competitive advantage. According to the position-based perspective, the firm should focus on achieving a competitive position within its sector or industry; in the resource-based approach, the firm’s main concern should be to gain access to key resources. In the positionbased approach, resources are subservient to activities; this is in contrast to the resource-based view, where activities are based on and guided by resources. However, in practical applications both approaches can be seen as complementary rather than mutually exclusive. A perfect example of a strategic tool which combines both approaches is a SWOT analysis, where strengths and weaknesses reflect the resource-based perspective, while opportunities and threats can be associated with the position-based view. Table 3-1. Comparison of the position-based and resource-based approach Characteristics Source of advantage

Position-based approach Activities aimed at adapting to the environment

Role of resources

Resources are subservient to activities. A change in activities (strategy) requires reinvestment in resources

Basis of advantage Durability of advantage Scale of advantage

Achievement of favourable market position Cost of resources used to implement an appropriate strategy Achievement of cost advantage or competitive differentiation

Resource-based approach Key resources and capabilities Uniqueness of resources and capabilities affects the character of undertaken activities (implemented strategies) Development of key resources Value, rarity, uniqueness, lack of substitutes of key resources Ability to meet customers’ needs more cheaply or more effectively

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Analysis of competitive advantage is inseparably connected with the problem of measuring it. Competitive advantage is not an absolute measure, because it can only be established by comparing business performance. Consequently, competitive advantage is determined on the basis of firms’ performance. The above assumption (regarding measurement of competitive advantage) entails certain limitations which have to be borne in mind when doing empirical research. First of all, the term “performance” is broad and can refer to financial, marketing or operational performance (Karasiewicz 2013). Consequently, both performance and competitive advantage itself depend on what group of stakeholders makes the evaluation. Secondly, as noted by Obłój (2007, 8), treating the firm’s performance as an indicator of the presence or absence of competitive advantage is somewhat problematic. The fact that a given company has certain advantages does not imply that it will earn equivalent revenue. This revenue can be captured by stronger players in other segments of the value chain or by other stakeholders (e.g. by the government in the form of additional tax). A reverse situation can also occur, in which a company manages to capture a significant part of value in the value chain in spite of the lack of evident advantage. This means that competitive advantage is not a necessary or sufficient condition for above-average performance, and there is no direct causal relationship between these. At the same time, Obłój (2007) himself notes that although direct dependence cannot be confirmed, there is no better theoretical premise than treating the creation of competitive advantage as the main way of improving a firm’s performance. As pointed out by Powell (2001, 885), even if it is impossible to demonstrate by inductive or deductive reasoning that competitive advantage leads to better performance, the notion of competitive advantage has so far proved to be more useful than competing theories of organisational effectiveness. In the context of competitive advantage, performance can be considered from the financial perspective, for example in terms of sales and profitability (Covin and Slevin 1990; Havens and Senneseth 2001; Zahra, Ireland, and Hitt 2000) or from the non-financial point of view, in terms of innovation (Hagedoorn and Cloodt 2003; Knoben 2008) or knowledge creation (Autio, Sapienza and Almeida 2000; Covin and Slevin 1990; Hilmersson, Johanson, Lundberg, Papaioannou and Thyr 2015). Performance is most commonly measured using financial indicators, which can be calculated based on data that can be accessed relatively easily. Of the 130 studies systematically analysed by Karasiewicz (2013, 195) and focusing on the relation between internationalisation (which is

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the topic of this book) and performance, the following indicators (applied as individual or aggregate measures) were used: return on assets, return on sales, return on equity, risk-adjusted return on capital, and revenue growth rate. The most frequently used financial indicator was return on assets. The wide range of possible measures of performance in the context of competitive advantage is not only associated with the two perspectives (financial and non-financial), but extends even further to include objective and subjective methods of measurement. As pointed out by Barney (2011), the most popular methods of measuring performance and competitive advantage are accounting-based measures. While such methods provide objective and detailed information about firms, they are not without drawbacks. What is reported as financial performance may vary depending on what method of depreciation or calculation of the company’s inventory managers choose to adopt (Soniewicki 2015). Knoben (2008, 77) indicates that “the main downside of these measures is that their computation requires detailed information that is often only available for large, publicly traded firms”. In particular, smaller companies which are not publicly traded are often reluctant to share detailed information about their financial performance. The second approach to measuring performance and, indirectly, competitive advantage is based on subjective evaluations of performance made by managers relative to their closest competitors. In this approach, managers indicate, usually on a Likert scale, whether they perceive their firm to be better than, comparable to or worse than its closest competitors. Such perceptual measures were used in studies conducted by Andersson, Forsgren and Holm (2001), Fonfara (2012), Oehmichen and Puck (2016) and Ratajczak-Mrozek (2017). However, this, too, has its disadvantages. First, it is subjective and does not fully represent actual activities of firms. Nonetheless, some studies indicate that “perceptual measures tend to have a high correlation with objective, accounting-based measures (Dess and Robinson 1984; Geringer and Hebert 1991)” (Andersson, Forsgren, and Holm 2001, 1022). Second, subjective measures are often the only possibility of obtaining comprehensive information about a large group of companies varying in terms of size and industry. In the development of economic theory, one can observe a departure from the perception of competition as a mechanism of self-regulation in the market in favour of viewing it as a deregulating factor in the economy, where firms compete for limited resources and market position. In order to succeed in competition, firms have to be competitive. The question is, which factors determine the fact that some companies perform better than others? This has led to the emergence of the concept of competitive

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advantage and to attempts to identify and study its determinants. In the main strands of research on competitive advantage, there is an increasing interest in firms’ relationships and relational resources, which are the subject of the following sections of Chapter 3.

3.2. Classical and Relational Determinants of Competitive Advantage Determinants of a firm’s competitive advantage are factors that define its ability to effectively achieve its objectives in the market. As already mentioned in Section 3.1, the problem of competitiveness is crucial for the economic sciences and for economic practice. For this reason, the phenomenon has been studied from many perspectives in order to find sources of competitive advantage in the indirect and direct environment and within the company itself. Relationships between determinants of competitive advantage resulting from the indirect and direct environment are represented in Porter’s diamond model of international competition. According to the model, these are (Porter 1990, 4–14):  factor conditions (natural and created resources, such as infrastructure, qualified labour force);  demand conditions (characteristics of domestic demand for products and services);  strategy, structures and rivalry (the domestic rivalry of firms and the conditions governing how companies are created, organised and managed);  related and supporting industries (the presence of suppliers and related industries within a region);  the country’s socio-economic policy;  random factors (conflicts, rapid socio-political changes). However, analyses conducted on meta-, meso- and macroeconomic levels do not explain the differences in competitive positions of firms competing only in the domestic market or those achieved by global corporations. In the search for a more adequate explanation of sources of competitiveness, it is therefore necessary to pay attention to factors that characterise specific industries or specific companies. As already mentioned in Section 3.1, there are two dominant lines of thought on the sources of competitiveness: the positioning school and the resource-based view. The first attributes the main role to factors in the product/market system. In this case, analysis focuses, above all, on the

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industry’s structure and on factors that enable companies to gain a dominant position by outperforming competitors (Mintzberg and Lampel 1999, 22). Both the structure-conduct-performance paradigm and its extended version, i.e. Porter’s Five Forces model, are based on the assumption of perfect mobility, which implies that firms’ resources are homogenous (Wang 2014, 33). Hence, market activities are conducted as a strategic game in which the level of competition depends on the bargaining power of suppliers and buyers, the country’s ability to create barriers to market entry, and companies’ ability to introduce substitute goods (Porter 1979). However, analysis of competition within one industry or sector does not fully explain differences in firms’ performance. Even in game theory, which refers to ideas postulated by Porter, influence exerted on competitors’ choices by strategic investments and information control is actually the result of decisions made within the firm (Aumann 1989). As noted by Barney (2014, 25), according to the logic of the positionbased approach, even if a company had a privileged position in an attractive industry, it could not achieve above-average profits if the value it was offering was wholly the result of production factors from external markets. However, this is exactly what is implied by the assumption of heterogeneity and perfect mobility of resources. Interestingly, even at the th start of the 19 century, Say, in his analysis of how added valued was created, emphasised the importance of the firm’s internal resources, which were not accounted for in the classical division of production factors into land, labour and capital. Say pointed out that an entrepreneur did not have to own capital but could borrow it and use it effectively, taking advantage of their special potential in the form of organisational and management skills. If the assumption of heterogeneity and perfect mobility of resources is rejected, sources of competitive advantage have to be found inside the company, where available resources are transformed. Over the course of time, companies develop specific sets of resources that differentiate them from their competitors. It is precisely this diversity, this unequal distribution and specific exploitation of available resources, that largely determines firms’ ability to achieve competitive advantage. According to the terminology adopted by RBV adherents, resources that can sustainably meet the criterion of heterogeneity are called key resources. They have the following properties (Barney 1991):  value (provide unique value to customers);  rarity (are hard to find or substitute);

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 imperfect inimitability (e.g. because of the time required to create them independently, legal safeguards, etc.);  non-substitutability (cannot be directly replaced by any other resources). When trying to identify resources that meet these criteria, one cannot fail to notice that the share of total costs related to raw materials and unqualified labour is declining across all industries. In contrast, there is a growing demand for innovation skills at the level of employees and firms, which enable them to offer new products or to reduce the cost of manufacturing existing ones (Dunning 1993, 9). Different classifications of resources that a company controls or has access to and their potential to generate competitive advantage usually leads to the same conclusions: only intangible resources can meet the criterion of heterogeneity, as they cannot easily be purchased, recreated or copied. According to Hall, the list of key resources includes (Hall 1992, 135–144):  reputation of the firm and its products,  employees’ knowledge,  organisational culture,  external and internal relationships,  databases,  knowledge about suppliers and customers,  intellectual property rights,  trade secrets. Key intangible resources are systematically accounted for in the theory of intellectual capital, which is defined as the firm’s ability to exploit its knowledge in order to achieve current economic goals and ensure its future development (Bontis 2002, 263). Components of intellectual capital are presented in Fig. 3-1. It consists of qualifications, abilities and skills of front-line employees and managers, the level of their motivation and commitment, and structural capital. The last component can be divided into customer-related capital (the value of knowledge about customers), social capital, defined as interpersonal relations inside the company, organisational culture (e.g. the ability to cooperate), and organisational capital, which determines the general level of management in the company. This last component includes innovation and processes (Srivastava, Franklin and Martinette 2013, 58; Ordóñez de Pablos 2004, 629–647). According to the resource-based view, the firm’s capabilities and market competences are equally important. The firm’s capabilities can be

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defined as behaviour patterns evident in the way it transforms its resources into its product offering. Competences refer to the firm’s ability to plan and implement processes that enable it to exploit its capabilities and achieve specific market goals (Deszczyński 2011, 34–35). According to proponents of the RVB, competitive advantage is achieved if a company is able to choose appropriate resources, use them to develop strategic capabilities, and, based on them, build up its key market competences that can be successfully utilised in a competitive market (Hamel 2002). This implies that competitive advantage is directly determined not only by resources but is the result of how they are configured and utilised in the market. There are also other definitions in the literature. Competences are sometimes described as internal processes of activating resources, which enable the company to create attractive offerings of products and services, but it is “dynamic capabilities” that are identified as the direct source of competitive advantage. According to this view, these are understood as the firm’s ability to exploit emerging market opportunities and adjust its product offering accordingly (Teece, Pisano and Shuen 1997, 516). Fig. 3-1. Firm’s intellectual capital

Firm's intellectual capital

Human capital

Structural capital

Customer-related capital

Social capital

Organisational capital

Innovation

Processes

Source: based on Srivastava, Franklin and Martinette (2013, 58); Ordóñez de Pablos (2004, 629–47)

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Regardless of terminological inconsistencies, key competencies/ capabilities are the sum of accumulated effects of learning, which takes place in the organisation over a longer period of time, enabling it to achieve a dominant position in those segments of the market that are significant for customers (Quinn and Hilmer 1994, 43). As a consequence, knowledge is seen as the firm’s most essential strategic resource (Wang 2014, 37; Hamel and Prahalad 1999). Knowledge is created in the process of communication, which takes place among employees and between employees and the firm’s other partners (Fonfara 2014b; Horibe 1999, 4–5). Undoubtedly the most important group are the firm’s customers. For this reason, in the theory of intellectual capital, relationships maintained with customers are regarded as a key resource (Payne and Frow 2013; Dyche 2002). There is evidence that social capital is also directly linked with the state of internal relationships in the firm (Barney 1986, 656–665), which should affect human capital. In this way, according to the RBV, a new category of resources is developed, which is referred to as relational resources (Morgan and Hunt 1999, 288). They can be defined as the firm’s intangible assets created as a result of continuous interactions with a variety of actors on a formal and informal level. If this communication process is a part of a deliberate strategy, they lead to the creation of new useful resources of knowledge and to the development of positive associations with the firm, brand and employees as its representatives. This generates benefits derived by individual units and is contributing to strengthening the firm’s competitive position (Deszczyński 2014, 40). The theory of relational resources and their role in creating competitive advantage fits in well with the network approach. Recognising the importance of relationships between firms undergoing internationalisation, its adherents adapted the theory of social exchange to the concept of business networks (Chetty and Blankenburg Holm 2000b). In this way, they have extended the scope of analysis to account for factors that affect firms’ competitiveness, such as trust and commitment (Friman et al. 2002) and informal relationships between employees representing cooperating firms (Halinen and Salmi 2001). Long-term business relationships can thus be viewed as valuable assets, which open access to other specific resources made available or shared by cooperating partners (Deszczyński 2016). Competitive advantage achieved thanks to these resources can be relatively durable as complex network connections are hard to imitate (Dyer and Singh 1998). In the case of international business, the potential of relational rent is created, for example, through knowledge-sharing

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routines, sharing experience, access to distribution networks or innovation (Fonfara, Deszczyński and Dymitrowski 2016, 1; Morgan et al. 2006). The process of internationalisation in the context of network relationships is not only determined by formal business relationships, but also as an outcome of informal connections, both personal and institutional (Johanson and Kao 2010). At the start of cooperation, personal contacts can be used as a bridge leading to the establishment of formal relationships, creating an atmosphere of openness to cooperation (Blankenburg Holm and Eriksson 2000). By employing an experienced manager, the firm gains access to valuable knowledge, which is useful in identifying opportunities of entry into new markets or better exploitation of opportunities existing in the markets where the firm is already present (Chetty and Pahlberg 2015). On the one hand, this can lead to an improvised process of internationalisation, but, on the other hand, it enables the company to exploit emerging opportunities. Informal relationships are also perceived as a factor contributing to success in the long term. They can increase the likelihood of better sales performance (Ahearne, Gruen and Jarvis 1999), innovation (Walter 1999), and greater customer satisfaction and involvement (Halinen 1997). However, informal relationships do not always contribute to the success of a business venture, since both cooperating companies must be involved in creating value which is attractive for customers (Mowery, Oxley and Silverman 1998). There is no doubt, however, that they create new prospects, facilitate communication between partners and promote a better understanding of mutual intentions (Deszczyński, Fonfara and Dymitrowski 2017). Institutional relationships tend to have a limited role in the success of the process of internationalisation, though they may be particularly helpful in its initial stages. For instance, government agencies promoting international trade and other public institutions can add credibility to potential partners and thus contribute to decreasing the risk of making the first transaction (Ibrahim and Ribbers 2009; Welch et al. 1998). Such institutions can also support companies by sharing useful market knowledge (Evers and O’Gorman 2009), and in some more restricted markets can even be instrumental in the process of expansion (Zhu, Hitt and Tihanyi 2007). In conclusion, the role and shape of the relational architecture in international business is the result of the process of multilateral, formal and informal communication. It is maintained between actors within the firm (employees) and between the firm and its partners (customers, suppliers, distributors and other entities present in its network)

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(Gummesson 2004). This multilateral dialogue centres on shared resources and mutual development and exploitation of capabilities. As a result, cooperating partners can achieve the following goals faster and/or at a lower cost (Ratajczak-Mrozek 2010, 52–70):  use knowledge resources; technical knowledge (innovation) and non-technical (experience and market knowledge);  react to market needs thanks to having complementary resources and being able to use investments more effectively (better possibility of accounting for depreciation of common investments);  expand within industries or market segments (related industries, new groups of customers);  reduce the risk of conducting economic activity (mutual trust and coordination – effective governance). All of the firm’s relationships can be described as its relational capital. As a sum of specific relational resources, this is crucial for the firm (meets the condition of heterogeneity) and itself enables its own activation and growth. Fig. 3-2 presents a modified model of the firm’s intellectual capital which accounts for the specific character of relational capital and its application in the process of internationalisation. Fig. 3-2. Firm’s intellectual capital adjusted for the use of relational capital in international business Firm’s intellectual capital

Relational capital

Social capital

Components shared under conditions of internationalisation

Human capital

Organisational capital

Customerrelated capital

Formal relationships

Informal relationships

Networkrelated capital

Innovation

Processes

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The extended model of intellectual capital does not include the element of “structural capital”. Originally, it was assumed that this kind of capital was fully owned by the company. However, customer-related capital and social capital are categories too dynamic to be owned by anyone. Relational capital logically combines both types of capital with human capital, which, in addition to the existing dimension of internal relationships, has an external dimension, exemplified by informal contacts in the firm’s business network. The importance of partners inside the business network is represented by the fourth type of relational capital – the capital of partners and the business network (network-related capital). It symbolises value created through cooperation with suppliers, intermediaries and other agents. The role and influence of this cooperation on the firm’s competitiveness has already been explained. The model of the firm’s intellectual capital presented in Fig. 3-2 indirectly supports the thesis that long-term cooperation within a network of business relationships is beneficial for its member companies. Starting from the resource-based view and taking into account the relational approach, it is clear that only multi-level cooperation within the network of various relationships can have a significant effect on the firm’s key resources, capabilities and competences. It leads to a faster heterogenisation of the firm’s resources and thus ensures sustainable competitive advantage. Given the diversity of partners in international markets, this process becomes even more dynamic (Ratajczak-Mrozek 2010, 70), facilitating organisational learning between different locations (Kim, Hoskinsson and Lee 2015, 518). Paradoxically, the effectiveness of the relational model of creating competitive advantage can also be justified by referring to principles of the position-based approach. Focusing on the question of sectoral competition, one cannot fail to notice that if the unit of analysis is not the position of a single company in a given sector but its position in the entire business network, its combined bargaining power is much greater (Gomes-Casseres 1996, 4). Consequently, the right strategy for a company planning international expansion is not to rely only on its own resources and capabilities, but to look for partners who have complementary resources or are ready to join forces in developing new ones (Czakon 2011). In this context, the ability to establish and develop relations (network capabilities) becomes one of the most important factors for succeeding in the global market. This will be discussed in more detail in Section 3.3. It should be noted that although the relational approach in the resourcebased view seems to provide the best explanation for how competitive advantage is created, management orientations are not mutually disjointed

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but can often complement or reinforce one another. Viewing any one of them in an excessively one-sided light, be that positive or negative, would distort the real mechanism of the creation of competitive advantage. There is no doubt that the way this is realised in any particular company is much more complex than would be implied by any model. For this reason, as explained earlier, determinants of competitive advantage should be identified by applying different research approaches, in an attempt to develop an eclectic approach, which the model presented in Fig. 3-2 exemplifies.

3.3. Influence of Business Relationships on the Firm’s Performance – State of the Art The previous section of the book has highlighted differences between determinants of a firm’s advantage viewed from classical and relational perspectives. The present section is devoted to a presentation of the influence of a firm’s business relationships on its performance. In the past it was believed that a company’s internal assets were the basic determinant of business success. However, by exclusively focusing on internal assets, one fails to appreciate the benefits that can be derived from external connections (Wheeler, Tagg, and Mtetwa 2011). For this reason, recent years have seen a growing interest in the role of a company’s relationships which affect its performance (Brache and Felzensztein 2016). The relevance of the problem of mutual connections between business entities and the impact of external relationships on performance require a continuous search for effective ways of doing business in complex systems of market connections (Human and Naude 2008). The growing motivation to identify the influence of business relationships on firms’ performance is particularly manifested in the marketing literature (Dawson, Wilkinson and Young 2009). According to some researchers (Human and Naude 2008), a firm’s market independence is merely apparent. In fact, firms could not function without connections with external business and non-business entities, for their performance is largely dependent on activities of other companies operating in their environment. It is also worth noting that relationships established between business partners that cooperate to achieve their goals are more and more frequently perceived in terms of a network of connections. In this context, results achieved thanks to business relationships are the economic consequence of cooperation between network members, which depends on mutual expectations (Broad 2008). Taking into consideration the significant importance of business relationships, their influence on

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company performance has become a focal point of the research presented in this book. Given the diversity of market entities and the variety of existing relationships, one has to conclude that each business network is specific. This implies considerable research limitations, since any attempt at evaluating the influence of business relationships on performance should account for factors that are specific to a given network. Additional research limitations create the complex character of business relationships, which simultaneously refer to many aspects of a company’s activity. This fact implies that attempts to analyse the direct influence of business relationships on company performance are difficult. It is for these reasons that existing studies on the topic are limited to a small number of factors (Dawson et al. 2009). However, some authors believe that there is only a handful of key relationship-related factors that affect performance, regardless of the market context. According to Human and Naude (2008), these factors include network competences (company-specific abilities of handling and exploiting interorganisational relationships) and network capabilities (the firm’s ability to build and maintain relationships). This approach, despite its reference to the network context, focuses on the dominant role of a single firm. Fonfara et al. (2016), point out, however, that results achieved by a firm are not dependent on a single entity but on multiple ones, which mutually shape relationships within the network. Hence, a firm’s relationships with its environment affect the firm’s performance depending on the network’s characteristics and unique conditions that affect its operation, which are usually associated with the firm’s assets. Given mutual interactions between network members, it is difficult to determine the impact of business relationships on performance in a direct way. However, it is possible to identify effects of business relationships, which can then be manifested in the firm’s performance (see Fig. 3-3). Fig. 3-3. Indirect influence of business relationships on the firm’s performance

Relationships

Relationships’ effects

Company performance

In this section of the book, the influence of relationships on the firm’s performance is analysed in the light of various effects of business relationships. There are two main strands of research in the literature devoted to the study of the influence of relationships on performance. The

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first one (Human and Naude 2008; O’Cass, Ngo and Siahtiri 2015; Peake and Marshall 2009; Song, Su, Liu, and Wang 2012) focuses on general effects of a firm’s market activities. The second approach (Ahamed and Skallerud 2015; Brache and Felzensztein 2016; Brenèiè and Žabkar 2001; Pfajfar and Brenčič 2008; Wheeler et al. 2011; Ratajczak-Mrozek and Mielcarek 2017) emphasises the impact of relationships on results achieved by companies operating in an international environment. It should be noted, however, that regardless of the research approach, effects of relationships are similar for domestic and international markets. This is because effects depend on the strength and scope of relationships and not on the degree of internationalisation (Ratajczak-Mrozek 2017). In addition, it should be noted that the effects of relationships can be both positive and negative (Mitręga and Zolkiewski 2011). Positive effects refer to results achieved by the firm which strengthen its competitive position both in the domestic and international market. Negative effects describe obstacles that impede the firm’s economic activity in the domestic and foreign market. The main effects of business relationships identified in the literature with respect to companies operating in domestic and international markets are presented in Table 3-2. Table 3-2. Main effects of business relationships Positive - cost reduction - access to resources - use of the partner’s distribution and communication channels - risk diversification - greater operating potential

Negative - possibility of conflicts - partner’s unethical behaviour - lower flexibility - loss of uniqueness

The literature on the subject emphasises numerous positive effects of business relationships. Firstly, effective interactions in a relationship contribute to cost reduction (Dwyer, Shurr and Oh 1987; Barry et al. 2008). Cooperation between partners often involves solutions enabling not only a reduction in transaction costs but also the cost of manufacturing and delivering products and services. This can be a result of sharing resources, or integrating administrative systems or manufacturing processes. In fact, the desire to reduce costs is often what motivates companies to establish business relationships. This dependence exists in domestic and international markets.

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Secondly, firms involved in mutual relationships gain access to resources that previously were either unavailable or were available but only to a limited extent. As in the case of cost reduction, access to resources is frequently a reason for establishing business relationships. Among various resources, knowledge and experience play a particularly important role (Johanson and Vahlne 2009). By drawing on a partner’s resources, the company becomes more flexible and is better equipped to achieve its goals. The key to improving performance lies in the exchange of products and services between trade partners (Dawson et al. 2009). In addition, firms engaged in mutual relationships can derive benefits not just directly from one another, but thanks to indirect connections, also from other market participants. Mutual interactions can be exploited to establish close connections, leading to greater stability and effectiveness of the firm (Ståhl 2002). Thirdly, a firm’s business relationships can be used to improve its channels of distribution (Samaha, Palmatier and Dant 2011) and communication (Florea and Duica 2017) in domestic and international markets. By adopting solutions used by others, firms change the way they operate; for example, a popular strategy applied in economic practice is piggybacking, which consists of distributing products and services using techniques or channels developed by a trade partner. In this case, the trade partner has sophisticated tools of distribution, which can be utilised by the firm to reach new customers. Fourthly, the establishment and development of relationships with local and foreign partners contributes to risk diversification (Hausman 2001; Palmatier et al. 2013). This is a considerable improvement from the viewpoint of the firm’s market position, compared with the situation when the costs and consequences of business activity cannot be shared with a trading partner. Moreover, by dividing various business activities among one another, trading partners can specialise. The firm is able to focus on the activities which are key to developing its competitive advantage and unique capabilities and to acquiring knowledge while reducing the level of business risk. Fifthly, as a result of establishing business relationships, a firm increases its operating potential (Rindfleisch and Moorman 2003). Taking advantage of its cooperation with trade partners, the firm can considerably increase the scale and scope of its business operations. This means the possibility of manufacturing new products or providing new services, or the ability to serve a larger number of customers in the domestic market or to venture into foreign ones.

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Apart from positive effects, the literature does not rule out the possibility of negative effects of relationships between business partners. The first negative effect is the possibility of conflicts (Tähtinen and Halinen 2002). Because firms engaged in business relationships differ from one another, they may encounter obstacles in achieving their individual business goals. Conflicts can occur at different stages of the relationship and can have a significant effect on a firm’s competitive position. Conflicts pose a particularly serious threat in relationships with foreign partners (in view of the different business environments and the existing psychic distance), but can also arise in relationships with local partners. The second negative effect for business relationships is unethical behaviour. Each partner in a relationship, in addition to common goals, strives to pursue its particular interests, which are affected by the scope and intensity of cooperation. If one of the partners decides to undertake an activity forbidden by contract provisions, this will be done to the detriment of the other partner. The fear of unethical or harmful behaviour is often the reason why the scope of business relationships is limited, both in domestic and international markets. The third negative effect is a lower degree of flexibility in business operations (Ku, Wu and Chen 2016). A firm which decides to establish a business relationship has to be aware of the limitations involved, because business cooperation affects the scope of its own activity. This is particularly likely to happen when two cooperating companies have an unequal market position. In this case, one side may dominate the relationship, affecting the results of the activity, and, consequently, the other firm’s performance. As a result of such a situation, the firm may be prevented from using a particular pricing strategy in the local market or be required to adjust to standards and norms used by the partner in the foreign market. The fourth negative effect of relationships is loss of uniqueness (Mitręga and Zolkiewski 2012). Once the relationship has been established, the firm shares its resources with an external partner. This naturally affects its existing market position. The firm’s unique resources, now shared with other partners, albeit to a limited degree, become more common. This affects the firm’s competitive advantage. As was the case with other effects, this applies to both domestic and international markets. In view of the above considerations, it can be concluded that the effects of relationships are similar regardless of the environment (domestic or international). It is worth noting, however, that the results achieved by the firm, which are a derivative of effects stemming from its relationships,

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differ depending on the approach adopted in the analysis (general market activity versus international activity). A company’s performance is determined indirectly by the effects of business relationships (see fig. 3-3). With respect to domestic market activity, such performance indicators as business survivability, employment, wages, the ability to achieve a set break-even point or company growth can be used (Peake and Marshall 2009). Song et al. (2012) suggest using five performance indicators, both financial and market-based ones: after-tax return, after-tax return on assets, sales growth, market share and share of growth. It seems, however, that for the purposes of research, it would be problematic to use all five indicators recommended by Song et al. (2012). Respondents representing sectors other than financial ones could lack the necessary knowledge to provide adequate answers. A more feasible solution should involve common performance indicators. With respect to international activity, given that the international environment is considerably different from the domestic one, the company has to adapt to a new mode of operation. This implies the need for a different set of criteria for assessing the effect of relationships on performance. In the case of the majority of studies, international activity was measured using only one indicator (Brenèiè and Žabkar 2001). It should be mentioned at this point that the most commonly used measure of performance is the volume of export sales, which, however, has one drawback: as it does not provide information about total sales, it cannot reflect how successful the firm is in the international market. On the other hand, Makovec Brenèiè and Žabkar (2001) emphasise that a firm’s performance in the international environment is a complex problem and should not be measured using only one indicator. In addition, information about a firm’s absolute results are not very useful, as they need to be compared with the environment in which it operates, by referring the firm’s results to those achieved by other companies, e.g. competitors (O’Cass et al. 2015). In summary, it should be concluded that in order to determine the influence of business relationships on company performance, it is necessary to adopt criteria which: a) are commonly used by companies; b) provide a comprehensive picture of performance; and c) account for the specific character of the market in which the firm operates.

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In order to meet these three requirements, it is necessary to use both financial and non-financial performance indicators, such as net profit, market share and return on investment, in relation to direct competitors. This approach has been used successfully in the past to measure the influence of business relationships on company performance operating in an international environment (Fonfara et al. 2012; Ratajczak-Mrozek 2017). Taking into consideration the indirect way of assessing the influence of relationships on company performance, one has to mention the existence of some specific issues. These include two groups of phenomena. The first refers to the quality of relationships and includes such elements as trust, atmosphere etc. The second group refers to the scope of relationships and includes such elements as knowledge transfer, joint supply chain, etc. Both groups represent phenomena which are inseparable elements of business relationships. While they constitute business relationships, they are also reflected in the relationships’ effects. Therefore they exemplify the indirect impact of business relationships on company performance. When evaluating an indirect approach to analysing the influence of business relationships on company performance, a significant drawback needs to be stated. Such an approach focuses only on a narrow area of company activity. That is why, despite the growing interest in the problem of the influence of business relationships on performance, there are still many areas which require further in-depth research. Although the literature does contain studies on the topic (Brache and Felzensztein 2016; Brenèiè and Žabkar 2001; Fonfara et al. 2016), their authors admit that further research is required (Wheeler et al. 2011). This is so because of the complex and sophisticated character of business relationships. Therefore, an analysis of a company’s relationships should simultaneously include a great variety of factors. For this reason, a new holistic research approach is needed. Taking into consideration the limitations of existing research approaches which result in a significant research gap in the literature, the authors attempt to present a consolidated set of characteristics and determinants in the internationalisation process which influence the firm’s competitive advantage. This will be described in the following section of the book.

CHAPTER FOUR FIRM MATURITY IN THE CONTEXT OF INTERNATIONALISATION KRZYSZTOF FONFARA, ŁUKASZ MAŁYS, MILENA RATAJCZAK-MROZEK, ADAM DYMITROWSKI, ALEKSANDRA HAUKE-LOPES, MIŁOSZ ŁUCZAK, MARCIN SONIEWICKI AND MARCIN WIECZERZYCKI

4.1. Interpretation and Features of Firm Maturity Related to Internationalisation Maturity is perceived as a state of development (Merriam-Webster Learners Dictionary) and refers to the stage of full development. Obviously, it is possible (or even necessary) to take into consideration different levels of maturity. From the above mentioned understanding of maturity, it follows logically that the higher the level of maturity, the better. It is possible to consider different contexts associated with maturity, for instance mature people, a mature artist, mature fruits, a mature company, which refers to a high level of customer orientation, etc. Maturity understood as the state of being fully developed definitely has a positive connotation. Business maturity is one of the features of the firm which influence its market activity. The literature provides a few descriptions of how maturity determines the company’s behaviour. They are presented as maturity models, consisting of a set of decisions made by the firm, which depend on the manifested level of maturity (Fraser, Moultrie and Gregory 2002). The majority of these models are associated with business process

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management. Some of the most well-known examples of models include Process Management Maturity Assessment (Rohloff 2009), the Business Process Management Maturity Model (Rosemann, de Bruin 2005; Rosemann et al. 2006) and Capability Maturity Model Integrated (Paulk 1993). However, the perception of maturity by researchers and business practitioners is constantly changing. This is reflected by the development of new maturity models. The new ones not only focus on business process management but also account for some other areas of the company’s activity such as research and development (R&D), quality management, project management and others (Schindlholzer et al. 2009). When considering firm maturity, a variety of development paths should be taken into account. Special attention should be paid to the possibility of the firm’s development in the domestic and international market. While there are significant differences between local and international environments, the maturity of a company operating in an international environment differs from that of a company which operates in a domestic market. Therefore, with respect to companies operating in international markets, one should use the concept of maturity in the internationalisation process. There are only a few publications concerning internationalisation maturity. One of them (Brenner and Ambos 2009) characterises the maturity of an international company as the gradually increasing number of units located abroad. Other authors (Karimi, Gupta and Somers 1996, 59–60) define it as the extent to which the firm uses IT tools to cater for global buyers. According to Dymitrowski (2014), internationalisation maturity can influence the company’s innovativeness. In this case, the level of maturity determines the number of innovations introduced into the international market. Although there have been attempts to examine the phenomenon of internationalisation maturity in the literature, no general conclusions can be drawn. Available studies reveal only a small part of the complex nature of internationalisation maturity, leaving a large part of the concept unexplored. The major drawback of existing research is the perception of maturity as a mere indicator of the firm’s level of internationalisation; however, its true nature is much more complex. In this context it is necessary to recall the idea of Purgal-Popiela (2014, 102), who suggests two possible dimensions of internationalisation maturity. These are:  the scope of the company’s international operations;  the duration of the company’s international activity.

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The first dimension (the scope of international operations) refers to resources allocated by the firm for the purposes of its foreign activity. This dimension characterises the firm’s behaviour aimed at reaching its goals in the international market. The second dimension (the duration of international activity) can be understood as the number of years that the firm has been operating in an international environment. In this context, it is important to distinguish between the company’s age (the time from the moment it was established) and its internationalisation maturity, since not every company has been present in international markets from the very beginning of its activity. Despite this difference, some authors (e.g. Zahra and George 2002) suggest that the firm’s age is a factor which could influence the speed of the internationalisation process. In contrast to the distinction proposed by Purgal-Popiela (2014), Hagen and Zucchella (2014, 502) argue that internationalisation maturity should be understood as a change in the firm’s activity in the international environment, which is reflected in three (not two) dimensions: scope, intensity and speed. While taken at face value, the two proposals seem to differ from each other, they are in fact quite similar. The apparent difference lies in the fact that Hagen and Zucchella (2014) break down Purgal-Popiela’s (2014) dimension of “scope of international operations” into “scope” and “intensity”. This is because the way a company allocates its resources differs not only in terms of scope (e.g. simultaneously between several foreign markets) but also in terms of intensity (e.g. more resources allocated to some markets). Given their actual similarity, both views are suitable for describing the nature of internationalisation maturity, but the second one is more detailed. The above mentioned views emphasise change and dynamism. However, some authors (Äijö et al. 2005) perceive maturity as a state of stability and a high level of the company’s international development. This state can be achieved by entering target foreign markets, employing staff recruited from diverse cultural backgrounds and implementing development strategies such as mergers and acquisitions. Irrespective of which view of internationalisation maturity is adopted, one can assume that it will be reflected in market activities undertaken by the company. Therefore, another important factor influencing the company’s internationalisation maturity is the management’s attitude (Purgal-Popiela 2014). Managers who make decisions about the firm’s development path at the same time characterise its level of maturity. This is reflected by the fact that companies with considerable experience of

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operating in international markets use different strategies from those that have just started to learn the rudiments of international competitiveness. One could therefore assume that companies which are more advanced in the internationalisation process are bound to obtain better results compared with less mature firms. For example, mature companies will tend to apply sophisticated forms of internationalisation which enable high competitiveness (Ratajczak-Mrozek et al. 2012). However, one type of firms does not seem to conform to the above pattern of maturity, namely born-global firms. Although they do not follow the stage-by-stage process of international development, born-global firms do demonstrate some features of mature companies from the very beginning. Therefore, researchers examining the phenomenon of internationalisation maturity should keep this fact in mind. Usually, the concept of internationalisation maturity is used to describe the behaviour of a firm involved in the process of internationalisation and does not refer to its performance. Nor does the existing interpretation of internationalisation maturity account for the importance of the firm’s relationships with various stakeholders, such as buyers, suppliers, competitors, or opinion-forming bodies and influential entities. Given the increasing significance of international cooperation, it seems that the concept of firm maturity should be considered in the context of relationships maintained with foreign partners, as they affect the company’s maturity by modifying the scope of its activity, providing valuable experience and determining the dynamics of its development. Therefore, it seems necessary to define the concept of firm maturity in terms of internationalisation taking into account the network approach. The network approach emphasises the importance of the company’s relationships with various entities in its environment (buyers, suppliers and competitors) (Håkånsson 1982; Easton and Araujo 1989). As crucial enablers of internationalisation, these relationships determine the firm’s behaviour during the internationalisation process (Fonfara 2014a), which is also affected by relations with internal entities (Fonfara 2012; Ratajczak-Mrozek 2014). Consequently, a company involved in the internationalisation process should initiate, establish and develop relationships with various entities operating both in the international environment and in the domestic market, as well as with those constituting a separate unit within the company (e.g. subsidiaries). In the following sections, the company’s internationalisation maturity is perceived as an ability to create value in the internationalisation process. We hypothesise that the higher the level of internationalisation maturity, the

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higher the likelihood of achieving competitive advantage and performing relatively better than its closest competitors. It is therefore essential to determine what affects the level of internationalisation maturity. As mentioned in Section 2.1, the process of achieving competitive advantage is typically analysed using classical determinants, such as product quality, brand strength, price attractiveness, etc. It turns out, however, that apart from these factors, the firm’s performance can also be affected by its relationships with various entities in the process of internationalisation, for relationships are the basis of cooperation: without them, it is hard to imagine effective business operation in the modern international environment. The diagram of internationalisation viewed from the perspective of cooperation presented in Section 2.1 (Fig. 2-2) consists of three areas describing the character of the internationalisation process, the nature of cooperation in the internationalisation process and the scope of cooperation in the internationalisation process. Each area can include a number of components, which, according to the interpretation of internationalisation maturity, should affect the way the firm’s business relationships develop. The components refer to relational characteristics and/or determinants (see Fig. 4-1). Fig. 4-1. Influence of relational characteristics and determinants in the internationalisation process on the firm’s competitive advantage

The character of the internationalisation process

Characteristics of business relationships

The nature of cooperation in the internationalisation process

The scope of cooperation in the internationalisation

Company competitive advantage Determinants of business relationships

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As already mentioned, characteristics and determinants of business relationships are referred to as components of internationalisation maturity viewed from the perspective of the network (Fonfara 2015). It is assumed that the higher a firm’s level of internationalisation maturity, the higher the likelihood of it achieving competitive advantage and performing relatively better than its closest competitors. This explains the importance of identifying a maximally comprehensive set of relational characteristics and determinants, which is presented in Section 4.3. This set was used in the empirical study as the starting point for investigating their actual effect on the level of the firm’s maturity and its competitive advantage (see Fig. 4-2). As mentioned in Section 3.3, it is very difficult to conduct unequivocal and direct assessment of the impact of business relationships on a firm’s competitive advantage. The firm’s market and financial performance depends on so many factors that it is not feasible to isolate the contribution of business relationships. One solution adopted in empirical research is to opt for indirect measures of the impact of business relationships on performance, which focus on various phenomena resulting from relationships between market entities. The most frequently mentioned characteristics include the level of trust between companies (i.a. Sividas and Prayer 2000; Kale, Singh and Perlmutter 2000; Dyer and Chu 2003), transfer of knowledge (Gillis 2007; Saraf, Langdon and Gosain 2007) and acquisition and transfer of experience from business partners (Kotabe, Martin and Domato 2003). In this book, the impact of business relationships on competitive advantage is also identified and measured indirectly. The method relies on a set of characteristics and determinants of business relationships that have a significant influence on the firm’s performance in the process of internationalisation.

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Level of company maturity in the internationalisation process

Fig. 4-2. Impact of the firm’s internationalisation maturity on its competitive advantage

Characteristics of business relationships

Company competitive advantage

Determinants of business relationships

4.2. Methodology of Empirical Research The following analysis of internationalisation maturity was based on a multi-stage study designed to identify, modify and verify the validity of relational characteristics and determinants. The study was conducted using a procedure consistent with the pragmatic paradigm1, in which a qualitative study provides preliminary data for and supplements statistical analysis of quantitative data. In other words, the qualitative study is used to identify and facilitate in-depth interpretation of the impact of target characteristics and determinants on the firm’s performance as well as serving as an illustration of, and real business context for, the research results obtained. The concept of internationalisation maturity was developed in six stages (see Fig. 4-3), characterised by different aims and choice of research methods.

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(2)

(3)

Adoption of the general Initial Verification and assumptions of the identification of interpretation of concept of company the determinants the determinants maturity in the and characteristics and characteristics internationalisation of business of business process relationships relationships (10 case studies)

(1) Determination of the importance and meaning of the determinants and characteristics of business relationships (quantitative research)

(4) In-depth interpretation of the influence of the determinants and characteristics of business relationships on company performance (30 case studies)

(5)

Final version of the concept of company maturity in the internationalisation process

(6)

Fig. 4-3. Development of the concept of internationalisation maturity –identification, modification and verification of the set of relational characteristics and determinants

66

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67

The purpose of the first and second stage was to explore and identify the assumptions concerning the phenomenon of interest. The first stage involved formulating general assumptions of the concept of firm maturity in the context of internationalisation. The research was motivated by results of previous research projects and by the need to expand knowledge about internationalisation of companies. The main activities conducted at this stage included literature review, analysis of already collected data and observation of companies’ operation. The preliminary version of the concept of internationalisation maturity was developed through brainstorming. The second stage included preliminary identification of relational characteristics and determinants. This goal was achieved by holding a discussion panel attended by representatives of five companies with considerable experience of operating in foreign markets. The discussion between researchers and practitioners was organised as an open brainstorming session. The panellists had an opportunity to present and justify their suggestions without having to comply with any imposed conceptual framework or specific guidelines concerning the perception of business relationships. One important objective of this stage was to narrow down the number of suggestions and select the key characteristics and determinants. The purpose of the third stage was to compare research assumptions with the reality of business practice, that is, to verify the preliminary set of relational characteristics and determinants. This aim was achieved by applying qualitative analysis (Strauss and Corbin 1990, 19) supported by the expertise of business practitioners (Bazeley 2007). The analysis was based on case studies of 10 firms operating in Poland. Detailed characteristics of the selected firms are provided in Table 4-1. To improve the objectivity of the results, care was taken to select companies of different sizes, ownership structures and industries, resulting in a purposive sample. The case studies consisted of structured in-depth interviews conducted between November 2014 and February 2015 with top-tier managers of companies having knowledge about the phenomena of interest. The interviews were based on structured questionnaires including open-ended and probing questions to encourage discussion (Denzin and Lincoln 1998). Some of the interviews were audio recorded; information about the others was collected in the form of detailed notes. The collected records were used to compile reports containing characteristics of the various areas of internationalisation maturity.

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accounting

food industry

IT

specialist translation

logistics and transport

food industry

machine production construction and manufacturing sales and construction

MN

MX

N

P

R

S

T

W

V

large

equipment production

A

large

mediumsized large mediumsized

large

mediumsized small

large

large

Size

Industry

Firm

foreign

Polish

foreign

foreign

foreign

Polish

Polish

Polish

foreign

Polish

Capital

export

export

export

export, import

FDI

export of services

export of services

takeover

FDI

export, FDI

Main form of internationalisation

CEO

International Sales Manager

Respondent’s position Export Sales Director Employer Branding Specialist

EU

Managing Director

Germany, Austria Chairman The Czech Republic, Estonia, Eastern Europe, Latvia, Germany, Marketing Manager Slovakia, Ukraine, Hungary, the Netherlands Estonia, Latvia, Ukraine, Board Member Russia Europa, USA Chairman The Czech Republic, Financial Director Germany, Russia

Western Europe, USA

Hungary, The Czech Republic, Romania, Slovakia, Bulgaria, Russia, Turkey

Europe

CEE, EU, Ethiopia

Main foreign markets

Table 4-1. Description of companies selected for verification of the preliminary set of characteristics and determinants of business relationships during the third research stage

68

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The fourth stage consisted of quantitative verification of the assessment and importance of the target characteristics and determinants. In particular, it was aimed at determining the role and contribution of the relational characteristics and determinants in the process of internationalisation. The quantitative study was conducted as a survey based on a structured questionnaire consisting mainly of closed questions. The sample included 10,000 randomly selected firms operating in Poland and involved in foreign activity. The survey frame was based on a database of companies compiled by Kompass Poland. The survey questionnaire was sent to 1900 firms by post and to 8100 firms by email. Due to failed delivery (wrong address, companies closed down), the questionnaire reached 1748 companies. 179 responses were returned by September 2015, giving a response rate of 10.2%. With another 99 responses received from the email survey, the total number of correctly filled questionnaires was 278, which was sufficient for statistical analysis. Reliability of the collected data was checked by comparing responses from the first and the last 25% of questionnaires (response bias) with respect to all the target characteristics and determinants. Data consistency was confirmed by an independent samples t test. The same procedure was used to compare results obtained by post and by email, and the statistical analysis did not reveal any significant differences. The only statistically significant but small difference was found in the case of the formality of foreign expansion and the level of trust in cooperation (0.39% and 0.35% respectively). Most respondents in the study represented medium-sized (50–249 employees) – 36.9% and small companies (10–49 employees) – 26.1%. The share of microcompanies (under 10 employees) and firms employing between 250 and 999 people was almost identical and accounted for nearly 15% of the sample. In terms of industry, most respondents identified themselves as manufacturing companies (52.2%). The next largest groups consisted of service-providing companies (12.6%) and wholesalers (11.5%). In terms of ownership structure, there was also a considerable disproportion: the largest group (58.9%) consisted of firms with mixed Polish/foreign capital. A fifth of companies were completely foreignowned, while 13% were Polish-owned firms. Tables 4-2, 4-3 and 4-4 present the most important information about the sample of companies used for the quantitative study.

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Table 4-2. Firms sampled for the quantitative study in the fourth research stage by size Company size (number of employees) under 10 10–49 50–249 250–999 1000–4999 over 5000 total

% 14.4% 26.1% 36.9% 14.4% 4.0% 4.0% 100.0%

Table 4-3. Firms sampled for the quantitative study in the fourth research stage by industry Industry agriculture mining industry construction manufacturing transport passenger transport services wholesale trade retail trade financial services services others total

% 1.4% 0.7% 5.4% 52.2% 4.3% 0.4% 11.5% 1.4% 0.7% 12.6% 9.4% 100.0%

Table 4-4. Firms sampled for the quantitative study in the fourth research stage by ownership Ownership status private company, foreign-owned private company, domestic-owned private company, domestic and foreignowned state-owned company total

% 20.7% 13.2% 58.9% 7.2% 100.0%

The fifth stage was devoted to qualitative analysis intended to explain and supplement conclusions drawn at earlier stages. The stage involved

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interpretation of the target relational characteristics and determinants with respect to a group of 30 companies (the study included companies analysed during the third stage). Companies selected for case studies were involved in foreign activity and represented different sizes, ownership structures and industries and were represented by top-tier managers. The study conducted in 2016 was based on a standardised questionnaire consisting of open-ended questions concerning respondents’ assessments of the target characteristics and determinants of firm maturity in the area of business relations in the process of internationalisation. The phenomenon of firm maturity in relation to the firms’ activity profiles was investigated using qualitative analysis. Table 4-5 contains a detailed description of companies participating in the study.

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H

G

F2

production of utility meters production of utility meters production of audio equipment services – delivery of flowers

production of caps for children and teenagers

E

F1

business services

manufacturing – operating room equipment & furnishing production of household equipment sale of IT, consumer electronics

Industry

D

C

B

A

Firm

Europe

Germany, Norway

UE, Eastern Europe

UE, Eastern Europe

USA, Germany, Netherlands Eastern Europe (Belarus, Russia, Ukraine), Germany, Great Britain

Germany

UE, Eastern Europe

UE, Asia, Africa

Main foreign markets

2001

2014

1994

1994

2000

2010

2008

early 90s

late 90s

Year of starting foreign activity

Italy

Germany

Denmark

The Czech Republic

Belarus

USA

Germany

Germany

Saudi Arabia

Market described in the case study

Table 4-5. Description of companies selected for case studies in the fifth research stage

72

2001

2016

2016

2013

2011

2010

2014

1991

2011

Year of starting foreign activity in the foreign market described in the case study

J

O

N

M

L

software development

Great Britain, and other countries of Western Europe production and distribution Romania, Germany, The of fittings for sanitary and Czech Republic, Slovakia, heating systems Lithuania, Latvia, Ukraine production of exhibition Middle and Far East, stalls China, Korea

Germany

UE, Eastern Europe, North Africa

whole world (also from the perspective of the services centre)

pharmaceutical industry, a case study from the perspective of the unit providing IT end-user and infrastructure services

production and distribution of plastic construction materials production of agricultural machinery

Poland, Belarus, Lithuania, Latvia, Estonia

distribution of industrial glues

I

K

Main foreign markets

Industry

Firm

China

2012

2010

The Czech Republic 2006

2013

2008

2015

2009

2010

2007

73 Year of starting foreign activity in the foreign market described in the case study

Great Britain

Germany

France

other units (mainly USA and Great Britain)

Belarus

Market described in the case study

2008

2013

2005

2005 (services centre)

2009

Year of starting foreign activity

Firm Maturity in the Context of Internationalisation

ZA

Z

Y

X

W

U

T2

T1

S

specialist translation

Germany, Austria, German-speaking countries software development Baltic states Germany, The Czech lenses and glasses frames Republic, Slovakia, Lithuania Germany, The Czech lenses and glasses frames Republic, Slovakia, Lithuania food industry Europe Germany, The Czech ventilation systems Republic, Russia, Ireland, Iceland, Nigeria fast-moving consumer global activity goods carton packaging UE transport of containers in global activity ports and cargo terminals production of buses and UE trams

born global firm, no defined markets

IT and modern technologies

P

R

Main foreign markets

Industry

1996

1983

2007

Israel

China

Germany

Germany

2012

2005

2007

2006

2015

The Czech Republic

1995 1995

2010

Hungary

2012

2007

The Czech Republic Germany

2014

2004

no data

Year of starting foreign activity in the foreign market described in the case study

Lithuania

Germany

USA

Market described in the case study

2002

2007

2007

2014

2004

2007

Year of starting foreign activity

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Firm

74

ZD

ZC

ZB

Firm

production of packaging equipment for food industry

services for the automotive industry logistics

Industry

France post-Soviet states, Germany, selected African countries, Central-Eastern Europe, the Balkan countries

Europe

Main foreign markets

about 1993

2006

2012

Year of starting foreign activity

Kenya

France

Germany

Market described in the case study

Firm Maturity in the Context of Internationalisation

2007

2014

2015

Year of starting foreign activity in the foreign market described in the case study

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The last, sixth stage involved collecting results and drawing conclusions concerning the concept of internationalisation maturity. Following the methodology adopted by the research team, this stage relied on techniques of both qualitative and quantitative analysis. The importance and contribution of the target relational characteristics and determinants was established based on statistical analysis of survey results. The survey questionnaire (the same one in paper and electronic versions) consisted of closed questions. Respondents could choose one or multiple options out of a set of possible answers. Answers were provided on a five-point Likert scale, where the middle value, denoted as “no opinion/don’t know”, represented a neutral answer, while the extreme values represented the answers “strongly agree” and “strongly disagree”. Reliability of aggregate variables was tested using Cronbach’s alpha. Only scales for which the coefficient alpha exceeded 0.8 were used. Three groups of firms were distinguished: (1) companies performing better than their closest competitors (BTC); (2) companies performing the same as their closest competitors (SAC); (3) companies performing poorer than their closest competitors (PTC). The division was made using k-means clustering based on four variables: net income, ROI, net sales and market share. As part of quantitative analysis, relationships between the variables were tested using Spearman’s rank correlation coefficient. Results were mainly reported using tables and charts. Quantitative analysis, tables and charts were produced using the IBM SPSS (Statistical Package for Social Sciences) and Microsoft Excel. Qualitative analysis involved the case study method, which is described as a research strategy encompassing many techniques and tools (Piekkari and Welch 2011; Eisenhardt and Graebner 2007). The method consists of analysing data obtained from observation, interviews, published materials, etc. Results provide a rich description of the phenomenon of interest, with particular emphasis on the target context. In this particular case, the authors used the embedded multiple case study method (Yin 2014). Given the purpose of the qualitative study, which was to facilitate in-depth interpretation of quantitative results, the analysis was descriptive and exploratory and followed an inductive approach (from specific to general), assuming that analysis of specific phenomena can facilitate interpretation and understanding of similar phenomena in other contexts. Using reasoning by analogy, this type of study increases the possibility of analytical generalisation, which provides the basis for making generalisations about other specific situations (Lee 1989). Generalisations made from the interpretative perspective are particularly important in the process of developing conceptual theories and presenting

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a rich description of the phenomenon of interest (Wójcik 2013). Although the recommended number of cases to be analysed is between 4 and 10 (Eisenhardt and Graebner 2007; Yin 2014), the actual number of cases considered in the study was three times as high. The qualitative study was an important element of the project as it provided data with a high level of detail. The relatively large number of cases made it possible to explain causes and consequences of actions undertaken by the firms. Qualitative data were analysed by conducting detailed diagnoses of specific cases and identifying similar courses of action adopted in specific situations. During the analysis, the firms were grouped according to the adopted courses of action in order to identify specific action schemes.

4.3. Identification and Modification of Components of Firm Maturity Related to Internationalisation In order to identify and modify components of firm maturity related to internationalisation, it was necessary to conduct multi-stage qualitative and quantitative research (see Section 4.2). Preliminary identification of relational characteristics and determinants in the process of internationalisation was made during a brainstorming session with representatives of five companies with extensive experience of foreign activity. The ensuing open discussion between researchers and practitioners was conducted without any preconceptions concerning phenomena associated with business relationships that could be significant in creating competitive advantage. It was agreed that both research team members and business practitioners would put forward justified suggestions. The most frequent characteristics mentioned during the discussion panel included trust, openness, low level (frequency) of conflict, formal/informal relationship, atmosphere, balanced/unbalanced relationship, and commitment. It was concluded that all the characteristics of business relationships were universal and played an important role in the firm’s activity in domestic and foreign markets. In addition to listing characteristics of business relationships, the panellists saw the need to identify determinants of business relationships which played a particular role in shaping connections between firms in foreign markets, such as cultural aspects, the degree of formalisation of internationalisation, experience gained in foreign markets, forms of internationalisation, the scope of cooperation required between different entities in foreign markets and connections associated with importing.

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For practical reasons, effort was made to limit the number of relational characteristics and determinants during preliminary identification, focusing on the most important ones. The following relational characteristics were selected for further analysis: trust, level of conflict and relationship atmosphere. As for relational determinants, the following were selected for further analysis: duration of the internationalisation process, level of formalisation of the internationalisation process, level of advancement of internationalisation forms, level of openness to cooperation with foreign partners, psychic distance, scope of cooperation with internal partners and scope of cooperation with external partners. It was hypothesised that determinants affect business relationships and thereby influence the firm’s competitive advantage. Also, relational characteristics can directly affect the process of creating competitive advantage (see Figure 2-1, Section 4.1). Before the relational characteristics and determinants could be identified, it was necessary to define them. Their nature and interpretation has to be completely understandable for all participants of the discussion panel. The preliminary version of interpretation of concepts and terms used was prepared by the research team on the basis of their own experience of participating in previous projects and the literature review. The panellists chose the final version, which they believed would be clear and understandable for respondents in the subsequent stages of the research project. Following earlier arrangements, it was decided that analysis would focus on three relational characteristics: level of trust, atmosphere in the relationship and level of conflict. Trust in business relationships between partners is a key aspect of cooperation in the network approach (Håkansson et al. 2009). Trust is usually defined as a belief that the other party will take actions that will bring positive results and will not suddenly get involved in activities that may have negative consequences for business relationships between the partners (Małys 2013). Trust is the guarantee that contractual arrangements between partners will not be unilaterally broken and that unpredictable situations will always be solved in a manner that satisfies all cooperating partners (Huang and Wilkinson 2013). It can therefore be assumed that a high level of trust in a business relationship will have a positive effect on the performance of a company involved in the process of internationalisation. Another key relational characteristic is the atmosphere of cooperation. It is often emphasised in studies of connections between firms which have decided to cooperate (Ford, Håkansson and Johanson 1997). The

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atmosphere is a result of this cooperation and, at the same time, affects it (Fonfara 2014b). By way of simplification, it can be said that the atmosphere of business relationships improves when the needs, possibilities and expectations of partners become more similar, openness in mutual contacts increases, plans for future cooperation are more specific and partners know each other better and like each other. Interpreted in this way, atmosphere undoubtedly affects the performance of firms in foreign markets. It can therefore be assumed with a high degree of likelihood that a better atmosphere in business relationships contributes to achieving competitive advantage over direct competitors. The last key relational characteristic is the level of conflict. It is believed that the presence of conflicts is inherent in the development of relationships between independent partners (Håkansson et al. 2009). Obviously, conflicts can also appear within internal business networks, between partners which in the formal and legal sense are part of the same organisational structure. Conflicts can have many different causes. It is also worth noting that conflicts in cooperation do not always affect business relationships in a negative way (Lau and Cobb 2010). They can also be a source of innovation and development, especially when they are resolved constructively (Gössling, Oerlemans and Jansen 2007). It can therefore be assumed that the fewer conflicts there are in business relationships or the more constructively they are resolved, the greater the chances of achieving competitive advantage. As mentioned earlier, in addition to the above relational characteristics, the study also focused on relational determinants, which, according to the panellists, played a key role in shaping connections between partners in foreign markets. The first determinant is the duration of the internationalisation process. The panellists agreed that longer involvement in foreign markets tends to be conducive to the development of long-term business relationships, which are often strengthened by informal contacts. Long-term business relationships enable firms to better recognise partners’ needs and adjust their product offerings to their requirements (Rong and Wilkinson 2011). The firm’s international activity over a longer period also fosters the development of relationships with important entities in the business environment, such as suppliers, competitors or influential entities. It can therefore be assumed that a longer period of activity in foreign markets should be conducive to achieving competitive advantage over direct competitors. The second determinant of business relationships is the level of advancement of forms of internationalisation. In the panel discussion, it

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was emphasised that a firm can implement different forms of internationalisation. Sometimes one can observe that a firm undergoes a transition from relatively less advanced forms of internationalisation, e.g. indirect exports, to more sophisticated forms, such as direct exports or foreign direct investments (Conconi, Sapir and Zanard 2016). The panellists concluded that firms often opt for more advanced forms of internationalisation because they see them as opportunities for achieving greater benefits. This is especially true of firms which have sufficient capital resources and can afford to take greater risks thanks to their previous experience. However, it is hard to determine unequivocally whether decisions about forms of internationalisation are directly affected by considerations about their potential implications for the development of the firm’s business relationships. According to the panellists, the possibility of developing business relationships with various partners in the process of internationalisation is always objectively affected by the choice of a specific form of internationalisation (some decision makers are sometimes not aware of this). For instance, by opting for indirect exporting, the firm mostly deals with intermediaries (Duliniec 2009). In such cases, business relationships are dominated by the intermediary (importer), and the firm’s dependence on the importer limits its freedom to make decisions and poses a risk of contract termination (e.g. in the case of subcontracting). By choosing direct exports, the firms has greater possibilities for maintaining long-term relationships, especially if it sells products under its own brand. Firms which undergo internationalisation by foreign direct investments and through their own manufacturing or sales subsidiaries in foreign markets can maintain close cooperation with various partners located in those markets and maintain closer and more lasting business relationships. In this way, they are in a better position to satisfy their partners’ needs and become more efficient in their performance. Thus, the choice of the form of internationalisation affects the shape of business relationships: more advanced forms usually create better conditions for achieving competitive advantage over direct competitors. The third determinant of business relationships is the level of formalisation of the internationalisation process. When the process of internationalisation is formal, decisions about internationalisation (e.g. why, where, when and how to enter foreign markets) are reflected in strategic and operational plans formally developed and accepted by the firm. During the panel discussion, it was pointed out that the process of internationalisation can also take place spontaneously. In such situations, its progress is implemented on an ad hoc basis, depending on emerging

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opportunities (Fonfara 2009). Formalisation of the internationalisation process fosters the development of business relationships with various partners in keeping with the firm’s strategic plans (Möller 2013). It also means that the firm can allocate the necessary resources to initiate, sustain and develop selected business relationships, which usually ensures their stability and long-term development (Möller and Rajala 2007). It is worth noting that formalisation does not exclude the development of informal contacts between companies and various partners in the international business environment. If the process of internationalisation takes place spontaneously, the structure and number of business relationships are the outcome of current, sometimes unplanned decisions. Without an in-depth assessment of the development of business relationships (with what partners should the firm cooperate and why, what foreign markets should be chosen, and why should the firm enter them), the durability of business relationships may suffer, resulting in frequent changes to the structure and number of business relationships (Huang and Wilkinson 2013). When the firm establishes new relationships, it has to invest resources in maintaining them, which has a negative effect on its performance. This negative effect is often not compensated for by wide informal contacts maintained at all stages of internationalisation, which, in this particular case, are what prompts the establishment of new business relationships in the first place (Halinen and Salmi 2001). It follows from the above that formalisation of the internationalisation process has a positive effect on achieving competitive advantage. It was also concluded that even a high level of formalisation of internationalisation does not rule out the possibility of developing informal contacts at different stages of entering and operating in foreign markets. The fourth relational determinant is the firm’s openness to cooperation with foreign partners. During the discussion, the panellists agreed that openness to cooperation implies acceptance of cooperation as the basis of doing business in foreign markets. In practice, the firm needs to keep looking for partners willing to cooperate and to choose such forms of activity in the international environment as require cooperation with foreign partners. Openness to cooperation has a positive effect on the process of establishing business relationships, both at the initial stage and later in the process of their development. Openness to cooperation implies the firm’s willingness to share its knowledge and other important assets with independent partners (Tellefsen 2002; Bowey and Easton 2007). Having a large number of external relationships, working together with other partners to create value, and specialisation all contribute to improving the

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firm’s performance. However, cooperation requires professional management of a large number of relationships with independent partners, which can pose a challenge and entails certain limitations for many companies (Payne and Frow 2017). Reluctance to cooperate obviously limits the possibility of developing relationships with companies in the firm’s environment, especially with subsuppliers, subcontractors and competitors. In this case, relationships with independent entities are motivated by sudden needs and are not perceived as an essential condition of achieving competitive advantage. Reluctance to cooperate with entities in the firm’s environment is compensated for by highly developed internal relationships with its dependent units. In summary, the panel concluded that in practice openness to cooperation has a positive effect on achieving competitive advantage. However, earlier studies (Fonfara 2009) indicate that companies that are reluctant to cooperate manage to pursue their business goals independently and often perform better than their direct competitors. Psychic distance is the fifth relational determinant identified during the discussion panel; the panellists accepted the most frequent definition, which encompasses cultural elements and developmental differences between countries, different conditions of doing business, differences in people’s level of education, and language differences (Hallen and Wiedersheim-Paul 1993). All these factors can inhibit the firm’s business activity in the international environment (Meschi and Riccio 2008; Dikova 2009). The panellists agreed that psychic distance affects business relationships between cooperating partners in the process of internationalisation. It can discourage the firm from establishing business relationships, disrupt existing relations and have a negative effect on cooperation. For these reasons, it was concluded that the lower psychic distance is, the more likely the firm is to achieve competitive advantage over its direct competitors in foreign markets. The final relational determinant is the scope of cooperation with internal and external partners. The panellists pointed out that the firm’s performance in foreign markets does not depend only on its business relationships with buyers. In practice, in order to achieve its goals, the firm needs to establish relations with other entities, in particularly with suppliers, competitors and influential entities (Payne 1995; Fonfara 2014b). Following earlier assumptions, it was concluded that cooperation in the process of internationalisation does not take place only between external, legally independent entities, since a considerable part of cooperation occurs within the internal business network (Fonfara et al. 2012). In such cases, business relationships involve subsidiaries that are

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part of a larger organisational structure, usually large corporations. The role and importance of external and internal partners depends on such factors as industry, company size and intensity of competition. The firm should therefore focus on relationships with partners which have the greatest effect on its performance. Consequently, the development of relationships with key external and internal partners has a positive effect on achieving competitive advantage and is an indication of the adequate scope of relationships. In keeping with the research assumptions (see Section 4.2), the preliminary set of relational characteristics and determinants was verified and interpreted in the process of qualitative analysis based on 10 case studies (Fonfara, Małys and Ratajczak-Mrozek 2015). The companies selected for case study analysis represented different industries, sizes and ownership structures in an effort to ensure a comprehensive perspective on the phenomena of interest and to enable objective conclusions. The case studies were based on in-depth semi-structured interviews, which were conducted between November 2014 and February 2015. The researchers interviewed top-tier managers with sufficient knowledge about the phenomena being investigated in the study. Some of the interviews were audio recorded, while others were described in detailed notes. Each interview was summarised in a report containing the main conclusions drawn from the case study. Analysis of 10 case studies confirmed the possible correlation between the relational characteristics and determinants and the firms’ performance. However, it was difficult to draw general conclusions about the role of particular characteristics and determinants and about their impact on performance, and, consequently, the creation of competitive advantage. This is because this role depends on company size, industry specificity and particular organisational solutions. For example, smaller firms do not maintain internal business relationships in the process of internationalisation. In the case of large corporations with complex internal structures, time will play a less important role in the development of effective relationships in international markets by their subsidiaries, since experience and existing market connections of the entire corporation can compensate for relatively limited experience of its newly created business units. Interviewees also indicated that the choice of the form of internationalisation can be motivated not so much by the desire to develop particular business relationships but rather by industry specificity. For example, the provision of services in foreign markets by definition requires foreign direct investments as a form of foreign expansion. The greatest degree of agreement between the opinions expressed in the interviews was

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observed with respect to the impact on the firm’s performance of trust, the atmosphere of business relationships and openness to cooperation. However, as concerns relationship atmosphere, it was often noted that the term was too broad and ambiguous and included trust and openness. It was emphasised that in practice, the impact of relationship atmosphere could be difficult to determine. For this reason, it was decided that this relational characteristic would be excluded from the later stages of the empirical study. Drawing on their own experiences, some interviewees stressed that certain characteristics and determinants of business relationships could affect performance both positively and negatively, mostly pointing to psychic distance. Interviewees also found it difficult to determine the impact of the formalisation of the internationalisation process on performance. Conclusions drawn from the brainstorming session and the qualitative analysis based on 10 case studies were used to select the final set of relational characteristics and determinants representing components of the firm’s internationalisation maturity (see Table 4-6). Table 4-6. Areas and components of internationalisation maturity Area

The character of the internationalisation process

The nature of cooperation in the internationalisation process The scope of cooperation in the internationalisation process

Component Duration of the internationalisation process Level of formalisation in the internationalisation process Level of advancement of forms of internationalisation Level of openness to cooperation Level of trust Level of conflicts Psychic distance Cooperation with external partners Cooperation with internal partners

Relational characteristics

Relational determinants X

X

X X X X X X X

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4.4. Influence of Components of Firm Maturity Related to Internationalisation on Performance – Results of the Empirical Study 4.4.1. The Character of the Internationalisation Process The first area of firm maturity is the character of the internationalisation process, made up of three components (duration of the internationalisation process, the level of formalisation in the internationalisation process and the level of advancement of forms of internationalisation). The key objective in this case is to determine the influence of these three components on their firms’ performance. The impact of the components on performance was verified on the basis of both the qualitative study (30 cases) and quantitative study. This approach also made it possible to determine an indirect influence of business relationships on performance and to identify specific interdependencies and problems associated with the phenomena of interest. With respect to the first area (the character of the internationalisation process), the managers interviewed in the qualitative study usually referred directly or indirectly to the level of formalisation in the internationalisation process and the level of advancement of forms of internationalisation. The first component was mentioned in 28 interviews, the second one in 23 interviews. Duration of the internationalisation process was mentioned in only 17 interviews. The first component of the character of the internationalisation process which will be analysed in more detail is the level of formalisation in the internationalisation process. In more than 50% of cases, the process of internationalisation was conducted spontaneously. Although none of the interviewed firms directly indicated that this factor had an impact on the success of internationalisation, from the perspective of the entire study it can be concluded that it is best when a firm is prepared for internationalisation. This means the firm has specific plans for this kind of activity, has allocated necessary resources and is ready to seize an emerging opportunity, which can take the form of a request for proposal from a given country or region, customer or co-operator. Such readiness serves as the basis for establishing the first relationship, followed by developing a network of contacts which are key to securing more orders. Spontaneous entries into foreign markets often encourage companies to continue the internationalisation process, which in time becomes more formal.

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When a company decides to pursue a formal process of internationalisation from the start, its strategic plans usually include participation in numerous events (e.g. banquets, conferences) which serve as opportunities to establish relationships, which may be crucial for the firm’s success in a foreign market. The formal process of internationalisation usually also implies prior allocation of resources and involvement of the firm’s management, which contribute to good performance in a foreign market. In many cases, the strategy of formal expansion is pursued by large companies, although this is not a rule. It should be stressed that the formal process of internationalisation is essential in the case of some industries, such as the automotive industry, because customer enquiries are rather unlikely, especially in the case of products produced by small or medium-sized firms. Summing up the importance of the level of formalisation in the internationalisation process, it can be concluded that the best chances for success are created when a firm is prepared for foreign market entry and can seize an opportunity in the form of a new customer or new customer enquiry from the region or country of interest. One has to mention that in the conducted case studies, formalisation of the internationalisation process was not mentioned in the context of trust or level of conflicts. The choice of the formal process of internationalisation is particularly important for foreign business success and for the firm’s performance in certain industries, such as the automotive industry. Apart from that, the case studies do not provide conclusive evidence about the impact of this component on performance. The second component of the character of the internationalisation process is the level of advancement of forms of internationalisation. It was mentioned, directly or indirectly, in 23 interviews. The importance of this component for success depends above all on the firm’s form of business activity and the industry it represents. In many cases, the interviewees emphasised the importance of forming and maintaining relationships with partners and customers and their own physical presence in a given market. This can imply the need for more advanced forms of internationalisation, but the interviewed managers also indicated that there had been major changes in this respect in recent decades. Permanent physical presence in a given market no longer needs to involve establishing a manufacturing or sales subsidiary, or even employing anybody in a given foreign market. The availability of numerous, relatively inexpensive flight connections enables regular visits even to very distant countries. The importance of face-to-face meetings was stressed by many interviewees, who noted that trading internationally did not necessarily require the establishment of a

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foreign subsidiary. In case an immediate meeting is necessary, e.g. to resolve a sudden conflict, one of the interviewees reported using Skype, saying that so far the method had been effective. It should be stressed, however, that the respondent also pointed out that sole reliance on IT tools was not sufficient and that regular face-to-face meetings are indispensable, even in the case of IT firms. Internet-based communication is not suitable for establishing appropriate relationships and trust between cooperating partners. Many interviewees stressed the desire to reduce costs and to conduct as many tasks as possible from Poland, taking advantage of lower costs, sometimes even by relying on employees from the Ukraine. Moreover, one manager emphasised that their firm’s success in the foreign market was largely connected with a good assessment of its own potential and the decision to engage the services of another company (indirect export) that had the appropriate knowledge of foreign trade. A few of the companies analysed in the case studies did not limit themselves to the most basic forms of internationalisation. In some industries, the need to maintain relationships with dispersed distributors of products sold by firms in the foreign markets necessitated the establishment of subsidiaries in that market. One of the firms, which operates in Africa, faced with the considerable cultural and geographical distance, had to employ a local representative, although the company normally avoided this solution. In some countries, e.g. Germany, it is actually necessary to conceal the fact that certain products come from Poland, since German buyers are rather distrustful of them. To avoid bad connotations, the company had to establish a sales subsidiary in Germany with German employees. In the case of some markets and industries, companies need to set up their own manufacturing subsidiaries. One of the interviewees noted that it was not possible to succeed in the Chinese market without establishing a local manufacturing facility. The same was true of the Israeli market, where an offset agreement had to be signed. In general, it can be concluded that firms try to rely on relatively basic forms of internationalisation (e.g. export) to save costs. More advanced forms of internationalisation are employed only if necessary. It should be noted, however, that these more sophisticated forms increase the chances of successful internationalisation, especially in culturally and geographically distant countries, since they facilitate establishing and maintaining strong relationships with buyers and customers. In 15 interviews (out of 17 which mentioned it), duration of the internationalisation process was directly or indirectly assessed as an important or one of the key success factors for a foreign market entry. It

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was mainly associated with the awareness of the challenges involved and the tasks that needed to be fulfilled in order to succeed. Of particular importance were experiences of those firms which had previously operated in culturally close countries, e.g. one of the firms, could draw on its business experiences in Belgium to enter the French market; another company found it easier to enter the British market based on its experience in Ireland. Previous experience in culturally close countries helped those firms to understand buyers and customers and build effective relationships, and one firm derived benefits from references obtained in a culturally related market. The resulting relationships played a key role, especially in the case of the United Kingdom, in ensuring the firm’s effective performance and profitability. The interviewees also emphasised that the duration of the internationalisation process was often important in the selection of business partners, especially distributors, in foreign markets, which are key for the effectiveness of business operations and often determine the success of the entire process of internationalisation. A longer period of cooperation between partners builds trust and reduces the need for expensive control of the partner, which also has a positive effect on the firm’s performance. It should be noted, however, that the duration of the internationalisation process is not always helpful given the diversity of markets – a point that a few interviewees pointed out. There are considerable differences even between European markets, e.g. between the Czech and German markets. The undiscriminating desire of one company to transfer their experiences from the Italian market to the German one resulted in a painful failure (long-term alienation of the buyer). According to one interviewee, it is important that a firm should accumulate experience from each successive activity. Long international experience helps to avoid making the same mistakes in new markets. In general, it can be said that a number of experiences in the process of internationalisation can still be copied between markets, although this should be done with caution. In summary, the duration of the internationalisation process is one area of internationalisation maturity that affects the degree of understanding with customers and co-operators in a foreign country and contributes to building trust between cooperating partners, which has an effect on the firm’s performance. The duration of the internationalisation process is one of the key areas of internationalisation maturity from the perspective of performance. It is mainly associated with the accumulation of experience and the development of business contacts in different markets, but also

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with the time required to build trust in relationships with partners and buyers, which cannot be achieved over a short period. After drawing detailed conclusions from the qualitative study, the same direct and indirect correlations between components of the character of the internationalisation process were analysed on the basis of quantitative data. In keeping with the assumptions made in Section 4.1, the quantitative study was designed to test three kinds of correlations: between relational characteristics and performance, between relational determinants and performance and between relational characteristics and the determinants themselves. Company performance was measured using four specific indicators: net profit, return on investment (ROI), net sales and market share. In addition, an aggregated performance indicator was calculated, which was the arithmetic mean of the indicators. Performance results achieved by firms were not correlated with the first component of the character of the international process, i.e. duration of the internationalisation process; no correlation was found either in terms of specific performance indicators or the aggregate one. Certain correlations could, however, be observed with respect to the level of formalisation in the internationalisation process: Spearman’s rho for the correlation between this component and the aggregated performance indicator was 0.184, for significance level  = 0.01. In other words, firms pursuing foreign expansion in a more formalised way performed better than the competition. Looking at specific performance indicators, a statistically significant correlation was observed for net sales and market share. In the first case, the correlation coefficient was 0.184 (statistically significant for  = 0.05); for the second one it was equal to 0.143 (statistically significant for  = 0.1). In this case, rather than positing a direct causal relationship between formalisation and performance, it seems more reasonable to see a causal link between company size and the level of formalisation in the internationalisation process: the correlation coefficient between these two variables is 0.455 and is statistically significant for  = 0.01, while net sales and market share merely describe performance results that are positively correlated with company size. The last component, the level of advancement of forms of internationalisation, is positively correlated with net profit and ROI. In the first case, the correlation coefficient was 0.162; in the second it was 0.176. In both cases, correlation was statistically significant for  = 0.05. As for correlations between relational determinants associated with the character of the internationalisation process and the two relational

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characteristics (the level of trust and the level of conflicts), duration of the internationalisation process is positively correlated with the level of trust, with the correlation coefficient equal to 0.178 and statistically significant for  = 0.01. No correlation was found between this determinant and the level of conflicts. The level of formalisation in the internationalisation process turned out to be positively correlated with both characteristics, which implies that relationships maintained by firms pursuing formalised internationalisation were characterised by a higher level of trust and a higher level of conflicts. This correlation was stronger for the second relational characteristic (rs = 0.185), compared to 0.11 for the level of trust. Moreover, the correlation between the level of formalisation and the level of conflicts was statistically significant for  = 0.01, while for the level of trust, for  = 0.1. While there was no statistically significant correlation between the level of advancement of forms of internationalisation and the level of trust in relationships, it turned out to be positively correlated with the level of conflicts, which means that firms employing more advanced forms of foreign expansion experienced more conflicts with their business partners (rs = 0.162,  = 0.01). In order to classify observations in terms of the components, the data were analysed using k-means clustering. The algorithm helps to divide observations into a set number of groups that are as internally homogenous as possible and as distinct from one another as possible. Two clusters of companies were identified. The first cluster was characterised by low values of all target variables and the second by high ones. As can be seen in Table 4-7, firms in the second cluster performed better on average. Table 4-7. Characteristics of clusters distinguished on the basis of components of the character of the internationalisation process Cluster Duration Level of formalisation Level of advancement of forms Number of observations Mean value of the aggregated performance indicator

1 -0.46697 -0.89348 -0.39494 106

2 0.28778 0.55911 0.25425 172

3.17

3.43

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More detailed information is presented in the box plot (Fig. 4-4). Fig. 4-4. Performance of companies in each cluster distinguished on the basis of the character of the internationalisation process

As can be seen, the values of the first and second quartile (median) are higher for companies in the second cluster (characterised by longer, more formalised and more advanced forms of internationalisation). Although the second cluster contains two outliers, the majority of observations are more concentrated: 50% of them lie within the interval between 3 and 4. A comparison of the qualitative and quantitative results leads to interesting conclusions about the link between the character of the internationalisation process that companies pursue and their performance results. As far as the quantitative analysis is concerned, important insights are provided by cluster analysis, which has revealed that firms that perform better have been undergoing internationalisation for a longer period, in a more formalised manner and employ more advanced forms of internationalisation. Faced with this finding, it is important to compare the results of the qualitative and quantitative analyses in order to answer the

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question why the correlation results and all the case studies do not provide equally conclusive answers. With respect to the first component of the character of the internationalisation process, i.e. the duration of the internationalisation process, it was not found to be correlated with performance results. This lack of correlation is explained by the results of the case studies. Firstly, the interviewed managers emphasised that the experience gained while operating in foreign markets has a positive effect on performance in culturally close markets. In the case of culturally diverse markets, however, it is difficult to transfer and exploit experience acquired in other more culturally distant markets. Secondly, interviewees pointed out that a longer duration of doing business in foreign markets is associated with more experience, a more effective choice of partners and better general effectiveness of operation, all of which affect the firm’s performance. In other words, the duration of the internationalisation process indirectly affects competitive advantage. Owing to the diverse and indirect nature of the interaction, it is unlikely that a quantitative study can reveal direct and straightforward correlations between the duration of firms’ internationalisation and their performance. As far as the level of formalisation in the internationalisation process is concerned, the qualitative and quantitative results are consistent. Data collected in the survey indicate a correlation between the aggregated performance indicator and the level of formalisation in the internationalisation process. Detailed analysis has revealed that this correlation is in fact indicative of the underlying correlation between company size and the level of formalisation. This is confirmed by the case studies, which suggest that larger companies are more willing to choose formalised internationalisation strategies, while smaller firms prefer to enter new markets in a more spontaneous manner. When it comes to the third component of the character of the internationalisation process, quantitative results have revealed a correlation between the level of advancement of forms of internationalisation and both net profit and ROI. According to the case studies, the importance of the level of advancement of forms of internationalisation largely depends on the target country, the industry and the type of product that a company offers. On the one hand, more advanced forms of internationalisation help to maintain strong relationships and build trust through e.g. face-to-face meetings; on the other hand, in many cases, owing to the relatively low prices of global transport, more advanced forms of internationalisation need not necessary be implemented. Besides this, the firms analysed in the case studies prefer

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to rely on less advanced forms of internationalisation to save costs and are able to build trust in relationships with their partners thanks to frequent business trips and meetings, which has a positive effect on their performance.

4.4.2. The Nature of Cooperation in the Internationalisation Process The second area of internationalisation maturity describes the nature of cooperation in the internationalisation process, which includes four components (two characteristics of business relationships – level of trust in business relationships and level of conflicts in business relationships, and two determinants of business relationships – level of openness to cooperation and psychic distance). The goal of the analysis was to investigate the impact of these four components on the performance of the firms. As in the case of the other areas, the impact of the components on performance was verified on the basis of qualitative and quantitative data. This approach is justified from the research perspective. First of all, as already pointed out in Section 4.1, it is very difficult to determine directly the impact of business relationships on competitive advantage. For this reason, in the study this impact was also measured indirectly, by focusing on various phenomena resulting from contacts between business partners, including correlations between the components and specific processes associated with them. Secondly, problems like the role of trust or the level of conflicts in relationships are often studied qualitatively by means of direct interviews, where researchers can ask probing questions to identify correlations and problems of interest. The first group of issues analysed in the qualitative study was related to the impact of the components of the nature of the internationalisation process on business results achieved by firms undergoing internationalisation. This area of internationalisation maturity covers two relational characteristics, one of which is the level of trust. Most of the interviewed managers identified trust as an important factor that affected the intensity of cooperation. In their opinion, this had an impact on international performance of their companies. For 25 out of the 30 firms analysed in the case studies, this component was identified as a factor that needs to be taken into consideration during a foreign market entry. However, the interviewees differed in their assessment of the effect of this component on the firm’s activity and performance. For the majority (22 firms’ representatives), the initial lack of trust was an obstacle to foreign activity. In this group, 14 interviewees

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viewed the lack of trust as a major obstacle but also as a motivating factor to take additional actions in order to succeed in a foreign market. Those respondents realised that in order to succeed, they needed to win the trust of their foreign partners. For this reason they took various steps aimed at building trust among foreign partners even before the actual foreign market entry. These actions generated extra costs, which had a negative impact on results. The following are the most commonly mentioned examples of such actions:  obtain certification  conduct internal audits  obtain references, construct reference buildings  cooperate with a renowned company  provide training courses for customers  exploit experience gained from previous cooperation in other markets  use services of credit information agencies  establish headquarters or branch offices in attractive locations. The interviewed managers consistently stressed that their use of measures designed to build trust before a foreign market entry facilitated subsequent cooperation in that market. The growing intensity of cooperation increased the level of trust and gradually decreased the firm’s reliance on these tools. Two managers said that sometimes trust between cooperating partners was so strong (despite the initial high level of psychic distance) that they felt no need to sign formal contracts (except the one establishing cooperation), but instead relied on verbal agreements. This improves flexibility and makes it easier to adapt to market requirements. Obviously, this is a time-consuming process: in one case it took the company a couple of years to achieve a sufficiently high level of trust for real and effective cooperation. With respect to other opinions on the relationship between trust and performance, two interviewees reported that the lack of trust had a negative impact on their companies’ results. One of them added that trust developed in the domestic market made it possible for the firm to become more independent of the head office. For three interviewed managers, the role of trust in their international activities was only auxiliary and did not significantly affect their firms’ performance. This fact may be related to the industry in which the firms operated. The second component of the nature of cooperation in the internationalisation process is the level of conflicts. The issue of conflicts

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was mentioned in 12 out 30 cases. Ten interviewed respondents claimed that conflicts had a negative impact on performance, while two persons maintained that their impact was either neutral or positive. Based on the interview responses, it is difficult to make any general statements about the dominant source of conflict in the relationships. It can be noticed, however, that in most cases they resulted from relationships with competitors or distributors and problems encountered at the intra- and inter-organisational level. Two companies experienced negative consequences from a conflict with a competitor in the form of a price war in their target markets. Two other interviewees reported conflicts triggered by personal relationships at both intra- and inter-organisational levels. These conflicts inhibited business activities and had a negative impact on profits. Other causes of conflicts mentioned by the interviewed respondents include a political situation which contributed to a decline in the sale of products from Poland and cultural differences that slowed down or even prevented development. One interviewee believed that in the case of personal problems (regardless of the organisational level), it was better to end cooperation, since its continuation was bound to have a negative impact on performance. According to those respondents who saw a correlation between conflicts and international performance, whether or not a company is able to continue and develop its activity depends on the way it resolves its conflicts. One respondent believed that a quick reaction to conflict situations contributes to strengthening the relationship; if the conflict is handled inappropriately, the firm’s performance suffers as a result. The nature of cooperation in the internationalisation process includes two other components, classified as relational determinants: level of openness to cooperation and psychic distance. The impact of openness to cooperation on performance was addressed by 16 interviewees. For 13 of them, this component had a positive impact on their firm’s international performance. One interviewed respondent thought their company was not open to cooperation. A representative of another firm said that after problems caused by selecting an inappropriate distributor in the foreign market, the company modified its criteria for partner selection in the process of entering new foreign markets. One interviewee added that their company was open to relationships, but that it is always related to a specific situation. Thirteen respondents referred to this component in the context of cooperation with buyers (8 cases) and distributors (5 cases). Some

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interviewees made comments about openness to cooperation with a number of different partners. As regards openness to cooperation with distributors, respondents stressed the importance of informal relationships, which they said were necessary for effective development. Distributors were also viewed as a source of new ideas. Also, they helped cooperating firms exploit new market opportunities. According to the interviewed managers, cooperation with distributors was based on direct contacts. In some cases, openness meant accepting proposals of cooperation made by potential foreign customers. One interviewee gave an example of establishing cooperation during a very short period of a trade fair: by making a rapid effort to build trust, the firm managed to lay the groundwork for foreign expansion. Another person reported that their company was open to cooperation, but that despite business proposals from potential partners, it wants to remain loyal to its foreign distributor on account of its very good sales performance. Moreover, some interviewees addressed management’s involvement in the process of internationalisation, which was seen as a key factor in building open relationships. According to one respondent, close cooperation is not possible without openness. As for the benefits of maintaining open relationships with customers, interviewees said that positive effects were the result of exploiting opportunities emerging from such cooperation. It was emphasised that better communication led to more beneficial cooperation. Other interviewees attached importance to the positive perception of their firm by customers, who appreciated and expected openness to cooperation. According to some respondents, the atmosphere of partnership and cooperation in relationships with customers contributed to success, which is achieved when a firm is ready to react quickly and is able to adapt its product offering to customer requirements. Openness to cooperation with customers also helped companies to exploit opportunities identified by customers. Some interviewed managers emphasised that their firms were open to customers’ suggestions. Only a few respondents addressed openness to cooperation in the context of internal relationships within their own firm. One of them admitted that openness to cooperation implied a partnership relationship aimed at improving the company’s operational effectiveness. Another interviewee said that internal openness to relationships was extremely important in the process of acquiring another company. The second relational determinant that affects the nature of cooperation in the process of internationalisation, i.e. psychic distance, was mentioned

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by 27 out 30 interviewees. Only three respondents said they had not observed any impact of psychic distance on business performance during the process of foreign market entry. By far the biggest majority (24) of interviewed representatives confirmed the negative impact of this component on results achieved when entering a new foreign market. Negative effects of psychic distance forced these companies to limit their operations in the beginning, which resulted in lower profits. However, this negative impact was experienced to a varying degree by individual firms. Six respondents reported that psychic distance was a problem of medium importance during foreign market entry and in the initial phase of foreign activity, though it did have an adverse effect on performance. However, as the firms developed their activity and intensified cooperation with foreign partners, the negative impact of psychic distance on performance declined. These opinions were expressed mainly by representatives of firms starting their activity in Belarus and Ukraine. Respondents representing companies entering the German market (5 cases) and the Chinese market (3 cases) emphasised the negative longterm effects of psychic distance on their companies’ activities and therefore on performance. One of them added that considerable psychic distance prevented the establishment of informal relationships in China. According to this group of interviewees, the negative impact of psychic distance on performance was evident throughout the period of their presence in these two markets, despite developing cooperation and actions taken by these companies. Among 10 remaining firms in which respondents assessed a strongly negative impact of psychic distance, some companies, in order to minimise this impact, made efforts to improve cooperation with their foreign partners, including customers, suppliers and distributors. One interviewee admitted that their firm had not adequately assessed the degree of psychic distance, which had a negative effect on sales: foreign customers were negatively disposed towards Polish products. To minimise losses and increase its market share, the company had employed a local distributor. The problem of a negative attitude to Polish products and local customers’ reluctance to buy them was mentioned by three other respondents. However, the strongest negative impact of psychic distance on performance was reported by representatives of two firms involved in two different lines of business in Africa. Both companies had to withdraw from the African market because they were unable to overcome the cultural differences. One decided to give up its plan of expansion in Africa because the costs of overcoming psychic distance were too high and did not guarantee success. The second company withdrew from the African

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market because of cultural differences, the economic and geographical distance and the inability to ensure the safety of its employees. Not even the fact of employing a local sales representative could help to overcome the existing differences. With their performance affected by the negative influence of this component, the analysed companies had to take measures to counteract it. Above all, attempts were made to minimise problems resulting from the language barrier, such as employing people with a command of the local language, making employees familiar with local regulations, or teaching them the rules of business correspondence in the foreign language. Another important measure was organising training sessions on appropriate business behaviour in a given culture. After establishing cooperation with foreign partners, the firms developed informal relationships, which helped to build trust. Moreover, a few interviewees said that an attitude of mutual respect helped to decrease the effect of psychic distance. A representative of one company stressed that although the company was doing business in the EU and many aspects of cooperation were centralised, the most important factor in overcoming the negative effects of psychic distance was direct contact. In some cases (e.g. those involving an essentially different approach to cooperation between partners from China and Poland, with different time zones or preferred communication tools), the differences had to be accepted, and the companies had to adjust to their activities accordingly. The analysis revealed varying degrees of impact of this component on performance, depending on industry, but no general correlations could be detected between the impact of psychic distance on performance and the type of industry. Moreover, it was also not possible to determine which type of relationship (with a customer, supplier or distributor) was more susceptible to the negative effects of psychic distance on performance. The interviewed representatives also emphasised the role of personality differences and cultural differences, which affect each area of the firm’s activity in the process of internationalisation, including performance. Furthermore, in some cases, the impact of psychic distance on performance differed depending on the culture of the country where the company operated. For one firm representing the exhibition industry, which requires a great degree of flexibility, cultural differences had a considerable impact on cooperation outcomes. Cultural differences experienced during the cooperation with Chinese partners had a negative impact on performance. The Chinese partners were not flexible and not willing to compromise. Another problem was the overly long decision process. On the other hand, the same company’s cooperation with Spanish

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partners improved performance. Informal relationships, which had been established relatively quickly, facilitated and accelerated non-standard solutions and contributed to reducing reaction times in case of problems. The second part of the analysis of the qualitative results focuses on the impact of relational determinants (the level of openness and psychic distance) on relational characteristics (the level of trust and the level of conflicts). Out of 30 interviewees, only 3 mentioned the impact of openness to cooperation on trust. One person evaluated these two aspects – openness and trust – as key factors in the process of entering a foreign market. Another person added that trust should be established quickly, and the right tool for that is openness in relationships. The impact of openness to cooperation on the level of conflicts was mentioned in three interviews. According to one respondent, the more open to cooperation a company is, the fewer conflicts occur in relationships with a foreign partner. The same person noted that the level of conflicts in relationships with business partners depends on the cultural environment and the partner’s personality. According to the other two interviewees, a decision to decrease the firm’s openness in relationships, which was manifested by rejecting offers of cooperation made by foreign firms, helped the company to avoid conflicts in the process of internationalisation. The impact of psychic distance on trust was addressed in 10 interviews. Only one of the interviewed persons believed that the psychic distance at the start of cooperation was low and that this had a positive effect of the development of mutual trust. The majority of respondents confirmed that a high psychic distance was an obstacle to trust building. Most of the interviewed representatives thought that this impact declined as the partners’ involvement and cooperation developed. All of these respondents agreed that a high psychic distance had a negative effect on trust. Nonetheless, they differed in their views as to the time required to change the effect of psychic distance from negative to positive. In most situations where psychic distance was having a negative effect, it was quickly reduced in the process of cooperation, which in turn contributed to the development of trust. However, three persons admitted that trust building required a lot of time. Managers of two firms said that they had still not managed to decrease the psychic distance and change its adverse effect on trust. In both cases, this failure was due to personality and cultural differences between them and their foreign partners.

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The effect of psychic distance on the level of conflicts was raised in 18 interviews. In the majority of cases (12), the respondents confirmed that psychic distance increased the frequency or likelihood of conflicts. Seven persons mentioned the negative impact of psychic distance, which was the cause of conflicts in the foreign market. In the five remaining cases, the interviewees said that a high psychic distance characterising the foreign markets which their companies had entered did not generate conflicts and that they had managed to establish good cooperation. One interviewee emphasised that in the services sector, it is especially important to resolve conflicts that are due to psychic distance. According to this respondent, the best strategy that can help to avoid negative consequences of high psychic distance is to adopt a consistent, formalised approach to internationalisation. According to another interviewee, conflicts can also be caused by geographical differences associated with different working hours. They can be overcome by effective communication. Another person thought that a high psychic distance is an obstacle to communication and gives rise to conflicts. Their frequency also depends on the type of industry. Detailed conclusions drawn from the qualitative study concerning direct and indirect links between the characteristics of cooperation in the internationalisation process and performance were validated using quantitative data. As in the case of the analysis presented in Section 4.4.1, performance was measured in terms of specific indicators (e.g. net sales or ROI), and the aggregated performance indicator. The different characteristics (components) of the nature of cooperation in the internationalisation process were found to be only loosely correlated with the performance indicators. As regards the correlations between the relational characteristics and performance, the level of trust was found to have a positive effect on net sales – the coefficient of correlation was 0.124. It should be noted, however, that it was statistically significant for  = 0.1. The second characteristic, the level of conflicts, was not significantly correlated with any of the performance indicators, but it was found to be positively correlated with company size – the coefficient of correlation was 0.226 and was statistically significant for  = 0.01. Moving on to determinants of the nature of cooperation in the internationalisation process, the first one, the level of openness to cooperation, was positively correlated with the firm’s market share – the coefficient of correlation was 0.162 and was statistically significant for  = 0.05. The second determinant, i.e. psychic distance, was not correlated with performance indicators.

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In the study we also measured relationships between determinants and characteristics. The level of openness to cooperation was found to be positively correlated with the level of trust in relationships (a coefficient of correlation of 0.23, statistically significant for  = 0.01). The correlation between the same determinant and the level of conflicts was negative, meaning that firms that were more open to cooperation experienced fewer conflicts with their business partners. However, the strength of this relationship was weak – the coefficient of correlation was –0.112 and was statistically significant for  = 0.1. The second determinant, i.e. psychic distance, turned out not to be correlated with either of the characteristics. Particular observations within each component were classified using kmeans clustering. Observations were divided into two clusters. Those in the first one were characterised by lower scores on the level of openness to cooperation, low psychic distance and a higher level of conflicts. Observations in the second cluster scored higher on the level of openness to cooperation and the level of trust, and experienced a higher level of psychic distance and a lower level of conflicts. Companies in the second cluster performed better. The centres, counts and values of the aggregated performance indicator for each cluster are shown in Table 4-8. Table 4-8. Characteristics of clusters distinguished on the basis of components of cooperation in the internationalisation process

Level of openness to cooperation Level of trust Level of conflicts Psychic distance Number of observations Mean value of the aggregated performance indicator

Cluster 1 2 -0.65730 0.30337 -0.72141 0.32899 0.85288 -0.38895 -0.06215 0.03061 84 182 3.17

3.40

More detailed information about the performance of firms in each cluster is displayed in the box plot below.

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Fig. 4-5. Performance of firms in each cluster distinguished on the basis of characteristics of cooperation in the internationalisation process

As in the analysis presented in Section 4.4.1, the differences between the clusters are mostly evident in the values of the first quartile and the median, while the third quartile was the same for both clusters. The second cluster (with greater openness and a higher level of trust, a higher psychic distance and lower level of conflicts, and better performance compared to direct competitors) is characterised by a lower interquartile range, and consequently less variability. As in the previous area of internationalisation maturity, there are a few outliers. As in the case of the character of the internationalisation process, the quantitative data have not confirmed all interdependencies identified during the case studies. In fact, most links indicated by interviewed representatives did not turn out to be correlated, and statistically significant correlations were detected only for specific performance indicators (such as net sales and market share). Cluster analysis of quantitative data provides more interesting results. It should be noted, however, that while it is not surprising that companies that are more open to cooperation and exhibit a higher level of trust and a lower level of

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conflicts perform better, the fact that these relationships were maintained in the context of a higher psychic distance is indeed surprising. Faced with such findings, one has to compare the qualitative and quantitative analyses. The first characteristic of the nature of cooperation in the internationalisation process, i.e. level of trust, was found to be weakly correlated with net sales. The qualitative study provides some clues that can help to explain this fact. The interviewed representatives stressed that trust affected the scope and volume of sales. This in turn can have an effect on net sales. Moreover, because this effect is indirect and complex, there is no strong direct correlation between the level of trust and the performance indicators. It should be added that the qualitative study revealed a range of different views on trust. Some of the interviewees treated trust as a basic characteristic of each interaction in the belief that no business transactions are possible without trust. Others saw trust as a feature of strong relationships, which develops over a long time. Given such divergent perspectives, trust needs to be analysed on the basis of qualitative data. The level of conflicts is the second characteristic of the nature of cooperation in the internationalisation process. In this case, the positive relationships identified in the qualitative study were confirmed by quantitative data which revealed that the level of conflicts was positively correlated with company size, type of industry and specific context, which is why it is impossible to make generalisations about correlations between the level of conflicts and performance. It should also be emphasised that not all conflicts necessarily have negative effects. If they are resolved successfully, they can contribute to strengthening relationships and, consequently, improve performance. Moving on to determinants of the nature of cooperation in the internationalisation process, the analysis indicates that the firm’s level of openness to cooperation is positively correlated with its market share. The qualitative study indicates that openness to cooperation with customers is a source of market opportunities, while openness to cooperation with distributors is a source of new ideas. These in turn can help the company to increase its market share. The fact that this determinant was not found to be correlated with other performance indicators should not come as much of a surprise when one looks at the qualitative results. While the interviewed representatives mainly indicated the positive effect of openness on the performance of their firms, they also noted that sometimes the best strategy was to not get involved in certain relationships, remain loyal to regular suppliers, or not look for new but not so lucrative

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customers. It can be said that whether or not openness to cooperation improves the firm’s performance depends on its general business strategy. Openness to cooperation is important for gaining competitive advantage, but cannot be pursued at any cost and without cost-effectiveness analysis. The second determinant of the nature of cooperation in the internationalisation process is psychic distance, which was not found to be correlated with performance on the basis of the quantitative data. However, in the qualitative study, most interviewees reported that psychic distance had a negative impact on performance. Once again, this apparent inconsistency can be explained in the light of other qualitative data. Most persons interviewed for the case studies reported that the negative impact of psychic distance on the firm’s foreign activity and hence on performance occurred in the initial stage of entering the foreign market. With time and after applying appropriate measures (such as selecting local distributors, organising training workshops for employees and overcoming language problems), the negative effect of psychic distance tended to decrease. Many respondents in the survey represented companies with long experience of foreign activity, so it is natural that their perception of this determinant changed over the course of time.

4.4.3. The Scope of Cooperation in the Internationalisation Process The third area of internationalisation maturity is the scope of cooperation in the internationalisation process. It consists of two components: cooperation with external partners and cooperation with internal partners. As explained in Section 4.3, the two components have been classified as relational determinants. In order to determine the impact of the scope of cooperation in the internationalisation process on the firm’s performance, it is necessary to determine the role of each of these components. As in the case of other components, the analysis is based on qualitative and quantitative data. The motivation for this research approach is described in detail in Section 4.1. In brief, the first reason is the difficulty of directly identifying the impact of business relationships on the firm’s competitive advantage. The second reason is the complexity of the phenomenon in question, which can only be investigated thoroughly by means of direct in-depth interviews. Results of the qualitative study should be analysed from the perspective of cooperation with internal and external partners. The question of cooperation with external partners was addressed in 23 out of 30 interviews. Seventeen interviewees mentioned cooperation with foreign

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distributors, 9–with customers, 2–with suppliers, 1–with a competitor, and 4–with other kinds of partners. In addition, four persons noted that the role of cooperation with external partners changed depending on the stage of the internationalisation process. Of the 17 interviewees who expressed their views on cooperation with foreign distributors, as many as 11 said that, from the viewpoint of performance, it was the most important category of partners. Some company representatives noted that 100% of sales to foreign markets were made through distributors, which clearly indicates how crucial this group of partners is for sales performance. Another six respondents referred to the problem of selecting distributors. Two of them mentioned various criteria that distributors needed to meet, such as appropriate technical knowledge, good knowledge of the industry, logistics infrastructure or human resources. Two other representatives mentioned problems resulting from selecting an unreliable distributor that their companies had experienced in the past. Two interviewees said that failure to find the right distributor had discouraged their companies from entering a foreign market. All respondents who referred to foreign distributors mentioned their impact on sales. One interviewee added that distributors should facilitate the transfer of knowledge from foreign markets that the company can use to develop its foreign activity. The importance of cooperation with foreign customers was mentioned in nine interviews. Six representatives focused on the impact of cooperation on sales. The other three referred to the transfer of knowledge. In the context of sales, three respondents stressed the role of recommendations given by foreign customers, which often enabled further expansion. One person said that the moment the company established direct relationships with customers in target foreign markets, it terminated the cooperation with the distributors it had cooperated with up to that point. Two persons reported that their firms sold products to the headquarters of international corporations. They added that their products were distributed through internal corporate channels to many other foreign markets, which they had no control over. One interviewee admitted that all of their firm’s sales were made in this way. As regards the transfer of knowledge from foreign customers, the interviewees mentioned its effect on product development. In one case, the respondent said that this knowledge was used to adjust the firm’s products to the requirements of a specific foreign market, or more generally, to the requirements of foreign markets. Another representative said that relationships with customers stimulated the development of new, innovative products. Another person noted that contacts with customers

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enabled the transfer of different kinds of valuable knowledge from foreign markets. One other interviewee mentioned that the stimulus to adjust products to the requirements of foreign customers could also come from relationships with competitors. Interviewees who talked about relationships with foreign suppliers did not mention their effect on performance. However, they did admit that this kind of cooperation was less important compared to relationships with distributors and customers. Four interviewees also addressed the question of developing relationships with other partners. This kind of cooperation was evaluated differently. One respondent stressed the role played by what he called “a trade partner” during the stage of market entry, explaining that that partner was very helpful in distributing information about the firm’s product offering and establishing contacts with initial customers. However, it seems that the role described in this case was similar to that of a distributor. In other cases, interviewees reported the supporting role of those other partners as regards their companies’ performance. In particular, they mentioned such partners as the authorities of host countries, the diplomatic service, universities and producers of complementary goods. Four interviewees noted that the impact of other partners on performance in foreign markets differed depending on the level of advancement of foreign activity. All respondents in this group agreed that broad cooperation with various partners was particularly crucial at the planning stage and in the early stages of entering a foreign market. At these stages, such cooperation can also involve, apart from distributors and customers, banks, specialised agencies, consulting and auditing firms, government agencies, etc. This kind of cooperation often did not result directly in improved performance but enabled the company to avoid costly mistakes. At later stages of internationalisation, the most important group of cooperators included partners that are part of the value chain. Another important area addressed during the interviews was the scope of cooperation with internal partners in the process of internationalisation, which was mentioned in nine interviews. Seven representatives talked about problems experienced by a local subsidiary in relationships with the foreign or local parent company. Five persons noted the key role of the parent company in determining the strategy of internationalisation, explaining that decisions about directions of expansion, areas of activity or product offerings for individual subsidiaries were made by the headquarters. The respondents said that individual subsidiaries could have

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an indirect influence on the implemented strategy, and the strength of this influence depended on the quality of internal relationships. Usually, subsidiaries with a greater degree of involvement in international operations performed better. In other words, good internal relationships contributed to better market performance. The interviewees also noted other benefits derived from good internal relationships, which could have an impact on performance. One person said that a large percentage of sales made by the firm took place through the internal international structures of the corporation. Another representative noted the role of resources, with special emphasis on the production capacities of other foreign subsidiaries. In many cases these foreign production capacities had been used to produce goods that were to be sold by the local subsidiary, which otherwise would not have been possible. One interviewee mentioned the financial benefits derived from being part of an international group purchasing organisation. Thanks to collective purchases made by all subsidiaries, the corporation can decrease production costs for each one. Only one representative of a subsidiary of an international corporation reported that internal relationships did not have any effect on the process of internationalisation. This zero effect was due to the large degree of independence enjoyed by the local subsidiary. Only two interviewees who addressed the topic of internal cooperation did not represent firms that were subsidiaries of larger corporations. In one case, however, the foreign partner’s position was so strong that it acted like a parent company of an international corporation, for example making decisions about directions of expansion or making investments in material resources. Another representative of a company maintaining cooperation with an equal partner stressed how important it was for different partners to be able to coordinate activities effectively. He appreciated benefits from having access to shared resources (including knowledge). In his opinion, good internal relationships made access to such resources easier and facilitated the company’s business activities. In this sense, they could improve performance. The impact of the scope of cooperation in the internationalisation process was also analysed on the basis of quantitative data. In keeping with the conceptual model, the scope of cooperation was measured in terms of two determinants: cooperation with external partners and cooperation with internal partners. The first determinant was a combination of four variables: cooperation with customers, suppliers, influential entities and competitors. The first

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and last of these were found to be strongly correlated with performance. In the case of cooperation with customers, the correlation coefficient was equal to 0.168 for net profit, 0.149 for rate of return on investments and 0.16 for net sales. The coefficients were statistically significant for  = 0.05 in the case of net profit and net sales, and in the case of ROI, for  = 0.1. No statistically significant correlation was found between these variables and market share. The correlation coefficient between the perceived level of cooperation with customers and the aggregated performance indicator amounted to 0.154 and was statistically significant for  = 0.05. It can therefore be concluded that companies maintaining better cooperation with external customers performed better. As regards the perceived level of cooperation with competitors, this was found to be positively correlated with net income and net sales, and with the aggregated performance indicator. The correlation coefficient was relatively strong for net income: rs = 0.258, statistically significant for  = 0.01. The correlation was weaker in the case of net sales: rs = 0.177, statistically significant for  = 0.05. It was weakest for the aggregated performance indicator: rs = 0.15 and statistically significant for  = 0.1. Treated as a whole, cooperation with external partners was not found to be significantly correlated with the aggregated performance indicator. However, correlations were observed between this determinant and two specific indicators of performance: net profit and net sales, with rs values equal to 0.169 (for  = 0.05) and 0.128 (for  = 0.1), respectively. The second determinant – cooperation with internal partners – consisted of two variables: perceived level of cooperation with internal suppliers and perceived level of cooperation with internal customers. The first variable was correlated with ROI. The correlation coefficient was relatively high and equal to 0.296 (statistically significant for  = 0.05). More correlation could be observed between specific performance indicators and perceived level of cooperation with internal customers. For net profit, net sales and ROI, the correlations were statistically significant at  = 0.01 and amounted to 0.318, 0.375 and 0.465, respectively. The relationship was found to be relatively the weakest in the case of market share: rs = 0.325, statistically significant at the 0.01 level. When viewed as a whole, cooperation with internal partners was positively correlated with specific performance indicators. The strongest relationship was observed for ROI (rs = 0.371, statistically significant for  = 0.01. Correlations for net income and net sales were equal to 0.221 and 0.23, respectively and were statistically significant at the 0.1 level. The same level of statistical significance was achieved for the correlation with the aggregated performance indicator, with rs = 0.209.

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Moving on to correlations between the two determinants and relational characteristics, cooperation with external customers and suppliers were found to be linked to the level of trust and the level of conflicts. In particular, cooperation with external customers was positively correlated with the level of trust (rs = 0.274, statistically significant at 0.1 level) and negatively correlated with the level of conflicts (rs = -0,231, statistically significant for  = 0.01). The direction of correlations between these relational characteristics and cooperation with suppliers was identical, but their strength was weaker: 0.108 ( = 0.1) for the level of trust, and -0.176 for the level of conflicts ( = 0.01). Both relational characteristics were significantly (at  = 0.01) correlated with the determinant treated as a whole. The coefficient of correlation between the perceived level of cooperation with external partners and the level of trust was 0.215, and in the case of the level of conflicts it was -0.257. As for cooperation with internal partners, the only link that could be observed was the negative correlation between the perceived quality of cooperation with suppliers and the level of conflicts: its strength was -0.214 and was statistically significant for  = 0.1. Treated as a whole, cooperation with internal partners was found to be correlated with both relational characteristics. The coefficient of correlation for the level of trust was 0.183 (at  = 0.1), and for the level of conflicts it amounted to -0.22 (at  = 0,05). Individual observations (companies) were classified into two clusters using k-means clustering. Companies in the first cluster had average values for all target variables, while in the second one they had low scores. The results of clustering are shown in Table 4-9.

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Table 4-9. Characteristics of clusters distinguished on the basis of the scope of cooperation in the internationalisation process cluster Evaluation of cooperation (customers) Evaluation of cooperation (suppliers) Evaluation of cooperation (influential entities) Evaluation of cooperation (competitors) Evaluation of cooperation (internal suppliers) Evaluation of cooperation (internal customers) Number of observations Mean value of the aggregated performance indicator

1 0.08618 0.08755 0.07408 0.08700 0.09507 0.09284 243

2 -2.28843 -2.53885 -1.92601 -2..27453 -2.56695 -2.53750 9

3.35

2.63

Additional information about performance of companies in each cluster are illustrated by the box plot shown in Fig. 4-6. Fig. 4-6. Performance of companies in each cluster distinguished on the basis of the scope of cooperation in the internationalisation process

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As can be seen, the values of all quartiles are higher for companies classified into the first cluster. In this case, 50% of aggregated performance indicators are included within the interval between 3 and 4. Performance scores of companies in the second cluster are more dispersed within the interquartile range. While the values of the third quartile for both clusters are similar, the values of the first quartile are considerably different. None of the 25% of companies from the second cluster had a performance score above 1.5. This explains the larger IQR for this cluster. The value of the median for the first cluster is also greater: for 50% of companies in this group, performance was rated above 3.5. The median for the second cluster is approximately in the middle of the interval of possible scores, i.e. at the level of 3. It should also be noted that the second cluster has a considerably lower maximum value, which is 4 (while the corresponding maximum value for the first cluster is 5). The minimum value for both clusters is 1 (the lowest possible score). Based on the above analysis, it is possible to conclude that the two components of the scope of cooperation in the process of internationalisation were correlated with some of the specific performance indicators of companies analysed in the in the qualitative study, but were not found to be correlated with the aggregated performance indicator provided by the quantitative data. In the second case, statistically significant correlations could only be observed for specific performance indicators. Taking into consideration the results of the case studies and the correlation analysis, it is difficult to identify a definitive impact of the two determinants of the scope of cooperation in the process of internationalisation on performance. The only meaningful conclusions can be drawn from the cluster analysis, which indicates that good relationships with external and internal partners tend to be associated with good performance: 75% of companies have better or much better results than direct competitors and only 25% have worse ones (see Fig. 4-6). In the group of companies where external and internal relationships were evaluated less positively, performance scores were more varied. Given the inconclusive results, it is necessary to compare the qualitative and quantitative findings. The quantitative analysis indicates that cooperation with external partners is positively correlated with net income and net sales. The qualitative study highlights the special role of distributors and customers. Cooperation with both of these types of partners has a direct impact on net sales, which in turn affects the level of profit earned by the firm.

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With respect to the second determinant of the scope of cooperation in the process of internationalisation, the quantitative analysis shows that the strongest correlation exists between cooperation with internal partners and the rate of return on investment. The qualitative study revealed the special roles of the parent company and the firm’s headquarters. Cooperation with this type of partner is often a characteristic feature of subsidiaries that are part of foreign corporations. These companies expect specific results when they decide to invest in foreign organisational structures. It should therefore come as no surprise that cooperation with internal partners is correlated with ROI.

CHAPTER FIVE THE INFLUENCE OF THE FIRM’S INTERNATIONALISATION MATURITY ON ITS COMPETITIVE ADVANTAGE KRZYSZTOF FONFARA, ŁUKASZ MAŁYS AND MILENA RATAJCZAK-MROZEK

5.1. The Impact of Components of the Firm’s Internationalisation Maturity on its Competitive Advantage – a Generalisation Attempt As already explained in Section 4.1, the firm’s internationalisation maturity is understood as a certain state of its development. We assume that the higher the level of maturity, the more likely the firm is to achieve an optimal level of development required to create its competitive advantage in the process of internationalisation. The process of the firm’s development is analysed in the light of business relationships. Because it is very difficult to determine directly the impact of business relationships on the firm’s competitive advantage (and its performance), they have been operationalised. This operationalisation was conducted during the qualitative study (stages I, II and III of the empirical study), in which we identified nine characteristics and determinants of business relationships that represent components of internationalisation maturity (see Section 4.3). In the subsequent stages of the empirical study (qualitative and quantitative – stages IV and V), we analysed the role of individual components of internationalisation maturity taking into account their impact on performance. The purpose of this analysis was to determine which of the identified components had the greatest relative impact on creating competitive advantage and were the main contributing factors that

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helped the firm to achieve the highest level of internationalisation maturity. The results of the empirical study have provided the basis for proposing a conceptual model of the impact of internationalisation maturity on competitive advantage (Fig. 5-1). The impact of particular components on the firm’s performance can be modified by a set of moderators identified in the empirical study. In addition, the impact of particular components can change (increase or decrease) as a result of interactions between them, especially under the influence of relational determinants. Fig. 5-1. The impact of internationalisation maturity on competitive advantage – a conceptual model

The role of components of internationalisation maturity

Moderators

Interactions between components

The level of internationalisation maturity

The firm’s competitive advantage

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The impact of particular components of internationalisation maturity on the firm’s performance (based on stages IV and V of the empirical study) is presented in Table 5-1. According to the qualitative study (stage V), the positive impact on performance was most frequently associated with the following four components of internationalisation maturity:  duration of the internationalisation process,  the level of formalisation in the internationalisation process,  the level of openness to cooperation,  the scope of cooperation with internal partners (in the case of firms with complex internal organisational structures). Moreover, we identified correlations for another three components: the level of advancement of forms of internationalisation, the level of trust, and cooperation with external partners. Results of cluster analysis indicate that firms performing better than their direct competitors have the following characteristics: firstly, their internationalisation has lasted longer, is more formalised and involves more advanced forms; secondly, they are more open and have relationships with a higher level of trust; and thirdly, in terms of cooperation with external and internal partners, they perform relatively better as indicated by higher values of all performance indicators.

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Duration of the ++ internationalisation process Level of formalisation in the ++ internationalisation process Level of advancement of + forms of internationalisation Level of openness to ++ cooperation Level of trust + Level of conflicts –– Psychic distance –– Cooperation with external + partners Cooperation with internal ++ partners ++ strong positive impact on performance + positive impact on performance – negative impact on performance – – strong negative impact on performance

Components

Qualitative results – 30 case studies (strength and direction of impact) yes yes yes yes yes yes yes yes yes

yes yes yes yes yes yes yes yes

Confirmation by clusters analysis’ clusters

no

Correlations with aggregated performance indicator and/or specific performance indicators

Quantitative results

++

+

++ –– –

++

+

+

++

Quantitative results – subjective opinions of respondents about the impact

Table 5-1. The impact of components of internationalisation maturity on performance – an overview of empirical results

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It should be emphasised that the results of the empirical study (especially the qualitative study – stage III) largely reflect the actual situation in respondents’ firms. In addition, we also measured the perceived impact of individual components of internationalisation maturity on the creation of competitive advantage. In particular, respondents were asked to give their opinions about the role of specific components of internationalisation maturity (relational determinants and characteristics) in creating the firm’s competitive advantage. As already mentioned, responses to questions included in the survey questionnaire were represented on a five-point Likert scale. Table 5-2 shows the percentage of positive answers (“agree” or “strongly agree”) concerning the characteristics and determinants of internationalisation maturity. Table 5-2. The impact of components of internationalisation maturity on creating the firm’s competitive advantage Components of internationalisation Positive answers N maturity (in %) Scope of cooperation with internal partners 85.3 95 Duration of the internationalisation process 80.5 278 Level of openness to cooperation 78.9 266 Level of conflicts 77.4 265 Level of trust 67.8 264 Scope of cooperation with external partners 67.7 260 Psychic distance 62.9 272 Level of advancement of forms of 61.0 264 internationalisation Level of formalisation in the 59.3 268 internationalisation process N–number of respondents who evaluated the impact of the particular component

According to Table 5-2, all components of internationalisation maturity identified in the study have a significant impact on creating the firm’s competitive advantage in the process of internationalisation, but the strength of this impact is perceived differently. The biggest impact is attributed to relationships with internal partners (85.3%). This seems surprising since the majority of companies indicate the importance of the level of openness to cooperation with foreign partners (78.9%), which by default are external partners. This apparent inconsistency cannot be explained unambiguously on the basis of the quantitative data. The growing importance of internal relationships can be explained by the fact that in recent years, many firms have been switching

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from an extensive reliance on relationships with external partners (e.g. outsourcing) to being more self-sufficient and performing more and more functions (including production) within their own organisational structures (The Economist 2013). The importance of internal cooperation is typically indicated by large companies, which can conduct many international activities independently by exploiting their own frequently complex organisational structures (the parent company, subsidiaries, branch offices, etc.). Not surprisingly, the duration of the firm’s foreign activity is the second most important component of internationalisation maturity, according to respondents (80.5%). This is because a longer presence in the international business environment usually allows the company to develop long-term relationships and gain valuable experience, which contributes to better performance. The results of cluster analysis, presented in Section 4.4, prompted a more in-depth attempt to identify different groups of companies in terms of performance in the process of internationalisation. Respondents in the survey were asked to evaluate their firms’ relative advantage over direct competitors in terms of four measures of performance (referring to market and financial results). These were net profit, rate of return on investment, net sales and market share. Respondents evaluated their companies using the following five-point Likert scale: 1–much worse, 2–worse, 3–almost the same, 4–better, 5– much better. Scores for specific indicators were used to calculate an aggregated performance indicator, which was the arithmetic mean of the four specific indicators. The reliability of the aggregated indicator was tested using Cronbach’s α, and was found to be equal to 0.902. Attempts to exclude any of the four variables resulted in lower values of the statistic. The surveyed firms were classified into groups using non-hierarchical k-means clustering. After nine iterations, three groups were distinguished:  companies performing better than their closest competitors (BTC),  companies performing same as their closest competitors (SAC),  companies performing poorer than their closest competitors (PTC). Detailed characteristics of each group are presented in Table 5-3.

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Table 5-3. Mean performance evaluations for companies performing better, the same as, and poorer than their competitors Performance measures Net profit Return On Investment (ROI) Net sales Market share Number of firms (percentage share)

BTC 4.308 (.6096)* 4.115 (.6082)* 4.395 (.5167)* 4.049 (.5455)* 87 (42.4%)

SAC 3.319 (.6062)* 3.036 (.5709)* 3.261 (.7205)* 3.015 (.6577)* 72 (35.1%)

PTC 1.773 (.4239)* 1.895 (.7983)* 2.045 (.7457)* 1.975 (.7675)* 46 (22.4%)

* standard deviation BTC–better than competitors; SAC–same as competitors; PTC–poorer than competitors

Having identified the three groups of firms, we examined the significance of the individual components of internationalisation maturity. For this purpose, we only focused on positive scores (corresponding to “agree” and “strongly agree”). The results of this analysis are shown in Table 5-4. It should be stressed that the numbers represent subjective opinions expressed by respondents from companies classified into one of the three groups, and as such they are only used to support the interpretation of other results.

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Table 5-4. Impact of components of internationalisation maturity on creating competitive advantage in the three groups of firms Components of internationalisation maturity Scope of cooperation with internal partners Duration of the internationalisation process Level of openness to cooperation Level of conflicts Level of trust Scope of cooperation with external partners Psychic distance Level of advancement of forms of internationalisation Level of formalisation in the internationalisation process

BTC

Positive answers (%) SAC PTC

88.5

84.8

70.0

88.5

87.5

60.9

81.6 81.6 69.0

76.4 73.6 66.7

80.4 69.6 63.0

67.4

75.0

58.7

64.4

48.6

54.3

63.2

66.7

60.9

57.5

65.3

56.5

It is evident (see Table 5-4) that a considerably greater percentage of respondents representing companies performing better than their closest competitors (BTC) confirmed that components of internationalisation maturity affected the creation of competitive advantage compared to respondents from companies performing poorer than their closest competitors (PTC). This indicates that BTC companies attach a lot of importance to developing business relationships and believe they affect the firm’s performance. For the BTC companies, the following components of internationalisation maturity rank as the most important ones:  the scope of cooperation with internal partners,  duration of the internationalisation process,  the level of openness to cooperation,  the level of conflicts. Bearing in mind that these results are based on different methods and cross-classifications, it can be noted that the scope of cooperation with internal partners and openness to cooperation are the two most highly ranked components for all respondents. However, one can wonder to what extent it is justified (and possible) to determine a hierarchy of components of internationalisation maturity indicating which of them have the greatest relative effect on the firm’s competitive advantage. If such a hierarchy were to be created, it would be logical to treat the group of companies

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performing better than their closest competitors (BTC) as a benchmark for companies trying to achieve competitive advantage by developing business relationships. Such an approach would be justified since it is precisely thanks to those business relationships, described in terms of characteristics and determinants (components of maturity), that BTC companies were able to perform better than their closest competitors and achieve the highest level of internationalisation maturity.

5.2. Possibilities and ways of Developing the Firm’s Internationalisation Maturity The conceptual model of internationalisation maturity can be modified depending on the influence of a set of moderators. The impact of the individual components, the firm’s capacity to develop its internationalisation maturity and, consequently, its performance depends on the following moderators:  company size,  organisational structure (in other words, whether the organisation is a formally independent firm or part of a larger organisational structure such as an international corporation),  industry. These moderators were identified by analysing data collected during the empirical study. Other moderators can no doubt be found, but the qualitative and quantitative analyses indicate that these three are the most crucial ones. Size is the first important moderator which can affect the level of the company’s internationalisation maturity. The empirical studies suggest that size affects above all two characteristics of the internationalisation process: the level of formalisation in the internationalisation process and the level of advancement of forms of internationalisation. With respect to the level of formalisation in the internationalisation process, our empirical findings indicate that in many cases it is large companies that choose the path of formal expansion. This is because, firstly, the implementation of the formal process of internationalisation requires adequate experience of developing strategies in international markets. Secondly, in order to make formal internationalisation part of its business strategy, the company must be aware of the importance of target markets, which is more likely in the case of large companies (with the exception of born global firms). Thirdly, the formal process of internationalisation is usually associated with allocating some of the

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company’s resources and the involvement of management. The empirical studies suggest that the best scenario for success is if the company is prepared for the process of internationalisation: when this is part of its strategic plans, when appropriate resources have been allocated and when there is an opportunity. From the perspective of performance, large companies have an advantage in this respect. The quantitative analysis confirms the existence of correlation between company size and the formalisation of the internationalisation process: rs = 0.455 and is statistically significant at the 10% level. Similarly, size also matters for the duration of the internationalisation process. Longer periods of activity in foreign markets are relatively more frequently associated with large companies, which have the necessary experience and can invest appropriate resources. The longer firms operate in foreign markets, the more likely they are to perceive this fact as an important or essential factor of success in entering a new foreign market. This is mainly connected with the awareness of challenges and tasks that need to be tackled when a company conducts foreign activity. One has to remember, however, that given the diversity of foreign markets, the duration of international activity and the amount of foreign experience do not always guarantee that the next step of internationalisation will be successful. Size also affects the level of advancement of forms of internationalisation. The bigger the company, the more capable it is of implementing more advanced forms of internationalisation and of employing a wider range of forms (e.g. exporting to a selected market, direct foreign investment in another foreign market). This, too, is made possible by longer experience, but above all, by the financial and material resources required to implement more advanced and more diverse forms of internationalisation. From the perspective of a small firm, a direct foreign investment, a risky and expensive form of internationalisation, is often irrational or even impossible to implement. The empirical findings show that nowadays, advanced forms of internationalisation are not necessary to establish strong business relationships in a given market. What matters more is direct physical presence, which nowadays is possible thanks to low costs of travel and can be ensured even in less advanced forms of expansion. Therefore, it seems that the firm’s choice of expansion strategy only partially depends on the possibility of developing business relationships. Experience accumulated by large companies is also very important from the perspective of psychic distance. Most company representatives interviewed in our study said that the negative impact of psychic distance on the firm’s activity in foreign markets, and consequently on

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performance, was experienced at the initial stage of foreign market entry. Over time, and after taking appropriate steps (such as selecting local distributors, organising training programmes, overcoming the language barrier), the negative impact of psychic distance usually declined. However, such appropriate steps do require the involvement of financial and material resources as well as a certain amount of experience (which tends to more substantial in the case of large companies) The company’s organisational structure (i.e. whether it is a formally independent firm or part of a larger organisational structure such as an international corporation) is a moderator which is partly related to company size. Despite the existence of exceptions, such as micromultinationals, international corporations tend to be very large entities that operate in many foreign markets simultaneously. This moderator determines what kind of companies establish cooperative relationships and is crucial when we take into account the distinction between external and internal partners and their roles in the process of internationalisation. Formally independent enterprises can only cooperate with external partners. In contrast, enterprises that are part of a larger organisation structure, such as international corporations (be that a parent company or a subsidiary) cooperate not only with external partners but also with internal ones. This is an important point since, as already mentioned, for companies performing better than their closest competitors (BTC), the most important components of internationalisation maturity include the scope of cooperation with internal partners, the duration of the internationalisation process, openness to cooperation, and conflict-free relationships. Also, when the component of cooperation with internal partners was analysed in general, it was found to be positively correlated with the aggregated performance indicator: rs = 0.209 for  = 0.1. It should be remembered, however, that only units of large international corporations cooperate with internal partners. Company representatives interviewed in the case studies stressed the key role of the headquarters (parent company) in determining the internationalisation strategy; internal partners often acted as internal customers, providing financial benefits and resources, especially production capacity. The moderating effect of the company’s organisational structure on the scope of cooperation also affects the nature of cooperation in the internationalisation process. It determines whether conflicts and openness to cooperation are only features of relationships with external partners or characterise relationships within the organisation. In the case of an organisational unit (be that the headquarters or a subsidiary) of an

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international corporation, openness to cooperation entails the relation of partnership and leads to a more effective and problem-free operation of the company. The third moderator is the type of industry in which a given firm operates. The industry determines the character of the internationalisation processes and the internal and external procedures used by companies. As a result, the industry provides the basic framework for all activities that are required and can be undertaken in the process of internationalisation. The empirical results confirm the importance of the industry type, especially with respect to the level of formalisation in the internationalisation process and the level of advancement of forms of internationalisation. The case studies have revealed that in the case of some industries, such as the automotive industry, the formalised process of internationalisation is essential. However, one of the components of the character of the internationalisation process most affected by the firm’s area of activity and the kind of products and services it provides is the range of forms of internationalisation it uses. When the company needs to maintain permanent direct and physical contact with customers, it may have to resort to more advanced forms of internationalisation. In some industries, firms have to establish relationships with dispersed distributors of products in a foreign market, which forces them to set up foreign subsidiaries. In the case of some markets (e.g. in China) and industries, companies need to establish their own manufacturing subsidiaries. On the other hand, companies providing remote services (e.g. in the IT industry) can afford to use simple forms of internationalisation. Therefore, the choice of internationalisation forms can be regarded as mature when it is optimally suited to the type of activity a given company is engaged in. The industry in which the firm operates also determines the selection of cooperating partners. For instance, there are industries where 100% of sales to foreign markets are made through distributors, and there are others where cooperation with foreign distributors is not necessary at all. What kind of partners a firm cooperates with determines the nature of potential conflicts (i.e. what kind of partners would potentially be involved) as well as the scope of cooperation in the process of internationalisation – the industry determines whether or not the company will cooperate with external or internal partners, and what kind of partners may be involved. In the case of external partners, such as distributors, it is the industry that determines what sort of requirements they should meet. In such cases, the company must at least have the necessary technical knowledge and be familiar with that industry.

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In the light of the above analysis, it is now necessary to determine whether the three moderators (i.e. company size, organisational structure and industry) affect the components of internationalisation maturity. The empirical results have been used to identify ways of increasing the firm’s internationalisation maturity, which in the opinion of the authors, should increase its competitive advantage. It should be stressed that ways of increasing internationalisation maturity are strongly determined by the moderators described above. For this reason, the following analysis will only focus on the possibilities of increasing the level of internationalisation maturity by firms that have made relatively little progress in this regard. The duration of the internationalisation process was found to be one of the most important factors of success in the qualitative study. However, in practice, the interviewed company representatives, in the context of duration of the internationalisation process referred to possibilities of acquiring knowledge about foreign markets, as well as the knowledge about the internationalisation process itself, and the impact of this knowledge on performance. The case studies provide examples of firms which did not try to acquire knowledge about foreign markets during their initial (sometimes a few years long) period of foreign activity, which meant no real progress in their internationalisation maturity. For such companies, the turning point in the internationalisation process was associated with a change to a more active approach to foreign expansion and with efforts to acquire knowledge about foreign markets. Other companies, on the other hand, started acquiring knowledge about foreign markets even before attempting to sell products there. Some of these firms relied on the assistance of specialised agencies (e.g. business intelligence agencies or research institutes). It can therefore be concluded that a longer involvement in the internationalisation process contributes to increasing the firm’s internationalisation maturity only when it is accompanied by efforts to acquire knowledge about foreign markets and about the internationalisation process itself (see Fig. 5-2).

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Fig. 5-2. Progress in internationalisation maturity associated with the duration of the internationalisation process Low level of internationalisation maturity Lack of knowledge about foreign markets and the internationalisation process. No procedures for knowledge acquisition in place.

Moderator: company size

Duration of the internationalisation process

High level of internationalisation maturity Acquisition of knowledge about: • the internationalisation process, • foreign markets, • challenges connected with the internationalisation process.

As pointed out in the previous chapter, longer experience of activity in foreign markets is relatively more frequent in the case of large companies. It seems that such companies also have greater possibilities of acquiring knowledge thanks to their resources and the possibility of using services of specialised agencies and of employing specialists with international experience. On the one hand, this may indicate that smaller firms need more time to achieve a higher level of internationalisation maturity. On the other hand, taking into account the geographical scope of expansion, which is usually limited to a few foreign markets, smaller firms can acquire sufficient knowledge in a relatively short time. The ultimate success of foreign activity largely depends on the selection of appropriate methods of knowledge acquisition and on people who are responsible for acquiring it. These activities, however, are also associated with the level of formalisation in the internationalisation process, which implies that the two components are interrelated. Taking into account the formalisation of the internationalisation process, it is easy to identify companies with a low level of internationalisation maturity in this respect. Such companies sell products abroad only sporadically, often in response to unsolicited requests for proposal sent by other companies. They do not have selected directions of foreign expansion or allocated resources to cater for foreign markets (or resources are allocated on an ad-hoc basis, in response to emerging opportunities). They can view foreign sales as beneficial, but they are not

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prepared to develop them or to overcome potential difficulties (see Fig. 5-3). It may be slightly more difficult to identify companies that are mature in this respect. As pointed out earlier, only large companies tend to prepare fully formalised strategies of internationalisation. Also, it seems that smaller firms do not have to develop such strategies in order to be successful in foreign markets. However, on the basis of our empirical studies, it can be assumed that internationally mature companies, regardless of their size, should have selected directions of expansion and have allocated resources in place (especial human resources) to cater for foreign markets – in other words, these aspects should be specified in order to increase the level of maturity. Fig. 5-3. Progress in internationalisation maturity associated with the level of formalisation in the internationalisation process Low level of internationalisation maturity • Foreign activity is not a strategic objective of the firm; • Foreign sales are mainly made in response to unsolicited requests for proposal; • Opportunistic approach to foreign markets; • Lack of allocated resources to cater for foreign markets (or resources allocated on an ad-hoc basis).

Moderator: company size, industry Increasing the level of formalisation of the internationalisation process

High level of internationalisation maturity • Foreign expansion is part of the firm’s formalised strategy or is expressed as the management’s intention; • Target foreign markets have been selected; • Appropriate resources have been allocated to cater for foreign markets.

A high level of maturity with respect to the level of formalisation in the internationalisation process is strongly determined by company size. Aspects indicated in Fig. 5-3 seem sufficient from the perspective of small and medium-sized companies. Large firms, however, should develop a more complex strategy and introduce appropriate changes in their organisational structures. Resources allocated by small and medium-sized

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companies to cater for foreign markets can also be employed in activities conducted in the local market (this is particularly the case with human resources). In the case of large companies, however, the resources should be specialised and focus exclusively on foreign markets (e.g. by setting up an export department). Strategic objectives formulated by large firms should specify, in addition to the directions of expansion, forms of internationalisation, target market position, types and criteria of foreign partner selection and preferred distribution channels. With regard to the level of advancement of forms of internationalisation, it is easy to identify firms with a low level of maturity. Companies of this type tend to conduct foreign sales in two ways. The first one is indirect exporting, which makes it practically impossible to collect knowledge about foreign markets. The second form is direct exporting, initiated by a foreign importer. This kind of cooperation enables the company to gather knowledge which is limited to the specific relationship with the importer. However, this is still insufficient for acquiring a wider knowledge about the entire market and identifying emerging opportunities (see Fig. 5-4). Fig. 5-4. Progress in internationalisation maturity associated with the level of advancement of forms of internationalisation Low level of internationalisation maturity Usually indirect export or direct export initiated by the importer, without the acquisition of knowledge about foreign markets.

Moderator: company size, industry

Level of advancement of forms of internationalisation

High level of internationalisation maturity Forms of expansion depend on the situation, market objectives, possibilities of developing business relationships, market potential, etc.

Companies with a high level of international maturity should choose forms of expansion depending on their particular situation. Decisions in this respect depend to a large extent on the type of industry in which a company operates and on company size, as already pointed out. Mature companies should choose forms of internationalisation that enable them to achieve specific market objectives, taking into account the results of financial and marketing analyses, and such factors as the potential of target markets and the possibility of developing business relationships. The

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qualitative results indicate that direct presence in the foreign market is very important for achieving competitive advantage. However, direct presence need not involve the establishment of a local subsidiary but rather can involve direct meetings with important cooperators and/or final customers. Consequently, companies that plan to increase their level of internationalisation maturity should at least ensure that their employees can have direct contacts with the foreign market. It should also be emphasised that in their history of internationalisation, mature companies can go through the stage of deinternationalisation, which involves a withdrawal from foreign expansion or a switch to less advanced forms thereof. Distinguishing between companies that are less or more mature in terms of openness to cooperation may seem to be problematic. A number of firms in each category declare their openness to cooperation. At the same time, firms with a higher level of internationalisation maturity relatively more frequently decide not to seek new cooperating partners in the process of internationalisation (however, this is true only with respect to large companies, which are able to perform most activities on their own). It seems that differences in this regard are mainly due to the type of actors that companies choose to cooperate with and the strength of their relationships (see Fig. 5-5). Less mature companies are open to cooperation with buyers in foreign markets; these cooperations, however, are only perceived in terms of prospective sales. Resulting contacts are mainly transactional and do not lead to the establishment of strong business relationships.

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Fig. 5-5. Progress in internationalisation maturity associated with openness to cooperation Low level of internationalisation maturity

High level of internationalisation maturity

Firm is open to cooperation with foreign buyers but has not established strong business relationships.

• Firm open or closed to cooperation in the process of internationalisation; • When it is open to cooperation, the selection of cooperating partners depends on industry specifics; • Business relationships with selected partners are strengthened; • Foreign partners are treated as a source of knowledge; • Informal relationships are maintained with selected partners; • When the firm is closed to cooperation, most activities and tasks are performed within its own organisational structures (usually this is the case in large companies).

Moderators: company size, organisational structure

Change of cooperating partners and the strength of business relationships

Companies with a high level of internationalisation maturity can be closed or open to cooperation with external partners. When the firm opts for openness, it should aim to strengthen its business relationships with a purposefully selected group of partners. As the empirical findings indicate, companies first develop relationships with selected distributors and final purchasers in foreign markets. Depending on the type of industry and its own needs, such cooperation can also involve other kinds of partners (competitors, suppliers, influential entities, etc.). One extremely important aspect of cooperation is the transfer of knowledge from foreign markets,

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particularly as regards opportunities, threats and customer needs – these are the areas that should be particularly taken into account. Companies with a high level of internationalisation maturity can also decide to close themselves to cooperation if they have the necessary internal resources to do that. In such situations, most activities can be performed with the firm’s own organisational structures, which often involves establishing subsidiaries in foreign markets. When it comes to the level of trust in relationships with foreign partners, it seems that this should be analysed in both directions – trust placed by the firm in its foreign partners and trust demonstrated by foreign partners towards it (in other words, from the perspective of trustor and trustee). In the case of companies which are less mature in terms of internationalisation, the direction is not important, given the transactional nature of the exchange. All transactions are similar, regardless of the level of trust towards foreign partners. At the same time, such companies do not try to actively build trust in their own company among foreign entities (see Fig. 5-6). In contrast, companies with a high level of internationalisation maturity usually place a lot of trust in their key foreign partners, which often include distributors and key customers. The level of trust is determined by the history of cooperation. Fig. 5-6. Progress in internationalisation maturity associated with the level of trust in relationships Low level of internationalisation maturity Level of trust is not important for foreign activity because of the transactional nature of relationships with foreign partners.

High level of internationalisation maturity Level of trust in the process of internationalisation

• Usually a high level of trust towards key partners in foreign markets; • Attempts to build trust in the company among the group of potential foreign partners.

It seems that from the viewpoint of internationalisation maturity, the actions taken to increase trust to the analysed company (trustee) are much more important. Such activities should focus on developing two types of trust. First of all, companies should take steps to increase trust in their

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reliability. The aim of these steps should be to gain a minimum level of trust among their potential foreign partners in order to start cooperation. Possible activities towards this end include collecting references from foreign markets, obtaining international certificates, participating in international trade fairs, etc. Secondly, companies should actively build trust in their benevolence in relationships that have already been established. This type of trust is the result of business integrity and special attention attached to maintaining transparent and effective communication with foreign partners. In order to achieve a higher level of internationalisation maturity, a company also has to develop its skills in identifying markets where trust is particularly important (the qualitative study suggests that China and Saudi Arabia are two examples). In such markets, a high level of mutual trust is the prerequisite for doing business. In many cases, this enables companies to eliminate the threat of competition. Our qualitative study indicates that conflicts can occur in the process of internationalisation regardless of the amount of experience the company has accumulated and irrespective of its level of maturity. Depending on how conflicts are resolved, they either can terminate cooperation or contribute to strengthening business relationships. Less mature companies undergoing internationalisation often lack the skills of effective conflict resolution and tend to attribute conflicts to the partner’s lack of competences or opportunism (see Fig. 5-7). Fig. 5-7. Progress in internationalisation maturity associated with the level of conflicts in the process of internationalisation Low level of internationalisation maturity Conflicts usually lead to the termination of cooperation.

Moderators: organisational structure, industry Limiting the negative impact of conflicts

High level of internationalisation maturity • Conflicts are resolved by top managers or by means of a formalised system of conflict resolution; • Conflicts are treated as an opportunity for learning and strengthening business relationships.

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In order to increase the firm’s level of internationalisation maturity in the area of conflict resolution, companies can adopt two courses of action. The first approach involves active participation of the firm’s management in an effort to find a solution that satisfies both sides. Such behaviour is a testament to the firm’s benevolence and strengthens the business relationship. The second approach is related to the development of a formal way of resolving conflict situations at the beginning of cooperation. This approach, however, requires more experience of handling conflict situations in the firm’s history of internationalisation. For companies with a relatively low level of internationalisation maturity, psychic distance does not seem to be a significant factor in choosing markets for foreign expansion. Such firms are usually motivated by other considerations, such as the possibility of selling products quickly, or geographical proximity (which is often mistakenly equated with cultural closeness). At the same time, they often cannot cope with culturally-based issues in cooperation (see Fig. 5-8). Fig. 5-8. Progress in internationalisation maturity associated with psychic distance Low level of internationalisation maturity • Psychic distance does not affect the choice of target markets for expansion; • Lack of skills of resolving difficult situations resulting from cultural differences.

Moderator: company size

Knowledge growth and deriving benefits from cultural diversity

High level of internationalisation maturity • Acquisition of knowledge about selected national cultures and business practices in selected foreign markets; • Personal visits and communication with foreign markets; • Treating cultural diversity as an asset and an opportunity for learning.

Increasing the level of internationalisation maturity in this respect is manifested by attempts to understand the culture and business practices found in selected foreign markets. This is the result of the aforementioned personal contacts and of direct presence in those markets (not necessarily in the form of subsidiaries but through personal visits of the firm’s

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employees). Greater maturity can also be achieved by hiring employees of other nationalities and by treating cultural diversity as a firm asset. As regards cooperation with external partners, less mature companies undergoing internationalisation tend to focus on business relations with buyers. The character of developed ties is transactional. Such companies often do not have control over their own products in foreign markets or over other elements of the marketing mix. Fig. 5-9. Progress in internationalisation maturity associated with cooperation with external partners Low level of internationalisation maturity • Mainly ties with foreign customers; • Transactional approach to cooperation.

Moderator: organisational structure, industry A change in the type of cooperating partners and the approach to cooperation

High level of internationalisation maturity • Cooperation with a wide range of partners during market entry; • Cooperation with purposefully selected partners forming a supply chain at the stage of continuous activity; • Relational approach to selected foreign partners.

Increasing the level of internationalisation maturity in the area of cooperation with external partners requires a purposeful selection of foreign partners, often based on a set of specific criteria. Our empirical findings suggest that the choice of partners that companies maintain relationships with depends on the stage of business activity in a given market. During the stage of market entry, mature firms cooperate with a fairly wide range of partners, which enables them to gain specific knowledge about the target market over a relatively short time. According to our studies, such partners include market research agencies, business intelligence agencies, research institutes, and government agencies (also from the domestic market). Cooperation with such partners is usually limited to a specific period of time but often involves close relationships. After the stage of market entry, when the firm has already started selling products in foreign markets, cooperation can be limited to partners that form a supply chain. It seems that companies should first of all concentrate on key distributors and key buyers. However, this very much

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depends on the firm’s organisational structure and the industry in which it operates. As already mentioned, cooperation with internal partners is typically a feature of large companies, and therefore does not affect the level of internationalisation maturity to the same extent as other components. Companies with a high level of internationalisation maturity include both those that have foreign subsidiaries (which are treated as internal customers or suppliers) and those that do not have such units in their organisational structure. However, our empirical findings indicate that the level of internationalisation maturity can be increased by companies with foreign subsidiaries (see Fig. 5-10). Fig. 5-10. Progress in internationalisation maturity associated with internal partners Low level of internationalisation maturity Lack of foreign internal partners in the organisational structure.

Moderator: organisational structure,industry

Possibility of establishing foreign branches

High level of internationalisation maturity • In the case of companies with foreign subsidiaries, coordination of activities of internal entities located in different markets; • Companies may establish specialised foreign subsidiaries depending on market and financial needs.

Companies with foreign subsidiaries should try to coordinate their functions. This can involve setting up manufacturing subsidiaries in places with easy access to resources (often a labour force), R&D centres in highly innovative countries, common service centres in selected markets, etc. Activities in this area should, at least to some extent, be determined by economic analysis. In summary, it can be concluded that companies trying to increase their level of internationalisation maturity should take actions in several areas. It is extremely important to collect knowledge about foreign markets (including knowledge about cultural differences) and about the very process of internationalisation and the challenges involved in it. This is the

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area which can be positively affected by business relationships. Strong and close relationships with key foreign partners can considerably facilitate and accelerate the acquisition of knowledge, particularly about customer needs and market opportunities. At the same time, it seems that it is easier to gather this kind of knowledge when a firm allocates resources (especially human resources) to cater for foreign markets. This requires a certain level of formalisation, which implies that a firm should at least identify target markets of expansion in order to be able to collect appropriate knowledge even before it starts selling products in those markets. Another way of making the process of internationalisation more formalised is to decide what kind of partners the firm should maintain business relationships with (e.g. distributors, final customers) and to specify selection criteria that must be met by potential cooperating partners. The forms of expansion may vary depending on the specific situation of the company. They should, however, enable the development of strong and close business relationships, which can currently also be achieved by employing relatively basic forms of foreign expansion. However, actual choices in this respect depend on the type of industry and the firm’s target markets of expansion. It is very important to maintain direct presence in the target market and to develop close relationships with key partners. Cooperating partners should be selected consciously – this applies both to the type of partners (e.g. distributors, final customers) and to the criteria used in partner selection. Cooperation with key partners should be relational and not merely transactional. Among potential and current business partners, companies should actively build trust in their firm (both in their reliability and their benevolence). Moreover, it is a good idea to develop a system of conflict resolution, which can help to continue cooperation when conflicts do occur. Large companies should also coordinate activities of internal units located in different foreign markets, and develop close and direct relationships between the head office and local subsidiaries and its own internal units.

CONCLUSIONS

Many modern firms develop and expand their business activity by venturing into foreign markets, seeing this strategy as a way of creating competitive advantage. This raises an important question: given that internationalisation is becoming an increasingly common and accessible option for more and more companies, which can take advantage of the possibilities offered by the Internet and e-business solutions to enter foreign markets, how can competitive advantage be achieved? What can be done to beat the competition and achieve success? One solution to this problem, which is being recognised by a growing number of firms, is to focus on relationships with other entities (e.g. customers, suppliers, competitors, influential bodies). From a theoretical perspective, the role of relationships and the resulting business networks is accounted for in the network approach adopted in this book. The network approach emphasises the importance of the company’s relationships with various external entities in its environment (buyers, suppliers and competitors) (Håkånsson 1982; Easton and Araujo 1989). On the international level, these relationships determine the firm’s behaviour during the internationalisation process (Fonfara 2014b), which is also affected by relationships with internal entities such as the company’s own business units (Fonfara 2012; Ratajczak-Mrozek 2014). By focusing on the role of relationships for creating competitive advantage in the context of foreign business activity, we have taken another step forward in investigating the impact of relationships on the development of competitive advantage. With this objective in mind, we have proposed the concept of internationalisation maturity, which is defined by taking into account the network approach. Maturity is perceived as the state of development (Merrian-Webster, Learners Dictionary.com), which is why it is a continuous variable that can vary between low and high levels. In order to define the link between internationalisation maturity and the company’s competitive advantage, we have tried to operationalise the concept of business relationships by identifying a set of key relational characteristics and determinants which affect the company’s competitive advantage. We refer to these characteristics and determinants as components of the company’s internationalisation maturity.

138

Conclusions

The nine components of internationalisation maturity include:  the duration of the internationalisation process,  the level of formalisation in the internationalisation process,  the level of advancement of forms of internationalisation,  the level of openness to cooperation,  the level of trust,  the level of conflicts,  psychic distance,  cooperation with external partners,  cooperation with internal partners. In this book we argue that a higher level of internationalisation maturity increases a firm’s likelihood of achieving relatively better performance than those of its closest competitors. The relevance of particular components of maturity in terms of their impact on performance were validated in a qualitative and quantitative study. The qualitative study revealed that the firm’s competitive advantage is most significantly affected by the following four components of internationalisation maturity:  the duration of the internationalisation process,  the level of formalisation in the internationalisation process,  the level of openness to cooperation,  cooperation with internal partners (in the case of firms with more complex organisational structures). The quantitative study has provided evidence to support the existence of positive correlations between an aggregated performance indicator and three other components: the level of advancement of forms of internationalisation, the level of trust, and cooperation with external partners. In addition, results of cluster analysis indicate that firms which perform better compared to their direct competitors share the following characteristics: firstly, they tend to have a longer history of internationalisation; secondly, they are more open to cooperation, are perceived as more trustworthy and have more trust towards their partners, operate in markets characterised by higher psychic distance and experience fewer conflicts; and thirdly, they have higher levels of cooperation with external and internal partners. The empirical results have been used to suggest ways in which companies can try to increase their internationalisation maturity in an effort to build their competitive advantage. This is an important question since there are different paths leading to a higher level of

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internationalisation maturity; which path a given company should take depends on a set of moderators, which have been identified in the process of analysing the empirical data. They include:  company size,  organisational structure (whether the entity is a formally independent firm or part of a larger organisational structure, such as an international corporation),  industry or sector. It has been found that the moderators have an influence on all the components of internationalisation maturity, although the level of trust is the least affected. While there are no universal solutions that will work for all firms, it is possible to recommend certain ways in which companies can increase their internationalisation maturity and, consequently, improve performance and competitive advantage. In general, firms should take measures in different areas. Firstly, they should collect knowledge about the foreign market(s) (including knowledge about cultural differences) and the internationalisation process itself. Secondly, the internationalisation process should contain certain elements of formalisation, e.g. a strategic plan that specifies target markets of expansion. Thirdly, companies should establish their presence in the market, at least by personally visiting and maintaining close contacts with key partners, no matter what forms of expansion are being used (which also depends on company size and the industry in which it operates). Fourthly, it is not the mere fact of maintaining business relationships that matters but, more importantly, the selection of appropriate partners (e.g. distributors, final customers) and the choice of appropriate criteria for partner selection. As regards existing relationships with cooperating partners, firms should make an effort to project an image of trustworthiness (by developing their reputation for reliability and benevolence) and to develop a system of conflict resolution. All of these activities should contribute to increasing the level of internationalisation maturity and, as a result, help firms to improve performance and achieve competitive advantage.

NOTES

1

The procedure combining quantitative and qualitative research was used in previous projects conducted by the research team headed by Prof. Krzysztof Fonfara: “The firm’s behaviour in the internationalisation process (the network approach)” 2006–2008 (Fonfara 2009) and “Development of network relationships in the internationalisation process” 2009–2011 (Fonfara 2012).

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CONTRIBUTORS

Deszczyński Bartosz, Associate Professor, Poznań University of Economics and Business, Poland. Main publications:  Deszczyński, Bartosz, Krzysztof Fonfara and Adam Dymitrowski. 2017. “The Role of Relationships in Initiating the Internationalisation Process in B2B Markets.” Entrepreneurial Business and Economic Review, 5 (4).  Deszczyński, Bartosz. 2016. “The Impact of Opportunity Management on the Relationship Business Model (A Study in the Polish Housing Industry).” Journal of Eastern European and Central Asian Research 3(2): 1-10.  Deszczyński, Bartosz. 2016. “The Maturity of Corporate Relationship Management.” Gospodarka Narodowa 3(283): 73– 104.  Deszczyński, Bartosz, Miłosz Łuczak, and Marcin Wieczerzycki. 2016. “Social media as a tool to support building relationships in the international market.” In Changes and Challenges in the Modern World Economy. Recent Advances in Research on International Economics & Business, edited by Tomasz Rynarzewski, and Maciej Szymczak, 349–69. Poznań: Poznań University of Economics and Business. Dymitrowski Adam, Associate Professor, Poznań University of Economics and Business, Poland. Main publications:  Dymitrowski, Adam. 2014. The Role of Innovations Created in the Internationalization Process for Company Performance. Warszawa: Wydawnictwo Naukowe PWN.  Fonfara, Krzysztof, Adam Dymitrowski, and Łukasz Małys. 2016. “Evaluation of the company internationalisation process: traditional and network perspective.” In Changes and Challenges in the Modern World Economy. Recent Advances in Research of International Economics & Business, edited by Tomasz Rynarzewski, and Maciej Szymczak, 26–45. Poznań: Poznań University of Economics and Business.

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 Fonfara, Krzysztof, Milena Ratajczak-Mrozek, and Adam Dymitrowski. 2013. “Company behavior in internationalization process and its performance.” Journal of Economics and Management 13: 27–38.  Dymitrowski, Adam. 2012. “Innovations Created in the Internationalisation Process as a New Type of Innovations.” Intercathedra 28(4): 13-8. Fonfara Krzysztof, Full Professor, Head of Department of International Marketing at the Poznań University of Economics and Business, Poland. Main publications:  Fonfara, Krzysztof, Milena Ratajczak-Mrozek, and Grzegorz Leszczyński. 2016. “Change and transformation of networks and relationships-Fundamental aspects of business reality.” Industrial Marketing Management 58: 187-9.  Fonfara, Krzysztof (ed.). 2012. The Development of Business Networks in the Company Internationalisation Process. Poznań: Poznan University of Economics Press.  Hooley, Graham, John Fahy, József Beracs, Krzysztof Fonfara, Gordon Greenley, and Boris Snoj. 2003. “Market orientation in the service sector of the transition economies of central Europe.” European Journal of Marketing 37(1/2): 86–106.  Fonfara, Krzysztof, and Marylyn Collins. 1990. “The internationalisation of business in Poland.” International Marketing Review 7(4): 86–99. Hauke-Lopes Aleksandra, Associate Professor, Poznań University of Economics and Business, Poland. Main publications:  Soniewicki, Marcin, and Aleksandra Hauke-Lopes. 2016. “Knowledge transfer in manufacturing companies in the internationalisation process.” In Changes and Challenges in the Modern World Economy. Recent Advances in Research on International Economics & Business, edited by Tomasz Rynarzewski, and Maciej Szymczak, 169–87. Poznań: Poznań University of Economics and Business.  Hauke-Lopes, Aleksandra. 2008. “Knowledge diffusion within focal enterprise of strategic network – how to meet challenges in global economy.” International Business and Global Economy 25: 309–19.

164

Contributors

Łuczak Miłosz, senior lecturer, Poznań University of Economics and Business, Poland. Main publications:  Deszczyński, Bartosz, Miłosz Łuczak, and Marcin Wieczerzycki. 2016. “Social media as a tool to support building relationships in the international market.” In Changes and Challenges in the Modern World Economy. Recent Advances in Research on International Economics & Business, edited by Tomasz Rynarzewski, and Maciej Szymczak, 349–69. Poznań: Poznań University of Economics and Business.  Łuczak, Miłosz, and Marcin Soniewicki. 2012. “Social media in the process of establishing customer relations on the international market.” Studia Oeconomica Posnaniensia 219: 256–64. Małys Łukasz, Associate Professor, Poznań University of Economics and Business, Poland. Main publications:  Zdziarski, Michał, Justyna Światowiec-Szczepańska, Mike Troilo, and Łukasz Małys. 2017. “Adventurous Foreign Direct Investment.” Journal of Management and Business Administration. Central Europe 25(2): 117–39.  Fonfara, Krzysztof, Adam Dymitrowski, and Łukasz Małys. 2016. “Evaluation of the company internationalisation process: traditional and network perspective.” In Changes and Challenges in the Modern World Economy. Recent Advances in Research of International Economics & Business, edited by Tomasz Rynarzewski, and Maciej Szymczak, 26–45. Poznań: Poznań University of Economics and Business.  Ratajczak-Mrozek, Milena, and Łukasz Małys. 2012. “Supply chain cooperation and company performance.” Argumenta Oeconomica 2(29): 89–108.  Ratajczak-Mrozek, Milena, Adam Dymitrowski, and Łukasz Małys. 2012. “Forms of internationalisation and company performance (research results).” Studia Oeconomica Posnaniensia 219: 212–22.

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Ratajczak-Mrozek Milena, Associate Professor, Poznań University of Economics and Business, Poland. Main publications:  Ratajczak-Mrozek, Milena. 2017. Network Embeddedness. Examining the Effect on Business Performance and Internationalization. Cham: Palgrave Macmillan.  Ratajczak-Mrozek, Milena, and Paweł Mielcarek. 2017. “Positive and negative effects of company`s relationships in internationalisation process.” Argumenta Oeconomica 38(1): 121– 44.  Fonfara, Krzysztof, Milena Ratajczak-Mrozek, and Grzegorz Leszczyński. 2016. “Change and transformation of networks and relationships-Fundamental aspects of business reality.” Industrial Marketing Management 58: 187-9.  Ratajczak-Mrozek, Milena. 2015. “The SME perspective on motives and success factors in cross-border mergers: The importance of network position.” IMP Journal 9(2): 136–62. Soniewicki Marcin, Associate Professor, Poznań University of Economics and Business in Poland. Main publications:  Soniewicki, Marcin. 2017. “The Importance of Market Orientation in Creating a Competitive Advantage of Micro, Small, and Medium-Sized Companies in the Internationalization Process.” In Optimal Management Strategies in Small and Medium Enterprises, edited by Milan B. Vemić, 1-21. Hershey: IGI Global.  Soniewicki, Marcin. 2016. “The Importance of Attitude to Knowledge and Innovation for Performance of Manufacturing Enterprises Operating Either Locally or Internationally.” International Journal of Management, Knowledge and Learning 1: 23–36.  Soniewicki, Marcin. 2015. The company's international competitive advantage – the role of knowledge, Warszawa: Difin.  Soniewicki, Marcin, and Łukasz Wawrowski. 2015. “The use of external knowledge sources by Polish private-owned and stateowned enterprises in the internationalization process.” Journal of Economics and Management 22(4): 75–96.

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Contributors

Wieczerzycki Marcin, Assistant Professor, Poznań University of Economics and Business in Poland. Main publications:  Wieczerzycki Marcin. 2016. “The Wisdom of e-crowds: Can Masses Create Value?.” International Journal of Management and Economics 51(1): 47–62.  Deszczyński, Bartosz, Miłosz Łuczak, and Marcin Wieczerzycki. 2016. “Social media as a tool to support building relationships in the international market.” In Changes and Challenges in the Modern World Economy. Recent Advances in Research on International Economics & Business, edited by Tomasz Rynarzewski, and Maciej Szymczak, 349–69. Poznań: Poznań University of Economics and Business.

INDEX business entity, 1, 2, 3, 4, 5, 20, 21, 26, 27, 36, 52, 53, 62, 78, 79, 82, 107, 110, 123, 137, 139 business episode, See business interaction business event, See business interaction business interaction, 1, 2, 3, 7, 8, 9, 17, 26, 34, 37, 48, 53, 54, 55, 103 business network, 3, 10, 27, 34, 35, 39, 48, 49, 51, 52, 53, 79, 82, 85, 137 business relationship, 1, 2, 3, 4, 6, 7, 8, 9, 10, 11, 12, 13, 15, 16, 17, 18, 19, 20, 26, 27, 28, 34, 35, 36, 37, 39, 44, 46, 48, 50, 51, 52, 53, 54, 55, 56, 58, 62, 63, 68, 77, 78, 79, 80, 81, 82, 83, 84, 86, 87, 89, 90, 93, 95, 96, 98, 99, 103, 105, 106, 111, 113, 118, 120,沀121, 122, 123, 124, 128, 129, 130, 131, 132, 133, 136, 137, 139 actor in, 4, 5, 7, 17, 18, 19, 26, 27, 129 influence on performance, 9, 14, 16, 49, 52, 53, 54, 57, 58, 64, 78, 79, 81, 82, 84, 88, 93, 94, 95, 98, 104, 105, 106, 107, 111, 113, 120 characteristics of business relationships, 3, 9, 10, 12, 13, 15, 16, 17, 64, 77, 78, 83, 84, 90, 93, 95, 100, 101, 109, 117, 121 characteristics of cooperation in the internationalisation process, 93, 100, 101, 102, 103 commitment in business relationships, 7, 8, 13, 14, 16, 35 company performance, 14, 15, 16, 28, 42, 43, 49, 52, 53, 55, 56, 57,

58, 82, 86, 88, 89, 91, 92, 93, 94, 95, 97, 98, 100, 101, 102, 103, 104, 105, 107, 110, 114, 115, 116, 118, 123, 125, 138 competitive advantage, 39, 40, 42, 43, 44, 45, 47, 48, 56, 63, 79, 80, 81, 82, 83, 92, 93, 104, 114, 117, 120, 129, 138 diamond model, 44 industry rivalry, 44 intellectual capital, 46, 47, 48, 50 internal resources, 45 measurement of, 42, 43, 64 positioning school, 44 relational resources, 48, 50 resource-based view, 8, 40, 44, 45, 46, 48, 51 VRIN resources, 41, 45 competitive strategy, 39 competitiveness, 38, 39, 48, 62 position-based approach to, 40, 41, 45, 51 resource-based approach to, 40, 41, 44, 45, 46, 48, 51 conflict, 12, 14, 15, 84, 90, 95, 100, 101, 103, 109, 132, 133, 138 in business relationships, 12, 56, 79, 93, 95, 99, 123, 124, 132, 133 outcomes, 14, 15, 56, 79, 94, 95, 100, 101, 102, 103, 116, 117, 120, 132 cooperation, 9, 10, 11, 12, 13, 14, 15, 16, 19, 20, 26, 27, 28, 39, 49, 51, 54, 55, 56, 62, 63, 78, 79, 82, 84, 88, 93, 94, 95, 98, 100, 101, 103, 104, 106, 107, 111, 124, 128, 130, 134, 136 with external entities, 82, 84, 104, 105, 108, 109, 111, 115,

168 116, 117, 120, 130, 134, 137, 138 with internal entities, 20, 27, 82, 84, 104, 106, 107, 108, 109, 112, 115, 116, 117, 118, 120, 123, 135, 138 determinants of business relationships, 9, 11, 64, 84, 93, 100, 103, 111, 117 duration of the internationalisation process, 84, 85, 87, 88, 89, 90, 115, 116, 117, 120, 122, 125, 126, 138 effects of business relationships, 53, 54, 56, 57 negative, 54, 56 positive, 54, 55 formal relationship, 22, 49, 50 formalisation in the internationalisation process, 81, 84, 85, 86, 89, 90, 92, 115, 116, 117, 120, 121, 122, 124, 126, 127, 136, 138, 139 forms of internationalisation, 23, 24, 26, 35, 62, 80, 83, 84, 85, 86, 87, 89, 90, 91, 92, 93, 115, 116, 117, 120, 122, 124, 128, 138 governance structure, 5, 6 informal relationship, 4, 49, 79, 81, 96, 97, 98, 99, 130 institutional relationship, 4, 18, 20, 49 intellectual capital, 46, 47, 48, 50, 51 internationalisation, 22, 24, 26, 27, 28, 29, 30, 33, 34, 36, 62, 63, 79, 80, 86, 89, 106, 121, 136 cooperation perspective, 28 deinternationalisation, 25 intensity, 25, 33 interpretation, 22, 23 level, 33, 34 levels, 29 process, 23, 24, 25, 26, 34, 35, 49, 85, 88 process characteristics, 85, 86, 88

Index speed, See speed of internationalisation strategic approach to, 36 internationalisation maturity, 61, 62, 65, 66, 67 areas, 67, 84, 85, 88, 93, 102, 104 components, 63, 64, 84, 113, 115, 116, 117, 118, 119, 120, 123, 138, 139 definition, 60, 61, 62, 113 level of, 63, 64, 114, 121, 126, 129, 130, 131, 133, 135, 138, 139 model of, 114 moderators, 114, 121, 122, 123, 124, 125, 139 modification of a model, 121 progress in, 121, 125, 126, 127, 129, 130, 131, 132, 133, 134, 135, 138 interpersonal relationship, See social relationship maturity, 59 business maturity, 59, 60 firm's internationalisation maturity, See internationalisation maturity model of internationalisation, 22, 28, 29, 30 network, 30, 33, 35 stage, 30, 31, 33 Uppsala, 26, 30 non-business entity, 4, 52 openness to cooperation, 81, 82, 95, 96, 99, 100, 101, 103, 104, 117, 120, 124 partners’ types competitor, 8, 19, 20, 27, 82, 106, 108, 130 distributor, 8, 87, 88, 95, 96, 97, 103, 105, 111, 124, 130, 131, 134 external, 17, 27, 52, 56, 78, 81, 82, 83, 104, 105, 117, 123, 124 internal, 17, 20, 21, 27, 62, 78, 82, 83, 104, 123, 135, 136

The Firm’s Internationalisation Maturity supplier, 8, 19, 26, 27, 82, 103, 106, 109, 130 performance, 63, 64, 79, 83, 85, 86, 89, 90, 91, 92, 93, 94, 95, 97, 98, 99, 100, 101, 102, 103, 104, 106, 108, 110, 111, 113, 115, 116, 118, 119, 121, 123, 138 market activity, 45, 54, 57, 59, 61 market share, 89, 97, 100, 102, 103, 108, 119 measuring, 89 net income, 108, 111 net sales, 89, 100, 103, 108, 111, 119 profit, 40, 45, 89, 92, 95, 97, 108, 111, 119 ROI, 89, 92, 108, 112, 119 sales, 42, 49, 57, 96, 97, 103, 105, 107, 124, 126, 129 psychic distance, 35, 82, 84, 94, 96, 97, 98, 99, 100, 101, 102, 103, 104, 116, 117, 120, 122, 123, 133, 138 relational resources, 48, 50 relationship characteristics, See characteristics of business relationships determinants, See determinants of business relationships formal, See formal relationship informal, See informal relationship

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institutional, See institutional relationship intellectual capital, 48, 50, 51 internal resources, 52 management, 15 quality, 8, 16, 58 relational resources, See relational resources strength, 16, 17, 101, 129 resources, 4, 22, 44, 45, 46, 47, 50, 51, 54, 55, 56, 61, 107, 127, 128 external, 8 internal, 45 scope of company's international activity, 56, 62 of company's international operations, 60, 61 of cooperation, 15, 56, 78, 82 of cooperation in internationalisation, 28, 63, 77, 84, 104, 106, 107, 110, 111, 112, 115, 117, 120, 123, 124 of relationship, 1, 54, 56, 58, 83 social exchange theory, 4, 6, 7, 8 social relationship, 3, 4, 18 speed of internationalisation, 25, 35 transaction cost theory, 4, 5, 6 trust in business relationships, 7, 8, 12, 13, 14, 78, 79, 84, 89, 90, 92, 93, 94, 99, 100, 101, 102, 103, 109, 115, 120, 131, 132, 136, 138