When firms go international: deliberate or random?

Abstract

Purpose The net outward investment position (NOIP) indicator is insufficient for the purposes of understanding firms’ internationalization decision-making behaviour. The indicator does not allow for the withdrawal of insights into the structure of an economy and is a weak predictor of the degree of foreign direct investment. The purpose of this paper is to argue that a typology of firms aggregated according to intrinsic characteristics of those firms is a better predictor of the degree of internationalization of an economy than the NOIP. Design/methodology/approach This paper uses a database of 2,133 firms located in Portugal with international operations, made available by AICEP, a government agency. This paper uses multiple correspondence and cluster analyses to build a typology of firms and obtains evidence of common characteristics of the constituent groups. Findings This paper identifies a typology of firms characterized by five types differentiated by firm age, length of internationalization process, sector of economic activity, legal status and psychological/cultural proximity. These variables suggest an evolutionary, iterative, self-learning approach to internationalization, which can be better explained by the combined use of the investment development path (IDP) framework, the Uppsala Evolutionary School and Vernon’s product life cycle theory. Additionally, this paper finds that the most striking differences between developed and developing host countries are in terms of the economic sector, legal status of the firm and belonging (or not) to an economic group. Originality/value This paper establishes a link between the IDP framework, the Uppsala Evolutionary School and Vernon’s product life cycle theory, using a categorization of firms made according to selected characteristics to understand the internationalization of firms.