Internationalizing in the Digital Economy

Internationalizing in the Digital Economy:
A Pan-European Study of Business-to-Business Electronic
Marketplaces
DISSERTATION
der Universität St. Gallen,
Hochschule für Wirtschafts-,
Rechts- und Sozialwissenschaften (HSG)
zur Erlangung der Würde eines
Doktors der Wirtschaftswissenschaften
vorgelegt von
Oliver Ohlen
aus
Deutschland
Genehmigt auf Antrag der Herren
Prof. Dr. Winfried Ruigrok
und
Prof. Dr. Søren Bisgaard
Dissertation Nr. 2638
Die
Universität
St.
Gallen,
Hochschule
für
Wirtschafts-,
Rechts-
und
Sozialwissenschaften (HSG), gestattet hiermit die Drucklegung der vorliegenden
Dissertation, ohne damit zu den darin ausgesprochenen Anschauungen Stellung zu
nehmen.
St. Gallen, den 29. Januar 2002
Der Rektor:
Prof. Dr. Peter Gomez
Preface
I would like to thank my supervisor Prof. Dr. Winfried Ruigrok for the ongoing
support and encouragement he has given me. Many thanks also go to Prof. Dr. Søren
Bisgaard who agreed to co-supervise the dissertation.
In addition, I would like to thank my colleagues at the Research Institute for
International Management (FIM-HSG) at the University of St. Gallen for good vibes
and fun all along. I am especially grateful to Dr. Simon Peck, Andreas Arni, and Dr.
Stefan Bornheim for their valuable time and input.
Finally, I would like to acknowledge the contribution of my parents. They provided me
with a lot of advice, enthusiasm, and support during all stages of this thesis.
St. Gallen, January 2002
Oliver Ohlen
Table of Contents
List of Figures ................................................................................................. IV
List of Tables................................................................................................... VI
List of Abbreviations......................................................................................VII
1.
Introduction................................................................................................1
1.1
Research Problem ....................................................................................1
1.2
Research Objective and Focus of Inquiry .................................................3
1.3
Structure of the Thesis .............................................................................5
2.
Business-to-Business Electronic Commerce ..............................................6
2.1
The Digital Economy Context..................................................................6
2.2
Definition and Economic Impact of B2B E-Commerce ..........................11
2.3
Foundations of Electronic Marketplaces.................................................16
2.3.1 Categorization of B2B Business Models ............................................16
2.3.2 Benefits of Electronic Marketplaces ...................................................21
2.3.3 Barriers to the Proliferation of Electronic Marketplaces .....................24
2.4
E-Marketplace Dynamics .......................................................................27
2.4.1 Economics of Network Markets .........................................................27
2.4.2 Customer Relationships and Business Partnerships ............................31
2.4.3 The Role of Speed..............................................................................36
2.4.4 Globalization of Business...................................................................41
3.
The Internationalization of the Firm .......................................................45
3.1
Defining Internationalization..................................................................45
3.2
Dimensions of the Internationalization Concept .....................................47
3.2.1 The Economic Dimension ..................................................................47
3.2.2 The Behavioral Dimension.................................................................52
I
3.2.3 The Process Dimension ......................................................................54
3.2.4 Synthesis: The Internationalization Framework ..................................56
3.3
The Field of International Business Research.........................................58
3.3.1 Economic Schools of Foreign Direct Investment ................................59
3.3.2 Behavioral Approaches to Internationalization ...................................72
3.3.3 The Process School of MNEs.............................................................75
3.4
4.
Conclusion: Internationalization and B2B Electronic Commerce ...........83
Research Methodology .............................................................................87
4.1
Research Questions................................................................................87
4.2
Research Design ....................................................................................90
4.2.1 Quantitative vs. Qualitative Research .................................................90
4.2.2 Synthesis: Triangulation Strategy .......................................................93
4.3
Quantitative Survey................................................................................97
4.3.1 Exploration ........................................................................................97
4.3.2 The Population...................................................................................99
4.3.3 Questionnaire Design .......................................................................100
4.3.4 Data Collection ................................................................................103
4.4
5.
Qualitative Interviews ..........................................................................106
Empirical Findings .................................................................................109
5.1
Results of the Quantitative Survey .......................................................109
5.1.1 Description of the Sample ................................................................109
5.1.2 Degree of Internationalization ..........................................................114
5.1.3 Internationalization Drivers ..............................................................117
5.1.4 International Market Selection..........................................................122
5.1.5 Market Entry Mode ..........................................................................127
5.1.6 International Configuration ..............................................................129
5.2
Results of the Qualitative Interviews ....................................................133
5.2.1 Participating E-Marketplaces............................................................133
5.2.2 Cross-Check of Survey Results ........................................................135
5.2.3 Managerial Decision-Making ...........................................................140
5.2.4 Changes in European B2B E-Commerce ..........................................143
II
6.
Discussion ...............................................................................................145
6.1
Internationalization Patterns of B2B E-Marketplaces ...........................145
6.1.1 The Why of Internationalizing..........................................................145
6.1.2 The Where of Internationalizing.......................................................150
6.1.3 The How of Internationalizing..........................................................155
6.2
Internationalization Theory and B2B Electronic Commerce.................161
6.2.1 Contributions and Shortcomings of Economic Schools.....................161
6.2.2 Contributions and Shortcomings of Behavioral Approaches .............168
6.2.3 Contributions and Shortcomings of the Process School ....................170
6.3
7.
Evaluation of the Methodological Approach ........................................175
Conclusions.............................................................................................177
7.1
Key Findings........................................................................................177
7.2
Implications for the Academic Debate..................................................180
7.3
Managerial Implications.......................................................................182
7.4
Suggestions for Future Research ..........................................................184
References ......................................................................................................186
Appendix A: Cover Letter .............................................................................222
Appendix B: Questionnaire ...........................................................................223
Appendix C: List of Interviews......................................................................227
Appendix D: Interview Pro Forma................................................................228
III
List of Figures
Figure 1: Foundations of the Internet revolution ................................................10
Figure 2: West European online B2B trade 2001-2004 ......................................14
Figure 3: The evolution of the global B2B marketplace landscape .....................16
Figure 4: The B2B matrix ..................................................................................17
Figure 5: B2B categorization scheme.................................................................21
Figure 6: The role of speed in the development path of a B2B start-up ..............40
Figure 7: The internationalization framework ....................................................57
Figure 8: Alternative routes of servicing markets ...............................................71
Figure 9: The internationalization framework in light of theoretical strands.......85
Figure 10: Overview of the research design .......................................................97
Figure 11: Geographical distribution of European B2B e-marketplaces ...........100
Figure 12: Survey homepage............................................................................102
Figure 13: Front-end design of the Internet-based survey.................................103
Figure 14: Survey preparation and administration process ...............................105
Figure 15: Daily cumulative responses.............................................................106
Figure 16: Age of European electronic marketplaces .......................................111
Figure 17: Time-to-market cycles of European electronic marketplaces...........112
Figure 18: Geographical distribution of sample firms.......................................113
Figure 19: Targeted industries by responding e-markets...................................114
Figure 20: Number of countries with operating businesses...............................115
IV
Figure 21: Degree of internationalization.........................................................117
Figure 22: Internationalization drivers .............................................................118
Figure 23: Internationalization drivers and firm age .........................................120
Figure 24: International market selection criteria .............................................123
Figure 25: Entry barriers..................................................................................125
Figure 26: Market entry mode..........................................................................128
V
List of Tables
Table 1: The global B2B e-commerce market 2000-2004 ..................................13
Table 2: B2B volume in West European countries 2001-2005 ...........................15
Table 3: Potential cost savings from B2B e-commerce in US industries.............24
Table 4: The impact of speed on the internationalization of B2B ventures .........41
Table 5: Comparison of quantitative and qualitative research.............................92
Table 6: Sample selection test..........................................................................110
Table 7: Number of countries and firm age ......................................................116
Table 8: Internationalization drivers and key contingencies .............................121
Table 9: International market selection criteria and key contingencies .............124
Table 10: Entry barriers and key contingencies................................................127
Table 11: International configuration ...............................................................130
Table 12: International configuration and key contingencies............................132
Table 13: Electronic marketplaces participating in the qualitative interviews ...133
Table 14: International business research in the context of the empirical results174
VI
List of Abbreviations
ARPA
Advanced Research Projects Administration
B2C
Business-to-consumer
B2B
Business-to-business
C2C
Consumer-to-consumer
CEO
Chief executive officer
CFO
Chief financial officer
CIO
Chief information officer
CRM
Customer relationship management
DOI
Degree of internationalization
EDI
Electronic Data Interchange
ERP
Enterprise resource planning
FDI
Foreign direct investment
IT
Information technology
MNC(s)
Multinational corporation(s)
MNE(s)
Multinational enterprise(s)
MRO
Maintenance, repair, and operation
NSF
National Science Foundation
OEM(s)
Original equipment manufacturer(s)
R&D
Research and development
RFP
Request for proposal
SME(s)
Small and medium-sized enterprise(s)
SSL
Secured Socket Layers
TCP / IP
Transmission Control Protocol / Internet Protocol
UK
United Kingdom
URL
Uniform Resource Locator
US
United States (of America)
USD
US Dollar
USe
University of St. Gallen eConomy Project
VAS
Value-added services
VII
VC
Venture capital
XML
Extensible Markup Language
VIII
1. Introduction
1.1 Research Problem
Chapter three of the Internet economy is being written: in the initial hype phase, the
business press and self-appointed Internet pundits were arguing that electronic
business changed everything and that the old principles of economics and strategy no
longer applied. In view of casualties among once high profile Internet start-ups and the
sharp decline in Internet firms’ stock market valuations, the succeeding de-hype phase
has left a trail of vanquished entrepreneurs and disillusioned shareholders. These
periods of irrational exuberance and exaggerated depression are now superseded by an
increasing realism as to what the Internet and electronic business will change and will
not change.
Undoubtedly, the world has entered the age of the Internet, a globe-spanning
technology, which has taken hold in a tremendous and unprecedented way. Innovations
in information and communication technologies and the increasing inter-linkage of
economic actors through the Internet offer new forms for social and economic
enterprise, new versatility for business relationships and partnerships, and new scope
and efficiency for markets (Brynjolfsson & Kahin, 2000, p. 1). The ongoing shift in
the economic landscape has many names: an ‘Internet economy’ (cf. Wiseman, 2000),
an ‘information economy’ (cf. Shapiro & Varian, 1999), a ‘new economy’ (cf. Kelly,
1998), or a ‘digital economy’ (cf. Tapscott, 1996). Among academia, business leaders,
and governments there is a general consensus that the Internet causes profound
economic changes (Haltiwanger & Jarmin, 2000, pp. 13-14). However, many Internet
firms were forced to realize that durable economic principles do also hold for the
digital environment. Or, as Shapiro and Varian (1999, pp. 1-2) put it: “Technology
changes. Economic laws do not.”
1
The academic contribution to the understanding of the digital economy so far is rather
limited. There were early business school attempts to plot designs for research and
analysis, most notably MIT’s ‘Inventing the Organization of the 21st Century’ project
and Vanderbilt’s ‘Project 2000’. Yet, most of the current research deals with rather
specific issues of the phenomenon such as pricing disparities on the Internet (cf. Smith,
Bailey, & Brynjolfsson, 2000). Little time has been spent to date studying the
underlying principles of the digital economy, and their implications for organizations
and business models (Orlikowski & Iacono, 2000, p. 18). As a result, academia has
neither articulated the central issues related to this unprecedented phenomenon, nor
has it identified the common definitions and appropriate research methods necessary to
explore this phenomenon and upon which implications for both theory and practice
may be drawn (Amit & Zott, 2001, p. 494). In many cases, market research firms and
management consultants are ahead of the academic world in publishing their
contributions in reports, journal articles, and books. However, those publications are
primarily “how-to” guides that lack a thorough approach to understanding and to
explaining the changes brought about by the Internet (cf. for example Kelly, 1998;
Aldrich, 1999; Hagel & Singer, 1999; Schwartz, 1999; Evans & Wurster, 2000;
Modahl, 2000; Slywotzky & Morrison, 2000).
In general, the Internet makes business less local, more cross-national, and especially
more global, in line with a long-term trend toward market liberalization and reduced
trade barriers (Brynjolfsson & Kahin, 2000, p. 2). Potentially, companies doing
business through the Internet have to be prepared to operate on a global scale from the
outset (Quelch & Klein, 1996, p. 10). Although the theoretical foundations of
international business are based on a thorough and long-standing body of research,
these theories do not seem to fully apply to small, entrepreneurial Internet firms
(Brush, 1995, pp. 31-34; Oviatt & McDougall, 1999, pp. 27-28). In this context,
Hamill (1997, p. 316) points out that the impact of the Internet on internationalization
processes is not reflected in the academic literature, which is in danger of becoming
outmoded. He therefore advocates a major research initiative to develop new
theoretical models that take account of Internet-enabled internationalization (Hamill,
1997, pp. 316-317). Similarly, Koch (2001, p. 359) concludes that the increasing
2
importance of the Internet and electronic business necessitates a corresponding shift in
the discussion of conventional views of internationalization. Clearly, the scholarly
literature provides notable contributions in fields that are related to the foreign
expansion of Internet businesses: for instance, there are recent attempts to
systematically investigate the impact of the Internet on business transactions between
organizations (cf. Gattiker, Perlusz, & Bohmann, 2000; Williams, Dale, & Visser,
2001; Lucking-Reiley & Spulber, 2001). Other publications examine how electronic
business is transforming the international marketing of small and medium-sized
enterprises (cf. Quelch & Klein, 1996; Hamill, 1997; Wymbs, 2000; Tiessen, Wright,
& Turner, 2001). However, there is a dearth of empirical evidence as most publications
are based on more experience than research and tend to quote as examples the same
few companies (Williams et al., 2001, p. 41). The existing empirical studies such as
e.g. consultant firm Roland Berger’s ‘Going to Europe’ (cf. Kintz, 2000) are seldom
linked to conceptual schemes or theories (Gattiker et al., 2000, p. 126).
To put it briefly: if we are to comprehend Internet-enabled internationalization
processes, the peculiarities of online businesses and the distinct contextual factors of
the Internet deserve more attention in academic research. It is hard to avoid the
conclusion that there is an obvious need for gathering empirical evidence on
internationalizing in the digital economy. The upcoming section sets out the
dissertation’s research objective and the scope of inquiry.
1.2 Research Objective and Focus of Inquiry
The objective of the dissertation is to explore the internationalization of European
business-to-business electronic marketplaces. In other words, the study’s governing
research question can be formulated as follows: What are the emerging
internationalization
patterns
of
European
business-to-business
electronic
marketplaces? On the basis of examining the degree of internationalization, underlying
drivers which initiate and shape the foreign expansion of e-marketplaces will be
investigated. Moreover, closer insights into B2B Internet firms’ internationalization
strategy, i.e. target market selection and entry mode, will be gained. In addition, it is
3
intended to ascertain the outcome of the foreign expansion process, i.e. as to how emarkets organize their value creation on an international basis.
From an academic perspective, it is not clear to what extent established
internationalization theories and concepts that rely on assumptions that applied to the
‘old economy era’ do also hold for the foreign expansion of B2B Internet firms. Thus,
the dissertation begins to fill this gap and aims to provide one piece of knowledge for
the scholarly literature in this field. From the practitioners’ point of view, the managers
who best understand the changes taking place will be in the best position to shape
those changes. The opportunities of the emerging digital economy are vast, yet of
necessity few business decisions in this area have been able to draw on a significant
research foundation (Smith et al., 2000, p. 125). Therefore, the thesis intends to
support strategic management decisions regarding the internationalization of businessto-business electronic marketplaces.
The inquiry focuses on the internationalization of European business-to-business
electronic marketplaces. The focus on B2B e-commerce is made for the following
reasons: first, the differences between business-to-consumer and business-to-business
electronic commerce in terms of target group, value proposition, marketing, fulfillment
and logistics processes are fundamental. There is reason to expect that the
internationalization of B2C and B2B Internet firms is governed by dissimilar drivers
and strategic objectives and unfolds in a different way. Thus, it seems reasonable in
this early stage of academic evidence to concentrate on one area of electronic
commerce in order to gain meaningful, in-depth insights. Second, whereas the most
visible developments and success stories have been in the business-to-consumer area,
the vast majority of transactional activity in electronic commerce will be in the
business-to-business part of the value chain (Karakaya & Charlton, 2001, p. 48).
Third, the emergence of electronic marketplaces lays the foundation for profound
changes concerning business models, supply chain organization, and industry structure
(Lucking-Reiley & Spulber, 2001, p. 66). Therefore, B2B e-commerce is a challenging
field of research in general and for exploring Internet-enabled internationalization
processes in particular.
4
The geographical focus on Europe is made for two reasons: one is the lack of empirical
studies examining the foreign expansion of European business-to-business emarketplaces. In addition, as compared to e.g. US e-markets with their large domestic
base, European online intermediaries need to be highly adaptable to differences in
regulations, languages, and cultural aspects on a regional, country-by-country, or even
pan-European basis (Skinner, 2000, p. 40). Hence, the internationalization of business
activities can be seen as one major strategic challenge for B2B electronic marketplaces
in Europe (cf. Zeller, 2000, p. 26).
1.3 Structure of the Thesis
The thesis is organized as follows: subsequent to this introduction, Chapter 2 provides
a literature review on business-to-business electronic commerce. In Chapter 3, the field
of academic research on the internationalization of the firm will be reviewed. The
concluding section synthesizes the findings of Chapters 2 and 3 and clarifies the
current state of the academic debate with regard to the underlying research problem.
Chapter 4 sets out the dissertation’s research questions and the methodology which has
been applied to examine the internationalization of B2B Internet firms. In Chapter 5,
the empirical findings from the quantitative survey and the qualitative interviews will
be presented. Chapter 6 discusses emerging patterns of internationalizing business-tobusiness electronic marketplaces and considers the results in light of existing theory
and research. The final chapter summarizes the dissertation’s key findings, draws
conclusions for the academic debate and business practice, and provides suggestions
for future research.
5
2. Business-to-Business Electronic Commerce
The literature review on business-to-business electronic commerce has the following
structure: subsequent to delineating the digital economy context and defining B2B ecommerce, Section 2.3 depicts the basic conceptual foundations of electronic
marketplaces. Thereafter, relevant competitive dynamics of digital intermediaries will
be examined in Section 2.4.
2.1 The Digital Economy Context
Business-to-business electronic commerce is rooted in the larger context of the
emerging digital economy. Correspondingly, this section provides a definition of the
digital economy phenomenon, puts forward its sub-sectors, and briefly delineates the
underlying technological enablers IT and the Internet. In various publications, the
terms new economy and information economy are often used interchangeably with
digital economy (cf. for example Tapscott, 1996; Whinston, Stahl, & Choi, 1997;
Cortada, 2001). These are overlapping but signify different concepts: the new economy
focuses on macroeconomic effects of business activities that are enabled by
information and communication technology – emphasizing an enduring period of
simultaneous economic growth, low inflation, and low unemployment (Kling & Lamb,
2000, p. 296). Arising in the latter 1990s, this new paradigm of macroeconomic
behavior led to an optimistic reading of the Western economies’ prospects for
sustaining rapid expansion and rising real incomes without generating inflationary
pressures. Yet, among academic economists the consensus of optimistic projections
increasingly holds a wait-and-see attitude, on the argument that it remains premature to
try reading structural causes what may well be transient or cyclical movements (David,
2000, pp. 50-51). Hence, some might agree with the statement of Micklethwait and
Wooldridge (2000a): “Globalization shows that the old economy is being quite
inventive as ever; there is no need to invent another one.” (Micklethwait &
Wooldridge, 2000a, p. 109). Nonetheless, one should not forget that there has been a
6
wave of innovation in the last years, much of it tied to IT, driving greatly improved
economic performance and affecting old as well as new firms (Baily & Lawrence,
2001, p. 8). The term information economy refers to the broad, long-term trend toward
the expansion of information- and knowledge-based, intangible assets and value
relative to the tangible assets and products associated with agriculture, mining, and
manufacturing (Brynjolfsson & Kahin, 2000, p. 2). In essence, the information
economy deals with the development, production, and sale of information goods, e.g.
books, databases, magazines, software, stock quotes, etc. In this concept, information
is anything that can be digitized, i.e. encoded as a stream of bits (Shapiro & Varian,
1999, p. 3). Although economists and governments continue to herald the arrival of the
information economy, the collection of hard economic data on this phenomenon is not
yet fully institutionalized and there is no solid agreement about what makes up this
new sector (Cortada, 2001, p. 9).
The term digital economy denotes the recent and still largely unrealized transformation
of all sectors of the economy by the IT-enabled digitization of information
(Brynjolfsson & Kahin, 2000, p. 2). Kling and Lamb (2000) define the digital
economy as follows: “ (...) the digital economy includes goods or services whose
development, production, sale, or provision is critically dependent upon digital
technologies” (p. 297). The concept of the digital economy includes some forms of
production that are excluded from the information economy, such as computercontrolled manufacturing, while the information economy includes many services that
are only partly included in today’s digital economy, such as legal services and
entertainment. Kling and Lamb (2000, p. 297) acknowledge that the Internet is the
major enabler of growth in cyberspace. However, proprietary networks such as
corporate intranets, Electronic Data Interchange (EDI), etc., which will continue to
play an important role in the next years, are also part of this concept. The digital
economy is based on four sub-sectors, which represent a significant level of economic
activity that is expected to grow in the next decades (Kling & Lamb, 2000, pp. 297299):
7
1. Highly digital goods and services: These are those goods that are delivered
digitally and services of which substantial portions are delivered digitally.
Examples include most financial services, online information services, electronic
journals, software sales, etc.
2. Mixed digital goods and services: These include the retail sale of tangible goods,
such as books or flowers over the Internet, as well as services such as travel
reservations. While a significant fraction of some of these products, such as music,
may be sold in purely digital form within the next decade, there is a durable market
for tangible goods. In practical terms, the retail sale of tangible goods via the
Internet usually rests on the availability of inventory, distribution points, and highquality delivery services as well as marketing and secure banking to support the
front-end of the transaction.
3. IT-intensive services or goods production: These are services that depend critically
on IT for their provision (e.g. complex engineering design). They also include the
manufacture of tangible goods in whose production IT is critical (e.g. computerized
control of chemical plants).
4. The segments of the IT industry that support these three segments of the digital
economy: The goods and services of the IT industry that most directly support the
foregoing three segments of the digital economy include a large fraction of the
computer networking industry, PC manufacturing, and some IT consulting firms.
Today’s rapid pace of change and the emerging digital economy are mainly driven by
advances in information technology and networking infrastructure (Shapiro & Varian,
1999, p. 8). In 1965, Gordon Moore, the co-founder of Intel, projected that the
processing power of a silicon chip would double every 18 months (Coyle, 1999, p. 3).
Moore’s law, as it came to be called, has held remarkably well since the 1960s.
Scientists reckon that Moore’s law will hold for at least another decade (Woodall,
2000, p. 5). This enormous increase in computer processing capacity and a
simultaneous decline in costs have continuously improved the price-performance ratio
of IT (Zerdick, Picot, Schrape, & Artopé, 2001, p. 150). As of today, a car contains
more computing power than the multimillion-dollar mainframe computers used in the
Apollo space program (Woodall, 2000, p. 5). In the most recent years, the evolution of
8
the computer and its uses has continued: computers have burrowed inside conventional
products as they have become embedded systems. Moreover, computers have
connected outside to create the worldwide web or Internet: a distributed global
database of information all accessible through a single global network (Cohen,
DeLong, & Zysman, 2000, p. 12).
The technology today referred to as the Internet originated in the early 1960s when a
division of the U.S. Department of Defense, the Advanced Research Projects
Administration (ARPA), developed a system called the ARPAnet to link together
universities and high-tech defense contractors (Wiseman, 2000, p. 7). In the mid1980s, the National Science Foundation (NSF) created the NSFNET in order to
connect its supercomputer centers as well as to provide connectivity for a wide variety
of research and educational uses (MacKie-Mason & Varian, 1996, pp. 107-108). The
NSFNET adopted the TCP / IP protocol (Transmission Control Protocol / Internet
Protocol) and provided a high-speed backbone for the developing Internet. In essence,
the Internet evolved as a world-wide network of computer networks that use the
common TCP / IP communications protocol (MacKie-Mason & Varian, 1994, p. 75).
In comparison to established mass media such as radio or TV, the speed of diffusion of
the Internet is unprecedented. Rapidly, the Internet has become a common medium for
commerce, marketing, and distribution, as well as invention, entertainment, and
discussion (McKnight, 2001, p. 40).
The explosion of Internet connections since the development of the graphical browser
interface in 1993 is based to a great extent on the interplay between technological
innovations (technology push) and user demand (market pull) (Zerdick et al., 2001, pp.
151-156): on the technological side, one push factor is digitalization, i.e. the
transformation of information into a stream of bits, through which information can be
manipulated and stored by processors and transmitted via computer networks. The
second push factor is the performance enhancement of information technology as it is
projected by Moore’s law. Further push factors are the miniaturization of IT
components as well as the standardization of operating systems and transfer protocols.
On the demand side, user benefits are created by the interactive nature of the Internet,
9
which enables the individualization of content and customer relationships.
Furthermore, real-time access forms the basis for instantaneously retrieving
information independently of time and physical distance. The reduction of transaction
costs and the ability to provide multimedia offerings represent additional pull factors.
Figure 2 visualizes the interplay between technology push and market pull factors
which foster the diffusion of the Internet.
Technology Push
•Digitalization
•Enhanced performance
•Decreasing size (miniaturization)
•Standardization
Internet Users
t
Market Pull
Time
•Interactivity and individualization
•Real-time access
•Reduction of transaction costs
•Multimedia offerings
Figure 1: Foundations of the Internet revolution
Source: Adapted from Zerdick, Picot, Schrape, & Artopé (2001, p. 156)
In combination, information technology and the Internet have four distinct features
(Woodall, 2000, p. 10). First, IT is pervasive, i.e. it can increase efficiency in almost
everything a firm does, from design to marketing to accounting, and in every sector of
the economy. Second, by increasing access to information, IT helps to make markets
more efficient, reduces transaction costs and barriers to entry. At first sight, this seems
plausible. Nonetheless, recent empirical studies of the efficiency of Internet markets
have revealed mixed results: accordingly, menu costs and price levels are lower in
Internet markets than offline. Yet, three studies have found high levels of price
dispersion in Internet markets – a finding inconsistent with a strong efficiency view
(Smith et al., 2000, pp. 105-106). Third, as more and more knowledge can be stored
digitally and sent anywhere in the world at negligible cost, IT has helped to globalize
10
production and capital markets. Fourth, IT spurs innovation, by making it easier and
cheaper to process large amounts of data and reducing the time to design new
products. In fact, information technology represents the fundamental enabler of the
digital economy, yet the shape of this phenomenon strongly depends on where and
how these new technological appliances are used by industries, organizations, and
people (Cohen et al., 2000, p. 4).
2.2 Definition and Economic Impact of B2B E-Commerce
The plethora of publications related to the digital economy in business press, in market
research reports, and in academic papers resulted in a confusing and often misleading
cacophony of new concepts and buzzwords. Therefore, this section clarifies the central
terms underlying this review on B2B e-commerce and assesses the potential economic
impact of electronic marketplaces. In the digital economy context, an important
proportion of value creation is generated through the conduct of electronic business. In
general, e-business refers to the technology-enabled seamless integration between the
customer and the company, between the employee and the company, and between the
company and its suppliers and partners (O’Connell, 2000, p. 14). A subset of electronic
business, electronic commerce is defined by “ (...) the automation of commercial
transactions using computer and communication technologies” (Westland & Clark,
1999, p. 1). Internet e-commerce includes electronic trading of physical goods and of
intangibles such as information. This encompasses all the trading steps such as online
marketing, ordering, payment, and delivery support as well as the electronic provision
of services such as after-sales support (Timmers, 1999, p. 4). There is not likely to be a
unique definition of electronic business and of electronic commerce, yet for the
purpose of the thesis this broad understanding of what these terms are about seems to
be appropriate. The corporate actors in the realm of electronic commerce are firms that
derive a significant or rapidly growing proportion of their revenues from transactions
over the Internet. (Amit & Zott, 2001, p. 500).
Commercial transactions via the Internet can transpire from consumer to consumer,
business to consumer, and from business to business. Consumer-to-consumer (C2C)
11
models, often referred to as virtual communities, enable consumers to sell goods or
services, to share member-generated information, and to interact with each other
(Hagel & Armstrong, 1997, pp. 4-5). Business-to-consumer (B2C) e-commerce
focuses on direct transactions between businesses and end consumers (Ah-Wong,
Gandhi, & Patel, 2001, p. 98). Examples in B2C electronic commerce appear in online
retailing of tangible goods such as books or computer hardware as well as intangible
goods such as software or financial services (May, 2000, p. 80). Media attention has
tended to concentrate on the part of e-commerce that involve consumers. Firms such as
Amazon, Yahoo, or eBay, which served as shining success stories during the Internet
hype, have received an impressive amount of publicity. However, the biggest
economic changes and the vast majority of transactional activity will be in the
business-to-business part of the value chain (Karakaya & Charlton, 2001, p. 48). This
is not surprising: B2B e-commerce mimics the physical world, where transactions
between businesses outnumber consumer sales ten to one. Moreover, most B2B
transactions are already done at a distance, by fax, mail, or EDI, and are more easily
migrated to the realm of Internet commerce (Westland & Clark, 1999, p. 2). Ecommerce transactions between businesses can imbue all levels of the supply chain
such as procurement, R&D, production, marketing, sales, and after-sales-services
(Hermanns & Sauter, 2001, p. 26). In many cases, B2B e-commerce transactions are
enabled by electronic marketplaces, which link many buyers and suppliers via the
Internet (Porter, 2001, p. 70). These digital intermediaries rely upon the
communication-enhancing nature of the Internet, and through it are able to provide
aggregation, expertise, search, facilitation, matching and settlement capabilities
(Chircu & Kauffman, 2001, pp. 48-49). In sum, the unique feature of electronic
exchanges is that they virtually bring multiple buyers and sellers together in one
central market space and enable those players to conduct transactions at a price which
is determined in accordance with the rules of the exchange (Sculley & Woods, 2000, p.
4).
As was mentioned above, B2B electronic commerce will outpace B2C online retailing
by a significant factor. Despite the recent decline of stock market valuations and the
expected consolidation among electronic exchanges, long-term prospects for B2B e12
commerce revenues remain strong. Table 1 compiles forecasts of first-tier market
research firms and investment banks for the global B2B Internet commerce market.
Source
2000
2001
2002
2003
2004
eMarketer (2001)
226
449
841
1,542
2,775
Forrester Research (2000)
604
1,138
2,061
3,694
7,290
Gartner Group (2001)
433
919
1,900
3,600
6,000
Goldman Sachs (2000)
357
740
1,305
2,088
3,201
Morgan Stanley Dean Witter (2000)
200
721
1,378
-
-
Average estimation
340
719
1,338
2,356
4,133
-
111%
86%
76%
75%
Year-over-year growth rate (average
estimation)
Table 1: The global B2B e-commerce market 2000-2004
Note: Billion USD
Source: As noted
Table 1 shows that the comparative estimates regarding the worldwide B2B ecommerce market volume differ significantly. To a great extent, this variance is rooted
in measurement problems of e-commerce transactions as well as in dissimilar
definitions and forecasting techniques. Moreover, the range of predicted values mirrors
the general problem of forecasting numbers which are subject to a plethora of
influencing factors in a rapidly emerging environment. For example, one primary
factor that will affect the accuracy of e-commerce projections over the coming years is
the rate of growth of the global economy. Another factor is the rate at which
businesses adopt e-commerce technology and migrate offline transactions to the
Internet. Both of these elements together with many other interrelating factors will
impact e-commerce projections, and it is fair to expect that the forecasts will be
revised as time goes on (Butler, 2001, p. 3). Notwithstanding these concerns with
reference to the accuracy of the forecasts, it can be inferred from the above that
business-to-business electronic commerce will continue to grow at a remarkable rate.
Hence, it is not a temporary fad hyped by the business press and self-appointed
Internet pundits. Rather, it will have a considerable impact on the economy in the
future. In Europe, online B2B trade is expected to amount to 33 percent of total sales
by 2005, depending on the industry (Homs, 2001, p. 6). Over the next 20 years,
13
investment bank Goldman Sachs reckons that ultimately 80 percent of total B2B
commerce will be conducted online on a worldwide basis (Berquist, Friedman, &
Kahl, 2000, p. 1).
The worldwide B2B e-commerce market can be further broken down by geographical
regions. Figure 2 below shows four competing forecasts of the West European B2B
market, which is in focus of this thesis. In essence, the projections of European online
B2B trade take the same direction as the global B2B market: significant growth over
the next years.
1800
1534
1600
Billion USD
1400
1272
1200
1000
766
674
800
871
Goldman Sachs (2000)
797
Durlacher (2000)
Jupiter MMXI (2001)
600
428
425
366
400
200
eMarketer (2001)
1024
227
159 174
334
133
52
0
2001
2002
2003
2004
Year
Figure 2: West European online B2B trade 2001-2004
Note: Billion USD
Source: As noted
Table 2 forecasts the European B2B online market on a per country basis. Not
surprisingly, Germany, the UK, and France equivalently to their leading economic
position in Europe are projected to realize the highest online B2B trading volume over
the next years.
Country
2001
2002
2003
2004
2005
Germany
54
136
284
502
810
14
UK
42
99
187
310
476
France
24
60
128
230
376
Italy
24
57
112
192
303
Spain
12
23
46
88
161
Netherlands
7
19
37
65
103
Switzerland
3
9
20
36
58
Belgium
3
6
14
26
42
Sweden
3
5
13
24
39
Austria
1
3
9
16
28
Denmark
1
3
6
13
21
Norway
1
3
6
13
21
Finland
1
2
3
8
14
Portugal
-
1
3
5
9
Greece
-
1
3
5
9
Ireland
-
1
2
3
7
Luxembourg
-
-
-
1
1
Table 2: B2B volume in West European countries 2001-2005
Note: Billion USD
Source: Jupiter MMXI (2001, p. 7)
As was mentioned earlier, business-to-business electronic commerce is still in an
infant stage yet the business landscape is rapidly emerging. In this highly volatile
environment, the population of digital marketplaces is expected to go through three
evolutionary phases (Walravens & Chung, 2000, pp. 6-7): during the growth phase, the
number of e-marketplaces worldwide is expected to increase to about 2,000 at the end
of 2001. Beginning in 2002, the consolidation phase will reduce the number of digital
marketplaces to about 1,250, i.e. an average of three online exchanges in each of about
75 economic sectors across five major geographical regions. In the quest for increasing
economies of scale and market liquidity, stronger players will acquire weaker ones and
laggards will be driven out of business. The maturity phase is expected to start in 2004.
It will be marked by increasing transaction volume and relative stability in the digital
marketplace landscape. Figure 3 visualizes the evolution of global B2B e-commerce.
In Europe, from ca. 500 e-marketplaces as of 2001 only about 100 firms are expected
to survive the consolidation phase by 2004 (MacAonghus, Henry, & Patel, 2001, p. 6).
15
2500
Growth
Consolidation
Maturity
Number
2000
1500
Number of e-marketplaces
1000
500
0
2000
2001
2002
2003
2004
2005
2006
Year
Figure 3: The evolution of the global B2B marketplace landscape
Source: Lehman Brothers (2000, p. 7)
2.3 Foundations of Electronic Marketplaces
The following sections delineate the basic foundations of electronic marketplaces.
Subsequent to categorizing B2B business models, potential benefits for corporations of
doing business via electronic intermediaries will be put forward. Thereafter,
technological, economic, and behavioral barriers to the adoption of electronic business
and the proliferation of digital marketplaces will be depicted.
2.3.1 Categorization of B2B Business Models
In general, a business model “ (...) depicts the content, structure, and governance of
transactions designed so as to create value through the exploitation of business
opportunities” (Amit & Zott, 2001, p. 511). This section categorizes B2B business
models according to five relevant dimensions in order to make sense of the rapidly
emerging e-marketplace landscape. First, by applying a two way classification scheme
16
– systematic sourcing versus spot sourcing (the ‘how’) and manufacturing inputs
versus operating inputs (the ‘what’) – four distinct trading models of electronic
marketplaces can be identified: MRO hubs, yield managers, exchanges, and catalog
hubs (Kaplan & Sawhney, 2000, p. 98). Whereas systematic or contract sourcing is
about creating efficiencies in existing buyer-seller relationships with planned, multiperiod buys, spot sourcing pertains to purchases of commodities, direct materials, or
manufacturing components and is centered on finding the optimal provider or product
in one-off events (LaCorte, 2000, p. 84). Manufacturing inputs are raw materials and
commodities that go directly into a product or a process. By contrast, operating inputs
are not parts of finished products and include things like office supplies, spare parts,
airline tickets, etc. (Kaplan & Sawhney, 2000, p. 98). Figure 4 shows the resulting
B2B matrix.
What businesses buy
Manufacturing
Inputs
Operating Inputs
Systematic
Sourcing
How
businesses
buy
Spot
Sourcing
MRO Hubs
Catalog Hubs
• Market: horizontal
• Strategic value:
Cost reduction
• Examples: Ariba,
Commerce One
• Market: vertical
• Strategic value:
Cost reduction
• Examples: Chemdex,
SciQuest.com
Yield Managers
Exchanges
• Market: horizontal
• Market: vertical
• Strategic value:
• Strategic value:
Optimal resource
Optimal resource
allocation
allocation
• Examples: Employease, • Examples: e-Steel,
Adauction.com
PaperExchange.com
Figure 4: The B2B matrix
Source: Adapted from Kaplan & Sawhney (2000, p. 99)
The four trading models of business-to-business marketplaces that are shown in Figure
4 can be characterized as follows (Kaplan & Sawhney, 2000, pp. 98-99): In MRO
hubs, the operating inputs tend to be low-value goods with relatively high transaction
17
costs. Thus, these marketplaces provide value largely by increasing efficiencies in the
procurement process. So-called yield managers create spot markets for common
operating resources such as manufacturing capacity, labor, and marketing, which
enable companies to expand or contract their operations at short notice. The strategic
value provided by this type of marketplaces refers to situations with a high degree of
price and demand volatility (e.g. electricity and utilities markets), or with important
fixed-cost assets that cannot be liquidated or acquired rapidly (e.g. manpower and
manufacturing capacity). Both MRO hubs and yield managers are characterized by a
horizontal market orientation, i.e. the marketplace provides a product category (e.g.
computer hardware or office supplies) or business process (e.g. procurement or
logistics) to different industries (Kollmann, 2001, pp. 84-85). Exchanges allow firms
to streamline peaks and valleys in demand and supply by rapidly trading the
commodities or near-commodities needed for production. Finally, catalog hubs
automate the procurement of non-commodity manufacturing inputs, creating value by
reducing transaction costs (Kaplan & Sawhney, 2000, pp. 99-100). Exchanges and
catalog hubs are vertical markets which serve a particular industry with a domainspecific line of products or services (Stapleton, Gentles, Ross, & Shubert, 2001, p. 17).
Each of the above trading models can follow different methods of exchange. The
catalog model aggregates product catalogs of many competing suppliers to provide a
one-stop procurement venue for buyers. It is usually applied for the sale of low-value
items that are bought frequently but in small quantities at fixed prices (Sculley &
Woods, 2001, pp. 83-84). The auction method relies on dynamic pricing where buyers
or sellers transparently bid on prices of clearly specified items (Oliver, 2001, p. 8).
Both buyer- and seller-driven auction formats are expected to become increasingly
popular for B2B marketplaces since they enhance efficiency while maximizing the
return for the buyer or the seller. Moreover, the auction format is well-suited to the
interactive, real-time attributes of the Internet (Sculley & Woods, 2001, p. 92). In the
stock market or bulletin board model, marketplace members negotiate directly or
communicate via RFPs (Requests for proposal). The electronic intermediary matches
offers and requests, anonymously connects the potential transaction parties on the
supply and demand side, and provides value-added services such as credit check or
18
payment (Kollmann, 2001, p. 87). In practice, many e-marketplaces offer more than
one exchange method, e.g. the combination of a bulletin board and an auction area.
Another dimension by which e-markets can be categorized is the ownership structure.
Independent, third-party providers make up the bulk of B2B marketplaces. Companies
such as PaperExchange and eSteel have set up a readily understood, neutral market
maker model, which characterized the establishment of B2B exchanges in the
beginning: capture a significant share of a particular B2B market and charge a small
fee for matching up buyers and sellers (Berryman & Heck, 2001, p. 18). Private
marketplaces are run by companies that are large enough to establish their own buyercentric marketplace and to dictate the rules of the engagement. In order to participate,
suppliers must be invited by the buyer and most follow the buyer’s procurement
processes. Examples include Wal-Mart for retail or General Electric for electronics
and industrial supplies (Oliver, 2001, p. 8). Recently, large incumbents took matters
into their own hands, banding together into industry consortia current trading partners
and competitors. While lacking the natural neutrality of third-party providers, those
industry-backed marketplaces can control a significant fraction of an industry’s
transactions and have access to ready capital (Christensen & Ferreira, 2000, p. 4).
Perhaps the most famous example is the General Motors, Ford, DaimlerChrysler,
Renault, and Nissan joint venture now called Covisint. Lastly, the government can
decide to build up electronic markets for its own procurement or as a service to local
SMEs providing reliable technology, legal protection of contracts, data security, and
payment transfer (Rowan, 1999, pp. 9-10).
The revenue model dimension “ (...) refers to the specific modes in which a business
model enables revenue generation” (Amit & Zott, 2001, p. 515). Business-to-business
electronic marketplaces can capitalize on a variety of basic revenue-generating modes.
First, B2B pricing most often takes the form of transaction fees, which are charged to
the seller, to the buyer, or to both. While there are countless variations on transaction
fees, most of them are based on a percentage of the transaction price usually ranging
from 0.5 to 5 percent (Kerrigan, Roegner, Swinford, & Zawada, 2001, p. 47).
Transaction fees as a major source of B2B revenues are expected to decline as basic
19
buy-sell coordination becomes a commodity over time (Andrew, Blackburn, & Sirkin,
2000, pp. 15-16). Instead of collecting fees by serving as a venue for transactions, B2B
firms can charge membership or subscription fees, which avoid the difficulty of
calculating myriad transaction fees (Kerrigan et al., 2001, p. 49). The second basic
B2B revenue stream is generated through a combination of service offerings. Digital
value-added services comprise information services such as customized data mining
analyses, content services such as industry news, and transaction-related services such
as insurance and payment. Physical value-added services are offered to support
warehousing, freight consolidation, and logistical requirements of the corporate
members (Raisch, 2001, pp. 237-238). As most e-marketplaces are likely to outsource
non-core VAS such as finance and logistics to established players in those fields,
value-added services are estimated to account for only 8 to 10 percent of the total
revenues by 2005. By contrast, so-called collaboration services, e.g. integrating the
participating companies’ IT systems and business processes, could represent 40 to 50
percent of the total revenues of e-marketplaces that provide such services (Andrew et
al., 2000, p. 16). Finally, other sources of B2B revenue generation encompass software
licensing, advertising and sponsorship, and gain sharing from improved supply chain
efficiencies or from prices lower than some agreed-upon benchmark (Kerrigan et al.,
2001, pp. 49-50). In many cases, a B2B revenue model is based on a composite of
these basic revenue-generating modes.
In conclusion, the combination of the five identified dimensions trading model, market
orientation, method of exchange, ownership structure, and revenue model determines
the shape of a distinct B2B business model. The resulting categorization scheme is
exemplified by Figure 5 below.
20
Trading Model
Dimensions
Elements
• MRO hub
• Yield Manager
• Catalog hub
• Exchange
Market
Orientation
• Horizontal market
• Vertical market
D1
Categorization
Method of
Exchange
Ownership
Structure
• Product catalog
• Auction
• Stock market /
bulletin board
• Combinations
D2
D3
Revenue Model
• Transaction /
• Independent /
subscription fees
third-party
• VAS /
• Private
• Industry consortia collaboration
• Other
• Government
• Combinations
D4
D5
E-marketplace = f (D1, D2, D3, D4, D5)
Figure 5: B2B categorization scheme
Source: Author
2.3.2 Benefits of Electronic Marketplaces
The potential benefits for corporations of doing business via electronic marketplaces
can be significant: by bringing together a large number of buyers and sellers and by
automating transactions, Internet-based markets can lead to efficiency gains for the
involved players in terms of transaction cost reductions, better supply chain
management, and expansion of market reach (Damanpour, 2001, pp. 21-22). Cost
savings in conducting transactions via electronic marketplaces can arise in various
ways: during the negotiation phase of the transaction, electronic business can reduce
the cost of communicating with counterparts in other companies regarding contract
details. Transactions via electronic networks avoid many of the associated cost of
interpersonal economic exchange, including the cost of travel, time spent on
communication, and processing paper documents (Lucking-Reiley & Spulber, 2001,
pp. 56-57). Efficiency gains during transaction settlement can be realized through
lower supplier-evaluation costs, automated approval processes, and fewer ordering
errors (Andrew et al., 2000, p. 10). In the clearing phase, electronic business allows
companies to track and confirm delivery, to monitor contractual performance as well
as to streamline accounts-payable-and-receivable processes (Lucking-Reiley &
Spulber, 2001, p. 57). Processing a purchase order manually, including paperwork,
data entry, phone calls, faxes, and approval requests can lead to costs ranging from
21
$125 to $175, so potential savings through online transactions can be significant. For
example, British Telecom estimates it has reduced its procurement costs from $113 to
$8 per transaction via Commerce One’s BuySite technology (Phillips & Meeker, 2000,
p. 31). Or, through purchasing via the electronic marketplace Covisint, Ford Motor
Company expected $350 million in savings during 2001 coming from lower process
costs and supplier prices (Grande, 2001, p. 19).
For corporate members to obtain real long-term value from an electronic marketplace,
it has to offer more than merely cutting suppliers’ margins and reducing process costs:
to be successful, it has to provide rich information capabilities that marketplace
participants can use throughout the whole transaction process (Hansen, Mathews,
Mosconi, & Sankaran, 2001, p. 33). For example, an electronic intermediary might be
able to provide a price discovery mechanism, to evaluate suppliers, or to offer
marketing and customer demand information to suppliers (Janssen & Sol, 2000, p.
409). Data must be readily available so that buyers obtain the information needed to
make immediate decisions, vendors obtain the information needed to match the right
customers with the right products at the right price, and suppliers obtain the
information needed to supply the vendor rapidly enough and with the level of
customization needed to satisfy the buyer (EIU, 2000, p. 46). In essence, the promise
of real benefits rests on the potential for seamlessly integrating data flows and work
processes across enterprises and even the entire supply chain (Agrawal & Pak, 2001, p.
22). Ideally, companies apply information generated by the transaction to update their
inventory, production, and accounting records by automatically linking the emarketplace with their own ERP and decisions support systems (Lucking-Reiley &
Spulber, 2001, p. 57). More efficient supply chain management can reduce the need
for inventory and hence lead to lower inventory costs. Furthermore, collaborative
design and project management among supply chain members create the potential for
improved products and lower cycle time (Andrew et al., 2000, p. 10). However,
realizing these opportunities is complex and costly. To devise appropriate solutions, it
is necessary to analyze what electronic marketplaces can and cannot do. For example,
they will not eliminate the time and cost it takes to deliver goods physically. But since
the information flow in supply chains is typically linear, fragmented, and error-prone,
22
e-markets can create real value in this area (Agrawal & Pak, 2001, p. 24): by
establishing transaction standards and common platforms, B2B markets can gather and
disseminate information spanning all levels of the supply chain and consequently can
provide means to realize substantial efficiency gains for the involved players.
Another potential benefit of electronic marketplaces is the expansion of everyone’s
market reach: without B2B markets, buyers can have great difficulty finding suppliers
with the right products and prices, and suppliers equal difficulty finding motivated
buyers (Kerrigan et al., 2001, p. 46). In electronic business, sellers can discover and
address new customers at much lower costs as compared to traditional marketing
avenues (Phillips & Meeker, 2000, p. 35). Especially for smaller suppliers, B2B emarketplaces constitute an affordable alternative to extend their reach beyond
traditional boundaries and to gain access to potential customers on a global level
(Mullane, Peters, & Bullington, 2001, p. 390). On the demand side, electronic
intermediaries potentially reduce buyers’ search costs of finding suppliers and provide
better information about product characteristics, prices, and availability (Garicano &
Kaplan, 2000, p. 5). To sum up, it can be inferred from the above that B2B ecommerce offers ample opportunities for lower transaction costs, better supply chain
management, and expanded market reach. These gains can range between 2 and 40
percent of total input costs depending on an industry’s level of fragmentation, its
characteristics of traded goods and services, and the general adaptability of its
traditional processes to electronic business (Coppel, 2000, p. 15). Table 3 shows
potential cost savings from B2B e-commerce in selected US industries. As was
mentioned earlier, one has to bear in mind that such estimates depend on numerous
assumptions and are inherently uncertain. Hence, the interpretation of these numbers
requires considerable caution. To reap the full potential of doing business via
electronic marketplaces, firms have to overcome various technological, economic, and
behavioral barriers, which will be depicted in the following section.
Industry
Potential cost savings
(as a percent of total input costs)
Aerospace
11%
23
Chemicals
10%
Coal
2%
Communications / bandwidth
5-15%
Computing
11-20%
Electronic components
29-39%
Food ingredients
3-5%
Forest products
15-25%
Freight transport
15-20%
Healthcare
5%
Life science
12-19%
Machining (metals)
22%
Media and advertising
10-15%
MRO services
10%
Oil and gas
5-15%
Paper
10%
Steel
11%
Table 3: Potential cost savings from B2B e-commerce in US industries
Source: Coppel (2000, p. 16)
2.3.3 Barriers to the Proliferation of Electronic Marketplaces
One of the fundamental technological barriers to the proliferation of B2B electronic
commerce is the lack of universal software and communication standards. Much of the
value created by e-marketplaces derives from the standards they establish, both in the
underlying technology platform and in the protocols for connecting and exchanging
information (Porter, 2001, p. 70). If standards are widely adopted, suppliers, buyers,
and service providers will be able to exchange data using generally recognized
formats. Developing and establishing such protocols will require extensive corporation
among software vendors as well as among buyers and sellers within an industry
(Lucking-Reiley & Spulber, 2001, p. 66). For instance, Extensible Markup Language
(XML) is an emerging standardization effort, which is applied to develop data
descriptions and protocols to link sellers and their channel partners (Fellenstein &
Wood, 2000, p. 131). An interrelated problem represents the connection of the e24
marketplace platform with the members’ back-end systems. In an ideal B2B ecommerce environment, sophisticated IT applications are integrated within the emarketplace and operate as one, the e-marketplace is integrated into buyers’ and
sellers’ legacy systems, and the e-marketplace may also be integrated with other emarketplaces and service providers (Renner & Schutt, 2000, pp. 67-68). Not
surprisingly, such a fully integrated architecture with plug-and-play capability remains
an illusion for the foreseeable future due to the complexity and pace of technological
change as well as the plethora of proprietary corporate IT systems (Thome, 2001, p.
285). Aside from integration issues, there can be serious security concerns among emarketplace participants. As no Internet security tool or firewall can be guaranteed
foolproof, both sellers and buyers may be worried that competitors will be able to
extract sensitive or proprietary information, that hackers might wreak havoc, or that a
virus might spread from one participant in the exchange to the others (Doyle &
Melanson, 2001, p. 12).
In addition to technological difficulties, one can identify distinct economic barriers
which run counter to the proliferation of e-markets. First, in view of back-end systems
integration and supply chain connection, investment requirements for participating in
electronic markets can be significant (Homs, 2001, p. 10). Moreover, firms have to
cope with costs and risks associated with moving long-established business processes
online (Andrew et al., 2000, p. 19). Often, the return on these investments is not clear
since many B2B exchanges are still immature in terms of service offering and market
liquidity. Especially from a seller’s standpoint, B2B marketplaces not only offer
advantages but also embody some of the Internet’s least attractive tendencies. Clearly,
sellers can lower customer acquisition costs through the expanded reach of the
electronic platform. However, the prevalent focus on price in B2B e-commerce erodes
profit margins and diminishes the distinctiveness of the brand (Baumgartner, Kajüter,
& Van, 2001, p. 37). Increasingly, corporate participants come to realize that getting
supplies at the lowest price may not be in their best economic interest. Rather, other
factors such as quality, timing of deliveries, and customization are often more
important in determining the overall value provided by a supplier (Wise & Morrison,
25
2000, p. 88). This customer need has to be reflected in e-markets’ value propositions,
which must offer strong incentives to both buyers and sellers.
Finally, electronic marketplaces have to overcome obstacles of corporate culture and
human behavior, which represent soft factors yet are of utmost importance. Many B2B
exchanges have seriously underestimated how important longstanding buying and
selling relationships are to human decision-makers in the targeted industries. Often,
people prefer to personally interact with well-known, trustworthy business partners
than with an anonymous web-site (Doyle & Melanson, 2001, p. 11). At the same time,
a buyer who is resistant to change and content with the current order routine may resist
the Internet as an innovation that threatens to alter the established routine (DeeterSchmelz, Bizzari, Graham, & Howdyshell, 2001, p. 5). This is reflected in a recent
empirical study of Forrester Research among purchasing executives: accordingly,
internal hurdles like user-level resistance are the most influential barriers to the
adoption of e-marketplace purchasing within their companies (Sanders, 2001, p. 3).
Moreover, as B2B marketplaces arise as new intermediaries between sellers and their
customers, executives might increasingly feel fear of losing control of strategic
activities and direct customer relationships (Andrew et al., 2000, p. 20).
In conclusion, e-markets as well as corporate suppliers and buyers have still to
overcome various barriers to capitalize on the promising benefits of B2B electronic
commerce. In particular, the standardization of data exchange protocols and the
seamless end-to-end integration of the involved players’ IT systems represent
fundamental technological challenges. In order to provide strong economic incentives
to both buyers and sellers, e-marketplaces need to shift the focus from price to a more
holistic value proposition involving value-added services and collaboration activities.
On top of that, B2B exchanges could offer training and consulting to customers’
employees as well as provide high support levels of human key account managers to
reduce the reluctance of targeted decision-makers to adopt electronic business.
2.4 E-Marketplace Dynamics
26
Looking at the dynamics of Internet commerce and B2B electronic markets, four basic
characteristics can be identified (cf. Amit & Zott, 2001, p. 506; Kelly, 1998, p. 2;
Porter, 2001, pp. 68-70; Timmers, 1999, p. 10): the first attribute is the intense interlinkage of all involved actors through electronic networks. Therefore, Section 2.4.1
delineates the underlying economics of network markets and the implications for the
competition among B2B firms. The second characteristic relates to the interactive and
integrative nature of the Internet. This attribute is the starting point for Section 2.4.2,
which depicts customer relationships and inter-organizational collaboration in
business-to-business e-commerce. The need for speed in electronic commerce is a third
characteristic, which has been postulated in numerous publications. Section 2.4.3
refers to this ‘first-mover mantra’ by discussing the role of speed in the evolution of
B2B marketplaces. Finally, the fourth attribute is the globalization of business in the
digital environment, which will be set out in Section 2.4.4.
2.4.1 Economics of Network Markets
Network industries play a crucial role in the modern economy, which would be very
much diminished without the existing transportation, communication, and information
networks. Formally, networks are composed of links which connect nodes. It is
inherent in the structure of a network that many complementary network components
are required for the provision of a typical service (Economides, 1996, p. 674). An
economic network rests on a pattern of relationships among firms and institutions. In
this concept, a market is the polar case in which firms are connected in potential
transactional relations (Kogut, 2000, p. 407). As was mentioned earlier, B2B
electronic marketplaces virtually bring multiple buyers and sellers together in one
central market space and enable those players to conduct transactions. Hence, they
constitute a network of economic actors and serve as the organizing hub of the
network’s transaction activities and its evolution. Consequently, the economics of
network markets and the implications for the competition among B2B firms will be
illustrated in the following.
27
In contrast to physical networks such as railroad tracks or the telephone system, virtual
networks such as compatible computer software are characterized by invisible nodes of
connection. Whether real or virtual, networks have a fundamental economic
characteristic: the value of connecting to a network depends on the number of other
people or firms already connected to it (Shapiro & Varian, 1999, p. 174). Specifically,
the value of a network equals the square of the number of users, a function known as
Metcalfe’s law (Roth, 1998, p. 293). Because the value of membership to one user is
positively affected when another user joins and enlarges the network, such markets are
said to exhibit network effects or network externalities (Katz & Shapiro, 1994, p. 94).
There are many products for which the utility that a user derives from consumption
increases with the number of other agents consuming the good: for example, the utility
that a consumer derives from purchasing a telephone clearly depends on the number of
other households or businesses that have joined the telephone network (Katz &
Shapiro, 1985, p. 424). Conceptually, a network externality is not necessarily limited
to positive effects: for instance, as members of the network of highway users, we
suffer from a negative network externality because freeways are subject to crowding
(Liebowitz & Margolis, 1994, p. 134). Notwithstanding potential bottlenecks in data
transmission capacity as new users join, the Internet is a network, which exhibits
economically positive externalities (McKnight & Bailey, 1997, p. 6). In electronic
marketplaces, transactions between individual buyers and sellers are embedded in a
web of transactions between other buyers and other sellers (Boyer, 1996, p. 15). With
regard to these exchange networks, there are two ways in which externalities arise (cf.
Economides, 1996, p. 679): first, the e-market brings together the two complementary
goods, a seller’s offer to sell at price p and a buyer’s counteroffer to buy at price p and
creates a composite good, the exchange transaction. Second, externalities may arise in
the array of related services that compose a transaction. In essence, higher market
liquidity increases the expected utility of all users (Economides, 1996, p. 680). The
more participants on both sides of the electronic marketplace, the more valuable it
becomes, and the more additional users it may attract. In this case, positive network
externalities give rise to positive feedback, which works to the advantage of big
networks and against small networks, or, in other words, makes the strong get stronger
and the weak get weaker (Shapiro & Varian, 1999, pp. 175-176). Positive feedback or
28
increasing returns generate not equilibrium but instability: if a product or a company or
a technology gets ahead by clever strategy or speed to market, increasing returns can
magnify this advantage, and the product or company or technology can go on to lock
the market (Arthur, 1996, p. 100).
The characteristics of network markets have important implications for strategy and
competition in business-to-business electronic commerce. In most cases, electronic
marketplaces start from the scratch attempting to convince corporate sellers and buyers
to become members of the new exchange network. In this situation, two essential
problems emerge: one is the so-called chicken-and-egg dilemma which refers to the
vicious cycle that, if a market lacks a sufficient number of sellers and / or offers,
buyers will not join and vice versa (Kollmann, 2001, p. 97). Another problem is to deal
with the targeted firms’ lock-in to proprietary IT systems and the potential switching
costs of adapting systems and changing business processes (Shapiro & Varian, 1999,
pp. 11-12). In order to overcome these barriers, one fundamental challenge for emarketplaces is to rapidly increase market liquidity and to pass a certain threshold
number of parties in the network, i.e. the critical mass of user (Timmers, 1999, p. 17).
A collection of subscribers must be induced to join simultaneously or join in
anticipation of others’ participation to form an economically viable set of subscribers.
The minimum viable set of subscribers is defined as the critical mass of users (Oren &
Smith, 1981, p. 472).
To attract users, e-marketplaces can apply several strategies. First, user expectations
have to be managed regarding the future size of the network and its increases over time
(Economides, 1996, p. 694). For example, before adapting and integrating proprietary
legacy systems to a new electronic marketplace, corporate information officers are
expected to think long and hard. They have to be firmly convinced that they are
dealing with the winning e-market of the future to incur the substantial risks and costs
associated with adapting their IT systems. Tactics regarding expectations management
can take the form of pre-announcements of upcoming products or services, providing
technological roadmaps, or forging strategic partnerships (Shapiro & Varian, 1999, p.
275). In addition to influencing users’ expectations, those tactics aim at discouraging
29
potential rivals to enter a distinct market. Moreover, online and offline advertising as
well as traditional sales activities are further approaches to forming user expectations
and to attracting firms to participate in an electronic marketplace (Kollmann, 2001, p.
110). Second, B2B markets have to decide on the level of compatibility of their own
network with other networks or systems. In markets with network effects, there is a
natural tendency toward de facto standardization, i.e. because of strong feedback
elements, those markets are prone to ‘tipping’ which is the tendency of one system to
pull away from its rivals in popularity once it has gained an initial edge (Katz &
Shapiro, 1994, pp. 105-106). The decision on system adoption is further complicated
in the presence of network externalities if a superior technology under development is
incompatible with the technology available today (Choi & Thum, 1998, p. 226). Two
networks are incompatible if subscribers on one network cannot communicate with
those on the other network (Katz & Shapiro, 1994, p. 105). In case systems are
compatible, then the aggregate number of subscribers to these systems constitutes the
appropriate network leading to an increased overall network value (Katz & Shapiro,
1985, p. 424). In view of the above, especially independent electronic marketplaces
may need to strive for high compatibility not only with sellers and buyers but also with
other e-markets, which provide for example related services such as logistics and
payment or compatible products. This helps to reduce up-front investments of targeted
participants, increases the value of the network, and broadens the value proposition.
By contrast, a firm with a first-mover advantage, strong brand name, and ready access
to capital may be able to parlay its competitive advantage into a lasting one and is
hence less likely to choose an open-system strategy (Katz & Shapiro, 1994, p. 107).
Third, a strategy utilized by many small firms to achieve their growth objectives is one
of geographic expansion (Barringer & Greening, 1998, p. 467). By broadening
customer bases through entering into new markets, SMEs are able to achieve a larger
volume of value creation, and grow (Lu & Beamish, 2001, p. 566). Thus, to achieve a
critical mass of users, a B2B Internet firm may decide to scale the business model
across international markets. For example, an e-market can internationalize its service
soon after launch as a means to increase the number of participating corporations and
to drive the liquidity of the marketplace. As positive feedback can lead to a winnertake-all market (Shapiro & Varian, 1999, p. 177), rapid internationalization of B2B
30
markets could be seen as an important strategic need to initiate a self-reinforcing
virtuous cycle and thus to outpace the competition. Finally, the owner of a network
may be able to capture some of the benefits derived from larger networks through
long-term contracts or even equity partnerships with major industry players. In fact,
large buyers or a group of large users are natural candidates to be the network owners
(Katz & Shapiro, 1994, p. 102). This is reflected in the recent rise of private, buyercentric marketplaces as well as of industry consortia marketplaces. Since they
represent a significant fraction of an industry’s transactions, have access to capital, and
are backed by established brands, they have significant advantages as compared to
independent exchanges.
2.4.2 Customer Relationships and Business Partnerships
The Internet provides the technological platform to create innovative ways for firms
and customers to interact (Kenney & Curry, 1999, p. 13). This section investigates
how business-to-business electronic marketplaces can capitalize on technologyenabled forms of managing customer relationships. Subsequently, the emergence of
inter-organizational business partnerships in B2B e-commerce will be depicted.
Despite recent technological advances, the underlying assumption is that basic B2B
marketing principles do still apply. Accordingly, business markets have several
characteristics that contrast sharply with consumer markets (Backhaus, 1999, pp. 3-5;
Kotler, 1997, pp. 105-106): first, the demand side of many industries consists of
relatively few, large buyers. Often, these firms are MNEs, which control
geographically dispersed subsidiaries around the globe. Second, business markets are
characterized by close supplier-customer relationships. Suppliers are frequently
expected to customize their offerings to individual buyers’ needs. Moreover, long-term
contracts tend to go to those suppliers who cooperate with the buyer on product
development and who comply with quality and delivery requirements. Third, business
purchasing decisions are shaped by professional, typically multiparty buying
committees. This requires on the seller side knowledgeable staff and organizational
routines to manage RFP processes and contracting. In B2B electronic commerce, these
characteristics remain valid yet tend to be altered by interactive technologies and
31
networked business relationships (Timmers, 1999, pp. 140-141). The following
paragraph summarizes potential implications for marketing activities and customer
service of e-markets.
As more and more sophisticated customer relationship management (CRM) and datawarehousing technologies are developed and implemented within and across
organizations, products and services can be marketed to customers on an individual,
one-to-one basis (Kalakota & Robinson, 1999, pp. 118-121). One-to-one marketing is
based on in-depth knowledge of the customer as well as company flexibility to deliver
highly customized products and services (Timmers, 1999, p. 159): this involves
knowledge of the individual customer, assessment of the overall customer lifetime
value, keeping customer records, and increasing the level of interaction with the
customer. Moreover, it requires the firm to develop internal flexibility to respond to a
potentially wide variety of customer needs, by customized development, production,
and delivery. The goal of one-to-one marketing is to sell one customer at a time as
many products or services as possible, over the lifetime of that customer’s patronage
(Peppers & Rogers, 1999, p. 415). For that purpose, corporations need to move from a
product-centric to a customer-centric model, which serves customers with tailor-made
products and services over the entire lifecycle based on the interaction with these
customers (Seybold & Marshak, 1998, pp. 60-61). The connectivity of the Internet
combined with CRM technologies help corporations to retrieve detailed customer
information and to create opportunities for dynamic, real-time feedback (Tapscott,
Ticoll, & Lowy, 2000, p. 193). Companies that use customer data most efficiently can
differentiate themselves from the competition in terms of customer knowledge, service,
and the establishment of trust (Siebel & House, 1999, p. 223). In a nutshell, the hyperconnectivity in the digital economy potentially makes it easier for corporations to
retain customers, increase customer value, and anticipate shifting customer priorities
(Marshall, Christner, & Almasy, 1999, p. 42). Notwithstanding these latent benefits,
one has to be aware of the fact that, despite the wide publicity given to these new
trends in marketing and customer relationship management, these approaches have not
yet really imbued the bulk of Internet businesses (Timmers, 1999, p. 163). Rather,
32
firms face substantial challenges as they will need to change organizational structures,
adapt established business process, increase IT investments, and train corporate staff.
Business-to-business electronic marketplaces have various possibilities to attract and
retain corporate members. In addition to a sufficient market liquidity on the supply and
demand side, a prerequisite is the usability and functionality of the web-site. This
includes short download times, clear front-end design, straightforward user navigation,
easy data entry, sophisticated search engines, and direct feedback routines (Kollmann,
2001, p. 112). Apart from basic transaction functionality, business-to-business
markets’ role as an intermediary in the transaction process requires a comprehensive
service offering to provide a one-stop-solution to member companies. In this regard,
examples are financial services such as invoicing, settlement and clearing, and risk
management or logistics services such as warehousing, transportation, and order
tracking. On top of that, the e-market might offer collaboration services such as
inventory visibility, collaborative forecasting and planning, or product design
cooperation (Andrew et al., 2000, p. 13). Furthermore, an electronic marketplace can
personalize the customer’s experience through a combination of customized product
information, alert functions, transaction and payment history, and specific analysis
tools for e.g. market price volatility (Bauer, Göttgens, & Grether, 2001, p. 130).
Especially in industries with complex products or sophisticated purchasing procedures,
the online value proposition of the e-market could be complemented by offline key
account management to build up personal relationships and trust. Finally, electronic
marketplaces can aim at establishing an online trading community. By encouraging
interaction among members through bulletin boards and discussion forums, the B2B emarket may be able to increase site traffic and member retention (Kollmann, 2001, p.
113). The community orientation can be supported by industry newsletters, market
directories, calendars of industry events, job postings, etc.
In theory, one might argue that the Internet and new customer relationship
management technologies enable e-markets to serve members in several countries
without any physical presence in these countries. At first sight, the digital economy
reduces the necessity for Internet firms to internationalize their businesses through
33
local subsidiaries. In practice though, the Internet industry that was supposed to make
borders irrelevant is discovering that they matter enormously. The days when an
Internet firm could serve the whole world without leaving its home country seem to be
a thing of the past. As far as only price matters, buyers may look for best offers in a
global market. Yet, for most purchases additional criteria need to be considered such
as reputation, trust, reliability of delivery and invoicing, after-sales services, and legal
issues. (Steinfeld & Klein, 1999, p. 5). Frequently, the fulfillment and distribution end
of electronic commerce has proved the most troublesome (Peet, 2000, p. 25). A study
by consultant firm Roland Berger emphasizes the importance to localize the
customer’s experience: accordingly, Internet companies need to adapt and to localize
functions such as marketing, web-site design, content, pricing, and payment methods
(Kintz, 2000, p. 31). In conclusion, it is assumed that B2B electronic marketplaces
need to complement their presence in cyberspace with a physical presence in target
markets in order to secure local content, reliable customer service, and efficient key
account management.
In general, for Internet ventures, especially emerging ones, business partnerships and
cooperative arrangements with other companies in terms of exchange, sharing, or codevelopment of new products and services are of value in efforts to compete
successfully against more established and larger corporations (Ireland, Hitt, Camp, &
Sexton, 2001, pp. 55-56). For instance, most financial, logistic, or collaborative
services of electronic marketplaces can be provided via specialized partner firms or via
other e-markets focussing on a specific function for the value chain (Timmers, 1999, p.
40). Therefore, B2B e-markets are expected to forge close partnerships with service
providers, cooperate in technical specifications and service development, and integrate
partner firms’ IT systems. As a result, the network of the e-market connecting multiple
suppliers and buyers is extended by additional elements of the supply chain such as
service providers and technological enablers. In some cases, the network might involve
competitors contributing a complementary skill such as for example an e-market with
unique systems integration know-how. This logic of combining cooperation and
competition is known as ‘co-opetition’ (cf. Nalebuff & Brandenburger, 1996, pp. 1617; Venkatraman & Henderson, 1998, p. 43). In theory, the increasing inter34
organizational collaboration is expected to lead to the emergence of virtual business
webs, involving e-marketplaces, suppliers, buyers, technological enablers, competitors,
and service providers with complementary value propositions (Schneider &
Schnetkamp, 2000, p. 239).
A prerequisite for such inter-firm networks to arise is that standards and other network
attributes permit interconnection by multiple parties, without substantial networkspecific investments and business process reengineering (Steinfield, Kraut, & Chan,
1998, p. 16). In this network, the electronic marketplace provides the mediating
technology to link the participating parties and monitors network activities as well as
relationships among the members (Stabell & Fjeldstad, 1998, pp. 427-428). A common
information standard functions as a lingua franca, enabling the network partners to
exchange data on customers and products (Häcki & Lighton, 2001, p. 29). Potential
sources of inter-organizational competitive advantages are relation-specific assets,
knowledge-sharing routines, complementary resources and capabilities, and effective
governance mechanisms (Dyer & Singh, 1998, pp. 675-676). Hence, networks
potentially provide participating firms with advantages from learning, scale, and scope
economies and allow to share risks and to outsource value chain functions (Gulati,
Nohria, & Zaheer, 2000, p. 203). Furthermore, the complementary skills and resources
of the network partners may address and solve customer problems in new ways
(Coltman, Devinney, Latukefu, & Midgley, 2000, p. 4). Not surprisingly, interorganizational networks also have potential drawbacks and may lock firms into
unproductive relationships or preclude partnering with other viable firms (Gulati et al.,
2000, p. 293). Credibility and trust emanating from close business partnerships can
lead to greater information sharing, which increases the probability of performance
enhancements across the whole system (Dyer, 1997, p. 552). In such circumstances,
the B2B market might be able to replace the linear, bilateral structure of information
exchange known from the typical supply chain with one organized as a hub: the
electronic marketplace at the center of the information flow and the individual trading
partners positioned around this focal point (Agrawal & Pak, 2001, p. 24).
Unfortunately, the infrastructure and capabilities needed to support the more
sophisticated forms of real-time collaboration among multiple participants are not yet
35
in place. Developing and implementing them will require companies and electronic
marketplaces to invest significant amounts of time and resources (Andrew et al., 2000,
p. 10). In addition, companies must answer the question as to which extent critical
information is shared with their network partners (Brewton & Kingseed, 2001, p. 29).
2.4.3 The Role of Speed
The Internet is a competitive marketplace where new standards, products, and
information can be transmitted around the globe in a greatly condensed time frame
(Downes & Mui, 2000, pp. 62-64). In this context, speed is conceptualized broadly as
“ (...) the acceleration of business in every respect” (Davis & Meyer, 1999, p. 21). In
the beginning of the Internet hype, start-up firms were supposed to enter a market
before they had finished surveying the competitive landscape, confidently identified
the right opportunity, and crafted a sustainable business plan. This ‘first-mover
mantra’ was propelled by the business press, by Internet pundits, and even by the
shareholding venture capital firms. After the collapse of many start-ups and the
meltdown of stock markets, the question should be raised as to how Internet firms can
balance the benefits and risks of moving fast. Therefore, this section contrasts
advantages and disadvantages of being the first-mover. Subsequently, the role of speed
for the evolution of a B2B Internet start-up will be exemplified.
Admittedly, speed can provide important benefits. First, being the first-mover
potentially allows Internet companies to gain ownership of scarce brand recognition, to
attract strategic partners, and to prevent potential competitors from market entry
(Carpenter, 2000, p. 9). In some cases, a six-month lead can represent a powerful
advantage (Kenney & Curry, 1999, p. 22). For example, Amazon has been able to
brand its business as the online-bookstore, while powerful incumbents such as Barnes
& Noble that entered the online market later have serious problems catching up.
However, despite huge outlays on advertising, most dot.com brands have not
approached the power of established brands, achieving only a modest impact on
customer loyalty (Porter, 2001, p. 69). Second, first-mover advantages may also arise
from buyer switching costs, which can stem from up-front investments in technology,
36
process adaptation, training of employees, or from contractual arrangements
(Lieberman & Montgomery, 1988, p. 46). For example, a later entrant must invest
extra resources to attract suppliers and buyers, which are connected to the first-mover
e-marketplace. The increasing adoption of XML standards, though, will reduce the
need to reconfigure proprietary ordering systems and to create new procurement and
logistical protocols when changing the electronic marketplace. Consequently,
switching costs tend to decrease (Porter, 2001, p. 45). Third, a company that is first to
market can gain technological leadership, shape industry standards, and hence erect
entry barriers against competitors (Bates, Rizvi, Tewari, & Vardhan, 2001, p. 54).
Nonetheless, the ability to create strong barriers to entry in business-to-business ecommerce seems to be critical as of today due to the fierce competition among
electronic marketplaces and the emergence of private hubs operated by major industry
players (Porter, 2001, p. 70). Finally, first-movers in markets that are characterized by
network externalities are in a good position to achieve a critical mass of suppliers and
buyers before others do (Amit & Zott, 2001, p. 508).
The mechanisms that benefit the first-mover may be counterbalanced by several
disadvantages. These first-mover disadvantages are, in turn, advantages enjoyed by
later followers (Lieberman & Montgomery, 1988, p. 47): late-movers may benefit from
the ability to free-ride on a pioneering firm’s investments in technology, buyer
education, and infrastructure development. Moreover, followers can gain an edge
through resolution of market or technological uncertainty. For instance, a pioneering
electronic market might adopt a technological standard, which proves to be the losing
standard (cf. Shapiro & Varian, 1999). In addition, the vulnerability of the first-mover
is often enhanced by inertia of incumbent players (Lieberman & Montgomery, 1988, p.
48): the firm may be locked-in to incompatible legacy systems. Or, corporate decisionmakers might be reluctant to change organizational routines and stable supplier
relationships. In essence, there is reason to expect that information technologies, by
themselves, will not produce sustainable advantage and that pioneers must be careful
not to develop the wrong resources. Frequently, followers have powerful
complementary assets (e.g. brands or financial strength) that will be their basis for
37
competition (Coltman et al., 2000, p. 34). In practice, this has recently been shown by
the emergence of large industry-consortia marketplaces like Covisint.
In conclusion, it can be inferred from the above that the challenge in B2B electronic
commerce is to know how fast to move. Certainly, there is no guarantee that
pioneering firms will be able to maintain their advantages as the market evolves. Firstmovers must recognize that initial success does not automatically confer a franchise
for permanent competitive edge (Coltman et al., 2000, p. 34). Rather, early followers
are often well positioned to capitalize on established standards and educated buyers.
However, speed does have its uses, despite the general discrediting of the speedcentered dot.com phenomenon. For instance, in many markets there is ‘room’ only for
a limited number of profitable firms. With regard to electronic marketplaces, the first
mover can select the most attractive markets and may be able to take strategic actions
that limit the amount of space available for subsequent entrants (cf. Lieberman &
Montgomery, 1988, p. 44). In an empirical study of 80 Internet companies, including
B2C firms, B2B firms, and infrastructure providers, companies that realized benefits
from moving fast had the following characteristics (Bates et al., 2001, pp. 56-58): first,
they have built up lasting barriers to entry by locking-in customers through set-up
investments, self-reinforcing networks of buyers and suppliers, and partnerships with
key resource owners. Second, the successful pioneers entered large markets with a
substantial revenue potential. High revenues are needed to recover the initial
investments and to compensate for the risks that first moving entails. Finally, they
entered markets with manageable hazards. Accordingly, moving at extreme speed is
inadvisable if the survival of a business depends on factors that lie outside its control,
including technological uncertainties, a rapidly changing regulatory landscape, a large
incumbent competitor, or key resources that are controlled by others.
Subsequently, the role of speed in the development path of an independent electronic
marketplace will be illustrated. Looking at the evolution of a B2B start-up firm one can
identify five generic development stages that are closely related with speed: first, speed
matters regarding the competition between entrepreneurial teams with similar business
ideas to receive external funding. In Europe, for example, this competition is fierce as
38
teams of entrepreneurs analyze the U.S. market on a real-time basis and emulate
business models as soon as they appear (Gurley, 2000, p. 324). The team that is first in
receiving venture capital obtains a significant advantage as additional resources can be
attracted and partner companies or service firms can be paid. Thus, time-to-funding is
an initial indicator for fast moving in B2B electronic commerce. Second, the period
from funding to the actual launch of operations is another critical factor. Through rapid
time-to-market the first-mover might be able to capture the most attractive segments
and to deter entry of potential competitors (Lieberman & Montgomery, 1988, p. 44).
As critical mass of participants and transactions is key to the success of digital
intermediaries (Mougayar, 1998, p. 150), the third development stage may be
conceptualized as time-to-critical mass. For instance, B2B Internet firms might have to
partner at an early stage with major industry players in order to rapidly aggregate
buyers and sellers and to increase market liquidity (Gurley, 1999, p. 2). The fourth
stage refers to the profitability of an electronic marketplace: in contrast to the
beginning of the e-commerce hype, Internet start-ups are now realizing that
profitability matters and that shareholders expect a return on their investments
(Finkelstein, 2001, pp. 16-17). Hence, time-to-profitability is a further key element
regarding the evolution of B2B Internet ventures. In the fifth stage, a fast moving emarket may be able to shape technological standards in its favor (Lieberman &
Montgomery, 1988, p. 47). This is conceptualized in the following as time-tostandard. Figure 6 visualizes the role of speed in the development path of electronic
marketplaces. It has to be noted that the five stages are not necessarily sequential in
nature: for example, the profitability of an e-market might be achieved soon after the
launch of operations.
39
Development
Stages
Speed
Time-to-standard
V
Time-to-profitability
IV
III
II
I
Time-to-critical mass
Time-to-market
Time-to-funding
Figure 6: The role of speed in the development path of a B2B start-up
Source: Author
In the light of the above, one might assume that the role of speed for B2B Internet
start-ups alters the internationalization stages that have been observed in traditional
industries: for example, an e-market could scale its offering across national boundaries
soon after launch of operations as a means to rapidly increase market liquidity. There
is reason to expect that the race for critical mass in electronic marketplaces propels the
internationalization activities of B2B start-ups. It remains to be seen in the following
how the competition in terms of speed drives the international expansion in cyberspace
and beyond. Table 4 summarizes the core findings of this section and assesses the
potential impact on the internationalization of B2B Internet start-up firms.
Development Stage
Critical Issues
40
Impact on Internationalization
(I) Time-to-funding
(II) Time-to-market
(III) Time-to-critical mass
• Competition with other teams
• Quality of business plan
• Valuation of business idea
• Recruiting of required skills
• Rapid execution
• Building up organizational
structures
• Proof of concept
• Optimization of core processes
• Strategic alliances
(IV) Time-to-profitability
• Optimization of revenue model
• Financial burn-rate
• Trust of financial investors
(V) Time-to-standard
• Managing the organizational
growth
• Partnering with major industry
players
• Acquisition of local players
• No issue
• Internationalization might be
envisioned in the business plan
• In general, launch in the
domestic market
• International roll-out possible
• Internationalization as a means
to drive market liquidity
• Increasing importance of
internationalization strategy
• Lack of profitability might
hinder foreign expansion plans
• Potential cost advantages
through economies of scale and
synergies on an international
basis
• International presence in major
markets required
• Combination of organic growth,
joint ventures, and acquisitions
Table 4: The impact of speed on the internationalization of B2B ventures
Source: Author
2.4.4 Globalization of Business
It is often claimed that one of the largest changes brought about by the Internet is that
it is global in reach. The openness and connectivity of the Internet foster the creation
of a shared global marketspace (Dutta & Segev, 1999, p. 467). The universally
accessible electronic platform directly links manufacturers and service providers with
suppliers and customers, thus subverting the flow of goods and services through
existing well-established channels (Cronin, 2000, p. 7). In many cases, corporations
not only serve global markets, they also organize their value creating activities across
continents. For example, software designs are developed in France, R&D is done in
the United States, coding in India, and customer support in Ireland (Bressler &
Graham, 2000, p. 41). The digital economy type of marketplace is rooted in ubiquitous
electronic networks (Kelly, 1998, p. 2). Corporations do not have to expand abroad to
experience international competition; sooner or later the world comes to them (Bartlett
& Ghoshal, 2000, p. 138). An obvious implication of the Internet is that even the
41
smallest firm can get access to suppliers and customers globally through an Internet
presence (Oviatt & McDougall, 1999, p. 29).
In theory, firms can open up whole new markets at low cost while companies that
previously divided local markets up among them find themselves confronted with new
competition in their own backyard (Timmers, 1999, p. 12). Small Internet companies
with a few employees are effectively global from their first day of operation (Sampler,
1998, p. 343). Physical investment requirements diminish as procurement and sales are
increasingly conducted online. Or, as Hamel puts it (2000): “The Internet has turned
bricks and mortar into millstones.” (Hamel, 2000, p. 7). For instance, Amazon has only
spent $56 million on fixed assets such as computers and warehouses, while Barnes &
Noble has spent $472 million on its 1,000 or so stores (Hof, 1999, p. 54). Companies
that create value with digital assets may be able to re-harvest them through a
potentially infinite number of transactions (Rayport & Sviokla, 1995, p. 83).
Correspondingly, one common characteristic of business-to-business marketplaces is
that their value creation mainly relies on aggregation, matching, and exchange of
information between corporate buyers and suppliers regarding products, prices, and
availability of goods. In other words, these Internet firms focus on selling bits not
atoms (cf. Negroponte, 1995, pp. 11-17). This leads to a specific cost structure of a
large fraction of fixed costs of ‘production’, i.e. the initial set-up costs of the business,
and a relatively small fraction of incremental costs of ‘reproduction’, i.e. enabling
online transactions (cf. Shapiro & Varian, 1999, p. 21; Ba, Whinston, & Zhang, 2000,
p. 188). In other words, it costs a B2B Internet firm a significant amount to develop
and launch an electronic marketplace as well as to attract and integrate a sufficient
number of buyers and sellers, but the incremental costs of an additional transaction
conducted via the platform are tiny. As this cost structure can lead to substantial
economies of scale (Shy, 2001, p. 5), one might wonder whether this drives the foreign
expansion of business-to-business Internet firms: in order to exploit scale economies,
these firms might spread high set-up costs over an international base. Local
subsidiaries can then capitalize on an operative technological platform which merely
needs to be adapted to local languages, currencies, content, and legal requirements.
42
Moreover, due to the virtualization of value creation, the time to internationalize
operations may be significantly decreased (Oviatt & McDougall, 1999, p. 29).
In practice, though, there is reason to expect that cultural, language, and trust barriers
to going global are such that a certain fraction of electronic commerce – especially for
small firms – remains relatively local (Timmers, 1999, p. 12). Just creating the website, translating its content, and coping with the oddities of foreign currencies and
postal codes, turns out not to be enough (May, 2000, p. 21): customers want to engage
in dialogue; they want to buy in unusual quantities at nonstandard terms; they want to
know who represents a company in their region; and they have questions about tax,
quality standards, or environmental requirements. Particularly in Europe, the
international adaptability of online intermediaries can be seen as an important success
factor as e-markets need to address differences on a regional or country by country
basis (Skinner, 2000, p. 40). Furthermore, large incumbents have significant
advantages to exploit when they decide to go digital on an international basis: financial
strength, brand familiarity and trust, customer knowledge, market and industry knowhow, established supplier relationships, and reliable logistic processes (Zeller, 2000, p.
32). In contrast, these assets have to be built up from the ground by B2B Internet firms
in order to initiate a successful expansion abroad. In addition, even powerful Internet
brands like Amazon consider it necessary to establish country-specific web-sites.
Evidently, it does not seem adequate to ship products such as books from the USA
using a global delivery service and / or to rely on associates to have sufficient access to
major countries (Levy, 2001, p. 110).
With respect to the global electronic marketplace in the digital economy, it can be
argued that Internet start-ups can virtually enter hundreds of countries through the
global reach of the Web without actually being there. While in this case the
internationalization activities of an Internet start-up would be rather limited, one
should not forget that the common clamor from customers – whether they might be
consumers or businesses – is for things like service, ease of use, and efficient
distribution, not just cool ideas (Micklethwait & Wooldridge, 2000b, p. 10). Therefore,
B2B Internet firms need to localize content, advertising as well as distinct pre- and
43
post-sales customer services (McCarthy, 2000, p. 204). This does not necessarily apply
to functions such as web hosting, technology development or fulfillment that can be
handled more effectively on a centralized basis (Kintz, 2000, p. 38). These operations
might be consolidated in the domestic country or in another country with favorable
location-specific factors.
44
3. The Internationalization of the Firm
The literature review on the internationalization of the firm is organized as follows: on
the basis of a definition of the term ‘internationalization’, Section 3.2 sets out relevant
dimensions of the internationalization concept, which are subsequently synthesized
into an internationalization framework. Thereafter, major schools of research in the
area of corporate internationalization will be delineated in Section 3.3. Finally, a
concluding section presents the key findings from the literature review on business-tobusiness electronic commerce and on the internationalization of the firm.
3.1 Defining Internationalization
The scholarly literature provides different approaches to conceptualizing corporate
internationalization: one approach which is rooted in economic theory of industrial
organization, location, and transaction costs considers internationalization to be a
pattern of foreign direct investment resulting from rational economic analysis of
ownership, internalization, and location advantages (cf. for example Caves, 1971;
Buckley & Casson, 1976; Dunning, 1988). By contrast, a second school of thought
builds up on the behavioral theory of the firm and explains internationalization as the
product of incremental managerial decision-making (cf. for example Cyert & March,
1963; Aharoni, 1966; Johanson & Vahlne, 1977). A third perspective views
internationalization as a dynamic, evolutionary strategy process leading to distinct
organizational patterns of multinational corporations (cf. for example Bartlett &
Ghoshal, 1987; Prahalad & Doz, 1987; Melin, 1992). Thus, the concept of
international involvement might be best understood in the context of a process, taking
place as a result of successive decisions made by management over a period of time
(Cavusgil, 1980, p. 275). Such involvement may include inputs and / or outputs of the
firm and may also affect some or many parts of its value chain (Oviatt & McDougall,
1999, p. 24).
45
The term ‘internationalization’ has been widely used to describe the outward
movement in a firm’s international operations (Turnbull, 1987, pp. 21-22). However,
there is no common consensus on the definition of this term in the academic debate
(Andersen, 1997, p. 28). For instance, Welch and Luostarinen (1988) adopt a broader
view of internationalization by integrating both sides of the process, i.e. inward and
outward growth of the firm. Accordingly, internationalization is “ (...) the process of
increasing involvement in international operations” (Welch & Luostarinen, 1988, p.
36). A comparable approach places emphasis on the initial foreign expansion by
defining internationalization as the process of “ (...) entering and initially developing
operations in another country” (Chryssochoidis, Millar, & Clegg, 1997, p. 3). Calof
and Beamish (1995) raise the objection that internationalization can also take the form
of de-investment, i.e. decreasing international involvement such as e.g. divesting a
foreign subsidiary. Hence, internationalization is defined as “ (...) the process of
adapting firms’ operations (strategy, structure, resource, etc.) to international
environments” (Calof & Beamish, 1995, p. 116). On the basis of the definitions
suggested by Welch and Luostarinen (1988) and Calof and Beamish (1995), Andersen
(1997) adds the dimensions international market selection and choice of entry mode:
“Internationalization is the process of adapting exchange transaction modality to
international markets” (p. 29). In case of foreign direct investment (FDI), the
internationalization process transforms firms into multinational corporations (MNCs)
“ (...) which own or control value-added activities in two or more countries” (Dunning,
1993a, p. 1). These enterprises share the following characteristics: the firms’
internationally dispersed entities are linked by ties of common ownership, they draw
on a common pool of resources, such as money and finance, information and systems,
trade names and patents, and they respond to some common strategy (Vernon & Wells,
1991, p. 2).
In order to incorporate the above mentioned diverse perspectives of internationalizing,
Andersen’s (1997, p. 29) definition will be extended as follows for the purpose of the
dissertation: henceforth, internationalization is conceptualized as ‘the process of
adapting exchange transaction modality to international markets, which evolves from
the interplay of economic and managerial factors.’ This broadened definition seems to
46
be adequate in that it integrates different approaches into one holistic interpretation of
the internationalization phenomenon. It is based on the assumption that foreign entry
and expansion behavior are shaped by complex interactions between firm-specific,
environmental, and decision-maker variables (Reid, 1981, p. 101). As a consequence,
three dimensions of the internationalization concept can be identified: an economic
dimension, a behavioral dimension, and a process dimension (cf. Coviello & McAuley,
1999, p. 225). Each will be depicted in the following sections.
3.2 Dimensions of the Internationalization Concept
3.2.1 The Economic Dimension
Internationalization drivers
Before focussing the discussion on two central elements of the internationalization
process, international market selection and entry mode, one fundamental question
needs to be clarified: why do firms internationalize their business across national
boundaries? In other words, what are the underlying drivers or economic stimuli which
initiate and shape the internationalization process, leading a firm from no involvement
to, in some cases, widespread international investments? Obviously, if we are to
understand the process then we have to elucidate why a company engages in foreign
expansion (Welch & Luostarinen, 1988, p. 50). One could argue that managing and
controlling a multinational network inherently entails distinct difficulties and generates
special costs (Vernon & Wells, 1991, p. 3). For example, firms must set up command
and control systems, have to monitor local agents, and have to cope with asymmetric
information (Reeb, Kwok, & Baek, 1998, p. 267). Furthermore, firms involved in
international business might be exposed to political risk of being discriminated by
governments of host countries. Such political risk can accrue from boycotts, exchange
controls, taxation, expropriation, and other practices by local authorities (Kobrin,
1979, p. 68). In addition, scholars emphasize financial risk of MNCs such as foreign
exchange rate fluctuations (Reeb et al., 1998, p. 266).
47
Notwithstanding the associated costs and risks of going international, the remarkable
expansion of MNCs in the last decades strongly suggests that firms have fundamental
reasons for developing a multinational structure. These reasons or stimuli can be
divided into internal factors, i.e. within a firm’s control, and external factors, i.e.
outside a firm’s direct control (Calof & Beamish, 1995, p. 121). They often constitute
advantages which overcome the disadvantages of being multinational. Subsequently,
examples of internal push-factors will be illuminated: first, distinct resources such as
e.g. innovative products or service offerings, superior processes, financial strength, and
a high-skilled workforce can drive a firm’s foreign expansion (Müller & Kornmeier,
1997, pp. 80-81). The possession of such in-house competencies presupposes that the
firm has the capability to efficiently collect information, generate knowledge, and
foster organizational learning (Bradley, 1995, p. 64). Second, the process of
international growth may lead to cost reductions in purchasing, production, and
distribution as well as to efficiency gains in resource allocation and asset utilization.
These benefits result from exploiting economies of scale and synergy advantages along
a firm’s value chain (Chandler, 1990, p. 17). Third, financial economics theory
underlines the effect of risk reduction through portfolio diversification among
international markets, which are not perfectly correlated (Levy & Sarnat, 1970, pp.
670-673).
As was mentioned before, external pull-factors to internationalizing are rooted in the
firm’s environment. For instance, global strategies by some competing players might
force a firm to follow suit (Porter, 1986, p. 28). Or, large corporate customers such as
multinational OEMs may require international servicing (Kotler, 1997, p. 405). For
example, the reliance on multinational key customers to ensure significant market
liquidity might force a B2B Internet platform to establish operations in host countries
of multinational companies’ subsidiaries and, over time, to follow the international
investment decisions of core accounts (cf. Ruigrok & Tulder, 1995, p. 165). Moreover,
specific customer preferences in host countries might encourage a firm’s foreign
expansion in order to guarantee the compliance with and the adaptation to local needs
(Hermanns, 1995, p. 55). In addition, favorable environmental conditions of
48
international target markets might represent a further stimulus to expand across
national boundaries (Mahefa, 1998, p. 508). This leads to the next element of the
internationalization process, the international market selection, which will be
delineated in the following.
International market selection
One key strategic element regarding a firm’s foreign expansion is the international
market selection, that is, in which country (countries) the transactions will be
performed (Andersen, 1997, p. 29). The assessment where to expand operations across
national boundaries should be based on a thorough comparison of a host country’s
location-specific variables with existing barriers to entry (Meffert & Bolz, 1994, pp.
131-132). A target country’s location variables encompass market, production, and
environmental factors, which can seldom be affected by managerial decisions and
which are therefore external to the firm (Root, 1987, p. 8). Examples of market-related
factors are the present and projected volume of the target market as well as the market
structure, which can range from atomistic (many non-dominant competitors) to
oligopolistic (a few dominant competitors) to monopolistic (a single firm) competition
(Tesch, 1980, pp. 364-365). Target country production factors include the quality and
cost of manufacturing inputs, labor, and the economic infrastructure (Pausenberger,
1994, p. 61). Finally, with regard to environmental factors, most noteworthy are
government policies and regulations plus the geographical and cultural distance of a
host country pertaining to international business (Root, 1987, pp. 10-11). The strength
of cultural links between one’s home and some foreign countries as well as company
executives’ familiarity with these countries can exercise a considerable influence on
the choice of markets and on the order in which they get selected (Koch, 2001, p. 355).
In particular, market similarity may encourage investment activity because of the ready
transferability of marketing, technology, and human resources to similar countries, and
because of the lower levels of perceived uncertainty in such environments (Davidson,
1980, p. 16).
49
A firm’s successful entry heavily depends on how the firm overcomes existing market
entry barriers (Bradley, 1995, pp. 323-324). The concept of entry barriers has its
origin in the thoughts of Bain (1956): in his words, the ‘condition of entry’ to an
industry is shaped “ (...) by the advantages of established sellers in an industry over
potential entrant sellers, these advantages being reflected in the extent to which
established sellers can persistently raise their prices above a competitive level without
attracting new firms to enter the industry” (p. 3). For easy market entry, three
conditions must in general be simultaneously fulfilled (Bain, 1956, p. 12): first,
established firms have no absolute cost advantages over potential entrant firms;
second, established firms have no product differentiation advantages over potential
entrant firms; and third, economies of large-scale firms are negligible. On an
international level, high information and coordination cost or regulatory impediments
represent barriers to entry (Meffert & Bolz, 1994, p. 133). Moreover, dominant
incumbents may have advantages of scale, better access to supply and distribution
channels, and established customer relationships (Müller-Stewens & Lechner, 1997, p.
261). In addition, unfavorable governmental regulations or tariff barriers can make
access to foreign markets more difficult (Koch, 2001, p. 358). To sum up, the
combination of these, often conflicting, forces of location advantages and entry
barriers influence a firm’s internationalization process in general and its choice of
target markets in particular.
Choice of entry mode
As a firm decides to enter a foreign market, it has to select the international exchange
transaction modality. This is known as the entry mode decision or entry strategy,
which constitutes the institutional arrangement for organizing and conducting business
transactions across national boundaries, such as export, contractual arrangements (e.g.
licensing), and foreign direct investment (Root, 1987, pp. 5-6). Export entry modes
differ from the other two primary entry modes in that a company’s products are
manufactured outside the target market and subsequently transferred to it (Root, 1987,
p. 7). Licensing arrangements transfer the right to use intellectual property such as
patents or trademarks to foreign companies in return for royalty payments (Stein, 1998,
50
p. 36). Investment entry modes include joint ventures or the formation of whollyowned subsidiaries. In a joint venture, ownership, corporate governance, and returns
are shared between a parent corporation and one or more local partner firms (Stauss,
1995, p. 462). If a company plans to pursue a wholly-owned venture, it has to decide
whether to acquire an existing player or to create a new venture. In the scholarly
literature, this is referred to as diversification mode choice (Brouthers & Brouthers,
2000, p. 89).
Each of these modes of entry is consistent with a different level of control, resource
commitment, and dissemination risk (Hill, Hwang, & Kim, 1990, p. 118)1. Control
refers to a firm’s authority over strategic decision-making, financial allocations, and
operational business activities. Higher control usually results from having a greater
ownership in the foreign venture (Agarwal & Ramaswami, 1992, p. 3). Resource
commitment stands for intangible or tangible assets that cannot be redeployed to
alternative uses without cost or loss of value. In terms of entry mode, dissemination
risk denotes the risk to transfer specific skills or know-how to a licensing or joint
venture partner (Hill et al., 1990, pp. 118-119). The licensing mode is a low
investment alternative, which provides the lowest level of control (Agarwal &
Ramaswami, 1992, p. 3). Not surprisingly, as a MNC grants a license to a foreign
enterprise to use firm-specific knowledge to manufacture or market a product, it runs a
significant risk of the licensee disseminating that know-how. A similar argument can
be made with reference to joint ventures albeit it seems reasonable to propose that the
dissemination risk is lower as in the licensing case due to the MNC’s ownership stake
in the foreign subsidiary (Hill et al., 1990, p. 119). The level of control and the
investment requirements depend on the extent of equity participation of the
multinational firm in the joint venture (Root, 1987, p. 8). The sole venture mode
provides a high degree of control to the investing corporation, usually entails high
resource commitments, and incurs a comparatively low risk of dissemination (Agarwal
& Ramaswami, 1992, p. 3). With regard to business-to-business Internet firms three
generic ways to enter a new market are prevalent: joint venture, acquisition, or
1
Exporting is assumed to be no valid alternative in the case of electronic marketplaces and will thus be
excluded in the following analysis.
51
building a business from the ground up, i.e. organic growth (Gurley, 2000, p. 324).
Hence, these entry modes and combinations thereof will be in focus in the remainder
of the dissertation. In the next section, the behavioral dimension of the
internationalization concept will be delineated.
3.2.2 The Behavioral Dimension
As was mentioned earlier, behavioral approaches to international business relate
managerial attitudes and decision-making to multinational corporations’ strategies and
organization structures (Murtha, Lenway, & Bagozzi, 1998, p. 97). Contributors have
argued that key aspects of MNCs’ internationalization activities derive from managers’
cognitive processes that balance competing country, firm-specific, and functional
concerns (cf. for example Aharoni, 1966; Perlmutter, 1969; Johanson & Vahlne,
1977). These lines of argumentation abandon economic theory’s classical model of the
economic man who is characterized by rational behavior and an objective orientation
to the real world. Rather, proponents of the behavioral school start from the principle
of bounded rationality (Simon, 1957, p. 198): accordingly, the capacity of the human
mind for formulating and solving complex problems is small as compared to the size of
the problems whose solution is required for objectively rational behavior in the real
world. In contrast to the economic man, the archetype of the behavioral man is limited
by constraints that are part of his own psychological composition – limited by
individual, subjective values and beliefs, by the amount of information he can acquire
and process, and by the goal of finding satisfactory instead of optimal solutions
(Kumar & Epple, 1997, p. 312). Simon (1957, p. 241) suggests to replace the global
rationality assumed by the economic theory of the firm with a kind of behavior that is
compatible with the access to information and the cognitive capacities that are
essentially possessed by human decision-makers. In accordance with these thoughts,
Cyert and March (1963) put forward a behavioral theory of the firm, which places
explicit emphasis on the actual process of organizational decision-making as its basic
research commitment. Four major relational concepts represent the core of this theory
of business decision-making (Cyert & March, 1963, pp. 116-125): first, in the case of
the quasi resolution of conflict, it is argued that most organizations exist with
52
considerable latent conflict of goals. The proposed procedures for resolving such
conflict encompass local decision-making and a sequential attention to goals. Second,
organizations are assumed to avoid uncertainty by imposing plans, standard operating
procedures, and uncertainty-absorbing contracts on their environment. Third, the
concept of problemistic search refers to the problem-directed search behavior of
organizations. Accordingly, organizational search is stimulated by a problem and is
directed toward finding a solution to that problem. Finally, organizational learning
suggests that firms change their goals, shift their attention, and adapt to the
environment as a function of their experience.
The behavioral dynamics of managerial decision-making are of special significance to
the multinational corporation due to its worldwide span, the relative autonomy of
affiliates, and the great diversity of its workforce (Fayerweather, 1978, p. 539). The
internationalization process does not appear to be a pre-determined sequence of
thoroughly planned steps, beginning with a precise problem-definition and proceeding
through a rational analysis of behavioral alternatives. It is rather shaped by managers’
international orientations, individual perceptions, and subjective expectations, among
others (Cavusgil, 1980, p. 279). These factors interact with the firm’s resources and
characteristics to produce a distinct internationalization behavior (Bradley, 1995, p.
70). The concept of international orientation is a major determinant of the decisionmaker’s attitudes toward and preferences for foreign markets and entry modes (Reid,
1981, p. 110). Differences in international orientation may explain differences in
behavior. For example, it is likely that an individual with a high degree of international
orientation will have a higher probability both of being exposed to attention-evoking
factors and of perceiving them (Bradley, 1995, p. 71). This leads to managers’
perceptions of benefits and costs associated with expanding operations to foreign
markets. Evidence shows that executives’ perceptions of a foreign market’s benefits
and entry mode’s sales potential and costs may considerably differ due to dissimilar
attitudes of executives (Calof & Beamish, 1995, pp. 128-129). Another important
determinant of active involvement in international markets is the manager’s
experience-based expectations of the attractiveness of target markets and entry
strategies (Cavusgil, 1980, p. 277). Managers tend to form expectations or opinions
53
about the profitability and risk of international operations on the basis of their own
experience (Bradley, 1995, p. 73). Experiential knowledge can only be learned through
personal experience and thus cannot be transferred to other individuals (Johanson &
Vahlne, 1977, p. 28). It provides the framework for perceiving and generating business
opportunities and is consequently a driving force in the firm’s internationalization
process (Johanson & Vahlne, 1990, p. 12). Not surprisingly, experienced managers
often play a crucial role in the conduct of international business as they provide the
integrative linkages between the dispersed parts of the multinational enterprise
(Stopford & Wells, 1972, p. 27). Nonetheless, one has to bear in mind that managerial
constraints may increase with greater multi-nationality of the firm due to growing
complexity, linguistic and cultural differences, and regulatory barriers. (Siddharthan &
Lall, 1982, p. 4). In the following, attention turns to the process dimension of the
internationalization concept.
3.2.3 The Process Dimension
Internationalization can be perceived as a major part of the ongoing strategy process of
most business firms (Melin, 1992, p. 101). It is assumed that multinational
corporations need to be firmly committed to a strategic process approach for coping
with the international or global business opportunities and threats (Lorange & Probst,
1990, p. 144). In general, strategy is about “ (...) the determination of the basic longterm goals and objectives of an enterprise, and the adoption of courses of action and
the allocation of resources necessary for carrying out these goals” (Chandler, 1962, p.
13). The strategy process determines the ongoing development and change in the
international corporation in terms of scope, business idea, action orientation,
organizing principles and routines, nature of managerial work, dominating values, and
converging norms (Melin, 1992, p. 101). Notwithstanding the fact that the
internationalization dimension is linked to all these aspects of the strategy process, the
main differences between internationalization and other types of strategy processes can
be found in the dimensions international market selection and choice of entry mode,
which represent the two key strategic decisions regarding a firm’s foreign expansion
(Andersen, 1997, p. 29). Hence, internationalization can be apprehended as a dynamic
54
and evolutionary phenomenon (Coviello & McAuley, 1999, p. 225). It is a process of
evolutionary development not only in terms of the depth of operational mode, but also
in terms of the diversity of entry modes used, as well as in product offerings and the
range of international markets penetrated (Welch & Luostarinen, 1988, p. 45).
The process dimension of the internationalization concept emphasizes the dynamic
character of strategy and structure of multinational firms (Melin, 1992, p. 111). This
line of thought extends early research on structures following strategies in
multinational enterprises, which describes the historical evolution of structural forms
of MNCs (cf. Chandler, 1962; Stopford & Wells, 1972). Notwithstanding its notable
contributions, this stream of research fails to depict the processes of formation and
implementation related to these structures due to its static character and its attachment
to the linear thinking evident in strategy-structure-fit arguments (Melin, 1992, p. 111).
In practice, the rate and the complexity of change in terms of technological shifts,
competitive pressures, and increasing uncertainty seem to necessitate flexible
adaptability and swift evolution of multinational firms’ strategic processes and
structures (Lorange & Probst, 1990, p. 146). As a consequence, one should expect
varying patterns of internationalization from country to country over time (Welch &
Luostarinen, 1988, p. 47). On the basis of these arguments, the so-called ‘process
school’ in international management puts forward new types of organizational models,
much more dynamic than the old structure-follows-strategy-follows-environment
approach (Melin, 1992, p. 110): for instance, proponents suggest a multifocal MNC
(cf. Prahalad & Doz, 1987), an integrated network (cf. Bartlett & Ghoshal, 1989), or a
heterarchical configuration of multinational firms (cf. Hedlund & Rolander, 1990).
These concepts will be set out in detail in Section 3.3.3.
In conclusion, it can be inferred from the above that a firm’s international
configuration evolves from the foreign expansion process over time. The configuration
of international value creation is characterized by the location in the world where each
activity in the value chain is performed. International configuration options range from
concentrated, i.e. performing an activity in one location and serving target markets
from it, for example one R&D facility or one production plant, to dispersed, that is,
55
performing the activity in every country (Porter, 1986, pp. 23-25). The nature of
relationships between headquarters and subsidiaries as well as the international
organization of value creation can be conceptualized by three building blocks
(Prahalad & Doz, 1987, pp. 14-15): first, global strategic coordination refers to the
central management of resource commitments across national boundaries in the pursuit
of a strategy. A centralized coordination is often paramount to provide competitive and
strategic coherence to resource commitments made over time by headquarters and
international subsidiaries. Second, global integration of activities stands for the
centralized management of geographically dispersed value creating activities as a
means to leverage cost advantages and optimize investments. Third, local
responsiveness or local adaptation refer to resource commitment decisions taken
autonomously by an international subsidiary in response to local competitive or
customer demands.
3.2.4 Synthesis: The Internationalization Framework
In the foregoing sections, the economic dimension, the behavioral dimension, and the
process
dimension
of
corporate
internationalization
have
been
delineated.
Correspondingly, internal and external stimuli to foreign expansion, international
market selection, and choice of entry mode represent basic elements of the economic
dimension of internationalization. Furthermore, the behavioral dynamics of managerial
decision-making profoundly influence corporate internationalization activities. Lastly,
the evolutionary internationalization process leads to dynamic international
configurations which organize MNCs’ value creation in terms of global coordination
and integration as well as local responsiveness. Each of the three dimensions provides
a complementary perspective on the internationalization concept and emphasizes
different aspects of a firm’s foreign expansion. As internationalization processes are
characterized by a high degree of complexity, variability, and heterogeneity, a more
holistic approach to this phenomenon seems to be required (Welch & Luostarinen,
1988, p. 38; Melin, 1992, p. 115; Oviatt & McDougall, 1999, p. 28). Thus, by
synthesizing the identified dimensions into one integrative framework, a broader
56
conceptualization of this complex phenomenon emerges. Figure 7 displays the
resulting internationalization framework.
Economic dimension
Stimuli to foreign expansion
• Internal push-factors
• External pull-factors
International market selection
• Location variables
• Entry barriers
Choice of entry mode
• Entry strategy
• Control, resource
commitment, and risk
Behavioral dimension
Managerial decision-making
• International orientation
• Perception of benefits and costs
• Experience-based expectations
Process dimension
Internationalization process
• International configuration
• Global coordination and integration, local responsiveness
Figure 7: The internationalization framework
Source: Author
Looking at the elements of the internationalization framework, four central questions
regarding the foreign expansion of the firm can be derived: first, what are the
underlying internal and external stimuli which drive a firm’s international
involvement? Or, in brief, why do corporations internationalize? Second, where do
firms locate value creating activities? In other words, what are relevant location
variables and entry barriers that determine the international market selection? Third,
what mode of foreign market entry lays the foundation for the international value
creation of the firm? Fourth, how do domestic firms evolve into multinational
corporations over time? Concisely, what kind of international configuration results
from the
interplay
between
managerial
decision-making and
the
ongoing
internationalization process? In practice, these questions are often interconnected and
cannot always be answered separately in a meaningful way. In theory, various
approaches
focussing
on
distinct
dimensions
and
partial
aspects
of
the
internationalization phenomenon can be identified. A major objective of academic
research on corporate internationalization is to provide answers to the four generic
questions, which can be deduced from the internationalization framework. Hence, the
57
framework above constitutes a means of organizing the review of the field of
international business research that follows.
3.3 The Field of International Business Research
As was mentioned before, the corpus of international business research reveals a
longstanding field characterized by considerable intellectual diversity drawing on a
wide span of disciplines (Melin, 1992, p. 99). With regard to this extensive body of
research, the following review of the internationalization literature will have to
concentrate on those schools of thought which seem to be of central importance for the
purpose of the thesis: in the context of the economic dimension of the
internationalization concept, industrial organization theory, location theory, transaction
cost theory, and the eclectical paradigm will be set out in the following. Thereafter, the
behavioral approaches to internationalizing from Aharoni (1966) and the Uppsala
Internationalization Model will be depicted. Finally, with reference to the process
school of international business, the multifocal approach and the network perspective
on multinational corporations will be delineated. Although not explicitly discussed in
this review, one should not forget to refer to further theoretical contributions regarding
the internationalization of the firm. Notable examples encompass financial models of
international diversification and portfolio risk (cf. Levy & Sarnat, 1970) as well as of
foreign exchange and capital markets imperfections (cf. Aliber, 1970), oligopolistic
reaction theory (cf. Knickerbocker, 1973), and product cycle theory (cf. Vernon,
1966), among others.
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3.3.1 Economic Schools of Foreign Direct Investment
Industrial organization theory
Prior to 1960, most scholars viewed foreign direct investment as the transfer of capital
from one country to another in the anticipation of higher returns (Kogut, 1989, p. 384).
The early attempts to explain FDI by use of international capital theory were
abandoned for two main reasons (Dunning, 1979, p. 272): first, such investment
involves the transfer of other resources (e.g. technology, management, and marketing
skills) than solely capital. Second, in the case of foreign direct investment, resources
are transferred within the firm rather than externally between two independent parties.
The pioneering work in the modern theory of the multinational enterprise is Stephen
Hymer’s doctoral thesis submitted in 1960, which remained unpublished until 1976
(Casson, 1987, p. 5). Hymer (1976, p. 30) proposed that direct investments are the
capital movements associated with the international operations of firms. It was his
distinctive contribution to shift the analysis from countries to industries (Kogut, 1989,
p. 384). Thus, a more general school of thought emerged: accordingly, direct
investment belongs more to the theory of industrial organization than to the theory of
international capital movements (Kindleberger, 1969, p. 11). Industrial organization
theory aims to answer the question why multinational corporations exist by
concentrating on the characteristics of MNCs which give them a net competitive
advantage vis-à-vis firms in countries in which they operate (Dunning, 1979, pp. 272273).
The conceptual foundation of industrial organization theory is the structure-conductperformance paradigm. Its basic idea is that the market structure determines the
conduct of the market participants which in turn determines the market performance
(Caves, 1974, p. 116). In terms of the market structure, the following elements that
shape the conduct of market players and the overall profitability of the industry may be
emphasized: first, the number and size of corporations on the supply and the demand
side affect the nature of competition (e.g. competition for price, for market share, for
59
profits) (Chandler, 1990, p. 36). A second structural condition is the existence of
market entry barriers such as absolute cost advantages, product differentiation
advantages, and scale advantages of established firms (Bain, 1956, pp. 14-15). A third
attribute of an industry’s structure is the existence and the degree of product
differentiation (Barney, 1986, p. 792). Finally, the growth rate and the elasticity of
demand influence market structure and profitability (Porter, 1985, pp. 8-9). Industries
with a small number of competitors, with large barriers to entry, with a high degree of
product differentiation, or low demand elasticity are usually characterized by firms
earning higher returns than firms in industries without these attributes (Barney, 1986,
p. 792).
According to Hymer (1976), one basic motive for a direct investment is control. The
author distinguishes two main types of reasons why an investor will seek control over
the acquired assets (Hymer, 1976, pp. 23-25). Concerning direct investment of type I,
the investor seeks control over the foreign enterprise in order to ensure the safety of
the invested capital. This reason applies to investments in the domestic country as
well. In the case of direct investment of type II or international operations, the
motivation for controlling the foreign enterprise is to remove competition between that
foreign enterprise and enterprises in other countries. In addition to control, the second
underlying motive for international operations stems from the exploitation of a firm’s
monopolistic advantage. The possession of advantages in particular activities may
cause firms to engage in international operations (Hymer, 1976, p. 41). In order to
compete successfully with local competitors, the entrant’s advantage has to
compensate for barriers to entry and for costs of operating at a distance (Kindleberger,
1969, p. 12). However, it has to be noted that proprietary advantages are merely a
necessary condition for direct investment. In some cases, a firm might prefer to license
its advantage to a local firm (Hymer, 1993, pp. 29-31). For direct investment the firm
must also find production abroad preferable to any other means of foreign market
servicing such as exporting or licensing. According to Caves (1971, p. 5), the general
reason favoring foreign direct investment is the complementarity between local
production and the rents attainable on a firm’s net advantage. This requirement points
to a particular trait of market structure – product differentiation – as one essential
60
characteristic of industries in which direct investment occurs. A ‘differentiated
product’ is a collection of functionally similar goods produced by competing sellers,
but with each seller’s product distinguishable from its rivals by minor technical
variations, brand name, or ancillary services (Caves, 1971, p. 5).
In general, there are as many kind of advantages as there are functions in producing
and selling a product (Hymer, 1976, p. 41). Frequently, the competitive strengths of
multinational enterprises rest on a number of different types of scale economies and on
economies which accrue from the establishment of a global information network that
can efficiently accumulate and disseminate knowledge regarding sources and markets
(Vernon, 1970, p. 383). A firm’s competitive advantages tend to be sustainable if its
resource base is not easily acquired or imitated and if the firm’s institutional context
promotes the effective development and deployment of the resources it has access to
(Oliver, 1997, pp. 697-698). In a world of perfect international markets for goods and
factors, competitive advantages and direct investment cannot exist. Hence, there must
be some imperfection in the market for direct investment to thrive (Kindleberger, 1969,
pp. 13-14). For instance, market imperfections are departures from perfect competition
on goods markets such as product differentiation or special marketing skills. Further
examples are departures from perfect competition in factor markets, including the
existence of patented technology, discrimination in access to capital, and differences in
managerial skills. Moreover, market imperfections encompass internal and external
economies of scale as well as government limitations on output and entry.
The criticism of Hymer’s direct investment theory encompasses the following aspects
(Stein, 1998, pp. 50-51): first, multinational corporations do not only invest abroad in
order to exploit existing in-house advantages but to generate local advantages such as
low wages or access to raw material. Furthermore, the argument of a compensating
advantage only holds for corporations that internationalize their operations for the first
time and that do not have distinct methods to cope with entry barriers. In addition, the
model is static in nature as the concept of monopolistic advantages only holds for the
actual start of foreign production and as, over time, other mediating factors such as
technological innovation have to be taken into consideration. Finally, the concept
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cannot explain the benefits of foreign production in comparison to the export
alternative.
Location theory
The underlying concern of location theory is the spatial distribution of international
value creation, i.e. where firms exploit advantages and why they make investments in
one country rather than in another (Dunning, 1979, p. 273). Not surprisingly, firms
interested in servicing foreign markets are expected to use a selective strategy and
favor entry into more attractive markets in search of higher returns (Agarwal &
Ramaswami, 1992, p. 5). Yet, academic assistance to that problem in terms of a
comprehensive, contemporary location theory remains relatively scarce (Stein, 1998, p.
117). International trade models were primarily designed to explain the most efficient
patterns of trade between countries (Dunning, 2000, p. 15). Traditional location
theories deal with the optimum siting of asset-exploiting activities of the investing firm
(Buckley & Casson, 1993, p. 46). In addition, the selection of target markets represents
one building block of international marketing theory (cf. Root, 1987; Meffert & Bolz,
1994; Bradley, 1995). As was delineated in Section 3.2.1, a target country’s market,
environmental, and production factors determine the location decisions of
multinational firms. The basic thoughts of international trade theory and location
theory will be depicted in the following.
The international trade theory is rooted in the early contributions of the classical
school of thought (Dunning, 1988, pp. 127-129): Adam Smith (1776) and David
Ricardo (1817) start from the assumptions that production factors are immobile on an
international basis and that all markets operate efficiently. Whereas Smith explains
international trade activities through absolute cost advantages, Ricardo emphasizes that
comparative cost advantages are the triggers for international trade. Due to the
assumption of immobile production factors, the explanatory value of these theories
concerning the evolution of multinational corporations is rather limited. However, the
formulation of a macroeconomic locational framework for the analysis of international
trade deserves attention by contemporary international economics theory, in view of its
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capacity to accommodate the role of international production once the firm is more
explicitly introduced into the discussion (Dunning, 1988, p. 128). The neo-classical
theory of international trade is based on the Heckscher-Ohlin theorem. This approach
asserts that countries specialize in the production of goods which require relatively
large inputs of resources with which they are comparatively well endowed, and export
these in exchange for others which require relatively large inputs with which they are
poorly endowed (Casson, 1979, pp. 63-64). In contrast to this theoretical concept, an
empirical study published by Wassily Leontief in 1953 revealed that the exports of the
USA were more labor-intensive than its imports; a paradoxical result for an economy
that was supposedly well endowed with capital. These findings are known as the
Leontief Paradox (Berry, Conkling, & Ray, 1997, p. 375). The basic version of the
Heckscher-Ohlin model is also based on the assumption of international factor
immobility. Notwithstanding its strict assumptions, the model bears two implications
for the evolution of multinational corporations (Stein, 1998, p. 61): first, international
trade and foreign direct investment are two alternative ways to serve international
markets. Second, one may derive indications concerning a location theory of
multinational corporations from the Heckscher-Ohlin model: corporations from
countries that are well endowed with capital would transfer this production factor to
those countries that are well endowed with the factor labor and thus have significant
cost advantages.
The orthodox theory of location assumes constant returns to scale, standardized
technology, and that firms are price-takers in all factor markets (Buckley & Casson,
1993, p. 46). On the basis of these assumptions, the optimal location of each
constituent activity is determined by a two-stage analysis (Buckley & Casson, 1976, p.
47): the first stage includes the evaluation of the regional production costs and
interregional transport costs for each activity. The second stage focuses on the
minimization of the overall average cost of production. The regional variation in
production costs is governed by regional differentials in the prices of non-tradeable
inputs, the relative prices of tradeable inputs, and the elasticities of substitution
between pairs of non-tradeables and between non-tradeables and tradeables. Variations
in transport costs depend on distances and the geographical features of the regions
63
concerned (Buckley & Casson, 1976, p. 47). In practice, the location decisions of firms
differ considerably from the predictions of the theory of the location of production due
to a number of factors (Buckley & Casson, 1993, pp. 46-47): first, there are increasing
returns to scale in many real-world activities. Second, MNEs operate largely in
imperfectly competitive markets and are frequently affected by government
interventions. The third factor is that contemporary businesses perform many activities
other than routine production such as marketing, value-added services, or research and
development. For example, the location of R&D will depend essentially on the
regional differentials in the price and the availability of the most important non-traded
input – skilled labor. Contemporary location approaches are more comfortable in
explaining the distribution of knowledge-intensive, innovative activities (Dunning,
2000, p. 16). They explicitly acknowledge that globalization combined with the
information technology and telecommunications revolution drastically reduce the cost
of transporting not just material goods but also information across geographic space.
As traditional locational constraints are declining, modern location theory predicts a
world of greater territorial economic specialization, as market territories for particular
goods or services are defined increasingly by the optimal scale of value creation
(Storper, 2000, p. 43). Moreover, the increasing importance of knowledge-based
economic activity in the leading developed countries triggers a resurgence in the role
of local regions as an enabling environment for knowledge spillovers and as a key
source of comparative advantage (Audretsch, 1998, p. 26).
Transaction cost theory
As an extension to the theory of the firm, transaction cost theory (or internalization
theory as it is known in the international business literature) brought the benefits of
reducing transaction costs by internalizing economic activities into focus (Kogut,
1989, p. 384). The essence of internalization theory is the explicit recognition of
worldwide market imperfections, which in practice prevent the efficient operation of
international trade and investment (Rugman, 1980, p. 368). The foundations of this
school of thought have been laid by Ronald Coase (1937) in his famous article ‘The
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nature of the firm’. The early development of the transaction cost paradigm deals with
the question of the existence of the firm (Demsetz, 1991, p. 162). This question is
posed and answered by Coase. The classical view of an economic system suggests that
the price mechanism organizes the optimal allocation of resources and efficient
coordination of market transactions. According to Coase (1937), the coordination
function of the market fails as “ (...) there is a cost of using the price mechanism” (p.
390). The four types of costs are: the cost of finding a correct price, the cost of
negotiating the obligations of parties in a contract, the risk of scheduling and related
input costs, and the taxes paid on exchange transactions on the market (Rugman, 1980,
p. 369). By forming an organization and by allowing an ‘entrepreneur’ to direct the
resources, these costs of using markets are reduced (Coase, 1937, p. 392). Hence,
organizations evolve as a means to avoid the cost of the price mechanism in imperfect
markets. The formal condition that defines the boundaries of the firm is the equality
between the marginal values of transaction costs and organizing costs (Demsetz, 1991,
p. 162). Other things being equal, a firm will tend to be larger the less the costs of
organizing, the less likely the entrepreneur is to make mistakes, and the greater the
lowering in the supply price of production factors to firms of larger size (Coase, 1937,
pp. 396-397). Depending on the relative effect on organizing costs and transaction
costs, technical inventions which diminish spatial distribution such as e.g. the
telephone as well as all changes which improve managerial technique will increase or
respectively decrease the size of the firm (Coase, 1937, p. 397).
The basic thoughts of Ronald Coase have been extended by Oliver Williamson (1975)
into the markets and hierarchies approach: correspondingly, the decision between a
market or a hierarchical organization of transactions depends on the cost of these
transactions. Transaction costs encompass the negotiating, monitoring, and
enforcement costs that have to be borne to allow an exchange between two parties to
take place (Jones & Hill, 1988, p. 160). The choice between organizing a transaction
within the firm or having it organized through the market (i.e. the economic institution)
can be represented as a choice between the price system and using hierarchy (i.e. the
method to organize economic activity) (Hennart, 1991, p. 74). In addition to Coase’s
thoughts, Williamson (1975) integrates into his approach assumptions about the
65
behavior of human decision-makers as well as assumptions about the core dimensions
of transactions. These aspects determine which governance structure (i.e. market vs.
hierarchy) is the optimal organizational frame to conduct transactions.
In contrast to the economic theory of the firm, Williamson (1975) starts from the
underlying archetype of the behavioral man. Correspondingly, the underlying
assumptions on which transaction cost analysis relies are bounded rationality and
opportunism (Williamson, 1986, p. 140). As was mentioned earlier, the principle of
bounded rationality refers to the limited capability of human actors to receive, store,
and process information and thus to solve complex problems (Simon, 1957, p. 198).
Opportunism is a deep condition of self-interest seeking that contemplates guile
(Williamson, 1991a, p. 92). Both aspects have an adverse effect on the contractual
conduct of transactions. On the one hand, bounded rationality leads to incomplete
contracts as all relevant states of the environment cannot be captured, on the other
hand, opportunism hinders the completion of these contracts. Taking these two
behavioral assumptions into account, Williamson (1986, p. 141) suggests to assess
alternative governance structures in terms of their capacities to economize on bounded
rationality while simultaneously safeguarding transactions against opportunism.
Williamson (1975) distinguishes three attributes of transactions that are of special
interest to the economics of organization: the uncertainty to which transactions are
subject, the asset specificity related to the transaction, and the frequency with which
transactions recur. The uncertainty dimension refers to real world economic
exchanges, which are characterized by considerable uncertainty and complexity (Jones
& Hill, 1988, p. 160). Asset specificity indicates the degree to which an asset can be
redeployed to alternative uses by alternative users without sacrifice of productive value
(Williamson, 1991a, p. 94). Parties involved in exchanging transaction-specific assets
are bilaterally dependent and hence should be interested in establishing long-term
contractual relationships. In this situation, harmonizing the interface that joins the
parties, thereby to promote continuity becomes the source to real economic value
(Williamson, 1985, p. 30). The efficient governance of recurring transactions is
connected with the degree of asset specificity and varies as follows: market contracting
66
will be efficacious wherever assets are non-specific to the trading parties, bilateral
market contracting will appear as assets become semi-specific, and internal
organization will displace markets as assets take on a highly specific character
(Williamson, 1986, p. 144). To sum up, the following advantages of internalizing
transactions in relation to market exchanges can be identified (Williamson, 1975, p.
40):
1. In circumstances where complex, contingent claims contracts are infeasible and
sequential spot markets are hazardous, internal organization facilitates adaptive,
sequential decision making, thereby to economize on bounded rationality.
2. Faced with present or prospective small-number exchange relations, internal
organization serves to attenuate opportunism.
3. Convergent expectations are promoted, which reduces uncertainty.
4. Conditions of information impactedness are more easily overcome and, when they
appear, are less likely to give rise to strategic behavior.
5. A more satisfying trading atmosphere sometimes obtains.
In outlining the application of his theory to the MNE, Williamson fails to emphasize
sufficiently the special problems, and peculiar opportunities, of managing across
different legal jurisdictions, fiscal systems, and cultural environments (Casson, 1987,
p. 41). Furthermore, transaction cost economics has been criticized because it deals
with polar forms – markets and hierarchies – to the neglect of intermediate or hybrid
forms of organizing. In recent publications, though, hybrid modes such as long-term
contracts, reciprocal trading, franchising, and the like have been located in transaction
cost theory in relation to the polar modes (cf. Williamson, 1991b). Moreover,
Williamson’s early contributions mainly concentrated on vertical integration decisions
as a means for corporations to avoid opportunistic behavior of the other party due to
incomplete contracts or to secure low-cost supplies of intermediate products (Stein,
1998, p. 85). By applying Williamson’s thoughts directly to the multinational
corporation, the markets and hierarchies approach is broadened by Teece (1981, p. 4).
In addition to intermediate product markets, multinational firms may internalize
markets for proprietary and nonproprietary know-how and international capital
67
markets. Failures in the market for know-how provide an important incentive for
horizontal foreign direct investment, which occurs when a firm with production
facilities in one country establishes similar facilities in another (Teece, 1981, p. 7).
The internalization of international capital markets could involve either horizontal or
vertical investment. In this case, the multinational firm can perform as an effective
substitute for capital markets where these markets are poorly developed (Teece, 1981,
p. 10).
There are presumably more imperfections and higher transaction costs in international
than in domestic markets. These give rise to the multinational firm, which can enjoy
worldwide economies of internal organization (Rugman, 1980, p. 369). The
contributions from transaction cost theory served as a basis for internalization
approaches that explain the existence of multinational corporations. Buckley and
Casson (1976) pioneered the international perspective of internalization theory by
investigating in the Coasean tradition the patterns of growth of MNEs. Accordingly,
multinational corporations evolve through the internalization of markets across
national boundaries (Buckley & Casson, 1976, p. 33). Their work represented the first
explicit treatment of the relationship between knowledge market imperfections and
internalization of markets for intermediate goods (Rugman, 1980, p. 370).
When informational diseconomies of sufficient magnitude exist for transactions that
take place across international boundaries, firms internalize these transactions and
become multinational organizations (Graham, 1992, p. 74). Internalizing markets in
knowledge leads to the integration of production, marketing, and R&D (Buckley &
Casson, 1976, p. 34). Or, in other words, the internalization of intangible flows of
know-how leads to a combination of horizontal and vertical integration (Casson, 1992,
p. 5). Within the innovation process, production and R&D are vertically integrated,
while because of the public good character of know-how, the simultaneous
dissemination of know-how to several plants leads to horizontal integration in
production. Profit-maximizing firms will internalize markets up to the point where the
marginal benefit is equal to the marginal cost (Casson, 1979, p. 55). The main types of
potential internalization benefits are the creation of internal future markets, the
68
imposition of a discriminatory price system, the avoidance of the costs of bilateral
bargaining, the elimination of buyer uncertainty, and the circumvention of government
interventions. The main types of potential internalization costs encompass resource
cost of market fragmentation, additional communication cost, cost of political
discrimination, and administrative cost of managing the internal market (Buckley &
Casson, 1976, p. 44).
In the academic field, the transaction cost theory has been the object of some criticism
(Andersen, 1997, p. 34): the empirical setting and measurement problems have not
been resolved as of today. Transaction costs are difficult to measure and are usually
approximated indirectly by using indicators. While most empirical investigations of the
entry mode of corporations to foreign markets have used the firm level as unit of
analysis (cf. for example Anderson & Coughlan, 1987), the unit of analysis should be
according to the theory the transaction. Moreover, as transaction cost logic focuses
solely on cost minimization and does not include strategic considerations of
international management, the approach offers at best a partial lens on the
internationalization behavior of firms (Madhok, 1997, p. 54).
The eclectical paradigm
The eclectical paradigm, which has been introduced by John Dunning, integrates
industrial organization theory, international trade and location theory, and transaction
cost theory into a multi-theoretical framework for studying the choice of entry mode
(Andersen, 1997, p. 35). It was primarily the dissatisfaction with the existing partial
explanations, and the lack of a formal model relating it either to trade or other modes
of resource transfer that led to the development of a more eclectic perspective
(Dunning, 1979, pp. 274-275). Aim of this approach is to explain the ability and
willingness of firms to serve markets, and the reason why they choose to exploit this
advantage through foreign production rather than by domestic production (Dunning,
1979, p. 275). The principal hypothesis of the eclectical paradigm is that a firm will
engage in foreign direct investment if the following three conditions are satisfied
(Dunning, 1993b, pp. 196-197):
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1. The firm possesses net ownership advantages (O) in comparison to firms of other
nationalities in serving particular markets. These advantages encompass intangible
assets and / or property rights which are, at least for a period of time, exclusive.
2. If condition 1 is satisfied, it has to be more beneficial to the firm to exploit these
advantages in-house rather than to sell or to license them to foreign corporations.
These advantages are called internalization advantages (I).
3. Assuming conditions 1 and 2 are satisfied, the locational advantages (L) of host
countries have to favor production activities in the respective countries. Otherwise,
these markets would be served by exports and domestic markets by domestic
production.
The eclectical framework elucidates what mode of foreign market entry a firm chooses
depending on the three different types of advantages. The concept of ownership
advantages is rooted in industrial organization theory and in Bain’s (1956) classic
work on the barriers to new competition. Correspondingly, ownership-specific
advantages comprise favored access to inputs or markets not available to competitors,
scale economies due to size, exclusive possession of intangible assets, synergy
advantages on an international basis, better information about country specific
characteristics and risk profiles. (Dunning, 1988, p. 21). To compete with host country
firms in their own markets, firms must possess ownership advantages that can earn
economic rents, which are high enough to counter the higher cost of servicing these
markets (Agarwal & Ramaswami, 1992, p. 4). On the basis of transaction cost theory,
internalization advantages determine why firms choose a hierarchical mode of
operation over an external mode. Examples of such internalization-incentive
advantages are avoidance of negotiating and enforcing costs, protection of quality of
products, control over supplies and distribution channels, avoidance of government
interventions, among others (Dunning, 1979, p. 276). Theories of location and trade
explain the factors governing the locus of value creation. Location-specific variables
encompass input prices (e.g. labor, material, energy), governmental regulations,
cultural factors, local infrastructure conditions, and the like (Dunning, 1988, p. 27).
70
The propensity to engage in international production is influenced by the three interrelated forms of advantages: the possession of O advantages is a necessary prerequisite
for a firm’s foreign involvement. In the case that only O advantages prevail, licensing
would be the appropriate form of foreign engagement. However, the simultaneous
presence of I advantages suggests that corporations will exploit these advantages by
way of exports (Dunning, 1993b, p. 196). For foreign direct investment to occur, all
three conditions have to be satisfied (Dicken, 1998, p. 135). Figure 8 summarizes the
conditions underlying the OLI concept.
Advantages
Route of
servicing
markets
Ownership
Internalization
(Foreign)
location
Foreign direct
investment
Yes
Yes
Yes
Trade in goods
and services
Yes
Yes
No
Contractual
resource transfer
Yes
No
No
Figure 8: Alternative routes of servicing markets
Source: Dunning (1993b, p. 199)
Dunning’s eclectical paradigm is a remarkable contribution to the academic debate in
this field as it systematically combines three theoretical approaches of partial character
into a more holistic framework. The strengths of the eclectic approach could be
characterized by its richness (several explanatory factors) and its creativity (generation
of new determinants and combination of these with the existing) (Andersen, 1997, p.
35). Over time, the eclectical framework has been further developed: for instance, Hill
et al. (1990) include strategic variables in the analysis of entry mode decisions. Or, the
71
implications arising from the growing significance of alliance capitalism (i.e. inter-firm
partnering or networking) have been incorporated into the OLI scheme (cf. Dunning,
1995). Notwithstanding its merits, Dunning’s approach has also been criticized for
several reasons: first, the three advantages identified provide to some extent
complementary and overlapping explanations of multinational operations (Casson,
1987, p. 33). Furthermore, the issue of how the inter-relationships among the
determinant factors influence firms’ entry choices has not been satisfactorily examined
in the empirical literature (Agarwal & Ramaswami, 1992, p. 2). In addition, the
assumption that the choice of entry mode and the international market selection can be
regarded as independent decision processes may not be true (Andersen, 1997, p. 35).
Finally, the eclectic paradigm is basically static in nature and does not give explicit
consideration to changes in the explanatory variables as the internationalization
process proceeds (Stein, 1998, p. 148).
3.3.2 Behavioral Approaches to Internationalization
The foreign investment decision process
The first study focusing on how decisions were made on foreign direct investment is
Yair Aharoni’s (1966) analysis of decision-making on FDI in Israel by 38 US
corporations. The conceptual foundation of this inquiry is rooted in the behavioral
theory of the firm as put forward by Simon (1957) and Cyert and March (1963).
Hence, the basic theme that runs through the whole study is that FDI is rarely the
result of a rational decision-making process drawing on complete information and
infinite problem-solving capacities. Rather, investment decisions are characterized by a
high degree of uncertainty and scarce management resources (Fayerweather, 1978, pp.
551-552). The foreign investment decision process is a continuos dynamic social
process of mutual influences among various members of an organization, constrained
by the organization’s strategy, its resources and the limited capacity as well as
diverging goals and needs of its members (Aharoni, 1966, p. 17). From his analysis,
Aharoni (1966) derives five stages of activity characterizing the FDI decision process:
first, the decision to look abroad for investment opportunities is triggered by initiating
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forces such as e.g. suggestions from local sales agents, the fear of losing a foreign
market, bandwagon effects, and threats to the home market by foreign entrants. The
second stage comprises the evaluation of different investment alternatives in terms of
market opportunities and risks plus the compliance with corporate strategy and
resources. In the third stage, the actual decision to invest involving a process of
increasing commitment within the firm is made. In order to overcome potential
resistance by some organizational members, the fourth stage encompasses a review of
the investment decision and negotiations within the firm. Lastly, the fifth stage refers
to follow-up FDI over time and deals with organizational learning and change through
repetition of international investment activities. In conclusion, Aharoni (1966) notably
was the first to emphasize the behavioral elements determining organizational
decisions to invest abroad (Fayerweather, 1978, p. 551). However, his approach is of
partial character and explains for the most part the logic of non-rational FDI decisionmaking rather than the evolution of multinational firms (Stein, 1998, pp. 113-114).
The Uppsala Internationalization Model
The Uppsala Internationalization Model proposes that firms move sequentially through
different stages in the process of ‘going international’. It has its theoretical base in the
behavioral and learning theory of the firm (Johanson & Vahlne, 1990, p. 11). Johanson
and Wiedersheim-Paul (1975, p. 307) distinguish between four different modes of
entering an international market, where the successive stages represent higher degrees
of resource commitment and market experience. Accordingly, a corporation initially
focuses on the domestic market and does not pursue any export activity. In the second
stage, the firm exports its products to international markets via independent
representatives or agents. Thereafter, the corporation builds up sales subsidiaries in the
respective countries. In the fourth stage, the firm invests in own manufacturing plants
and organizes production abroad. This sequential development path is called the
establishment chain (Johanson & Wiedersheim-Paul, 1975, p. 307). To explain the
internationalization across markets, it was assumed that firms would enter new markets
with successively greater psychic distance (Andersen, 1993, p. 210). The concept of
psychic distance is defined as “ (...) factors preventing or disturbing the flows of
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information between firm and market” (Johanson & Wiedersheim-Paul, 1975, p. 308).
Examples are differences in language, education, business practices, culture, and the
level of industrial development (Johanson & Vahlne, 1977, p. 24). On the basis of
these thoughts, Johanson and Vahlne (1977) have formulated a dynamic model, i.e. a
model in which the outcome of one cycle of events constitutes the input to the next.
Each firm goes through a number of logical steps of international behavior, depending
on its gradual acquisition, integration, and use of knowledge about foreign markets and
operations, and on its successively increasing commitment to foreign markets
(Johanson & Vahlne, 1977, p. 23). The explanatory variable in this model is
experiential knowledge which can only be accumulated through personal experiences
of the firm’s human resources and which is a driving force of the internationalization
process (Johanson & Vahlne, 1990, p. 12). In international business, experiential
knowledge must be gained during operations in the respective country (Johanson &
Vahlne, 1977, p. 28). The learning through development of experiential knowledge
about foreign markets is necessary in order to overcome the psychic distance to these
markets (Melin, 1992, p. 103). Thus, the internationalization process evolves in an
interplay between the development of knowledge about foreign markets and operations
on one hand and an increasing commitment of resources to foreign markets on the
other (Johanson & Vahlne, 1990, p. 11). The model implies that additional market
commitment will be made in small steps with three exceptions (Johanson & Vahlne,
1990, p. 12): first, firms with a large resource-base can be expected to make larger
internationalization steps. Second, in the case of stable and homogeneous market
conditions, relevant market knowledge can be gained in ways other than through
experience. Third, when the firm has considerable experience from markets with
similar conditions, it may be able to leverage this experience to any specific market.
The Uppsala Internationalization Model has been criticized for the following reasons:
first, co-operative modes of market entry such as joint ventures are not included in the
establishment chain (Andersen, 1997, p. 32). Similarly, the approach does not pay
enough attention to the acquisition choice as a route to foreign expansion (Melin,
1992, p. 104). Another problem is the stage model’s deterministic nature: for every
entrant and each market entered, an identical sequential development path is predicted
74
(Calof & Beamish, 1995, p. 118). Furthermore, it downplays the possibility for
managers to make strategic choices (Melin, 1992, p. 104). Moreover, the establishment
chain does not seem to be valid for service industries (Johanson & Vahlne, 1990, p.
15) and relies on assumptions that applied nearly a generation ago (Oviatt &
McDougall, 1999, p. 25). In addition, the model uses only one explanatory variable
(experiential knowledge). No explanation is presented concerning how the process will
start, or the nature of the mechanism whereby knowledge affects market commitment
(Andersen, 1993, p. 219). Finally, the Uppsala Internationalization Model tells us little
about the foreign expansion processes in experienced companies, which can draw on
decades of international activities (Melin, 1992, p. 104).
3.3.3 The Process School of MNEs
As was mentioned earlier, the ‘process school’ in international management suggests
new organizational patterns of multinational firms to reflect the increasing importance
of international operations as a source of competitive advantage (Melin, 1992, p. 111).
Proponents of this line of thought examine the configuration of organizational
structures and systems which permit the exploitation of opportunities inherent in the
international network of different local environments (Kogut, 1989, p. 387). The shift
in interest towards the strategic value of operating assets in multiple countries has its
conceptual roots in the resource-based view of the firm (cf. for example Penrose, 1959;
Wernerfelt, 1984; Prahalad & Hamel, 1990; Amit & Schoemaker, 1993; Eisenhardt &
Martin, 2000). Accordingly, a firm is a collection of productive resources, i.e. physical
and human resources, the disposal of which between different uses and over time is
determined by administrative decisions (Penrose, 1959, pp. 24-25). The resource
perspective provides a basis for addressing key issues in the formulation of
international strategy such as in what sequence and into what target market should
diversification of the multinational firm take place (Wernerfelt, 1984, p. 172). As of
today, competing successfully in the global marketplace requires not a single but a
complex set of capabilities (Madhok, 1997, p. 42). An important part of these
capabilities can arise from the global span of the MNC. Examples are economies of
large scale operations or idiosyncratic skills rooted in a particular country
75
(Fayerweather, 1978, p. 6). The diversity of international environments may be a key
asset of the multinational corporation since it can provide the firm with a superior
knowledge base (Ghoshal, 1987, p. 431). This suggests that internationally diversified
firms have greater opportunities to learn and to sense new and diverse market trends
than purely domestic firms (Hitt, Hoskisson, & Kim, 1997, p. 774). Emanating from
this line of argumentation, scholars suggest managerial resolutions of the global
integration and local responsiveness conflict in terms of multifocal strategies (cf.
Prahalad & Doz, 1987). In addition, proponents of the network perspective put forward
archetypal organizational models for the modern multinational corporation (cf.
Bartlett, 1986; Hedlund & Rolander, 1990). Each of these approaches will be
delineated in the following.
The multifocal MNC
The underlying assumption of this approach is that multinational firms have to
constantly balance (a) the economic imperative, i.e. the impact of global competition
that pressures the MNC to transcend the boundaries of national markets and to
rationalize global operations through central control and coordination with (b) the
political imperative, i.e. the local adjustments made necessary by host government
demands and through diversity among national markets (Melin, 1992, p. 108). Today’s
globalization is not confined to the physical integration of world markets, yet it
extends to the virtual integration of markets, which, in essence, abolishes national
borders and exposes domestic industries to global competition (Mourdoukoutas,
1999a, p. 19). Whereas in pre-global times business relationships involved crossing
considerable distance over more or less extended time intervals, global conditions are
situated in a space beyond geometry, where distance is covered in effectively no time
(Scholte, 1996, pp. 45-46). With regard to small, entrepreneurial companies,
globalization has begun to dismantle the barriers that traditionally segmented local
business opportunities and local firms (SMEs) from their international counterparts,
the multinational enterprises. As local markets are becoming integral parts of global
markets, internationally oriented entrepreneurs can now view a much broader range of
opportunities, unrestricted by national boundaries (Dana, Etemad, & Wright, 1999, pp.
76
14-15). Since individuals and organizations interact with one another, as if no
geographical distances exist, a process towards cultural, political, technological, and
economic convergence is set in motion. Markets and industries become more closely
linked to one another and local differences may be increasingly superseded by new
global norms (de Wit & Meyer, 1998, p. 721). Hence, the pressure for globalization
seems to be driven by converging needs and preferences of customers on a global scale
(Ohmae, 1989, p. 161). Voices emerge that the modern global corporation should force
suitably standardized products and practices on the entire globe instead of adapting to
superficial and even entrenched differences within and between nations (Levitt, 1983,
p. 102). At the same time, a firm’s globalization is driven by multinational
competitors, investment and technology intensity, pressure for cost reduction, and
access to raw material and energy (Prahalad & Doz, 1987, pp. 18-20). A global
strategy takes an integrated approach across countries and regions and leverages five
strategic dimension: global market participation, global products and services, global
location of activities, global marketing, and global competitive moves (Yip, 1992, pp.
15-19). However, a critical element of formulating a global strategy is creating the
organizational flexibility that responds to changes in economic parameters between
international markets (Kogut, 1985, p. 27).
An unidimensional focus on global coordination and integration seems to be
misleading for the following reasons: first, the popularity of this debate in academia as
well as in business practice has caused overuse and misinterpretation of the terms
‘global’ and ‘globalization’ (Yip, 1992, p. 10). For example, by assessing the
internationalization strategies of the world’s one hundred largest firms2, Ruigrok and
van Tulder (1995, pp. 156-168) revealed that none of these can be termed truly global
in terms of sales, production facilities, management resources, finance, and R&D
capacities outside the home country. Moreover, from a macroeconomic perspective,
the rapid internationalization of trade and investments in the 1980s was largely limited
to the United States, The European Community, and Japan as well as East and South
East Asia. Thus, what is often referred to as globalization could be better described as
‘Triadisation’ (Ruigrok & Tulder, 1995, pp. 148-151). Second, there is reason to
2
Measured by total sales. Financial service firms and telecommunication providers are not included.
77
expect that the actual level of international variety may be quite consistent due to
resilient country-specific peculiarities such as cultural norms and values, local
languages, legal systems, fiscal regimes, educational systems, and physical as well as
technological infrastructures (de Wit & Meyer, 1998, pp. 722-723). Thus, various
factors persist which pressure internationally operating companies to be locally
responsive. These pressures encompass differences in customer needs and distribution
channels, the availability of substitutes, the structure of the target market with respect
to concentration and local competitive landscape, host government demands, etc.
(Prahalad & Doz, 1987, pp. 20-21). Third, not all international businesses lend
themselves to global competition. They rather compete on a multi-domestic basis.
Typically, such businesses have products that differ greatly among country markets, or
their industries lack sufficient scale economies to yield the global competitors a
significant competitive edge (Hout, Porter, & Rudden, 1982, p. 99). Similarly, as a
consequence of regionalization pressures, companies could decide to determine
investment locations, product mix, and competitive positioning on a regional, multicountry basis (Morrison, Ricks, & Roth, 1991, p. 24).
In conclusion, multinational firms need to simultaneously focus their attention on
aspects of the business that require global integration and aspects that demand local
responsiveness, and on varying degrees of strategic coordination (Prahalad & Doz,
1987, p. 25). Companies should move beyond simplistic organizational views that
polarize alternatives between world-product divisions and country-based structures.
Rather, headquarters need to take strategic responsibility in some decision areas;
subsidiaries must dominate in others (Hamel & Prahalad, 1985, p. 145). The challenge
for the multinational corporation is to find the right balance between all interests and
pressures in order to simultaneously achieve global efficiency, local responsiveness,
flexibility, and learning (Melin, 1992, p. 110). This need for multiple focal points for
managing requires MNCs to be multifocal, i.e. to globally integrate and centralize as
well as to locally adapt and decentralize at the same time (Prahalad & Doz, 1987, pp.
25-26). In sum, management has to develop three key capabilities to compete
successfully on an international basis (Doz, Prahalad, & Hamel, 1990, p. 119): first,
efficiency in executing strategies through a process of control of subsidiary actions.
78
Second, ability to change the nature of headquarters-subsidiary relationships in order
to allow required changes in the strategic direction to take place. Third, flexibility to
bring subsidiaries together to compete in a coordinated fashion and to take advantage
of interdependencies across businesses.
The network perspective
Referred to as the network perspective, this school of thought focuses on firm behavior
in the context of a network of intra-organizational, inter-organizational, and
interpersonal relationships (cf. Coviello & McAuley, 1999, p. 227). The network
model of the MNC allows the subsidiary to move from a position of subordination visà-vis the headquarters to one of equality, or even leadership (Birkinshaw & Hood,
1998, p. 778). This perspective on corporate internationalization is of high
contemporary interest in international business research due to the following reasons
(Nohria, 1992, p. 2): the first reason is the emergence of small entrepreneurial firms
and new industries over the last two decades. The dominant organizational model of
these corporations is a network of lateral and horizontal linkages within and among
firms. Second, recent innovations in information and communication technologies and
the Internet have made possible an entirely new set of more distributed and flexible
arrangements of intra-organizational as well as inter-organizational value creation.
Finally, the increased maturity of network analysis is a third reason for the trend
toward the network perspective of organizations. Whereas all organizations are
networks – patterns of roles and relationships –, the organizational type depends on the
particular characteristics of the network. In contrast to a bureaucratic organization, a
network organization is characterized by flexibility, decentralized planning and
control, and lateral (as opposed to vertical) ties (Baker, 1992, pp. 397-398).
Bartlett and Ghoshal (1989) focus their research on how enterprises organize their
value creation on an international basis. The studies of these authors emphasize
functioning and the capabilities of the MNC rather than its structural form (Melin,
1992, p. 108). The underlying assumption in this line of research is that environmental
forces shape the strategic profile of multinational firms, while a company’s
79
administrative heritage molds its organizational structure and capabilities (Bartlett,
1986, p. 372). Instead of a mechanistic and static view of organization-environment-fit,
MNCs need to recognize the fluid, multidimensional, and changing nature of both
environments and organizations. Hence, what is needed is not just fit but fit and
flexibility (Ghoshal & Nohria, 1993, p. 24). To a great extent, the fountainhead of the
ideas regarding the network-based structure of multinational corporations is
Perlmutter’s (1969) notion of the geocentric firm (Kogut, 1989, p. 387).
Correspondingly, the conception of geocentrism involves a collaborative approach
between headquarters and subsidiaries to establish universal standards and permissible
local variations, to make key allocational decisions on new products, new plants, and
new R&D facilities (Perlmutter, 1969, p. 13).
In an empirical study of nine multinational corporations, Bartlett and Ghoshal (1989,
pp. 49-53) identified three clearly distinguishable organizational models, each
characterized by distinct structural configurations, administrative processes, and
management mentalities: first, the multinational organization model is defined by a
decentralized federation of assets and responsibilities, simple financial control
systems, and a dominant strategic mentality that views the company’s worldwide
operations as a portfolio of national businesses. Second, the international organization
model is a coordinated federation, where the parent company transfers knowledge and
expertise to foreign markets. Compared with the multinational form, the international
model requires more formal systems for control of subsidiaries. Third, the global
organization model is characterized as a centralized hub, where most assets, resources,
and responsibilities are concentrated in the MNC’s headquarters. Subsidiaries are
tightly controlled by the parent company and are used as a pipeline for distribution and
service. All three MNC models have problems in simultaneously achieving global
efficiency, national responsiveness, and the ability to develop and transfer knowledge
on a global basis. Therefore, Bartlett and Ghoshal (1989) suggest the transnational
organization model: increasingly specialized units worldwide are linked into an
integrated network of operations that enables them to attain their strategic objectives of
efficiency, responsiveness, and innovation. The strength of this configuration springs
from the following fundamental characteristics (Bartlett & Ghoshal, 1989, pp. 59-66):
80
internationally dispersed assets enable corporations to sense diverse market needs and
technological trends, allow to capitalize on factor cost differentials, and reduce
political and economic risk. Moreover, by specializing operations, skills, and
capabilities such as manufacturing or R&D, corporations can capture significant
economic
benefits.
In
addition,
today’s
competitive
environment
demands
interdependent relationships within a multinational corporation in terms of
collaborative information sharing and problem solving, cooperative resource sharing,
and collective implementation. The efficient management of knowledge assets has
become one of the major organizational imperatives in order to sense emerging
technological innovations, to capitalize on short-lived market opportunities, and to act
quickly as new developments unfold (Korot & Tovstiga, 1999, p. 159). According to
this approach, international corporations enjoy significant advantages over national
ones as they can learn from a broader range of customer preferences, from a wider
spectrum of competitive behavior, from a more serious array of government demands,
and from more diverse sources of technological information (cf. Bartlett & Ghoshal,
1995). The managerial challenge is to handle the complex administrative processes
arising from the growing interdependence of organizational units and to implement
new coordination and control mechanisms in response to the differentiation of roles
and responsibilities (Bartlett & Ghoshal, 1987, p. 50).
In contrast to the focus on the network-based structure of multinational corporations,
the interaction-oriented perspective on multinational corporations emphasizes the
exchange and communication processes between the interdependent actors of the
network. The heterarchic model for the multinational firm aims to capitalize on
specific competencies of local entities, to leverage knowledge-based synergies, and to
organize temporary project teams depending on required skill sets (cf. Hedlund, 1993).
Some of the main characteristics of the heterarchial MNC are (Hedlund & Rolander,
1990, pp. 25-27): many centers, in which traditional headquarters functions are
geographically diffused; a strategic role for foreign subsidiaries; a wide range of
governance modes from pure market to hierarchy; a holographic organization, in the
sense that all parts of the company have access to and intensely share information;
action programs for market creation, for exploitation of comparative advantages, and
81
for flexible global arbitrage. As local subsidiaries develop distinct competencies and
internationalize their operations by exploiting standardization and country-specific
assets, units arise which have considerable influence on the group’s investment
behavior and total strategy. Over time, several gravity centers within the organization
emerge and compete for influence with the group’s traditional center (Forsgren &
Johanson, 1992, pp. 20-21). Notwithstanding its benefits, the heterarchic model fails
to delineate the mechanisms by which the complex system is stabilized and
coordinated. System stability is particularly critical since the country subsidiary has to
cope with the pull of the internal corporate network, on the one hand, and its position
in the external national network of stakeholders, on the other (Kogut, 1990, p. 60).
In conclusion, the contribution of the network approach to internationalization theory
will be discussed. As was mentioned above, a network-based firm can profit from the
know-how and skills of its international subsidiaries. According to Hymer (1976, p.
41), such knowledge or skills constitute an advantage, which may cause firms to have
international operations. In other words, the possession of advantages is a prerequisite
for a firm’s international engagement. By contrast, the network approach suggests that
corporate internationalization per se creates additional competitive advantages (cf.
Bartlett & Ghoshal, 1989). Thus, the network approach is able to comprehend and to
explain the economic rationale for follow-up investments in foreign countries. The
approach may therefore be seen as an extension of traditional internationalization
theories; it does not stand in contradiction to traditional concepts as the first
international investment decision can be derived from the existence of a firm-specific
advantage. Nonetheless, in business practice many organizations contain elements of
both integrative and hierarchical systems. Such hybrid systems are characterized by
more complex patterns of alignment and require greater conceptual and empirical
attention. Moreover, additional research is needed on the robustness of network
structures over time (Ibarra, 1992, p. 185). For instance, the framework by Bartlett and
Ghoshal (1989) lacks process dimensions, such as the dynamic transition from one
organizational form to another, and characteristics of the strategy process within each
model (Melin, 1992, p. 109).
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3.4 Conclusion: Internationalization and B2B Electronic Commerce
In conclusion of the literature review, this section aims to briefly recapitulate the state
of academic research on business-to-business electronic commerce and on the
internationalization of the firm. Therefore, the key findings which can be derived from
the review of the literature in the Chapters 2 and 3 will be set out in the following.
The literature review on B2B e-commerce can be summarized as follows: first,
notwithstanding potential benefits of electronic marketplaces in terms of cost savings,
information sharing among supply chain partners, and expansion of market reach, the
following barriers to the proliferation of digital intermediaries have been identified: an
early development stage of electronic business regarding standardization and seamless
integration of IT systems, economic barriers such as high investment requirements for
participants and immature service offerings of e-markets, and the reluctance of
corporate decision-makers to change longstanding buying and selling relationships.
Second, the economics of network markets suggest that a main challenge for electronic
marketplaces is to rapidly attain a critical mass of users. In this context, the geographic
expansion of B2B Internet firms represents an important means to grow the customer
base and to generate sufficient market liquidity. Third, despite new customer
relationship technologies and the ubiquity of the Internet, it is assumed that electronic
marketplaces need to complement their virtual presence with a physical presence in
local markets. Moreover, B2B markets are expected to forge inter-firm networks on an
international basis involving suppliers, buyers, service providers, and technological
enablers. Fourth, the role of speed in the development path of an e-marketplace seems
to lead to a rapid internationalization of operations in order to attain critical mass and
shape technological standards. Finally, the global reach of the digital marketspace
tends to propel the competition among B2B firms on an international basis. To sum up,
for most electronic marketplaces a local presence in target markets seems to be
required; at the same time, the velocity of foreign expansion is expected to be high.
The review of the academic debate on the internationalization of the firm has revealed
the following results: the internationalization phenomenon comprises three relevant
83
dimensions: an economic dimension, a behavioral dimension, and a process dimension.
The first element of the economic dimension is characterized by stimuli or drivers
which initiate and shape the foreign expansion process. Accordingly, economies of
scale, synergy advantages, and in-house competencies represent internal push-factors,
whereas internationalizing competitors, multinational customers, and local customer
needs are external pull-factors. The second element is the international market
selection, which is governed by a target country’s location variables: market-related
factors such as market volume and fragmentation on the supply and demand side,
production-related factors such as cost of inputs and labor, and environment-related
factors such as regulatory conditions, cultural proximity, and economic infrastructure.
In relation to a host market’s location variables, dominant incumbent players, lack of
market know-how and customer information, and cost of international operations and
control constitute relevant barriers to entry. The choice of entry mode is the third
element of the economic dimension. In general, with regard to business-to-business
Internet firms the following generic ways to enter international markets have been
identified: organic growth, joint venture, acquisition, and combinations thereof. The
behavioral dimension of the internationalization phenomenon denotes the cognitive
dynamics of managerial decision-making. Correspondingly, managers’ international
orientations, perceptions of benefits and costs, and international experience strongly
influence a firm’s foreign expansion strategy. Lastly, the process dimension
emphasizes the dynamic character of corporate internationalization. As a result of this
process, the international configuration of value creation evolves over time, balancing
global integration and centralization of activities with local adaptation and
decentralization of functions.
The three identified dimensions of the internationalization concept have been
synthesized into an integrative framework, which provided the organizing logic for the
subsequent review of the field of international business research. In the context of the
economic dimension, industrial organization theory, location theory, transaction cost
theory, and the eclectical paradigm have been set out. Thereafter, the behavioral
approaches
to
internationalizing
from
Aharoni
(1966)
and
the
Uppsala
Internationalization Model have been depicted. Finally, with reference to the process
84
dimension of international business, the multifocal approach and the network
perspective on multinational corporations have been delineated. In conclusion, Figure
9 links the internationalization framework with the examined internationalization
theories. Looking at Figure 9, it becomes apparent that each theoretical approach
focuses on distinct dimensions and partial aspects of the internationalization
phenomenon. Notably, the eclectical paradigm attempts to combine different
theoretical concepts into one framework. However, it is far from being complete. In
essence, the field of international business research is characterized by numerous
partial approaches yet lacks one integrative, ground-breaking internationalization
theory. In search of an academic foundation for the highly complex, real-world
internationalization of the firm, a more holistic theoretical approach to this
phenomenon seems to be required.
Eclectical paradigm
Industrial organization theory
Why?
Location theory
Where?
Transaction cost theory
What?
Stimuli to foreign expansion
International market selection
Choice of entry mode
Economic dimension
Foreign investment decision process / Uppsala Internationalization Model
How? (behavioral dynamics)
Behavioral dimension
Managerial decision-making
Multifocal MNC / Network perspective
How? (evolving international configuration)
Process dimension
Internationalization process
Figure 9: The internationalization framework in light of theoretical strands
Source: Author
To sum up, the literature review in the Chapters 2 and 3 has revealed a number of
valuable indications regarding the foreign expansion of business-to-business electronic
marketplaces. Notwithstanding these first insights, it can be inferred from the previous
sections that the academic contribution to the understanding of the digital economy in
general and the internationalization of business-to-business Internet firms in particular
so far is rather limited. Or, in other words, the empirical reality of the digital economy
85
necessitates the development of an improved theory of internationalization, which
explains its acceleration, its breadth, its modes of entry and investment, and the roles
of emerging international businesses (Oviatt & McDougall, 1999, p. 28). Hence, there
is a clear need for empirical research if we are to comprehend the internationalization
of European B2B electronic marketplaces. The next chapter describes the research
methodology which has been applied to investigate the dissertation’s research problem.
86
4. Research Methodology
The Method chapter is organized as follows: Section 4.1 delineates the research
questions of the dissertation. Subsequently, the research design of the empirical
investigation will be outlined in Section 4.2. Thereafter, Section 4.3 sets out the
specific steps that have been undertaken to conduct the quantitative survey. Finally, the
qualitative inquiry will be depicted in Section 4.4.
4.1 Research Questions
As was depicted in Chapter 1, the dissertation’s research objective is to explore the
internationalization of European business-to-business electronic marketplaces. The
preceding sections have corroborated the relevance of the governing research question:
What are the emerging internationalization patterns of European business-to-business
electronic marketplaces? So far, the academic contribution to this problem is rather
limited. Therefore, in line with the results derived from the literature review, the
underlying research problem is divided into the following five research questions:
Research Question 1: Degree of internationalization (DOI)
What is the DOI of European B2B e-marketplaces?
As was mentioned earlier, business-to-business electronic commerce is still in an early
stage and the business landscape is rapidly emerging. Hence, it is not clear to what
extent European e-marketplaces already have operating businesses in international
markets. Moreover, it is interesting to explore what percentage of offers and requests,
registered members, revenues, and staff of the e-marketplace is actually located outside
the domestic country (cf. Sullivan, 1994).
Research Question 2: Internationalization drivers
87
Which factors drive the internationalization of European B2B e-marketplaces?
The second research question examines the underlying stimuli or drivers which initiate
and shape the foreign expansion process of electronic marketplaces. With respect to
the review of literature and related research, several indications regarding the drivers
of B2B Internet firms’ foreign expansion have been brought to light: accordingly,
factors such as for example economies of scale, critical mass, and local customer needs
represent the underlying rationale for expanding operations abroad. This serves as the
basis to investigate empirically the relevance of these factors and to ascertain their
relative influence regarding the internationalization of European e-markets. Subsequent
to the fundamental decision to internationalize, the firm must decide on the
international market selection. This leads to the research question below.
Research Question 3: International market selection
Which location variables and entry barriers determine the international market
selection of European B2B e-marketplaces?
The target market selection encompasses a thorough comparison of a host country’s
location variables with existing barriers to entry (Meffert & Bolz, 1994, pp. 131-132).
Thus, the third research question addresses international market selection criteria that
affect the foreign investment decision of business-to-business Internet firms. At the
same time, it takes into consideration the influence of potential entry barriers on the
internationalization of electronic marketplaces. In addition to the international market
selection, the second key strategic decision regarding a firm’s internationalization
process is the choice of entry mode (Andersen, 1997, p. 29), which will be explored by
the subsequent research question.
Research Question 4: Choice of entry mode
How do European B2B e-marketplaces expand operations to foreign markets?
As was mentioned before, the following ways to enter a new market are prevalent with
respect to B2B Internet firms: organic growth, joint venture, acquisition, and
88
combinations thereof (Gurley, 2000, p. 324). The fourth research question not only
examines how European electronic marketplaces have internationalized operations in
the past but also how they plan to internationalize in the future. Finally, the objective
of the fifth research question is to investigate the outcome of the internationalization
process, i.e. the resulting international configuration.
Research Question 5: International configuration
What is the configuration of European B2B e-marketplaces’ international value
creation?
This research question addresses the issue as to which parts of the international value
creation are centralized in the firm’s headquarters (i.e. globally integrated) or
decentralized in international offices (i.e. locally adapted). Hence, it assesses how
business-to-business Internet firms create a balance between central integration and
local adaptation of value creating activities on an international basis.
On the basis of these five research questions, a comprehensive, in-depth analysis of the
underlying research problem can be provided. The investigation encompasses the
actual degree of internationalization, internationalization drivers, the international
market selection, the choice of entry mode, and the resulting international
configuration of European B2B e-marketplaces. In the following section, the research
design which served to answer the research questions will be described in detail.
89
4.2 Research Design
4.2.1 Quantitative vs. Qualitative Research
In academic research, there are two fundamental methodological approaches to the
study of the social world: the quantitative and the qualitative approach (cf. for example
Martin, 1990, pp. 30-31; Hammersley, 1999, p. 70; Denzin & Lincoln, 2000, pp. 810). This distinction still gives rise to a controversial and literally never-ending debate
whether quantitative methods are inherently superior to qualitative methods or vice
versa. Most research projects and researchers place their emphasis on one form or
another, partly out of conviction, but also because of training and the nature of the
problems studied (Strauss & Corbin, 1990, p. 18). This section elucidates the basic
differences between quantitative and qualitative approaches and highlights their
respective strengths and weaknesses. In conclusion, it opts for the break-up of
methodological monopolies by combining quantitative and qualitative research
methods.
Quantitative research refers to methods that primarily seek to express information
numerically in terms of counts or measurements (Remenyi, Williams, Money, &
Swartz, 1998, p. 121). In general, statistical analyses of experimental, survey, and
archival data are considered quantitative (Martin, 1990, p. 30). The underlying aim of
quantitative inquiry is to identify common patterns or processes characterizing an
examined population and to derive explanations of cause-and-effect relationships
(Bentz & Shapiro, 1998, p. 123). In quantitative research, the researcher as subject is
seen as a separate, distant entity from the object of investigation (Dachler, 1997, p.
714). Quantitative research tends to adopt a rigid, structured approach: for example,
survey research is structured in the sense that sampling and questionnaire construction
are conducted prior to the start of data collection and then imposed on the sample
members (Bryman, 1999, p. 40). The data emanating from quantitative research are
often depicted as hard, rigorous, and reliable. Since quantitative studies usually
90
embrace a multitude of variables for a large population, the huge amount of resulting
data has to be reduced by means of statistical procedures to derive relevant information
(Lamnek, 1993a, p. 242). The results of quantitative analysis are nomothetic, i.e. they
tend to take the form of general law-like findings which can be deemed to hold
irrespective of time and space (Bryman, 1999, p. 41). Quantitative approaches
inherently bear particular strengths: first, the use of statistically representative
sampling techniques allows for generalization of findings to the entire population
(Scandura & Williams, 2000, p. 1250). The application of standardized instruments
and procedures makes it possible to examine relatively large samples. Furthermore,
peer researchers can relatively easy replicate quantitative studies to corroborate or
disprove previous evidence (Remenyi et al., 1998, p. 36). Not surprisingly, quantitative
research has also certain weaknesses: in many cases, complex organizational realities
simply cannot be reduced to numbers (Bentz & Shapiro, 1998, p. 123). Moreover,
quantitative methods often are low on realism of contextual factors (Scandura &
Williams, 2000, p. 1250). Finally, the standardization of data collection reduces the
researchable field of social reality and lowers the possibilities to conduct subtly
differentiated analyses (Kromrey, 1991, p. 433).
Qualitative research emphasizes processes and meanings that are not experimentally
examined or measured in terms of quantity, amount, intensity, or frequency (Denzin &
Lincoln, 2000, p. 8). It involves nonmathematical analytical procedures that result in
findings derived from data gathered by observations and interviews, but also
conversation, books, documents, and recordings (Strauss & Corbin, 1990, p. 18). The
aim of qualitative approaches is to understand and interpret social phenomena in their
real-life context (Lamnek, 1993a, pp. 219-221). Therefore, qualitative researchers
investigate subjects in their natural settings attempting to make sense of phenomena in
terms of the meanings people bring to them (Denzin & Lincoln, 2000, p. 3).
Qualitative research tends to be flexible and open: data collection times and methods
can be varied as a study proceeds (Mayring, 1993, p. 16). The data derived from
qualitative research is usually described as rich and deep conceptualizations of the
social world (Denzin & Lincoln, 2000, p. 10). The qualitative analysis of the collected
data is governed by ways of theoretical explication of observed phenomena (Lamnek,
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1993a, p. 242). The results of qualitative analysis are ideographic, that is, the findings
are located in specific time periods and locales (Bryman, 1999, p. 41). Prior to an
empirical study, researchers have to weigh up the following inherent strengths and
weaknesses of qualitative inquiry: on the one hand, the strengths of qualitative
research are rooted in the richness of data and the depth of inquiry, the focus on events
in natural settings, and the flexibility of qualitative studies (Miles & Huberman, 1994,
p. 10). On the other hand, as the time and effort involved in qualitative research makes
the in-depth examination of large numbers of organizations difficult, the
generalizability of findings to entire populations is often questionable (Martin, 1990, p.
35). In addition, qualitative methods are more susceptible to researcher bias and
reliability problems (Snow & Thomas, 1994, p. 471). Lastly, it is by definition difficult
for peer researchers to replicate such holistic studies that are conducted in a distinct
real-life context over a specific period of time (Remenyi et al., 1998, p. 36). To sum
up, Table 5 below shows the fundamental differences between quantitative and
qualitative research.
Quantitative Research
Qualitative Research
Explanation
Understanding
Distant
Close
Rigid, structured
Flexible, open
Nature of data
Hard, reliable
Rich, deep
Data analysis
Reductive, explanatory
Explicative, explorative
Nomothetic
Ideographic
Aim of inquiry
Relationship between
researcher and subject
Research approach
Scope of findings
Strengths
Weaknesses
• Generalizability of results
• Inquiry of large samples
possible
• Relatively easy replication of
research
• Low on realism of contextual
factors
• Static approach
• Depth of inquiry and
richness of data
• Focus on events in natural
settings
• Flexibility of study design
• Lack of generalizability
• Susceptibility to researcher
bias
• Difficult replication
Table 5: Comparison of quantitative and qualitative research
Source: Compiled by the author
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The academic debate on research methodology has, all too often, taken the form of a
one-sided justification of a given method choice: either a simple or a complex version
of a mono-method argument (Martin, 1990, p. 43). By contrast, more and more voices
emerge opting for combinatory methodological approaches which integrate strengths
and mitigate shortcomings of quantitative and qualitative methods. The dichotomous
distinction between quantitative and qualitative approaches tends to obscure the
complexity of contemporary research problems and does not capture the full range of
potential options (Hammersley, 1999, p. 80). There is a clear need to address research
agendas that are better suited to deal with and understand rapidly developing new
challenges faced by the organizational world today (Dachler, 1997, p. 710). Multiple
approaches to analysis can provide valuable contributions to the same research
problem (Bartunek, Bobko, & Venkatraman, 1993, p. 1365). Often, these multiple
approaches are needed, cutting across quantitative and qualitative boundaries, to
examine a topic thoroughly and to provide substantial results (Bickman & Rog, 1998,
17). The combination of data types can be highly synergistic (Eisenhardt, 1989, p.
538): qualitative evidence is useful for understanding the rationale underlying
relationships or patterns revealed in the quantitative data. In conclusion, a synthesis of
quantitative and qualitative methods seems to be appropriate to explore the underlying
research problem. The ensuing triangulation strategy will be delineated in the
following section.
4.2.2 Synthesis: Triangulation Strategy
As was mentioned before, the governing research problem of the dissertation is to
investigate the emerging internationalization patterns of European business-to-business
electronic marketplaces. The foreign expansion of e-markets is an unprecedented
phenomenon which has not yet been the object of intense empirical studies and
academic theory building. This phenomenon is embedded in a variety of different
social and temporal contexts, relies on a constantly evolving technological
infrastructure, and emerges in a rapidly changing competitive environment. In view of
the present state of research, empirical studies can neither yield precise predictions nor
crisp prescriptions, but research can help understand the underlying patterns and their
93
implications for theory and business practice (Orlikowski & Iacono, 2000, p. 375;
Gattiker et al., 2000, p. 127). Thus, the nature of this empirical approach is of
descriptive and hypothesis-generating nature, rather than a hypothesis-testing approach
(cf. Stier, 1996, p. 234). In general, the goal of a descriptive study is to offer a profile
or to describe relevant aspects of the phenomena of interest to the researcher from an
individual, organizational, industry-oriented, or other perspective (Sekaran, 2000, p.
125). Descriptive field studies play an important role in the generation of theory by
identifying the basic building blocks of propositions and hypotheses (Snow & Thomas,
1994, p. 466). Hence, analysis stimulated by descriptive questions is meant to reveal
patterns and facts, not to test theory (Pinsonneault & Kraemer, 1993, p. 4).
In order to explore the dissertation’s research questions, an appropriate research design
should take a variety of empirical methods into consideration in order to conceive an
approach that enables a comprehensive coverage of the issues at stake. Therefore, a
multi-method study in the form of triangulation provided the methodological basis for
the empirical research design. The term triangulation originates from navigation and
military strategy that use multiple geographical reference points to locate an object’s
exact position (Jick, 1979, p. 602). Triangulation is broadly defined as “ (...) the
combination of methodologies in the study of the same phenomenon” (Denzin, 1978,
p. 291). It has to be noted though that aside of triangulating research methods (e.g.
interview, observation, survey), one can think of triangulation by data source (e.g.
persons, times, places) and by researcher (e.g. investigator A and B) (Miles &
Huberman, 1994, p. 267; Hill & McGowan, 1999, p. 15). The basic premise of
triangulation is that the particular limitations of a given method will be compensated
by the counter-balancing strengths of another (Jick, 1979, p. 604). Triangulation can
therefore improve internal and external validity as the combination of separate research
methods in one study helps to counter the trade-offs inherent in others (Scandura &
Williams, 2000, p. 1252). Using several data sources and measures of phenomena
provides cross-checks on data accuracy and enrichment of the conclusions researchers
might present (Harrigan, 1983, p. 400). Notwithstanding these benefits, the
triangulation strategy is not without some shortcomings: first, replicating a mixedmethods package is a nearly impossible task (Jick, 1979, p. 609). Second, if the
94
research is not clearly focussed conceptually or theoretically, even the most
sophisticated combination of methods will not produce satisfactory results (Lamnek,
1993a, p. 256). Third, the researcher needs to be trained in multiple methods and has
to cope with various constraints in terms of time and cost (Martin, 1990, p. 41).
The major building block of the dissertation’s empirical investigation is quantitative in
nature. In light of the governing research problem, a cross-sectional survey (cf. Maxim,
1999, pp. 189-190) seemed to be an appropriate research strategy. This choice was
made for the following reasons: a survey’s prime advantage is its efficiency in terms of
speed and cost in generating large amounts of data that can be subjected to statistical
analysis (Snow & Thomas, 1994, p. 462). Surveys allow for large numbers of
respondents to be surveyed even if the respondents are widely distributed
geographically (Mangione, 1998, p. 399). Consequently, the survey strategy provided
an efficient means to investigate the European population of B2B e-marketplaces,
which is geographically distributed among 14 countries. Moreover, survey strategies
are advantageous when the research goal is to describe the incidence or prevalence of a
phenomenon (Yin, 1994, p. 6). Survey research is especially well suited for answering
questions about ‘what is happening?’ and ‘how and why is it happening?’
(Pinsonneault & Kraemer, 1993, p. 3). This closely corresponds with the underlying
research problem and the nature of the five research questions to be explored. In
addition, surveys have inherent advantages as compared to other methods as they allow
respondents to answer questions at times that are convenient, to see the context of a
series of questions, to take time in answering, and to look up information (Mangione,
1998, p. 399). Furthermore, in comparison to e.g. personal interviews, the use of the
survey method eliminates interviewer bias (Schnell, Hill, & Esser, 1995, p. 333). Not
surprisingly, as with each empirical method, surveys have several potential
weaknesses: one major limitation is their typically low response rate. Low response
rates are problematic because they reduce confidence about the extent to which survey
findings generalize to the population from which the survey is drawn (Snow &
Thomas, 1994, p. 462). Another area of problems comes from response errors due to
ambiguous wording and the inherent lack of interactivity (Mangione, 1998, p. 401). A
third problem area arises from conceptual shortcomings (Noelle-Neumann, 1997, p.
95
29) and administrative errors caused by the researcher (Berekoven, Eckert, &
Ellenrieder, 1996, p. 113). However, there are various ways of handling and reducing
survey errors; the upcoming sections will refer to the particular techniques that have
been applied in the empirical study to address these problems.
The second building block of the empirical study is rooted in the qualitative
methodology. On the basis of the quantitative findings from survey research, in-depth
interviews with leading executives of B2B electronic marketplaces have been
conducted for the following reasons: the first reason was to cross-check the survey
results and to explore the social realities behind the identified trends (cf. Ruigrok,
Pettigrew, Peck, & Whittington, 1999, p. 61). The second objective was to get insights
into managerial decision-making regarding B2B e-marketplaces’ internationalization
strategy (cf. Murtha et al., 1998). The third reason was to derive indications regarding
changes European B2B e-commerce has undergone in the five-months period between
survey and interviews as well as future developments in European B2B e-commerce.
In general, interviews constitute an effective means of collecting in-depth information
in one or across several research sites (Remenyi et al., 1998, p. 111). The main
advantage of interviews is that the researcher can adapt the questions as necessary,
clarify doubts, and ensure that the responses are properly understood (Sekaran, 2000,
p. 230). However, interviewing as a method relies heavily on the perceptions,
opinions, and perspectives of respondents and is hence susceptible to response bias
(Yin, 1998, p. 231).
It can be inferred from the above that a thorough research design was obtained by
combining a cross-sectional survey design with follow-up, in-depth interviews with
people selected from those already examined (cf. Bechhofer & Paterson, 2000, p. 64;
Black, 1999, p. 216). To sum up, Figure 10 provides an overview of the dissertation’s
research design which has been applied to explore the research problem at stake. Each
step will be delineated in the following sections.
96
Desk research
Literature Review
Quantitative research
Exploration
• Assess current state
• Complement
of academic research
theoretical findings
• Locate empirical study • Plausibility check
within a context of
with business practice
theoretical concepts
• Prepare questionnaire
• Formulate the
development
research questions
Survey
• Explore the research
questions
• Provide a
representative
analysis of the
European population
• Detect emerging
internationalization
patterns
Qualitative research
Interviews
• Cross-check
quantitative findings
• Get insights into
behavioral dynamics
• Derive indications
regarding changes
over time
Figure 10: Overview of the research design
Source: Author
4.3 Quantitative Survey3
4.3.1 Exploration
The point of departure in the design of a questionnaire is a well-defined research
problem and a clear understanding of the phenomenon to be investigated. The draft
questionnaire is the product of a preceding review of the academic and professional
literature as well as qualitative empirical evidence from pre-study interviews or focus
groups (Remenyi et al., 1998, p. 151). When there is a limited amount of knowledge
about a phenomenon, such exploratory research is a useful preliminary step that helps
ensure that a more rigorous, more conclusive forthcoming investigation will not begin
with an inadequate understanding of the nature of the research problem (Zikmund,
2000, p. 102). This especially holds in a field that is as new and fast-changing as
business-to-business e-commerce and where academic insights are still a scarce
3
The pan-European survey of business-to-business e-marketplaces has been conducted within the framework of
the University of St. Gallen eConomy Project (USe). The USe project was led by the Research Institute for
International Management and the Institute for Media and Communications Management at the University of
St. Gallen in co-operation with Accenture as the sponsoring corporate partner.
97
resource. Thus, it seemed adequate to gain a better comprehension of the
internationalization process of B2B Internet firms not only in a scientific context but
also in the context of business practice. Therefore, exploratory expert interviews have
been conducted with top executives of three electronic marketplaces and one venture
capital firm.
With regard to the B2B Internet firms, the chief executive officer (CEO), the chief
financial officer (CFO), and the Head of Business Development of GoIndustry, the
CEO, the Head of Product Development, and the Head of Sales of Conextrade, and the
Executive Director Europe of PaperExchange have been interviewed. GoIndustry is
one of the leading independent German business-to-business marketplaces with offices
in Munich, London, and Paris. At the time of the interviews, GoIndustry was in the
process of expanding operations to additional European countries, North America, and
Japan. Conextrade is a private electronic marketplace from Switzerland owned by
telecommunication firm Swisscom that had not yet started its foreign expansion at the
time of the interviews. PaperExchange is an independent North American exchange,
which has established an European presence in London. The combination of diverse
national backgrounds, ownership structures, and degrees of internationalization
seemed to be advantageous in order to broadly conceive the foreign expansion of
business-to-business Internet firms in this early stage of inquiry. In addition, the Vice
President of venture capital firm Global Retail Partners, which manages a large
portfolio of B2B investments, has been interviewed in order to include a ‘meta-view’
on electronic marketplaces’ internationalization in the exploratory study.
In general, problem-centric interviews start from theoretical assumptions or concepts
which are refined throughout the interview process, rely on an interview pro forma that
covers the relevant areas of interest, and elicit information from respondents through
open questions (Lamnek, 1993b, pp. 74-78). The purpose of this kind of exploratory
investigation is to help clarify and elaborate concepts rather than develop conclusive
evidence (Zikmund, 2000, p. 106). The data collection was done through face-to-face
interviews which lasted between one and two hours. In the case of PaperExchange, a
telephone interview has been conducted. The interview pro forma was structured
98
according to the dissertation’s research questions. Hence, the interviewees provided
insights regarding the degree of internationalization, internationalization drivers, the
international market selection, the choice of entry mode, and the international
configuration of value creation. The interview minutes have been transcribed the same
day. In order to avoid misunderstandings and to reduce interpreter bias, the interview
transcripts have been reported back to the interviewees (cf. Remenyi et al., 1998, p.
112). To a great extent, the findings derived from the exploratory interviews
corroborated the theoretical insights derived from the literature review. In addition, the
interviews helped to validate and to further refine the concepts and variables to be
explored in the pan-European survey. In combination, the evidence from theory and
business practice served as the basis to develop the questionnaire of the quantitative
study.
4.3.2 The Population
As was mentioned before, the targeted population of the survey encompassed all
European business-to-business Internet marketplaces that were operational as of April
2001. Due to the limited number of approximately 500 relevant firms, the empirical
study was conceptualized as a census, i.e. all the individual elements that made up the
population have been addressed (cf. Richards, 1998, p. 217). Thus, problems of sample
design and execution could be avoided (cf. Henry, 1998). The major challenge was to
thoroughly identify the population members: emerging industries are often populated
by a multitude of young and unknown companies (Zahra, Ireland, & Hitt, 2000, p.
933). European B2B e-commerce is characterized by a rapidly evolving landscape of
new players as well as ephemeral failures. Moreover, official directories of electronic
marketplaces have neither been in place on a national nor on a pan-European level.
Hence, it was necessary to rely on a plethora of data sources in order to identify the
population elements as completely and accurately as possible. Therefore, various
databases from professional market research firms, trade associations, academic
institutions, and specialized B2B e-commerce online-sources have been reviewed. In
an iterative process, these data sets have been compared and aggregated leading to a
total number of 507 firms. Subsequently, each firm’s web-site was screened to exclude
99
companies without actual Internet presence or with business models dissimilar to B2B
electronic marketplaces. As a consequence, 29 companies were excluded resulting in a
final survey database containing 478 validated European business-to-business
electronic marketplaces. The geographical distribution of these firms is shown by the
figure below.
1.3%
1.3%
5.2%
2.1%
4.0%
Germany
4.0%
United Kingdom
Sweden
4.0%
France
48.7%
Netherlands
Switzerland
9.6%
Belgium
Norway
Spain
Other
19.9%
Figure 11: Geographical distribution of European B2B e-marketplaces
Note: N = 478
Source: Survey database
4.3.3 Questionnaire Design
The quantitative investigation has been conducted as an Internet-based survey.
Compared to conventional mail surveys, the advantages of this survey type can be
summarized as follows: first, potential respondents can be reached in a rapid and
efficient manner independent from time and geographical location (Zhang, 2000, p.
58). Second, data entry takes place as the respondent completes the survey. This saves
time and reduces errors from transcription and coding (Edwards, Thomas, Rosenfeld,
100
& Booth-Kewley, 1997, p. 75). Moreover, an Internet-based survey avoids media
disconnects and imposes – apart from answering the questionnaire – no additional
effort to the respondent. Finally, the online questionnaire can give respondents
explanations of survey questions and definitions of items (Fink & Kosecoff, 1998, p.
8). In the light of the above, one could argue that Internet technology can provide an
effective means to stem some of the disturbing trends indicating a decrease of
precision, control, and generalizability in management research (Scandura & Williams,
2000, p. 1262). Notwithstanding these strengths, potential problems and concerns of
Internet-based surveys include the following: one problem with online surveys are
biased samples and returns. For instance, individuals in a population may not have
equal access to the Internet or may not be comfortable with the online survey format
(Zhang, 2000, pp. 58-59). At the same time, there may be privacy and confidentiality
concerns (Duncan, 1993, p. 260). Fortunately, the key informants of this study could
be expected to have a close affinity to the Internet, to dispose of the necessary
technical equipment, and to have the skills to use the survey tool. Another problem
area comes from technical difficulties such as server downtimes, low-speed network
connections, and browser compatibility (Fink & Kosecoff, 1998, p. 8). In addition, an
Internet survey needs to be designed, programmed, and tested, which requires
considerable time and money (Remenyi et al., 1998, p. 157). Perhaps the most
challenging aspect of using the Internet for survey research is that there are not many
research guidelines regarding the presentation and interpretation of results, such as
representativeness, validity, and response rate (Zhang, 2000, pp. 66-67). On the one
hand, e-questionnaires have to adhere to the same basic guidelines for structure and
wording as traditional mail surveys (cf. Zikmund, 2000). On the other hand,
researchers cannot merely import paper-and-pencil methods to online studies:
computer-mediated research needs specific and carefully designed instruments that not
only accommodate but exploit the peculiarities of the electronic environment (Witmer,
Colman, & Katzman, 1999, p. 158).
For the purpose of this study, the online survey application was developed in Lotus
Notes 5.0 on a Windows NT 4.0 workstation. Both, the user front-end and the
underlying database were based on Lotus Notes. The application was hosted on a
101
Domino server. To contact the key informants, a personalized e-mail served as the
cover-letter of the survey (cf. Appendix A). The e-mail contained a hyperlink which
led the respondent directly to the survey homepage www.e-markets.ch. The Internet
connection was established via SSL technology in order to guarantee confidentiality
and security of the data. The survey homepage provided a short explanation of how to
answer the questionnaire as well as feedback possibilities to the researchers via e-mail
or phone. The respondents had the choice between an English and a German version of
the questionnaire. The survey homepage is shown by Figure 12.
Figure 12: Survey homepage
Source: Author
The Internet pages containing the survey questions (cf. Appendix B) have been
designed as follows: navigation through the questionnaire was done by questions or
survey parts. For each question, a help-button provided the purpose of inquiry and
precise definitions of the question items in order to mitigate misunderstandings and
response errors. A counter indicated what percentage of the questionnaire had been
answered. The answers were transferred into the survey database in real-time. Figure
13 visualizes the Internet-based survey’s front-end design.
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Navigation:
• Between questions
• Between parts
Help:
• Purpose of inquiry
• Definitions of items
Interaction:
• Response fields
• Real-time transfer into
database
Figure 13: Front-end design of the Internet-based survey
Source: Author
4.3.4 Data Collection
As was mentioned before, one major limitation of questionnaires is their typically low
response rate. This problem is particularly relevant to industrial populations consisting
of respondents who receive questionnaires at their place of employment. Because of
factors such as their preoccupation with work, confidentiality of information, or firm
policies, industrial populations are less likely to respond to survey questionnaires than
consumer populations (Greer, Chuchinprakarn, & Seshadri, 2000, p. 99). To mitigate
this problem, the survey preparation and administration process adhered to the ‘total
design method’ recommended by Dillman (1978). In essence, the total design method
consists of two parts (Dillman, 1978, pp. 12-20): the first is to identify and to cope
with factors that may affect either the number and quality of responses. The second is
to carefully plan and monitor the survey administration plan in accordance with design
intentions. This section describes the resulting set of procedures applied for the
purpose of data collection.
103
In the preparation phase, each of the 478 European business-to-business electronic
marketplaces has been contacted via phone in order to identify the respondents’ names
and contact details and to announce the upcoming study. When possible, members of
the board involved in international operations were targeted; otherwise senior
executives responsible for strategic planning or marketing were addressed. In small
firms, as in this population, management tends to be centralized and vested in a few
individuals. Hence, the targeted respondents could be assumed to be knowledgeable
about the major aspects of their firm’s internationalization (cf. Jones, 2001, p. 197). To
ensure validity of the data, the survey was pre-tested as follows (cf. Zahra et al., 2000,
p. 933): first, the preliminary questionnaire instrument was discussed with experts
from academia and business practice. These individuals closely reviewed and critiqued
the questionnaire and offered several suggestions for improving its structure, content,
and wording. The revised questionnaire and the online survey application were then
pilot tested and evaluated by ten B2B Internet firms. The objectives of this test were to
confirm that the items were understandable and unambiguous as well as to technically
test the Internet front-end application and the underlying database. The feedback from
the pilot test was incorporated into the final version of the questionnaire (cf. Appendix
B) and the design of the online survey application.
The survey administration process consisted of three waves: the original e-mail was
followed by two reminder e-mails each between two and three weeks after the
preceding mailing (cf. Babbie, 1990, p. 181). On April 5, 2001, the initial invitation to
participate in the survey was sent to the 478 identified key informants. Apart from the
URL of the e-questionnaire, this e-mail (cf. Appendix A) provided information about
the study’s purpose of inquiry, the responsible research institutes, the offered rewards
to the respondents, and a confidentiality statement. The first follow-up e-mail was sent
to non-respondents on April 23, 2001. In addition, non-respondents have been
simultaneously contacted via phone to re-emphasize the importance of participation
and to address potential questions or concerns. Finally, the second follow-up e-mail
was sent to the remaining non-respondents on May 7, 2001, communicating the
closing deadline of the survey. Throughout the entire administration process, the
survey responses and the technical performance of the online application have been
104
closely monitored. Database entries which could not be traced back to a valid
respondent or which contained large numbers of missing values were excluded. Figure
14 gives an overview of the survey preparation and administration process.
Administration
Preparation
Population database
• Compiling different
databases, registries,
market research reports
• Phone calls to identify
targeted respondents and
to announce upcoming
study
• Final database with
validated 478 European
B2B e-marketplaces
E-questionnaire
• Plan and approve
budget
• Organize
programming
• Extensive testing:
- 10 survey pre-tests
with e-marketplaces
- USe-team internal
testing
First wave
Second wave
Third wave
(April 5 - 22, 2001)
(April 23 - May 6, 2001)
(May 7 - 21, 2001)
• E-mail (cover letter)
with hyperlink to
www.e-markets.ch
• First follow-up
e-mail to nonrespondents
• Second follow-up
e-mail to nonrespondents
• Handling of e-mail
delivery errors
• Follow-up phone
calls
• Communication of
closing deadline
• Answering
respondent inquiries
and comments
Close monitoring of survey responses and technical performance
Figure 14: Survey preparation and administration process
Source: Author
Of the 478 potential respondents, 207 usable responses were received via the Internet
by the study’s cutoff date on May 21, 2001. This translates into a response rate of 43.2
percent, which can be regarded as relatively high for a study of this type. The daily
cumulative responses are illustrated in Figure 15. Looking at the response curve, the
immediate character of the Internet-based survey instrument becomes apparent. As
soon as one hour after the initial e-mailing, the first responses as well as inquiries to
the research team occurred. At the same time, the high number of responses during the
second wave seems to underline the importance of a precisely coordinated online (first
reminder e-mail) and offline (follow-up phone call) interaction with potential
respondents.
105
Number of cumulative responses
250
Total
207 responses
200
150
2nd wave
91 responses
100
3rd wave
36 responses
50
1st wave
80 responses
0
1
6
11
16
21
26
31
36
41
46
Day
Figure 15: Daily cumulative responses
Source: Survey database
After completion of data collection, the survey database was exported from Lotus
Notes to Microsoft Excel for the purpose of data cleaning. Subsequently, the database
was transferred to the statistical software package SPSS for further data analysis. As
most of the question items were pre-coded in the Lotus Notes questionnaire form, little
additional coding was required.
4.4 Qualitative Interviews
As was mentioned earlier, the qualitative inquiry has been conducted in the form of
structured interviews (cf. Atteslander, 1993, pp. 170-171). These interviews aimed at
cross-checking the evidence from quantitative research, at getting insights into
managerial decision-making, and at deriving indications regarding changes European
B2B e-commerce undergoes over time. Correspondingly, the interview pro forma (cf.
Appendix D) was divided into three parts: the first part brought the survey results
structured according to the five research questions up for discussion. In the second
part, behavioral aspects of internationalization such as the interviewees’ international
106
orientation and experience, perception of internationalization benefits and costs, and
decision-making processes have been examined. The third part addressed changes
European B2B e-commerce has undergone in the five-month period between survey
and interviews as well as future developments in business-to-business electronic
commerce.
Unlike random sampling techniques used in quantitative studies, qualitative research
adheres to theoretical sampling concepts (cf. Strauss & Corbin, 1990). Essentially, the
term theoretical sampling means selecting a sample on theoretical rather than
formalized statistical grounds. The underlying logic is analytical induction rather than
representativeness of study population (Finch & Mason, 1999, p. 294). However, for
some degree of generalization to be made, it is essential that the theoretical sampling
process is systematically conceptualized and documented. Therefore, an explicit
sampling framework is needed (Miles & Huberman, 1994, p. 29). In light of the
dissertation’s research questions, the following sampling framework for categorizing
the population elements has been applied: one dimension was the number of countries
with operating businesses. This dimension separated electronic marketplaces with a
high degree of internationalization from those with a limited international presence.
The second dimension was the e-markets’ operational performance in terms of the
growth rate of registered marketplace members, which divided the population into
more successful firms and under-performers. Both variables have been divided at their
medians. The resulting 2x2 matrix provided the organizing framework for the
subsequent study of e-marketplaces from each quadrant. Since this approach addressed
firms differing in performance and degree of internationalization, it was expected to
cover a broad range of perspectives in view of the underlying interview objectives. To
eliminate bias caused by dissimilar lifecycle stages, company age served as the control
variable (cf. Zahra et al., 2000, p. 937). Accordingly, electronic marketplaces that had
been in existence between 19 and 24 months have been included. The selection of this
age category was based on the following reasons: first, data on the growth rate of
registered marketplace members had been collected for a period of 18 months. Second,
firms pertaining to the open category ‘more than 25 months’ were not comparable as
their age greatly varied.
107
Of the 207 European e-marketplaces responding to the survey, 36 firms met the criteria
of the sampling frame. 16 thereof had indicated their willingness to participate in a
follow-up interview in the questionnaire. These firms have been invited by e-mail to
arrange an interview. Finally, nine e-markets agreed to contribute. In each company, a
board member involved in international operations has been interviewed. Due to the
wide geographical distribution of the interviewees, the data collection was done
through telephone interviews, which lasted between one and two hours. The interview
pro forma had been sent to the participating executives one week before the interview
was conducted. Research notes were written up within 24 hours, and then sent to the
respondents to ensure that the information was complete and correct.
108
5. Empirical Findings
The objective of the Results chapter is to provide a concise treatment of the
quantitative and qualitative findings. The interpretation of these findings is largely left
until the subsequent Discussion chapter. This chapter has the following structure:
Section 5.1 sets out the empirical findings from the quantitative survey. Subsequent to
the description of the sample, the ensuing sections are organized according to the
study’s research questions. Thereafter, the results of the qualitative interviews will be
presented in Section 5.2.
5.1 Results of the Quantitative Survey
5.1.1 Description of the Sample
This section provides a description of the survey sample in terms of firm age, time-tomarket cycles, country of origin, and targeted industry categories. Of the European
population of 478 business-to-business electronic marketplaces, a sample of 207 firms
responded to the survey. This raises the question as to whether the findings derived
from the sample can be generalized to the entire population. Therefore, a sample
selection test has been performed to examine if the responding companies are
representative of the underlying population. A logit model was estimated, and
statistical significance on any variable signifies some bias in the probability of
response. Table 6 shows that there is no systematic bias between the responding firms
and non-respondents in terms of the targeted industry category (ii2-ii12) and their
country of origin (cc1-cc10). The test is significant at a 95 percent level of confidence.
As a result, this lack of bias in our responding group of firms suggests a
generalizability of the survey findings. The only exception is the ‘other’ industry
category (as denoted by a z-value greater than 2), which is not problematic, as it only
includes firms that cannot be systematically classified elsewhere.
109
Response
ii2
ii3
ii4
ii5
ii6
ii7
ii8
ii9
ii10
ii11
ii12
cc1
cc2
cc3
cc4
cc5
cc6
cc7
cc9
cc10
_cons
Coef.
-0.0562812
-0.8776386
-0.426246
-0.701586
0.7769923
-0.3638025
-0.1442255
-0.4144357
-0.4577008
0.3150203
1.531418
-0.6290228
-0.5435781
0.4937105
-0.1979591
1.234183
1.66725
0.2048835
0.3295256
1.080793
0.0760109
Std. Err.
0.6483132
0.571094
0.5008658
0.563262
0.6019112
0.584381
0.5107933
0.5841093
0.5425878
0.5679153
0.6282156
0.8712756
0.8792581
0.924341
0.9833389
1.003485
1.024114
1.042865
1.181459
0.9607767
0.9664265
z
-0.09
-1.54
-0.85
-1.25
1.29
-0.62
-0.28
-0.71
-0.84
0.55
2.44
-0.72
-0.62
0.53
-0.20
1.23
1.63
0.20
0.28
1.12
0.08
P>|z|
0.931
0.124
0.395
0.213
0.197
0.534
0.778
0.478
0.399
0.579
0.015
0.470
0.536
0.593
0.840
0.219
0.104
0.844
0.780
0.261
0.937
95% Conf. Interval
-1.326952
1.214389
-1.996962
0.2416851
-1.407925
0.555433
-1.805559
0.4023872
-0.402732
1.956717
-1.509168
0.7815632
-1.145362
0.856911
-1.559269
0.7303974
-1.521153
0.6057517
-0.7980732
1.428114
0.3001378
2.762698
-2.336692
1.078646
-2.266892
1.179736
-1.317965
2.305386
-2.125268
1.72935
-0.7326101
3.200977
-0.3399759
3.674477
-1.839095
2.248862
-1.98609
2.645142
-0.8022947
2.963881
-1.81815
1.970172
Table 6: Sample selection test
Source: Survey database
Figure 16 shows that European B2B e-commerce is still a young phenomenon. As of
May 2001, only 25.6 percent of the electronic marketplaces have been in existence for
longer than two years. By contrast, with 57.0 percent of the firms younger than 18
months the landscape is still in an immature stage. The distribution among age
categories seems to mirror the hype phase and the succeeding pessimism electronic
commerce has gone through in the last years. Whereas more than half of the e-markets
have been founded in 2000, only few new players joined in 2001.
110
4.4%
25.6%
16.9%
1-6 months
7-12 months
13-18 months
19-24 months
>= 25 months
17.4%
35.7%
Figure 16: Age of European electronic marketplaces
Note: N = 207
Source: Survey database
As was assumed in Section 2.4.3, European electronic marketplaces have short timeto-market cycles. With an average time period of 5.6 months from the firm’s formation
to the date of the first transaction conducted via the electronic platform, B2B Internet
firms appear to place emphasis on a rapid launch of operations. 81 of the surveyed
firms had time-to-market cycles of three months or less. Only nine companies
launched operations more than one year after foundation. Figure 17 presents the
observed time-to-market cycles of European business-to-business e-marketplaces.
111
80
67
70
Number of firms
60
50
47
40
46
34
30
20
9
10
0
0 months
1-3 months
4-6 months
7-12 months
>= 13 months
Time-to-market
Figure 17: Time-to-market cycles of European electronic marketplaces
Note: N = 203 (missing values are excluded)
Source: Survey database
The survey has been responded by B2B Internet firms from 14 European countries. At
37.7 percent, more than one third of the electronic marketplaces are headquartered in
Germany. Germany is followed by the UK with 16.4 percent and Sweden with 10.6
percent of the participating companies. Swiss firms account for 8.7 percent of the
sample followed by Dutch e-markets with 6.3 percent. Surprisingly, large European
economies such as France, Spain, and Italy are under-represented in B2B electronic
commerce as compared to their economic positions in traditional industries. Figure 18
shows the countries in which the sample firms are headquartered.
112
1.4%
10.7%
1.4%
Germany
2.9%
United Kingdom
3.9%
37.7%
Sweden
Switzerland
6.3%
Netherlands
France
Belgium
8.7%
Norway
Spain
Other
10.6%
16.4%
Figure 18: Geographical distribution of sample firms
Note: N = 207
Source: Survey database
Most of the responding electronic marketplaces are vertical markets which are
organized by industry and provide domain-specific transaction and information
services. Only 19 firms reported a horizontal market orientation, providing a product
category or business process to different industries. The industry categorization was
compiled on the basis of a B2B e-commerce study conducted by the Swedish Trade
Council in 2001. Figure 19 presents the ensuing industry categories and the number of
electronic marketplaces targeting these industries.
113
32
Consumer goods, food, leisure, and healthcare
27
Raw materials, energy, metals, plastics, and chemicals
21
Industry categories
Other
Horizontals
19
IT / telecommunications equipment and services, electronics
19
16
Professional services, finance, and media
Transportation and logistics
13
Industrial equipment and supplies
13
Paper, printing, and office products
12
Building, construction, and real estate
12
Agriculture and forestry
12
11
Automotive, aviation, and marine
0
5
10
15
20
25
30
35
Number of e-marketplaces
Figure 19: Targeted industries by responding e-markets
Note: N = 207
Source: Survey database
5.1.2 Degree of Internationalization
As was presented in the preceding section, European business-to-business electronic
commerce is a young, rapidly emerging phenomenon. It was not clear at the outset of
the study to what extent European e-marketplaces already had operations in foreign
markets. Therefore, in addressing the dissertation’s first research question, the survey
explored the actual degree of internationalization of European B2B firms. Since
single-item measures of the DOI may result in distorted estimates (Sullivan, 1994, p.
327), the degree of internationalization of electronic marketplaces was operationalized
by the following five measures: the number of countries with operating businesses and
the employee distribution between headquarters and international subsidiaries as
structural attributes of internationalization; foreign product or service offers and
requests as a percentage of total offers and requests and the number of registered
marketplace members from foreign countries as a percentage of the total number of
registered members as operative attributes; foreign revenues as a percentage of total
revenues as the financial attribute of DOI (cf. Sullivan, 1994, p. 331).
114
Looking at Figure 20, it becomes apparent that European B2B e-commerce is in the
process of internationalizing, yet has far from global reach. As of May 2001, 35.8
percent of the responding companies were active solely in one country, i.e. these firms
had no physical presence apart from their home country. However, this means in turn
that 64.2 percent of the electronic marketplaces have already expanded operations to
international markets. Specifically, 13.4 percent of the firms operate with one foreign
subsidiary, 31.5 percent are active in three to five countries, and 10.2 percent manage
businesses in six to ten countries. Finally, 9.1 percent of the electronic marketplaces
have international offices in more than ten countries.
more than 10
countries
9.1%
6-10 countries
10.2%
1 country
35.8%
3-5 countries
31.5%
2 countries
13.4%
Figure 20: Number of countries with operating businesses
Note: N = 187 (missing values are excluded)
Source: Survey database
These results can be further broken down by firm age. Table 7 directly compares the
number of countries in which the electronic marketplaces have operations with the age
of these firms. Surprisingly, the analysis suggests that the focus on one country is
independent of firm age: with increasing age the percentage of firms that concentrate
on one market remains relatively stable. For instance, 37.5 percent of the e-markets
115
that are between one and six months old and 34.9 percent of firms that are in existence
for more than 24 months reported to operate businesses in only one market. Yet, the
majority
of
European
B2B
electronic
marketplaces
tends
to
engage
in
internationalization activities soon after the launch of operations. For example, 61.8
percent of the firms that are in existence between seven and twelve months have an
international presence not more than one year after foundation. Within that age
category, four firms even claimed to have foreign subsidiaries in more than ten
countries. Therefore, these results corroborate the propositions derived from Section
2.4.4: e-markets tend to rapidly internationalize across national boundaries early in
their lifecycle.
1 country
2 countries
3-5 countries
6-10 countries
> 10 countries
Count
%
Count
%
Count
%
Count
%
Count
%
1-6 months
3
37.5
0
0.0
4
50.0
1
12.5
0
0.0
7-12 months
13
38.2
7
20.6
8
23.5
2
5.9
4
11.8
13-18 months
23
33.3
11
15.9
22
31.9
7
10.2
6
8.7
19-24 months
13
39.4
1
3.0
11
33.4
4
12.1
4
12.1
>= 25 months
15
34.9
6
14.0
14
32.5
5
11.6
3
7.0
Age
Table 7: Number of countries and firm age
Note: N = 187 (missing values are excluded)
Source: Survey database
In addition to the number of countries with operating businesses, the degree of
internationalization has been investigated with regard to the four dimensions offers /
requests, registered members, revenues, and staff. The aggregated responses are
presented in Figure 21. The dimensions offers / requests and members have the highest
internationalization ratios. More than 80 percent of the responding firms receive at
least 1-20 percent of total product or service offers and requests from international
marketplace participants. And 25.3 percent strongly depend (61-80% or 81-100%) on
offers / requests which originate from foreign members. These figures are reflected in
the foreign revenue dimension, which underlines the arising importance of cross116
boundary transactions: 77.8 percent of the responding companies generate revenues
abroad; 22.7 percent thereof heavily rely (61-80% or 81-100%) on foreign revenue
streams. The comparatively lowest degree of internationalization has been reported for
the dimension staff in international offices as a percentage of total staff. Accordingly,
one third of the e-markets has no foreign subsidiaries with local staff, whereas only 7.7
percent report to have a high DOI (61-80% or 81-100%) in this dimension.
33.3
DOI dimensions
Staff
Revenues
34.9
22.2
11.3
38.6
8.8
7.7
12.8
9.8
4.63.1
12.9
None
1-20%
Members
16.8
35.0
13.2
11.2
9.6
14.2
21-40%
41-60%
61-80%
Offers / requests
0%
17.7
33.8
20%
11.6
40%
11.6
60%
11.1
80%
14.2
81-100%
100%
Percentage of e-marketplaces
Figure 21: Degree of internationalization
Note: N = 194 - 198 (missing values are excluded)
Source: Survey database
5.1.3 Internationalization Drivers
The second research question refers to the underlying stimuli or drivers which initiate
and shape the foreign expansion process of European B2B electronic marketplaces. On
the basis of the review of literature and the exploratory interviews, the following
internationalization drivers have been investigated: economies of scale, synergy
advantages, in-house competencies, need for critical mass, internationalization of
competitors, multinational corporate accounts, first-mover advantages, and local
customer needs. Respondents were asked to assess the influence of each of these
117
factors on the foreign expansion process of their firms. The answers were provided on
a five-point rating scale ranging from (1) ‘no influence’ to (5) ‘great influence’. Figure
22 presents the percentage of firms reporting that the particular item is of ‘substantial’
or ‘great’ influence.
67.5
Local customer needs
59.5
Critical mass
51.9
Drivers
In-house competencies
49.7
Synergy advantages
43.9
Economies of scale
42.6
Multinational corporate accounts
39.1
First-mover advantages
27.5
Internationalization of competitors
0%
10%
20%
30%
40%
50%
60%
70%
80%
Percentage of firms reporting item is of ’substantial’ or ’great’ influence
Figure 22: Internationalization drivers
Note: N = 189 - 192 (missing values are excluded)
Source: Survey database
Although electronic commerce commonly appears to digitize the conduct of business
and to be global in reach, country-specific peculiarities and ensuing local customer
needs tend to have considerable influence on the internationalization process of emarketplaces: 67.5 percent of the responding firms consider the compliance with local
customer needs, i.e. adapting product and service offerings to diverse customer
preferences and country environments, as strongly influential in initiating their firms’
foreign expansion. Another important stimuli to internationalizing reported by 59.5
percent of the respondents is the need to rapidly build up critical mass by aggregating
sellers and buyers on a multi-country basis. As compared to this, the internal pushfactors in-house competencies, synergy advantages, and economies of scale are less
influential: leveraging existing in-house competencies such as technological or
118
marketing
know-how
to
international
markets
is
perceived
as
a
major
internationalization driver by 51.9 percent of the respondents. Synergy advantages and
economies of scale are of high importance for 49.7 percent of the firms and 43.9
percent respectively. The item multinational corporate accounts referred to
internationally dispersed corporate suppliers and buyers such as multinational OEMs,
which may demand an international presence of an e-marketplace in order to be able to
provide services for a firm’s headquarters and its local subsidiaries. This item is
considered as a highly influential driver by 42.6 percent of the respondents. The fact
that merely 39.1 percent of the e-markets’ executives assessed first-mover advantages
to have ‘substantial’ or ‘great’ influence might indicate the declining importance of the
‘first-mover
mantra’.
Lastly,
with
only
27.5
percent
of
responses
the
internationalization of competing electronic marketplaces is seen as the least
influential factor.
The influence of particular internationalization drivers differs between newcomers and
more established electronic marketplaces. More than 80 percent of the firms that are
between one and six months old attributed ‘substantial’ or ‘great’ influence to the
items economies of scale and synergy advantages as compared to about 40 percent of
firms which have been in existence for more than two years. Both items are costoriented motives for internationalizing. Economies of scale stand for the observed fact
that unit cost decrease through expansion of output or increased utilization of
infrastructure. Synergy advantages in terms of time, cost, and resources can be gained
through the joint use of assets and capabilities on an international basis (cf. Chandler,
1990). Moreover, e-marketplaces between seven and twelve months of age do not
differ significantly from their older counterparts. Another notable difference can be
identified concerning the dimension critical mass: whereas between 56.3 and 65.9
percent of the more established e-markets assess critical mass to be a highly influential
internationalization stimulus, only 16.7 percent of the newcomers share this opinion.
Apart from these outliers, Figure 23 shows that the perceived influence of the foreign
expansion drivers slightly varies over the electronic marketplaces’ lifecycles.
119
100%
Percentage of firms reporting item
is of ’substantial’ or ’great’ influence
90%
80%
70%
1-6 months
60%
7-12 months
50%
13-18 months
40%
19-24 months
>= 25 months
30%
20%
10%
tit
o
pe
M
ul
tin
at
io
na
lc
or
po
r
of
at
e
co
m
rit
ica
l
C
na
l iz
at
io
n
In
te
rn
at
io
ac
Fi
co
rs
un
t-m
ts
ov
er
ad
va
Lo
nt
ag
ca
es
lc
us
to
m
er
ne
ed
s
rs
s
m
as
ci
es
pe
te
n
co
m
ho
us
e
y
In
-
Sy
ne
rg
Ec
on
om
ie
s
ad
of
s
va
nt
ag
ca
le
es
0%
Drivers
Figure 23: Internationalization drivers and firm age
Note: N = 189 - 192 (missing values are excluded)
Source: Survey database
Thus far, the influence of relevant drivers which initiate the foreign expansion process
of European B2B electronic marketplaces has been presented. Subsequently, it seemed
reasonable to examine whether there are any regional or firm-specific characteristics
that can statistically explain variations in the internationalization stimuli. Therefore, it
has been investigated to which extent these stimuli can be linked with the following
factors: the first indicator is the age of the electronic marketplace. Second, to explore
regional effects, the European sample firms have been divided into four broad country
groups which can be seen as relatively homogeneous in terms of the role of the capital
market, the openness of the domestic economy, the stakeholders’ influence over
company policies, and cultural relatedness (cf. Ruigrok et al., 1999, pp. 46-47).
Correspondingly, the group of German-speaking countries consists of Germany,
Austria, and Switzerland; the North European cluster encompasses Norway, Sweden,
Finland, Denmark, the Netherlands, and Belgium; the South European countries
consist of France, Italy, and Spain; the Anglo-Saxon cluster includes the UK and
120
Ireland. The third factor is the degree of internationalization operationalized by the
financial dimension foreign revenues as a percentage of total revenues. The factors age
and DOI have been divided at their medians, coded zero for observations below the
median and one for observations above the median. Logistic regression analysis (cf.
Pindyck & Rubinfeld, 1998, pp. 307-312) has been conducted with the
internationalization drivers as the dependent variable, coded zero for observations from
(1) ‘no influence’ to (3) ‘moderate influence’ and one for the observations (4)
‘substantial influence’ and (5) ‘great influence’. The results are contained in Table 8.
Variable
Economies of scale
Synergy advantages
In-house competencies
Critical mass
Internationalization of competitors
Multinational corporate accounts
First-mover advantages
Local customer needs
Age
Regional Effects
DOI
-0.0339
(0.3651)
0.1149
(0.3563)
0.2451
(0.3589)
0.3344
(0.3692)
0.3033
(0.3816)
0.5846*
(0.3523)
0.2964
(0.3588)
0.1280
(0.3697)
Ger -2.0027*
(1.155)
None
0.5165
(0.3833)
-0.3612
(0.3791)
-0.0786
(0.3801)
0.6495*
(0.3971)
-0.5314
(0.4179)
0.1045
(0.3756)
0.7131*
(0.3864)
0.0596
(0.3935)
North -2.0005*
(1.1765)
None
None
None
None
None
Table 8: Internationalization drivers and key contingencies
Notes: (1) *p<0.10; (2) N = 142; (3) Standard errors reported in parentheses
Source: Survey database
The age of the electronic marketplace explains little of the variance in the influence of
internationalization drivers, except for the item multinational corporate accounts. A
more established B2B Internet firm appears to be positively associated with the
influence of large corporate customers as a foreign expansion stimuli, suggesting that
over their lifecycle e-markets increasingly need to establish international subsidiaries
in order to be able to provide services for a multinational firm’s headquarters and its
local subsidiaries. With regard to regional differences, the German-speaking country
121
group is negatively associated with the item economies of scale. The North European
cluster, on the other hand, is negatively associated with the influence of in-house
competencies as an internationalization stimulus. Finally, the econometric analysis
shows that highly internationalized electronic marketplaces are positively associated
with the foreign expansion drivers critical mass and first-mover advantages.
5.1.4 International Market Selection
The third research question aims at exploring the international market selection of
European electronic marketplaces. Thus, the survey examined selection criteria as well
as entry barriers that potentially affect the foreign investment decision of business-tobusiness Internet firms. First, respondents were asked to assess the importance of each
of the following criteria for the international market selection of their firms: volume of
target market, fragmentation of target market, regulatory environment, cultural
proximity of host country, location advantages of host countries, and technical
infrastructure. The answers were provided on a five-point rating scale ranging from (1)
‘not at all important’ to (5) ‘very important’. Figure 24 presents the percentage of firms
reporting that the particular item is ‘fairly’ or ‘very’ important.
Market volume
87.2
Market selection criteria
Market fragmentation
74.0
Technical infrastructure
65.4
Location advantages
31.6
Regulatory environm ent
30.2
Cultural proximity
25.5
0%
10%
20%
30%
40%
50%
60%
70%
80%
90% 100%
Percentage of firms reporting item is ’fairly’ or ’very’ important
122
Figure 24: International market selection criteria
Note: N = 189 - 195 (missing values are excluded)
Source: Survey database
Looking at Figure 24, it is evident that the volume of a target market is considered as a
highly important selection criterion by 87.2 percent of the responding firms. This is
followed by the target market’s level of fragmentation, i.e. the number of discrete
market participants on the demand and / or supply-side, which is seen as ‘fairly’ or
‘very’ important by 74.0 percent. The technical infrastructure of a host country in
terms of e.g. Internet penetration, available bandwidth, and cost of Internet access, data
and voice transmission appears to be a highly important criterion for 65.4 percent of
the sample firms’ executives. By contrast, other country-related contextual factors like
location advantages, regulatory environment, and cultural proximity are of moderate
importance. Accordingly, exploiting local, country-specific advantages such as low
labor or capital cost are considered ‘fairly’ or ‘very’ important by 31.6 percent of the
sample firms. Similarly, the combination of regulatory conditions such as investment
policies, taxes and tariffs, subsidies, and intellectual property rights is of high
importance for 30.2 percent. Finally, a host country’s cultural context is seen as highly
important by only 25.5 percent of the respondents.
As analyzed in the preceding section, it has been explored to which extent the
international market selection criteria can be linked with the factors firm age, country
group, and degree of internationalization. The selection criteria as the dependent
variable have been coded zero for observations from (1) ‘not at all important’ to (3)
‘neutral’ and one for the observations (4) ‘fairly important’ and (5) ‘very important’.
The results of the logistic regression analysis, which are presented in Table 9, are
easily summarized. Except for the item cultural proximity, the findings do not imply a
statistically significant variation on the three indicators. The firm age is negatively
associated with a host country’s cultural proximity. This suggests that young European
B2B firms prefer to expand operations to markets which are culturally close in terms
of language, value system, and customer preferences. Furthermore, the analysis
indicates that e-marketplaces from German-speaking countries are negatively
123
associated with the item cultural proximity. Finally, highly internationalized B2B
Internet firms are negatively associated with a target market’s cultural proximity.
Variable
Market volume
Market fragmentation
Regulatory environment
Cultural proximity
Location advantages
IT infrastructure
Age
Regional Effects
DOI
-0.5605
(0.5333)
-0.1245
(0.4047)
-0.6938
(0.3931)
-0.8959*
(0.4471)
-0.1906
(0.3859)
0.3461
(0.3882)
None
0.3727
(0.5722)
0.4243
(0.4445)
-0.0083
(0.4089)
-1.1744*
(0.4882)
-0.5571
(0.4211)
-0.4658
(0.4018)
None
None
Ger -1.8125**
(1.0002)
None
None
Table 9: International market selection criteria and key contingencies
Notes: (1) *p<0.05, **p<0.10; (2) N = 143; (3) Standard errors reported in parentheses
Source: Survey database
As was mentioned at the outset of this section, the survey explored relevant market
entry barriers that potentially affect the foreign investment decision of business-tobusiness Internet firms. The following barriers to entry have been derived from the
literature review and the exploratory interviews: cost of transaction settlement and
clearing, cost of operations and internal control, dominant incumbent players, early
development stage of electronic business, lack of market know-how and customer
information, and lack of value-added service providers. Respondents were asked to
assess the influence of each of these barriers on the international market selection of
their firms. The answers were provided on a five-point rating scale ranging from (1)
‘no influence’ to (5) ‘great influence’. Figure 25 presents the percentage of firms
reporting that the particular entry barrier is of ‘substantial’ or ‘great’ influence.
124
Early development stage
of electronic business
51.1
Entry barriers
Lack of market know-how
and customer information
43.2
Dominant incumbent
players
39.0
Cost of operations and
internal control
37.1
Cost of transaction
settlement and clearing
29.4
22.3
Lack of VAS providers
0%
10%
20%
30%
40%
50%
60%
Percentage of firms reporting item is of ’substantial’ or ’great’ influence
Figure 25: Entry barriers
Note: N = 184 - 187 (missing values are excluded)
Source: Survey database
With respect to the reduced asset specificity of IT-enabled operations and the ubiquity
of the Internet, one might argue that entry barriers to foreign markets potentially
decrease in the digital economy. At first sight, this stance is supported by the results
shown in Figure 25. Overall, the majority of the responding firms attributed a moderate
influence to the addressed barriers to entry. For 51.1 percent of the responding
executives, an early development stage of e-business is considered as the most
influential entry barrier. In some European countries, the Internet adoption rate of
potential marketplace members is still low and the targeted decision-makers may be
reluctant to the electronic conduct of business. The initial lack of market know-how
and customer information is assessed to have ‘substantial’ or ‘great’ influence for 43.2
percent of the e-markets. The existence of dominant incumbent online and / or offline
competitors in a target market is seen as a highly influential entry barrier by 39.0
percent. Cost of operations and control and cost of settlement and clearing are of high
influence for 37.1 percent of the firms and 29.4 percent respectively. Lastly, the
potential lack of VAS providers, which are necessary to complete the value proposition
125
of an e-marketplace, is the comparatively least influential entry barrier with 22.3
percent of the respondents.
Additionally, a logistic regression analysis has been conducted with the entry barriers
as the dependent variable, coded zero for observations from (1) ‘no influence’ to (3)
‘moderate influence’ and one for the observations (4) ‘substantial influence’ and (5)
‘great influence’. The results are contained in Table 10. The analysis suggests that the
firm age is negatively associated with the entry barriers cost of transaction settlement
and clearing, lack of market know-how and customer information, and lack of valueadded service providers. Hence, older e-markets consider themselves to overcome
these barriers more easily as compared to their younger counterparts. Apart from the
item early development of electronic business, regional effects explain little of the
variance in the influence of entry barriers. Correspondingly, e-markets from the AngloSaxon cluster and from the North European country group are negatively associated
with an early development stage of e-business as an entry barrier to international
markets. With regard to the DOI, the econometric analysis shows a negative
association between highly internationalized electronic marketplaces and the entry
barrier cost of operations and internal control.
Variable
Cost of transaction settlement and
clearing
Cost of operations and internal control
Dominant incumbent players
Early development stage of e-business
Lack of market know-how and
customer information
Lack of VAS providers
Age
Regional Effects
DOI
-0.6715*
(0.4035)
-0.0914
(0.3716)
0.1437
(0.3637)
-0.0510
(0.3642)
-0.5905*
(0.3629)
-0.7986*
(0.4393)
None
-0.1765
(0.4278)
-0.6900*
(0.4027)
0.0754
(0.3918)
-0.5210
(0.3906)
-0.3476
(0.3883)
0.5566
(0.4473)
None
None
UK -1.9770*
North -2.029*
None
None
Table 10: Entry barriers and key contingencies
Notes: (1) *p<0.10; (2) N = 139; (3) Standard errors reported in parentheses
Source: Survey database
126
5.1.5 Market Entry Mode
The fourth research question explores the market entry mode of European B2B
electronic marketplaces. In the survey, respondents were asked to report how their
firms have internationalized operations in the past as well as how they plan to
internationalize in the future. The answers have been provided in a multiple-response
format. The response alternatives ranged from ‘no internationalization’ to the
identified generic entry modes organic growth, joint venture, acquisition, and
combinations thereof. Figure 26 presents the past and the planned market entry mode
of the responding e-marketplaces. In this context, past internationalization refers to
activities prior to the survey while planned internationalization stands for the entry
strategy after the study’s cutoff date on May 21, 2001.
100%
4.3
0.5
7.5
16.7
8.6
80%
5.4
2.7
2.7
14.0
Organic growth /
acquisition / JV
Acquisition / JV
Organic growth / JV
7.5
60%
44.1
12.4
4.8
40%
Organic growth /
acquisition
Joint Venture
Acquisition
Organic growth
23.1
No internationalization
20%
29.6
16.1
0%
Past entry mode
Planned entry mode
Figure 26: Market entry mode
Note: N = 186 (missing values are excluded)
Source: Survey database
127
Figure 26 shows that for 44.1 percent of the sample firms organic growth was the sole
mode of international market entry in the past. In contrast to this, acquisitions and joint
ventures, each with 2.7 percent of firms, played a minor role as sole entry modes of emarketplaces. 20.4 percent of the responding firms have internationalized their
businesses through a combination of entry modes. Whereas 8.6 percent expanded
operations across national boundaries through a combination of organic growth and
acquisitions, 7.5 percent grew internationally by pursuing organic growth and joint
ventures. All three generic entry modes have been combined by 4.3 percent of the emarketplaces. In the future, such combinations are planned by 43.6 percent of the
responding B2B e-marketplaces. Specifically, 16.7 percent intend to internationalize
through organic growth, acquisitions as well as joint ventures; 5.4 percent indicate to
pursue acquisitions and joint ventures; 14.0 percent claim to combine organic growth
and joint ventures; finally, 7.5 percent plan to expand through organic growth and
acquisitions. As compared to the past internationalization, the share of joint ventures
as sole entry mode increases from 2.7 to 12.4 percent. By contrast, with 4.8 percent,
acquisitions remain of secondary importance. Organic growth continues to be the most
important sole entry mode in the future with 23.1 percent of European e-marketplaces.
16.1 percent of the responding firms intend to stay focussed on one country in the
future.
5.1.6 International Configuration
The objective of the fifth research question is to investigate the outcome of the
internationalization process, i.e. the resulting international configuration. For that
purpose, the respondents were asked as to which parts of the international value
creation are centralized in the firm’s headquarters (i.e. globally integrated) or
decentralized in the international subsidiaries (i.e. locally adapted). On the basis of the
literature and the pre-study interviews, the following generic elements of electronic
marketplaces’ value creation have been identified: strategic decision-making and
control, allocation of financial resources, aggregation and matching, settlement and
clearing, content services, value-added services, technology development, front-end
128
design and functionality, customer relationship management, branding, and
advertising. In line with this conceptualization, Table 11 presents the international
configuration of the responding B2B Internet firms.
Centralized in headquarter
(Global integration)
Decentralized in
international offices
(Local adaptation)
%
%
Technology development
79.7
20.3
Front-end design and functionality
69.1
30.9
Allocation of financial resources
69.1
30.9
Strategic decision-making and control
62.1
37.9
Branding
53.0
47.0
Aggregation and matching
46.8
53.2
Value-added services
46.7
53.3
Settlement and clearing
43.7
56.3
Content services
43.2
56.8
Advertising and promotional campaigns
34.9
65.1
Customer relationship management
31.9
68.1
International configuration
Table 11: International configuration
Note: N = 152-169 (missing values and ’not applicable’ answers are excluded)
Source: Survey database
Looking at Table 11, a dual approach emerges, creating a balance between central
integration and local adaptation of value creating activities. On the one hand, if a
function can be handled more efficiently on a centralized basis, it makes no sense to
replicate it in each local subsidiary. On the other hand, different languages, regulatory
systems, and business styles in the European countries necessitate adapting and
localizing distinct activities. The results show that technology development of backend systems and applications as well as the design and the functionality of the user
interface tend to be centralized in the e-markets’ headquarters. With 79.7 percent of
responses, technology development has the highest degree of centralization, suggesting
that the central integration of this function helps to ensure that all upgrades and
developments are compatible and can be simultaneously implemented in local
129
operations. The allocation of financial resources, including financial planning and
investment decisions, is centralized by 69.1 percent. Similarly, for the majority of the
responding electronic marketplaces, the headquarters is the locus of strategic decisionmaking and implementation controlling. Approximately one half of the sample firms
has a single international brand whereas the other half manages multiple local brands.
As regards the core business activity of e-markets aggregation and matching, i.e. the
way in which product offers and requests are being aggregated and matched via the
electronic platform, 46.8 percent of the sample firms operate one global marketplace
while the remaining 53.2 percent operate decentralized, locally adapted marketplaces.
An equal distribution has been observed for the provision of value-added services such
as finance, logistics, and back-end systems integration. Transaction settlement and
clearing is locally adapted by 56.3 percent of the responding electronic marketplaces.
Likewise, content services such as e.g. industry news, product descriptions and
reviews, or supplier ratings are locally provided by 56.8 percent of the responding emarkets. Promotional and advertising campaigns are being adapted to local customer
preferences by 65.1 percent of the sample firms. With 68.1 percent of the respondents,
the function with the highest degree of decentralization is customer relationship
management, including activities such as key account management or customer
support (e.g. call center).
In addition, it has been explored as to whether the international configuration is
associated with the factors firm age, country group, and degree of internationalization.
Again, a logistic regression analysis has been conducted with the e-markets’ business
functions as the dependent variable, coded zero for the observation ‘centralized’ and
one for ‘decentralized’. The results are presented in Table 12. Accordingly, there is no
significant association with the indicator age, except for advertising, which is
positively associated with firm age. Apart from this function, the results suggest that
the decentralization of activities is independent of firm age. Similarly, regional effects
explain little of the variance in decentralizing business functions, except for the item
strategic decision-making and control: electronic marketplaces from South European
countries are negatively associated with decisions to decentralize strategic decisionmaking and implementation controlling. These firms tend to rely on a central strategic
130
coordination of resource commitments and internal control. Moreover, the factor
degree of internationalization is negatively associated with seven elements of B2B
Internet firms’ value creation: strategic decision-making and control, allocation of
financial resources, settlement and clearing, content services, value-added services,
technology development, and front-end design and functionality. This suggests that
highly internationalized e-markets tend to integrate and centralize these business
functions in their corporate headquarters. Surprisingly, activities like settlement and
clearing, content services, and value-added services, which are localized by the
majority of the sample firms as of May 2001, seem to be handled more efficiently on a
centralized basis as the degree of internationalization increases.
Variable
Strategic decision-making and control
Allocation of financial resources
Aggregation and matching
Settlement and clearing
Content services
Value-added services
Technology development
Front-end design and functionality
Customer relationship management
Branding
Advertising campaigns
Age
Regional Effects
DOI
-0.4902
(0.3878)
0.3303
(0.4085)
-0.0026
(0.3738)
0.1911
(0.3771)
-0.2321
(0.3863)
-0.3721
(0.3823)
0.2127
(0.4463)
-0.0149
(0.3939)
0.2869
(0.3935)
0.3078
(0.3619)
0.7437***
(0.3858)
South -2.8954**
(1.4682)
None
-1.0574**
(0.4326)
-1.4701*
(0.4771)
-0.5918
(0.3957)
-0.8898**
(0.4054)
-1.0094**
(0.406)
-1.1338*
(0.4143)
-1.2761**
(0.5124)
-0.9430**
(0.4392)
-0.1379
(0.4182)
-0.2738
(0.3806)
-0.6373
(0.3991)
None
None
None
None
None
None
None
None
None
Table 12: International configuration and key contingencies
Notes: (1) *p<0.01, **p<0.05, ***p<0.10; (2) N = 130; (3) Standard errors reported in
parentheses
Source: Survey database
131
5.2 Results of the Qualitative Interviews
5.2.1 Participating E-Marketplaces
As was mentioned in Section 4.4, nine European B2B electronic marketplaces have
contributed to the qualitative inquiry. All interviewees were members of the board
involved in their firms’ internationalization efforts. Table 13 provides an overview of
the participating e-markets in terms of targeted industry, corporate headquarters,
number of countries with operating businesses, and operational performance. At the
time of the interviews, one of these firms (Metal-X) was in the process of liquidation.
However, the CEO was willing to discuss the underlying reasons for the e-market’s
failure. Apart from this exception, the interview pro forma brought the survey results
up for discussion, examined managerial decision-making, and addressed changes in
European B2B e-commerce. After a brief introduction of the participating firms, the
results of the qualitative interviews will be presented in the following sections.
Company
Interviewee
Targeted
Industry
Headquarters
Number of
Countries
Operational
Performance*
Achilles
CEO
Oil and gas
UK
7
High
BrandXchanges
CIO
Branded goods
Belgium
1
High
Construction
equipment
Horizontal
Netherlands
1
High
ECeurope
Managing
Director
Chairman
UK
2
High
GeoInside
CEO
Germany
3
High
Kasna
CIO
Mineral
commodities
Horizontal
UK
3
Low
Director
Metal industry
UK
1
Low
Phonetrade
CEO
Sweden
7
Low
Proceedo
CEO
Mobile
communication
Horizontal
Sweden
2
Low
Earth2Move
Metal-X
Table 13: Electronic marketplaces participating in the qualitative interviews
Note: *Operational performance cf. Section 4.4
Source: Author
132
Achilles has launched its Internet exchange for the oil and gas sector in 2000. The
electronic marketplace offers a combination of product catalogues and auctions. In
addition to its online trading services, the Achilles Group provides Internet-based
procurement solutions, consultancy and training services. The firm has operations in
seven countries, including Norway, UK, Ireland, Spain, Sweden, Venezuela, and
Argentina. Achilles plans to further expand its international presence to countries such
as e.g. Germany and Nigeria. BrandXchanges is an independent e-market for
internationally branded products, mainly alcoholic beverages, cosmetics, tobaccos, and
non-perishable foods. In an online negotiation process, sellers and buyers agree on
prices, volumes, and delivery conditions. BrandXchanges controls the whole
transaction (i.e. product quality, logistics and payment), charging a commission fee to
seller and buyer upon completion of the transaction. While the Belgian firm generates
more than 90 percent of its revenues with customers from abroad, BrandXchanges
does not intend to establish foreign subsidiaries. Similarly, the Dutch B2B Internet
firm Earth2Move generates 60 percent of its revenues with foreign member firms yet
has no international presence. However, the firm plans to establish local sales
partnerships in the US and Europe in the future. Earth2Move is a construction
equipment electronic marketplace, offering its members a product database for used
equipment and parts. The UK-based horizontal Internet exchange ECeurope targets
SMEs wishing to trade internationally. The e-market’s online bulletin board brings
together buyers and sellers to trade products or services classified under 23 industry
sectors. The firm has been established in 1999. In addition to its foreign subsidiary in
New Zealand, ECeurope intends to expand operations to Central Europe. GeoInside is
a business-to-business electronic marketplace for mineral commodities established in
2000. The core business of GeoInside is to match the supply and demand of georelated services and products. The e-market is headquartered in Germany and has
international subsidiaries in Brazil and Zimbabwe. The horizontal trading platform
Kasna focuses on corporate customers in Central and Eastern European countries. The
firm has been founded in 2000. As of September 2001, Kasna had operations in the
UK, Sweden, and Norway. Metal-X was an UK-based electronic marketplace targeting
the metal industry. Metal-X had no international presence but generated more than 50
133
percent of its revenues with foreign customers. As the firm could not raise additional
VC-funding, it had to stop business operations in September 2001. The e-market
Phonetrade offers its approved member companies an Internet bulletin board for
mobile phones and accessories. Phonetrade launched its B2B e-marketplace in 2000.
The firm has a small core organization based in Sweden and operates with an
international network of sales representatives to handle local marketing. At the time of
the interview, this network encompassed foreign sales subsidiaries in Italy, Russia,
China, Africa, Middle East, and North East Asia. Finally, Proceedo is a horizontal emarket founded in 1999. The firm is headquartered in Sweden and has a foreign
presence in Finland. Proceedo had to close its German subsidiary in May 2001 yet
plans to scale its business model internationally in the future.
5.2.2 Cross-Check of Survey Results
The first question of the interview pro forma (cf. Appendix D) referred to the actual
and the planned degree of internationalization of the contributing firms. As of October
2001, the number of countries with operating businesses ranged from one
(BrandXchanges, Earth2Move) to seven (Achilles, Phonetrade). Except for the CIO of
BrandXchanges, all interviewees indicated their intention to further expand to foreign
markets in the near future. There was a consensus among the executives that a local
presence is mandatory to establish sustainable relationships with corporate customers.
Or, in the words of Phonetrade’s CEO:
“In this business, building trust with corporate accounts is extremely important.
That is why we need a physical presence in target markets.”
As was mentioned above, Phonetrade is in the process of building up an international
network of sales representatives in target markets. These sales people are paid on a
commission-basis and are not employed by Phonetrade. They are responsible for local
customer relationship management and advertising. Similarly, Earth2Move plans to
expand to the US and Asia through local sales partnerships. In the initial phase of
internationalization, the UK-based e-market ECeurope has established a subsidiary in
134
New Zealand to provide 24-hour services to its members in more than 200 countries.
According to its chairman, the e-market’s global customer base necessitates building
up a global subsidiary network in the long term. By contrast, the e-market
BrandXchanges does not plan to establish foreign subsidiaries. The e-marketplace
solely acts as a match-maker, transaction settlement is provided by a plethora of
service providers around the globe. Although the firm obtains a highly international
member base from 106 countries, the inherent characteristics of branded consumer
goods such as constant quality and trust do not require a physical presence.
In addition to a physical presence, all interviewees expected that the DOI dimensions
offers / requests, registered members, and revenues will increase in the future. In this
regard, Kasna’s CIO argued that an increasing market liquidity attracts more and more
international customers and hence drives supply and demand from foreign members as
well as foreign revenues. However, this does not apply to all product categories since
some goods cannot efficiently be exchanged over large distances.
Subsequently, the second question brought the survey findings with regard to the
underlying internationalization drivers of European B2B e-marketplaces up for
discussion. Corroborating the survey results, four interviewees considered local
customer
needs
to
be
the
most
influential
foreign
expansion
stimulus.
Correspondingly, a locally adapted value proposition is an important means for these
e-markets to become trusted business partners of their corporate members. The need
for critical mass has been acknowledged by two interviewees to be the most influential
internationalization driver. In this context, the chairman of ECeurope provided a
practical definition of critical mass:
“A critical mass of members is attained as soon as each posted offer or request
solicits an adequate response.”
The strategy of ECeurope to build up critical mass was to initially offer its services
free of charge. After a threshold of 20.000 customers had been passed, the firm entered
a self-reinforcing virtuous cycle of member growth. Capitalizing on a member base of
135
120.000 SMEs, ECeurope started to charge a subscription fee for its electronic
platform after two years of operations. In the case of Achilles, the foreign expansion is
primarily driven by multinational customers. For instance, the planned expansion to
Nigeria is stipulated by large customers which have a physical presence in this
country. The CEO of Proceedo emphasized the importance of the item economies of
scale due to the distinct cost structure of his firm. Since Proceedo has developed its
own proprietary technology, the firm strives for a high DOI in order to diversify
market risks and to spread high development cost over international markets. In the
case of Proceedo’s German subsidiary, though, the firm had to withdraw due to high
costs of operations and a lack of market know-how and experience. Again, the
exception is BrandXchanges: the examined internationalization drivers are not
considered as being relevant to the firm due to the peculiarities of the branded goods
business.
The third question aimed at cross-checking the survey evidence regarding the
international market selection of B2B electronic marketplaces. First, the interviewees
were asked to comment on the importance of market selection criteria for their firms.
Corresponding to the quantitative findings, the volume and the level of fragmentation
of an international target market were considered as the most important selection
criteria by four executives. For instance, the international market selection of Achilles
largely depends on the volume of the oil and gas market in a potential target country.
Or, ECeurope focuses on the highly fragmented SME sector. A contrary view is held
by the CIO of the e-market BrandXchanges:
“The traditional concepts of target country selection do not longer apply since the
relevant market of electronic business is inherently global.”
Similarly, the interviews have revealed contrasting judgments with reference to the
item cultural proximity: on the one hand, the executives of Phonetrade and Proceedo
argued that cultural proximity is a central facilitator to build up trust and to
appropriately design the user front-end. On the other hand, BrandXchanges’ CIO
reported that the cultural dimension was not relevant as B2B e-commerce works
136
globally. In the case of the German B2B trading platform for mineral commodities
GeoInside, the international market selection is mainly supply-driven: it depends on
the availability and exploitation of raw materials in developing countries. Therefore,
the firm has opened foreign subsidiaries in Zimbabwe and Brazil. These subsidiaries
serve as starting points to establish contacts with suppliers of raw materials in Africa
and South America.
Second, the influence of market entry barriers on the contributing e-markets’ foreign
expansion activities has been discussed. To a great extent, the interviews buttress the
survey results: five executives emphasized that an early development stage of
electronic business in international markets represents the most influential entry
barrier. Accordingly, the reluctance of targeted decision-makers to replace wellestablished procedures with electronic business processes is still high:
“The Internet know-how of users is still very low. They require a lot of education
and hand-holding.” (Chairman ECeurope)
The barrier lack of market know-how and customer information is considered as highly
influential by two interviewees. In this context, the CEO of Proceedo claimed that the
firm’s failure in Germany was mainly rooted in language barriers and insufficient
market information. GeoInside’s CEO emphasized that local customer information is
difficult to gather in developing countries and hence is a major barrier to the
internationalization of his firm. As regards the VC-financed B2B electronic
marketplaces Kasna and Earth2Move, cost of operations and internal control represent
the most influential entry barrier: since a physical presence in foreign countries is
associated with considerable investments and increased cash-burn, many venture
capitalists are not willing anymore to take this risk. For instance, according to the
Managing Director of Earth2Move, the lack of VC funding impedes the firm’s foreign
expansion:
“When trying to get funding, we are not a dot.com anymore.”
137
Unlike its peers, the most influential entry barrier for BrandXchanges is the lack of
value-added service providers. This is not surprising: due to the fact that this e-market
has no international presence and operates with a global network of partners providing
services such as warehousing, inspections of goods, or logistics, the existence of
appropriate VAS firms is mandatory for the business model. This global network can
in turn constitute an entry barrier for later entrants.
The objective of the fourth question was to explore why the participating firms
pursued a certain entry mode to international markets. At the time of the interviews, six
e-markets had operations abroad: Achilles, ECeurope, GeoInside, Kasna, Phonetrade,
and Proceedo. Except for Kasna, organic growth was the sole past and planned entry
mode of the participating B2B electronic marketplaces. For example, Phonetrade’s
CEO argued that establishing subsidiaries from the ground up means independence and
freedom of choice for top management in terms of strategic and operational decisionmaking. He expects acquisitions or joint ventures to lead to serious governance and
control problems. Another argument put forward by Proceedo is the protection of
intellectual capital such as the firm’s proprietary marketplace technology. In contrast
to this, the e-market Kasna has internationalized in the past through the acquisition of
smaller firms via share-swaps. Nonetheless, this strategy does not work for future
market entry due to the sharp decline in stock market valuations and the resulting
unpopularity of share-swaps. These developments hamper the firm’s further
internationalization as it has not sufficient financial means to fund organic growth.
According to the CIO of BrandXchanges, which operates without foreign subsidiaries,
a future expansion would only be taken into consideration if a target market was
locked by one overall dominant incumbent. In this case, the firm would try to establish
a joint venture with this player. Surprisingly, none of the interviewed firms intended to
internationalize through a combination of entry modes; a strategy planned by 43.6
percent of the survey respondents (cf. Figure 26).
The fifth question examined the international configuration of the contributing emarkets’ value creation. In essence, the interviewees supported the survey evidence.
Those firms with an international presence handle most business functions on a
138
centralized basis. For instance, the only decentralized function in the case of Kasna is
customer relationship management. Besides CRM, Swedish Proceedo operates with
locally adapted advertising and content services. Achilles and Phonetrade reported to
provide locally adapted value-added services in addition to decentralized CRM,
advertising, and content services. Furthermore, Achilles has split its technology
development into a centralized development of the core application and a decentralized
customization to local peculiarities. The international configuration of the electronic
platform GeoInside differs from the patterns observed in the survey and corroborated
by most interviewees. First, the firm has outsourced technology development, front-end
design, and content services. According to GeoInside’s CEO, it is more efficient to
buy these services from specialized providers: the core competence of his firm is
rooted in its know-how of the geo-industry rather than in technological skills.
Moreover, branding activities are centralized in the Zimbabwean subsidiary, which has
specialized in this business function in terms of skills and workforce. Finally, strategic
decision-making is decentralized in the e-market’s international subsidiaries:
“The environmental peculiarities of developing countries necessitate the
decentralization of strategic decision-making since the headquarters does not have
sufficient market know-how and customer information.” (CEO GeoInside)
5.2.3 Managerial Decision-Making
The second part (cf. Appendix D) of the qualitative inquiry aimed at getting insights
into managerial decision-making regarding the participating firms’ internationalization
strategy. Therefore, the interview pro forma asked the executives to provide
information about their international orientation and experience, their perception of
internationalization benefits and costs, and corporate decision-making processes. The
remainder of this section is organized accordingly.
First, the interviewees were asked to describe their international orientation as regards
the role of their local subsidiaries. To guide the discussion, the interview pro forma
offered a choice between four alternative statements, which were derived from the four
139
archetypal organizational models suggested by Bartlett and Ghoshal (1989). The
executives’ standpoints differed considerably. On the one hand, GeoInside reported
that its subsidiaries operate as independent entities with own strategic decision-making
and control routines. Over time, a specialization of subsidiaries on distinct functions is
expected to emerge (like branding in Zimbabwe). Likewise, Proceedo’s international
subsidiaries have considerable degrees of freedom regarding their sales activities.
Notwithstanding this autonomy, the firm aims to share and integrate know-how and
competencies in their headquarters-subsidiary network. On the other hand, the CEO of
Phonetrade regards the firm’s subsidiaries as mere sales channels in international
markets. Since the sales representatives are not formally employed by the e-market,
they do not have any decision-making authority. The electronic marketplace Kasna has
reduced its local entities’ previously high degrees of freedom and re-centralized most
decision-making procedures after an excessive cash-burn had put the firm’s survival at
risk:
“The trend towards decentralization has been reversed.” (CIO Kasna)
Moreover, the e-markets’ executives provided information about their personal
experience in foreign countries. Without exception, the interviewees had a private,
educational, and / or professional international background. The knowledge of and the
open mindset towards foreign cultures are considered to exert a strong influence on
their decision-making regarding the firms’ internationalization strategy. Being aware of
different cultures, languages, and business habits, is seen as a prerequisite for a
successful foreign expansion:
“I am highly motivated by our firm’s multi-cultural environment with all these
different people.” (CEO GeoInside)
Second, the participating executives were asked as to how they perceive benefits and
costs of expanding across national boundaries. According to the CEO of Phonetrade,
the overarching internationalization benefit is the improvement of customer
relationships and the establishment of trust: despite an increasing automation and
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digitization of business transactions, B2B electronic commerce remains highly
influenced by human relations. Earth2Move’s Managing Director presumes that local
staff and local services lead to closer relationships with corporate decision-makers and
increase the electronic marketplaces’ perceived value-add for clients.
In contrast to this, the following costs of going international have been mentioned:
there was a consensus among the interviewees that the costs of coordination and
control increase on a multi-national basis. If the e-market’s member base and
transaction volume do not grow simultaneously, a foreign expansion can lead to
serious liquidity problems:
“The firm’s internationalization is associated with a considerable risk of overall
business failure.” (CIO Kasna)
As a consequence, Earth2Move, for instance, plans to internationalize through joint
ventures with local players as a means to reduce investment requirements, to keep
fixed costs low, and to share risks.
Third, the respondents provided information on decision-making processes as regards
their firms’ internationalization activities. Correspondingly, the contributing e-markets’
corporate decision-making is governed by dissimilar objectives and procedures: for
example, the e-market ECeurope decides on the basis of the company founders’
knowledge about a targeted foreign market gained in traditional business. In the case of
GeoInside, the CEO initiates and implements corporate internationalization after a
prior discussion with senior management in the firm’s foreign subsidiaries. The
decision-making of Achilles on foreign expansion activities is made by the
management team, yet is largely influenced by large customers which are part of the
firm’s ‘advisory board’. In addition to the firm’s board members, Phonetrade involves
employees which hold shares. Kasna’s decision processes on foreign expansion
activities are focussed on cash-flow objectives and have recently been streamlined. All
cash-critical decisions are now centralized in the corporate headquarters. The highest
degree of stakeholder participation has been reported by Swedish Proceedo. Following
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a recommendation by the management, the employees can decide on their firm’s
internationalization efforts. Furthermore, VCs and banks have a right of veto.
5.2.4 Changes in European B2B E-Commerce
In the third part (cf. Appendix D), the interviewees were asked to depict major changes
European B2B e-commerce has undergone in the five-month period between survey
and interviews as well as to assess future developments in business-to-business
electronic commerce. Since the survey’s cut-off date in May 2001, the European B2B
landscape reportedly has evolved as follows: first, the CIO of BrandXchanges
emphasized that an increasing realism concerning the market projections and business
objectives can be observed among all relevant stakeholders. As stock prices decline
and investment dollars dry up, e-markets are under strong pressure not only to sign up
new customers, but also to demonstrate that they can derive significant revenues from
those customers. Especially independent electronic marketplaces experience severe
difficulties in receiving follow-up funding by venture capitalists, which now want to
see clear returns from their investments. This was the crux of Metal-X, a VC-financed
e-market targeting the metal industry: due to an insufficient market liquidity, the firm
could not significantly raise its transaction revenues over time. As a consequence,
Metal-X did not receive additional financing by venture capitalists and had to close the
e-marketplace. Among all interviewees, there was a consensus that independent, thirdparty electronic marketplaces which will not attain profitability in the near future will
be driven out of business:
“Electronic marketplaces which have not achieved profitability yet will die.”
(CEO Proceedo)
With reference to future developments in business-to-business e-commerce, the
following projections could be derived from the interviews: all executives predicted
that the consolidation among European B2B Internet firms will continue. According to
Phonetrade’s CEO, those B2B electronic marketplaces have survived so far that can
capitalize on a profitable, constantly growing member-base and on a strong financial
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business model. He expects that further e-market growth will depend on the quality of
the customer-base in terms of transactional activity and technological sophistication.
Furthermore, the CIO of BrandXchanges forecasts that e-marketplaces will have to
provide complete value propositions, including systems integration and value-added
services. At the same time, e-markets need to keep their processes and trading
platforms simple in order to reduce investment requirements and to overcome the
reluctance of targeted decision-makers. GeoInside’s CEO added that more and more
B2B transaction elements will be conducted offline in a traditional way, further
increasing the importance of human relationships. Kasna’s CIO expects a trend
towards glocalization of B2B online trade: whereas some product categories are
exchanged on a global basis, others are traded locally due to their underlying
economics such as e.g. transportation cost. According to the CEO of Achilles, the
evolution of business-to-business electronic commerce is likely to follow the patterns
observed in emerging industries like railway, oil, and car manufacturing in the
ninetieth- and twentieth-century:
“1. An initial gold rush mentality leads to the formation of a plethora of new
firms.
2. The succeeding consolidation phase weeds out 90 percent of players.
3. Finally, few major players survive.”
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6. Discussion
The Discussion chapter is organized as follows: on the basis of the obtained data,
Section 6.1 reflects upon emerging internationalization patterns of European businessto-business electronic marketplaces. Thereafter, the results are embedded within the
theoretical context of the field of international business research: Section 6.2 discusses
contributions and shortcomings of the previously presented schools of thought with
regard to the empirical findings. Finally, Section 6.3 depicts benefits and limitations of
the study’s methodological approach.
6.1 Internationalization Patterns of B2B E-Marketplaces
6.1.1 The Why of Internationalizing
As was shown in Section 5.1.2, the European landscape of business-to-business
electronic marketplaces is in the process of expanding operations across national
boundaries, yet has far from global reach. According to the survey data, the structural
degree of internationalization will continue to increase in the future. 83.9 percent of
the responding e-markets plan to complement their online presence with a physical
presence in local markets. Thus, the empirical findings suggest that the virtualization
of international business activities by the Internet is limited. Clearly, it is true that the
Internet means that the distance between two points on the global network is no longer
vitally important. However, the assertion that the Internet makes geography obsolete is
highly questionable. Similarly, statements as “ (...) considerations about location can
become secondary” (Williams et al., 2001, p. 39) in the Internet economy are difficult
to accept. Distance may be dying; but geography, it seems, still matters (Economist,
2001a, p. 20). For example, using objective data on interactions between banks in the
B2B interbank currency market on an electronic dealing system, an empirical study
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revealed that location plays a major role in determining which supplier customers
choose in a global B2B online exchange (Zaheer & Zaheer, 2001, pp. 870-871).
In the light of the above, the question was raised as to why B2B e-marketplaces
internationalize their operations across national boundaries. For 67.5 percent of the
respondents, local customer needs are considered as the most influential
internationalization driver. Hence, the survey evidence corroborates Skinner’s (2000,
p. 40) supposition that a general understanding of country-specific customer
preferences and an international adaptability are important aspects for the successful
expansion of European online intermediaries. In this context, the qualitative interviews
revealed that the establishment of trust through personal relationships represents one
major challenge for e-markets in order to overcome the reluctance of corporate
decision-makers to move longstanding buying and selling relationships onto the
Internet. Dealing with an anonymous web-site may work for low-value or spot items,
yet the majority of B2B business models seems to require a local presence in target
markets as well as a combination of online and offline value creating activities. These
findings support the position of Steinfeld and Klein (1999, p. 5) who hypothesized that
many customers prefer hybrid strategies for electronic business and benefit from
synergies between physical and web presence. Notwithstanding these insights, a small
fraction of B2B e-marketplaces (16.1 percent) intends to operate on an international
basis without any physical presence outside the home country. Firms like
BrandXchanges orchestrate an extensive network of partners providing complementary
services in local markets. However, such counterexamples seem to be valid for only a
small number of industries such as for example the surplus trade of branded goods in
the case of BrandXchanges.
Furthermore, 59.5 percent of the respondents reported that the foreign expansion of
their firms is propelled by the need to attain a critical mass of member companies. In
this regard, the econometric analysis (cf. Table 8) suggests that the internationalization
driver critical mass has a significant influence on e-markets with a high DOI. These
findings seem to support the argument put forward by the small business literature that
foreign expansion represents an important growth strategy for SMEs (Barringer &
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Greening, 1998, p. 467; Lu & Beamish, 2001, p. 566). This strategy seems to equally
apply to B2B Internet firms: as was assumed in Section 2.4.1, the economics of
network markets and the concomitant need for critical mass (cf. Economides, 1996)
foster the internationalization of electronic marketplaces as a means to grow their
member base. Nonetheless, signing up suppliers and buyers internationally turns out
not to be enough. As in the case of Metal-X presented in Section 5.2.4, for many
independent e-markets the missing element is market liquidity and transactional
activity (Economist, 2001b, p. 55). Or, as the chairman of ECeurope argued (cf.
Section 5.2.2), critical mass is attained as soon as each posted offer or request solicits
an adequate response, leading to transactions via the electronic platform.
In B2B e-commerce, the need for critical mass appears to be linked with being first to
international markets. According to Amit and Zott (2001, p. 308), first-movers are in a
good position to achieve a critical mass of suppliers and buyers before others do.
Correspondingly, as was assumed in Section 2.4.3, a short time-to-critical mass cycle
seems to be vital to an e-market’s success. In this context, the survey results suggesting
a secondary influence of first-mover advantages (cf. Figure
22)
as
an
internationalization stimulus may seem counterintuitive at first sight. Apparently, many
B2B Internet firms seem to prefer to concentrate on a descent set-up of processes and
organizational routines before rolling out the business model over as many
international markets as possible. At the end of the year 2001, though, most promising
market segments and industries are occupied by usually several B2B electronic
marketplaces on an international basis. Hence, first-mover advantages may be replaced
by not second but even third-mover advantages as e-marketplace business models
further diversify into the provision of value-added services and systems integration.
This could elucidate the significant influence of first-mover advantages on highly
internationalized e-markets observed in the econometric analysis (cf. Table 8):
presumably, being the first-mover to foreign markets has been of considerable
importance for these firms in retrospection. By contrast, B2B Internet firms with a low
degree of internationalization yet planning to expand across national boundaries in the
future will barely be able to capitalize on first-mover advantages. Hence, one might
agree with the following statement:
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“Since all promising segments are already occupied, first-mover advantages are
not relevant anymore.” (Chairman ECeurope)
As was mentioned before, the exploitation of in-house competencies on an
international basis is considered to be a highly influential foreign expansion driver by
51.9 percent of the survey respondents. Further analysis has shown that this driver has
a significantly lower impact on e-markets from the North European country cluster
than on e-markets from the rest of Europe (cf. Table 8). With regard to the required
core capabilities of electronic marketplaces, Raisch (2001, p. 53) advocates that
technological skills are vital to the success of e-markets. In contrast to this, Sculley and
Woods (2001, p. 53) take the position that the value of an online exchange comes
primarily from its ability to develop appropriate market-specific designs and business
solutions. In the qualitative interviews, there was a general consensus among the
respondents that an in-depth understanding of local business-to-business environments
and the establishment of personal relationships to member firms are of primary
importance (cf. Section 5.2.2). Thus, in line with the organizational capability
perspective, B2B electronic marketplaces may internationalize not only to leverage
existing in-house competencies but also to develop new capabilities such as for
example a superior knowledge base about international customers (cf. Madhok, 1997,
p. 42). Through an international diversification, e-markets might have greater
opportunities to learn from a variety of market and cultural perspectives than purely
domestic ones (cf. Hitt et al., 1997, p. 774).
In theory, the combination of supply-side economies of scale with demand-side
externalities in network markets can lead to especially strong positive feedback (cf.
Section 2.4.1) (Shapiro & Varian, 1999, p. 182). In this regard, 49.7 percent of the
survey respondents and 43.9 percent respectively considered the examined costoriented motives for internationalizing, synergy advantages and economies of scale, as
highly influential for their foreign expansion. Further data analysis revealed that
especially young B2B Internet firms founded in late 2000 or 2001 regard
internationalization as an important means to gain cost advantages (cf. Figure 23).
Indeed, the downturn of the stock market, the consolidation in the dot.com landscape,
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and the ensuing caution of investors force electronic marketplaces to shorten time-toprofitability cycles. Nonetheless, one should not forget in this context that a foreign
expansion is associated with considerable cost, which might overweigh potential
savings. As was suggested by the interviews in Section 5.2.2, another determinant of
the impact of economies of scale seems to be rooted in the distinct investment strategy
of electronic marketplaces: on the one hand, firms like Proceedo which have developed
sophisticated technological solutions in-house may strive for a high structural DOI in
order to diversify market risks and to spread high development cost over an
international basis. On the other hand, cost-oriented internationalization drivers seem
to have less influence on e-markets like ECeurope or GeoInside which kept
investments low by adopting standard software solutions. Finally, the econometric
analysis shows that economies of scale have a significantly lower impact on e-markets
from German-speaking countries than on e-markets from other parts of Europe (cf.
Table 8).
Furthermore, 42.6 percent of the participating firms reported that multinational
corporate accounts are a highly influential internationalization driver. The academic
literature suggests that the reliance on multinational key customers may require
providing services to a firm’s headquarters and its international subsidiaries and, over
time, to follow its foreign investment decisions (cf. Ruigrok & Tulder, 1995, p. 165;
Kotler, 1997, p. 405). The role of multinational accounts as an internationalization
stimulus for e-markets appears to be affected by the factors age and targeted industry.
First, the econometric analysis (cf. Table 8) revealed that large corporate customers
have a significantly higher influence on more established B2B Internet firms than on
their younger counterparts. Second, for electronic marketplaces addressing small and
medium-sized companies this driver may not be relevant. In contrast to this, the
internationalization of B2B Internet firms targeting industries with few multinational
players may be largely customer-driven. For example, the foreign expansion of
Achilles, an e-market servicing the oil and gas industry, is primarily driven by large
customers.
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Often, the foreign expansion of competing players might force a firm to follow suit (cf.
Porter, 1986, p. 28). There is limited evidence that this is equally the case in European
B2B e-commerce: with 27.5 percent of the survey respondents, the comparatively
lowest impact has been attributed to the internationalization of competing electronic
marketplaces. Moreover, none of the executives participating in the qualitative
interviews reported that internationalizing competitors had a considerable influence on
stimulating their own foreign expansion activities.
6.1.2 The Where of Internationalizing
As was mentioned before, the decision where to expand operations across national
boundaries is affected by a host country’s location-specific variables and by existing
barriers to entry. Therefore, the survey investigated the influence of relevant market
selection criteria and entry barriers on the internationalization of European businessto-business electronic marketplaces (cf. Section 5.1.4). The empirical findings will be
discussed in the following.
As regards a target country’s location variables, the market-related factors – volume
and level of fragmentation – are considered as the most important selection criteria by
87.2 percent of the survey respondents and 74.0 percent respectively. This is not
altogether surprising: the role of target market size as a major determinant of foreign
direct investment patterns has been widely acknowledged in the academic literature
(cf. for example Johanson & Wiedersheim-Paul, 1975, p. 308; Davidson, 1980, p. 13;
Calof & Beamish, 1995, p. 126). The survey results point to the same direction: FDI
activity of European B2B e-marketplaces appears to be strongly influenced by the size
of a host country’s market. In some industries, though, one might agree with the
standpoint of BrandXchanges’ CIO (cf. Section 5.2.2): accordingly, a national market
volume does not represent an appropriate selection criterion as the relevant B2B online
market is inherently global. Furthermore, the survey findings reinforce the idea that the
more fragmented an international target market, the more value an electronic
marketplace can provide by creating transparency on the supply and demand side.
Ideally, online intermediaries create transparency in the four dimensions price,
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availability, supplier, and product (Phillips & Meeker, 2000, pp. 11-12). In essence,
overcoming limitations to market efficiency may be seen as a key catalyst for B2B
electronic commerce. In contrast to highly fragmented markets, consolidated markets
typically are dominated by a set of companies with the resources and transaction
volume to build private exchanges or to band together into industry consortia emarketplaces. In this case, independent online intermediaries run the risk of being
driven out of business if they cannot attract one or more big players and obtain
exclusive contracts (Davenport, Brooks, & Cantrell, 2001, pp. 8-9).
The market-related factors are followed by a host country’s technical infrastructure as
a highly important location-specific variable. This market selection criterion consists
of two interrelated dimensions: the technical dimension encompasses corporate backend systems and the user front-end. The development stage of these back-end systems
determines as to which integration technologies and protocols are necessary to connect
the e-marketplace platform with the members’ ERP systems (Temkin, 2000, p. 161).
The sophistication of the e-market’s front-end refers to the problem that still many
participants are not used to work with the Internet. This aspect points to the second
dimension which can be described by the words ‘e-maturity’ or ‘e-readiness’. These
terms denote the extent to which targeted participants are open-minded as regards the
Internet and the electronic conduct of business. Especially B2B e-markets targeting
SMEs or firms in less developed economies like ECeurope and GeoInside reported to
be hampered by a low ‘e-readiness’ of corporate users.
The survey findings show that the exploitation of local, country-specific advantages
such as low labor or capital cost is of secondary importance for the international
market selection of B2B Internet firms (cf. Figure 24). Clearly, advances in
information and communication technologies together with the connectivity of the
Internet facilitate the organization of value creating activities on a global basis. For
example, a German e-market could capitalize on labor cost differentials by transferring
software coding to India or customer support to Ireland. As was shown in Table 11,
though, the tendency of European electronic marketplaces towards centralization of
business functions in the headquarters was still strong as of May 2001. Therefore, the
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potential impact of location advantages on the cost structure of e-markets’ operations
is assumed to be rather moderate.
A host country’s regulatory environment is considered as highly influential by merely
30.2 percent of the e-markets. Presumably, some of the responding firms started their
foreign expansion in geographically and culturally close countries in Europe with a
rather homogeneous regulatory environment (cf. Davidson, 1980, p. 16). Nonetheless,
the importance of governmental regulations can be considerable with regard to B2B
electronic marketplaces like GeoInside or Achilles which have established subsidiaries
in less developed countries with a problematic regulatory environment.
With 25.5 percent of the responding firms, a host country’s cultural context is the
comparatively least important location variable. At first sight, one might agree with the
assertion that global electronic commerce leads to a suppression of culture (Bontis &
Castro, 2000, p. 370). Yet, by taking a closer look at the data, a different picture
emerges: the econometric analysis (cf. Table 9) has revealed that young business-tobusiness electronic marketplaces have a significantly stronger preference to select
international markets which are culturally close than more established B2B Internet
firms. At the same time, there is statistical evidence that e-markets with a high DOI
consider a target market’s cultural proximity as less important than e-markets with a
low DOI. Both findings corroborate foreign investment patterns put forward in
numerous academic publications (cf. for example Aharoni, 1966, p. 50; Davidson,
1980, p. 18; Johanson & Vahlne, 1977, pp. 24-26; Welch & Luostarinen, 1988, p. 41).
Correspondingly, firms in the initial stage of internationalization can be expected to
exhibit a strong preference for near and similar cultures. Those in advanced stages of
foreign operations seem to exhibit little if any preference for near and similar cultures.
As was shown in Table 9, the logistic regression analysis suggests that this pattern also
applies to the internationalization of B2B Internet exchanges. E-markets tend to favor
culturally close countries where the perceived market uncertainty is low (cf. Johanson
& Vahlne, 1990, p. 13). Thus, the cultural context still matters in European businessto-business electronic commerce. The same phenomenon has been observed for US e-
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commerce firms like Amazon or PaperExchange, which used the UK as the starting
point for a pan-European expansion.
With 51.1 percent of the respondents, an early development stage of electronic
business in a potential target market is considered as the most influential entry barrier
for B2B e-markets. A low Internet adoption rate, obsolete IT systems, and, most
importantly, the reluctance of targeted decision-makers to go over to the electronic
conduct of business appear to impede the foreign market entry of electronic markets. In
this context, the position of Lee (2001) is difficult to accept: accordingly, an industry
“ (...) works under totally different principles and work rules in the digital economy”
(p. 349). The author advocates that electronic commerce is a disruptive innovation
which is radically changing the traditional way of doing business (Lee, 2001, p. 349).
Clearly, business-to-business e-commerce lays the foundation for profound changes as
regards transaction processes, market structure, and supply chain organization.
Nonetheless, as was depicted in Section 5.2.2, one of the biggest challenges for emarkets is to change the mindset of human decision-makers and to dis-intermediate
longstanding business relationships. Often, targeted marketplace members are not
technically sophisticated and require a lot of education and support. Apparently, emarkets from the Anglo-Saxon cluster and the North European country group consider
themselves to overcome these barriers more easily than their counterparts from the rest
of Europe (cf. Table 10).
In general, conducting business on an international basis increases uncertainty and
amplifies a firm’s information demand (Meffert & Bolz, 1994, p. 23). With 43.2
percent of the participating e-markets, the entry barrier lack of market know-how and
customer information was ranked second in terms of the influence on the international
market selection. This result seems to buttress the argument of Johanson and Vahlne
(1977, p. 26) that a lack of knowledge due to differences between countries is an
important obstacle to decision making with the development of international
operations. Moreover, the econometric analysis revealed that the impact of this barrier
is significantly lower on more established B2B electronic marketplaces than on
younger ones (cf. Table 10). Presumably, over time, these firms have been able to gain
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sufficient general knowledge on their industry to transfer it from their home country to
another country. Interestingly however, the logistic regression analysis did not provide
evidence for a significant association between the entry barrier lack of market-specific
knowledge and the degree of internationalization (cf. Johanson & Vahlne, 1977, p. 28).
The existence of dominant online and / or offline incumbent firms in international
target markets is seen as a highly influential entry barrier by 39.0 percent of the
respondents. In some circumstances, while the size and the expected growth of an
international market may be attractive, the intensity of competition generated by
incumbents may render entry to this market unattractive (Ellis & Williams, 1995, p.
234). In this regard, the Managing Director of Earth2Move emphasized that not only
competing e-markets but also traditional intermediaries such as wholesalers or retailers
often represent an important competitive constraint. In addition, major incumbent
players increasingly establish own exchanges or jointly launch consortia emarketplaces across a wide range of industries. As these companies represent a
significant fraction of an industry’s transactions, have access to capital, and can
capitalize on established business relationships, they are a vital threat to independent
exchanges (Davenport et al., 2001, pp. 9-10).
As was shown in Section 5.1.4, the entry barriers cost of operations and internal
control, cost of transaction settlement and clearing, and lack of value-added service
providers have the comparatively lowest impact on the foreign expansion of e-markets.
According to the econometric analysis (cf. Table 10), B2B electronic marketplaces
with a high DOI seem to be able to cope more easily with the barrier cost of operations
and control than e-marketplaces in an initial stage of internationalization. Presumably,
highly internationalized e-markets have already set up efficient business processes and
control routines on an international basis. By contrast, cost of transaction settlement
and clearing as a barrier to enter foreign markets have a significantly higher influence
on young B2B Internet firms than on their more established counterparts. In this
context, the CIO of Kasna as well as the Managing Director of Earth2Move argued
that the cost barriers to internationalizing are especially relevant to VC-financed
electronic marketplaces: as strategic investors and capital markets increasingly demand
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profitability and proof of concept regarding B2B business models, a foreign expansion,
which is associated with considerable investments and increased cash-burn, might be
hindered by shareholders in the sense of ‘first do your homework, then expand
abroad’. Finally, the impact of a potential lack of VAS providers in target countries is
significantly lower on established e-markets than on newcomers (cf. Table 10). In
many cases, older electronic marketplaces might be able to leverage their existing
network of complementary service providers for their foreign expansion strategies.
In theory, one potential effect of the Internet is the reduction of industry entry barriers
(Galbraith & Merrill, 2001, p. 3). The importance of geographical boundaries appears
to be vastly reduced relative to the traditional ‘bricks-and-mortar’ world (Amit & Zott,
2001, p. 495). Indeed, Figure 25 shows that the responding European B2B electronic
marketplaces attribute a moderate influence to the addressed barriers to entry. In
practice, though, the rise of large private or industry consortia e-marketplaces on an
international basis, for instance, is expected to erect strong entry barriers for
independent e-markets in the near future. In conclusion, one might hypothesize that
entry barriers will not vanish in business-to-business electronic commerce, yet they
might change their shape and / or their relative impact on the foreign expansion of emarketplaces.
6.1.3 The How of Internationalizing
The following discussion as to how European business-to-business electronic
marketplaces expand operations across national boundaries is divided into three parts:
first, the empirical findings on e-markets’ modes of entry will be reviewed. The
subsequent paragraph reflects upon the international configuration of B2B Internet
firms’ value creation. Finally, the qualitative insights into managerial decision-making
regarding the participating firms’ internationalization strategy will be discussed.
As was depicted in Section 5.1.5, for 44.1 percent of the responding B2B Internet
firms organic growth was the sole mode of international market entry in the past. In
the literature, this mode is seen as a high risk / return alternative, which also provides a
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high degree of control to the investing firm (Agarwal & Ramaswami, 1992, p. 3). In
the case of a wholly owned subsidiary, control over day-to-day operations and certain
strategic decisions may be delegated, yet ultimate control resides at the firm’s
headquarters (Hill et al., 1990, p. 118). This view has been supported by Phonetrade’s
CEO, who emphasized the advantages of top management’s freedom of choice in
terms of strategic and operational decision-making. Each with 2.7 percent of the
responding firms, acquisitions and joint ventures played a minor role as past entry
modes of electronic marketplaces. As was indicated by Kasna’s CIO, the sharp decline
in stock market valuations and the caution of investors reduce the financial
possibilities especially of independent e-markets to acquire competitors abroad. In the
future, though, the expected shake-out in the B2B landscape and the emergence of
powerful private or consortia e-markets could increase the number of acquisitions as
foreign market entry mode.
As compared to organic growth and acquisitions, joint ventures involve relatively
lower investment and provide risk, return, and control commensurate to the extent of
equity participation of the investing firm (Agarwal & Ramaswami, 1992, p. 3). The
risk of disseminating firm-specific know-how is higher than in the case of a wholly
owned subsidiary (Hill et al., 1990, p. 119). The problem of protecting intellectual
capital such as proprietary technology has been highlighted by the CEO of Proceedo.
Nonetheless, the survey findings (cf. Figure 26) suggest that the share of joint ventures
as sole entry mode will increase as the B2B landscape evolves. Finally, combinations
of the three generic entry modes are planned by 43.6 percent of the responding
electronic marketplaces. Interestingly however, none of the interviewed e-markets
reported to internationalize through a combination of entry modes in the future. Each
of the six firms with operations abroad considered organic growth to be the preferred
entry strategy for their future foreign expansion activities.
On the basis of these findings, one might hypothesize that the foreign engagement of
B2B Internet firms does not lead to inherently new forms of internationalizing. Rather,
it can be inferred from the above that traditional entry strategies and combinations
thereof remain prevalent in business-to-business electronic commerce. By contrast, a
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distinct characteristic of Internet-enabled internationalization seems to be the high
velocity of SMEs’ foreign expansion: Quelch and Klein (1996) argue that the Internet
revolutionizes the dynamics of international commerce and, in particular, leads to more
rapid internationalization of small and medium-sized enterprises in an early stage of
development. Likewise, Hamill (1997, p. 306) develops the proposition that the
Internet can provide SMEs with a low cost gateway to global markets by helping to
overcome many of the barriers to internationalization commonly experienced by small
companies. A similar view is held by Oviatt (1999, p. 29), stressing the fact that even
the smallest firm can get immediate access to suppliers and customers globally through
an Internet presence. With regard to European B2B e-marketplaces, the latter
positions, which are largely based on theoretical reflections, are corroborated by the
survey results: for instance, 61.8 percent of the participating firms that are in existence
between seven and twelve months have an international presence, ranging from one
foreign market to subsidiaries in more than ten countries. By directly comparing the
number of countries in which the e-markets have operations with the age of these
firms, Table 7 shows that B2B Internet firms tend to internationalize early in their
lifecycle at a high velocity when entering targeted markets. In an empirical study,
Jones (2001, p. 204) has revealed similar patterns regarding the initial
internationalization steps of small high-technology firms in the UK.
Looking at the international configuration of B2B Internet firms’ value creation, a
dual approach emerges, balancing the centralization of functions such as technology
development or strategic decision-making with the decentralization of value creating
activities such as advertising or customer relationship management. In general,
advances in information and communication technologies and the inter-linkage of
economic actors through the Internet can help mitigate some of the drawbacks of
traditional forms of organizing by making new combinations feasible (cf. Hagström,
1990, p. 182). With regard to European electronic marketplaces, the survey results do
not provide evidence for one predominant international configuration of value creation,
yet some overarching patterns can be identified (cf. Table 11): on the one hand, emarkets tend to localize the customer’s experience in terms of marketing, content, and
service offering. This is reflected in the prevailing decentralization of business
156
functions which are at the interface with the corporate buyers and sellers: settlement
and clearing of transactions, content services, advertising, and customer relationship
management. An exception is the design of the user front-end, which tends to be
developed in the e-markets’ headquarters.
On the other hand, electronic marketplaces appear to be affected by pressures for
central coordination of activities (cf. Table 11): high set-up investments and
technological intensity seem to encourage a centralized technology development of
back-end systems and applications, which are subsequently leveraged on an
international basis. Moreover, increasing pressures for cash-burn reduction and
profitability of operations seem to impose a need for the centralization of strategic
planning and tight financial control mechanisms (cf. Prahalad & Doz, 1987, pp. 1820). While comparatively advantageous in terms of monitoring decision-making and
operational performance, decision outcomes under centralization reflect the
competencies available at the headquarters and may undervalue the supplementary or
complementary competencies of international subsidiaries (Nohria & Goshal, 1997, p.
102). This argument is supported by the case of GeoInside (cf. Section 5.2.2), which
has decentralized strategic decision-making since the headquarters is not considered to
have sufficient knowledge about country-specific customer needs and environmental
peculiarities of foreign markets.
There is reason to expect that the international configuration of European B2B emarkets will be subject to changes as the business landscape evolves. Fatehi (1996, p.
90) argues that a multinational firm with a high DOI may be forced to allow more
autonomy to their subsidiaries for decisions such as advertising, which require intimate
knowledge of local situations. For more critical decisions such as finance, however,
they may exert more control. This position is consistent with the results of the
econometric analysis. As was shown in Table 12, a high degree of internationalization
is positively associated with the centralization of the following business functions:
electronic marketplaces which are in an advanced state of foreign expansion have a
greater preference for central coordination of strategic decision-making and control,
allocation of financial resources, and technology development than their peers with a
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low DOI. In addition, while the majority of the survey respondents has localized
transaction settlement and clearing, content services, and value-added services in their
international subsidiaries (cf. Table 11), these activities tend to be centralized by emarkets with a high degree of internationalization (cf. Table 12). Thus, one might
hypothesize that pressures for global strategic coordination and centralization of
business functions increase as business-to-business e-marketplaces expand their
international subsidiary network. Apparently, some firms realized that there are
significant opportunity costs in allowing subsidiaries evolve along uncoordinated paths
(cf. Kogut, 1990, p. 63). For instance, the e-market Kasna has reduced the previously
high degrees of freedom of local subsidiaries and re-centralized most decision-making
in the headquarters after an excessive cash-burn had put the firm’s survival at risk.
Notwithstanding these findings, it is worthwhile remembering that European B2B
electronic commerce is a young phenomenon and the business landscape is still in an
immature stage. Over time, international subsidiaries of e-marketplaces could develop
their own unique competencies and evolve into sources of competitive advantage (cf.
Birkinshaw & Hood, 1998). A similar expectation has been mentioned by the CEO of
GeoInside.
According to behavioral schools of thought, the foreign expansion process is strongly
influenced by human-decision makers’ international experience and their perception of
internationalization benefits and costs (cf. for example Aharoni, 1966; Johanson &
Vahlne, 1977; Cavusgil, 1980). Obviously, decision-making processes in business-tobusiness electronic commerce are shaped by behavioral dynamics of executives.
However, one has to bear in mind that the following discussion is solely based on the
qualitative interviews (cf. Section 5.2.3) and hence cannot be generalized to the entire
population of European e-markets.
All interviewees reported to have extensive professional experience abroad. The
Uppsala Internationalization Model suggests that the knowledge about characteristics
of a specific national market such as for example its business climate, cultural patterns,
and customer needs leads to an increasing involvement in the individual foreign
country (cf. Johanson & Vahlne, 1977). In an empirical study, Calof and Beamish
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(1995, p. 128) showed that management with broad international experience proceeded
more rapid foreign expansion strategies than executives with a limited knowledge of
host environments. The authors argue that managers’ experience results in a better
understanding of the risks, costs, and benefits of entry modes and foreign markets. In
this context, a noteworthy example is the electronic marketplace ECeurope: according
to the firm’s chairman, decisions on internationalization activities are made on the
basis of the company founders’ knowledge about a foreign market. The expected
return from the new target market is derived from their experience gained in traditional
business. As was depicted in Section 5.2.3, there was a general consensus among the
participating executives that the knowledge of international markets and the mindset
towards foreign cultures exert a strong influence on their decision-making on the
internationalization strategy. Hence, the results support the argument put forward by
Reid (1981, p. 110): correspondingly, the decision-maker’s attitudes toward and
preferences for foreign markets together with his perception and expectation of the
potential
benefits
and
costs
are
major
determinants
of
the
subsequent
internationalization behavior. Furthermore, the examples of Achilles, Kasna, and
Proceedo presented in Section 5.2.3 suggest that managerial decision-making processes
on e-markets’ internationalization strategy are considerably influenced by various,
often conflicting interests of stakeholders such as large customers, venture capital
firms, or employees.
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6.2 Internationalization Theory and B2B Electronic Commerce
This section embeds the empirical results within the theoretical context of the field of
international business research. In accordance with the structure of the literature
review, contributions and shortcomings of economic schools, behavioral approaches,
and the process school will be discussed in light of the emerging internationalization
patterns of European business-to-business electronic marketplaces.
6.2.1 Contributions and Shortcomings of Economic Schools
Industrial organization theory and B2B e-commerce
As was depicted in Section 3.3.1, industrial organization theory aims to explain as to
why multinational corporations exist. This school of thought emphasizes two basic
motives for foreign direct investment: exploiting a firm’s monopolistic advantage and
exerting control over the international subsidiary (cf. Kindleberger, 1969; Hymer,
1976; Dunning, 1979). The subsequent paragraphs illuminate the points of agreement
and disagreement between the empirical data and contributions from the literature and
consider strengths and weaknesses of industrial organization theory in the context of
European B2B e-commerce.
To some extent, industrial organization theory seems to hold as an explanatory basis
for the internationalization of business-to-business electronic marketplaces. The
approach suggests the importance of intangible assets such as specific skills or superior
knowledge about markets and customers to lead a firm to invest abroad. In general, the
rise of the digital economy has made knowledge and information increasingly
important as a source of the competitive advantage of firms. Such advantage can be
attributed not only to the ownership of knowledge assets and other assets
complementary to them, but also to the ability to combine knowledge assets with other
assets needed to create value (cf. Teece, 1998). Indeed, the survey results revealed that
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the possession of in-house competencies such as technological or marketing know-how
is perceived as a highly influential internationalization driver by 51.9 percent of the emarkets’ executives (cf. Figure 22). Hence, these firms may start their foreign
expansion process as a means to exploit ownership advantages in international
markets.
Against the advantages that a potential entrant may possess weigh disadvantages
created by national boundaries such as additional costs of gathering information or
extra risks of investment (Caves, 1971, p. 13). In order to compete successfully with
local incumbents, the entrant’s advantage has to compensate for such barriers
(Kindleberger, 1969, p. 12). Thus, the role of entry barriers is explicitly acknowledged
in industrial organization theory. As was shown in Section 5.1.4, the survey results
reinforce the idea that entry barriers do not vanish in business-to-business electronic
commerce, yet they might change their shape and their relative impact on Internetenabled internationalization processes. Confronted by the survey evidence, Galbraith
and Merrill’s (2001, p. 3) assertion that B2B Internet start-ups “ (...) can jump into a
particular value chain or industry segment, often without any goodwill or reputation,
and immediately compete with the traditional players as new intermediaries” seems to
be highly questionable.
Notwithstanding its notable contributions, industrial organization theory has inherent
limitations with regard to the international expansion of electronic marketplaces. One
shortcoming is the sole focus on exploiting ownership advantages and exerting control
over the international subsidiary as underlying motives for foreign direct investment.
Clearly, the quantitative findings suggest that e-markets tend to choose entry modes
offering a high degree of control (cf. Figure 26) and that in-house competencies are an
important internationalization stimulus. Nonetheless, the key role of local customer
needs (cf. Figure 22 and Section 5.2.2) in international business-to-business ecommerce is underrepresented in this approach. Similarly, the need for critical mass in
network markets, which is considered as a highly influential foreign expansion driver
by 59.5 percent of the sample firms, cannot be explained by industrial organization
theory. In addition, the approach is static in nature as the concept of ownership
161
advantages only holds for the actual start of foreign expansion (Stein, 1998, p. 50).
Over time, though, mediating factors such as for example innovations in information
and communication technologies alter the environmental conditions for foreign direct
investment and hence need to be taken into consideration. This argument seems to be
particularly relevant to the rapidly emerging landscape of European business-tobusiness electronic commerce.
Location theory and B2B e-commerce
According to Dunning (1979, p. 273), the underlying concern of location theory is the
spatial distribution of international value creation. This theoretical strand addresses the
question as to where multinational firms locate their foreign subsidiaries. In this
context, the international trade theory fails to provide a substantial contribution to
comprehend the internationalization of B2B Internet firms. First, classical and neoclassical models of international trade were primarily designed to explain trade
patterns between countries rather than foreign expansion activities of corporations.
Second, the assumption of immobile production factors inherently contradicts the
global character of Internet-based value creation (Timmers, 1999, pp. 11-12). As was
mentioned earlier, the orthodox theory of location determines the optimal location of
economic activity by evaluating regional costs of manufacturing and interregional
transport costs (Buckley & Casson, 1976, p. 47). This focus seems to be outdated with
regard to the peculiarities of B2B electronic commerce. The specific cost structure of
digital intermediaries’ value creation, i.e. large fixed costs of launching the business
and low incremental costs of conducting an online transaction, differs considerably
from an archetypal cost structure observed in industrial production. Furthermore, B2B
Internet firms usually perform many activities other than merely enabling online
transactions such as for example technology development, marketing, and value-added
services. Yet, these business functions are not taken into consideration by the
traditional theory of location.
As compared to international trade theory and orthodox location theory, contemporary
location approaches are more comfortable in explaining the spatial distribution of
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knowledge-intensive activities (Dunning, 2000, p. 16). Modern location theory
acknowledges that innovative technologies such as the Internet have drastically
reduced the cost of exchanging information across geographic space. Although the
geographic market for most goods and services becomes more and more global, the
increasing importance of knowledge-intensive economic activity in the leading
developed countries is expected to trigger a resurgence in the importance of local
regions as a source of comparative advantage (Audretsch, 1998, p. 26). As was shown
in Section 5.1.3, the survey results suggest that traditional location-specific advantages
such as low labor cost or regulatory conditions (cf. Dunning, 1995, p. 476) are of
secondary importance for the international market selection of business-to-business
electronic marketplaces. Rather, market-related factors, i.e. volume and level of
fragmentation, as well as the host country’s technical infrastructure are considered as
the most important selection criteria (cf. Figure 24).
Contemporary location theory predicts a world of greater economic specialization as
traditional constraints of location are declining. In B2B e-commerce, all non-core
activities can be provided via specialized partners focussing on a specific function for
the value chain (cf. Hamel & Prahalad, 1994). The close collaboration of electronic
marketplaces with customers, service providers, and technological enablers is
considered to lead to the emergence of virtual inter-organizational networks over time.
In theory, through the growing significance of non-equity-based cooperative
arrangements and firm networks, the positioning of complementary firms in foreign
markets is expected to become a prime locational factor (Dunning, 1995, p. 479). With
reference to the internationalization of European B2B e-markets, there is limited
evidence to support this view: with 22.3 percent of the survey respondents, the
potential lack of value-added service providers in a targeted country is considered as
the comparatively least influential entry barrier.
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Transaction cost theory and B2B e-commerce
Transaction cost theory suggests that the decision between organizing a transaction
within the firm or having it organized through the market depends on the cost of these
transactions (cf. Williamson, 1975). The international perspective of this school of
thought explains the evolution of multinational corporations through the internalization
of markets across national boundaries (Buckley & Casson, 1976, p. 33). In light of
business-to-business electronic commerce, some valuable contributions of transaction
cost theory can be identified. As transactions via electronic marketplaces avoid many
of the associated cost of interpersonal economic exchange, transaction cost reductions
represent one major benefit of conducting business via online intermediaries. Thus, the
reduction of transaction costs represents an integral part of B2B e-markets’ value
proposition. However, one has to bear in mind that transaction costs are difficult to
measure and are often approximated indirectly by using indicators (Andersen, 1997, p.
34).
Furthermore, transaction costs implicitly affect the international organization of
markets and hierarchies in the digital economy. As, on the one hand, costs of
transaction decrease through the use of electronic networks and, on the other hand,
network connections between businesses increase, more and more companies can be
expected to establish market-based inter-organizational structures. As a consequence
of this virtual integration, traditional boundaries in the value chain between
corporations might blur (Malone & Laubacher, 1999, p. 155). Transaction cost theory
can, in part, explain virtual integration, which is an alternative to make-or-buy
decisions, somewhere between market and hierarchical governance mechanisms.
Importantly, however, one has to bear in mind that virtual integration is an alternative
to market governance, where transactions are long-term in orientation and are more
easily divested than owned assets such as in hierarchical governance as the market
changes (Stapleton et al., 2001, p. 26). Hence, internalization theory can help to
comprehend the emergence of virtually integrated supply chains and inter-firm
networks revolving around a central e-marketplace hub. Finally, the transaction cost
164
approach includes the internalization of markets for proprietary and nonproprietary
know-how. Failures in the market for know-how provide an important incentive for
horizontal foreign direct investment (Teece, 1981, p. 7). This view appears to be
consistent with the preference of European e-markets for wholly owned subsidiaries as
a means to protect intellectual capital and to transfer know-how to international
subsidiaries (cf. Figure 26 and Section 5.2.2).
Madhok (1997, p. 54) argues that transaction cost logic is inadequate in explaining
multinational firm behavior and offers at best a partial lens on the foreign market entry
decisions of firms. The qualitative interviews buttress this stance: without exception,
the interviewees asserted that strategic considerations and international experience of
top management exert a strong influence on the internationalization behavior of their
e-marketplaces (cf. Section 5.2.3). Thus, one might agree with Teece (1998, pp. 7576), who advocates that the boundaries of the firm, and future integration and
outsourcing opportunities, must be made with reference to strategic and knowledge
issues as well as transaction cost economics. A further shortcoming is transaction cost
theory’s static nature, which does not locate the decision within the evolutionary
process of the multinational corporation. Firms do not just incur cost, rather they make
foreign direct investments which are the basis for future value (Madhok, 1997, p. 55).
In view of the rapidly emerging European B2B landscape and the high velocity of emarkets’ foreign expansion (cf. Table 7), this criticism can be deemed legitimate.
Clearly, transaction cost reductions are a major benefit of conducting business via the
Internet. However, as was shown in Section 5.1.3, they are not the primary stimulus to
the internationalization of B2B electronic marketplaces.
The eclectical paradigm and B2B e-commerce
As was mentioned earlier, Dunning’s eclectical paradigm integrates industrial
organization theory, transaction cost theory, and international trade theory into a multitheoretical framework for studying the choice of entry mode. Therefore, the benefits
and limitations of these theoretical strands in the context of B2B e-commerce that have
been displayed above are also pertinent to the eclectical approach. The major
165
contribution, though, is the development of a more holistic theory by systematically
combining three partial schools of thought. In search of a theoretical foundation for
highly complex foreign expansion processes, Dunning’s integrative approach points to
the right direction. The internationalization phenomenon is too dynamic and
multifaceted to be exclusively defined by any one school of research, perspective, or
mode of explanation (Coviello & McAuley, 1999, p. 251). With regard to European
business-to-business electronic commerce, a broad conceptualization seems to be
particularly useful as the current state of academic research on the internationalization
of electronic marketplaces is rather limited and environmental conditions are rapidly
emerging.
The eclectical paradigm has several shortcomings in light of the empirical findings:
first, the entry modes export and licensing do not apply to the foreign expansion of
electronic marketplaces (cf. Section 5.1.5). Second, the production focus of Dunning’s
approach widely neglects business models of intangible value creation. The
implications arising from the growing significance of knowledge-intensive, Internetenabled activities need to be incorporated into the eclectic theory. In addition, the
static nature of the model (cf. Stein, 1998, p. 148) does not give explicit consideration
to changes in the explanatory variables as the firm’s internationalization process
evolves over time. Since the theoretical underpinnings of the eclectical paradigm
assume that decision makers have access to perfect information, Johanson and Vahlne
(1990, p. 17) argue that the explanatory value of the approach is higher for ‘global
firms’, having experience in many regions of the world, than for firms in very early
stages of the internationalization process. This aspect is of relevance in view of the fact
that European business-to-business e-commerce is a young phenomenon in an early
stage of foreign expansion. Notwithstanding its notable contributions, the overall
explanatory value of the eclectic paradigm for the internationalization of B2B
electronic marketplaces is rather limited.
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6.2.2 Contributions and Shortcomings of Behavioral Approaches
On the conceptual basis of the behavioral theory of the firm (cf. Simon, 1957; Cyert &
March, 1963), behavioral approaches to international business relate managerial
attitudes and decision-making to multinational corporations’ internationalization
strategies (Murtha et al., 1998, p. 97). Aharoni (1966) was the first to investigate the
behavioral elements of the foreign investment decision process. Yet, his approach
primarily explains the logic of non-rational FDI decision-making rather than the
evolution of the multinational corporation (Stein, 1998, p. 114). Therefore, the
subsequent discussion focuses on contributions and shortcomings of the Uppsala
Internationalization Model in the context of European business-to-business electronic
commerce.
The Uppsala Internationalization Model and B2B e-commerce
The Uppsala Internationalization Model proposes that firms move sequentially through
different stages of increasing international resource commitment in the process of
‘going international’. This sequential development path is called the establishment
chain (cf. Johanson & Wiedersheim-Paul, 1975; Johanson & Vahlne, 1977). With
regard to the foreign expansion of electronic marketplaces, two major benefits can be
identified: one is the integration of behavioral elements into a theory of corporate
internationalization. All interviewed executives emphasized that the dynamics of
managerial decision-making have a strong influence on their firms’ strategy for
expanding operations across national boundaries (cf. Section 5.2.3). Thus, the
behavioral facet should not be neglected in theorizing about Internet-enabled
internationalization processes. To explain the expansion across foreign markets, the
model assumes that firms start their internationalization by going to those countries
they can most easily understand and, over time, enter new markets with successively
greater psychic distance (Johanson & Vahlne, 1990, p. 13). This pattern seems to
apply to European B2B Internet firms: as was shown in Section 5.1.4, e-markets with a
low degree of internationalization have a significantly stronger preference for markets
167
which are culturally close than e-markets with an advanced international presence (cf.
Table 9). The second major benefit of the Uppsala model is the conceptualization of
corporate internationalization as a dynamic process (cf. Oviatt & McDougall, 1999, p.
25). In business practice, a firm’s expansion across national boundaries is essentially a
dynamic process, which is shaped by a plethora of economic, managerial, and
environmental factors. The model hence points to the right direction. However, it’s
focus on one explanatory variable seems to be too narrow to grasp the
internationalization of B2B electronic marketplaces. This leads to the shortcomings of
this school of thought, which will be depicted in the following.
An obvious weakness is that co-operative entry modes such as joint ventures are not
included in the establishment chain (Andersen, 1997, p. 32). Furthermore, the model
disregards the acquisition choice as a route to internationalizing (Melin, 1992, p. 104).
Although not the most commonly used entry modes of European e-markets in the past,
the survey results suggest that joint ventures and acquisitions will play an important
role for future market entry (cf. Figure 26). As was indicated in the preceding
paragraph, experiential knowledge is the only explanatory variable in the Uppsala
model. Clearly, the case of ECeurope, for instance, gives evidence that the executives’
knowledge of international markets influence their decision-making on the
internationalization strategy (cf. Section 5.2.3). Yet, while some explanatory
influences on B2B Internet firms’ internationalization will be more important than
others, any attempt to highlight a single determinant of the process – i.e. experiential
knowledge in this model – might result in a misleading, reductive theory (Oviatt &
McDougall, 1999, p. 28). In addition, Johanson and Vahlne (1990, p. 15) suggest that
the establishment chain does not seem to be valid for service industries. The value
creation of business-to-business electronic marketplaces, however, is to a great extent
based on service-oriented activities. Another shortcoming of
the
Uppsala
Internationalization Model is its deterministic nature. It predicts for every entrant and
each market entered an identical, sequential development path (Calof & Beamish,
1995, p. 118). The model thereby excludes other options of strategic choices, for
example, to leapfrog an intermediate stage of foreign expansion (Melin, 1992, p. 104).
This deterministic, sequential nature of the internationalization process is clearly not
168
the case in European B2B e-commerce. The survey findings suggest that e-markets
tend to internationalize early in their lifecycle at a high velocity when entering new
markets (cf. Table 7). As was shown in Section 5.1.5, this process will be increasingly
characterized by a combination of different entry modes.
In the light of the above, one might conclude that the relevance of the Uppsala model
is called into question by the observed Internet-enabled internationalization patterns of
electronic marketplaces. Or, as Hamill (1997, p. 315) puts it: “Slow, incremental
internationalization no longer makes sense when the technology exists to provide
SMEs with a low cost, instant ‘gateway’ to global markets.” Thus, a fundamental
reappraisal of the model seems to be required to incorporate the peculiarities of
internationalizing in the digital economy.
6.2.3 Contributions and Shortcomings of the Process School
As was delineated in Section 3.3.3, the so-called process school in international
business research focuses on the management of the diversified multinational
corporation. Proponents of this school of thought examine the configuration of
international value creation and suggest ways to find the right structural form to
simultaneously achieve global efficiency and local responsiveness (Melin, 1992, p.
110). With reference to the concept of the multifocal MNC (cf. Prahalad & Doz,
1987), the survey results indicate that European business-to-business electronic
marketplaces need to balance pressures for central integration and local adaptation of
value creating activities. The emerging international configuration patterns show that
certain functions such as technology development or front-end design tend to be
handled more efficiently on a centralized basis, while other activities such as
advertising or customer relationship management tend to be locally adapted (cf. Table
11). Undoubtedly, the observed patterns of e-markets’ international configuration will
be subject to changes as the European business landscape matures in terms of the
ongoing consolidation among electronic marketplaces and the evolving value
proposition of online intermediaries. Moreover, internal and external pressures for
centralization or decentralization of activities can be expected to vary over time. This
169
is supported by the logistic regression analysis presented in Section 5.1.6, suggesting
that highly internationalized B2B Internet firms have a greater preference for central
coordination of functions such as strategic decision-making or allocation of financial
resources than their peers in an early stage of foreign engagement.
The network perspective and B2B e-commerce
The network approach draws on the theories of social exchange and resource
dependency, and examines firm behavior in the context of a network of intraorganizational, inter-organizational, and interpersonal relationships (cf. Coviello &
McAuley, 1999, p. 227). In the light of e-markets’ internationalization, the network
perspective seems to be advantageous for the following reasons: the Internet as the
fundamental technological enabler of B2B electronic commerce is itself an ubiquitous
network of information exchange and value creation. By allowing members from
different networks to connect with one another without actually belonging to one
another’s network, the Internet serves as a ‘network of networks’ (Wiseman, 2000, p.
70). Within this overarching system of interconnection, the e-marketplace sets up a
platform across which the network participants interact and orchestrates the network’s
transaction activities as well as its evolution (cf. Häcki & Lighton, 2001, p. 29). The
increasing inter-organizational collaboration is expected to lead to the emergence of
virtual networks, involving suppliers, buyers, technological enablers, and service
providers (Schneider & Schnetkamp, 2000, p. 239). In an advanced development stage,
the partner firms are no longer defined as separate hierarchical structures, but as interorganizational networks of highly-focused entities, each performing one or more roles
in the supply chain (Mourdoukoutas, 1999b, p. 10). This combination of network
structure and digital business design can lead to considerable performance
enhancements for the involved players (Slywotzky & Morrison, 1999, p. 254).
In the network perspective, internationalization decisions and activities emerge as
patterns of behavior influenced by various network members. Whereas economic
schools of FDI assume rational decision-making, the network approach includes
behavioral elements of strategic management (Coviello & McAuley, 1999, p. 227).
170
Networks can be seen as an important driver of entrepreneurial ventures’
internationalization (Ireland et al., 2001, pp. 56-57). Since networks potentially allow
small firms to gain access to operational and financial resources and to learn new
capabilities, barriers to expand operations across national boundaries can be reduced.
To sum up, the network perspective represents a promising approach to exploring the
internationalization of e-markets. To a considerable extent, the basic conceptual
underpinnings seem to coincide with the empirical reality of B2B electronic
commerce. Notwithstanding its benefits, this school of thought has certain limitations
as regards the foreign expansion of electronic marketplaces. They will be discussed in
the following.
The archetypal organizational models suggested by proponents of the process school
such as the integrated network (cf. Bartlett & Ghoshal, 1989) or the heterarchic model
(cf. Hedlund, 1993) do not seem to apply to the present international configuration of
e-markets. This is not surprising: Bartlett and Ghoshal (1989) as well as Hedlund
(1990) empirically investigated large multinational firms with a significant
international presence. By contrast, European B2B e-commerce is still a young,
rapidly emerging phenomenon. The corporate actors are predominantly SMEs, which
have recently started their foreign expansion process. With regard to the e-markets
participating in the qualitative interviews, except for GeoInside, the role of local
subsidiaries is confined to customer relationship management, advertising, and
content services, while strategic management and technology development are
concentrated in the headquarters. These findings buttress the international
configuration patterns observed in the survey (cf. Table 11). There is reason to expect
that clearly distinguishable, archetypal international configurations of electronic
marketplaces will not evolve until the business landscape has reached a stage of
maturity and stability. Ultimately, international subsidiaries will need to develop
specific competencies in order to assume a strategic role for the e-market as a whole
and to enjoy a certain level of decision-making autonomy (cf. Hedlund & Rolander,
1990, p. 25; Birkinshaw & Hood, 1998, p. 792). Furthermore, network structures are in
constant flux and hybrids of hierarchical and network-based structures are prevalent in
business practice. The framework by Bartlett and Ghoshal (1989), though, lacks
171
process dimensions, such as the dynamic transition from one organizational model to
another. Thus, despite its label, the process orientation in the theoretical body of this
school is undeveloped (Melin, 1992, pp. 109-111).
In conclusion, the key findings from the previous sections are synthesized to depict the
current state of academic research as regards the foreign expansion of electronic
marketplaces. Table 14 provides an overview of contributions and shortcomings of the
discussed schools of thought in the context of the study’s empirical results.
172
Theory / Conceptual
Framework
Industrial organization
theory
Location theory
Transaction cost theory
Eclectical paradigm
Uppsala
Internationalization Model
Network perspective
Contributions in the context of
Shortcomings in the context of
the empirical results
the empirical results
• Concept of ownership advantages
values intangible assets
• Role of entry barriers is included
• Emphasis on control motive and
exploitation of in-house advantages,
rather than local customer needs or
critical mass
• Static model, only holds for the
actual start of foreign expansion
• Contemporary location theory
• International trade theory assumes
acknowledges increasing importance immobility of input factors
of knowledge-intensive activities
• Orthodox location theory solely
• Constellation of complementary
focuses on costs of manufacturing
partner firms is expected to become a and transporting goods
major locational factor
• Transaction cost reductions are a
• Narrow focus on transaction cost
major benefit of conducting business
minimization
via electronic marketplaces
• Strategic considerations of
• Implicitly affects the international
international management are not
organization of market or
included
hierarchical structures
• Static approach, investment decision
• Internalization of markets for knowis not located within the evolutionary
how is included
internationalization process
• Cf. discussion about industrial
• Cf. discussion about industrial
organization, location, and
organization, location, and
transaction cost theory
transaction cost theory
• Integrative approach useful to
• Production focus, business models of
theorize on the internationalization
intangible value creation are not
of B2B electronic marketplaces
included
• Static model
• Integration of behavioral elements
• Co-operative modes of market entry
such as joint ventures are not
• Dynamic model: interplay between
included
development of knowledge about
foreign markets and increasing
• Experiential knowledge as single
international resource commitment
explanatory variable
• Not valid for service industries
• Deterministic model, which cannot
explain observed foreign expansion
patterns of e-marketplaces
• The Internet itself is an electronic
• Empirical focus on large, global
network of information exchange
MNCs; archetypal organizational
and value creation
models do not apply to the current
international configuration of e• E-markets per definition display
markets
network-based structures
• Network structures are in constant
• Emergence of inter-organizational
flux: dynamic transition between
networks of B2B Internet value
organizational models is
creation
undeveloped
• Hybrids of hierarchical and networkbased structures in empirical reality
Table 14: International business research in the context of the empirical results
Source: Author
173
6.3 Evaluation of the Methodological Approach
Putting the empirical findings of the dissertation into proper perspective, benefits as
well as limitations of the methodological approach need to be illuminated. Hence, this
section discusses a number of strengths and weaknesses of the chosen research design.
From a methodological point of view, two major contributions can be identified: first,
the quantitative investigation has been conducted as an Internet-based survey or ‘esurvey’. This novel research tool proved efficient in addressing the targeted
respondents across Europe and in administering the survey process. In particular, the
online help with precise definitions of the question items and the real-time transfer of
responses into the database were of considerable value. Clearly, the e-survey required
programming, extensive testing, permanent technical support, and a precisely
coordinate offline and online interaction with respondents. However, a response rate of
43.2 percent has shown that the Internet-based survey was an adequate instrument with
regard to the targeted population.
The second strength of the methodological approach is rooted in the combination of
the quantitative survey design with follow-up qualitative interviews with top
executives selected from those firms already examined (cf. for example Bechhofer &
Paterson, 2000, p. 64; Black, 1999, p. 216). These interviews provided additional, indepth insights not only into the social realities behind the evidence from quantitative
research but also into managerial decision-making and changes European B2B ecommerce is expected to undergo over time. As was depicted in Section 4.2.2, such
combinations of data types can be highly synergistic. Qualitative evidence can be
useful for understanding the rationale underlying the relationships or patterns revealed
in the quantitative data (Eisenhardt, 1989, p. 538).
Notwithstanding these methodological strengths, the research approach also has its
limitations: first, the study’s cross-sectional design has revealed internationalization
patterns of electronic marketplaces, which are valid for the point in time the survey
174
was conducted. Therefore, one has to be cautious when extending the findings beyond
the current state of European B2B electronic commerce (cf. Pinsonneault & Kraemer,
1993, p. 80). There is reason to expect that the observed patterns of
internationalization will vary over time, because of the rapidly evolving population and
inevitable changes in the business environment (cf. Welch & Luostarinen, 1988, p.
47). Second, one has to bear in mind that the insights into managerial decision-making
are solely based on the qualitative interviews and hence cannot be generalized.
175
7. Conclusions
The concluding chapter has the following structure: Section 7.1 summarizes the
dissertation’s key findings. In Section 7.2, the implications for the academic debate
will be presented. Subsequently, Section 7.3 sets out the study’s managerial
implications. Finally, Section 7.4 provides suggestions for future research on
internationalizing in the digital economy.
7.1 Key Findings
The dissertation’s objective was to explore the following research problem: What are
the emerging internationalization patterns of European business-to-business electronic
marketplaces? The methodological research design combined a cross-sectional survey
with follow-up in-depth interviews. The quantitative study has been conducted as an
Internet-based survey, addressing 478 European business-to-business electronic
marketplaces. The survey has yielded 207 usable responses, translating into a response
rate of 43.2 percent. The lack of bias in the responding group of firms suggests a
generalizability of the survey findings. Additionally, qualitative interviews with
leading executives of nine B2B electronic marketplaces have been conducted. The key
findings will be summarized below.
The governing research problem has been divided into five research questions:
Research Question 1: Degree of internationalization (DOI)
What is the DOI of European B2B e-marketplaces?
The survey results show that the European B2B landscape is in the process of
expanding operations across national boundaries, yet has far from global reach. As of
May 2001, 64.2 percent of the responding electronic marketplaces had a physical
presence in one or more international markets. Further analysis has shown that these e176
markets tend to rapidly expand operations across national boundaries in an early stage
of their lifecycle. According to the empirical data, the structural degree of
internationalization of European B2B e-marketplaces is expected to increase in the
future. With regard to the financial dimension of the DOI, almost 80 percent of emarkets reported to generate revenues with customers from abroad.
Research Question 2: Internationalization drivers
Which factors drive the internationalization of European B2B e-marketplaces?
Most importantly, local customer needs propel foreign direct investment activities of
electronic marketplaces. A general understanding of country-specific customer
preferences and the establishment of trust through personal relationships represent
major challenges for e-markets to overcome behavioral barriers of corporate decisionmakers. Another important stimulus to internationalizing is the need to attain a critical
mass of users by increasing the number of sellers and buyers on a multi-country basis.
By contrast, first-mover advantages and foreign expansion activities of competitors are
the comparatively least influential internationalization drivers of European e-markets.
Research Question 3: International market selection
Which location variables and entry barriers determine the international market
selection of European B2B e-marketplaces?
With reference to a target country’s location variables, market-related factors – volume
and level of fragmentation – as well as the technical infrastructure are the most
important selection criteria. Other contextual factors like location advantages,
regulatory environment, and cultural proximity are of moderate importance. As
regards a host country’s cultural context, the econometric analysis suggests that young
B2B Internet firms with a low DOI have a significantly stronger preference for
countries which are culturally close than more established e-markets with a high DOI.
Moreover, the results show that market entry barriers still matter in business-tobusiness e-commerce. In this regard, the entry barriers early development stage of
electronic business and the lack of knowledge about a target market constitute major
177
obstacles. The potential lack of value-added service providers in a host country is the
comparatively least influential entry barrier. Overall, older B2B Internet firms consider
themselves to overcome the barriers cost of transaction settlement and clearing, lack
of market know-how, and lack of VAS providers more easily than their younger
counterparts.
Research Question 4: Choice of entry mode
How do European B2B e-marketplaces expand operations to foreign markets?
The empirical findings show that the foreign engagement of electronic marketplaces
does not lead to inherently new forms of internationalizing. Rather, traditional entry
strategies and increasingly combinations thereof remain prevalent in business-tobusiness electronic commerce. Whereas organic growth continues to be the most
important sole entry mode in the future, 43.6 percent of B2B Internet firms plan to
combine organic growth, acquisitions, and / or joint ventures. Nonetheless, 16.1
percent of the responding e-markets do not intend to physically expand across national
boundaries.
Research Question 5: International configuration
What is the configuration of European B2B e-marketplaces’ international value
creation?
A consistent finding of the study is that European electronic marketplaces
simultaneously strive towards seemingly opposite poles, balancing the centralization of
functions such as technology development or strategic decision-making in the
headquarters with the decentralization and local adaptation of value creating activities
such as advertising or customer relationship management in their international
subsidiaries. According to the econometric analysis, e-markets with a high degree of
internationalization have a significantly stronger preference for central coordination of
activities than their counterparts with a low DOI. This suggests that pressures for
centralization of business functions increase as B2B Internet firms expand their
international subsidiary network.
178
7.2 Implications for the Academic Debate
From an academic perspective, it was not clear at the outset of the study to what extent
established internationalization theories and concepts do also hold for the foreign
expansion of business-to-business electronic marketplaces. By embedding the
empirical results within the theoretical context of the field of international business
research, the dissertation contributed to fill this gap and provided initial pieces of
knowledge to the scholarly literature.
In the context of B2B e-commerce, the economic schools of FDI, behavioral
approaches to internationalizing, and the process school of MNEs offer helpful
guidance for the analysis of international operations, the patterns of international
growth, and the processes involved with the expansion across national boundaries.
Notwithstanding these contributions, all frameworks have distinct limitations with
regard to complex internationalization processes in general and the emerging
internationalization patterns of e-markets in particular. A major problem of economic
schools of foreign direct investment is the underlying assumption of rational decisionmaking, which is barely prevalent in business practice. Moreover, these schools of
thought have been criticized for being static models. In addition, the approaches
primarily apply to large multinational firms with a manufacturing focus. In contrast to
this, behavioral approaches like the Uppsala Internationalization Model notably relate
managerial decision-making to multinational corporations’ internationalization
process. Another strength stems from the incorporation of dynamic elements.
Nonetheless, the suggested deterministic, sequential nature of the internationalization
process does not comply with the observed foreign expansion patterns of electronic
marketplaces. Furthermore, the establishment chain does neither seem to be valid for
service industries nor include co-operative entry modes such as joint ventures. Within
the process school of multinational firms, the network perspective can be seen as a
promising approach. To a considerable extent, the basic conceptual underpinnings
seem to coincide with the empirical reality of B2B electronic commerce. However, a
shortcoming of the network perspective is the focus on large MNCs and the lack of
179
empirical research with regard to the Internet-enabled internationalization of small and
medium-sized enterprises.
Despite their limitations, it seems reasonable to forecast that established
internationalization theories and concepts will not become entirely obsolete in the
digital economy. Rather, a reappraisal of these models seems to be required to
incorporate the peculiarities of Internet-enabled internationalization processes.
Otherwise, the academic literature may be in danger of becoming outmoded (Hamill,
1997, p. 316). Moreover, the field of international business research is characterized
by numerous partial approaches yet lacks one integrative, ground-breaking
internationalization theory. With reference to the foreign expansion of small,
entrepreneurial firms, Oviatt and McDougal (1999, p. 28) advocate the development of
an improved theory of internationalization, which explains its acceleration, its modes
of entry, and the roles of emerging international businesses. Indeed, the empirical
results suggest that B2B e-marketplaces tend to rapidly internationalize early in their
lifecycle through traditional entry modes and increasingly combinations thereof.
If it is accepted that no single school of research can fully appreciate the
internationalization of business-to-business electronic marketplaces, then it can be
followed that academic research should develop a broader perspective. Future studies
should incorporate concepts associated with economic schools of foreign direct
investment together with behavioral approaches and the network perspective (cf.
Coviello & McAuley, 1999, p. 247). Ideally, the particular limitations of one
theoretical strand could be compensated by the counter-balancing strengths of another.
The empirical results put forward in this study may serve as initial building blocks for
the development of an integrative, more holistic theory of Internet-enabled
internationalizing.
7.3 Managerial Implications
180
With respect to practical implications, the thesis intended to provide a genuine
understanding of internationalization processes in the digital economy and to support
managerial decision-making as regards the foreign expansion strategy of business-tobusiness electronic marketplaces.
Despite the burst of the dot.com bubble and the ongoing consolidation among
electronic marketplaces, business-to-business e-commerce is neither a temporary fad
hyped by the press and self-appointed pundits nor a doomed way of doing business.
Rather, as was shown in Section 2.2, long-term prospects for B2B electronic
commerce revenues remain strong. Increasingly, large multinational firms as well as
small and medium-sized enterprises move their purchasing activities onto the Internet.
For instance, the German carmaker Volkswagen is reported to conduct already 80
percent of total group purchasing via the firm’s private electronic marketplace by the
end of 2001. Presumably, the underlying problem with the B2B phenomenon was that
the business landscape got too big too fast, offering immature value propositions and
technological solutions. Many e-markets had to realize that economic fundamentals
matter and that small successes like reaching profitability are the best way to achieve
big successes. Realism seems to be required as to what e-business will change and will
not change and as to what benefits and costs are associated with the electronic conduct
of business.
As compared to B2C e-commerce, far more money is spent on B2B e-commerce.
Often, though, the understanding of Internet-related needs of corporate customers is
still limited (Gattiker et al., 2000, p. 137). As regards the internationalization of
electronic marketplaces, the knowledge of country-specific customer preferences and a
local adaptability seem to be of utmost importance for a successful expansion. The
establishment of trust through personal customer relationships represents one major
challenge for e-markets in order to overcome the reluctance of corporate decisionmakers to change established routines and to abandon longstanding business contacts.
Clearly, servicing foreign markets without leaving the home country may work for
certain low-value or spot items, yet the majority of B2B business models seems to
require a local presence in target markets. Ultimately, e-markets need to offer
181
comprehensive value propositions on an international basis, including systems
integration and value-added services. For that reason, B2B Internet firms which make
the transition from marketplaces to collaborative buyer-supplier-networks, involving
service providers and technological enablers, seem to tap into an important need. By
simultaneously keeping their processes and trading platforms simple, investment
requirements of participating companies could be reduced and a low ‘e-readiness’ of
human adopters might be compensated.
Particularly for independent electronic marketplaces, internationalization appears to be
an effective means to grow the member base and to achieve a critical mass of users and
transactions. The firms which do not attain market liquidity and profitability in the
near future can be expected to be among the victims of the consolidation process. In
this regard, one has to bear in mind that an expansion across national boundaries is
associated with considerable costs and risks. An increasing cash-burn rate and the lack
of additional VC funding represent major barriers for independent B2B Internet firms
to internationalizing. In view of the rise of powerful private or industry-sponsored
exchanges, smaller e-markets could aim to connect to these larger exchange networks.
An example for this is E-Steel’s contract to sell steel through Covisint. Although some
trends have been identified, it is not perfectly clear at this point of time as to how the
European B2B electronic commerce landscape will evolve and as to what business
models will be the winners of tomorrow.
182
7.4 Suggestions for Future Research
To conclude this study, the closing section offers recommendations for future research
on internationalizing in the digital economy. In light of the dissertation’s empirical
results and theoretical reflections, the subsequent suggestions seem to constitute the
next reasonable step in forwarding academic inquiry. The first recommendation refers
to the limitations of a cross-sectional methodological design. Internationalization is a
dynamic process, and as such, is time-sensitive. The European B2B e-commerce
landscape is rapidly emerging and will be subject to profound changes in the future.
Thus, research designs should allow for investigations that examine foreign expansion
processes longitudinally (Coviello & McAuley, 1999, p. 248). In general, a continuing
systematic examination of changes over time is likely to develop theory and foster
reflection and improvement of business practice (Koch, 2001, p. 360). A replicated
quantitative survey, which re-examines the European population of electronic
marketplaces after a certain time period, could hence reveal valuable insights into
changes in the degree of internationalization, the evolution of e-markets’ international
configuration, or the impact of the expected consolidation among B2B Internet firms,
among others. Additionally, the quantitative evidence could be complemented by case
study research (cf. Eisenhardt, 1989; Yin, 1994). For instance, an in-depth
investigation and comparison of independent, private, and industry consortia emarketplaces could help to further our understanding of competitive dynamics and
success factors in business-to-business electronic commerce as well as to derive
indications for the future development of the international B2B landscape.
Furthermore, it would be interesting to broaden the geographical focus of this study
and to gather evidence from other regions in the world. For example, foreign
expansion processes of North American or Asian B2B electronic marketplaces seem to
be worth exploring. The findings could then be compared not only to uncover regional
peculiarities but also to deduce overarching similarities and patterns. In this context, by
adopting a supra-regional viewpoint, one could illuminate as to how global businessto-business e-commerce is in reality.
183
The third suggestion for future research is to investigate the role of stakeholders in the
e-marketplace network such as corporate sellers, buyers, or service providers. As
suggested by the study results, these organizations exert considerable influence on the
internationalization processes of e-markets. In this regard, the study of Janssen and Sol
(2000), which examined the role of electronic intermediaries to coordinate the network
of organizational agents, points to the right direction. Thus, for further inquiry into
internationalizing e-markets, the perspective of corporate stakeholders should be
included.
In conclusion, the dissertation has contributed theoretically and empirically to an
unprecedented phenomenon which is rapidly emerging and where academic research is
still a scarce resource. By laying an initial foundation for further research on
internationalizing in the digital economy, the study provides some useful guidance for
future inquiry. The stage is now set for interested researchers to move on.
184
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Appendix A: Cover Letter
Dear Mr / Mrs <<name>>
The European business-to-business e-commerce landscape is in the process of dramatic transformation.
Major challenges comprise the development of value-added service offerings, performance
measurement, and the internationalization process of e-marketplaces. As your firm is an integral part of
this change, we greatly value your opinion.
The University of St. Gallen eConomy Project (USe) is led by the Research Institute for International
Management and the Institute for Media and Communications Management at the University of St.
Gallen, Switzerland.
The population of the survey encompasses all European business-to-business Internet marketplaces. The
survey has four sections:
•
General company information
•
Service offering and strategic intent
•
Internationalization
•
Performance and performance measurement
Please take 20 minutes of your schedule to answer the Internet-based questionnaire:
URL: www.e-markets.ch
Participating companies will receive a report of key findings. All responses will be treated strictly
confidential and no individual or company will be identified in the analysis.
Thank you very much for your participation.
Sincerely,
Prof. Dr. Winfried Ruigrok
Prof. Dr. Beat Schmid
Director of the Research Institute
Director of the Research Institute
for International Management
for Media and Communications
Management
221
Appendix B: Questionnaire
Internationalizing in the Digital Economy
A pan-European study of B2B e-marketplaces
1. Please indicate the founding date of your e-marketplace and the date of first transaction.
(Please provide your answer in the format month/year)
Founding date of e-marketplace:
Date of first transaction:
2. Please categorize your company’s business model along the dimensions below.
(For each dimension please tick the box which most closely applies)
a) Industry focus:
† Horizontal marketplace
† Vertical marketplace
† Combination of horizontal and vertical market
b) Traded products / services:
† Indirect goods
† Direct goods
† Both (indirect and direct goods)
c) Type of marketplace exchange processes:
† Systematic sourcing
† Spot sourcing
† Both (systematic and spot sourcing)
3. Is your company publicly listed at a stock market?
† Yes
† No
4. Please indicate your job title:
5. Please indicate in which country your company is headquartered:
222
223
6. In how many countries does your firm have operating businesses?
Number of countries:
7. Which percentage of each of the following items: posted offers / requests, marketplace members,
revenues, and staff was located outside your domestic market as of end of 2000?
(Please tick only one box in each row)
Foreign offers / requests
as a percentage of total
offers / requests
Foreign members as a
percentage of total
registered members
Foreign revenues as a
percentage of total
revenues
Staff in international
offices as a percentage of
total staff
1-20%
21-40%
41-60%
61-80%
81-100%
None
†
†
†
†
†
†
†
†
†
†
†
†
†
†
†
†
†
†
†
†
†
†
†
†
8. How influential are the factors below in initiating the internationalization process (past and / or
planned) of your firm?
(Please tick only one box in each row)
No
influence
(1)
Economies of scale
Synergy advantages
In-house competencies
Need for critical mass
Internationalization of competitors
Multinational corporate accounts
First-mover advantages
†
†
†
†
†
†
†
†
Little
influence
(2)
†
†
†
†
†
†
†
†
Compliance with local customer
needs
Other factors of influence (please specify):
224
Moderate
influence
(3)
†
†
†
†
†
†
†
†
Substantial
influence
(4)
†
†
†
†
†
†
†
†
Great
influence
(5)
†
†
†
†
†
†
†
†
9. How important are the following criteria for the international market selection (past and / or
planned) of your firm?
(Please tick only one box in each row)
Not at all
important
(1)
†
†
†
†
†
†
Volume of target market
Fragmentation of target market
Regulatory environment
Not so
important
(2)
†
†
†
†
†
†
Neutral
(3)
Cultural proximity of host
country
Location advantages of host
countries
Information and communication
technology infrastructure
Other international market selection criteria (please specify):
†
†
†
†
†
†
Fairly
important
(4)
†
†
†
†
†
†
Very
important
(5)
†
†
†
†
†
†
10. How influential are the following entry barriers to foreign markets regarding the internationalization
(past and / or planned) of your firm?
(Please tick only one box in each row)
No
influence
(1)
Cost of transaction settlement and
clearing
Cost of operations and internal
control
Dominance of incumbent players
†
†
†
†
†
†
Little
influence
(2)
†
†
†
†
†
†
Early development stage of
electronic business
Lack of market know-how and
customer information
Lack of value added service
providers
Other market entry barriers (please specify):
225
Moderate Substantial
influence
influence
(3)
(4)
†
†
†
†
†
†
†
†
†
†
†
†
Great
influence
(5)
†
†
†
†
†
†
11. How does your company expand operations to foreign markets?
(Please tick in each column all that apply)
Past
internationalization
Planned
internationalization
†
†
†
†
Organic growth
Acquisition
Joint Venture
Not applicable
†
†
†
†
Other (please specify):
12. Which parts of the international value creation are either globally integrated (centralized in HQ), or
centrally planned and locally executed, or locally adapted (planning and execution decentralized in
your international offices)?
(Please tick the box in each row that most closely applies)
Globally
integrated
(planning and
execution
centralized in
HQ)
Strategic decision-making and
control
Allocation of financial resources
Aggregation and matching
Settlement and clearing
Content services (e.g. general
industry information)
Value added services (e.g. finance,
logistics)
Technology development
Front end design and functionality
Customer relationship management
Branding
Promotional / advertising campaigns
Other (please specify):
†
†
†
†
†
†
†
†
†
†
†
226
Central
Locally adapted
Not
planning and
(planning and applicable
local execution
execution
decentralized in
local offices)
†
†
†
†
†
†
†
†
†
†
†
†
†
†
†
†
†
†
†
†
†
†
†
†
†
†
†
†
†
†
†
†
†
Appendix C: List of Interviews
Company
Position of respondent
Date
Venue
Achilles
CEO
October 18th, 2001
Phone interview
BrandXchanges
CIO
September 28th, 2001 Phone interview
Conextrade
CEO
July 19th, 2000
Zurich
Conextrade
Head of Product Development
July 26th, 2000
Zurich
Conextrade
Head of Sales
July 17th, 2000
Zurich
Earth2Move
Managing Director
November 20th, 2001
Phone interview
ECeurope
Chairman
October 16th, 2001
Phone interview
GeoInside
CEO
September 24th, 2001 Phone interview
Global Retail Partners Vice President
November 3rd, 2000
Munich
GoIndustry
CEO
October 12th, 2000
Munich
GoIndustry
CFO
October 12th, 2000
Munich
GoIndustry
Head of Business Development October 12th, 2000
Munich
Kasna
CIO
September 28th, 2001 Phone interview
Metal-X
Director
September 21st, 2001
Phone interview
PaperExchange
Executive Director Europe
October 23rd, 2000
Phone interview
Phonetrade
CEO
September 28th, 2001 Phone interview
Proceedo
CEO
September 21st, 2001
227
Phone interview
Appendix D: Interview Pro Forma
Company:
Industry category:
Interviewee:
Function:
Date / Time:
1. Cross-check of survey results:
a) Degree of internationalization:
•
In how many countries does your firm actually have operating businesses?
Do you plan to expand to further countries? Why?
•
What is the actual DOI of your firm with respect to the four dimensions offers / requests,
members, revenues, and staff?
How do you expect these DOI figures to change in the future? Why?
b) Internationalization drivers:
•
Please comment on the influence of the factors below on the internationalization of your
firm: (Table contains survey results: respondents (%) answering item has substantial or great influence)
Internationalization drivers
Local customer needs
Critical mass
In-house competencies
Synergy advantages
Economies of scale
Multinational corporate accounts
First-mover advantages
Internationalization of competitors
Substantial or
great influence
%
67.5
59.5
51.9
49.7
43.9
42.6
39.1
27.5
228
c) International market selection:
•
Please comment on the importance of the following market selection criteria for your firm:
(Table contains survey results: respondents (%) answering item is fairly or very important)
Market selection criteria
Market volume
Market fragmentation
Technical infrastructure
Location advantages
Regulatory environment
Cultural proximity
•
Fairly or very
important
%
87.2
74.0
65.4
31.6
30.2
25.5
Please comment on the influence of the following entry barriers for your firm:
(Table contains survey results: respondents (%) answering item has substantial or great influence)
Entry Barriers
Early development stage of electronic business
Lack of market know-how and customer information
Dominant incumbent players
Cost of operations and internal control
Cost of transaction settlement and clearing
Lack of VAS providers
Substantial
or great
influence
%
51.1
43.2
39.0
37.1
29.4
22.3
d) Market entry mode:
•
How did your firm internationalize in the past? Why did you pursue this entry strategy?
•
How do you plan to internationalize in the future? Why?
229
e) International configuration:
•
Please comment why certain business functions of your firm are centralized (i.e. globally
integrated) and others are decentralized (i.e. locally adapted).
International configuration
Technology development
Front-end design and functionality
Allocation of financial resources
Strategic decision-making and control
Branding
Aggregation and matching
Value-added services
Settlement and clearing
Content services
Advertising and promotional campaigns
Customer relationship management
2.) Managerial decision-making:
a) International orientation:
•
Which of the following statements describes best your attitude towards the international
subsidiaries of your firm? Why?
½
½
½
½
“our subsidiaries operate independently in their national markets” (multinational
mentality)
“our subsidiaries implement strategies and operational decisions made and controlled
by the headquarters” (international mentality)
“our subsidiaries are merely sales channels in international markets” (global model)
“our subsidiaries are valuable sources of competencies and market know-how, which
are intensely exchanged in our headquarters-subsidiaries network” (integrated network)
230
•
What is your personal international experience (professional or private) in foreign
countries? How does this affect your decision-making regarding the internationalization of
your firm?
b) Perception of benefits and cost:
•
What are internationalization benefits for your firm?
•
What are the costs of internationalizing for your firm? (no figures but challenges)
c) Decision-making process:
•
How are decisions about internationalization activities made in your firm?
•
What is the role of stakeholders (e.g. VCs, customers) in this decision-making process?
3.) Changes in European B2B e-commerce:
•
Since May 2001, what are the major changes in European B2B e-commerce in general?
•
Since May 2001, what are the major changes regarding the internationalization of your
firm?
•
In the future, how will European B2B e-commerce evolve?
•
In the future, how will the foreign expansion of e-markets evolve?
231
Curriculum Vitae
17.06.1972
Born in Munich, Germany
Education
1991
Werner-Heisenberg-Gymnasium, Garching
Abitur
1993-1998
Ludwig-Maximilians-University of Munich
Degree in Business Administration
1999-2002
University of St. Gallen
Doctorate at the Research Institute for International Management
Professional Experience
1993-1998
Various internships with e.g. DaimlerChrysler Aerospace AG and
McKinsey & Company
1998-1999
Mitchell Madison Group
Consultant
1999-2001
Getmobile AG
Co-founder and Manager E-Commerce