Internationalization Process of Traditional and Born-Global Firms and the Role of Knowledge and Capabilities

as ‘regulative, normative, and cognitive structures and activities that provide stability and meaning to social behavior’ (while Scott,1995).

1. ADDIS ABABA UNIVESITY INTERNATIONAL BUSINESS AND STARATEGY(PhD) INTERNATIONAL BUSINESS ENVIRONMENT COURESE Article review- Individual Assignment On Internationalization Process of Traditional and Born-Global Firms and the Role of Knowledge and Capabilities Jan 1/2024 Tesfamaryam

2. Introduction Those articles are focused on unbounding the institution based view of international business strategy , from internationalization to evolution: The Uppsala model at 40 years, Internationalization : From incremental to born global, the CEO as a key micro foundation of global strategy and Learning and knowledge in early internationalization research were discussed in detailed below.

3. Unbundling the Institution‐Based View of International Business Strategy (Peng & Khoury, 2009) There are three leading/driving perspectives in IB strategy are an institution‐based view of IB strategy (Peng 2002, 2003; Meyer and Peng 2005; Peng, Wang, and Jiang 2008 ) and Industry and resource‐based views (Peng, 2007) Decades of IB research have long suggested that institutions —commonly known as the ‘ rules of the game ’ around the world—are a major driver behind IB strategy (North, 1990)). According the two propositions (1) individuals and firms act rationally according to formal and informal institutional structures ; (2) when formal institutions fail, informal institutions regulate exchange relationships underpinning that institutions matter .

4. An institution- based view of IB strategy Definition institutions _ as ‘the humanly devised constraints that structure human interaction (North 1990) _ as ‘regulative, normative, and cognitive structures and activities that provide stability and meaning to social behavior’ (while Scott,1995). _ Overall, institutions operate as formal and informal structures for social and economic exchanges. the institution‐based view underscores- the importance of bringing institutions more into the foreground of IB strategy research

5. Institutions as Defining Structures in IB Strategy Institutions are pervasive in that they are capable of shaping the behaviors of multiple actors (i.e. individuals, firms, industries, and non‐governmental organizations (NGOs )). institutions serve to reduce uncertainty for different actors by conditioning the ruling norms of firm behaviors and defining the boundaries of what is considered legitimate Institutions can provide a rationale that justifies compliance with a norm . Referring to Scott's (1995: 35) three pillars, compliance occurs through ‘(1) expedience (regulative pillar), (2) social obligation (normative pillar), or (3) on a taken for granted basis (cognitive pillar)’.

6. the political system may pervade international strategic decisions, consider the case of Argentina's oil industry between the 1950s and the 1970s . In this situation, changes in ruling party lead to an unpredictable level of government involvement within this industry . This representation of political system within the institutional environment is operationally in simple terms of relative polity between nations, endogenous political risk or transparency. individuals and firms directly draw on inputs from the institutional environment in order to inform their strategic decisions. Thus : Proposition 1: Managers and firms rationally pursue their interests and make choices within the formal and informal constraints in a given institutional framework. The strategies used by firms can reflect the translation of formal and informal constraints within a nation's institutional framework. Formal and informal institutions originate from different sources within the firm's institutional environment.

7. Proposition 2: While formal and informal institutions combine to govern firm behavior, in situations where formal constraints are unclear or fail, informal constraints will play a larger role in reducing uncertainty and providing constancy to managers and firms.

8. From internationalization to evolution: The Uppsala model at 40 years (Vahlne & Johnson, 2017) According to the author the first version of the Uppsala model was published in 1977 explains the internationalization process of firms. In the article discuses on the concept of multinational business enterprises in place of multinational enterprises. This article were anchor the model in processing ontology apply it to multi-business enterprise (MBE) evolution. Process ontology implies open-endedness: it cannot be known what will come out of a process. Such open-endedness is an important feature of our model as well.

9. …. Features of MBE Modern firm is process rather than structure oriented; a network rather than a stand-alone unit; business exchange rather than production; pro-active and entrepreneurial rather than passive; hierarchical (decentralized) rather than hierarchical. The most distinctive feature of the Uppsala model is the focus on process – the processes of Knowledge development and resource commitment – rather than on isolated investment decisions ( Cyert & March, 1963). And another important feature of the Uppsala model is that it attempts to integrate process and content. The Uppsala model rests on more realistic assumptions than the eclectic paradigm, and as such, one would expect it to produce a superior micro-level understanding of MBE evolution. It is self-evident that managers act in a flow of ongoing events and that continuous change characterizes any present situation . Processes exist on multiple levels. The Uppsala model operates at the level of the individual firm, that is, the micro-level. When we record changes at the micro-level, they are to a large extent the aggregate outcomes of processes at the mille-micro level, i.e., the level of individuals or of subgroups within the organization.

10. Internationalization: From incremental to born global (Gary A. Knight a & Liesch , 2016 ) Internationalization has been recognized since the early 1970s. For example. The internationalization of bond markets (Wise, 1982), the video industry (Duarte & Cavusgil , 1996) and currency ( Hugon , 1976) have featured alongside the changing managerial style in the international firm in the new era (Misawa, 1987) and corporate and public policy implications of the internationalization of technology (Contractor, 1983). Rugman (1980) presented his new theory of the MNE emphasizing firm-specific advantages best exploited through internalization rather than ‘‘the assumption that a firm is producing and marketing abroad a standardized product, critical in the process of internationalization. In the article, described early internationalization and born global firms (BGs), those that conduct international business at or near their founding. Despite the limited resources that usually characterize new businesses, BGs achieve international sales from an early stage in their development ( Cavusgil & Knight, 2009).

11. They tend to internationalize faster than described by traditional perspectives which have observed that internationalizing firms often operate in domestic markets before venturing overseas (e.g., Johanson & Vahlne , 1977, 1990). BGs can be defined as ‘‘entrepreneurial start-ups that, from or near their founding, seek to derive a substantial proportion of their revenue from the sale of products in international markets Cavusgil (2004) .’’ BGs are emerging in sizable numbers worldwide. The trend has been facilitated by globalization, the Internet, and other communications innovations which have reduced the cost of internationalization, fostering foreign expansion of smaller, resource-poor companies (Knight & Cavusgil , 2004; Eurofound , 2012). The emergence of BG firms might represent a shift from a focus on the large, well-established MNE applying a logic of monopolistic or oligopolistic rents, efficiency-seeking, and power, to a logic of young, resource-constrained firms emphasizing a logic of profit, opportunity creation, and resourceful innovativeness (Zander, McDougall- Covin , & Rose, 2015). As facilitating factors expand the possibilities for firms in markets beyond the home-country, new entrants are taking advantage of wider and extended markets to derive higher returns to their advantages, and newness and small size are not restricting this phenomenon.

12. Early in the development of the field, explanation was sought on the nature of these firms, and internalization theory of the MNE was born (Buckley & Casson , 1976; Hennart , 1982; Rugman, 1980, 1981)—markets internalization theory. This theory remains a foundation of the field today. In particular interest in early MNE theorizing was their cross-border activity in the form of foreign direct investment which required explanation that was different from international trade activity . International trade theory relies upon the nature of countries with their resources endowments while FDI theory relies upon the nature of markets and proprietary assets held in the firm. SMEs might invest abroad, but not to the extent that MNEs do so, and exporting and other non-equity modes of business operations are predominant with them (Lu & Beamish, 2001).

13. The phenomenon is heartening because it portends that firms of any size, age, and experience and resource base can actively participate in and benefit from international business . drive early internationalization, including the liberalization of international markets, advances in information and communications technologies, and emergence of the Internet; Size of the firm’s home market, nature of the target market, and the extent of competing firms’ internationalization, as well as growth and global integration of the firm’s industry, all seem to induce or influence early internationalization

14. The CEO as a key micro foundation of global strategy: Task demands, CEO origin, and the CEO’s international background (Sven Kunisch ,| Markus Menz , Albert A. Cannella Jr., 2017) These decisions and actions related to global operations and competitiveness may differ substantially based on the CEO’s international experience (e.g., Felin , Foss, & Ployhart , 2015; Foss & Pedersen, 2014; Hambrick & Mason, 1984). CEOs with international backgrounds may, thus, possess skills and experiences that contribute to the development of a global mind-set, allowing them to put international developments into perspective . All of this helps their firms adopt a global perspective and simultaneously handle domestic and global market needs, operations, and competition (Gupta & Govindarajan , 2002; Unruh & Cabrera, 2013). CEO-level international background matters and as a key micro foundation of global strategy Hence firms needs align their leadership with changing environment and the leader whose competencies and characteristics fit the task demands. Making choices of the new CEO’s international background, based on his succession event