Företagsekonomiska institutionen Department of Business Studies A Political View on the Internationalization Process Francisco Figueira de Lemos Dissertation presented at Uppsala University to be publicly examined in Hörsal 1, Kyrkogardsgatan, 10, Uppsala, Thursday, April 25, 2013 at 13:15 for the degree of Doctor of Philosophy. The examination will be conducted in English. Abstract Figueira de Lemos, F. 2013. A Political View on the Internationalization Process. Uppsala universitet. Doctoral thesis / Företagsekonomiska institutionen, Uppsala universitet 158. 109 pp. Uppsala. The role of governments in the internationalization of the firm had early recognition in prominent seminal studies in international business, such as Hymer’s thesis or the Uppsala Model, though the interaction between multinationals and governments has attracted scarce attention. As such, the main stream of economics and management studies have focused on internationalization essentially as an issue of the firm, wherein the multinationals’ interaction with the environment is limited to a business-industrial scope of suppliers, clients, and competitors. In a different direction, this thesis includes the political setting and studies the beneficial side of governments in the internationalization process of the firm. With this purpose, the present dissertation proposes a conceptual framework based on Johanson and Vahlne’s (1977) internationalization process model, complemented with Williamson’s (1975) Transaction Costs Economics, and encompassed by conceptual insights from institutional studies related to international business. Specifically, the role of governments in the internationalization process is examined through the variances of the relation between knowledge and commitment at the micro, meso, and macro level. The structure of the thesis reflects the multilevel approach, integrating one conceptual and three empirical papers, each of which dealing with a particular level of analysis. Through the aggregation of each paper’s intrinsic contribution, the dissertation’s summary offers a wide view on the internationalization phenomena, adding the political elements to the industrial-business elements of the environment. Overall, internationalization is conceptualized as a process of interaction with the business environment, whereas the public nature of political elements induces the compromise of combining activities between firms and governments. Evidence gives the ground to conclude that internationalization is not a game played just between firms, or, even, between firms and markets, but also with and within governments. Keywords: Internationalization Process, Uppsala Model, Transaction Cost Economics, Institutional theory, Firm, Multinational, Government Francisco Figueira de Lemos, Uppsala University, Department of Business Studies, Box 513, SE-751 20 Uppsala, Sweden. © Francisco Figueira de Lemos 2013 ISSN 1103-8454 urn:nbn:se:uu:diva-196465 (http://urn.kb.se/resolve?urn=urn:nbn:se:uu:diva-196465) to my sons Francisco and José Diogo Acknowledgements It has been a few years now since I read for the first time the 1977 article of Johanson and Vahlne. I was in shock. The article was telling my story as a manager and entrepreneur! That same article made me to withdraw a career as a manager, but, fortunately, not as an entrepreneur. If there is something truly entrepreneurial it is research. Indeed, a continuous cycle of diving and survival within uncertainty! I express my deepest gratitude to my supervisors Professors Amjad Hadjikhani, Mats Forsgren and Jan Johanson. Thank you Amjad for your enormous generosity. It was a privilege to be able to step into your office not only when it was planned to but mainly whenever I needed to. Thanks for those several 10 minutes meetings that ended up in 2 hours of insightful discussions. Time is indeed the scarcest resource of life and the most valua- ble thing it can be given! Mats and Janne, your positioning perspectives and encouragement were fundamental to arrive at this point. Fortunately, I had Janne to compensate for those tough debates with Amjad and Mats. Overall, thank you all three for showing me how uncertain certainties can be. I hope we will be able to write down our discussions for many years to come! I want also to thank Professor Martin Johanson who accepted to be the opponent for my final seminar. Your questions were essential in structur- ing the thesis. As a summary of papers, this thesis was not written only by my hand; thus a special recognition goes to my co-authors, Fernando Freire de Sousa, Amjad Hadjikhani, Jan Johanson, and Jan-Erik Vahlne. I am indebted not only for what I have learned from you, but also because you made me realize how boring it is to write alone. Co-authors will always be welcome! I am also grateful to all my colleagues at the Department of Business Studies. What an amazing research environment we have! I extend this grati- tude to the faculty and classmates in the NORD-IB doctoral research school, as well as to my fellow doctoral students at the Strategy Unit of Harvard Business School. Three other academic colleagues were very important in accomplishing this journey, Professors Alberto de Castro, Freire de Sousa, and Pinto dos Santos. Thanks for backing me up whenever I needed it. Finally, I am extremely grateful to my parents for raising me with the highest ethical values and to Cristina for being an amazing mother, bringing up alone our two wonderful sons over these years – THANKS! List of Papers This thesis is based on the following papers, which are referred to in the text by their Roman numerals. I Figueira de Lemos, F., Johanson, J. and Vahlne, J.-E. (2011) ‘Risk Management in the Internationalization Process: A note on the Uppsala Model’. Journal of World Business, 46(2): 143- 153. II Figueira de Lemos, F., and Hadjikhani, A. ‘Internationalization Processes in Stable and Unstable Market Conditions: Towards a model of commitment decisions in dynamic environments’. Submitted in April 2012 to the Journal of World Business, in review and revise process. III Freire de Sousa, F., and Figueira de Lemos, F. (2009) ‘Com- plexity and interdependency in firm's internationalisation: when the state becomes the partner’. International Journal of Busi- ness Environment, 2(4): 485-504. IV Figueira de Lemos, F. ‘The Control of Foreign Operations: Is it strategic, economic or politically driven?’ Submitted in March 2013 to the Journal of International Business Studies. Reprints were made with permission from the respective publishers. Table of Contents Prologue .......................................................................................................... 9 Chapter 1: Introduction ................................................................................. 11 1.1. Theoretical framework and positioning ............................................ 12 1.2. The research question ........................................................................ 16 1.3. Disentangling the research question .................................................. 18 1.4. The thesis outline .............................................................................. 22 Chapter 2: The Internationalization Process within an Industrial-business Environment .................................................................................................. 24 2.1. The conventional view of the Uppsala Model ................................... 25 2.2. The risk perspective of the U-m ........................................................ 27 The managerial view of risk in the U-m .............................................. 29 Adapting to and learning from the environment .................................. 32 The explanatory scope of the U-m ....................................................... 34 2.3. The control of the environment ......................................................... 36 TCE and U-m as complementary models ............................................ 39 Bounded rationality and uncertainty in TCE and U-M ........................ 41 Chapter 3: Adding the Political Elements to the Environment ..................... 43 3.1. The problem of non-internalization of political elements ................. 44 3.2. The political setting in a multilevel outline ....................................... 46 The relationships at micro level ........................................................... 47 The diplomacy networks at macro level .............................................. 49 The hybrid structures at meso level ..................................................... 51 Chapter 4: The Research Design and Empirical Material ............................. 55 4.1. The empirical material....................................................................... 56 4.2. At the micro level with qualitative data ............................................ 57 4.3. At the meso level, with cross analysis between qualitative and quantitative data ....................................................................................... 59 4.4. At the macro level with quantitative data .......................................... 61 Chapter 5: The Individual Papers.................................................................. 64 5.1. Paper I – Risk management in the internationalization process of the firm: A note on the Uppsala model .......................................................... 65 5.2. Paper II – Internationalization processes in stable and unstable market conditions: Towards