MOTIVES FOR INTERNATIONALIZATION

 Dunning introduced a model of internationalization motives including four different categories of motives. These categories are market seeking, resource seeking, efficiency seeking and strategic resource seeking motives and network seeking motives.

Dunning explains how market and resource seeking motives have been the two most recognized categories of motives before. These two categories still correspond to most first time internationalization by firms. Overall, efficiency seeking and strategic asset seeking motives increase in significance and are more common as motives for companies already engaged in multinational activity. He also shows that closer relations with customers and durable relations with suppliers were important motives. Furthermore the internationalization was more driven by opportunities rather than threats.  The opportunities in foreign markets and inquiries from foreign buyers were the top two motives for internationalization. Insufficient domestic sales compared to R&D costs were also a significant motive. Francis and Collins-Dodd claimed that for high-tech SMEs relationships and sales contacts in foreign markets are the best way for improving sales abroad. They also stress the importance of strategic alliances partners in order to improve foreign market performance. In other words, networking is vital. Freeman et al. identify several variables that increase the rate of internationalization of SMEs. Such variables are a small domestic market, unique knowledge or technology, and different forms of relationships and alliances.

1. Market seekers: This category of motives focuses on demand aspects. If decision makers within a company acknowledge the importance of accessing specific target markets abroad and believe that a direct presence internationally is essential for this access they will focus on market seeking motives. Companies that invest in a particular country or region with the intention to supply goods and services are called market seekers. 

According to Dunning there are several reasons why companies undertake such action. Firms sometimes conduct investments on foreign markets to promote or exploit new markets. Reasons may include the sheer size of the market or an expected growth of the same, indicating that the company may enter and then generate profit. Products and services may have to be adapted to tastes, needs and trends on a particular market. A direct presence on a local market may be necessary, as companies that are not close to markets may have a disadvantage in adapting services and goods. Companies may act as a part of a global production and marketing strategy and seek a physical presence on leading markets where the competitors are. Companies may follow their competitors, or more aggressively advance in expanding markets by investing there. Foreign governments can also encourage investments from companies in other countries. Incentives such as subsidized labour and trade barriers may tempt companies to invest in these countries. Much of government export- promotion policies focus on encouraging entrepreneurs to internationalize using business education and training.This fosters direct trade links in other countries, and financial incentives. Sometimes a firms’ home market is limited, i.e. by not bringing the firm enough revenues. Such limitations can be a saturated market, a too competitive market, not enough customers, and so on. Many companies there go to other markets, including foreign markets.

2. Resource seekers: The resource seeking companies are those investing abroad in order to obtain resources (Dunning, 1993). Perhaps the wanted resource can be acquired at a lower comparative cost, or simply does not exist at all in the home country. Resource seeking could deal with the search for physical resources, such as minerals (oil, zinc, copper etc.) and agricultural products (rubber, tobacco, sugar etc.). These resources are sometimes central to the survival of a company, especially if the material constitutes an important part of the production. The search for cheap and unskilled (or semi-skilled) labour is an important activity for many companies trying to minimize costs and maximize profits. This labour force should be well motivated and exist in large numbers. The seeking for such labour is often undertaken by manufacturing companies with high real labour costs. Sometimes skills and capabilities are resources that can be used through collaboration with a business partner. According to Dunning’s model (1993) this corresponds to resource seeking. We believe that collaboration involves the use and development of business relationships and networks. Therefore, we put this kind of collaboration under the category of network seeking motives.

3. Efficiency seekers: Another category of motives focuses on efficiency (Dunning, 1993). The purpose is to rationalize structures of established investments in order to gain from common governance. Often those benefits come from economies of scale and scope, but also risk diversification. Therefore, efficiency seeking is seen as gaining from the differences of factor endowments, cultures, institutional arrangements, and economic systems etc. Often this implies concentration of production in a limited number of places. Companies that are seeking efficiency are often experienced, large and diversified multinational enterprises. Advantage can be drawn from differences of factor endowments in different countries. Such differences consist of availability and cost. As an example, value-adding activities that are capital, technological or informational intensive are usually placed in developed countries. On the other hand, value-adding activities that are labour or resource intensive are often placed in developing countries. Economies of scale and scope are issues that an efficiency seeker often focuses on. While differences of factor endowments utilize differences between developed and developing countries, economies of scale and scope regard differences within similar countries. The differences may be that of consumer tastes and supply capabilities. Companies may become international with the intention to lower the total amount of tax paid to governments. By acting in several countries the efficiency seeker might be able to lower the tax burden. Exactly how this is done is not of interest to this study. However, we believed this was a motive well worth investigating.

4. Strategic resource seekers: Strategic resources are intangible resources dealing with the technology and core competence of the company (Dunning, 1993). Patents, knowledge, the skills of the employees, and strategic supplies necessary for developing comparative advantages are examples of strategic resources. By focusing on developing strategic resources the company supports its long-term strategic objectives. Acquiring the assets of foreign corporations often does this. Accordingly, the main motive is therefore to either sustain or strengthen the competitive position, or weaken the competitors. In order for knowledge to have commercial value a company must prevent competitors from accessing such information (Oviatt and McDougall, 2005). Secrecy is often the best way of protecting knowledge that has commercial value. Knowledge based firms therefore protect themselves by the use of patents, copyrights, and so on. For companies, one way of gaining access to knowledge is to acquire other firms. Another way is to participate in some form of alliance in order to benefit from other companies knowledge base. We consider the latter of these two activities to reflect network seeking.

5. Network seekers: Dimitratos & Plakoyiannaki described networking as a dimension of international entrepreneurial culture. This network orientation within companies reflects to what extent companies participate in alliances, cooperative ventures and other forms of similar social connections. Networks, relations and collaborations with partners outside the organization can be very important for companies. By assessing the network seeking motives, companies intend to nurse, develop and expand their existing networks. Examples of network relations are personal connections, supplier-customer relations, contractual cooperation or other types of relations based on mutual gain and trust. Chen, Chen and Ku mentioned how scholars have recently brought attention to relational capital and its importance. The relations between a firm and its customers, suppliers, partners, government agencies and research institutions can be included in the term relational capital that represents goodwill and trust. Investing in relational capital and local linkages enables the firm to create a competitive advantage.  The relation can be beneficial for several parts of a network. A business network refers to a set of interdependent business relationships. One can argue that all firms are a part of a network. Relationships within a network can be short or long lived as well as being operated at arms length or up close and personal to facilitate knowledge sharing, innovation and value creation. An investor can decide to invest in local linkages depending on prior position and experience.