This research aims to pose process-related questions on experiential knowledge to demonstrate how internationalisation evolves over time. In response to Welch and Paavilainen-Mäntymäki (2013) this study will explore the process and dynamic nature of the experiential knowledge. The depth of analysis together with the incorporation of relevant contextual aspects (time, situation, foreign business environment) will contribute to a process-based theory of internationalisation.
68 In order to explore the internationalisation process of Australian professional services firms below is a set of research questions drawn from the literature:
RQ 1: What is the experiential knowledge of professional services firms?
RQ 1a: How does it develop over time, where does it reside and what constitutes the stock of experiential knowledge?
RQ 2: What is the role of micro-processes in acquiring, accumulating and analysing experiential knowledge advantages for strategic purposes?
RQ 2a: How does experiential knowledge affect cross-border opportunity recognition and/or market commitment of professional services firms? RQ 3: Why do professional services firms choose to internationalise: alone
(exports/greenfield venture) or through partnerships (export through an agent/joint venture)?
RQ 3a: How are professional services firms using experiential knowledge gained alone or through partnerships?
The study will now present a summary on how these questions emerged from the review of the prior literature. A detailed table of all relevant studies that have formed each research question is also presented in Appendix D.
The theory of the processes of interaction between experiential knowledge and market commitment within the literature of firm internationalisation is still evolving (Fransson et al., 2011; Johanson & Vahlne, 2003, 2009; Vahlne & Johanson, 2013; Welch & Paavilainen-Mäntymäki, 2014). There have been several revisions of the Uppsala internationalisation model, however, the main principles remain the same: experiential knowledge/learning and commitment building are the two main sub-processes of the internationalisation process (Vahlne & Johanson, 2013). Experiential knowledge is closely associated with stages of internationalisation or the actual presence in a market (Barkema et al., 1996; Barkema & Drogendijk, 2007; Johanson & Vahlne, 1977; Johanson & Wiedersheim-Paul, 1975; Welch & Paavilainen-Mäntymäki, 2014). Therefore, it is assumed that a greater level of commitment requires firms to have relevant experiential knowledge (Johanson & Vahlne, 1977, 2003, 2009; Johanson & Wiedersheim-Paul, 1975).
69 Unlike the behavioural theory of the firm (Aharoni, 1966), the Uppsala model does not incorporate the managerial or decision-making perspective in any of the four internationalisation stages (see Section 2.2.1). The main theoretical assumption of Johanson and Vahlne (1977) is that foreign market commitment is determined by the firm’s knowledge of a foreign market opportunity at a given point in time. Johanson and Vahlne (1977: 28) argue that the experiential knowledge will make entrepreneurs feel or perceive a market opportunity in a specific manner. However, the Uppsala model did not provide a dedicated instrument to assess experiential knowledge, the current state of internationalisation (market commitment) of a firm has been used as a proxy for knowledge in follow-up empirical studies (discussed in Section 2.3 and Section 2.5). The creators of the Uppsala model suggest that their theory might also be applicable to ‘complex and soft-ware-intensive products’. Professional services firms have been the object of increasing interest (see Sections 2.4.1, 2.4.4), however, little is actually known about their experiential knowledge and internationalisation process (Brown et al., 2003; Contractor et al., 2003; Knight & Kim, 2009; Knight & Liesch, 2002; Nummela et al., 2006).
The following research questions address these gaps:
RQ 1: What is the experiential knowledge of professional services firms?
RQ 2a: How does experiential knowledge affect cross-border opportunity recognition and/or market commitment of professional services firms? In line with Li et al. (2004), this literature review demonstrated that neither the innovation-related internationalisation models (discussed in Section 2.2.2), nor the systematic planning models or contingency perspectives on the internationalisation process of firms (discussed in Section 2.2.3) provide a convergent understanding of the internationalisation process. Andersen (1993) concluded that the internationalisation process models did not explain how the internationalisation begins and how exactly experiential knowledge of foreign markets affects the commitment of resources by firms. There is still no significant empirical evidence to explain path-breaking internationalisation (discussed in Section 2.3). Oviatt and McDougall (1997: 93) stated that international business research assumes that entrepreneurial experiential knowledge of foreign markets is sufficient to skip the incremental internationalisation steps. The
70 renewed interest in this subject (Liesch et al., 2013) draws parallels between the discontinuity of knowledge accumulation and path-breaking internationalisation.
Zahra and George (2002) proposed the absorptive capacity theory as a multidimensional and fluid path of firm-level knowledge acquisition. The external sources of knowledge can include contractual agreements (internationalisation stages 1-2), inter-organisational relationships (such as joint-venture, internationalisation stage 3), commitment to research and development functions (internationalisation stage 4). The four dimensions (acquire, assimilate, transform, exploit) of absorptive capacity echo the incremental internationalisation stages of the Uppsala model.
Firm-level routines and capabilities, for the purposes of this research, are operationalised through the Absorptive Capacity Theory (see Cohen & Levinthal, 1990; Jansen et al., 2005; Zahra & George, 2002). In line with Helfat, Finkelstein, Mitchell, Peteraf, Singh, Teece, and Winter (2007) a dynamic capability is understood to be ‘the capacity of an organization to purposefully create, extend, or modify its resource base’. As such, market commitment and entry mode can be used to reflect the extension of the company resources to foreign markets.
Scholars suggest that absorptive capacity will positively affect the way a lack of foreign market knowledge is perceived (Eriksson & Chetty, 2003), allow firms to develop new organisational forms to adapt to turbulent knowledge environments (van den Bosch et al., 1999), and influence inter-organisational learning (Lane & Lubatkin, 1998). Further, Vahlne and Johanson (2013) recommend to include absorptive capacity as part of the internationalisation theory in order to capture history dependence in the firm evolution process.
Individual capabilities also serve as the primary source of knowledge and thus Zahra and George (2002) suggest ‘individual absorptive capacity’ as an important avenue for future research. Todorova and Durisin (2007) also draw attention to the importance of prior knowledge, where individuals are involved in a continuous process of constructing and reconstructing meaning before it is institutionalised within an organisation (Crossan et al., 1999; Dixon, 1999).
71 RQ 1a: How does it [experiential knowledge] develop over time, where does it
reside and what constitutes the stock of experiential knowledge?
Welch and Paavilainen-Mäntymäki (2014: 9) argued that firm internationalisation as a process remains understudied and since 1983 there has not been a sustained upward trend in the proportion of process-based articles. While only a quarter of the internationalisation literature is ‘process-based’17, most of it only identifies patterns or stages (‘weak’ process theory) and very few studies explain why and how these patterns occur (‘strong’ process theory) (Welch & Paavilainen-Mäntymäki, 2014: 11). The process-based research emphasise the complex, non-linear and dynamic nature of the internationalisation process (e.g. Boojihawon, 2007; Zander & Zander, 1996). Only few of the process-based studies (e.g. Chetty & Blankenburg Holm, 2000; Smith & Zeithaml, 1999) consider internationalisation of firms in a dynamically evolving context (Welch & Paavilainen-Mäntymäki, 2014). The dynamic element of the process-based theories is not well developed. The dominant philosophical and epistemological positions that support positivist notions of causality within the internationalisation process remain unchallenged. Lamb and Liesch (2002: 23) and Pauwels and Matthyssens (1999) suggested that the key constructs of internationalisation (including experiential knowledge) ‘interact rather than act on one another’ and thus it is essential to follow process methodology and theorising (Welch & Paavilainen-Mäntymäki, 2014: 12). The lack of strong process theories explains why the experiential learning construct is not clearly explained as part of the internationalisation process of firms. As outlined in Section 2.5, experiential learning is a complex and dynamic process that is dependent on relevant situational/environmental context. This research will address the suggestions by Welch and Paavilainen-Mäntymäki (2014: 11) and examine the experiential learning as the driving mechanism behind the internationalisation process of firms, which will explain why/how particular events unfolded as part of the process.
Based on the review of the stages models to internationalisation in Section 2.2, it is clear that the internationalisation and learning process of firms is more likely to be non-linear (Sharma & Blomstermo, 2003). Similarly, Welch and Paavilainen-Mäntymäki (2013)
17 ‘Process-based’ is defined by Welch and Paavilainen-Mäntymäki (2014: 8,11) as studies that consider process data and attempt process theorising.
72 suggested that time should not be considered as a linear phenomenon. Notwithstanding, temporal sequences of events and the foreign business context will influence the strategic responses of a firm as well as its experiential knowledge (Araujo & Rezende, 2003; Axinn & Matthyssens, 2002; Sharma & Blomstermo, 2003; Turnbull, 1987; Welch & Paavilainen-Mäntymäki, 2013). Firms will change their mode of operations in response to a volatile business environment (Turnbull, 1987). Therefore, a higher number of subsidiaries, as well as a longer time span of a firm’s operations in a host country, do not necessarily indicate superior experiential knowledge (Shaver, Mitchell, & Yeung, 1997). As explained in Section 2.5, this research will focus on studying the differences in experts’ process approach in order to assess the experiential knowledge (cognitive approach, in line with Chi, 2006; Ericsson & Charness, 1994).
Micro-processes for the purposes of this study are associated with individual-level experiential knowledge and learning. Therefore, this aspect is operationalised through the Experiential Learning Theory (cf. Kolb & Kolb, 2005, 2009; Kolb, 1984; Kolb et al., 2000). This research defines experiential knowledge and learning as phenomena that contribute to firm-level routines (absorptive capacity) and capabilities (market commitment).
The following research question addresses these gaps:
RQ 2: What is the role of micro-processes in acquiring, accumulating and analysing experiential knowledge advantages for strategic purposes?
The PSFs are distinct from the manufacturing sector and thus it is important to derive theories specific to the internationalisation of services industries (Bingham and Eisenhardt, 2011). Von Nordenflycht (2010) argued that knowledge is one of the main characteristics of PSFs. The PSFs are also characterised by relatively low involvment of physical goods in service production and high degree of customer-producer interactions (Vandermerwe & Chadwick, 1989). Please refer to Section 2.4.1 for a detailed discussion.
The 2012 special issue of Service Industries Journal stressed the importance of studying antecedents of international expansion, processes of foreign market selection, determinants of entry modes, questions of coordination and control in the international firm (Apfelthaler & Vaiman, 2012: 1591; Rosenbaum & Madsen, 2012: 1656).
73 Rosenbaum and Madsen (2012) reviewed empirical literature on PSFs over the last 20 years and concluded that no studies examine the types of knowledge in relation to experiential learning and its influence on market entry decision-making.
The following research questions address these gaps:
RQ 3: Why do professional services firms choose to internationalise: alone (exports/greenfield venture) or through partnerships (export through an agent/joint venture)?
RQ 3a: How are professional services firms using experiential knowledge gained alone or through partnerships?