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Author(s): Sylvie Chetty and Henrik Agndal
Source: Journal of International Marketing, Vol. 15, No. 1 (2007), pp. 1-29
Published by: American Marketing Association
Stable URL: http://www.jstor.org/stable/25049072
Accessed: 06-01-2016 17:39 UTC
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Social and Its Influence on
Capital
Changes in Internationalization Mode
Among Small and Medium-Sized
Enterprises
mode. In addition, Petersen and Welch (2002) and Calof and Journal of International Marketing
Beamish (1995) conclude that to improve understanding of ? 2007, American Marketing Association
Vol. 15, No. 1, 2007, pp. 1-29
how firms more research needs to be
develop internationally, ISSN 1069-031X (print)
done on the changes in modes that firms use. 1547-7215 (electronic)
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Some of the models used in the extant literature explore
"rationalistic" aspects, such as market access and market
penetration over the product life cycle (Vernon 1966) or costs
of setting up and conducting international activities (Ander
son and Gatignon 1986). Anderson and Gatignon (1986) use a
transaction cost framework to study the entry mode decision,
and they conclude that the most efficient entry mode
emerges when there is an optimal trade-off between control
and resource commitment. Although they
use the transaction
cost framework, they acknowledge the contribution that can
be made from research that uses other theoretical frame
works, such as Hakansson's (1982) framework, which
focuses on and networks. Anderson and
relationships
Gatignon mention that this area of long-term stable relation
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of resources a firm acquires from its network of relationships
(Bourdieu 1986; Bourdieu and Wacquant 1992; Woolcock
and Narayan 2000). However, Woolcock and Narayan (2000)
incorporate both the benefits and the costs of social capital in
on
their research the topic. They view the positive aspects of
social as assets but the negative aspects of social capi
capital
tal as liabilities.
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tributor commitment to the relationship, Dutta and George
(1995) study single versus dual channel distribution systems,
and Erramilli and Rao (1993) study shared versus full
control modes of market entry. However, according to Rind
fleisch and Heide (1997, p. 51), the use of the TCA has its
limitations, and "the basic theory is still in need of further
development (Rangan, Corey, and C?spedes 1993)." As an
alternative to the TCA, Achrol (1997) proposes new thinking
in marketing toward a network He argues that suc
paradigm.
cessful organizations increasingly resemble networks, in
which alliances and partnerships progressively replace tradi
tional, vertically integrated firms.
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Various researchers have also focused on the types of net
works firms use during various stages of their growth or the
networks that differ in their of cooperation. For exam
degree
ple, Hite and Hesterly (2001) study how firm networks
evolve from inception to early growth of the firm. They iden
two types of networks. First, there are
tify identity-based
networks, which they define (p. 278) as "egocentric networks
that have a high proportion of ties where some type of per
sonal or social identification with the other actor motivates
or influences economic actions." Second, there are calcula
tive networks, which as "egocentric net
they define (p. 278)
works where the focal actor's ties are motivated
primarily by
economic benefits." argue that as the firm
expected They
progresses from inception to early growth, the networks
move from based to calculative based. Lechner and
identity
Dowling (2003) identify five different types of networks that
firms use at different stages: social networks;
development
networks; with com
reputational "coopetition" (cooperating
petitors); marketing networks; and knowledge, innovation,
and technology. Varamaki and Vesalainen (2003) provide five
different types of networks that differ in their degree of coop
eration; ranging in order from loosest to tightest cooperation,
these are development circle, loose cooperative circle, proj
ect group, joint venture, and a joint unit.
Both the TCA and the network approach offer insights into
the selection of internationalization modes. also be can A Comparison Between the
They
on several dimensions. in terms of frequency
First, TCA and the Network
compared
of interactions, the TCA's unit of analysis is the single trans
Approach
action (Rindfleisch and Heide 1997). However, the network
which uses social as a frame
approach, exchange theory
work, considers a series of transactions over a
long period,
and prior interactions determine the nature of future inter
actions (Hakansson and Snehota 1995). In a comparison of
the TCA and the network approach, Johanson and Mattsson
(1987) argue that the TCA views firms as markets and hierar
chies, whereas the network approach views firms as social
units. According to Johanson and Mattsson, the important
difference between the TCA and the network approach is the
nature of the relationship. In the network approach, relation
are can reduce and
ships long lasting because they exchange
production costs. In addition, relationships contribute to the
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however, the focus is on building long-term, mutually satis
fying relationships (Achrol 1997). In the TCA, the focus is on
controlling opportunistic partners, whereas in the network
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that knowledge is socially embedded, residing in situations
and relationships. Therefore, combining and exchanging
are social processes. This contrasts with
knowledge
Williamson's (1985) concept of opportunism as self-interest
seeking with guile, which Buckley and Carter (2004) con
sider an obstacle to knowledge and Carter
sharing. Buckley
argue that business partners need to transfer their knowledge
to others rather than to withhold information for their own
strategic advantage.
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firms develop and recognize opportunities for conducting
business that others cannot see and develop (Johanson and
Vahlne 2006). They are privileged to have prior knowledge
about each other that other firms do not have. Building these
relationships takes time, is costly, and is risky. This is one
reason firms without prior in forming networks
experience
take a time to internationalize. These may
long relationships
begin serendipitously or strategically through searching for
the ideal
partner. However, the born-global literature shows
that one of the reasons for early internationalization and
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are not connected, and the norms and information about
behavior are disseminated In such a situation, it is
slowly.
difficult to keep opportunistic behavior in check. Indeed,
Nahapiet and Ghoshal (1998) argue that some aspects of
social can hinder interaction and thus constrain
capital
rather than enhance learning. They argue though social that
norms and have a positive effect on group
identity perform
ance, these attributes can also hinder the group's receptive
ness to new information and to seek other methods of doing
things. The firm can also suffer from being in what Uzzi
(1997) refers to as an "overembedded network." According to
Uzzi, these close relationships block out external informa
tion from other sources. This shows that the firm in such a
closed network fails to recognize new and better opportuni
ties. Indeed, these "ties that bind" can lead to "ties that
blind" (Grabher 1993, p. 24). In this situation, it is important
for the firm to have weak ties so that it can enter other net
works and thus expose itself to new knowledge and opportu
nities (Granovetter 1973). Furthermore, when firms exit a
there are costs, inactivity, and the
relationship, switching
on other interconnected to consider
impact relationships
(Johanson and Vahlne 2006).
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between these roles, we
three realize that many of the roles
we illustrate are
interrelated. In addition, rather than review
the roles of social we focus on what we
capital exhaustively,
perceive as the three most roles of social
important capital
that influences changes in mode. The three roles of social
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mode. The firm might also collaborate with another firm to
benefit from its knowledge and financial resources. For
example, a firm might "piggyback" on another firm that
already distributes its products in a particular market. The
firm might also its social to generate new
exploit capital
social capital; for example, itmight choose to export directly
to its customers so that it can tap into their information and
To summarize, we propose that the usefulness of
knowledge.
a firm's social initiates a mode Thus:
capital change.
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The are some of the serendipity role: The
following examples
firm's reputation might be strong enough to attract new,
business partners that are not part of its
potential existing
network but are informed about the firm through third par
ties or brokers. A business partner the firm
might provide
with information, such as a about someone to contact or
tip
information about an market opportunity. A
unexploited
third party, such as a government agency, a customer, or a
distributor, might take a brokering role to introduce the firm
to someone else. This type of introduction through a broker
could lead to an opportunity for a mode change and the for
mation of a new business partnership. To summarize, we
group's
access to new information and new ways of doing
which can reduce its performance. In addition, cer
things,
tain group norms may be opposed to cooperation and sharing
with others and to change. Uzzi (1997) highlights the prob
lems of overembeddedness, which he views as a
liability
because this can block new information from entering the
network.
a in time
Social capital requires large amount of investment
and resources to develop and maintain relationships. This
investment may not be an efficient use of resources, because
it might be too expensive to maintain and the risks might
exceed the benefits. Indeed, an unexpected loss of a core net
work can turn social from an asset into a lia
player capital
bility (Uzzi 1997). For example, a firm can become highly
skilled at working with a particular distributor, but if this
distributor decides to retire, the relationship that originally
benefited the firm will put the firm at risk of failing. The firm
lack the resources to find a new distributor or to make
might
the transition to work with a new one.
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In addition, there are feelings of obligations among members
in the network to help those who are weaker, which can be a
drain on resources (Uzzi 1997). In a study on ethnic entre
change. Thus:
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We study the phenomenon of social capital in the context of
SMEs because it is more transparent in such firms. Their
resources are more on their
limited, and they must often rely
business partners to acquire knowledge and other resources.
Thus, we follow Yin's (1989) suggestion that cases should be
selected in which the phenomenon under study is transpar
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sons of information among interviewees and through docu
ments. We combined the interview results with documentary
evidence a detailed case history of each firm. Pet
to produce
tigrew (1990) suggests that this is an important step in case
study analysis because the incoherent aspects of recollected
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Circumstances Role of
Table 1. Surrounding the Mode Social
Firm Type of Mode Change Change
Overview of Changes in Capital
NZl control mode: TradeNZ
Internationalization Mode and Decreasing (government Serendipity
Distributors replace direct agency for exports) acted as
the Influence of Social Capital exports. the broker and helped
on New Zealand Firms identify distributors.
opportunity.
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Circumstances Role of
Surrounding the Mode Social Table 1.
Firm Type of Mode Change Change Capital Continued
Decreasing control mode: The business partner's Liability
Distributor parent company was
replaces
manufacturing subsidiary. nationalized and started
Circumstances Role of
Surrounding the Mode Social Table 2.
Firm Type of Mode Change Change Capital Overview of Changes in
SWl control mode: When the U.S. distributor Liability
Increasing Internationalization Mode and
Subsidiary replaces went bankrupt, SWl's Efficacy
distributor in the United manager wanted to remain the Influence of Social Capital
States. in the market and use the on Swedish Firms
distributor's staff.
subsidiary.
was
SW2 Decreasing control mode: This triggered by a Serendipity
Agent replaces direct potential agent.
sales.
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Circumstances Role of
Table 2. Surrounding the Mode Social
Firm Type of Mode Change Change Capital
Continued
SW5 Decreasing control mode: The business network of Efficacy
Agent replaces direct SW5 was used to find an
sales. agent when the market
expanded.
subsidiary.
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Circumstances Role of
Surrounding the Mode Social Table 2.
Firm Type of Mode Change Change Capital Continued
SW10 Increasing control mode: The German distributor was Efficacy
Sales so when
subsidiary replaces performing poorly, Liability
distributor. the manager offered to leave
and work a
only for SW10,
decision was made to start a
sales subsidiary.
profitable.
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Efficacy Serendipity Liability
Table 3. Role Role Role Total
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The findings related to the efficacy role of social capital con
firm the value of the firm's network of relationships, as high
lighted in the social capital literature (Nahapiet and Ghoshal
1998; Yli-Renko, Autio, and Tontti 2002). Consistent with
the work of Achrol (1997), these findings confirm the rele
vance of trust, commitment, social norms of behavior, build
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difficulty in entering the U.S. market because it could not
break into the existing distributor network. Through a
chance meeting in a store, a third party advised NZ3 about
the best distributor it could use, and so it approached this
distributor to form a Then, NZ3 established an
partnership.
alliance with this U.S. distributor, which had strong net
works that helped it enter the market. Other examples of
weak ties paving the way formode changes include SW3 and
SW4. In these two firms, suggestions from trustworthy third
parties led to the formation of new business partnerships.
Consistent with the work of Hakansson and Snehota (1995),
this confirms the importance of trust in building relation
ships, which is an important aspect of the network approach.
The findings related to weak ties can be supported by the
work of Granovetter (1973), who shows that weak ties help
firms break into new networks and them with new
provide
information and new opportunities. In addition, the findings
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over this market. Because the firm had some knowledge
about its customers, this transition was Another
possible.
example is when the distributor lacks commitment and thus
the firm's as NZ6 NZ6
neglects product, experienced.
changed its mode by replacing the distributor with direct
exports. Sometimes distributors behave opportunistically
and become of their as was the case
competitors suppliers,
with NZ10. Its distributors pirated NZlO's products and
started to compete with them, so NZ10 its interna
changed
tionalization mode to export directly to the customer, thus
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trate because they were overembedded. In the case of SW6,
the firm was compelled to acquire a distribution company
when the owner wanted to retire and thus reluctantly ended
up with a foreign sales subsidiary. When SW8's distributor
decided to retire, it feared losing the U.S. market, which was
an one, and thus was forced to start a sales sub
important
sidiary. This subsidiary was formed at the of an
suggestion
employee of the distributor who decided to retire. This
employee also ended up managing the subsidiary. This
shows that when a firm loses a partner, it also loses
example
the social capital attached to this partner. In addition, it
emphasizes the
significance long-term of
relationships
(Hakansson and Snehota 1995), such as the one with the dis
tributor's employee and this person's prior knowledge.
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markets meant that to rely on their customers
they needed to
create their competitive The firms and their cus
advantage.
tomers combined knowledge and other assets to adapt to
each other's needs. This supports the network approach's
view that asset specificity is due to external relationships
(Johanson and Mattsson 1987).
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In addition, managers need to have regular social interaction
with their partners in the network because this builds trust
and, thus, more social However, managers need to
capital.
realize that effective organization of social capital means a
constant balancing act between the positive and the negative
aspects of social capital. Managers need to evaluate the bene
fits, costs, and risks associated with their investment in
social capital. Weak ties should not be dismissed, because
they could play an important serendipity role for mode
change. Managers need to be cautious about overembedded
networks and be willing to have diverse networks so that
they are open to new ideas, new information, and new
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