Network externalities and internationalization : a Four Forces model of internationalization for firms operating in network externality environments

Hecox, Mark G.
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Southern New Hampshire University
As stated in the dissertation, "The global economy continues to evolve into a high-density, inter-networked environment. With increasing interactions enabled by the Internet and digital communication platforms, products, firms and industries have to evolve their form and function to adapt for survival. Business network relationships are becoming increasingly important in the internationalization decision process. Inter-networking technology is changing the way firms view the international business landscape. The economics of inter-networking must be considered in effective internationalization decision making. This research endeavors to examine empirically how and why economic, relationship and technology forces uniquely associated with an network externality environment shape the internationalization behavior of high technology firms operating in network externality environments. Firms operating in network externality oriented markets face economic, technology and relationship forces that differ significantly from those firms operating in traditional non-externality environments. In addition, many of the firms operating in this type of environment are in developing high technology industries like computer peripheral equipment, pre-packaged software and related computer devices. According to Ward's business directory, these firms currently represent over $500 billion US dollars in gross sales and are fueling the global communication technology revolution. Most current internationalization literature, theory and empirical work are based on firms operating in traditional non-externality environments. Much of the classical foreign direct investment and internationalization theory has centered on an economic theory paradigm (Dunning 1976, Kindelberger 1969, Knickerbocker 1974, Magee 1977). Stages and process models of internationalization have relied on transaction cost principles related to international manufacturing environments. More recent internationalization theory from the networking relationship school has begun to acknowledge the importance of using an organizational behavior paradigm to help explain the complexity of the internationalization phenomena. To adequately address the internationalization of high technology firms, Coviello and McAuley (1999) suggest that a combination of paradigms be used. In my theoretical framework that follows, I use a combination of economic theory, organizational theory and network theory to explain causal relationships driving the internationalization decision strategy of high technology firms operating in network externality environments. I present a causal model - The Four Forces Model of Internationalization for Firms Operating in Network Externality Environments - identifying causal relationships with the forces affecting firm internationalization and the associated predicted outcomes. It is suggested that these forces are unique in combination to firms operating within network externality environments and that they conspire to shape internationalization decision making and resulting outcomes. The implications for firm internationalization strategy are discussed. From this model evolved my key propositions for empirical testing. In order to develop an empirically based explanatory dissertation with relevant causal relationships regarding the internationalization of firms operating in industries that exhibit network externalities, I will use a multiple case study research strategy. As articulated by Yin (1994) this approach is good for complex organizational phenomena, of which firm internationalization has been described and for addressing "how" and "why" types of research questions. In order to avoid a less than rigorous contribution to theory, the multiple case study methodology that I employ is of an explanatory nature seeking to identify and confirm causal relationships among the key variables in the internationalization of these firms. I use an experimental approach to test my theoretical framework with each case decision. By seeking non-random patterns using a pattern matching design combined with a quantitative analysis technique known as Degrees-of-Freedom analysis, I am able to collect rich qualitative data and test my model predictions empirically and quantitatively against the observed outcomes. By statistically comparing the observed and predicted patterns, I am able to determine the level of support for my model predictions and research propositions." (Library-derived description)