Foreign Production: The Weak Link in Tests of the Internationalization Process Model

Abstract

WP 2003-41 June 2003This paper reviews empirical tests of two of the main implications of the internationalization model: that firms, as they gain international experience, enter markets of increasing psychic distance and that they enter a given market with successive entry modes that reflect increasing commitment. One problem with much of this literature is that it fails to control for economic variables that affect the choice of target market and that of entry mode. Another is the overemphasis on exports, and the relative neglect of foreign production. Yet, because it is more risky and less reversible, foreign production would seem to provide a better test of the model