Firms’ internationalization and diversification strategies have been examined by several studies, mostly focused on industrial sectors in developed countries. The findings are mixed, indicating a need for more research, especially with focus on firms from emerging economies. In this regard, the general objective of this dissertation was to analyze the internationalization and diversification strategies of firms from emerging economies using the case of the fresh fruit export sector in Chile.
This dissertation contributes to the existing literature in several ways: First, it develops a more inclusive and nuanced framework than those used in previous studies to classify the level of firms’ internationalization, accounting for categories (“host-region”) and regions (outside the triad region) that are especially important in the case of firms from emerging economies. Second, it provides an in-depth view of the firms’ internationalization strategies and paths by employing a longitudinal analysis (time dimension) over a seven-year period.
Third, by focusing on the Chilean fruit export sector, this study extends the current literature on internationalization and diversification by adding information on agricultural export firms from emerging economies in Latin America, which have been rarely covered by the literature.
Fourth, it offers a more detailed and complete analysis by separately examining the effects of intra and inter-regional geographic diversification on firms’ export performance, as well as the moderating effect of product diversification on these relationships. And fifth, by capturing the perceived psychic distance of firm’ managers, this dissertation captures its actual influence on export market selection and sheds light on the strategies implemented by managers to cope with the main factor creating this distance. To do so, a multi-dimensional framework is employed, offering a more holistic and complete analysis of different psychic distance dimensions.
In the first essay (Chapter 2), we examine the internationalization strategies and paths of Chilean fresh fruit export companies. Similar to previous studies, our results indicate that the majority of companies are transregionally (65.12%) and globally oriented (16.06%), showing
94 that firms from the agricultural sector have similar strategical behavior than firms from other sectors with regard to their internationalization strategies. Additionally, the framework proposed also permitted to identify a significant percentage of host regional firms (12.5%) which are firms exporting to one single geographic region different than South America.
Such results evidence the adaptability of the framework to agricultural firms form emerging economies and supports the inclusion of the host region category in the framework. Results also showed that the higher levels of internationalization correspond to higher levels of exports and higher business experience.
The inclusion of the scale dimension in the framework allows to recognize that North America is the most important market, especially for the less internationalized firms but particularly for the host regional companies, followed by Europe which is more important among firms sorted into higher internationalization categories. However, both markets have experienced a significant decrease in the exports’ shares while Far East & South Pacific, which is the third most important market, has shown a rapid growth instead. Results also showed an increasing relative importance of South America in firms exports, which indicates that the home region is becoming an important market for many firms.
The results of the longitudinal analysis (time dimension) of the internationalization strategies reveal that regional firms show the lowest internationalization attempts while the host regional firms the highest, evidencing that the born-global firms face lower entry barriers in foreign markets. This analysis also revealed that while the majority of firms follow a linear internationalization path, many firms do not follow a single path and experience non-linear and mixed paths over the time as well. Most of the Chilean fruit exporters do not follow the Uppsala gradualist internationalization approach in terms of psychic distance, as proposed in earlier studies on firms from the industrial sector. Instead they act more as born-global, targeting distant regions since the early stages of the firms. The high share of firms frequently shifting between internationalization categories and changing internationalization paths evidence the high dynamism in the internationalization of the Chilean fruit export sector.
The second essay (Chapter 3) analyzes the effect of geographic and product diversification strategies on firms’ export performance. Our results show that moderate levels of geographic (intra and inter) diversification positively affect export performance; however, higher levels
95 of diversification beyond the optimal point result counterproductive (inverted U-shaped relationship). These findings indicate that the liability of country and regional foreignness play an important role in the exports growth of firms by keeping them from achieving the level of performance they expected when pursuing a higher geographic diversification strategy. The absence of an inverted S-shaped relationship of firms’ geographic diversification with export performance reveals that firms from the Chilean fruit export sector have not reached a point of over-internationalization yet, similar than other emerging economies.
In the case of the related product diversification strategies, we found that more diversified firms have a better export performance than those less diversified due to the advantages of the knowledge generated of previous experiences and economies of scope. Additionally, we found that firms’ related product diversification has a negative effect on the relationship between inter-regional diversification and export performance. These results evidence that firms are able to individually exploit the advantages of geographic and product diversification and obtain a better performance; however, when both strategies are implemented together, the results are counterproductive. This is an indicative of the higher regional liability of foreignness faced by firms when pursuing an inter-regional diversification strategy, probably due to the higher psychic distance generated by differences in legislations and requirements such as sanitary, phytosanitary and quality-related regulations.
With the third essay (Chapter 4), we examine the influence of perceived psychic distance on firms’ export market selection as well as the strategies implemented by the firms to cope with the main factors denoting this influence. We found that the economic and the administrative distance dimensions are the most important, while the cultural dimension was considered as less important. These results confirm that there exist differences in the perception of different psychic distance dimensions; therefore, a multi-dimensional framework offers a more comprehensive and complete understanding of the distance effects on market selection.
The most significant factors influencing firms’ export market selection in the case of the cultural dimension were the social norms, the business cultural behavior and the consumers’
tastes and preferences. In this regard, the most frequently mentioned strategy to cope with
96 such factors was to develop relationships with clients based on trust and commitment over time. Having a foreign owner seems to be an advantage to cope with higher cultural distance in some cases as well. Regarding the administrative dimension, the main factors were the regulations, the political stability and the existence of trade agreements. In this case, managers mentioned that the main strategy is to take advantage of the support and the efforts of public organizations and private trade associations which facilitate to deal with administrative distances. Voluntary private standards and the establishment of better controls in the firms were also mentioned as strategies. The transport time, the characteristics of the fruit and the transport cost were the most important factors with regard to the geographic distance dimension. According to the managers, the main strategy is to use the most direct transport when the prices are higher or the faster routes depending on the quality of the fruit.
Making use of technological advances in communication, transport and packaging systems were also mentioned as strategies to deal with higher geographic distances. Finally, for the economic dimension, the main factors were buyers’ willingness to pay, the currency exchange rate and the infrastructure. In this regard, similarly than in the case of the cultural distance, relationships based on trust and commitment were the most important strategy to deal with problems due to economic differences. Additionally, managers mentioned the constant analysis of market situation and currency exchange rates, frequent visits to check markets’ and clients’ infrastructure as other strategies implemented. In all the distance dimensions managers mentioned the requirement of payment in advance, the use of credit insurance or even currency exchange insurance as additional strategies when the differences are perceived as highly significant. However, these latter strategies might be implemented only by large firms which have enough resources and bargaining power.