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Internationalization process of Internet based companies

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A presentation on my M.Sc. thesis, a multiple case study on Facebook, MySpace, Google, Yahoo!, YouTube and eBay.

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Internationalization process of Internet based companies

  1. 1. The Internationalization Process of Internet Based Companies - A multiple case study Authors: Brynjar Thor Thorsteinsson Hulda Júlíana Jónsdóttir Supervisor: Moshe Yonatany Coenhagen Business School Cand. Merc. International Business
  2. 2. Agenda 1. Framework of the research a) Research question b) Literature Overview c) Method of research and cases 2. Summary of the findings a) Proposition analysis 3. Discussion a) Research Implications b) Managerial Implications 4. Summing Up 2
  3. 3. 1. Framework of the research a) What factors influence the internationalization process of internet based companies, and how? – What factors facilitate the speed of internationalization of Internet Based Companies? – What entry modes do Internet Based Companies choose and why? – What influences the market choice of Internet Based Companies? 3
  4. 4. b) Literature Overview – The Uppsala Model by Johaneson & WiedersheimPaul (1975), Johanson & Vahlne (1977, 2009) • Suggests that uncertainty (lack of foreign market knowledge and psychic distance) influences internationalization process – Network Perspective by Bell (1995), Coviello & Munro (1997), Sharma & Blomstermo (2003), Johanson & Vahlne 2009 • Partners guide companies in their choice of markets – Born Global by Oviatt & McDougall (1994, 1999), Madsen & Servais (1997) • Technological change is the foundation for accelerated internationalization 4
  5. 5. – Knowledge Based View by Kogut & Zander (1993), Grant (1996) • Firms better than the market in tranferring knowledge across borders – Transaction Cost Economics by Oliver Williamson (1979) • Firms exist because they refrain from the market under certain circumstances, based on human factors (bounded rationality and opportunism) and environmental factors (uncertainty, asset specifity and frequency) of transactions – Internalization Theory by Buckley & Casson (1976, 2009), Rugman (1981) • Based on TCE and explains the existence of the MNE and why their activities mainly evolve around knowledge intense industries (high R&D, high sales & marketing expanditure, skilled labor). Firms replace the market due to the economic benefits of developing and exploiting FSAs inside the firms when expanding across borders 5
  6. 6. – Properties of the Internet • Time moderator, information assymetry reducer, sales channel, universal distribution channel, cheap transportation cost, infinite capacity – Characteristics of Digital Information Goods, Shapiro & Varian (1999) • High production cost, negligible reproduction cost, low transportation cost, easy versioning, experience good character, subject to network effect and positive feedback, switching cost and lock-in, possible first-mover advantage due to network effect c) Multiple case study – Google – Facebook – MySpace - YouTube! - eBay - Yahoo! 6
  7. 7. Characteristics of DIG • Increasing Returns • High production cost • Negligible reproduction cost • Easy versioning • Experience Good • Network Effect • Positive Feedback • Switching Cost & Lock In 7
  8. 8. Network Effect & Positive Feedback 8
  9. 9. 2. Summary of the Findings a) Proposition Analysis Prop 1: IBCs tend to Internationalize faster than physical good companies. Google Facebook MySpace YouTube Yahoo! eBay Market entry 123 48 29 22 38 41 Years 10 1,5 2 1,5 8,5 10,5 Average 12,3 32 14,5 16 4,5 3,9 0,5 0,5 0,5 0,5 0,5 0,5 Language Language Country Language Country Country speed Average speed of Physical good firms Method of internationali -zation Table 7: Speed of Internationalization 9
  10. 10. Google Facebook MySpace YouTube Yahoo! eBay No Yes Yes Yes No Yes No Yes No No Language Country Language Country Country Network Effect Low High High High Low High Need Low High Low High High 65% 72,3% 48,7% 77,6% 67,2% 32% 12,3 32 14,5 16 4,5 3,9 Need for Local No content Use No Crowdsourcin g Method of Language internationalization for Low physical presence International Traffic Average speed Table 9: Summary of factors influencing the speed of internationalizaton 10
  11. 11. Enhancing Positive Feedbak 11
  12. 12. Prop 2: When expanding across borders, IBCs tend to choose high control entry modes (wholly owned operations) over low control (licensing agreements). Entry Google Facebook MySpace YouTube Yahoo! eBay Total 123 48 27 24 24 18 87% 12 4% 3 6,5% 8 2,5% 0 0 Mode WOS Acquisition Joint 2 14 Venture Strategic Alliance Licensing 0 0 0 0 0 Table 10: Entry Modes 12
  13. 13. Prop 3: IBCs choice of market entry is positively related to technological infrastructure and Internet penetration. Group A Average Technol. 21,15 Group B Group C Group D 23,25 27,75 36,67 26,25 28,50 42,33 234,62 102,95 44,35 585,01 420,20 305,34 12,91 16,38 17,00 Infrastructure 2000 Average Technol. 21,7 Infrastructure 2008 Average no. of 252,03 internet users 2000 Average no. of 608,94 internet users 2008 Average order of 8,28 market entry Table13: Analysis of the Groups 13
  14. 14. Prop 4: Network relations of IBCs are positively related to their choice of markets. – Google – licencing agreement with Yahoo! – Facebook – no evidence of network relations, driven by crowdsourcing – MySpace – relationship agreement with Google – YouTube – agreement with MySpace – Yahoo! – relationship with Softbank – eBay – marketing agreement with AOL 14
  15. 15. 3. Discussion a)Research Implications – Crowdsourcing; very intresting finding to us, no prior research in the field of International Business – Network Effect; gap in the literature on how network effect influences internationalization process of IBCs – Measuring Network Effect; diffucult to measure network effect – Size of the Firm; larger networks (more traffic) more attractive to third parties and users 15
  16. 16. – First mover advantage; findings not conclusive, evidence of both first and second mover advantage – Language or Country; should IBCs ignore borders and focus on language instead of country? – Homogenization of markets; how much localization is needed for IBCs? Cultural distance different on the Internet? 16
  17. 17. b) Managerial Implications – Speed of Internationalization Language YT 16 Medium FB 32 Fast Google 12,3 Method MS 14,5 Slow Medium Y! 4,5 eB 3,9 Country No Crowdsourcing Yes Figure 10: Model for Internationalization for IBCs 17
  18. 18. – Modes of Entry; Managers of IBCs should choose high control entry modes to protect their assets, have control over their brand, installed base and technology and last but not least to capture the increasing returns – Choice of Markets; Managers of IBCs should focus on entering markets by language rather than country, choose widely spoken languages – Localization; Managers of IBCs should try to keep a simple interface, which offers easy localization for users to participate in, when content is needed try to let the users control and supply the content 18
  19. 19. 4. Summing up • Managers of IBCs should focus on language and try to harness the crowd when possible in their Internationalization process. 19

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