From Core Competences to Competitive Combinations: Diversification and Human Capital as drivers of Intemationalization amongst Professional Service Firms
Entry into foreign markets is a key decision in the growth strategy of modern firms. This paper addresses the problem of the drivers of internationalization and studies the link between international expansion, industrial diversification and related firm characteristics. To capture salient aspects of knowledge-based competitive processes and to redress imbalances in the scholarly attention given to services and to manufacturing sectors, we focus on professional service firms (PSFs), one of the most innovative and dynamic components of advanced economies. We empirically investigate the determinants of internationalization on a panel of UK-based engineering consultancies over the 1994-2009 period.
We find that more specialized firms are more likely to internationalize than less specialized firms, but that diversification into more unrelated activities exerts a substantial and positive impact on internationalization. The internationalization process tends to be persistent over time and significantly builds upon prior geographical expansion in domestic markets. Specific human capital fosters internationalization and intensifies the benefits of firm scope, unrelated diversification and domestic diversification. In addition, business size and age, as well as foreign ownership and specific types of governance changes also exert positive and significant effects, which we discuss together with all other findings to draw some implications for the management of PSFs.
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