Centre for Economic and Regional Studies Hungarian Academy of Sciences Centre of Excellence

Into the Unknown: A Richer Way to Capture Firm Internationalization

by Gábor Békés, Gabriel R.G. Benito, Davide Castellani and Balázs Muraközy

A medium-sized chemical manufacturer from Bologna in Italy is already exporting its products across the European Union (EU) and is considering extending its international activities. Its management is discussing three options: Setting up another plant in France, starting to export to the USA or, even, opening a new factory there, in Atlanta. While these options clearly require very different capabilities and carry quite different levels of risk, traditional measures of internationalization often cannot distinguish well between them. For example, counting the number of markets the firm serves would find the two latter options similar, while focusing on whether the firm conducts an internationalization mode requiring a large level of commitment (foreign direct investment, FDI) will find options 1 and 3 very similar. 

A more nuanced way to look at firms’ internationalization is to consider their international footprint; that is, the combination of the markets in which a firm operates and the modes it engages in. In this simple matrix, which is not very demanding in terms of data, the choices above can be represented easily and clearly.