The Internationalization of Service Firms from Emerging Economies: An Internalization Perspective

How can service firms internationalize in the absence of significant resources and capabilities prior to internationalization? This question is important, because internalization theory has dismissed the possibility of internationalization without firm-specific advantages (FSAs) or country-specific advantages (CSAs). This conceptual study argues that resource-scarce service firms undertake FDI to access intangible resources abroad, which are then used to develop FSAs in these firms' domestic market. We call this novel service internationalization strategy domestic market-seeking internationalization (DMSI). We embed DMSI within a comprehensive internalization theory-based framework that derives testable propositions. The framework extends internalization theory by explaining generic service internationalization strategies through leveraging different types of domestic and foreign-originated FSAs. In addition, this study provides recommendations for practicing managers who face the dilemma of increasing competitive pressures to take their firm international under severe resource constraints, a challenge typical to many emerging economy firms.