International Business Review 9 (2000) 77–93

www.elsevier.com/locate/ibusrev

Internationalisation of small to medium-sized

manufacturing firms: a network approach

Sylvie Chetty

a,*

, Desiree Blankenburg Holm

b

a

School of Business and Public Management, Victoria University of Wellington, PO Box 600,

Wellington, New Zealand

b

Uppsala University, Uppsala, Sweden

Abstract

How do firms use business networks when they internationalise? To answer this question,

a longitudinal case study of four manufacturing firms in a small open economy such as New
Zealand is used. This paper includes a dynamic element in the study of internationalisation
by using Johanson and Mattsson’s (1988) model [Internationalization in industrial systems —
a network approach. In P. J. Buckley, & P. N. Ghauri, The internationalization of the firm:
a reader (pp. 303–321). London: Academic Press]. This model uses social exchange theory
to illustrate how firms develop network relationships organically to internationalise. In New
Zealand, however, government export promotion programmes encourage formal structured net-
works. This paper identifies the theoretical gap in the literature, which is the focus on organi-
cally developed networks rather than formal structured ones. The study’s findings illustrate
the dynamics of how firms interact with their network partners to extend, penetrate and inte-
grate their international markets. Networks can help firms expose themselves to new opport-
unities, obtain knowledge, learn from experiences, and benefit from the synergistic effect of
pooled resources. Another contribution of this paper is that it identifies weaknesses and various
other factors that influence the model, thus advancing the literature.



2000 Elsevier Science

Ltd. All rights reserved.

Keywords: Business networks; Internationalisation; Manufacturing firms; Small to medium-sized firms

* Corresponding author. Tel.:

+

64-4-495-5233; fax:

+

64-4-495-5231.

E-mail address: [e-mail] (S. Chetty)

0969-5931/00/$ - see front matter



2000 Elsevier Science Ltd. All rights reserved.

PII: S 0 9 6 9 - 5 9 3 1 ( 9 9 ) 0 0 0 3 0 - X

78

S. Chetty, D. Blankenburg Holm / International Business Review 9 (2000) 77–93

1. Introduction

Collaboration in business is becoming common practice amongst firms, and these

collaborations can range from informal relationships to more formal ones such as
joint ventures (Gomes-Casseres, 1994). According to Madhok (1996) the firm’s capa-
bilities and competitive forces are the main factors forcing firms to collaborate. Firms
with advanced collaborative capabilities tend to acquire trust and reputation by colla-
borating with other firms continuously (Gulati, 1995). Various terms are used for
these collaborations: production nets, networks, clusters, constellations or virtual cor-
porations. Normann and Ramirez (1993) argue that successful firms are moving away
from strategic positions in the value chain to a value creating system. These firms
add value by collaborating with suppliers, business partners, allies and customers.

This paper is based on a longitudinal case study of four small- to medium-sized

manufacturing firms in the electrical industrial machinery and timber processing
industries in New Zealand. New Zealand is a small open economy, which is highly
dependent on exporting but is geographically distant from major world markets. In
recent years, the New Zealand government has been making concerted efforts to
improve both the country’s trading performance and its international competitiveness.
To do this, the government made major structural changes to New Zealand’s econ-
omy, introducing, in 1984, the most comprehensive economic programme undertaken
by any Organisation of Economic Co-operation and Development (OECD) country
this half-century. The programme included abolishing import controls (licenses and
quotas), substantially reducing tariffs, abandoning export subsidies, and floating the
exchange rate. Although New Zealand is highly dependent on exporting, a number
of small- to medium-sized firms do not export. In New Zealand 92% of firms, employ
less than 100 employees but only 25% of such firms export (Kompass New Zea-
land, 1997).

The initiatives taken by Trade New Zealand, which is the partially government

funded export promotion organisation in New Zealand, to encourage exporting by
small- to medium-sized firms is to encourage collaboration through three kinds of
association. The first kind, joint action groups, encourage firms in the same industries
to co-operate with one another in export markets. The second kind of association,
hard business networks, typically include five or six firms from similar or different
industries which combine their resources to achieve results that also would not be
possible individually. By long-term collaboration, members gain competitive advan-
tage through benefits of size and through working on common projects such as joint
export marketing, manufacturing, and research and development. The third kind of
association, industry clusters, consist of similar, related firms in the same geographi-
cal area, thereby achieving synergy.

This paper aims to provide insight into the dynamics of how firms internationalise

in a small open economy such as New Zealand where government export promotion
programmes encourage collaboration. Leonidou and Katsikeas (1996), in their review
of the export development literature, conclude that existing models provide a limited
explanation of the export development process. In their conclusion, however, they
state that models such as that of Johanson and Mattsson (1988) should be included

79

S. Chetty, D. Blankenburg Holm / International Business Review 9 (2000) 77–93

in future research to contribute towards advancing knowledge in this area. Johanson
and Mattsson’s (1988) model, is chosen as a framework for this paper because it
includes a dynamic element by focusing on network relationships. It uses social
exchange theory to explain how firms develop networks organically. In New Zealand,
however, government export promotion programmes encourage formal structured
networks. The key question in this research is: what network relationships drove
internationalisation for the firms in each of the four categories of Johanson and Matts-
son’s (1988) model? These four categories of firms namely: Early Starter, Lonely
International, Late Starter and International Among Others, are explained in detail
later and presented in Table 1.

Including the introduction, this paper has seven sections. The second section

reviews the related literature, whereas the third section discusses the method of
research. The fourth provides a discussion of the four firms and the fifth highlights
some of the weaknesses in the model, which emerged when analysing the cases in
this study. The sixth discusses the managerial implications of this study. Finally, the
paper ends with some general conclusions and suggestions for future research.

2. Literature review

2.1. Definition of business networks as used in this study

Researchers on business networks (e.g. Ford, 1990; Gadde & Mattsson, 1987;

Hakansson & Johanson, 1993) have transposed the social exchange perspective of
social networks (e.g., Cook & Emerson, 1978; Emerson, 1972) to business networks
(Anderson, Hakansson & Johanson, 1994). The present study uses social exchange
theory to define business networks as, “a set of two or more connected business
relationships, in which each exchange relation is between business firms that are
conceptualised as collective actors” (Emerson, 1981) (see Anderson et al., 1994, p.
2; Blankenburg Holm, Eriksson & Johanson, 1997, p. 1036). These actors include
competitors, suppliers, customers, distributors and government (Axelsson & Johan-
son, 1992; Sharma & Johanson, 1987).

A basic assumption in this paper is that business takes place in a network setting,

Table 1
Internationalisation and the network model: where do firms fit in the matrix?

a

Degree of internationalisation of the market (production net)
Low

High

Degree of

Low

The Early Starter

The Late Starter

internationalisation

EARLY

LATE

of the firm

High

The Lonely International

The International Among Others

LONELY

INTERNATIONAL

a

Reproduced from Johanson and Mattsson (1988).

80

S. Chetty, D. Blankenburg Holm / International Business Review 9 (2000) 77–93

where different business actors are linked to each other through direct and indirect
business relationships. The social exchange perspective of business networks stresses
the importance of their informal character as the networks evolve between individuals
in the firms (Granovetter, 1985). This informal character is one important distinction
between business networks on the one hand and formal groups and associations on
the other. In the latter, independent firms can have common strategic goals.

2.2. Johanson and Mattsson’s (1988) network approach to internationalisation

In order to study the internationalisation of a firm we need to understand the

context in which it operates, such as, environmental conditions and the firm’s
relationships (Madsen & Servais, 1997). Johanson and Mattsson (1988) consider
business networks as the relationships a firm has with its customers, distributors,
suppliers, competitors and government — the actors in a business network. They
argue that as the firm internationalises, the number and strength of the relationships
between different parts of the business network increases. By internationalising the
firm creates and maintains relationships with counterparts in other countries. This
occurs in different ways: first, by forming relationships with counterparts in countries
that are new to the firm (international extension). Second, by increasing commitment
in already established foreign networks (penetration). Third, by integrating their pos-
itions in networks in various countries (international integration).

The activities in the network allow the firm to form relationships, which help it

to gain access to resources and markets. An assumption in the network model is that
a firm requires resources controlled by other firms, which can be obtained through
its network positions (Johanson & Mattsson, 1988). Johanson and Mattsson use the
term net to specify certain sections of a network. For example, national net refers
to networks in other countries, and production net refers to a firm’s relationships
that revolve around activities in a specific product area. Further, Johanson and Matts-
son identify four categories of firms: the Early Starter, the Lonely International, the
Late Starter and the International Among Others. The four different situations that
these categories of firms operate in are presented in Table 1.

The first category, the Early Starter, is the firm with few international relationships

and whose competitors and suppliers are also in the same position. Consequently,
the Early Starter has little knowledge of foreign markets and has little opportunity
to acquire this knowledge from its relationships in the domestic market. To acquire
this knowledge the firm uses agents to enter foreign markets. By using an agent in
the foreign market, the Early Starter firm can reduce cost and uncertainty, as it
benefits from the agent’s previous knowledge and investments in that market. These
firms might be encouraged to internationalise by distributors or customers in the
foreign market.

The second category of firm, the Lonely International, is the one which is highly

internationalised, but in a market environment with a domestic focus. In fact, it is
the Lonely International, which alone has the capabilities to promote internationalis-
ation of the market (the production net). This firm has acquired prior knowledge and
experience with foreign markets, so it has the capabilities to succeed. Indeed, a firm

81

S. Chetty, D. Blankenburg Holm / International Business Review 9 (2000) 77–93

operating in diverse foreign markets is exposed to various ideas and experiences,
which advance the firm’s knowledge development (Barkema & Vermeulen, 1998).
The Lonely International firm has an edge over its domestic competitors, as it has
already established a position in the business network.

The third category, the Late Starter, is in a market environment that is already

internationalised. Consequently, the firm has indirect relationships with foreign busi-
ness networks through its suppliers, customers, and competitors. Having such
relationships drives the firm to internationalise. Markets with close psychic distance
(psychic distance means the amount of difference in language, culture and political
systems; Vahlne & Wiedersheim-Paul, 1973), however, might be difficult to enter,
so the firm might start its internationalisation by entering more distant markets. The
Late Starter is at a disadvantage because its competitors have more knowledge and
because it is hard for new entrants to break into an existing network.

The fourth category, the International Among Others, focuses on a highly inter-

nationalised firm that operates in an environment, which is also highly international-
ised. Since the International Among Others has acquired international knowledge, it
is quick at setting up sales subsidiaries, as it needs to co-ordinate activities in differ-
ent markets. The International Among Others is connected to various international
networks that provide opportunities for obtaining external resources.

3. Method of research

This study uses the case study method according to Yin’s (1989) and Eisenhardt’s

(1989) approach. Multiple-cases are used rather than a single case. Yin (1989) and
Strauss and Corbin (1990) mention multiple-cases but it is Eisenhardt (1989) who
has written in detail about their theory-building properties. She found that the mul-
tiple-case approach encourages the researcher to study patterns common to cases and
theory and to avoid chance associations (Eisenhardt, 1991). Eisenhardt (1989) states
that in the multiple-case approach there is no ideal number of cases, but recommends
between four and 10 cases. With fewer than four cases, theory is difficult to generate,
and with more than 10 cases, the volume of data is difficult to cope with.

This paper is based on a longitudinal case study conducted in 1992 and 1995 of

four manufacturing firms. These firms were selected because they have different
characteristics, as Eisenhardt (1989) recommends. They have different industry and
market characteristics and are at varying levels of internationalisation. In addition,
they show different ways of internationalisation according to each of the four cells
in Johanson and Mattsson’s (1988) model. Each firm was chosen by replication logic
rather than by sampling logic. In other words, the sample was chosen because the
firms could be used for literal and theoretical replication, rather than because they
were representative of the population.

By choosing small- to medium-sized firms, access to decision-makers became

feasible. Each case was carefully selected so that it predicts different results for
expected reasons (theoretical replication). Since each firm was selected to fit into
each category of Johanson and Mattsson’s (1988) model it is predicted that the inter-

82

S. Chetty, D. Blankenburg Holm / International Business Review 9 (2000) 77–93

nationalisation of each firm would be different for specific reasons. The Early Starter,
Lonely International, Late Starter, and International Among Others are predicted to
internationalise in different ways for the reasons explained by Johanson and Mattsson
when they operationalise this model. The unit of analysis was the firm. This meant
that questions had to be pertinent to this unit of analysis, otherwise the data collected
would be irrelevant.

Two industries were chosen which were comparable in their concentration ratios

(relatively low) but different in their technological sophistication. The two selected
were the “Planing, Preserving, and Seasoning Timber” industry (NZSIC number
33112) and the “Electrical Industrial Machinery and Apparatus” industry (NZSIC
number 38310).

The first “Planing, Preserving, and Seasoning Timber” is a traditional resource-

based New Zealand industry with a “high” export intensity, exporting 60% of its
total sales in 1987. Using Johanson and Mattson’s (1988) characterisation of markets,
this figure means that the firm’s market is highly internationalised.

In contrast, the “Electrical Industrial Machinery and Apparatus” industry is not

based on an indigenous resource, and in 1987, its exports were only 20% of total
sales. According to Johanson and Mattsson’s (1988) characterisation of markets, this
means that the firm’s market is not highly internationalised.

There were three rounds of selection when choosing the four firms for this study.

In the first round, information was obtained from responses to a postal survey involv-
ing about 200 respondents and from contacts provided by the local Chamber of
Commerce, Trade Development Board and other respondents in this study. In the
second round, 12 firms with activities confined to one or other of the chosen indus-
tries were selected, solely on the basis of their export to total sales ratio. In the third
round, four firms were selected from these 12 firms (second round) as they were
considered to best reflect each of the cells in the Johanson and Mattsson (1988)
matrix.

For this study, data was collected as follows. Structured interviews with all four

firms were tape-recorded in 1992 and 1995. As the same questions were asked in
both years, these interviews were the basis for a longitudinal case study. In one
firm (called EARLY in this paper), the original respondent (managing director) was
seriously ill so the marketing manager who was acting as managing director was
interviewed in 1995. Of the four firms, both the managing director and marketing
manager were interviewed in each of two firms but only the managing directors were
interviewed in the other two firms. In other words, two firms had two respondents
each, the other two firms had one respondent each, and this was the same for 1992
and 1995. Where there were two respondents, each was interviewed separately. In
every case, at least one interviewee was a part-owner of the business, a consequence
of focusing on smaller firms. The 1992 interviews lasted 2–3 h, that is, up to 6 h
for each firm. Interviews conducted in 1995 were of a similar duration. The interview
results were then combined with other documentary evidence, provided by the firm,
to produce a detailed case study report of each firm. The interviewees then checked
the reports for accuracy. When accuracy was confirmed, the case evidence was
deemed suitable for analysis.

83

S. Chetty, D. Blankenburg Holm / International Business Review 9 (2000) 77–93

In keeping with the case study method, multiple sources of data collection were

used to provide triangulation. In addition to the interviews described above, data
was collected from other sources, such as: competitors, customers, suppliers, news
clippings and television documentaries. Direct observation was made through on-
site visits.

Individual firms were given codes for anonymity. LONELY, a high exporter, and

EARLY, a low exporter, are from the electrical industrial machinery industry.
INTERNATIONAL, a high exporter, and LATE, a non-exporter, are from the timber
processing industry.

Yin’s (1989) pattern matching and explanation-building was used when analysing

the data. Using Yin’s (1989, 1993) and Eisenhardt’s (1989) approach, each case is
looked at as a separate entity, enabling unique patterns, which can be generalised
across cases, to emerge. In other words, each firm was selected to fit into Johanson
and Mattsson’s (1988) model so the internationalisation of each firm was predicted
to be different for specific reasons. Johanson and Mattsson provide the criteria for
each firm when they operationalise this model. Cross-case questions were asked to
determine the similarities and differences between the cases. Miles and Huberman
(1984, 1994) were drawn on extensively for techniques to process the data. One of
their techniques which was used in this study was to arrange empirical evidence in
tables in the forms of words rather than numbers. By looking at these tables simi-
larities and differences could be identified at once.

4. Discussion of findings

In Table 1, the four firms in this study are categorised according to Johanson and

Mattsson’s (1988) matrix.

4.1. The internationalisation process of the four firms (EARLY, LONELY, LATE,
INTERNATIONAL)

Table 2 shows the export performance of the four firms for the years 1991 and

1994. Although EARLY planned to increase its exports in 1991, it did not achieve

Table 2
Export performance of the four firms for 1991 and 1994

Fit in matrix

Firm

Exports ($m)

Exports/sales (%)

1991

1994

1991

1994

The Early Starter

EARLY

0.2

0.3

15

20

The Late Starter

a

LATE

0

0

0

0

The Lonely

LONELY

7

8

55

60

International
The International

INTERNATIONAL

0.15

2.56

10

80

Among Others

a

Although The Late Starter had the strategic intent to export, it never started to export.

84

S. Chetty, D. Blankenburg Holm / International Business Review 9 (2000) 77–93

this in 1994. LATE had the strategic intent to make its export debut but did not
manage to do this in 1994. INTERNATIONAL made the greatest increase in export
sales and this was mainly due to the joint venture relationship it formed with the
Japanese trading houses. This shows how the relationships formed with such inter-
mediaries can have a leap frog effect on a firm’s internationalisation.

Table 3 shows the year of inception and year of export debut and mode of export

entry. All three exporters made their export debut prior to economic deregulation in
1984. In addition, they were operating for several years before making their export
debut, so they had a strong domestic market to finance their export efforts. They
also had time to acquire knowledge and experience in the industries in which they
are operating. Compared to the exporters, LATE is attempting to make its export
debut in a more competitive environment. All the exporters chose direct exports as
their entry mode because they were entering Australia, or in the case of LONELY
the Pacific Islands. Australia is considered an extension of the domestic market so
direct exporting was considered a feasible option. As sales in Australia increased,
however, they started to use agents and sales subsidiaries.

4.1.1. The Early Starter (EARLY)

EARLY, a low exporter of electrical industrial machinery, is in a market

(production net) which has few relationships in international markets. EARLY started
to internationalise in 1972 and its first market was Australia. By 1991 its export
intensity (exports/sales) was 15%, worth NZ$0.2 million. EARLY considers its major
problem to be, “Our weakness is our lack of overseas contacts”. The firm tried to
increase its international sales in 1992 but did not succeed. EARLY has little knowl-
edge about international markets, and so uses agents in these markets. Through these
agents it acquires knowledge about these markets and reduces the uncertainty and
risk associated with unknown markets. EARLY therefore, uses its agent’s prior
investments in these markets, thus reducing the need for its own investments to
acquire the requisite knowledge and capabilities. EARLY only produces according
to customer order and adapts products to customer needs. It has chosen markets that
have a close psychic distance to New Zealand — Australia, the United States and

Table 3
Year of inception of firms, year of export debut and export entry mode

Firm

Year of

Year of export

Export entry mode

inception

debut

The Early Starter (EARLY)

1946

1972

Direct exports to Australia

The Late Starter (LATE)

1982

N/A

Explored possibility of exporting
in 1992

The Lonely International

1938

1962

Direct exports to Pacific Islands

(LONELY)
International Among Others

1962

1977

Direct exports to Australia

(INTERNATIONAL)

85

S. Chetty, D. Blankenburg Holm / International Business Review 9 (2000) 77–93

Canada, and uses Trade New Zealand (New Zealand’s export promotion
organisation) to conduct market research in potential markets.

EARLY’s relationship with its customers illustrates how a firm can use its existing

relationships to develop new ones. It has formed a relationship with the national
airline, Air New Zealand, one of its customers, to work on the airline’s maintenance
projects sold worldwide. Air New Zealand took the initiative in this relationship by
approaching EARLY in 1993 to do sub-contracting work on its maintenance projects.
EARLY’s customer thus became the driver by introducing EARLY into a new net-
work. This project involved producing machinery and aircraft components.

The actual push for the partnership has come from Air New Zealand and along

with it, they have provided us with the technical back up of their quality assurance
department to achieve our quality assurance approvals.

Air New Zealand also provided the technical support of its quality assurance

department for EARLY to work towards ISO 9000 accreditation. This shows how,
through forming a relationship with a customer (Air New Zealand), EARLY gains
knowledge and has the opportunity to increase its international sales in more diverse
markets. According to Johanson and Mattsson’s (1988) model, when actors such as
Air New Zealand take initiatives, a firm such as EARLY can break into tightly
structured networks and expand rapidly. The decision-maker characteristics, how-
ever, will determine whether such an opportunity will be pursued. If the decision-
maker identifies this as a stimulus for exporting then the opportunity will be pursued
(Olson & Wiedersheim-Paul, 1978). The reason why Air New Zealand took the role
of introducer is that one of the managers at EARLY is a former employee of Air
New Zealand. This manager has established relationships within Air New Zealand
which are helping EARLY to penetrate other networks abroad. Johanson and Matts-
son (1988), however, argue that the early starter cannot count on its domestic
relationships having knowledge about foreign markets. EARLY’s case is an example
of how a supplying firm can benefit from a domestic customer’s knowledge and
capabilities to operate in international markets.

In addition, by using regional development and export promotion organisations to

develop relationships, EARLY overcame the problems normally experienced by early
starters. These problems include a lack of knowledge about foreign markets and an
inability to get this knowledge from relationships in the domestic market. EARLY
uses its relationships with Trade New Zealand (New Zealand’s export promotion
organisation) and with Canterbury Development Corporation (regional development
agency) to gain access to knowledge, new customers, and new markets. Johanson
and Mattsson’s (1988) model does not include the role that such organisations play
in the internationalisation process of firms. Through its relationships with these
organisations, EARLY obtained an unsolicited order from a customer in Malaysia
and thus entry into a new market and one with greater psychic distance. The customer
in Malaysia is driving EARLY into Malaysia and introducing it to a new national net.

86

S. Chetty, D. Blankenburg Holm / International Business Review 9 (2000) 77–93

4.1.2. The Lonely International (LONELY)

LONELY, a high exporter of electrical industrial machinery, started to inter-

nationalise in 1962, marketing first to the Pacific Islands. Its method is to adapt to
the needs of the customer by producing a customised product. By 1991, LONELY’s
export intensity (exports/sales) was 55%, worth NZ$7 million. The firm now exports
worldwide and has sole ownership of two factories in Malaysia. LONELY has
experience of forming relationships in various markets, and has acquired the requisite
knowledge and capabilities to operate in this diverse environment and to enter new
markets. Its main market, however, remains Australia, which takes about 70% of its
products. LONELY is now attempting to co-ordinate its positions in the business
networks in the various countries in which it operates. Johanson and Mattsson (1988)
refer to this as international integration, and they consider this a key characteristic
in a firm’s internationalisation process.

LONELY began as an Early Starter because its market (production net) was not

internationalised. As its market environment is not internationalised, LONELY has
become a Lonely International by increasing its own internationalisation. LONELY
has not had initiatives from counterparts in the domestic market to intensify its inter-
nationalisation. LONELY set up its first assembly plant outside New Zealand in
1977 in Malaysia, to take advantage of incentives offered to foreign investors by
the government there. This was a joint venture with two other firms, one Australian,
the other British, and — to satisfy the Malaysian government’s prerequisite for a
joint venture — a local Malay. Johanson and Mattsson (1988) mention this in the
Early Starter phase and describe it as resource adjustments by sharing control of
operations in order to minimise risk in foreign ventures. Unfortunately, this joint
venture was eventually terminated because of conflicting interests.

Firms, which operated in a wide range of markets, believed that relationship build-

ing and trust were more important in South East Asia than in their other markets.
LONELY had this to say about the importance of relationship building in SE Asia:

In Asia, product is not necessarily very important. You need trust and long-

term relationships that are important. Once you have achieved that trust, you have
achieved it forever, unless you do something to breach that trust.

LONELY is confident about its products, and has no difficulty in entering new

markets as it has the competencies and resources to do so.

4.1.3. The Late Starter (LATE)

LATE, which in 1992 was a non-exporter in the timber processing industry, is a

small firm, which attempted to internationalise during 1992–95, but failed. LATE
produces a specialised and customised product. It had explored the feasibility of
exporting to the Pacific Islands in 1992 but then shelved the idea because it did not
have enough financial and human resources.

Well we got tentative contacts (referring to Pacific Islands) but nobody ever

gave us an order, but the potential is still there. It is just realising that I did not
have the capability, personally, to do the whole thing.

87

S. Chetty, D. Blankenburg Holm / International Business Review 9 (2000) 77–93

As a result of its efforts to export to Japan, LATE received a huge order from

Japan. Unfortunately, it could not fill the order because it lacked production capacity,
finance, knowledge, and experience about internationalisation.

As it happens, one of LATE’s suppliers is a highly internationalised firm, and,

according to Johanson and Mattsson’s (1988) model, LATE could have indirect
access to foreign markets through this relationship. However, LATE has not yet
managed to use this relationship. One of the explanations for this could be that for,
LATE as a new entrant, it is hard to enter tightly structured networks where other
actors are entrenched. Another explanation could be that the relationship between a
firm and its supplier has to be of mutual benefit and if LATE has nothing to offer,
then there is no incentive for the supplier to cooperate. LATE attributes one reason
for its failure to start internationalisation to its lack of business networks.

4.1.4. The International Among Others (INTERNATIONAL)

When interviewed in 1992, INTERNATIONAL, now a high exporting timber pro-

cessor, could have been classified as a Late Starter in Johanson and Mattsson’s (1988)
matrix, but it has since achieved International Among Others status in 1995. INTER-
NATIONAL has made an entry, an exit, and a re-entry into international markets.
INTERNATIONAL made its export debut in 1977 in Australia but stopped exporting
in 1985 for 7 years because the exchange rate was unfavourable. Before it stopped
exporting, its export intensity was 10%. When it resumed exporting in 1992, INTER-
NATIONAL wanted to increase its export intensity but found it could not do so by
depending solely on the Australian market. It therefore decided to diversify by
entering the Japanese market.

When INTERNATIONAL stopped exporting in 1985 its domestic market was

changing, with some of its domestic customers closing down or reducing in size.
Up to this time INTERNATIONAL had been focusing on building timbers but with
the changes in its domestic market, decided to diversify into timbers for packaging.

The firm then decided that the only way to survive in the new, uncertain, domestic

environment was to re-enter exporting and to aim for a higher export intensity than
before. It looked at markets around the world and decided that Japan was the best
because that country has a strong economy and a stable government, and is a heavy
user of timber for packaging. INTERNATIONAL believed it could profit in Japan.
INTERNATIONAL’s owner visited Japan to obtain more knowledge about the mar-
ket. He invited his Japanese customers to invest in his company and got ideas from
them on what INTERNATIONAL should be doing there. The firm, however, did
not have the resources to produce the quantities of the processed timber needed in
Japan so, to increase production, it had to opt for multiple ownership through a
joint venture.

To increase its export sales to Japan, INTERNATIONAL has formed a joint ven-

ture with a Japanese company. Since INTERNATIONAL is committed to exporting,
it is willing to share ownership:

Since 1989 we made contact with two Japanese companies to form a joint

venture. Late last year we managed to form a joint venture with these two Japanese

88

S. Chetty, D. Blankenburg Holm / International Business Review 9 (2000) 77–93

companies and a New Zealand exporter. The four of us have set up a new com-
pany. Each partner has 25% share. The two partners of this joint venture are my
customers in Japan. We produce what the customer requires, whereas other saw-
mills produce what stocks they have available. In Japan because our partner and
customer is a trading company we do not have to go to so many channels.

In 1991, INTERNATIONAL managed to form this joint venture with its Japanese

distributors, who were two trading houses, and a New Zealand firm. With this forma-
tion, INTERNATIONAL expected its export intensity to increase from 10 to 70%.
It expanded its production capacity and invested in new production equipment. From
18 employees in 1992, INTERNATIONAL increased to 65 in 1995 when its actual
export intensity reached 80%. According to Johanson and Mattsson’s (1988) model,
through its customers or joint venture partners in foreign markets, a firm has the
opportunity to enter third countries. INTERNATIONAL’s experience is evidence for
this argument, because through the contacts formed with the Japanese joint venture,
the firm is now entering new markets such as Thailand, thus using its business net-
works to enter third countries. This shows how positions in one net can be used as
bridges to other nets for international extension and penetration. In addition, one of
INTERNATIONAL’s competitors, who is also one of its suppliers, has introduced
INTERNATIONAL to an agent in Taiwan. This illustrates how existing relationships
in a business network are used to form new ones. These relationships play the role
of introducer to new markets and provide the firm with access to external resources.
INTERNATIONAL is planning to co-operate with this competitor/supplier to charter
ships to reduce freight costs to their mutual international markets. This supports
Johanson and Mattsson (1988) in that as the firm increases its internationalisation
there are minor modifications in extension and penetration.

4.2. An overview of the four cases (EARLY, LONELY, LATE, INTERNATIONAL)

All the exporters had international business experience before they started

exporting. LATE had no international business experience and therefore, needed to
work with counterparts who have this knowledge. These firms are using a wide
range of relationships in their internationalisation which include, agents, customers,
suppliers, distributors, regional development agencies, export promotion organis-
ations, consultants and competitors. Consequently, they are using a wider network
of relationships to internationalise than the production net focused on by Johanson
and Mattsson (1988).

The four cases show how a firm’s internationalisation is influenced by the inter-

nationalisation of the actors in its business network. In order to extend, penetrate or
integrate their internationalisation, each firm built and maintained relationships with
its suppliers, customers, distributors, competitors, and government organisations such
as Trade New Zealand and the regional development boards. The internationalisation
of these firms can be seen as a “set of connected learning processes” (Axelsson &
Johanson, 1992, p. 208). For each firm, the learning process involves other actors
in the network such as competitors, suppliers, customers and government.

89

S. Chetty, D. Blankenburg Holm / International Business Review 9 (2000) 77–93

This longitudinal case study illustrates how a firm like INTERNATIONAL uses

its relationships in business networks to shift its position in the matrix from Late
Starter to International Among Others status. INTERNATIONAL was a proactive
exporter motivated to re-enter internationalisation by external factors, such as
decreasing demand in the domestic market when its customers went out of business.
Although the firm had left its international markets at the experimental stage, INTER-
NATIONAL identified the limitations in its domestic market and realised it had
to re-enter international markets. To do this, INTERNATIONAL had to form new
relationships in new business networks as it tried to enter new markets. INTER-
NATIONAL illustrates how firms use intermediaries in the internationalisation pro-
cess. The use of intermediaries in the internationalisation of small manufacturing
firms is highlighted by Peng and Ilinitch (1998) and Cosimano (1996).

A firm’s current business networks can form a bridge to enter new markets

(Sharma & Johanson, 1987; Blankenburg Holm, 1996). One example of this is EAR-
LY’s relationships with its customers, Air New Zealand, and the Malaysian customer,
which are driving it to enter new international markets. Another example of this is,
INTERNATIONAL which has the New Zealand Dairy Board (a highly international-
ised firm) as a customer, and is using this relationship to enter new markets.
LONELY is also using existing relationships with customers to expand in inter-
national markets.

The decision-maker played an important role in pursuing opportunities that arose

in their networks. Some decision-makers (LONELY, LATE, INTERNATIONAL)
were proactive and actively formed relationships to help their firms internationalise.
Others (EARLY) were reactive and unprepared to pursue opportunities when they
appeared from the network. It was up to the decision-maker to identify stimuli for
internationalisation. The decision-makers determined which relationships they
developed thus determining the form of internationalisation.

4.3. Weaknesses of the Johanson and Mattsson (1988) model

When comparing data with the Johanson and Mattsson (1988) model certain weak-

nesses emerged. First, the criteria used to differentiate each matrix are not distinctive
and thus they overlap. For instance, certain criteria for the Early Starter category
could be used in the International Among Others category. This can be illustrated
with INTERNATIONAL, which had its Japanese customer introducing it to third
markets. In Johanson and Mattsson’s model, however, the introducer role is a criteria
for the Early Starter.

Second, the model does not discuss the importance of decision-maker and firm

characteristics in taking up opportunities for international penetration, extension and
integration that emerge from the networks. For example, a stimulus might emerge
for international extension or penetration but the decision-maker does not recognise
this as such. On the other hand, the decision-maker might recognise this stimulus
but be unwilling to pursue this opportunity because he/she might lose control of the
firm or might not want to internationalise for various reasons. This supports Calof
and Beamish (1995) that it is the attitudes of managers that drive internationalisation.

90

S. Chetty, D. Blankenburg Holm / International Business Review 9 (2000) 77–93

Third, the model does not discuss how the firms overcome the problems experi-

enced in internationalisation through their network relationships. A network relation-
ship might control which markets a firm enters and thus determine the shape of its
internationalisation. These relationships can, therefore, facilitate as well as inhibit a
firm’s internationalisation.

Fourth, Johanson and Mattsson’s (1988) model excludes the influence of certain

external factors (uncontrollable variables) that propel a firm towards internationalis-
ation. These include intense domestic competition, an unsolicited order, and govern-
ment economic policies.

Fifth, the model does not address how firms shift positions in the matrix. How

does an Early Starter become an International Among Others? What is the process
when a firm moves from one part of the matrix to another?

Sixth, Johanson and Mattsson’s (1988) model only considers relationships that

evolve organically. It does not consider relationships that form through interactions
in formal associations, such as the joint action groups, hard business networks, and
industry clusters introduced by Trade New Zealand. These organisations expedite
the formation of relationships for international extension, penetration and integration.

Seventh, the cases in this study illustrate that there are other dimensions to the

network, such as customers and government, that drive firms to internationalise rather
than just the production net which Johanson and Mattsson emphasise in their model.
Through export promotion programmes governments provide stimuli for firms to
export even though they are in an industry that is not very internationalised.

5. Managerial implications

This study shows how firms can obtain knowledge, learn from experiences, and

pool resources with other actors in their business networks. Since most New Zealand
firms are small- to medium-sized they can take advantage of pooling their resources
in these business networks and thus benefit from synergy. The main managerial task
should be to co-ordinate the interaction of the various actors in the business network
(Forsgren & Johanson, 1992). A firm’s network position is important, because as a
market asset it allows access to another firm’s internal assets. Managers need to
realise that their firm and its environment are not separate entities, and that by inter-
acting with other firms they are shaping their firm’s environment (Forsgren & Johan-
son, 1992). Managers should not focus on the firm’s internal barriers to internationa-
lisation, but should look to its network for resources and opportunities to
internationalise. The emphasis should be on value creation rather than cost. They
need to realise that their capabilities are limited but these capabilities could be comp-
lemented by collaborating with other firms (Madhok, 1996).

6. Conclusions

This paper contributes to the literature by providing insight into the dynamics of

how firms internationalise in a small open economy such as New Zealand where

91

S. Chetty, D. Blankenburg Holm / International Business Review 9 (2000) 77–93

government export promotion programmes encourage collaboration. By using Johan-
son and Mattsson’s (1988) model as a framework, it includes a dynamic element in
the study of internationalisation. It provides an understanding of four different ways
in which firms internationalise, and how both firm and market characteristics influ-
ence this process. It illustrates the dynamics of how network relationships drove
firms into internationalisation. Another contribution of this paper is that it identifies
various other factors that influence the model, and which could be used to improve it.

Firm and decision-maker characteristics influence how the firm will respond to

initiatives from its network relationships. In small- to medium-sized firms, the man-
ager plays an important role in identifying the stimuli for internationalisation. The
manager may not have the knowledge, however, to recognise these internationalis-
ation stimuli when they appear. It is the manager who decides whether the firm will
pursue internationalisation opportunities that their network counterparts initiate. A
manager can inhibit internationalisation of the firm although the network wants to
drive it into internationalisation.

7. Suggestions for future research

One suggestion is to use longitudinal studies to explore how existing relationships

lead to forming new relationships. A second suggestion is to evaluate the success
of the formal business networks in New Zealand and elsewhere, and the development
of relationships within these formal networks. A third suggestion is to study the
important role that intermediaries play in internationalisation, which is highlighted
by Peng and Ilinitch (1998) and Cosimano (1996).

Acknowledgements

The authors thank Professor Jan Johanson for his valuable comments on earlier

drafts of this paper.

References

Anderson, J., Hakansson, H., & Johanson, J. (1994). Dyadic business relationships within a business

network context. Journal of Marketing, 58 (October), 1–15.

Axelsson, B., & Johanson, J. (1992). Foreign market entry — the textbook vs. the network view. In B.

Axelsson, & G. Easton, Industrial networks: a new view of reality (pp. 218–234). London: Routledge.

Barkema, H. G., & Vermeulen, F. (1998). International expansion through start-up or acquisition: a learn-

ing perspective. Academy of Management Journal, 41 (1), 7–26.

Blankenburg Holm, D. (1996). Business network connections and international business relationships.

Doctoral Thesis, No. 65, Uppsala University, Sweden.

Blankenburg Holm, D., Eriksson, K., & Johanson, J. (1997). Business networks and cooperation in inter-

national business relationships. Journal of International Business Studies, 27 (5), 1033–1053.

Calof, J., & Beamish, P. (1995). Adapting to foreign markets: explaining internationalisation. International

Business Review, 4 (2), 115–131.

92

S. Chetty, D. Blankenburg Holm / International Business Review 9 (2000) 77–93

Cook, & Emerson (1978). Power, equity, commitment in exchange networks: theory and experimental

results. American Sociological Review, 43 (October), 721–738.

Cosimano, T. F. (1996). Intermediation. Economica, 63, 131–143.
Eisenhardt, K. (1989). Building theories from case study research. Academy of Management Review, 14

(4), 532–550.

Eisenhardt, K. (1991). Better stories and better constructs: the case for rigor and comparative logic.

Academy of Management Review, 16 (3), 620–627.

Emerson, R. (1972). Exchange theory, part I: exchange relations and network structures. In M. Zelditch, &

B. Anderson, Sociological theories in progress, vol. 2. Boston: Houghton Mifflin.

Emerson, R. (1981). Social exchange theory. In M. Rosenberg, & R. Turner, Social psychology: sociologi-

cal perspectives. New York: Basic Books.

Ford, D. (1990). Understanding business markets: interaction, relationships and networks. California:

Academic Press.

Forsgren, M., & Johanson, J. (1992). Managing internationalisation in business networks. In M. Fors-

gren, & J. Johanson, Managing networks in international business (pp. 1–16). Amsterdam: Gordon
and Breach Science Publishers.

Gadde, L. E., & Mattsson, L.-G. (1987). Stability and change in network relationships. International

Journal of Research Marketing, 4, 29–40.

Gomes-Casseres, B. (1994). Group versus group: how alliance networks compete. Harvard Business

Review, July–August, 62–74.

Granovetter, M. (1985). Economic action and social structure: the problem of embeddedness. American

Journal of Sociology, 91 (November), 481–510.

Gulati, R. (1995). Social structure and alliance formation patterns: a longitudinal study. Administrative

Science Quarterly, 40, 619–652.

Hakansson, H., & Johanson, J. (1993). Industrial functions of business relationships. Advances in Inter-

national Marketing, 5, 31–41.

Johanson, J., & Mattsson, L. (1988). Internationalization in industrial systems — a network approach. In

P. J. Buckley, & P. N. Ghauri, The internationalization of the firm: a reader (pp. 303–321). London:
Academic Press.

Kompass New Zealand (1997). CD-Rom guide to New Zealand companies. Auckland: Profile Publishing.
Leonidou, L., & Katsikeas, C. (1996). The export development process: an integrative review of empirical

models. Journal of International Business Studies, 27 (3), 517–551.

Madhok, A. (1996). Know-how-, experience- and competition-related considerations in foreign market

entry: an exploratory investigation. International Business Review, 5 (4), 339–366.

Madsen, T. K., & Servais, P. (1997). The internationalism of born globals: an evolutionary process?

International Business Review, 6 (6), 561–583.

Miles, M., & Huberman, A. (1984). Qualitative data analysis. Beverly Hills, CA: Sage.
Miles, M., & Huberman, A. (1994). An expanded sourcebook, qualitative data analysis. Beverley Hills,

CA: Sage.

Normann, R., & Ramirez, R. (1993). From value chain to value constellation: designing interactive strat-

egy. Harvard Business Review, July–August, 65–77.

Olson, H., & Wiedersheim-Paul, F. (1978). Factors affecting the pre-export behaviour of non-exporting

firms. In L. Leontiadas, European research in international business (pp. 283–305). Amsterdam:
North Holland.

Peng, M., & Ilinitch, A. Y. (1998). Export intermediary firms: a note on export development research.

Journal of International Business Studies, 29 (3), 609–620.

Sharma, D., & Johanson, J. (1987). Technical consultancy in internationalisation. International Marketing

Review, 4 (Winter), 20–29.

Strauss, A., & Corbin, J. (1990). Basics of qualitative research: grounded theory procedures and tech-

niques. Beverley Hills, CA: Sage.

Vahlne, J. E., & Wiedersheim-Paul, F. (1973). Ekonomiskt avstand. Modell och empirish undersokning.

[Economic distance. Model and empirical investigation.] In E. Hornell, J.-E. Vahlne, & F. Wiedersh-
eim-Paul, Export och utlandsetableringar [Export and foreign establishments] (pp. 81–159).
(Uppsala).

93

S. Chetty, D. Blankenburg Holm / International Business Review 9 (2000) 77–93

Yin, R. (1989). Case study research, design and methods. Beverley Hills, CA: Sage.
Yin, R. (1993). Applications of case study research. Beverley Hills, CA: Sage.

Sylvie Chetty is a senior lecturer in the Marketing Department at Victoria University of Wellington, New
Zealand. She was a visiting researcher in the Department of Business Studies at Uppsala University in Sweden
in 1997. Her research interests are in internationalisation, export performance and the network approach. She
has published in such journals as International Marketing Review, European Journal of Marketing, International
Small Business Journal, Journal of Strategic Marketing, Journal of Southern African Studies, New Zealand
Journal of Business and Small Enterprise Development.

Desiree Blankenburg Holm (PhD, Uppsala University) is a researcher at Uppsala University and at Ma¨larda-
lens University. Her current research interests focus on foreign market entry processes and international business
relationships and networks. Her work has appeared in Strategic Management Journal, Journal of International
Business Studies, International Business Review and chapters in three books.