Internationalization, Technology and Services

Citation

Hipp, C. (2004), "Internationalization, Technology and Services", International Journal of Service Industry Management, Vol. 15 No. 4, pp. 414-419. https://doi.org/10.1108/09564230410552086

This book is a collection of ten papers that make an essential contribution to the emergent debate on the internationalization of services industries. Recent discussions have concentrated on export and trade activities of all kind of service activities. However, little attention has been paid to knowledge‐ and technology‐intensive services – which have experienced one of the greatest increase in internationalization – and their contribution to the process of globalization. The aim of the book is to analyze drivers, dynamics and implications of service internationalization with a strong emphasis on technology and innovation management. The two editors Miozzo and Miles started to bring together the separated discussion on internationalization in services and innovation in services. In order to do so, the book integrates experts, who are drawn from different disciplines with an interest in economics, international business and geographers.

The book is divided into four parts. Part one provides a conceptual introduction into the field of innovation and internationalization of services. Part two delves into available statistics to give a first empirical overview and discuss results on trade and foreign investments in technology‐intensive services. Part three explores service processes of globalization, regionalization and the location of production and innovation activities of service multinationals. In part four characteristics of service internationalization activities in different countries and regions are highlighted.

In the first theoretical part, Miozzo and Miles deal with two different strands of literature. Strand one is about internationalization of services and strand two is about innovation in services. The main debates on the internationalization of services firms fail to integrate the effects on the national or regional system of production and innovation. Equally, the literature on innovation in services (strand two) neglects national systems of innovation and the effects on the internationalization of service activities. The authors argue that both strands need to be brought together to adequately address questions about internationalization, privatization and liberalization of high‐technology services. Especially the impact of international service activities on innovation capacity and competitiveness of countries needs to be emphasized. The authors suggest a research agenda to support the integration of the two approaches.

The second conceptual paper in part one is written by Ietto‐Gillies and focuses on tangibility (and therefore storability, transferability and tradability) and productivity as demarcation criteria for services and manufacturing, and the role of information and communication technologies leading to a new mode of internationalization – primarily based on the principle of an international division of labor, especially for information‐intensive service production and delivery processes. Therefore, new technologies play a key role and help to eliminate or reduce traditional space and time constraints. The traditional approach of differentiation between services and manufacturing needs to be revised. Based on a comparison of the internationalization of the world's largest transnational corporations, Ietto‐Gillies can uphold limits of existing indices.

Part two continues to show limitations of available statistics on internationalization to show an adequate picture of the situation within the service sector. First, Baker, Miozzo and Miles highlight trends and patterns in trade and foreign direct investment (FDI) among European service companies. The authors presume that liberalization, the single currency, as well as the internationalization of client markets lead – together with the developments in new information and communication technologies – to an increasing process of internationalization of services. However, it can be shown that, while services dominate the economies of the European Union (EU), trade in services accounts for only about 20 percent of total trade. Alternative approaches show that this reflects only about three‐fifths of the overall services trade, e.g. franchising, licensing management agreements, movement of personnel and minority joint ventures are important in many service sectors – but no official statistical data exist. Especially for non‐standardized service products, commercial presence and FDI are more suitable. FDI in services accounts for about 55 percent of total FDI flows and stocks. This figure reflects the growing importance of international service activities in a more suitable way. Additional cross‐national differences illustrate that especially small countries show high trade rates and a strong motivation to encourage trade and foreign investment in services. Dependence on spillovers for economic growth can be a main reason. The appendix goes into a detailed discussion of the balance of payment (BOP) statistics, the FDI data and the foreign affiliates trade statistics (FATS), showing that each data set has its specific disadvantages which distort the situation of the internationalization in services.

Zimny and Mallampally can support the increasing and more appropriate role of foreign direct investment in internationalization of services, which was proposed by Baker et al. in the previous chapter. In this second paper of part two, time series data for the USA show the increasing importance of FDI in recent years compared to trade. Especially foreign affiliates sales and affiliate‐to‐affiliate‐trade count for local markets rather than exports from host countries. The authors conclude that, in general, new information and communication technology has more helped firms to establish regional affiliates and operations than to strengthen their ability to compete through trade. However, the data also show increasing complementarities of trade and FDI in special service industries like scale‐intensive, information technology (IT)‐based services. In addition, the importance of trade generated by integrated strategies in total trade appears to be increasing. That could mean that US companies use cost differences in services production of different countries and the possibility to trade intermediate products electronically to improve cost efficiency – either using intra‐firm or inter‐firm networks.

The discussion on a new international division of labor concerning the production of services is picked up in part three. Standardization possibilities, as well as regional peculiarities, can lead to a new form of international service business and service modularization. Coe illustrates the spatial complexity of transnational corporations investigating the growth strategy of US‐based IT firms in Southeast Asia. The analysis draws on 40 in‐depth interviews undertaken with managers of US IT firms with bases in Singapore. Many of the surveyed firms have a powerful network in the Asia‐Pacific countries, enabling them an effective distribution of products and services overseas. Key functions of these firms are sales, marketing, implementation and the support of software and service activities. Project‐based teams of staff show a high mobility between projects and regions. Additionally, within this multi‐regional structure, a large number of companies established a regional headquarters in Singapore. However, the majority of formal R&D is undertaken in the home countries of these corporations. Coe can show that the process of international expansion is complex – especially in services, and investments reveal different dimensions of spatial variation: interregional, intra‐regional, and intra‐activity (single activity can be undertaken in different ways within a region) variations. But little intersection is seen between the process of internationalization and innovation. The author favors a precision in the definition terms surrounding international business and highlights the importance for future research to identify overlapping scales of integration on global, national, sub‐regional, and regional level, especially with the focus on people‐centered service tasks and innovation activities.

The authors Rubalcaba‐Bermejo and Gago‐Saldana focus in their paper on the role of international and national effects in regional concentration of European business services. Three main service categories (advanced, traditional and operational) and two sub‐categories of the advanced service firms (computer, R&D services) have been taken into consideration. The authors illustrate that these business services have been the most active service sector in internationalization. They report an average annual growth of 33 percent in European international trade between 1992 and 1998. The annual growth rate of number of M&A in business services rates 54 percent. However, traditionally, a strong link between business services and local conditions lead to the main hypothesis: the existence of a dominating “national effect” in the concentration of business services across Europe. However, internationalization increasingly opens up possibilities for new locational trends like the role of business services in the upper urban hierarchy, e.g. the main international villages. This “international effect” needs to be tested against the “national effect”. Eurostat data for five countries suggest that both national and international effects are relevant in determining the regional concentration of business services. Location patterns of business services are closely linked to density, national profiles and regulatory or instructional factors, but also, at the same time, to the degree of opening to international competition. Especially the presence of big international cities (e.g. capital regions like London and the south east of UK), those most exposed to international competition, shows the highest presence of business services.

All the papers in part four deal with the role of concrete countries and regions in the process of internationalization of service companies. In each of these chapters firm‐level data has been used for illustration. Roberts found in her earlier survey of internationalization of UK business services a market‐oriented nature of the internationalization of business services. But, in the light of recent technological developments, a new level of standardization within the service process has been occurred. This has facilitated a recently observed growth of resource‐oriented internationalization strategies within the service sector. Also, international production can be seen to be emerging, based on the location of skills in the form of centers of excellence. Nevertheless, core business services activities remain market‐oriented and therefore customized as well as knowledge‐intensive. Additionally, Roberts sees a continuing and intensifying polarization. While many small firms serve local markets, a small number of big firms serve national and international markets, having the ability to use technology in combination with mobile employees to exploit knowledge‐based assets fully.

Henten und Vad look at service internationalization processes of Danish services firms using data from a survey undertaken in 2000, commissioned by the Danish Ministry of Industry. The goal was to obtain knowledge on the actual potentials and barriers regarding the internationalization of services and the recently observed fluctuations of international trade in Danish services firms. The majority of firms in the survey are home‐market oriented, without any international sales during the last three years. To get a closer insight, different service characteristics with possible implications for the potentials for internationalization have been analyzed. The empirical material confirms that the need for local presence (simultaneity in production and consumption) is positively correlated with international establishments and presence of natural persons. There is also a negative correlation between the need for local presence and export activities. Surprisingly, export is by far the most important mode of internationalization. As for the most important barriers of home‐market‐oriented firms to internationalization are the sufficient size of the national Danish market and the lack of ambition to invest in internationalization activities. Also firms that already have international sales face internally‐based barriers like limited financial resources and the lack of appropriate internal knowledge. Moreover, since almost a third of the firms, in the manufacturing category regard themselves as primarily service firms, it is difficult to define a strict dividing line between manufacturing and services only based on official statistics.

The following paper, written by Toivonen, centers on the internationalization of knowledge‐intensive business services (KIBS) and is based on extensive face‐to‐face interviews with 87 firms and ten professional associates in 2000. In addition to internationalization issues, the study also aimed to investigate the new qualification requirements by important development trends like globalization and internationalization. The author emphasizes the importance of new indicators measuring internationalization in services – going beyond export and foreign direct investment – due to the reason of service peculiarities (intangibility and simultaneity of production and consumption). Three groups of international activities became evident during the interviews and demonstrate the multiplicity of internationalization:

1. 1.

   Traditional: KIBS firms’ own international economic activities (e.g. export, M&A, foreign subsidiaries, international chaining).

2. 2.

   New: international activities through a client firm (e.g. international assignments).

3. 3.

   New: non‐equity international activities (e.g. foreign expert employees).

The study shows that the degree of Finish KIBS in internationalization is higher than the average in the service sector. Exports and offices abroad are common, especially with technology‐intensive business services. Importance of mergers and acquisitions, as well as internationalization through client firms, plays a key role. Non‐equity forms are particularly important in the non‐technology KIBS. Toivonen argues that the greatest difficulties for KIBS are related to business skills. She emphasizes the importance of linking investigations on internationalization in services to innovation, which has been neglected in research so far.

The last chapter of the book centers northwest England's environmental firms. Randles and Tether investigate the profile of business services and manufacturing firms working in or for the environmental industry in terms of their patterns and structures of internationalization. The paper starts with a discussion of the weaknesses of the Standard Industrial Classification (SIC) – especially when taking into consideration the emergence of new industries and sectors, which is the case in the environmental manufacturing and services sector. This is one reason why it is very difficult to identify boundaries around a coherent, discrete and internally synergetic group of activities. The findings of the authors show a highly diverse group of activities for which the locally‐based interrelations – one dominant argument for regional “cluster” policy – look questionable. They can also show, by using a survey of 152 firms, that environmental manufacturing and services firms sometimes stimulate internationalization. Business services that served manufacturers were more likely to have overseas sale. But by contrast they can furthermore contribute to the dissolution of local ties and help outside companies to enter the local market. The authors suggest critically analyzing the benefits and drawbacks of a cluster perspective. In addition, a typology of structures and modalities associated with internationalization has been introduced to be able to deal with the diversity within the environmental manufacturing and services companies.

The book brings together for the first time the topic of innovation and internationalization in services. It gives a very good and interdisciplinary starting point to the combination and integration of both research fields. Previous analysis focused mainly on international export and marketing aspects for service firms (see e.g. Samiee, 1999) – macro and mezzo‐analyses that take into consideration the impact of international service activities on innovation capacity and competitiveness of countries are neglected.

The structure of the book clearly points to the main problems when analyzing services in general, while taking into account the peculiarities of service firms at the same time: the missing of a conceptual framework, the missing of applicable data and measurement concepts, the strong relationship with customers and therefore the question of location and regionalization, as well as the role of information and communication technologies within this process. Each chapter focuses on one or two aspects, which makes the whole book a very interesting journey through this new and still “raw” issue. Researchers who are interested in alternative data approaches for analyzing internationalization in services find fresh insights; especially the role of foreign direct investments, M&A and trade are highlighted. In addition to the officially available data, case studies and firm‐level surveys for different regions make the provided empirical base extremely broad and manifold.

However, the conceptual base of the chapters is somehow weaker than the empirical material presented – especially when keeping in mind the overall topic of bringing together the service innovation and internationalization strands. Half of the authors refer to Miozzo and Soete (2001) while others submit more to the “innovation in services” literature (e.g. Miles, 1999) with a strong focus on regional issues (e.g. Daniels, 1993). Closing the gap, which is demanded by Miozzo and Miles in the first chapter, does not fully take place and the interdisciplinary departure cannot fully be brought to an end. Maybe, concepts based on a systems approach (e.g. provided by Lundvall, 1992) can enrich the debate and help to close the gap between different research strands.

Politicians cannot escape this book since the role of services for national and regional systems is analyzed and discussed in detail, far away from normally presented statistical material. However, concrete political recommendations are missing in some debates. Academics will find this book extremely useful because new empirical and conceptual issues and research questions are raised. Also managers can learn from the discussions, giving them some ideas about alternative strategic perspectives and an overall benchmark with respect to internationalization and service production. To conclude, Internationalization, Technology and Services is an interesting and inspiring contribution and a milestone to the overall discussion on services and internationalization with respect to technology and innovation.