How do firms enter international markets?

In February, a recent paper of Gábor Békés and Balázs Muraközy was published in the international journal Review of World Economics to answer this question.

In their publication named The ladder of internationalization modes: evidence from European firms, the authors use a unique multi-country firm-level dataset which, besides direct exporting and FDI, provides explicit information on a number of internationalization modes: indirect exporting, outsourced manufacturing and service FDI. Békés and Muraközy present a theoretical framework in which modes requiring higher and higher commitment have progressively higher fixed and lower marginal costs. By estimating multinomial and ordered logit models, they also present evidence in line with such a sorting framework with respect to TFP and innovativeness.

The authors identify three ’clusters’ of modes: indirect exporters are similar to non-exporters, direct exporters and outsourced manufacturers constitute a second cluster while service and manufacturing FDI are the most demanding internationalization modes.