Introduction

CHAPTER 2

Cross-Border Engagement: An Integrated Analytical Framework

Introduction

Why do some South Asian firms engage in regional markets while others do not? What are the characteristics of these regional pioneer firms? What is the preferred mode of engagement of these firms? What is the dynamic path for these firms upon entry, and what are the implications for other firms in the same industry in their home country? The internationalization of firms has created a large literature in the international economics and international business fields. In international trade, the movement of the analytic unit from countries and sectors to firms has led to an array of models enriching the understanding of firms’ foreign market entry decisions.

To move toward answering these questions, this chapter develops a simple, flexible framework with which to discuss issues related to foreign engagement entry. The framework accommodates five key priorities. First, firms may engage with foreign economies along two basic fronts—they are interested in serving international markets, or global sourcing, or both. Second, the framework applies to intermediate and final goods and services industries and activities. Third, the framework takes a value chain approach, incorporating all the activities involved in bringing a product from concept to market, including network coordination, research and development, logistics, assembly, distribution, and branding.

Fourth, a range of engagement options are available to firms, with varying levels of capital requirements. An analytical distinction is made between equity modes and nonequity modes of engagement. The three broad strategies or instruments of internationalization examined are trade, foreign direct investment (FDI) (equity mode),