Internationalization and the Need of Business Model Innovation

Entry modes represent forms of internationalization, and different types of entry modes have been deeply investigated over the last decades. Since we no longer want to investigate entry modes, as our focus relies on the consequences of their adoption on business model, a brief description of the entry modes is presented. To conduct the analysis, each entry mode will be investigated in a separate way. The combination of different types of entry modes at the same moment in any company will lead to different impacts on BMI. As this paper is a first effort to analyze these two subjects, the analysis of each entry mode will be developed based on its own concept and characteristics identified through the literature review. The analysis to integrate entry modes and BMI is all based on the literature review.

Export is the more appropriate entry mode for companies that are internationalizing for the first time and seek to reduce the risks as it requires less commitment from the company. Usually the company starts selling to the internal market and then starts exporting. An indirect export represents the use of intermediaries to connect the company with customers abroad. The firm begins exporting with low fixed capital investments, reduced start-up costs, and lower risks. It has little control over the way its products are sold abroad and, therefore, depends on the intermediary's ability to act in the target market. Usually companies adopt a very passive approach, as they are still working the same way they operate in their home countries. They just start selling products to companies that export them. Even though this behavior is not mandatory, the use of indirect export represents a way to reduce the need for changing the company's activities. The company can still perform the same activities, and goods and information can still be exchanged the same way: the sale is being made in the internal market. A new client is added into the existing selling process. Considering the need for innovating the company's BM, the need for innovating the content is low. Regarding the structure, the same low need for innovation is identified, as the link between the activities and its sequences does not need to change. The governance, at the same time, also presents a low innovation necessity. One could argue that the intermediary could represent a change in the company's structure and governance. We consider that this change implies modifications in the Supply Chain, not in the company itself. To analyze the BMI, the concept of Zoot and Amit focuses on a company's internal activities, and on their inter-organizational relations.

The direct export implies a direct contact between the company and its customer. Usually, companies have a department responsible for its sales abroad, which may include traders and operational staff. When companies evolve, they accumulate international experience and market knowledge, usually moving from indirect export to direct export. Its main advantage is the possibility to obtain information from the external market and feedback from international clients more quickly. However, it has the disadvantage of higher initial costs, since there is more information to be obtained, and the risks are greater comparing with indirect export. Nevertheless, direct export usually represents a proactive effort from a company to develop new markets for their products. A company may need to change their production process or even the product to adapt it to an international market. To explore the international market, a company usually does prospective activities to promote its product and to contact potential clients. These are new activities for a company that is used to performing only in a domestic market. Hiring staff or relocating employees is necessary to conduct these activities. The establishment of a department to deal with the export activities is usually identified. To direct export, a company needs to be able to meet customs regulations and to manage the relationship with third-party suppliers. Considering this need for changes, one may affirm that the adoption of direct export leads to a medium level of innovation in a company's BM, taking under consideration its three aspects: content, structure, and governance.

• Proposition 1a: Indirect export will lead to low business model innovations in terms of content, structure, and governance.
• Proposition 1b: Direct export will lead to medium business model innovations in terms of content, structure, and governance.
• Proposition 1c: Considering exports, business model innovations will be more related to induction and imitation.

Direct and Indirect export can be related to the "Export-based BM" proposed by Rask. The second type related to the international environment is the "Semi-global BM", which is related to Contractual agreements that include different forms of entry modes like strategic alliances, joint venture (JV), licensing, and franchising.

Strategic alliances represent forms of partnership between two or more companies, with the purpose of carrying out joint projects or of cooperating in a single market. Companies explore the benefits of new opportunities together, as well as sharing costs and minimizing risks, thus generating a competitive advantage for everyone involved. They arise from the necessity of complementation of resources and capabilities, since not all of them have the necessary elements for international operations. Alliances represent a facilitated way to enter international markets, while physical resources, knowledge, and skills are shared, these can be incorporated into already existing competences in the firm to take advantage of the opportunities of various markets (national and international). For Teece, a strategic alliance requires a certain degree of strategic and operational coordination of activities and should consider, among other elements, research and development activities, technology transfer, granting of production rights, and the cooperation agreements between the companies involved in the partnership. A JV is a strategic alliance, even though some conceptual models consider it as a different type of contractual agreement.

A JV is a form of cooperation between independent companies, in which a joint project is carried out with fixed time and shared risks. It is the appropriate entry mode for companies that want to transfer imitable and substitutable resources. Among the disadvantages of a JV, it is possible to point out the high cost incurred by the company due to the control and coordination of partners involved. Another challenge is the possible cultural difference between the partners, their activities, and managerial styles. In addition, many companies end their JV agreements when partners see themselves as competitors.

Licensing is the contractual agreement in which a company, called a licensor, provides a good patent, name of a company, technology, or any business information to another company (licensed). Through a licensing agreement, it is possible for a foreign company to buy the right to manufacture and sell products from another firm in a host country. Thus, for each unit produced and sold, a royalty or licensing fee is paid to the licensor. On the other hand, the licensee invests in facilities for the manufacture, distribution, and sale of goods and services, also taking the risks involved. It is ideal for companies that present advanced technology, high know-how or a strong and consolidated brand in the market; therefore, obtaining greater profitability without a high initial investment. It also brings benefits to products that require physical adaptation to the target market, since part of the cost can be transferred to the foreign licensee. The disadvantages can be the lack of control of the firms, which manufacture and advertise their products in foreign countries, and smaller returns, considering that profit is distributed between the licensee and the licensor. In addition, when the licensee develops their own know-how, they become a competitor of the licensor, thus representing a threat and a general disadvantage of that entry mode.

Franchising is a contract agreement between a franchisor that allows a company (franchisee) to use the name of the company and to receive assistance from the franchisor in general aspects of company, such as management and marketing, through the payment of fees and royalties to the franchisor. It is appropriate for companies that have a high internationalization capacity but whose managers cannot, or do not want to, make efforts to go abroad. The main advantages of a franchise include fast insertion and expansion in international markets, standardized marketing method with an already consolidated image, highly motivated franchisees, and reduced political risks. Kotabe and Helsen point out that regarding the establishment of franchises, a low investment is necessary to expand the business abroad. Its disadvantages include the restriction on the profit of the franchisor, the lack of total control over the operation of the franchise, the possibility of creating competitors, and the restrictions on contracts imposed by governments.

Contractual agreements represent ways to internationalize with lower effort from the company. The higher effort is related to the source of the partner and the establishment of a contract that allows this partnership to be developed while it protects the company from related risks. Considering this, it is possible to state that a high investment in terms of governance is necessary. Contractual agreements include changing the actors that perform the activities. In a JV, for example, a third company is created to perform it. In a Franchising, the efforts of sales, for example, may be transferred to the partner. Looking at this second agreement, we can also identify that the flow of information, goods, and finance will be modified as the customer buys a product from the franchisee. Innovations in terms of governance in the company's BM will be required. Innovations in terms of content and structure are low when a company that is starting to operate abroad is considered. In its home country, the company can keep operating the same way it used to do before, since the contractual agreement only applies to the company's international activities. A different situation may be identified if we look at companies that already operated abroad and change their models to a contractual agreement. Considering the subject of this study, the first situation will be focused on;

• Proposition 2a: Contractual agreements will lead to low business model innovations in terms of content and structure, and high business model innovation in terms of governance.
• Proposition 2b: Considering contractual agreements, the business model innovations will be more related to induction and imitation.

Foreign Direct Investment (FDI) consists of territorial expansion of business activities, without being subject to the same conditions of domestic investment. In addition to high risks, it allows local learning and access to external partner knowledge. It also allows the control over an economic activity of transformation or production of goods and services, resulting, in most cases, on the implantation of a physical unit in the target country. There are different forms of FDI as subsidiaries, merges and acquisitions (M&A), and greenfield operations.

The establishment of a subsidiary requires greater commitment (of capital and labor) by the company that wishes to internationalize. The control over a subsidiary may be total or partial, according to the interest of the organization, and the barriers and legislation of the target country. Subsidiaries are relevant to organizations that wish to concentrate the control of the operations in the main company and leave to the investor the control of the operations in this company. A transfer of knowledge, technologies, and manufacturing techniques between the national company and the one inserted in the target market occurs. The disadvantage is that it is not possible to share risks because all liabilities are concentrated in the main company. Another limitation is the lack of partnerships, since the resources used are greater than in other entry modes. There are two possibilities of subsidiaries owned by the main company: acquisition; or greenfield.

Acquisitions consist of companies or groups of investors that buy the equity or share control of another company and have the advantage of allowing the company to enter established relationships in the target country, and to enter the local market immediately. It allows rapid access to international markets, local technologies, and brands already consolidated in the target market. It also combines resources of the new entrant with the ones of the acquired company and it is a less expensive internationalization alternative. The acquisition represents a high investment for the company's international strategy, since, for the most part, the promising companies are not for sale, and if they are, their value is very high. More efficient markets usually facilitate the entry of new companies by the acquisition.

Mergers are entry modes that are characterized as alternatives for the adequacy of the size and organizational structure of the companies to the market and to the world's economic scenario. They usually occur among firms that have equivalent dimensions, making the original company disappear and creating a new one, which results from the union of the material and human assets of the organizations involved in the business. It allows companies to save in a production scale, to achieve greater market power, to diversify risks (since the company operates in several countries and is less vulnerable to local crises), and above all, to enter new markets and new industries faster.

Greenfield are characterized by complete operations, established from the beginning. It presents greater flexibility in human resources, supplies, logistics, factory layout, and technology. A greenfield project does not allow direct access to existing resources in the foreign company, but it allows the entrant to purchase resources available in the local markets. Some governments in foreign countries offer incentives and benefit packages for companies that install full operations in that region, aiming at establishing greater market attractiveness. On the other hand, this operation requires high investment of time and capital. In general, companies with diverse product lines prefer to enter a new market through acquisitions, other than those with a specific product line, which opt to do it through greenfield. FDI and its different forms are not explored at Rask's model.

Analyzing the use of FDI as an internationalization strategy, one can realize that it implies a high level of BMI considering the three main elements: content, structure, and governance. Considering the model proposed by Zhang, Zhao, and Xu, this entry mode can be related more to original innovation, as the company is promoting changes in their global value chain with the opening of a new unit. BMI related to the previous entry modes tend to be more of a result of an induction and/or imitation.

• Proposition 3a: FDI will lead to high business model innovations in terms of content, structure, and governance.
• Proposition 3b: Considering FDI, the business model innovations will be more related to original innovation.

Figure 1 presents the consolidation of the analysis of entry modes, as well as the level and type of business model innovation.

Figure 1 Entry modes, elements of a BM and types of BMI