The conceptual evolution of internationalization

The conceptual evolution of internationalization consists of abandoning the operational concept and adopting a structural concept based on foreign direct investment (FDI) as the reference parameter.

The new structural concept of internationalization is extremely relevant because it is intrinsically linked to Brazil’s integration into global value chains. This will only occur through the inclusion of a generation of properly internationalized Brazilian companies within these global chains.

A domestic company that has implemented FDI by establishing its own subsidiaries or representations abroad is effectively integrated into global value chains. A Brazilian company that only exports without implementing FDI can be classified as a national exporting company (NEC). An NEC merely supplies global value chains but is not integrated into them. A national business structure focused on NECs, combined with the absence of companies with FDI, economically perpetuates the condition of a perpetually extractivist Brazil.

I. The conceptual evolution of company internationalization in the scientific sphere

The conceptual development of internationalization began to take shape around 2010. Previously, the focus was on operational internationalization, which consisted of developing international operations. In this context, internationalization was understood as a process encompassing a range of activities, including exports. One of the most widely used models was the “Uppsala Internationalization Model” (Johansson and Vahlne, 1977, 1990).

However, the operational concept began to be questioned in light of new developments and international business realities, leading to the adoption of the structural internationalization concept (e.g., Ramsey; Barakat; Cretoiu, 2012; Botelho, 2015), based on FDI. FDI has become a determining factor for companies’ international performance through corporate presence in target markets.

This paradigm shift represents a true quantum leap, as the conceptual core is no longer commercial operations, but rather the existence of FDI and, consequently, a company’s own transnational structure. Conceptually, internationalization therefore begins with the implementation of FDI.

As a result, mere international operations carried out by a domestic company without FDI can be seen as a preparatory phase for internationalization, but they are not part of the internationalization concept itself. For this reason, a company that exports is not an internationalized company, but merely a national exporting company.

Being a national exporting company (NEC) is not a diminutive classification. It is simply a conceptual definition. On the contrary, the challenges of becoming an NEC in Brazil are already significant. Achieving NEC status is a major accomplishment and provides various financial, structural, and operational benefits.

Internationalization, however, is a step beyond and conceptually implies transforming a domestic company into a multinational company. An NEC cannot be classified as a multinational due to the absence of its own international structures.

II. The development of company internationalization in practice

The conceptual developments in academia align with practical developments in the business environment.

A company that presents itself in an international setting (e.g., a trade fair) as non-internationalized will face several competitive barriers. Increasing global competition has made it common for suppliers to be present in the same environments as their customers. The advantages of an internationalized company are clear and include, among others, superior communication, improved logistics, and greater legal security. As a rule, clients will prefer companies established within their own commercial environment.

A company that presents itself as internationalized without having its own international structures will, at the very least, provoke humorous reactions. Generally, it simply will not be taken seriously, making it impossible to carry out the intended business.

The international business environment does not accept the adoption of “tropicalized concepts.” The absence of an internationalization culture in Brazil does not justify a mismatch with the global environment through a distorted concept of internationalization. Either you are an internationalized company or you are not. Either you have your own international structure or you do not. The business environment does not accept a middle ground.

At the same time, establishing international structures is no longer an insurmountable barrier for Brazilian companies. Any company with a solid domestic foundation can now internationalize. This is no longer a privilege of large corporations. In times of internet-based communication, virtual offices, fulfillment warehouses, digital marketplaces, and omnichannel SaaS platforms, those who do not internationalize simply choose not to.

Of course, internationalization requires a solid structure in the domestic environment, as well as operational and financial maturity to execute FDI. The problems encountered in the internationalization of Brazilian companies are generally related to their domestic operational development and health.

Brazilian industry, in turn, offers competitive products in the international market. Often, Brazilian entrepreneurs justify their lack of international presence by claiming their products are not competitive. In most cases, however, this is not true. What actually occurs is a lack of effort toward internationalization, driven by the comfort zone of the domestic market. There is also often a lack of international vision and entrepreneurial mindset. This is reflected in an insufficient internationalization culture and Brazil’s exclusion from global value chains.

The Brazilian academic and business environment is also aware of the structural concept. Fundação Dom Cabral, for example, considers only companies internationalized through FDI in its studies on internationalization.

What stands out is that many companies and entities in Brazil still adopt outdated concepts. The reasons vary, from simple lack of knowledge to the deliberate misuse of terminology to sell consulting services under the label of internationalization.

Exporting is not internationalizing! Company internationalization intrinsically implies FDI. This can be considered a conditio sine qua non for both internationalization and integration into global value chains. Persisting in outdated concepts means perpetuating Brazil’s extractivist condition at the expense of development, competitiveness, and profitability for Brazilian businesses.

In times of crisis and domestic market fragility, Brazilian companies must, more than ever, consider internationalizing their activities and integrating into global value chains to increase profitability and offset domestic losses.

Properly executed internationalization through FDI brings a range of operational benefits, including increased profitability, knowledge, competitiveness, and innovation. Company internationalization is a driver of national development, as well as job and wealth creation in a macroeconomic context.

What is your company waiting for to internationalize?

Paulo Henrique Boelter – International Representative of IBREI in Berlin