Abstract

What motivates entrepreneurial firms to internationalize? The literature has consistently argued for the draw of the benefits of internationalization and its upward potential (Zahra & George, 2002). However, these potential benefits do not come without risks. In internationalizing, they face an unfamiliar culture and lack a value chain network or political influence in the host country. Given the benefits and risks, what prompts firms to engage in internationalization? Utilizing the behavioural theory of the firm, we argue that internationalization represents a type of organizational change in which firms are more likely to engage if their current performance fails to meet their goals or expectations. Firms usually form performance expectations of themselves based on their social reference groups (Greve, 1998). The performance level of their social reference group contributes to the forming of entrepreneur’s aspiration level for their own firms. Firms are more likely to engage in actions of organizational change if their performance is below their aspiration level (March & Simon, 1958). Also, based on the prospect theory of risk taking (Kahneman & Tversky, 1979), we propose that firms that are performing below aspiration levels are more likely to take on bigger risks and are more likely to enter uncertain, more culturally distant countries than otherwise.

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