The internationalization of US Internet portals: does it fit the process model of internationalization?

Daekwan Kim Department of Marketing and Supply Chain Management, The Eli Broad College of Business, Michigan State University, East Lansing, Michigan, USA

Keywords

Internationalization, Internet, Electronic commerce

Abstract

Although the theory of the gradual internationalization of firms has been widely studied and supported by researchers, very little is known about the internationalization of electronic commerce firms. This study conducted a case study on Yahoo! Inc., AOL, Lycos, and AltaVista. Spearman correlation and Kendall's tau analyses along with two proxy psychic distance indices were deployed to investigate whether the gradual internationalization theory can be applied to electronic commerce firms. The results reveal that the gradual internationalization of Internet firms is better supported by the sociocultural distance index than the cultural distance index. Some implications of findings are also discussed along with other characteristics of the internationalization of the Internet portal firms.

Marketing Intelligence & Planning 21/1 [2003] 23-36 # MCB UP Limited [ISSN 0263-4503] [DOI 10.1108/02634500310458126]

The theory of internationalization has been developed and studied in the context of temporal and geographical expansion of international activities of firms. Researchers in the area have focused on common patterns and explanations of internationalization of firms (Buckley, 1989; Contractor and Kundu, 1998; Kogut and Singh, 1988; Johanson and Wiedersheim-Paul, 1975; Johanson and Vahlne, 1977; O'Grady and Lane, 1995; Nordstrom and Vahlne, 1992; Welch and Luostarinen, 1988). As a result internationalization theory has been developed, that explains the gradual internationalization phenomena of firms relatively well across industry types and firm sizes. Despite the fact that electronic commerce has been a hot topic in the real world, the applicability of internationalization theory to electronic commerce remains unexplored. Since online firms, whether they are small, medium, or large, have gone into international markets in a relatively short period of time, the applicability of current theory becomes an interesting issue. For example, a small online book retailer, Aladdin, Inc., in Korea that started its business in July 1999, has entered the US market in five months targeting the KoreanAmerican community in the USA. The online retailer not only ships books to the USA but also opened a local warehouse in the USA to manage US orders effectively. Likewise, the internationalization of Internet firms seems to be accelerating and the international market in cyberspace appears to be a rather unique phenomenon. Although the gradual internationalization theory postulates that firms tend to enter the markets that have more social, political, economic, and cultural similarities with the firms' domestic market, and then gradually explore markets with less similarities,
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whether or not the theory can be applied to the electronic commerce firms would be an interesting finding for academics as well as practitioners. This study fills the gap in the literature by investigating whether or not the gradual internationalization theory of firms can be applied to the electronic commerce firms. To address the issue more effectively, this study is conducted in the context of Internet firms that are engaged in only online business. Therefore, those online businesses that are either brick-n-mortar's online arms or spin-offs are excluded in this study to minimize the influence of brick-n-mortar operation on the internationalization of online operation.

Literature review
The internationalization of firms
There are several theoretical perspectives that provide an explanation of the internationalization of firms. Especially, the Uppsala research (Johanson and Wiedersheim-Paul, 1975; Johanson and Vahlne, 1977) and the Innovation research (Bilkey and Tesar, 1977; Cavusgil, 1980; Czinkota, 1982; Reid, 1983) suggest that firms internationalize gradually as their perceived risk of foreign market decreases. There are two dimensions of the gradual internationalization theory. First, the gradual internationalization theory postulates that firms take the entry mode that requires less resource commitment (e.g. exporting) in the beginning of foreign market entry and then shift to another entry mode that demands more resource commitment (e.g. wholly owned subsidiary) as the perceived risks in the foreign market decrease (Johanson and Wiedersheim-Paul, 1975; Johanson and Vahlne, 1977). Since the
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Daekwan Kim The internationalization of US Internet portals: does it fit the process model of internationalization? Marketing Intelligence & Planning 21/1 [2003] 23-36

introduction of the theory and the case study in Johanson and Wiedersheim-Paul (1975), there have been many studies that investigated this dimension (Davidson, 1980; Kogut and Singh, 1988; Wilson, 1980). The other dimension of the gradual internationalization is more related to the order of market entry. That is, the gradual internationalization theory implicitly believes that firms enter markets that are psychically close to home market first and then gradually expand into other markets that have a higher psychic distance from the home market (Johanson and WiedersheimPaul, 1975; Johanson and Vahlne, 1977). This dimension of the gradual internationalization theory has gained less attention from researchers. This study will focus on the second dimension of the gradual internationalization theory, the sequence of market entry, because most Internet firms have not undergone multiple entry modes sequentially in each market throughout their internationalization process. That is, although there are many Internet firms that entered foreign markets by one entry mode, those firms have not shifted to another entry mode, making a study on the first dimension of gradual internationalization theory difficult. Therefore, focusing on the second dimension of the gradual internationalization theory suggested by Johanson and Wiedersheim-Paul (1975), this study will test whether the internationalization of Internet firms follows the gradual and sequential internationalization of firms in the context of the order of foreign market entry.

Psychic distance and its variant

Psychic distance is defined as factors that are preventing or disturbing the flows of information between firms and foreign markets (Johanson and Wiedersheim-Paul, 1975). Differences in language, culture, business environment, political and social system, and other factors that are heterogeneous in two markets may contribute to the psychic distance. Johanson and Wiedersheim-Paul (1975), Coviello and Munro (1997) and Welch and Luostarinen (1988) argued that the psychic distance is correlated with geographic distance while Buckley (1989) asserted that psychic distance and geographic distance are inversely correlated. O'Grady and Lane (1995) further argued that business operations in psychically close countries are not necessarily easy to manage because the assumptions of similarity can prevent executives from learning the critical

differences between countries. Despite the controversial perspective of literature, psychic distance has been believed to be one of the most important factors that determine the gradual internationalization process of firms (Nordstrom and Vahlne, 1992; Conway and Swift, 2000). In this study, there are two proxy psychic distance indices adopted. The first index is the cultural distance index between the USA and other countries. It will be calculated adopting the method used by Contractor and Kundu (1998), Kogut and Singh (1988), and Nordstrom and Vahlne (1992), and utilized to test whether the internationalization pattern of Internet firms follows the gradual internationalization of firms. Although cultural distance and psychic distance are not identical, they are capturing different but overlapping phenomena according to Nordstrom and Vahlne (1992) and O'Grady and Lane (1995). Thus, cultural distance has been used as a proxy for psychic distance (O'Grady and Lane, 1995) in such studies as Kogut and Singh (1988), and Benito and Gripsrud (1992) relying primarily on the cultural distance based on Hofstede (1991, 1994). Another variant of psychic distance is socio-cultural distance (Anderson and Gatignon, 1986). It postulates that the uncertainty and risk a firm perceives on a foreign market tend to increase as the sociocultural distance increases just like the psychic distance. Focusing on the environmental aspect of markets, Goodnow and Hansz (1972) conducted a cluster analysis sorting 100 countries into three groups (clusters) that are roughly corresponding to the socio-cultural distance from the USA (Anderson and Gatignon, 1986). According to Goodnow and Hansz (1972), US firms are more likely to enter ``hot'' countries of the three groups first taking advantage of sociocultural similarities and then gradually expand their international activities into Moderate Countries before Cold Countries where US firms have least socio-cultural similarities. Studies such as Agarwal (1994), Hu and Chen (1993, 1996), and Wei (1993) used the socio-cultural distance to explain the internationalization of firms. This study will also borrow the three country groups of socio-cultural distance from Goodnow and Hansz (1972) as a proxy distance index to test whether the internationalization of Internet firms follows the socio-cultural index. By borrowing and testing against the two proxy psychic distance indices, cultural distance index, and socio-cultural distance, this study will empirically analyze the internationalization pattern of Internet firms

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answering the following two research questions: Q1. Do Internet firms internationalize gradually and sequentially? Q2. To what extent do the two proxy indices explain the internationalization of Internet firms?

Methodology
To most efficiently identify and understand the internationalization of Internet firms, this study adopts multiple case studies. The major US Internet-only firms (portals), America Online (AOL), Yahoo!, Inc., Lycos and AltaVista were selected to represent the US Internet firms that have internationalized enough to be present in multiple countries and, therefore, appropriate for this study. There are two reasons for the firm selection. First, the Internet firms selected are very representative of the internationalized Internet-only firms. There are brick-n-mortar online business arms such as Dell.com (Dell Computer Corp.) that have internationalized their operation. However, the internationalization of the online operation cannot be clearly distinguished from that of brick-n-mortar operation. The second reason is that most Internet firms that have entered international markets such as Buy.com and Amazon.com have internationalized into only a few countries, which does not allow adequate assessment of their internationalization process. Therefore, we believe that the four Internet service firms are representing the internationalization of Internet firms relatively well. Information for each Internet firm is primarily drawn from the Web site, annual reports, various Internet news providers and the US security exchange commission (SEC) report. From the Web sites of the firms, historical information was analyzed for the relevant information to the internationalization of the firms. General company information was also collected to understand the nature of their services. For each case, a content analysis was conducted to identify the date of foreign market entry along with the name of country and the nature of entry. Then, the sequence of foreign market entry for each case was recorded in time-event matrices for Spearman correlation and Kendall's tau analyses. Those countries a firm had already entered but whose date of entry is not clearly disclosed in any of the information sources were excluded from the analysis. Finally, to assess the significance of the pattern matching with the proxy indices, Spearman

correlation and Kendall's tau analyses between the proxy indices and the order of market entries for each case were run. As mentioned above, this study will deploy Spearman correlation analysis and Kendall's tau as a statistical technique. Although Johanson and Wiedersheim-Paul (1975) adopted the Spearman correlation, as a nonparametric technique, for the analyses of cases in identifying the relationship between the psychic distance and the internationalization of the firms, Kendall's tau is preferred for the analysis of relationship between ordinal variables (Gilpin, 1993). Therefore, to minimize biases from adopting inappropriate statistical techniques, this study will adopt both the Spearman correlation and Kendall's tau. As for the calculation of the cultural distance index as a proxy psychic distance index, this study deployed the following index used by previous studies (Contractor and Kundu, 1998; Kogut and Singh, 1988; Nordstrom and Vahlne, 1992): CDj
4 X i1

Iij Iiu 2 =Vi=4;

where: CDj = cultural distance from the USA to the jth country; Iij = the index for the ith cultural dimension of the jth country; Iiu = the index for the ith cultural dimension of the USA; and Vi = the variance of the index of the ith dimension. This cultural distance index calculated is the arithmetic averages of variance-corrected differences of the four dimensions of cultures reported by Hofstede (1991, 1994). Finally, in transforming the socio-cultural distance from the USA to other countries reported by Goodnow and Hansz (1972), the ``hot countries'' were coded as 1, the ``moderate countries'' as 2, and the ``cold countries'' as 3.

Cases
Yahoo! Inc.
Yahoo! was first developed and available in 1994 by the Company's founders, David Filo and Jerry Yang. Incorporated in California on March 5, 1995, and reincorporated in Delaware on May 19, 1999, Yahoo!'s main revenues are from selling advertisements on its Web pages. In 1999, approximately 5,200 customers advertised on Yahoo! properties. It offers a comprehensive, intuitive and userfriendly online guide to Web navigation, aggregated information services,

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communication services, online community service, and electronic commerce services. In December 1999, Internet users viewed an average of approximately 465 million Web pages per day on Yahoo! online properties. Yahoo! services include about 120 million unique visitors worldwide including about 40 million from outside the USA, 100 million cumulative registrants of which 35 million are from outside the USA, 21 countries and 12 languages, 3,550 unique clients of which 1,200 are from outside the USA, 9,000 merchants on Yahoo! Shopping, and 1,000 content partnerships. In fiscal 1999, its revenues reached $588.6 million, an increase of 140 percent over 1998. The company has nearly 1,200 employees as of 1999. About 10 percent of its total revenues were generated outside the USA. As a most favored Internet search engine, Yahoo! has internationalized its services as early as April 1996 (see Table I). It uses joint ventures as a mode of entry for strategic markets (e.g. Japan) in order to overcome the lack of local market knowledge including language, local preferences, and collection of local information for the localization of its services. It, then, developed partnerships or

additional joint ventures for the introduction of its services in other markets, e.g. Korea, and/or even regions such as Europe. In terms of geographic sequence, Yahoo! entered European market shortly after it had entered the Japanese market by joint venture with a Japanese company, which was also the preparation for the European market entries followed. And then it eyed Asian markets such as Korea, China, Taiwan, and Hong Kong before paying attention to Latin American markets like Argentina and Brazil. The critical role of joint ventures in the internationalization of Yahoo! services has been identified. Especially the joint venture and subsequent joint venture with Softbank in Japan seem to have played an important role in obtaining local information as well as language necessary to its service localizations. The joint ventures for Yahoo! should have been one of the ideal entry modes because the localization of its services requires substantial local market experiences as well as business network even though the expansions themselves in cyberspace do not require any significant financial investment.

Table I The internationalization of Yahoo!, Inc. Date 4/1/1996 4/22/1996 5/29/1996 7/1/1996 9/23/1996 10/10/1996 10/21/1996 11/1/1996 1/30/1997 8/1/1997 9/1/1997 9/1/1997 9/3/1997 11/3/1997 11/3/1997 11/3/1997 4/22/1998 5/4/1998 6/9/1998 12/1/1998 1/28/1999 1/28/1999 1/28/1999 3/12/1999 6/8/1999 10/6/1999 3/14/2000 6/29/2000 [ 26 ] Country Japan Japan Japan Canada UK Germany France Europe Singapore Korea Australia New Zealand Korea Denmark Norway Sweden Italy China Spanish Spain Singapore Taiwan Hong Kong Germany Brazil Mexico Argentina India Event Joint venture Yahoo! Japan Partnership Yahoo! Canada Yahoo! UK Yahoo! Germany French Yahoo! Joint Venture Partnerships Korea Yahoo! Australia Yahoo! New Zealand Yahoo! Korea Yahoo! Scandinavia Yahoo! Scandinavia Yahoo! Scandinavia Yahoo! Italy Yahoo! Chinese Yahoo! in Spanish Yahoo! Spain Yahoo! Singapore Yahoo! Taiwan Yahoo! Hong Kong Alliance Yahoo! Brazil Yahoo! Mexico Yahoo! Argentina Yahoo! India Description With Softbank for Yahoo! Japan Yahoo! Japan online guide for Japanese Internet users With Ziff-Davis to launch UK, German, and French sites Localized contents Local contents Local contents Localized contents With a subsidiary of Softbank Mirror site by Sembawang Media Pte Ltd Joint venture with Softbank Localized contents Localized contents Localized contents Localized contents Localized contents Localized contents Localized contents Chinese Yahoo! for worldwide Chinese community Spanish Yahoo! for worldwide Spanish community Localized contents Localized contents Localized contents Localized contents Internet access service by the alliance Localized contents Localized contents Localized contents Localized contents

Daekwan Kim The internationalization of US Internet portals: does it fit the process model of internationalization? Marketing Intelligence & Planning 21/1 [2003] 23-36

AOL

Founded in 1985, America Online, Inc. (AOL), based in Dulles, Virginia, is one of the world leaders in interactive online services, Web portal, Internet technologies, and electronic commerce. AOL has two major business lines along with four product groups, the Interactive Online Services business, the Interactive Properties Group, the AOL International Group, and the Enterprise Solutions business. The Interactive Services Group develops and operates branded interactive services such as the AOL service with 17 million worldwide members as of June 30, 1999, the CompuServe service with 2 million worldwide members, the Netscape Netcenter, an Internet portal with more than 17 million registered users, the AOL.COM Internet portal, and the Netscape Communicator client software. The Interactive Properties Group operates Digital City, Inc., ICQ, MovieFone, Inc., Spinner.com, Winamp, and SHOUTcast. The AOL International Group oversees the AOL and CompuServe services and operations outside the USA. The Enterprise Solutions business is engaged in developing a range of software products, providing technical support, and consulting and training services. In fiscal 1999, its revenues reached $4.8 billion, a 55 percent increase over the previous fiscal year. Its membership grew from 12.5 million to 17.6 million during fiscal 1999, of which more than 3 million members are from outside the USA. There are about 38 million registrants for ICQ, 17 million for Netscape Netcenter, and 25 million for AOL Instant Messenger. It has more than 12,000 employees. Unlike Yahoo!, AOL entered the European markets first by forming joint venture with Bertelsmann in Germany (see Table II). Thereafter, it introduced its services to

Canada before moving to Asian markets such as Japanese and Hong Kong. Services to Latin American markets including Brazil and Argentina were subsequently introduced. In its internationalization, AOL focuses more on entering new markets by providing localized services as a portal. The joint ventures AOL entered seem to have played as important a role as that of Yahoo!. AOL has formed a few major joint ventures with Bertelsmann in Germany, with Mitsui and Nikkei in Japan, and with The Cisneros Group in Latin America. The joint venture with Bertelsmann has had a strategic role for the entry of European countries while those with Mitsui and Nikkei, and with The Cisneros Group have been formed for the localization of services in Asian and Latin American countries. However, the market expansions undergone from the three joint ventures have been more moderate and gradual than those of Yahoo!.

Lycos

Founded in 1995, Lycos, Inc. is one of the leading Web search sites having one out of two Web users in the USA as an audience. Headquartered in Waltham, MA, it thrives to be a global Internet player with its presence throughout the USA, Europe, Asia and Latin American. As of 1999, Lycos has 32.4 million registered users having soared 511 percent from 5.3 million in 1998. Page views per day have increased 192 percent to 70 million from 24 million in 1998. Its total annual revenue reached $135.5 million, which is 142 percent growth from $56.1 million in 1998. Lycos has 883 employees as of 1999. Lycos' internationalization of its services can be characterized as a two-phase world market penetration. The first phase was the introduction of its localized services to European markets by September 1997 when it entered several markets simultaneously. The

Table II The internationalization of AOL Date 3/1/1995 11/28/1995 1/31/1996 1/31/1996 3/18/1996 5/8/1996 4/15/1997 10/7/1998 12/15/1998 9/28/1999 11/16/1999 7/11/2000 8/8/2000 Country Germany Germany Canada UK France Japan Japan Australia Latin America Hong Kong Brazil Mexico Argentina Event Joint venture AOL Germany AOL Canada AOL UK AOL France Joint venture AOL Japan AOL Australia Joint venture AOL Hong Kong AOL Brazil AOL Mexico AOL Argentina Description with Bertelsmann Localization Localization Localization Localization with Mitsui and Nikkei Localization Localization with The Cisneros Group Localization Localization Localization Localization [ 27 ]

Daekwan Kim The internationalization of US Internet portals: does it fit the process model of internationalization? Marketing Intelligence & Planning 21/1 [2003] 23-36

European markets it entered at the time include Belgium, France, Italy, The Netherlands, Spain, and the UK. The second phase was undertaken in such Latin American markets as Argentina, Brazil, Chile, Mexico, Peru, and Venezuela in October 1999 (see Table III). Lycos has penetrated markets from Europe to Latin America, and then to Asia, unlike Yahoo! and AOL who paid attention to Latin American markets after the European and Asian major markets. It also formed multiple joint ventures in Asian markets (e.g. one joint venture each from Japan, Korea, and Singapore) dividing the Asian market into a few smaller markets. Entering the Canadian market by joint venture with Bell Canada is another unique characteristic of Lycos' internationalization since the Canadian market is relatively easy to enter without partnership with a local firm because of geographical and cultural similarities with the firms in the USA.

AltaVista

Founded at DEC's Research lab in Palo Alto, CA, in the spring of 1995, and headquartered in Palo Alto, California, AltaVista pursues the premier knowledge resource on the Internet. The majority owner of AltaVista is

CMGI, Inc. in Andover, MA. It provides immediate access to rich and relevant information across multiple dimensions such as Web navigation, shopping, news, live audio and video, and community resources. Its major services include AltaVista Search, AltaVista Shopping.com, AltaVista Live!, AltaVista Raging Bull, AltaVista Free Access, and AltaVista International. It has tried to abide by an ethic of objectivity in Web navigation guide. It currently delivers answers to more than 4 billion search queries quarterly generating approximately $319.8 million of annual net revenue. AltaVista initiated its internationalization process by entering Australia, which is the tenth market from the USA according to the cultural distance calculated out of 53 countries for which Hofstede (1991, 1994) reported the four cultural dimensions. After it explored a couple of Asian markets (e.g. Malaysia and China) and Canadian market by June 1999, AltaVista turned its attention to European markets such as Germany, Sweden, the UK, The Netherlands, and France (see Table IV). The internationalization of AltaVista is relatively unique compared to the other Internet firms discussed so far in that it entered European markets after some Asian

Table III The internationalization of Lycos Date 10/31/1996 5/12/1997 9/30/1997 9/30/1997 9/30/1997 9/30/1997 9/30/1997 9/30/1997 4/14/1998 3/22/1999 9/14/1999 9/14/1999 10/19/1999 10/19/1999 10/19/1999 10/19/1999 10/19/1999 10/19/1999 11/5/1999 2/2/2000 2/7/2000 3/4/2000 5/16/2000 5/16/2000 5/16/2000 7/19/2000 8/22/2000 [ 28 ] Country Germany Germany Belgium France Italy Netherlands Spain UK Japan Korea Korea Singapore Argentina Brazil Chile Mexico Peru Venezuela Japan Canada Latin America Malaysia China Hong Kong Taiwan India Philippines Event Lycos Germany Joint venture Lycos Belgium Lycos France Lycos Italy Lycos Netherlands Lycos Spain Lycos UK Joint venture Joint venture Lycos Korea Joint venture Lycos Argentina Lycos Brazil Lycos Chile Lycos Mexico Lycos Peru Lycos Venezuela Joint venture Joint venture Network Local Portal Lycos China Lycos Hong Kong Lycos Taiwan Lycos India Lycos Philippines Description Localized contents With Bertelsmann Localized contents Localized contents Localized contents Localized contents Localized contents Localized contents With Sumitomo Corp. and Internet Initiative Japan With Mirae Corp. Localized contents Singapore Telecom Localized contents Localized contents Localized contents Localized contents Localized contents Localized contents Adds new joint venture partner With Bell Canada Launches network in Latin America Lycos and Singapore Telecom launch Malaysian portal Localized contents Localized contents Localized contents Localized contents Localized contents

Daekwan Kim The internationalization of US Internet portals: does it fit the process model of internationalization? Marketing Intelligence & Planning 21/1 [2003] 23-36

Table IV The internationalization of AltaVista Date 10/a/1996 1/29/1997 1/14/1998 6/9/1999 10/0/1999 10/0/1999 12/0/1999 2/0/2000 2/0/2000 4/0/2000 7/14/2000 9/20/2000 10/19/2000 Country Australia Malaysia Canada China Germany Sweden UK France Netherlands Italy India Denmark Ireland Event AltaVista Australia AltaVista Malaysia AltaVista Canada AltaVista China AltaVista Germany AltaVista Sweden AltaVista UK AltaVista France AltaVista Netherlands AltaVista Italy AltaVista India AltaVista Denmark AltaVista Ireland Description Localized contents Localized contents Localized contents Localized contents Localized contents Localized contents Localized contents Localized contents Localized contents Localized contents Localized contents Localized contents Localized contents

Note: aOnly month and year were disclosed

markets. Another unique characteristic of AltaVista is that it entered Australian market in the very early stage of its internationalization process unlike other Internet firms. In addition, compared to other Internet firms, the internationalization process of AltaVista is rather slow. That is, by June 1999 when its major internationalization took off, AltaVista had entered only three markets since its first international venture in Australia in October 1996. Therefore, the internationalization of AltaVista adopted a very unique and incomparable path. It is possible that the internationalization of AltaVista is still at developing stage compared to the other three Internet firms, which may imply that as it enters more markets in the future, its whole internationalization process will converge to that of other Internet firms. Geographically speaking, the Internet firms tend to enter strategically important countries first. Especially, Japanese and German markets were frequently selected strategic countries of the Internet firms. Except for AltaVista, the Internet firms analyzed selected Japan and Germany as markets where they formed joint ventures. This can be explained by the importance of these two markets in their respective regions. That is, those Internet firms probably need to see the marketability of their brand in these important markets before the mass expansions to these markets around the strategic markets. The strategic markets also play an important role as a locus of international expansion by introducing the localized services in multiple markets near the locus. The aforementioned Japanese and German markets were the typical strategic locus for the Internet firms. Although this kind of strategy can be also observed in the traditional offline business, a unique pattern identified with the internationalization of these Internet firms is from the temporal density of expansion. In other words, unlike the offline business these Internet firms tend to enter multiple markets around the strategic locus in a fairly short period of time, e.g. several markets at a time. This could have been possible by the nature of their services that do not require a heavy incremental investment for each market whether it is financial or time investment. It is also interesting to note that the internationalizations of Internet firms are correlated between themselves. For example, the order of foreign market entry of Yahoo! is very highly correlated with that of AOL and Lycos with correlation coefficient of 0.901 (p = 0.000) and 0.755 (p = 0.005) as shown in

Results
Internationalization patterns
The four firms analyzed tend to form joint ventures before they launch the localized services to audiences from a specific country. For example, Yahoo! formed a joint venture with Softbank in Japan before the launch of localized services to Japanese market. Yahoo! later formed a few other joint ventures to provide localized services throughout its major markets. Lycos also preferred joint ventures to penetrate local markets in Asia and Europe. It formed joint ventures with Bertelsmann for European markets, with Mirae Corp. for the Korean market, and with Sumitomo Corp. for the Japanese market. AOL and AltaVista adopted the same strategy to enter foreign markets.

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Table V. The internationalization of AOL is also highly correlated with that of Lycos with correlation coefficient of 0.832 (p = 0.010).

Psychic indices and the Internationalization of firms

The proxy indices to represent approximate psychic distance found to provide some explanations of the internationalization of the Internet firms as shown in Table VI. The cultural distance calculated explains the internationalization of Lycos fairly well with its Spearman correlation coefficient of 0.552 (p = 0.012) while it provides a marginal explanation of the internationalization of AOL with its Spearman correlation coefficient of 0.596 (p = 0.069). However, the Spearman correlation coefficient with Yahoo! is 0.355 (p = 0.125) implying very weak relationship between the cultural distance index and the internationalization process of Yahoo!. Furthermore, the internationalization of AltaVista is not explained by the index at all with its correlation coefficient of 0.063 (p = 0.845). It is worth noting that unlike that of the other Internet firms, the sign of the Spearman correlation coefficient has a negative sign, which may imply that the internationalization of AltaVista is unique. As a second assessment, Kendall's tau with Crosstab analyses were conducted and presented in Table VI. The Kendall's tau analysis tends to provide a slightly improved significance for each case. That is, according to Kendall's tau, the relationship between the cultural distance and AOL is now significant at 5 percent (e.g. from 0.069 to 0.042).

Table V Spearman correlation coefficient between firms* Yahoo! Yahoo! AOL Lycos AltaVista
* **

AOL 1.000 0.822 (0.012) 0.205 (0.741)

Lycos

AltaVista

1.000 0.839 (0.002)** 0.712 (0.004) 0.405 (0.245)

1.000 0.051 (0.904)

1.000

Notes: Significance of Spearman correlation is based on two-tailed test at 0.05; p-values are in parentheses

Likewise, the relationship between the cultural distance and Lycos, which was significant at 5 percent with Spearman correlation, becomes significant at 1 percent level. Therefore, according to the results of the Spearman correlation and Kendall's tau, the cultural distance index supports the gradual internationalization of Internet firms partially. The second index deployed, the sociocultural distance index, however, provides better explanations of the internationalization of Internet firms in general than the cultural distance index does. The results of Spearman correlation analysis reveal that the socio-cultural index is highly correlated with the internationalization of Yahoo! with Spearman correlation coefficient of 0.832 (p = 0.000). The correlation coefficients of the index with the internationalization of AOL and Lycos are 0.877 (p = 0.001) and 0.744 (p = 0.000) respectively showing the significantly better explanations of the internationalization of AOL and Lycos than that of the cultural distance index. However, the socio-cultural index does not explain the internationalization process of AltaVista well either with its correlation coefficient of 0.314 (p = 0.320), although it explains the internationalization of AltaVista better than the cultural distance index does. The Kendall's tau also confirms the findings by Spearman correlation analyses with the socio-cultural index although it provides slightly improved significance level for each case. Figures 1-8 visualize the relationships between countries and the order of market entry for each Internet firm analyzed. They also confirm that the socio-cultural index explains the internationalization of the Internet firms far better than the cultural distance does. To a limited extent, however, the cultural distance explains the internationalization of the Internet firms, too. Overall, the internationalization of Internet firms is explained by the two indices to a certain extent, leading to the conclusion

Table VI Kendall's tau-b and Spearman correlation coefficient* Yahoo! AOL 0.596 (0.069) 0.405 (0.042) 0.877 (0.001) 0.783 (0.000) Lycos 0.552 (0.012) 0.432 (0.001) 0.744 (0.000) 0.655 (0.000) AltaVista 0.063 (0.845) 0.062 (0.787) 0.314 (0.320) 0.254 (0.289)

Cultural distance Spearman correlation Kendall's tau-b Socio-cultural distance Spearman correlation Kendall's tau-b

0.355 (0.125)** 0.252 (0.140) 0.832 (0.000) 0.730 (0.000)

Notes: *Significance of Spearman correlation is based on two-tailed test at 0.05; **p-values are in parentheses [ 30 ]

Daekwan Kim The internationalization of US Internet portals: does it fit the process model of internationalization? Marketing Intelligence & Planning 21/1 [2003] 23-36

Figure 1 Internationalization of Yahoo! by cultural distance

Figure 2 Internationalization of Yahoo! by socio-cultural distance

that the internationalization of firms in electronic commerce is following the gradual internationalization theory of firms relatively well especially when the sociocultural index as a proxy psychic distance is used.

Discussions and implications

From the content analysis conducted for the study, it is identified that the internationalization process of the Internet firms is very rapid and sometimes they introduced their services introduction into multiple countries at a time. It may have been made possible by the nature of their

services that require a relatively short period of time in building a country-specific database for each country especially with local or regional joint ventures. It is also found that different Internet firms use slightly different strategies in entering major continents (e.g. Europe, Asia, North America and Latin America). Especially, the sequence AltaVista has taken is dramatically different from that of the other cases. The path Yahoo! has undergone seems to be different from that of either Lycos or AOL because it went to the Japanese market first for service introduction as well as joint venture, although it contributed to the additional development of joint ventures and

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Daekwan Kim The internationalization of US Internet portals: does it fit the process model of internationalization? Marketing Intelligence & Planning 21/1 [2003] 23-36

Figure 3 Internationalization of AOL by cultural distance

Figure 4 Internationalization of AOL by socio-cultural distance

Figure 5 Internationalization of Lycos by cultural distance

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Daekwan Kim The internationalization of US Internet portals: does it fit the process model of internationalization? Marketing Intelligence & Planning 21/1 [2003] 23-36

Figure 6 Internationalization of Lycos by socio-cultural distance

Figure 7 Internationalization of AltaVista by cultural distance

Figure 8 Internationalization of AltaVista by socio-cultural distance

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services introduction in Europe later. One possible explanation for this phenomenon would be that the Internet firms are tempted to follow business networks or the potential of partners rather than the market potential of each country or the psychic distance especially in the beginning of their internationalization. This argument is supported by the facts that the first joint venture of Yahoo! with Softbank led to subsequent joint ventures for Korean market and European market, and that AOL formed joint ventures with Bertelsmann, who is a worldwide information technology company, with Mitsui and Nikkei, and with The Cisneros Group. In electronic commerce, particularly with the Internet portals, it seems that local sales (e.g. advertisement sales) and locationspecific services including local information and language are important. This may be a reason why most of the Internet firms analyzed preferred joint ventures or partnerships in entering foreign markets. Since the major lines of business are services or service-oriented, the Internet firms try to overcome their weaknesses in local information and language by adopting joint ventures or partnerships. This finding supports the argument made by Buckley et al. (1992) that service firms prefer joint ventures to gain an access to local specialized knowledge. Therefore, even though it is difficult to predict whether the joint ventures will be deployed by most Internet firms in general as a preferred entry mode in the future because of lack of generalizability of this study, we can still make an argument that the joint ventures will remain as a preferred entry mode at least for serviceoriented Internet firms according to the findings of this study. Although it is partially supported by the two indices, electronic commerce is not an exception for the gradual internationalization theory. In other words, from the significant gradual internationalization of Internet firms, it can be argued that the gradual internationalization theory can be applied to electronic commerce with some limitation. This also implies that understanding psychic distance between host country and home country is critical for the success of international ventures in electronic commerce. In the same vein, the perception that electronic commerce firms are different from brick-n-mortar firms seems to be less accurate, at least in terms of the internationalization of them. However, more studies on the internationalization of Internet firms are needed to further prove the similarity between the electronic commerce

and brick-n-mortar businesses in their internationalization. Moreover, we are arguing that further research is needed in other areas such as online promotion, price discrimination, and customer satisfaction to validate the traditional marketing theories in the context of electronic commerce. Regardless of the results whether or not they are confirming the tradition theories, the research findings will contribute to theory generations or generalizations in electronic commerce significantly.

Contributions and limitations of the study

This study has the following contributions. First, this is the first study that attempts to apply the gradual internationalization theory of firms to electronic commerce. Despite its weaknesses in generalizability of findings from a case study, it attempted a limited theory generalization of firms' internationalization into electronic commerce. That is, this study examined the applicability of the gradual internationalization theory of firms to Internet firms for the first time using proxy psychic distance indices such as the cultural distance index calculated from Hofstede's (1991, 1994) four dimensions of cultures, and the socio-cultural distance index of Goodnow and Hansz (1972). Second, the two different indices that represent the differences in terms of economic, cultural, and social dissimilarities were tested at the same time and evaluated the appropriateness of each index for the purpose of testing the gradual internationalization theory in electronic commerce. The comparison between them reveals that the socio-cultural distance index tends to explain the gradual internationalization of Internet firms significantly better than the cultural distance index does as discussed so far. However, the study has some weaknesses as well. First, the internationalization patterns found with the four cases are not strong enough to generalize the findings. Especially, the pattern of AltaVista seems to be inconsistent with the other three cases by far. Although it was not possible to test whether or not the pattern of AltaVista is an outlier in this study due to lack of observations, it needs to be tested with a larger sample in the future as more Internet firms are internationalizing. In addition, cases adopted are all serviceoriented Internet portals. There are a few

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reasons behind it. First, there are not many good representatives of Internet firms that have internationalized enough to include many countries. Furthermore, service oriented Internet firms have internationalized more rapidly compared to electronic retailers or manufacturers who are selling tangible products. Therefore, the service-oriented Internet firms tend to serve a greater number of international markets than the electronic retailers or manufacturers do. Finally, it enhances the homogeneity of observations simply because they are from the same industry and, therefore, variations from other factors including different industry can be minimized.

Conclusion
This study has attempted to apply the gradual internationalization theory of firms to electronic commerce by investigating the internationalization of four Internet firms, Yahoo!, AOL, Lycos, and AltaVista. Although the internationalization patterns found across the Internet firms are not very consistent, the investigation reveals that there is evidence for the gradual internationalization of Internet firms. In addition, as shown with the case of AltaVista that showed a negative correlation of its internationalization with cultural distance index and very weak correlation with the socio-cultural distance index, the potential existence of an electronic commerce specific internationalization pattern cannot be ruled out. Further studies with an adequate sample size will validate the findings of this study.

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Further reading

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