Platforms without borders? The international strategies of digital platform firms

Abstract

Research Summary: Digitalization has enabled firms with so‐called platform business models to emerge in many sectors of the economy. By facilitating transactions between different groups of users (e.g., buyers and sellers), platform firms are disrupting industries around the world. However, little is known about the international strategies of platform firms, as research has mostly examined platforms in single‐country contexts. We address this gap by integrating insights from platform research in strategy and economics—specifically the notion of network externalities—with internalization theory. We extend the existing typology of network externalities by distinguishing between within‐country and cross‐country network externalities. We derive testable propositions regarding the foreign entry modes of platform firms, their international strategic posture (multidomestic vs. globally integrated), as well as foreign market selection criteria and market exit. Managerial Summary: Many companies in the digital economy operate platform business models, which create value by connecting different groups of users, such as buyers and sellers. We examine how network externalities—the notion that a platform becomes more valuable to each user as more users join—influence the international expansion of these firms. We show that it is important to consider the geographic scope of network externalities, that is, whether network externalities operate across national borders or whether platform firms have to create separate user networks in each country. The distinction between within‐country and cross‐country network externalities affects key internationalization decisions, such as how to enter foreign markets, whether to pursue multidomestic or global strategies, how to select foreign markets, and when to exit from a foreign market.

The liability of disruption

“…In so doing, we corroborate the view that “global strategy is not merely about developing competitive advantage but also about overcoming competitive disadvantages” (Pant & Ramachandran, , p. 225). Moreover, this finding extends international business research about the global growth of new technology ventures, which has recently begun to illustrate the network‐related challenges faced by platform firms as they expand globally, and identified the resources, capabilities and strategies that may help them in this regard (Brouthers et al, ; Parente, Geleilate, & Rong, ; Stallkamp & Schotter, ). Our study complements this research by focusing on a specific segment of the platform economy (i.e., the sharing economy), and by providing support for the central idea that host country market and nonmarket stakeholders matter vis‐à‐vis these firms’ ability to succeed given their disruptive business models.…”

“…We see several avenues for advancing our understanding of the internationalization-related legitimacy challenges for firms with disruptive business models. First, by showing how the liability of disruption affects the host country-based legitimacy seeking opportunities of Airbnb and Uber, our study provides findings that have value for other platform firms beyond our sample of sharing economy firms, as they share some similarities, including the use of computer-based information systems and the Internet to deliver a system that allows users to interact easily with each other (Brouthers et al, 2016;Forsgren & Hagström, 2007), and the often rapid processes of internationalization (Stallkamp & Schotter, 2019). This offers fertile ground for additional empirical work within different platform types and in-platform firms originating from different countries.…”

The Internationalisation of Platform Companies: Does the digital get rid of Geography?

“…Furthermore, "localisation" needs may be influenced by the very object of the platform's activities. This is an important issue, which impinges upon the nature of the externalities being developed (Stallkamp and Schotter, 2019;Simões and Miranda, 2019). This theme will be explored next.…”

“…Paraphrasing the question raised by Stallkamp and Schotter (2019), platforms are not without borders. They may face liabilities of foreignness (LoF), or the risks of developing businesses in a different national jurisdiction, and especially liabilities of outsidership (LoO), that is, the weak integration in networks or ecosystems (Johanson and Vahlne, 2009).…”

“…Platform companies may enjoy "lean internationalisation" (Autio and Zander, 2016), but Stallkamp and Schotter (2019) argue that the ease of internationalisation depends on the characteristics of network externalities (within-country versus inter-country) in the industry concerned. However, irrespective of being faced with a LoF or a LoO, there is evidence that the internationalisation of digital businesses is not instantaneous.…”