De-Internationalization

Author(s): Gabriel R. G. Benito and Lawrence S. Welch

Source: MIR: Management International Review , 1997, Vol. 37, Internationalization
Processes – New Perspectives for a Classical Field of International Management (1997),
pp. 7-25
Published by: Springer

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mlr Special Issue 1997/2, pp. 7-25 _^ ^ #

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© Gabler Verlag

Gabriel R. G. Benito/Lawrence S. Welch

De-Internationalization1

Abstract

■ In this article the subject of de-internationalization is examined from the p

spective of a number of streams of literature.

■ These contributions are then extended through the development of a conc

tual model which links decision-making on de-internationalization to t
broader context of international operations and company performance in ge
eral.

Key Results

■ While there are numerous reasons for various types of de-internationalizati

it is indicated that, as might be expected, companies do not readily entert
withdrawal, particularly as they become more committed to, and dependent
international operations.

Authors

Gabriel R. G. Benito, Associate Professor, Department of Marketing and Logistics, Norweg

School of Management, Sandvika, Norway.
Lawrence S. Welch, Professor, Department of Marketing and Logistics, Norwegian School of Ma
agement, Sandvika, Norway.

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Gabriel R. G. Benito/Lawrence S. Welch

Introduction

To date, most of the literature on the internationalization of firms has focused o

the growth - or positive development - of international business operations. Nu-
merous studies have, inter alia, investigated i) the paths that companies follow
from not being involved in international operations at all to becoming fully-fledged
multinationals (Welch/Luostarinen 1988), H) the factors affecting companies'
choice of operation methods in foreign markets (Hill/Hwang/Kim 1990, Benito/
Welch 1994), and Hi) the factors that may influence the performance - or suc-
cess - of foreign operations (Madsen 1987, Woodcock/Beamish/Makino 1994).
Research on the decline or exit from foreign operations is, on the other hand
far less common, probably due to the seemingly negative and undesirable feature
associated with these phenomena. In contrasting the approach to acquisition an
divestment within companies, Clarke and Gall (1987) comment that: "Acquisition
are seen as image building for the Chairman, as progressive, expansionary and ex
citing. Divestment is seen as an admission of failure, a retreat . . . Human natur
being what it is there is a tendency to suppress admission of failure". Comment
ing on the noteworthy lack of study of foreign market exit as opposed to the ex
tensive literature on foreign market entry, Bonaccorsi (1992) argues that "foreig
market exit should therefore be conceptualized in export research". Although th
number of studies is very limited, some research suggests that actions such as di
vestments, pulling-out of a market, downsizing foreign operations, and/or switch-
ing from high to low commitment modes of operation, may be far from uncom
mon (Bonaccorsi 1992, Li 1995, Barkema/Bell/Pennings 1996). The early 1990s
featured many examples of large multinational companies, such as IBM and Dig-
ital, restructuring their global operations, a common by-product of which was re
duced activity, or total withdrawal, in parts of their overall network. In this con
text, partial de-internationalization could be seen as part of the ongoing process
whereby a company seeks to maintain the viability of its international operations
The purpose of this paper is to discuss and analyze those phenomena - which
may in general be termed de-internationalization - in the light of existing litera
ture in international business and related fields, including economics, manage-
ment, strategic management and industrial organization, as well as relevant com
pany examples. We shall also seek to extend these contributions by developing
conceptual framework which places de-internationalization decisions in th
broader context of a company's international, and overall, operations. This issu
is not just of academic concern: de-internationalization decisions, particularly if
they involve the closing down of activities in a given country, may evoke stron
reactions by governments, unions, workers and other affected parties. It would
seem, therefore, that an improved understanding of de-internationalization and
the processes which lead to it are long overdue for more thorough investigation

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 De-Internationalization

What is De-Internationalization?

Broadly speaking, de-internationalization refers to any voluntary or for

tions that reduce a company's engagement in or exposure to current cross
activities. In the extreme case, of course, a company may withdraw comp
from international operations - what may be termed full or complete de-in
tionalization. Frequently though, de-internationalization occurs in only a p
way, and may arise in many forms, for example:

- reduction of operations, in whatever form, in a given market or withdrawal f

that market;
- switching to operation modes that entail a lower level of commitment;
- sell-off or closure of foreign sales, service or manufacturing subsidiaries
- reduction of ownership stake in a foreign venture;
- seizure by local authorities of assets owned by a foreign company.

Perspectives on De-Internationalization

De-internationalization has been an issue of varying concern in a number of

although the focus has tended to be on particular withdrawal situations
foreign subsidiary divestment. Somewhat surprisingly, the issue has receive
limited attention in the "internationalization field" itself, in which the foc
been on the growth of companies' international operations through time (
son/Vahlne 1977, 1990, Benito/Welch 1994). In this section we shall consid
internationalization from the perspectives of a number of fields that have cont
uted to an understanding of the circumstances and driving forces which ar
to lead to its development.

Economics

From a traditional economics perspective de-internationalization could b

garded as a rational response to altered market or competitive conditions.
cus is primarily - but not necessarily exclusively - on operative motives
profits) which reduce the attractiveness of any given operation, and whic
sequence may lead to actions like withdrawing from a market, switching
high cost/high involvement market servicing mode to a lower cost/lower
ment mode, or closure (alternatively, sale) of a production plant. Simply

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Gabriel R. G. Benito/Lawrence S. Welch

tion will be taken whenever achieved (or expected) profits n< tt*, where ;r* de-
notes the minimum acceptable profit level (over a period of time). Numerous fac-
tors may lead to unsatisfactory profit levels, including; i) deterioration of relativ
cost conditions due inter alia to price inflation in the host country, altered ex
change rates, or the introduction of new, more efficient production technology
elsewhere, 11) falling prices due inter alia to increased competition, the introduc-
tion of new product offers (substitutes), and weakened local currency which may
affect the value of repatriated profits, and Hi) reduced demand, e.g. obsolete prod
uct offer, adverse economic conditions in the host country or export market, con
tractionary macroeconomic policies, etc.
Unsatisfactory profit levels do not necessarily lead to de-internationalization
actions. Clearly, both "positive" and "negative" courses of action may be avail-
able in situations characterized by low profits. For example, firms may at-
tempt - depending on the actual circumstances - to deal with unsatisfactory profi
levels by reducing costs (lay-offs, adoption of more efficient production processes,
etc.), and/or increasing sales revenues - for example, achieving a larger sales vol-
ume by "downgrading" the product offer, or, alternatively, to focus on more
affluent market segments with an "upgraded" product.
While traditional economic reasoning concentrates on the operative conse-
quences of changes in sales revenues and production costs, transaction cost eco-
nomics calls attention to factors that influence the choice of foreign operation
methods - which are mainly regarded as a question of the degree of control the
firm should have over a foreign operation (Anderson/Gatignon 1986). This per
spective gives particular importance to the transaction cost ramifications of alter
native modes of operation (i.e. governance structures) under different condition
of transaction specific assets and internal/external uncertainty (Williamson 1985)
The relevance of transaction cost economics in the context of de-internation-
alization, lies primarily in its analysis of the strategic motives underlying choice
of operation modes, and by extension, of change of mode. While this perspective
may have little to say about the relational, managerial, and organizational pro-
cesses leading to such changes - or their implementation - it is, however, pos-
sible to deduce predictions about when such changes may be observed. In gen-
eral, significant changes (parametric shifts) in the factors that influence the initial
choice of operation modes are likely to induce or lead to corrective action
(Riordan/Williamson 1985, Teece 1986). For example, a significant reduction in
the value of specific assets (e.g. the value of a previously unique technology may
diminish if alternative and better technologies become more readily available)
would reduce the benefits of using a high-control operation mode such as a wholly-
owned foreign subsidiary (because of the high administration costs associated
with such modes). As a result, a firm might be better off by dismantling its own-
ership involvement in a foreign venture, and organize its transactions with sup-
pliers or distributors within contractual or arms-length relations.

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 De-Internationalization

An important stream of literature dealing with entry and exit dynamics in gen-
eral (Siegfried/Evans 1994), and foreign divestments in particular (Shapiro 198
Benito 1997), is rooted in the industrial organization field. The main idea is th
the decision to exit from an operation is a function of, on the one hand, incentives
to exit and, on the other hand, impediments to exit (Siegfried/Evans 1994). Th
most obvious incentive to exit is low profits, or outright unprofitability, which in
turn may be due to high costs, permanent decreases in demand, or the entry in
an industry by aggressive, more efficient new competitors. The existence of sp
cific assets, i.e. assets which do not have valuable alternative uses (Williamson
1985), constitute an important impediment to exit (Caves/Porter 1976). Even
though sunk costs may, from a purely economic perspective, be seen as an "ir
tional" barrier to exit, in reality they function as a perceptual exit barrier (St
1981). The role of such investments is often to deter entry by signalling a cre
ible ex ante commitment by incumbents to stay in an industry or market (Shapiro/
Khemani 1987). However, what serves as an entry deterrent, also deters e
ex post.
Specific assets can be either tangible or intangible. In general, the empiri
evidence suggests that durable tangible specific assets, such as high sunk cost
machinery, discourage exit (Siegfried/Evans 1994). In a similar vein, intangib
assets such as goodwill, advertising and research and development intensity, fir
specific human capital, and even emotional attachment to the firm and/or indu
try, can also operate as exit barriers by raising the perceived cost of leaving t
arena (Caves/Porter 1976). An additional exit barrier is interrelatedness betwee
units, such as joint production and distribution facilities, which may prevent
in a strict sense, unprofitable unit from being divested because it may contrib
positively to the company's overall activities. Finally, the IO literature sugge
that divestment may depend on diversification. Caves and Porter (1976) argue t
owners of independent plants have a lower opportunity cost and are therefore will-
ing to accept a lower rate of return than operations belonging to a multi-plan
multi-industry company would be expected to achieve. Moreover, divestment
facilitated in diversified companies since decisions are likely to be made by top
managers who are geographically and/or emotionally remote from the units t
are candidates for divestiture (Wright/Thompson 1987).

Strategic Management

There has been a number of contributions regarding de-internationalization

tions, especially those leading to the divestment of foreign units, from a strate
management perspective. Using a product life-cycle approach Harrigan (1980)
argues that divestment is one of several strategic options for "declining" indu
tries. In particular, divestment may be an appropriate route in "end game" sit

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Gabriel R. G. Beni to/Lawrence S. Welch

tions characterized by high volatility and uncertainty regarding future returns.

Divestment can also be analyzed from a corporate portfolio perspective: a com-
pany can be regarded as a portfolio of assets, products, and activities, which should
be continuously under review from both financial and strategic points of view
(Clarke/Gall 1987, Chow/Hamilton 1993). The contention that poorly perform-
ing units are likely candidates for divestiture, is supported in a number of studies
(Duhaime/Grant 1984, Hamilton/Chow 1993). Moreover, these studies also sug-
gest that corporate level financial performance influences divestment. For ex-
ample, in a study of 208 divestments made by large New Zealand companies dur-
ing 1985-90, Hamilton and Chow (1993) report that the necessity of meeting cor-
porate liquidity requirements was among the most important objectives motivat-
ing divestment.
In addition to the narrow financial considerations, which are undoubtedly im-
portant, strategic considerations regarding the fit between the various operations
of a company also play an important role in the decision to divest. In particular,
following Rumelt's (1974) study on the relationship between strategy and perfor-
mance, empirical studies consistently find that corporate expansion into related
industries leads to better performance and superior survival rates than expansion
into unrelated industries (Bane/Neubauer 1981, Lecraw 1984, Pennings/Barkema/
Douma 1994, Li 1995). Similarly, interview based studies report that low inter-
dependency between units (Duhaime/Grant 1984), and the need to focus on core
activities (Hamilton/Chow 1993), strongly motivate the decision to divest. Thus,
although there are examples of companies that have evolved into large conglom-
erates, in general, studies suggest that firms are inclined to, and probably better
off by, staying close to their specific competencies. Taking a transaction cost ap-
proach to strategic management, Reve (1990) even argues that, apart from the
need to protect assets constituting the strategic core, there are no compelling ec-
onomic reasons for corporate expansion through ownership since all complemen-
tary assets can be secured by various forms of alliances.

Internationalization-Management Perspective

The internationalization process approach which is stressed in one important strain

of research on companies' international operations is of particular interest as it
provides an explanation of some of the driving forces which help to move the
company forward internationally over time (Johanson/Vahlne 1977, 1990, Luos-
tarinen 1979). The obvious question that arises is: do these forces operate in re-
verse, perpetuating a withdrawal process? While de-internationalization has been
recognized in this research, it has received scant treatment (Welch/Luostarinen
1988, Benito/Welch 1994). One might expect that the learning-by-doing stressed
in this literature as one of the keys to understanding the ability of firms to con-

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 De-Internationalization

tinue moving out over time would include learning from mistakes, failures and
the like which result in some reversals from time to time within an overall pat-
tern of international growth. It is evident that companies do learn from mistakes
and adjust behavior, so that reversals do not necessarily start a de-international-
ization spiral (Benito/Welch 1994). However, it is also clear that, in certain cir-
cumstances, reversals are taken as evidence of a need to pull back, to reduce in-
volvement, or, in the extreme, to withdraw from international operations al-
together. As in the process of forward movement, much depends on the attitude
of management, the stage of internationalization, the extent and type of commit-
ment to international operations (both resources and psychological) within the
company and the preceding experience from international activity (Johanson/
Vahlne 1977, 1990, Welch/Luostarinen 1988, Buckley/Ghauri 1993).
This is particularly illustrated in the behavior of early exporters. Because of
the way in which exporting is often initiated, the commitment by management to
the exporting activity may be weak, even tenuous at the outset (Bilkey/Tesar 1977,
Welch/Wiedersheim-Paul 1980). External change agents frequently play a major
role in triggering the exporting start, as exemplified in the role of fortuitous in-
quiries or orders found in many exporting studies (Bilkey/Tesar 1977, Munro/
Beamish 1987, DFAT 1995). Inevitably, the risk of problems or reversals at this
stage leading to complete withdrawal from the exporting activity is especially
high (Welch/Wiedersheim-Paul 1980). An early Australian study of exporters and
non-exporters found "that a substantial portion of non-exporters (had) exported
at some stage" (Layton/Dunphy 1978). Similarly, Bonaccorsi (1992) reports that
in the years 1978-1984, more than 45 per cent of the total number of Italian ex-
porters in that period exported for only one year. While such complete forms of
de-internationalization might be expected in this early phase, they are neverthe-
less suggestive of some of the issues which might have a bearing on withdrawal
decisions at later phases of international involvement.
Even when a company has more established international operations, exter-
nal forces (e.g. changed foreign market conditions; foreign government action)
are often the key triggering forces in causing management to examine the nature
and extent of the company's international involvement. Poor foreign market per-
formance, perhaps due to problems with distributors, or adverse developments
such as import restrictions or competitive action, might well cause a re-think about
the exporting activity. The type of response in such situations still depends very
much on how management views the reverses. For highly committed manage-
ment, and when international markets are critical to the company's survival, com-
plete withdrawal could be viewed as almost inconceivable.
Likewise, for multinational companies, with operations in many countries and
in many forms, a future without international operations in today's context would
probably be very difficult to contemplate, let alone suggest. For such companies,
responses to reverses in one or more foreign markets are more likely to be under-

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Gabriel R. G. Benito/Lawrence S. Welch

taken in the context of strategic re-positioning of their global operations. For ex-
ample, the former head of the UK industrial conglomerate, BTR, in discussing
the company's decision to sell its minority stake in a Malaysian petrochemical fa-
cility, commented: "this disposal continues our strategy of divesting non-core
interests and concentrating on industrial manufacturing" (Burt 1996). The deci-
sion had been made in the context of "difficulties with the petrochemical opera-
tions". During the early 1990s many multinationals were involved in restructur-
ing, downsizing, and outsourcing as part of a redefinition of their businesses and
strategic priorities (Hendry 1995). Companies like Digital have closed manufac-
turing operations in many countries and have undertaken substantial divestments
throughout their global network (Muffett 1994). One might argue that long be-
fore any of these steps reached terminal de-internationalization stage for a given
multinational that the company would have been taken over by, or merged with,
another seeking international expansion. As an illustration, after heavy losses on
Asian futures markets the British investment bank, Barings, was taken over by
the Dutch financial group, ING, which was seeking to extend its international
activities (Economist 1995).
The by-product of mergers and acquisitions amongst companies with substan-
tial international operations may well be that duplicate operations within or across
nations are closed down. The merger between pharmaceutical companies Phar-
macia and Upjohn has led to worldwide restructuring of the merged operation,
"which will see the group close up to half its facilities" (Luesby 1996). In a gen-
eral sense, stage of internationalization may be viewed as an indicator of the ex-
tent of embeddedness of commitment to international operations within a com-
pany. In this respect, internationalization can be viewed as a barrier to de-inter-
nationalization.
The extension of commitment flowing from extended international operations,
which is reflected in the allocation of resources such as people and the building
or purchase of physical assets and the like, make it difficult for companies to with-
draw (barriers to exit). Perhaps as importantly though, people have made these
decisions to commit at some stage, so that there is psychological pressure to con-
firm the appropriateness of the steps undertaken, i.e. the decisions need justifica-
tion. This is done by moving forward, not reversing the process, thus the argu-
ment that this is one of the underlying forces in internationalization (Johanson/
Vahlne 1977, Welch/Luostarinen 1988). Inevitably therefore there is a manage-
rial bias towards sticking with the path chosen, in this instance internationaliza-
tion, and even supporting it in many cases despite adverse developments. Earlier
economics literature has identified the potential importance of so-called barriers
to exit, as noted above, to which managerial commitment can be added.
The importance of this factor is supported by research in the management field
where there has been a concern to understand the influences on decision-makers
which lead to escalating commitment to a failing course of action (Staw 1981,

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 De-Internationalization

Brockner 1992). Such seemingly irrational persistence has been found despite ev-
ident negative feedback. Explanations have been grouped into project, psycho-
logical, social and structural, with many studies demonstrating the importance of
the self-justification factor (Staw/Ross 1987, Brockner 1992). Drummond (1995)
comments: "the evidence consistently shows that subjects who are told they were
responsible for the initial decision to invest show a greater propensity to commit
further resources in the face of negative feedback than subjects who are told they
were not responsible for the initial decision". This pattern is supported amongst
decision-makers by a tendency to bias information collection and evaluation in a
way which supports the decisions they have taken (Bazerman 1990).
While there is well established research on the issue of escalation of commit-
ment, very little work has been undertaken on the reverse of this process, so-called
de-escalation: in a recent review of the literature, Drummond (1995) found that
"only a handful of papers have considered the phenomenon of de-escalation", add-
ing that "we know very little about how decision-makers actually experience
mounting evidence of failure in a venture which is important to them". Clearly
though, as negative feedback mounts, committed decision-makers face conflict-
ing pressures: to persist, and thereby justify, or to withdraw (Staw/Ross 1987).
From her own study, Drummond (1995) concluded: "Withdrawal is most prob-
able under conditions of low commitment and high perceived power to enact with-
drawal . . . Information alone is insufficient to effect withdrawal. Perceived power
may be the ultimate arbiter".
In the context of internationalization, if a given group of managers is respon-
sible for a range of international commitment decisions, and particularly if the stra-
tegic direction is driven from the top and inculcated through the corporate value
system (Ghoshal/Bartlett 1994), it is likely to require a major, threatening, nega-
tive outcome for management to seriously embark on a process of de-internation-
alization, which would involve unravelling what they have put in place. An ex-
treme case recently has been the withdrawal of Daiwa Bank from the U.S. market,
precipitated by massive losses and forced by the U.S. authorities as a result of a
breach of financial regulations. This has led to a major domestic and international
restructuring program by Daiwa, in consultation with the Japanese finance minis-
try, and may even lead to a merger with Sumitomo Bank which took over its U.S.
operations (Baker 1996). Of course, negative feedback from foreign markets does
not normally come in the form of such a powerful shock, more typical would prob-
ably be deterioration over time, so that the case for withdrawal is not so clear-cut
and the decision is, therefore, so much more difficult for the responsible manag-
ers to take. In addition, alongside the forces which create resistance to withdrawal
within the company are potentially powerful forces on the outside that may have
to be confronted, for example trade unions and governments. The strong reaction
of the French government to the planned closure by Hoover of its Dijon vacuum
cleaner factory in 1993 is a case in point (Hill/Cassell 1995).

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Gabriel R. G. Benito/Lawrence S. Welch

Managerial succession, especially if it involves a change at the top, may be

one important key to explaining why a reversal in strategic direction that leads t
de-internationalization becomes more feasible. For example, research on the for-
eign direct investment activities of Finnish firms has shown that top managemen
change can be an important facilitating factor in the preparedness to undertake in-
vestment decisions (Bjorkman/Eklund 1996). Research in the broader strategy
field has also identified change in top management as a common factor in strate
gic change, and in its implementation (Doz/Prahalad 1987, Lant/Milliken/Batra
1992). New managers are often psychologically unencumbered by the decisions
and commitments of the past, and if they are brought in to address problems en
countered by the company, they tend to be in a position of power to "enact with
drawal" (Drummond 1995). The actions of Lou Gerstner as the new head of IBM
in restructuring the company following its losses in the early 1990s typify this
ability to undertake withdrawal steps (Kirkpatrick 1993). In contrast, when th
Australian multinational TNT experienced serious financial problems at the be-
ginning of the 1990s, and began to restructure its global operations, the process
was initially led by the chief executive officer who had been responsible for
setting up those operations in the first place. As a result, the closure of some th
foreign activities was not as easily countenanced. One commentator observed:
"Abeles (the CEO) is often said to be sentimental about some of his businesses,
making it difficult for him to close or dispose of them" (Cromie 1991).

Developing a Conceptual Framework

While there has been a wide variety of variables stressed and issues focused on
in the diverse contributions relevant to the development of ideas about de-inter-
nationalization, there has also been a certain consistency in the evolving ideas. In
this section we shall seek to draw some of the common elements together and ex-
tend them through the construction of a conceptual framework which might serve
as a basis for undertaking further research and theory building.
From the various perspectives on de-internationalization it is evident that as
the commitments to international operations build up over time, it tends to be-
come more difficult for a given management group to undertake withdrawal from
international operations altogether, and even on a partial basis. The barriers to exit
emphasized in the economics literature are supported by the extensive manage-
ment research showing the importance of self justification and the strength of
forces supporting escalation of commitment to a course of action even when feed-
back is showing that it is producing negative results. From economics, manage-
ment and marketing perspectives this can be readily justified as a need to handle

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 De-Internationalization

Figure 1. Complete De-Internationlization and Commitment to International Operations

Probability k i
of Full De-
Internationalization

t
e
t
w
erations increases - i.e. as internationalization unfolds.
The above conclusion can be seen as a relatively consistent theme of the var-
ied literature relating to the issue. However, partial withdrawal, which has been
shown to take place in a number of different forms, cannot necessarily be seen as
following such a consistent pattern. It has already been noted that companies
often reduce operations in some foreign markets over time as part of an overall
process of international expansion. The forces of resistance still apply to moves
of this nature - both within and outside the company. The larger the foreign
operation which may be deemed appropriate for shutdown, the more difficult it
tends to be to carry this out: the company can easily become embroiled in politi-
cal battles with the local government, trade unions, its own work force and other

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Gabriel R. G. Benito/Lawrence S. Welch

Figure 2. Partial De-Internationalization and Commitment to International Operations

Probability t
of Partial De- .
Internationalization Novice
Exporter

\ Global

International Firm

in
o
m
N
u
la
m
f
a
t
a
in
la
si

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 De-Internationalization

even partial withdrawal may be less likely. The global operator in Figure 2, with
a wider array of global options, becomes more likely to make partial de-interna-
tionalization moves, even though its overall commitment to international opera-
tions is greater, and thereby it has a lower propensity to fully de-internationalize.
This argument can be seen as consistent with research in the management lit-
erature in which de-escalation is viewed as a "more probable outcome where al-
ternative investment opportunities exist" (Drummond 1995). Likewise, as pointed
out in the economics literature, multinational companies, when deciding whether
and where to undertake foreign direct investments, may choose to establish pro-
duction units in a number of countries in order to have the flexibility to relocate
production if and when necessary (de Meza/van der Ploeg 1987).
While the above depiction of the link between de-internationalization and
stage of international operations in a broad sense may be a reasonable conclusion
from relevant research, it only takes us a limited distance in terms of providing
an appropriate conceptual setting for de-internationalization moves and in seek-
ing to explain them. The link between stage of internationalization and de-inter-
nationalization does however provide a clear indication that international with-
drawal actions should not be viewed in a vacuum. It can be argued that de-inter-
nationalization should be seen as part of the broader perspective of international
strategy, which, with advanced internationalization, is likely to have become an
integral part of overall company strategy. The connection to the overall company
situation is particularly important once the international component of company
performance becomes large enough such that substantial inter-dependency exists.
In this context, full de-internationalization involves a major upheaval for the com-
pany, so that it is that much more difficult to even contemplate. Likewise, attempts
to alter company performance in significant ways are likely to involve interna-
tional operations in some form or other, perhaps involving both expansion and
partial withdrawal moves. Figure 3 represents an attempt to provide this broader
conceptual setting for de-internationalization steps, with international expansion
and withdrawal moves depicted as potential outcomes of the same set of company
influences.
As shown in Figure 3, de-internationalization is seen as an outcome of a set
of forces which are linked to past international operations and commitments, but
are also affected by current developments within and external to the company. For
example, severe problems may have emerged in managing the company's foreign
subsidiaries at the same time as the external environment of these subsidiaries has
become less favorable, because of government decisions and the actions of emerg-
ing local competitors. Alternatively, the company may be experiencing serious
disagreements with a joint venture partner over the running of their joint opera-
tion. While these developments of themselves might prompt a consideration of
de-internationalization options, this would be balanced by the extent and type of
past commitments made in the subsidiaries or joint venture activities, and in inter-

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Gabriel R. G. Benito/Lawrence S. Welch

Figure 3. De-Internationalization and International Strategy: A Framework

International Operations

,
I , -External

Impact Input

Ov
Performance

Input

Change
in
Management

Decisions

Outcomes
- De-Internationalize
- Maintain
- Expand
ii

Actions

; International Strategy ;

Company Strategy

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 De-Internationalization

national operations in total. If there is substantial commitment, both of man

ment and of resources, the managerial response is more likely to be to seek w
of turning around the situation rather than withdrawing. The outcome in Figu
would therefore be maintenance and/or expansion strategies that will extend
level of commitment to international operations. The greater the dependency
these subsidiary or joint venture operations within overall company performa
the greater the likelihood that management will respond in this way - thus the lin
shown in Figure 3 between overall company performance and international o
ations, as viewed by company management. To break such an inter-locking
cle, we have argued that the pressure from current operations for withdrawal
to be particularly strong - often a major external shock or viability threaten
downturn in results for the company. A modifying factor in this situation is
extent to which the company has faced similar situations and used withdraw
a strategic response. Greater experience in partial de-internationalization is lik
to make the company more sensitized to its use and produce learning about w
and how to undertake withdrawal. In terms of Figure 3 this would be reflecte
the Past Commitments and Outcomes box. Some foreign operation modes are c
sen precisely because of their contribution to international flexibility, allow
company to pull out of a given foreign market more readily. Companies like N
and Reebok have become adept at moving contract manufacturing activities f
one location to another with a minimum of disruption to overall operations,
extracting the full cost and other benefits of each location (Luostarinen/W
1990).
Change in management is often the means that allows the de-internationaliza-
tion option, in part or full, to seriously emerge, although it is frequently a by-prod-
uct of a company's response to threatening adverse developments. Change of man-
agement is therefore included in Figure 3 as a potential input into a company's
international strategy, that may lead to de-internationalization.

Conclusion

The reasons for various types of de-internationalization action are numero

ing from poor performance of particular foreign operations, to adverse
mental action and inability to fulfill the expected benefits of diversification
acquisitions, and cooperative ventures. An overview of the literature pe
to de-internationalization indicates that, as might be expected, companie
readily entertain withdrawal, particularly as they become more committe
dependent on, international operations. This conclusion appears to recei
sistent support from differing perspectives, such as the barriers to exit c

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Gabriel R. G. Benito/Lawrence S. Welch

ation within economics and the tendency to seek justification by escalating com-
mitment found in management studies. The cycle of escalation can be, and clearly
is, broken, as a variety of cases demonstrates, especially in the area of divestment
of subsidiary operations. In this respect, though, it is important to differentiate
between partial and full de-internationalization. Clearly, partial de-internationali-
zation is more readily contemplated when there are pressures to do so - within
the company or externally. For a company with widespread global operations,
withdrawals in some parts of the overall portfolio may be regarded as minor ad-
justments in the company's total international position. Nevertheless, even at the
partial level, there are internal commitments and external vested interests that con-
strain the preparedness of even large multinationals to undertake withdrawal.
Change of management may be a key factor in facilitating the process of de-inter-
nationalization, whether deliberately engineered to achieve the objective of re-
• structuring, as in the IBM case, or as an outcome of events such as acquisition. A
managerial implication that emerges from this exploration into de-international-
ization, seems to be that while partial withdrawal can be viewed as a normal as-
pect of international activity, it is something for which the ground needs to be
carefully prepared, even as commitments are being entered into (Welch/Welch
1993). Policies regarding the movement and placement of management staff may
therefore be critical in building a more flexible approach to de-internationaliza-
tion.

The conceptual framework presented in this article can be seen as a first step
in drawing together ideas relevant to the issue of de-internationalization. It is nec-
essarily broad in scope, encompassing as it does a large range of situations and
stages in the development of international operations by companies. Further re-
finement is also necessary, perhaps involving research which follows de-interna-
tionalization moves by a number of companies through an extended period of time
and internationalization stages in order to clarify the circumstances and influences
on decisions to withdraw. Inevitably, such research faces the problem that with-
drawal is not a subject that most companies or managers like to dwell on.

Notes

1 Part of this paper was written while Gabriel R. G. Benito was at the Department of Internation
Economics and Management, Copenhagen Business School. The authors thank Bent Peters
for his useful comments and suggestions. An earlier version of the paper was presented at th
AIB annual meeting, Banff, Canada, September 26-29, 1996.

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 De-Internationalization

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