Boots on the ground: Foreign direct investment by born digital firms

Abstract

Research SummaryRecent global strategy research on born digital firms (i.e., firms with digital products distributed through digital channels) has paid only limited attention to the role of foreign direct investment (FDI) in the internationalization of such firms. We argue that exploiting digital technologies requires a range of complementary, non‐digital resources. Born digitals typically deploy FDI when large cultural and geographic distances limit the fungibility and scalability of such complementary resources, leading to a positive relationship between distance (cultural and geographic) and FDI. The positive distance effect is moderated by business model type. Using a sample of US‐based born digital firms with over 800 FDIs, we find support for our hypotheses and contribute an important empirical baseline to recent discussions of digitalization in global strategy.Managerial SummaryCompanies selling digital products (e.g., software, cloud‐based services) are theoretically able to offer their products in foreign markets through internet‐based channels, without ever setting foot in a foreign country. And yet, many “born digital” firms establish a physical presence in foreign markets by undertaking foreign direct investment (FDI). This phenomenon remains insufficiently explained. We argue that FDI can supply important complementary resources that help exploit and monetize digital assets in foreign markets. Using data from over 800 FDI projects, we show that FDI is more likely to occur if the foreign market is far away or culturally very different from the company's home country, and that the strength of this relationship differs among B2C and B2B business models.

Networks of internationalizing digital platforms in physical place and digital space

“…In this way, we not only show that networking activities in both localities are present and necessary (due to institutional differences, issues of legitimacy and reputation, and the inability to transfer some types of resources) but we also elucidate precisely how digital platform firms combine these activities. In other words, we become able to unearth the dynamics of the balance between the physical and the digital, as well as the interactivity of such coexistence (Stallkamp et al, 2023).…”

“…The burgeoning importance of digital platform firms in the global arena has vital implications for the field of IB (Birkinshaw, 2022;Monaghan et al, 2020;Stallkamp & Schotter, 2021;Zeng, 2022), as well as for the core tenets of its network approach, in that it provides an understanding of where, and how, relations are established (Brouthers et al, 2016;Sigfusson & Chetty, 2013). While enjoying wide digital presence, these firms still imply the existence of some degree of physical presence in host countries (Stallkamp et al, 2022(Stallkamp et al, , 2023Verbeke & Hutzschenreuter, 2021), for instance in terms of nontraditional entry modes of capital access, innovation outposts, and managed ecosystems (Brouthers et al, 2022). Overall, the resulting network complexity relates to several aspects, which we now proceed to discuss (see Table 1 for an overview).…”

“…Other scholars find that online networks of users cannot easily be transferred from one country to another, due to low embeddedness within a foreign market's user communities and the concomitant liabilities of user network outsidership (Brouthers et al, 2016). It follows that the instantaneous nature of international network relation‐building of digital platform firms remains problematic (Stallkamp & Schotter, 2021), and they still need to place “boots on the ground” (Stallkamp et al, 2023, p. 2), that is, to have some form of physical presence in foreign markets (Verbeke & Hutzschenreuter, 2021). This implies an unavoidable overlap between the two spatial dimensions—physical place and digital space—where network interactions occur, which results in an even higher degree of complexity in international networking activities.…”

“…In this way, we address calls in IB research to examine challenges of managing relationships in the new digital context of global platform and ecosystem partners (Chakravarty et al, 2021; Nambisan & Luo, 2021; Zeng, 2022). Specifically, we expand understanding of a place‐space balance (Stallkamp et al, 2023) and how digital and nondigital activities are orchestrated (Stallkamp et al, 2022) by depicting the mechanisms of the coexistence of network relations in physical place and digital space. In particular, we draw here from Stallkamp et al (2023, p. 5), who posit that “neither of the ‘space’ or ‘place’ logics provide a full account of the internationalization of born digitals,” and we thereby open up digital space (Batsakis et al, 2023; Birkinshaw, 2022; Monaghan et al, 2020) as a crucial locational dimension in which networking for internationalization occurs.…”

“…Specifically, we expand understanding of a place‐space balance (Stallkamp et al, 2023) and how digital and nondigital activities are orchestrated (Stallkamp et al, 2022) by depicting the mechanisms of the coexistence of network relations in physical place and digital space. In particular, we draw here from Stallkamp et al (2023, p. 5), who posit that “neither of the ‘space’ or ‘place’ logics provide a full account of the internationalization of born digitals,” and we thereby open up digital space (Batsakis et al, 2023; Birkinshaw, 2022; Monaghan et al, 2020) as a crucial locational dimension in which networking for internationalization occurs. Second, we inform the concept of location in IB research (Saittakari et al, 2023) and build on the multilocation perspective offered by Beugelsdijk and Mudambi (2013), who point to the weaknesses inherent in the traditional IB premise of adopting the crossing of countries' geopolitical borders as the main focus of analysis.…”