How service companies from emerging markets overcome ...

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Bianchi, Constanza C. (2009) How service companies from emerging markets overcome internationalization barriers: evidence from Chilean services firms. In: 2009 Strategic Management in Latin America Conference, January 5-7, 2009, Sao Paulo, Brazil.

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How Service Companies from Emerging Markets Overcome Internationalization Barriers: Evidence from Chilean Services Firms

Constanza Bianchi, Ph.D. Teaching and Research Fellow School of Advertising, Marketing and Public Relations Faculty of Business Queensland University of Technology 2 George Street, GPO Box 2434 Brisbane 4001, Queensland Australia Phone: (61-7) 3138 1354 Fax: (61 7) 3138 1811 [email protected]

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Strategy Formulation and Execution in Latin America

How Service Companies from Emerging Markets Overcome Constrains to Internationalization: Evidence from Chilean Services Firms

Abstract The fact that service companies from emerging countries are capable of international growth has been essentially ignored in the literature. Following several calls for research on services internationalization (e.g., Pauwels and Ruyter, 2005), the objective of this research project is to expand our knowledge on the internationalization process of service firms from emerging markets. This exploratory study draws from the resource based view of the firm (RBV), which is concerned with the influence of firm resources and capabilities in explaining how firms can achieve and sustain competitive advantage (Barney, 1991). Drawing from interviews with relevant managers of two different service industries in Chile (education and tourism), this paper provides unique insights into a previously unexplored sector in the international services field. Results identify the main barriers that services firms from emerging markets face during their internationalization process, and the strategies used by these firms to overcome these barriers and succeed in foreign markets. Keywords: Service Firms, Internationalization, Barriers, Chile 1. Introduction For the past few decades, international trade has been dominated by developed countries, led by the United States, Germany and Japan. While these countries still possess the largest export market share, a number of developing economies have achieved significant gains in market share during the last two decades (World Trade Organization, 2005). Several researchers have assessed the challenges in the developing markets of Asia and the transitional economies of Central and Eastern Europe (Fahy et al., 2005). In contrast, less attention has been paid to internationalizing firms from Latin America. Emerging markets are increasingly prominent in the world economy. In 2002, emerging economies accounted for 12% of the world’s foreign direct investment (FDI) outflows (Unctad, 2003). This is due to the rapid pace of development and government policies that favor economic liberalization. The growing importance of emerging economies is also reflected in increased research in the international business discipline (Hoskisson, et al., 2000) and several calls for more studies on emerging markets (Burgess and Steenkamp, 2006). Services firms from emerging markets are increasing their efforts to integrate into the global economy and have started already to export abroad. According to the World Trade Association, the value of global exports of services in 2005 constituted around 20% of total world exports. 1

Nonetheless, a critical issue that services firms face is how to succeed internationally since competitive advantages in the service industry are based on processes that cannot be easily standardized across nations (Shostack, 1977). International studies have focused mainly on the international experience of services from developed nations (Gourlay, et al., 2005; Roberts, 1999; Smith, 2007). However, firms from emerging markets are also increasing their efforts to integrate into the global economy (Khanna and Palepu, 2006), and several examples of service companies that are expanding internationally and competing successfully with large companies from developed nations are found in the press. For example, banks, retailers, and airlines are situated among the most competitive firms in Latin America in 2007 (America Economia, 2007). Nevertheless, the fact that service companies from emerging countries can be capable of international growth has been essentially ignored in the literature. Following several calls for research on services internationalization (Clark and Rajaratnam, 1999; Knight, 1999; Pauwels and Ruyter, 2005), the objective of this research project is to expand our knowledge on the internationalization process of service firms from emerging markets. This exploratory study draws from the resource based view of the firm (RBV), which is concerned with the influence of firm resources and capabilities in explaining how firms can achieve and sustain competitive advantage (Barney, 1991; Fahy, et al., 2005). This theoretical perspective suggests that the source of competitive advantage exploited by a service firm is based on firm capabilities and resources embedded within a set of domestic environmental factors. However, service firms from emerging countries have less resources and capabilities available for international expansion due to the lower levels of economic development. Thus an important overall question is how can service firms from emerging countries compete internationally? Since the objective of this study is to address an unexplored area of research, this study will use a qualitative methodology. Drawing from 12 interviews with international marketing managers, this paper explores the internationalization process of 6 Chilean services firms from two different sectors, education and tourism.

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The following section of the paper will review and integrate the relevant literature of emerging markets and services internationalization. Next, a qualitative methodology consisting in in-depth interviews will be used to explore the internationalization process of 6 service companies located in Chile. The paper concludes with a discussion of the findings, and some areas for future research. 2. Literature Review 2.1 International Services Services management and marketing has been the subject of theoretical and empirical research (e.g., Bharadwaj, et al., 1993). Several key differences between manufactured goods and services are now well accepted in the marketing literature. The differences have been classified into four types: simultaneity of production and consumption (inseparability), intangibility, heterogeneity, and perishability of output (Shostack, 1977). Internationalization of services is still at early stages compared with the manufacturing sector. International services are defined as “deeds, performances, efforts, conducted across national boundaries in critical contact with foreign cultures” (Clark, et al., 1996). International services have been classified on the degree of intangibility of the service provided and the level of personal contact required between customers and service providers (Clark and Rajaratnam, 1999; Patterson and Cicic, 1995). The inseparability nature of services implies that production and consumption often take place simultaneously. This means that a degree of frequent and intimate contact is required between the service provider and the customer for the service to be produced. A high degree of provider-client contact often requires the service firm to have a local presence on foreign soil, and to deal first-hand with significant business and personal cultural issues (e.g. language, customs, communications symbols, bureaucratic hurdles). The second key characteristic, intangibility, refers to the fact that unlike manufactured goods which are physical objects, services are performances (education) or experiences (tourism), or some form of intellectual property encased in a physical package (e.g., software). In most cases, the service cannot be touched, physically transported or stockpiled in inventory. This intangible nature of most services means many customers do not possess the ability to confidently evaluate the quality of the 3

service they purchase and often evaluate quality and satisfaction based on tangible cues (i.e. surrogates) such as brand reputation, country of origin, and relational skills exhibited by an individual service provider during the delivery of the service (Patterson and Cicic, 1995). Overall, these classifications tend to focus on service firms that expand beyond their own domestic market. However, the internationalization of consumer services can also involve the movement of foreign consumers to the domestic market where the service is provided. For example, tourism and educational services generally require foreign tourists or students to travel to the domestic market. These services are both produced and consumed in the domestic market because of local resources, or impossibility to move the service abroad (e.g., theme park or touristic attraction). Over time and with more international experience, some of these services open offices or provide the service in a foreign market by transferring their service knowledge and staff (e.g., educational services). Thus, the internationalization process for consumer services is initially inward focused (Bjorkman and Kock, 1997), as opposed to outward focused. This supports the view that service industries may have different patterns of internationalization depending on their nature and where the service is produced and consumed (La, et al., 2005). The services literature has focused mostly on the outward internationalization activities of professional services and businesses. This line of research show that service firms follow various stages in their export process in an evolutionary manner, such as sending first a service provider to reach international consumers, followed by the opening of an office abroad (Roberts, 1999). Overall, for intangible services that need close customer contact with the service provider, entry modes such as direct service provision of services, or the establishment of branch offices (wholly owned or jointventure) are the main options chosen (Coviello and Martin, 1999; Erramilli and Rao, 1993; Winsted and Patterson, 1998). However, there is little research looking at consumer services industries such as tourism, transport, entertainment or education, where the initial stages of exportation don’t include sending personnel abroad or opening foreign operations, but instead attracting foreign consumers to their own domestic market.

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The international services literature derives from studies held in developed markets, which mentions three types of barriers that can affect the internationalization process of services (Patterson, 2004; Reardon, et al., 1996; Samiee, 1999). The type of barriers that are mostly mentioned in the literature are the barriers that arise in the host (foreign) market, which include government regulations, market related problems (slow market development, poor infrastructure, service quality issues, and customer firm relationships), cultural differences, staffing and personnel, and competitive intensity of the host market (Reardon, et al., 1996; Smith, et al., 2006). Additionally, there are also organizational or company barriers, which include firm commitment, financial resources, lack of international expertise and foreign contacts (Patterson, 2004; Samiee, 1999). Finally, domestic country barriers are less mentioned and include government restrictions and the availability of export services (Smith, et al., 2006). Thus, barriers for international services can derive from the domestic or foreign markets, and internally from the company. Culture is specially mentioned as an important barrier especially for services that are highly intangible and require close customer-provider contact (Clark, et al., 1996). Cultural differences can affect the expectations and perceptions of customers and providers in the service encounter (Liu, et al., 2001; Mattila, 1999; Stauss and Mang, 1999; Winsted, 1997), and the expectations of service quality can differ across countries (Malhotra, et al., 2005). Research looking at drivers of services internationalization performance has also focused largely on business to business and professional services. These studies suggest that international performance for professional services is positively related to variables such as firm size and reputation, financial assets, commitment towards internationalization, human resource efforts, international experience, relationship and network development, entrepreneurial spirit, country of origin, and cultural similarity between markets (Cicic, et al., 2002; Cort, et al., 2007; Gourlay, et al., 2005; Javalgi, et al., 2003; Spar, 1997; Styles, et al., 2005; White, et al., 1998). 2.1 Emerging Markets Emerging markets are generally defined as “low income, rapid growth countries using economic liberalization as their primary engine of growth” (Hoskisson, et al., 2000). Emerging market contexts are characterized by institutional turbulence and lower economic development compared to develop 5

nations. Firms from emerging markets are not known for having the most innovative technology, superior human capital, or world recognized brands, and typically feature having shortages of financial capital which can attenuate the implementation of marketing strategies in international markets (Arnold and Quelch, 1998; Wright, et al., 2005). Emerging economy firms have lack of experience in foreign markets, deficiencies in managerial, financial, and technological skills in comparison with companies from developed countries (Aulakh et al., 2000). While the attention given to emerging markets in the services literature has been minimal, a recent body of knowledge in the marketing and international business literature has explored the competencies needed to enter and operate in emerging markets (Arnold and Quelch, 1998; Eckhardt, 2005; Fahy, et al., 2005; Hoskisson, et al., 2000; Khanna and Palepu, 2006; Khanna and Palepu, 2000; Khanna and Palepu, 1999; Kim, et al., 2004; Walters and Samiee, 2003; Yaprak, et al., 2006; Yiu, et al., 2005; Zhang, et al., 2007). Additionally, several studies have explored how companies from emerging markets can become important international players, although most of these are specific to manufacturing firms (Aulakh, et al., 2000; Aybar and Thirunavukkarasu, 2005; Bonaglia, et al., 2007; Vernon-Wortzel and Wortzel, 1988; Yiu, et al., 2007; Zhu, et al., 2006). However, most of this research has focused on China and Central and Eastern European countries (e.g., Luo, 2000), and has ignored Latin American countries. Evidence from this literature demonstrates that contrary to the expectations of many scholars, companies from emerging markets can succeed in the international arena (Aybar and Thirunavukkarasu, 2005; Hennan and Keegan, 1979; Lall, 1983; Sinha, 2005; Wright, et al., 2005). Nevertheless, due to different resource endowments and cultures of emerging markets, the capabilities possessed by emerging economy to perform internationally firms may possibly be different that from those of mature economies (Wan and Hoskisson, 2003). For example, emerging market firms reside in environments with lower levels of resources, given the relative underdevelopment of their home countries (Guillen, 2000). Thus, these firms must follow a distinctive approach to internationalization and pursue strategies that enable them to catch up with more resourceful players from developed markets (Bonaglia, et al., 2007). 6

Some specific resources and capabilities of emerging market firms can provide a source of competitive advantage and match the requirements of another emerging market context characterized by underdeveloped institutions and a lack of economic resources. Elango and Pattnaik (2007) found that firms from emerging markets draw on the international experience of their parental and foreign networks to build capabilities and resources to operate internationally. Thus, ties with home or host country networks can provide important capabilities for emerging market firms when they pursue internationalization. For example, in some emerging economies such as China, firms have to seek for government approval when they plan to open foreign ventures. Similarly, Yiu et al.(2005) found that business groups substitute for imperfect market institutions in emerging economies and argue that business groups facilitate organizational legitimacy in emerging economies. Guillen (2000) also examined business groups in emerging markets and concluded that they add value to member firms by pooling and distributing heterogeneous resources through related and unrelated diversification. Yiu et al. (2007) highlight the role of capabilities such as technological know-how and innovation orientation in increasing internationalization venturing performance for emerging market firms. This is consistent with previous empirical support in the international business and marketing literature that firms with higher levels of technological know-how are more likely to internationalize and help with the knowledge integration of operations in different countries (Frost and Zhou, 2005). Finally, a major source advantage for firms refers to management capabilities, especially regarding managerial skills and international experience, which are two capabilities shown in the international literature that improve the performance of internationalizing firms (Luo, 2000). Managerial skills are reflected in human resource management, effectiveness of information flow, coordination, and organizational structure. International experience is comprised of experience with international operations and specific foreign markets. 3. Theoretical Framework The resource-based view (RBV) of the firm is used as a theoretical framework to guide the research. The essence of the RBV is that the firm uses internal resources and capabilities as the basic 7

building blocks to obtain a sustainable competitive advantage (Barney, 1991). A resource or capability is considered a greater source of competitive advantage to the extent that it possesses the following characteristics: valuable, rare, imperfectly imitable, non-substitutable (Barney, 1991). According to the RBV, the firm’s assets, management skills, organizational processes, information and knowledge, are all considered resources and capabilities that contribute to generating and sustaining customer value in the marketing field (Barney, 2001). Furthermore, the international business literature has found that international performance is likely to be based on some combination of firm specific and country-specific resources and capabilities. Firm specific resources can be classified in two basic types: organizational resources which are tangible, and capabilities which refer to the organization’s capacity to deploy resources in order to achieve a desired outcome. The key characteristic of capabilities is that they are firm specific and developed over time, but unlike resources, they are not easily tradable between firms (Barney, 2001). In general capabilities are information based or intellectual assets, and tend to arise from the integration of functional capabilities. Thus, service-firm capabilities are likely to be the most sustainable source of competitive advantage for international services. Home and host country-specific resources derive from the resource endowments of countries and their comparative advantages (Dunning, 1981). A firm’s ability to gain access to these resources may be dependent on firm-specific competences which are the basis of a firm’s advantage (Boddewyn and Halbrich, 1986). However, not all resources may provide an advantage to the firm and it depends specifically on the characteristic and resources of the marketplace and competitors (Ray, et al., 2004). For example, country of origin image can serve as a useful extrinsic cue for quality and performance in service settings (Parameswaran and Pisharodi, 1994). However, when country of origin image is not positive or not well established, companies might look for other extrinsic cues that will provide a quality image. In conclusion, the theoretical premise of the study is that services internationalization for emerging market firms is largely dependent on the resources and capabilities developed and acquired by these firms to expand their source of competitive advantage to new international markets. Drawing from the 8

international services literature, firm-specific resources such as the uniqueness of the service concept, financial resources, international experience and relationship quality of the service provider can provide a source of competitive advantage. Furthermore, networks with home and host actors, government support, and country of origin image may generate unique capabilities for firms from emerging markets and help them compete against more financially and technologically resourceful retailers from developed nations. Thus, the main research objective of this study is to explore more in depth the internationalization process of consumer services. The two research questions of this study are the following: ¾ What are the main barriers that services firms from emerging markets face during the internationalization process? ¾ What are the most important resources and capabilities needed by service firms from emerging countries to overcome these barriers and achieve success in foreign markets? 4. Research Methodology Based on the recommendations of McCracken (1988), the fieldwork included semi structured interviews with international marketing managers of six service firms in the educational and tourism industries, located in Chile. Informants were recruited by the author based on their knowledge of the internationalization process of their firms, and willingness to participate. The protocol included questions on perceptions of internationalization barriers, strategies for attracting consumers to the domestic market, and key drivers of international performance. All interviews were tape recorded and transcribed. For confidentiality reasons, the identities of respondents are not disclosed. Interviews were conducted during a six month period, and had a duration average of 65 minutes. Secondary sources such as corporate web pages, annual reports, press articles, historical research, and information of the industry were included. Recommendations from Golder (2000) were used to evaluate the authenticity of the information sources. The process of analysis and interpretation resulted in inferences that were used to generate insights and connections to the research question and to the theoretical framework (Spiggle, 1994). Overall,

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interpretations of the data, which were triangulated with secondary data and institutional analysis, resulted in a number of common themes. The next section reports the findings from the interviews. Excerpts from the interviews are used through the findings to illuminate relevant themes, which are then discussed in the following section. 5. Research Findings The six service firms under study had different levels of internationalization. Most of the companies involved in the study internationalized initially by attracting consumers to the domestic markets and providing their services locally in Chile. Two of these firms also had operations in other Latin American countries (see Appendix 1). In the educational sector, firm 1 was a private university and their school of business had been internationalizing for more than 15 years. They had a prestigious regional Master’s and MBA program held in the domestic market, and the institution also had international operations in three regional markets. Firm 2 was a language school which offered their services mainly in the domestic market, but had opened offices in two Latin American markets to attract consumers, and frequently sent their professional staff (service providers) to provide English and Spanish courses to company executives of foreign markets. Firm 3 was an international school which held its service in the domestic market, but had engaged in partnerships with other international schools located in the Latin American region, for the purpose of student exchange and staff recruitment and training. In the tourism sector, firm 4 was a prestigious tourism destination located in the south of Chile, and was considering opening a new venue in a neighboring country. Firm 5 was a well established travel agency, with many years in the Chilean marketplace, and through the years had opened 5 offices in regional markets. Firm 6 was a small tourism operator which represented several touristic destinations located in Chile and promoted its service mainly through the internet. 5.1 Main Services Internationalization Barriers of Emerging Countries The data identified several barriers that Chilean service firms confront when internationalizing to different markets. Among the most important barriers mentioned, was the lack of a strong country image to provide Chilean companies with a favorable positioning and a clear differentiation respect to other regions of the world. Interviewees considered that country of origin played a significant role in 10

providing a tangible cue to shape the service perception and to assess its quality in an international context. Although the image of Chile was positive compared to other Latin American markets, and the country was perceived as a stable and growing nation, according to respondents this was not enough to provide a strong differentiation in the international context for services, and the country was still unknown for many international consumers. Chile belongs to a part of the world that does not contribute to a positive image, since South America is a region in which several countries have economical and political problems. This challenge is common to other emerging market service sectors, such as professional services, that belong to the same region and provides an image of this country as being insecure and unstable. However, this barrier differs for service firms from developed countries with higher levels of reputation and quality image. Thus, service firms from emerging countries need a positive country image for a trustworthy brand in the international markets, and Chile’s country image should provide support for the quality of the service industry. A second important internationalization barrier common to services from emerging countries refers to the constant need for innovation in order to develop value-added services for consumers in different markets. Investment in innovation and technology is minimal in emerging nations due to the lack of resources and government grants. This extends to the high costs of developing consumer market research which is essential to minimize the risk of failure for internationalizing service firms. Interviewees mentioned that it is necessary to have formal procedures that allow recognizing the main trends and requirements of consumers from the different international markets. However, international market research is very expensive and although government institutions such as Prochile have offices abroad and provide general information of markets, this information is still minimal and very general. Another important barrier mentioned by the interviewees had to do with the currency exchange rate. When the local currency against the Chilean peso weakened, consumers were less prone to commit their resources to acquiring educational and tourism services because of the inability of predicting the fixed cost due to the length of some touristic and educational programs, and the affordability of the place. Thus, the domestic market exchange rate was a latent barrier for international services and extends to other professional and business-to-business services as well. 11

Cultural differences in the domestic market were also mentioned as important barriers for services, and specifically in the service encounter between service providers and consumers. This is consistent with previous research on the effect of cultural differences on service quality expectations and satisfaction (Donthu and Yoo, 1998; Winsted, 1997). Cultural differences between foreign customers and local providers produced misunderstandings, unacceptable behavior, and dissatisfaction of both parties. However, it became clear from the data that cultural differences were also an opportunity and a source of competitive advantage. Respondents explained that foreign consumers expected to find cultural differences as part of their international experience. For example, tourists valued sharing their leisure activities with other foreign tourists and with local Chileans as well. International students also valued diversity in the classroom as oppose to having a homogenous group. They looked forward to meeting people from other parts of the world. Most of the barriers were located in the domestic market due to the nature of the services. However, for firms that operated abroad, barriers located in the foreign market were also mentioned by respondents. For example, difficulties of their personnel in obtaining visas to travel to specific markets to provide the service or to participate in trade shows and promotional activities were barriers that several companies had encountered. Overall, for consumer services, the main barriers were found in the domestic market where the service is provided, and not in the host market. 5.2 Drivers of International Performance Data regarding the main drivers of international performance shows that providing international levels of service quality, developing permanent marketing promotional activities, and belonging to domestic and international networks and partnerships helped services firms from emerging countries to overcome the internationalization barriers mentioned in the previous section. In both industries, there was consent among respondents that to compete internationally the quality of the service provided had to be comparable to international standard levels. Although these firms belonged to an emerging market with lower levels of resources and reputation than developed countries, educational service firms needed to recruit academics, teachers and professional staff with the same quality standards as educational firms from developed nations in order to compete 12

internationally. Similarly, tourism firms also recruited employees and staff specifically trained in hospitality and it was mandatory that they spoke at least two languages. Respondents highlighted the importance of quality standards for achieving international accreditations, which provided tangibles cues related to international standards for international consumers. High service quality and institutional accreditations and ranking positions also helped to overcome exchange rate barriers. Cultural differences such as language barriers, socio-cultural differences, and differences in established business practices and customs were recognized as important for service performance. Language training was held by most of the companies studied, and speaking English was mandatory for employees and staff. However none of the companies had established a formal training program to deal with cultural differences although they recognized the effect of cultural differences on service outcomes such as satisfaction and performance. Interviewees mentioned that academics or tourism staff went through a learning process from cultural blunders encountered and with time learned how to deal with consumers from different cultural backgrounds. For example, academics teaching a crosscultural group of students avoided using teaching material only from the domestic market and incorporated a variety of case studies from different countries. The data also shows that these companies held permanent communicational activities to attract foreign consumers when the service was held in the domestic market. These marketing activities were considered fundamental by the managers interviewed to create and maintain brand awareness in the educational and tourism sector due to the high levels of competitiveness in both industries. Several activities were developed by these firms for attracting potential consumers, such as promotion through agents, participation in trade shows, internet website direct marketing, international visits by company staff, establishing relationships and partnerships with foreign relevant actors, and most importantly, word of mouth. The data suggests that all of these activities are necessary for attracting consumers and particularly the role of word of mouth and relationships and social networks with host partners were key for successful outcomes. Respondents mentioned that happy customers were the best ambassadors for their services abroad, and more than 50% of the customers were recruited through word-of-mouth. All the companies studied have their own website which is well connected through study finders, and 13

provides information about the service as well as immigration requirements needed for foreign consumers to travel to the domestic market. Most interviewees believed that consumers of Chilean tourism and educational services choose the country where to study or visit prior to deciding the organization. This implies that decision making is first based on the attractiveness of the country, and then of the organization. Thus, country branding and promotion is very relevant for these firms. Although there is still little integration among service firms to show an integrated national image to foreign consumers, international managers considered important to participate in government-organized trade shows that promoted internationally the different Chilean industry sectors. Similarly, free trade agreements with important markets such as Canada, U.S., and recently Australia were considered important and necessary for improving the Chilean image among potential foreign consumers. Although emerging countries may have lower reputation and resources for building country brand image, trade agreements and commercial trade missions were considered helpful to develop country awareness among potential customers. Finally, partnerships and alliances with relevant actors and agents were mentioned by the managers as being very important to overcome internationalization barriers such as low levels of resources and cultural differences. In the tourism industry, networks and partnerships were held with other domestic firms within the industry (e.g., agencies and airlines) to promote a unified tourism industry. Similarly, these firms partnered with the government tourism bureau to for a complementary use of resources. In the educational industry, the companies under study did not engage in partnership with local competitors, and instead chose to participate in regional networks related to their industry. For example, firm 1 had a partnership with a prestigious school of business located in another Latin American country. Both institutions complemented their knowledge and academic staff to develop a new program held in a different country. This would have been very difficult by each one independently due to scarce staff resources. Firm 3 also engaged in a regional network of international school that allowed the regional exchange of students, knowledge, and staff. Lastly, top managers and owners of these firms engaged in several network activities and participated in international events with other business groups located within Latin America. 14

6. – Discussion Several themes emerge from the interviews that contribute to a better understanding of consumer services internationalization of emerging country firms. Compared to services firms from developed countries, firms from emerging nations encounter specific internationalization barriers due to lower levels of financial and technological resources and inferior levels of development. However, the literature suggests that firms from emerging countries can develop or acquire specific resources and capabilities that provide the means to compete internationally, although this has been studied specifically in the manufacturing sector (e.g., Elango and Pattnaik, 2007, Yiu et al., 2007). The data from the interviews showed several commonalities regarding internationalization barriers from other service industries such as professional or business to business services. For highly intangible consumer services such as education and tourism, it is difficult for consumers to assess the service quality in advance, since they cannot inspect or sample the service before the purchase. Thus, foreign consumers are forced to rely on the company’s country of origin image, reputation, word of mouth, and other communication messages to assess prospective quality. The data shows that Chilean educational services firms relied less on country of origin image and more on extrinsic cues such as reputation and service quality provided by international accreditations, and word of mouth. The tourism sector also relied less on country image and reputation, and more on country landscapes and tourism attractions as well as word of mouth and accreditations. All the companies analyzed had a well developed and interactive web page in English and Spanish. Drawing from the resource-based view, company quality standards and reputation were considered important firm resources and another source of competitive advantage (Barney, 1990). As a result of the inseparable and intangible nature of consumer services, consumers are forced to interact with the service personnel who are also the producers of the service. Cultural issues such as language barriers, socio-cultural differences, and differences in established business practices and customs, have been found important barriers for service industries in an international setting (Reardon et al, 1996).Thus, an open-mindedness with respect to different cultures and the willingness to understand the ways in which cultures differ is overall cultural intelligence, which can have an 15

important impact on the perceived performance of the consumer service firms (Earley and Mosakowski, 2004). From the resource-based view, cultural intelligence is an important service firm capability that can help develop satisfactory service encounters. This is difficult for rivals to imitate, and thus potentially a powerful source of competitive advantage (Barney, 1990). To develop strong business relationships, key service personnel need to have the interpersonal and relationship building skills to attract and retain key clients. This is an example of a valuable relational asset as well as a potential source of competitive advantage. Firms could benefit from training all staff to be more culturally aware and sensitive to both business issues as well as understanding variation in personal culture. This can help service firms can gain competitive advantage over its rivals. Some differences were found when comparing the internationalization barriers with other service sectors such as professional services. For example, previous research suggests that the main internationalization barriers for services are characteristics of the foreign markets, such as government restrictions, cultural differences, and service quality issues (Reardon, et al., 1996; Samiee, 1999; Smith, et al., 2006). Educational and tourism services confront most of the barriers in the domestic market where the service is provided and consumed. Chilean immigration rules and policies were considered important barriers for internationalizing educational services and tourism destinations to foreign markets. Some countries had large difficulties sin sending their students to study in Chile due to these immigration requirements. Thus, the data from the interviews shows that these barriers depend on where the service is held. 7. Conclusion The objective of this research was to explore the internationalization process of consumer service firms in emerging countries. The data supports the resource-based theory (Barney, 1991), which views specific resources and capabilities as key for developing a sustainable competitive advantage. International performance of Chilean consumer service firms is based on a combination of firmspecific and home/host country-specific resources and capabilities such as service quality and firm reputation, cultural diversity, partnerships and networks, and country-of-origin image.

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The data also supports La et al., (2005)’s contingency approach, which suggests that service firm’s barriers and internationalization process depend on the characteristics of the service sector, and therefore the performance of consumer services is heavily reliant on attracting customers to the domestic market and the quality of their service provision. Stated in resources terms, this suggests that superior performance for international consumer firms will combine both home and host country firm specific resources and capabilities. This finding implies that top management plays an essential role in leveraging this resource pool in ways that enable the firm to gain advantage. This study shows that networks with home and host market actors may be a way for emerging market service firms to deal with internationalization barriers. By having access to these networks, service firms from emerging markets can accumulate an imitable capacity to combine domestic and foreign resources to internationalise. For example, ties with trade associations, universities, or the government can provide service firms critical resources and market information (Yiu et al., 2007). Also, partnering with foreign companies may help service firms to avoid misunderstandings and nationalistic feelings from foreign consumers. Another important capability that derives from the data has to do with organisational learning. The companies under study went through a learning process that included not only learning from its own domestic experience and internationalisation attempts, but also learning from foreign company experiences as well as from international partners. There was strong managerial know-how of top executives of these firms to operate in emerging economies (Del Sol and Kogan, 2007). The fact that these companies encouraged hiring staff with high level standards and language abilities allowed these companies to compete with international competitors. This study has two main limitations. First, the study is based on interviews of managers from two service sectors which limit its generalisability. In addition, interviewees were company employees, and this can exaggerate opinions towards firm performance. Additional research considering the internationalization process of service firms from other consumer service sectors from emerging markets will help enhance the understanding of services internationalization 17

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Appendix 1

Firms

Industry

Location in Chile

Years Internationalizing

Firm 1

EducationUniversity/School of Business

Santiago

16 years

Firm 2

Education- Language School

Santiago

14 years

Firm 3

Education – Private International School

Santiago

10 years

Firm 4

Tourism- Touristic Destination

Punta Arenas

12 years

Firm 5

Tourism – Travel Agency

Santiago

5 years

Firm 6

Tourism – Tourism operator/distributor

San Pedro de Atacama 2 years

21