The paper aims to examine the evolution of business relationships in the context of

internationalization of firms. The study is conducted by applying the network paradigm to

internationalization and exploring the broader context in which these networks are embedded.
The article emphasizes the significance of understanding the role of embeddedness in the
evolution of business networks.
In the international business context, business transactions are not isolated events but rather
embedded in networks of relationships that cross national borders. These relationships are
further embedded in different national business environments, as well as in the global
business environment. The article highlights that each of these national or international
business environments includes various types of networks such as social networks,
technological networks, regional networks, infrastructural networks, institutional networks,
and market networks.
The article provides a different perspective on the internationalization of the firm by
examining these various dimensions. It acknowledges that internationalization is a complex
and multidimensional process and there are many definitions and approaches to explaining it.
Traditional ways of viewing internationalization have described it as mainly an activity
driven by the desire to penetrate overseas markets.
However, the article introduces a more recent approach found in the network paradigm. This
approach can potentially address more effectively some of the shortcomings of the other
approaches. The network paradigm emphasizes the significance of relationships, networks,
and embeddedness in the internationalization process.
In conclusion, the article highlights the importance of understanding the evolution of business
relationships in the context of internationalization. It emphasizes the significance of the
network paradigm and the role of embeddedness in this process. By exploring the different
dimensions of these networks, the article provides a unique perspective on the
internationalization of the firm.
The concept of embeddedness suggests that firms are not operating in isolation but are
embedded in a broader network of relationships, both formal and informal, that are essential
to their success. This network includes suppliers, customers, competitors, and other
stakeholders, as well as government agencies, industry associations, and other institutional
actors. The embeddedness approach emphasizes that these relationships are not simply
transactional but are based on social norms, trust, and shared values, which are important for
creating and maintaining long-term relationships.
The dyad-network embeddedness perspective looks at the relationships between two firms in
a broader network context. This approach highlights the importance of understanding the
interdependence between two firms and the network of relationships that surround them. For
example, when a firm forms a strategic alliance with another firm, it needs to understand how
that alliance fits into the broader network of relationships in which it operates. This involves
understanding the relationships between the two firms and their respective suppliers,
customers, and competitors, as well as the institutional actors that regulate the industry.
The micronet–macronet embeddedness perspective takes a broader view and looks at the
relationships between a group of firms (a micronet) and the broader institutional environment
(a macronet). This approach highlights the importance of understanding the institutional
environment in which a group of firms operates, including the legal, regulatory, and cultural
norms that shape the industry. For example, when a group of firms forms a consortium to bid
on a large infrastructure project, they need to understand the regulatory environment,
including environmental regulations, labor laws, and safety standards.
nUnderstandig the concept of embeddedness and the different approaches proposed by
Halinen and Tornroos can help firms navigate the complexities of international business
networks. By understanding their position in the network and the relationships they have with
other actors, firms can identify opportunities for collaboration, anticipate potential risks and
challenges, and develop strategies for managing their international operations. Ultimately, the
success of firms in international markets depends on their ability to effectively navigate these
complex networks of relationships and institutions.
The passage discusses the concept of network embeddedness and its application to
internationalization in business. The concept of network embeddedness suggests that
businesses and their operations are embedded within a wider network of social, technological,
regional, infrastructural, institutional, and market networks. These networks are dynamic and
shaped by three dimensions - temporal, spatial, and representational. The temporal dimension
reflects the past, present, and future relationships and networks. The spatial dimension refers
to the location and organization of business activities, and the representational dimension is
concerned with how business actors represent their country, industry, or firm in the eyes of
other network members.
The application of the concept of network embeddedness to internationalization has several
managerial implications. Firstly, it emphasizes the importance of relationships in international
business and the role of interdependency between buyers and sellers. Secondly, it stresses the
need for buyers and sellers to build up knowledge about each other to facilitate business
creation and resource accessing. Thirdly, it recognizes that the internationalization of the firm
is a dynamic and evolutionary process that requires constant adaptation to changing
networks.
Finally, the concept of network embeddedness provides a framework to understand the
evolution of the internationalization of the firm by examining how the networks in which it is
involved change over time. By considering the firm in the context of the relationships and
networks in which it is embedded, domestically and internationally, it facilitates an
understanding of global competition and cooperation in the international environment of the
firm.

Methodology
Methodology refers to the systematic process followed by researchers to conduct their
research. In this case, the methodology used for the research was a case study approach. The
decision to use this approach was made because it allows for a more in-depth understanding
of the process of internationalization that is not possible with cross-sectional studies or those
involving multiple respondent firms.
According to Eisenhardt (1991), it is possible to build theories from case study research. Yin
(2003) has also demonstrated that the embedded case study is a valid scientific approach
when it follows the traditional scientific method of developing theory, designing the study,
preparing and collecting the data, analyzing the evidence, and writing up the report. Pettigrew
(1985) describes the underlying approach as processual analysis. He argues that actions drive
processes that are embedded in contexts that limit their information, insight, and influence.
This involves interchange between agents and contexts that occurs over time and is
cumulative. As a consequence, time and history are at the center of any process analysis.
The above provides the rationale for undertaking a case study of a firm over a period of time
and mapping the networks of relationships and the contexts in which they were embedded at
critical points in the history of the firm’s evolving internationalization.
In order to select an appropriate firm for case study purposes, two previous surveys on the
internationalization of firms in Australia were used to identify firms that had responded to
both of the surveys and those that had increased their internationalization over the 11-year
period between the surveys. Australian subsidiaries of foreign companies were excluded, as
the parent companies often circumscribe subsidiaries’ international expansion (e.g., franchise
limitations on countries to which the subsidiary can export).
For the purpose of case analysis, one firm was selected—James N. Kirby Pty, Ltd, in Sydney.
This firm is involved in refrigeration, air conditioning, engineering, and, via a wholly owned
subsidiary, in automotive activities. It is a family-owned company, established in 1924, with
a turnover of A$200 million and 1,700 employees. Its international involvement dates to the
early 1960s when it commenced exporting to New Zealand (1960) and to Southeast Asia
(1962). By 1967, 25% of Kirby’s production was exported, 60% of which went to
Association of South East Asian Nations (ASEAN) countries. By 1994, its most important
overseas markets were China, the United States, Thailand, and Japan. In the period from 1983
to 1993, the percentage of the firm’s turnover from international business increased to 18%
from 2%. The firm engages in outward international activities (direct export, sales branch
overseas, and production overseas to serve overseas markets) and inward international
activities (direct import, production overseas to cater for the Australian market, and licensing
in the domestic market), as well as linked international activities (countertrade). By 1997, it
had two manufacturing plants and five sales branches overseas.
Two interviews were held with senior executives of James N. Kirby in Sydney. The first
interview, on April 10, 1997, was with both the general manager (Corporate Planning) of
James N. Kirby Pty, Ltd, and with the group general manager and director of James N. Kirby
Engineering. This interview explored the overall internationalization of the firm. As a result
of this interview, it was decided to focus on the firm’s activities in Thailand, and a second
interview was therefore arranged with the managing director of James N. Kirby Pty, Ltd, and
the business manager of James N. Kirby Refrigeration. This second interview took place on
May 8, 1997, and focused on Thailand in general and, in particular, on the evolution of
Kirby’s relationship with the Simak.
EVOLUTION AND INTERNATIONALISATION OF THE KIRBY REFRIGERATION
DIVISION
The passage discusses the evolution and internationalization of the Kirby Refrigeration
Division. The demand for refrigerators increased after World War II, and Kirby developed its
own range of compressors suitable for the ASEAN market. Tecumseh, which had developed
superior compressor technology, appointed Kirby as one of their earliest licensees in the mid-
1950s. Kirby exported Tecumseh compressors to Sanyo in Thailand but started losing money
on exports of compressors to Thailand and other parts of Asia in the mid-1970s. In response
to this, James N. Kirby decided to manufacture in Thailand in the mid-1970s after the Thai
government offered attractive investment incentives, including a monopoly on producing the
product in Thailand for five years and tariff protection.
The Kirby family had a close relationship with Sumet Simakulthorn, the Managing Director
of the Simakulthorn Group, who was also associated with Tecumseh. This led to a submission
being made in the name of Kulthorn Kirby to the Thai Board of Investment (BOI) to
manufacture Tecumseh compressors in Thailand on a joint venture basis. Kulthorn Kirby was
awarded the rights in 1979, and the company was formally established in May 1980. The key
partners in the joint venture were family-run firms: Simakulthorn, James N. Kirby, and
Tecumseh. Sanyo, a long-established refrigerator manufacturer in Thailand, wanted to
manufacture compressors in Thailand but was unsuccessful in obtaining BOI approval. It
obtained approval from the Deputy Minister for Industry to manufacture refrigerator
components in Thailand and used this approval as an excuse to manufacture compressors in
Thailand in 1983, breaching the undertaking given to Kulthorn Kirby of exclusivity.
However, the Thai government subsequently extended investment privileges to Kulthorn
Kirby from five to eight years as compensation.
The Kirby Refrigeration Division was not profitable until 1987-1988 due to low demand. In
that year, the volume demand increased due to Japanese refrigerator manufacturers in
Thailand using their operations as a base to supply global markets. In 1990, Sanyo increased
its equity in the company to 9%, and two other major customers of Kulthorn Kirby (the Thai
operations of the Japanese manufacturers—Toshiba and Hitachi) also acquired shares to bring
their holdings to 2% each.
EMBEDDEDNESS OF THE NETWORK
Embeddedness refers to the extent to which actors in a network are connected and
interdependent with each other, and how their behaviors are shaped by their social
relationships within the network. The dimensions of embeddedness include temporal, spatial,
and representational dimensions.
The temporal dimension of embeddedness refers to the historical evolution of relationships
within a network. In the case described, the relationship between the business actors evolved
over a 40-year period, from two separate dyadic relationships to a triadic relationship. This
evolution was influenced by the actors' previous experiences and aspirations, which shaped
their present behavior.
The spatial dimension of embeddedness refers to the physical locations of the actors and the
networks in which they are embedded. The case study illustrates how the business actors
were linked through networks in different countries, including Australia, Thailand, and the
United States. The actors sought to penetrate markets in these countries and, through those
markets, wider regional trade groupings, such as ASEAN, the EU, and Mercosur. The spatial
dimension of embeddedness highlights the importance of physical proximity and access to
markets in shaping business relationships.
The representational dimension of embeddedness refers to how actors are perceived and
valued by other network members. In the case study, each of the business actors was viewed
as a representative of their respective companies and countries. Their different assets,
knowledge, information, and experience influenced how attractive they appeared to other
parties in the network. These assets triggered and mediated the ways in which the network
changed and influenced the resulting patterns of internationalization.
Finally, the case study also illustrates how the different networks in which the business actors
were embedded had different degrees of coupling to the underlying business network. This
highlights the importance of understanding the interconnectedness of different networks and
how they influence business relationships and outcomes.
Overall, the dimensions of embeddedness are crucial in understanding how business
relationships are shaped and how they evolve over time. They highlight the complex interplay
between social relationships, physical locations, and perceived values, which influence
business decisions and outcomes.

Networks
The passage explains different types of networks that are important for businesses to develop
and maintain relationships with partners, suppliers, and customers. These networks include
social, technological, regional, institutional and political, market, and infrastructural
networks.
Social networks refer to relationships built on trust, which leads to commitment. Granovetter
argued that strong ties stabilize relationships while weak ties stimulate change. Social
networks are strengthened through frequent visits, shared values and goals, and secondment
of personnel. In the case study, social networks were formed between Kirby and Tecumseh
and between Simakulthorn and Tecumseh, which led to the formation of a social network
between Kirby and Simakulthorn.
Technological networks involve cooperation between firms with complementary skills and
lead to strategic alliances, R&D sharing, and other collaborative activities. Kirby had a
technical advantage over others, which was utilized in the joint venture agreement between
Kirby and Simakulthorn. The compressor technology supplied to Kirby through the licensing
arrangement with Tecumseh was also used in the joint venture.
Regional networks focus on how business networks are located in different places and how
this location affects business interaction. Thailand is located in a dynamic region in which
new and emerging markets are rapidly expanding. As a result of both Kirby’s and Tecumseh’s
export activities to Thailand, both were part of the same geographical network.
Institutional and political networks involve interpersonal communication and can involve
actors locally, regionally, nationally, or multilaterally. Political representatives may occupy
important positions in the business network, particularly when the other country involved in
the dyadic relationship has a more planned economy or is run by a more interventionist
government compared to that of a country like Australia. In the case study, there was some
involvement with institutional networks exemplified by membership of industry bodies such
as the Thai–Australian Chamber of Commerce and the Australian–Thai Chamber of
Commerce.
Market networks are bounded by the products and/or services offered and the customers
served. The strength of market networks is reflected in the increasing commitment by both
Kirby and Simakulthorn to the operation.
Infrastructural networks involve the technology existing in the overseas market, which can
impact firms' ability to produce and deliver products and services. Firms are dependent on the
infrastructure existing in the overseas market, such as port facilities, power, water, and roads.
IMPLICATIONS FOR MANAGEMENT
The case study highlights the implications for management in terms of structuring
internationalization strategies. According to Johanson and Mattsson, a firm has a position in
the network of which it is a member, and this position characterizes its relationship with other
firms, providing opportunities for development and constraining future activities. Firms can
internationalize by establishing and developing positions in overseas networks in three ways:
establishing new positions in foreign networks (international extension), further developing
existing positions in foreign networks (international penetration), and increasing coordination
between positions in different networks in different countries (international integration).
The case shows that James N. Kirby adopted an extension strategy when entering Thailand
and a penetration strategy when manufacturing commenced there. As the relationship
evolved, it moved towards a strategy of international integration. Kulthorn Kirby became the
focus for export in Asia, the supply source for the Australian operation, and a major
component source for the U.S. licensor. Tecumseh has evolved its internationalization further
towards integration to become a global company.
The case also illustrates the importance of atmosphere in advancing internationalization. The
degree of trust between the parties continued to grow as the joint venture assumed more
responsibility for activities of Kirby Refrigeration in Asia and for the supply of product to the
wholesaling end of the Australian operation. The atmosphere was influenced by the
increasing dependence of Kirby Refrigeration on the Thai operation. In addition, the
relationship between Kirby and Tecumseh grew closer, with Kirby Engineering’s
involvement in other Tecumseh activities in Asia, especially in China.
The case also emphasizes the role of environment. The environment in which the networks of
relationships became embedded was influential in the internationalization of the parties.
Relationships between Australia and Thailand continued to be strong over the 20 years of the
relationship, providing security for increasing commitment of resources by James N. Kirby to
Thailand. The enhanced potential for using Thailand as a base for export to other parts of
Asia (particularly Southeast Asia) was due to Thailand’s membership of ASEAN. The
international political environment has forced Tecumseh to think globally rather than to
continue to operate as an international firm. This has stimulated its moves to establish major
operations in strategic regions of the world.
Managers’ understanding of internationalization is facilitated by studying the international
business transaction in terms of it being embedded in networks of relationships that cross
national borders. This understanding relates to the multiplicity of actors involved, the transfer
of skills and technology between actors, the factors driving decision-making, the specific
events impacting on relationships, stages in the development of the network, and the structure
of both the market and the industry—nationally, regionally, and globally.
Studying the network and its relationships in terms of their being embedded in both national
and global environments requires managers to focus on other related networks that impact on
possible success or failure. The embedded approach requires that the social, institutional,
infrastructural, technological, market, and regional networks be taken into account. As a
consequence, those managers who are parties to a specific dyadic or triadic relationship in the
network are forced to look beyond the individual transaction and take into account nonfocal
relationships that could impact on success.
In terms of the impact of embeddedness in the global environment on firms’
internationalization, the case alerts managers to the fact that firms are likely to engage in
different forms, as well as in different stages, of international activity. Whether the firm
engages in outward, inward, or linked forms of international activity is likely to be a function
of circumstances within the firm and the evolution of both the domestic and the international
markets. Managers can no longer consider their international involvement as being only
outward-driven and should be prepared to undertake import-led or -linked activities, such as
entering into strategic alliances, as part of the ongoing process of their internationalization.