Firm‐specific influences on the internalization of after‐sales service activities in foreign markets

Purpose – This paper proposes identifying determinants of the choice of an organizational mode for providing after‐sales service in foreign markets. It aims to focus on the decision between contractual/equity cooperation and wholly‐owned foreign entities and the influence of firm‐specific variables on this decision. Design/methodology/approach – An empirical study based on 80 German manufacturing companies was carried out. Hypotheses on the influence of certain firm‐specific variables on the organizational mode were developed and tested by binary logistic regression. Findings – The paper finds that international experience of a company, whether a company already has manufacturing facilities in the specific foreign market, and strategic considerations such as the seeking of global integration advantages and the choice of service as competitive advantage, seems to exert a strong influence on the decision of the internalization of after‐sales service operations. The size of the company and the choice of price as competitive advantage, however, did not display a significant influence. Research limitations/implications – Since the research is based on a sample of 80 companies from a single country, testing for generalizability of the results to other countries and other industries would seem necessary. Also, the research focused on firm‐specific determinants while an extension into country‐specific and activity‐specific variables would be required to offer a more powerful explanation of the organizational mode decision. Originality/value – Almost no empirical investigations exist on the provision of after‐sales service in foreign markets. This paper offers first evidence on determinants of the choice between cooperative and fully internalized modes of after‐sales service provision.