The Role of Information Technology as a Firm-Specific Advantage in Internationalization of firms: Theory and Evidence

This study examines how IT influences the extent of internationalization of firms by using firm% level data on the IT investments and international operations of US multinationals for the 1999% 2005 period. We identify managerial/operational complexity, geographic dispersion of subunits, and contextual differences between home and host countries as the main challenges involved in internationalization, and investigate whether IT plays a role in resolving these challenges. Our results suggest that firms’ IT capability plays an important role in their internationalization by resolving the aforementioned challenges. Moreover, a firm’s IT capability (as reflected in its IT investments) and production knowledge (as reflected in its R&D investments) are complementary in their influence on the internationalization of the firm. Given the lack of firm%level empirical evidence on the ro le of IT in the internationalization and global operations of firms, the current study provides a richer understanding of the impact of IT on firms’ international operations.

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