Proceedings of 34th International Business Research Conference 4 - 5 April 2016, Imperial College, London, UK, ISBN: 978-1-925488-02-9 Does Profitability Influences the Internationalization of Higher Education Institutes? A Proposition Development Study SA Buddhika Number of educational institutes going aboard has increased significantly over the years. There are at least three main forms of higher educational internationalization, i.e supplying education services across borders by institutes, the students moving across borders to access educational services, the faculty moving across borders to work or do research in foreign institutes. Despite the growth there have being very few studies exploring this phenomena, thus creating a knowledge gap in the area in general. As far as this study is concerned it is examining the impact of financial profitability in influencing higher educational internationalization. Accordingly study argues and develops six propositions in order to gauge the importance of financial profitability in internationalization of higher education institutes. Keywords: Higher Educational Institutes, Internationalization, Entry Modes, Motives Introduction: “The international dimension of higher education is becoming increasingly important, complex, and confusing. It is therefore timely to reexamine and update the conceptual frameworks underpinning the notion of internationalization in light of today’s changes and challenges.” Knight 2004, p 5 The internationalization of higher education has been a growing phenomenon for the last few decades. There are various ways in which higher educational institutes can internationalize ranging from supplying education across borders (eg: distance learning), to students moving across borders, to faculty moving across borders to commercial presence across borders. Even though the process of internationalization of manufacturing sector has been studied for a very long period of time, starting around early nineteenth century, internationalization of service firms are relatively less studied and less understood. Higher education sector is not only service oriented but also has largely being a non-profit industry for a long period of time, this duality makes the phenomena more interesting but at the same time makes more complex and less understood. Higher education institutes internationalize due to various motives, to different markets, using different entry modes, objective of this paper is to investigate the impact of different motives on entry mode choice of these organizations and develop propositions which can be tested by future studies. ____________________________________________________________ SA Buddhika, PhD Research Fellow, University of Agder, Norway, Email: [email protected] Proceedings of 34th International Business Research Conference 4 - 5 April 2016, Imperial College, London, UK, ISBN: 978-1-925488-02-9 Literature Review: Internationalization: “Internationalization is the process of adapting exchange transaction modality to international markets” (Calof and Beamish, 1995, pp. 115). Internationalization has also been viewed as a process of increasing involvement and commitment in international operations (Welch and Luostarinen, 1988). Furthermore internationalization can also be viewed as a process by which a firm which had only operations in domestic market expanding it across borders (Buckley and Casson, 1998). Internationalization of Services: According to Erramilli and Rao, (1990) there are at least two major reasons for service firms to internationalize, following their current customers who needs services in new markets or in a more active approach looking for new market opportunities. Grönroos (1999) expand this list by adding service firms who internationalize using technology based marketing methods (eg: amazon.com). Level of presence of above mentioned unique characteristics (intangibility, perishability, heterogeneity, and inseparability) in a given service may depend upon that particular service. However it is important to note that these four inherent characteristics are central to the analysis of the international process of service firms and also these characteristics make crossing borders with services more difficult, complex (Javalji et al, 2003) and risky (Carman and Langeard, 1980). Internationalization of Education: Internationalization of education was defined as “the process of integrating an international and intercultural dimension into the teaching, research and service functions of the institution” (Knight, 1994, p. 7). Several years later Van der Wende (1997) provides more inclusive and broader definition saying that “any systematic effort aimed at making higher education responsive to the requirements and challenges related to the globalization of societies, economy and labor markets” (p. 18) is the internationalization of education. There are various dimensions explaining why higher education institutes internationalize. According to Blumenthal (1996) there are at least six dimensions behind internationalization namely political, economic, educational, cultural, scientific and technological. Knight (1997) on the other hand introduces four major reasons which are broader but at the same time more comprehensive. They are political, economic, academic and socio-cultural dimensions. Political argument considers educational co-operation as a form of diplomatic investment in future political relations. This includes foreign policy, national security, peace and mutual understanding, national identity. For an example the provision of scholarships to those likely to become future leaders is considered to be a way of endowing them with knowledge of the host country, and sympathy with its Proceedings of 34th International Business Research Conference 4 - 5 April 2016, Imperial College, London, UK, ISBN: 978-1-925488-02-9 political system, culture and values. Economic dimensions include economic growth, the labor market, demand for national education, financial incentive to government and institutions. For an example "International education marketing is now big business for Australian universities", Piattt and Pool (1998, p 8) this is also hold true for universities in many other countries including US and UK. Academic motives include providing an international dimension to research, extension of the academic horizon, Institution-building, to build Profile/Status, enhancement of quality and to obtain International academic standards (knight, 1997). Socio cultural dimensions also provide a major reason for internationalization of education. Socio aspect of this mainly deals with the individuals who use the educational services. Here there are at least two determinant of social motives, social learning or personal development' as mentioned by Kallen (1991) and concern for global awareness (Knight and Wit, 1997). There are lots of different methods of internationalization available for educational institutes. According to Sharma and Roy, (1996) there are at least five ways namely, joint ventures between two universities in two countries, Educational networks, diversification of faculty and students, globalized multidisciplinary action projects; and international faculty exchanges. Entry Mode: An entry mode is an institutional arrangement that a firm uses to market its product beyond its boundaries at least during first five years (Root, 1994). A firm is normally motivated to choose the entry mode which provides the highest return on investments. However, given firm’s choices also determined by the availability of resources and desire for control. (Cespedes 1988; Stopford and Wells 1972). Control refers to the “level of authority a firm may exercise over systems, methods, and decisions of the foreign affiliate” (Ekeledo and Sivakumar, 2004). Either way the selection of a proper entry mode in a foreign market is one of the most crucial decisions for internationalizing firm and can have significant and long term consequences on its performance and even survival (Davidson, 1982). Entry modes in a broader basis can be categorized into two areas. Full control entry modes which refers to sole ownership and shared control modes which refers to some form of collaborative modes of operation (Ekeledo and Sivakumar, 2004). Full control entry modes provides organizations with higher risks higher returns and require full resource commitments while shared control methods require moderate resource commitments at moderate risks but also provides moderate returns (Anderson and Gatignon, 1986). Proceedings of 34th International Business Research Conference 4 - 5 April 2016, Imperial College, London, UK, ISBN: 978-1-925488-02-9 Propositions of the Study: Study will only looked at two main motives for higher educational institutes to internationalize i.e. economic and academic motives and will leave political and socio/cultural motives aside. As explained earlier economic dimensions include economic growth, the labor market, demand for national education and financial incentive to government & institutions (knight, 1997). As far as the study is concerned the study will focus on higher education’s institutes which internationalize mainly looking at financial incentives to institutes as well as respective governments, in terms of economic dimensions. Because earning money is a key motive for all internationalization projects in the for-profit sector and for some traditional nonprofit universities with financial problems (Altbach and Knight, 2007). Academic dimensions include providing an international dimension to research, extension of the academic horizon, Institution-building, to build Profile/Status, enhancement of quality and to obtain International academic standards (ibid). Study will focus on all above dimensions when focusing on academic dimensions for internationalization. A firm may adopt a collaborative mode of entry, such as joint venture, in order to enhance its capabilities or to develop new capabilities (Ghoshal, 1987; Kogut, 1988). Most of the times higher educational institutes which internationalize for academic reasons would prefer for collaboration with objective of mutual development rather than economic benefits, even under favorable conditions for full control structure. Knowledge is the most critical asset/resource for any type of professional service delivery firm (Greenwood & Empson, 2003) including education delivery firms. In educational institute knowledge, especially tacit knowledge lies with its professors. Professional service firms create value through their selection, development, and use of human capital (Hitt et al., 2001). Therefore for an educational institute experience and expertise of their human capital is extremely important. Most or greater part of expertise and experience are embedded as tacit knowledge. Thus the paper argues that educational institutes with tacit knowledge would prefer greater control entry methods provided that their main motive for internationalization is financial incentives. However the paper argues a negative relationship between tacit knowledge and high control entry mode, when the motive behind internationalization is academic. H1a: The positive relationship with tacit knowledge and high control entry mode is positively moderated by a financial motive for internationalization. H1b: The positive relationship with tacit knowledge and high control entry mode is negatively moderated by an academic motive for internationalization. Proceedings of 34th International Business Research Conference 4 - 5 April 2016, Imperial College, London, UK, ISBN: 978-1-925488-02-9 Higher the number of years in business greater the experience will be. Larger the number of markets served the greater the experience will be. Greater the experience lesser will be risk of entering a new market. Gomes-Casseres, (1989) identify two important types of experiences a firm can have geographic experience and industry experience. Former is determined by different markets served while latter is determined by years in operation. The study argues that firms with greater geographical and industry experience will prefer a high control entry mode given that their motive for internationalization is financial. However on the other hand study argues that even though the firm has greater industry and geographical experience it would still prefer a low control entry mode if the motive for in internationalization is academic. H2a: The positive relationship with experience and high control entry mode is positively moderated by a financial motive for internationalization. H2b: The positive relationship with experience and high control entry mode is negatively moderated by an academic motive for internationalization. Larger the size of the firm greater the access it will have towards resources. The size of a firm is largely an indicator of its competitive advantage (Ekeledo and Sivakumar, 2004). Moreover size will determine what a firm can do and cannot do (Grant, 1991). Further according to Ekeledo and Sivakumar, (2004) a positive relationship between firm size and willingness for a sole ownership ventures have been empirically supported. Therefore the study argues that larger higher educational institutes would prefer high control entry modes provided that their main motive for internationalization is financial. At the same time the study argues that a higher educational institute with an academic motive would still prefer a collaborative entry mode even though it’s relatively large in size. P3a: The positive relationship with size of the firm and high control entry mode is positively moderated by a financial motive for internationalization. P3b: The positive relationship with size of the firm and high control entry mode is negatively moderated by an academic motive for internationalization. Conclusions: Internationalization of higher educational institutes has being growing continuously during last few decades. Higher Educational institutes have two main motives for internationalization, economic related motives and academic related motives. 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