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: amila.b.sirisena@uia.no
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. The main objective of the study was to study the influence of
these motives on entry mode selection. Here the study developed propositions relating to international
entry mode selection of higher educational institutes. The propositions were developed under the
Proceedings of 34th International Business Research Conference
4 - 5 April 2016, Imperial College, London, UK, ISBN: 978-1-925488-02-9
theory of resource based view. Here the study argues that a given firms entry mode choice is influenced
by the motive of the organization.
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