Industry Offshoring and Firm Internationalization: Complementarities in External Learning

Abstract

We draw upon organizational learning theory to argue that industry offshoring intensity provides knowledge reservoirs for firms to learn about foreign markets. However, learning about foreign markets from other firms’ cross-border input activities is challenging, and a knowledge reservoir embedded in an industry may not be immediately utilizable by all firms. We posit that realizing such external learning opportunities hinges on complementarities facilitated by internationalization-specific experience and general absorptive capacities. Industry offshoring intensity has no effect on the internationalization likelihood of firms lacking foreign market experience. Their absence of internationalization-specific knowledge erects barriers to realizing external learning opportunities unless they possess a general absorptive capacity that supports assimilating insights from new domains, enabling complementarities with the knowledge reservoir. By comparison, firms with foreign market experience can more readily leverage the knowledge reservoirs, increasing the extent of their internationalization. Complementarities between experiential and external knowledge enable this effect. Data from 5,745 United States firms in 56 industries (1997 to 2019) support these arguments. This study offers industry offshoring as a novel internationalization determinant underpinned by a knowledge reservoir stemming from peers’ activities. It also highlights the complementarities between experiential and non-experiential learning forms and absorptive capacity’s role in demarcating potential and realized opportunities.