Does the explanatory power of the OLI approach differ among sectors and business functions: Evidence from firm-level data

The relevance of services FDI strongly increased over the last two decades. As services and goods differ with respect to important characteristics, one may expect that the determinants of internationalisation are not identical in services and manufacturing. Surprisingly, there is practically no firm-level research contrasting the two sectors in this respect. In order to fill this gap, the authors aim at identifying for manufacturing and services, firstly, the determinants of a firm's propensity to engage in foreign activities (exports and/or FDI) and, secondly, the factors determining a firm's direct foreign presence in terms of (combinations of) business functions. The authors find that an OLI-based model is well suited for explaining not only the propensity to go international but also the differences between two specific forms of FDI in terms of business functions both for manufacturing and services. In all models, the explanatory power of the OLI approach is stronger for manufacturing than service activities. The results are consistent with the stages view of internationalisation in particular in manufacturing, but to a lesser extent also in services where the process of internationalization is less continuous.