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The internationalisation process theory and the internationalisation ofNorwegian firms, 1945 to 1980Rolv Petter Amdam a

a BI Norwegian School of Management, Oslo, Norway

Online Publication Date: 01 May 2009

To cite this Article Amdam, Rolv Petter(2009)'The internationalisation process theory and the internationalisation of Norwegian firms,1945 to 1980',Business History,51:3,445 — 461

To link to this Article: DOI: 10.1080/00076790902844054

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The internationalisation process theory and the internationalisation of

Norwegian firms, 1945 to 1980

Rolv Petter Amdam*

BI Norwegian School of Management, Oslo, Norway

According to the internationalisation process theory firms tend to invest andexpand in countries with a short psychic distance to the home country. This paperdiscusses the usefulness of bringing this theory into business history by analysingthe internationalisation of Norwegian firms before the 1980s. The empiricalcontribution of this paper is that it adds new knowledge to our understanding ofthe early internationalisation of Norwegians firms. The theoretical contribution isthat the paper develops the discussion on the usefulness of bringing networks intothe internationalisation process theory. Based on the Norwegian case, there seemsto be a need for including personal networks as one dimension of the psychicdistance concept, not only in the new economy but also in the old economy.

Keywords: FDI; internationalisation process theory; MNE; internationalisation;Norway

Introduction

During the twentieth century Norway was an open export oriented economy.However, excluding export as a criterion to measure the degree of internationalisa-tion, the internationalisation of Norwegian firms is a relatively new phenomenon(Hodne, 1993). As to outward foreign direct investments (FDIs), Norway wasconsidered a latecomer before the 1980s. While more than 200,000 were employedabroad in Swedish firms in 1976, Norwegian firms employed only 20,000 abroad inthe same year (Smukkestad, 1979). This situation has changed, and from the 1980sthe internationalisation process of Norwegian firms began to accelerate (Benito,Larimo, Narula, & Pedersen, 2003). There are, however, few historical studies of theinternationalisation of Norwegian firms before the 1980s. While some argue that theinternationalisation process began in the 1980s and that there was only a handful ofNorwegian multinational enterprises (MNEs) before 1980 (Hodne & Grytten, 2002)others mention the late 1960s (Samdal, 1976) or 1970s (Gisnas, 1995) as weakturning points of internationalisation.

This paper aims to identify the takeoff of modern internationalisation byexamining the internationalisation of Norwegian manufacturing firms, focusing onthe period from 1945 to 1980.1 This will be done within the framework of the

*Email: rolv.p.amdam@bi.no

Business History

Vol. 51, No. 3, May 2009, 445–461

ISSN 0007-6791 print/ISSN 1743-7938 online

� 2009 Taylor & Francis

DOI: 10.1080/00076790902844054

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internationalisation process theory, or the Uppsala model (Johanson & Vahlne,1977). The paper is structured as follows: in the first part we present theinternationalisation process theory and argue for including network as oneadditional dimension of the traditional definition of psychic distance. The secondpart presents some general patterns of the internationalisation process of Norwegianmanufacturing firms. In the third part we discuss the geographical distribution ofNorwegian FDIs in light of the industrialisation process theory. The fourth partargues for the necessity of bringing networks into the perception of distances, asdefined by the internationalisation process theory. Finally, we conclude byaddressing some theoretical implications.

The internationalisation process theory and history

The internationalisation process theory is relevant for international business historyresearch since it is a dynamic theory. It offers an explanation of foreign marketentries and foreign market expansion. It is also considered dynamic since it assumesthat internationalisation processes are the result of decisions based on accumulatedknowledge over time. The theory states that firms tend to internationalise graduallyby developing step-by-step from producing for the domestic market to exportingthrough agents and sales offices before becoming multinational by establishingproduction units abroad. When establishing themselves abroad, firms tend to investand expand in countries with a short psychic distance to the home country. Psychicdistance refers to obstacles in information flows between countries due to differencesin business laws, educational levels, business languages, etc. (Johanson & Vahlne,1977) or cultural distances (Benito & Gripsrud, 1992; Kogut & Singh, 1988) based onHofstede’s (2001) categories for comparing national cultures.

According to this theory the internationalisation process is driven by learningfrom international operations over time and commitment to international business.The better the knowledge about the market, the more valuable are the otherresources, and the stronger is the commitment to the market. Market specificknowledge develops over time by performing international operations in a specificmarket. Since international operations are risky, firms tend to start theirinternationalisation process in a country close to the home country as defined bypsychic or cultural distances. Furthermore, as companies gain experience from suchmarkets, they will gradually invest in more distant countries. Internationalisation isalso a process increasing commitment to foreign operations and to foreign marketsin which they are already operating. They thus become dependent on these marketsand may expand further if conditions for expansion exist.

Several empirical studies have found no or mixed support for the processapproach suggested by the internationalisation process theory (Benito & Gripsrud,1992; Engwall & Wallenstal, 1988), while others support the theory (Cavusgil &Godiwalla, 1982). Partly due to this critique, Johansen and Vahlne (2003) haverecently revised their theory. Since not all firms in the new economy expandaccording to this step-by-step logic, and since the character of global business haschanged, they argue that business networks should replace country specific factorslike psychic distance. ‘Business networks’ are defined as a set of interconnectedbusiness relationships with other business actors, suppliers, and customers. Strongrelationships with public or semi-public actors may also be of importance in thisapproach. The network perspective makes country borders less relevant. However,

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the logic concerning learning over time is still relevant. According to this perspectivelearning through networks matters for decisions on internationalisation.

The internationalisation of Norwegian firms has been studied by Benito andGripsrud (1992) within the framework of the internationalisation process theory.They argue that there is no significant support for the theory based on the patterns ofinternationalisation of Norwegian manufacturing firms before 1982. They havetested two hypotheses based on the original Uppsala model on statistical data.Firstly, the first FDIs undertaken are made in countries that are culturally closer tothe home country than later FDIs. Secondly, the cultural distance to the countrywhere an FDI is made will increase with the number of FDIs previously undertakenby a given company. Since they find no support for the theory, they suggest thatlocational choices are rational choices rather than results of a cultural learningprocess.

This paper also discusses the internationalisation of Norwegian manufacturingfirms in light of the internationalisation process theory, and focuses on the periodfrom the end of World War II up to 1980. There are several reasons for ending in1980. Firstly, statistical data from the early 1980s is better than data from earlierperiods and shows a substantial increase in outward FDIs from the early 1980s. Thiscan be illustrated by the fact that the number of Norwegian FDIs quadrupled from1978 to 1986 (Gisnas, 1995, p. 35). Political changes in the early 1980s can be givenas another reason. The government’s view on outward FDIs changed fromscepticism to a very positive attitude by strongly encouraging firms to invest abroad(NOU, 1981). Internationalisation was now considered a necessity for the country’scompetitiveness and for preventing unemployment (Hansen & Rotbæk, 1982).

This paper challenges the findings of Benito and Gripsrud (1992) on two counts.Firstly, there is a theoretical argument related to the development of theinternationalisation theory. We propose that the existence of business networks isnot only a new phenomenon that should replace the psychic distance dimension inthe new global economy, as suggested by Johanson and Vahlne (2003), but anadditional dimension also in the old economy. By adding the existence of personalnetworks through which learning has taken place to Hofstede’s four culturaldimensions as used by Benito and Gripsrud to capture the cultural distance, we willcritically examine their finding that the first FDIs undertaken were not made incountries closer to the home country than later FDIs.

The second argument is methodological. This paper shows that if we usehistorical methods and go beyond the aggregated statistical data and into thedifferent processes of particular firms, the internationalisation of Norwegian firmstook place more gradually and to a larger extent before 1980 than what other studieshave shown. Norway lacks an accurate overview of inward FDIs for this period, andthe Central Bank of Norway has been very restrictive in giving detailed informationabout these investments (Samdal, 1976).

Our study on how and when Norwegian firms began to invest abroad is based ona database consisting of all known Norwegian manufacturing firms with subsidiariesabroad before 1980. The basic data source is four surveys with detailed informationon Norwegian firms with subsidiaries abroad, published in the NorwegianAssociation of Industries’ journal in 1969, 1974, 1982 and 1984.2 These surveyshave previously been used by Benito and Gripsrud (1992). Our database, however,has improved the data by checking the information and adding new informationfrom a large number of company histories,3 newspaper and journal articles,

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contemporary studies such as an unpublished master’s thesis (Samdal, 1975),research reports (Alnæs & Høstmælingen, 1968; Samdal, 1976), and annual reports.

This methodology has given us a better insight into the motives for investingabroad as compared to using published statistical data only. This methodology hasalso enabled us to increase the number of first FDIs. Compared to the original foursurveys, 80 new first FDIs have been added, six firms have been deleted since theywere sales units, and not manufacturing units, and in 23 cases the order of countriesin which companies invested has been changed. A small number of firms investedabroad earlier than 1945, and some of these units were closed down after some years.Since the internationalisation process theory underlines the importance of learningfrom international operations, we have in two cases registered FDIs after 1940 asfirst FDIs since the previous foreign subsidiaries were closed down so early that thefirms did not have any international units for a period of 15 years or more prior tothe first post-war FDI.

Using this methodology, we have identified 167 first FDIs from 1945 to 1980,compared to 93 from 1910 to 1982 in Benito and Gripsrud’s study. We haveidentified a total of 306 FDIs, as compared to 201 by Benito and Griprsud (1992).An FDI is defined both in this paper and by Benito and Gripsrud as foreigninvestment resulting in at least 10% of the shares in the invested unit.

The internationalisation of Norwegian firms in a long-term perspective

Compared to Sweden, Norway has very weak historical traditions when it comes toestablishing MNEs (Hodne, 1993; Olsson, 1993). However, from the late nineteenthcentury attempts were made to set up subsidiaries abroad. In 1873, the breweryChristiania Bryggeri purchased a glassworks in Sweden to produce bottles (Amdam,Hanisch, & Pharo, 1989). O. Mustad & Sønn, the producer of horseshoe nails andfishing hooks, invested in Finland in 1886 and in France in 1891, followed by newfactories in Sweden, Spain, Austria, UK, Italy, Romania, Poland and Yugoslaviabetween 1891 and 1924 (Paulsberg, 2007). The pulp and paper company Borregaard,which was established in Norway in 1889 by British owners, opened a factory inAustria in 1893. Another company within the same industry, Saugbruksforeningen,established a subsidiary in Sweden in 1910 (Bergh & Lange, 1989). In 1915 theNorwegian company Norsk Aluminium Compagni (NACO) established an oxidefactory in Var in France (Storli, 2008), and in 1917 the chocolate producer Freiastarted production in Sweden (Rudeng, 1989).

This first period of internationalisation was rather isolated. Most of thesubsidiaries mentioned above were closed down after a few years, which was also thecase with the fertiliser producer Norsk Hydro’s plant in France from 1914 to 1921(Andersen, 2005). Several other attempts to invest abroad during the period from1915 to 1920 failed, such as pulp and paper production in Finland and Russia,railroads in Mexico, trams in Brazil, oil production in Trinidad, wine production inArgentina and papyrus production in Zululand (Gisnas, 1995). However, for a smallnumber of companies, such as O. Mustad & Sønn, these investments represented thebeginning of a long period of internationalisation. This was also the case for two ofthe four identified companies that went international in the late 1930s. In 1936, thecheese producer O. Kavli invested in production units in Denmark, the UK andAustria (Kavli, 1946), and Jac. Jacobsen, the producer of office lamps, Luxor,established its first international operation in Sweden in 1939 (Jacobsen, 1977).

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After World War II Norwegian firms once more began to invest abroad, but at avery slow rate. In the late 1940s only four investments are registered, among thesethe producer of raincoats, Helly-Hansen, which established subsidiaries in Swedenand Denmark in 1949 (Samdal, 1976). Between 1948 and 1957 on average only oneFDI was established annually.

The number of FDIs established annually increased to an average of six FDIsbetween 1958 and 1965 according to the database. Scholars differ, however, as tohow to characterise the main development during the 1960s and 1970s, which maypartly be due to the lack of good statistical data from this period. Statistics on thevalue of foreign shares owned by Norwegians show a rather stable development.Norwegians owned shares in foreign countries worth approximately NOK 300mbetween 1958 and 1964 before the value started increasing. In 1966 the value of theseinvestments was NOK 454m, in 1970 NOK 1.021m and in 1973 1.574m (Samdal,1975, Appendix B.3). This statistical data should be viewed carefully, since itincludes all shares and not only FDIs, as well as all industries. FDIs inmanufacturing industries represented only 10–20% of total FDIs, which meansthat most of the investments were made in sales companies, other trade activities andin shipping (NOU, 1981, p. 71).

Data on FDIs, which has been analysed from 1970 (Juul & Walters, 1987), showsthat the value of FDIs continued to increase during the 1970s, and especially from1973 (see Table 1). The impression that the mid-1970s represented a change in thedevelopment of the Norwegian internationalisation process is also supported byother sources. As seen from Table 2, the majority of the 25 largest Norwegianmanufacturing firms had become multinationals during the 1970s. While only 7 ofthe 25 largest firms in 1967 had made any FDI, 15 had done so 10 years later. As aresult of these investments, 9.3% of all employees in Norway’s 30 largestmanufacturing companies worked abroad in 1980 compared to 6.4% in 1975(Hammervoll & Heum, 1993, Table 7).

While the data presented above indicates that the value of outward FDIsincreased substantially during the 1970s, our database shows a surprisingly strongincrease in the number of FDIs from the mid-1960s. As shown in Table 3, thenumber of FDIs increased from the mid-1960s with a peak of more than 21 both in

Table 1. Norwegian outward FDIs 1970–1982 (million NOK).

1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982

237 284 144 420 906 1255 1192 1003 1661 771 1505 1879 2674

Source: Juul & Walters, 1987.

Table 2. The 25 largest Norwegian manufacturing companies: companies with foreignsubsidiaries 1967, 1977 and 1984.

1967 1977 1984

Companies with foreign subsidiaries 7 15 14

Sources: Økonomisk litteratur: The 500 largest companies in Norway, 1968, 1978, 1985 and Annual reportsfrom the 25 largest manufacturing companies, 1967, 1977, 1984.

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Table

3.

Number

ofNorw

egianFDIs

byyearofinvestm

ent,1948–1980.

Year

48–57*

58–65*

66

67

68

69

70

71

72

73

74

75

76

77

78

79

80

**

N

FDI

16

11

10

21

21

16

23

19

19

22

14

15

916

12

734

306

Source:

Author’sdatabase.

*Annualaverage.

**Theexact

yearfor27FDIs

from

1948to

1968,and7FDIs

from

1969to

1974are

unknown.

N¼

Number

ofFDIs.

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1968 and 1969. After 1974, when 22 new FDIs are registered, the number of newFDIs decreased during the 1970s.

Some of these investments were made by firms that already had one or moresubsidiaries abroad. However, if we only focus on firms’ first FDI, we see a similarpattern. The first registered post-war FDI was in 1948. From 1948 to 1969 on theaverage 3.8 first FDIs were undertaken annually, compared to 7.5 from 1970 to 1980.Since we have not been able to identify the exact year for 17 of the 84 first FDIsbetween 1948 and 1969, the data has some weaknesses. We could, however say thaton average one first FDI was undertaken annually from 1948 to 1957, andapproximately six annually from 1958 to 1969 with more than 11 in 1968. During the1970s, 12 first FDIs were made both in 1972 and 1973. These findings support theobservations made by others that the period from the mid-1960s to the mid-1970swas a turning point in the history of the internationalisation process of Norwegianmanufacturing firms.

This development may be explained by different factors. The increase in FDIsfrom 1958 has been explained by Norway’s membership in European Free TradeAssociation (EFTA) from 1958, as a result of competition in the home market fromforeign companies entering the Norwegian market and new possibilities to investabroad (Alnæs & Høstmælingen, 1968). From 1960 the industrial policy in Norwaychanged, and the government as well as the industry associations encouragedNorwegian companies that traditionally had produced for the domestic market tointernationalise through export in order to meet the new competition (Hanisch &Lange, 1986). The increasing number of FDIs around 1972 has been explained by thefact that Norway said no to entering the EEC that year. This decision resulted infirms investing in EEC countries in order to be present in the new common marketand to avoid tariff restrictions. For example, Norwegian investments in the UKincreased from NOK 152m in 1972 to NOK 240m in 1973 after Norway had said noand UK yes to join EEC (Samdal, 1975, Table 3.7).

The fact that FDIs also increased some years before the EEC referendum in 1972,and the fact that the increase in the value of FDIs in the late 1970s was not followedby a similar increase in the number of FDIs, is more difficult to explain. This is alsobeyond the scope of this article. One could, however, suggest that the increase in thelate 1960s was a result of the process that had begun around 1960, and that thisprocess was supported by industry associations gradually starting to focus oninvestments and not only exports. In 1970, for example, the Norwegian Trade andIndustry Council published the book Establishments abroad – a guide formanufacturing companies to follow up the increasing tendencies of investing abroad(Norges Eksportrad & Norges Industriforbund, 1970). Concerning the decliningnumber of new FDIs from the mid-1970s, the economic crises from 1973, which ledto restructuring processes within several manufacturing industries in Norway, mighthave had a negative effect on internationalisation. After 1972 the political climate inNorway also changed, and became strongly critical of multinational organisations(Hanisch & Lange, 1986).

The geographical distribution of Norwegian first FDIs

According to the internationalisation process theory, firms tend to make their firstFDI in countries that are culturally close. Based on Hofstede’s (2001) indicators andthe composite index developed by Kogut and Singh (1988), Benito and Gripsrud

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(1992) have shown that there is no significant support for this hypothesis, Norwegianfirms do not appear to establish their first FDI in countries culturally closer to thehome country and later FDIs in countries at a greater cultural distance. Thehypothesis was tested by dividing all host countries into three regional groupsaccording to cultural distance: firstly, Nordic countries other than Norway,secondly, countries in Europe and North America, and thirdly, the rest of theworld (Benito & Gripsrud, 1992).

Our data would not have changed their findings significantly if we had used thesame methodology. The fact that there is no significant support of the hypothesisthat Norwegian firms undertook their first FDI in countries that are culturally closerto Norway than later FDIs, as Benito and Gripsrud (1992) argue, is illustrated inTable 4. We have limited the study to a comparison of the first and secondinvestments, inspired by Benito and Gripsrud’s findings that there were nosignificant differences according to the numbers of FDIs undertaken by a firm. Inaddition we have nuanced the categorisation of countries into groups. Firstly, wehave made a distinction between Europe and North America. Secondly, we groupedcountries according to continent.

As we see, nine out of 48 firms undertook both their first and second FDI in aNordic country. One example of this group is the chemical company, Brødr SundeA/S, which in 1964 invested in a production unit in Denmark and five years later inone in Sweden (Nilsen, 1992). Nine firms invested initially in a Nordic country beforethey made their second investment in a European country outside the Nordiccountries. For example, the chemical company Glidol & Snøland invested inproduction in Denmark in 1958 and then in Spain in 1961 (Norges industri, 1974).Four companies undertook their second FDI outside Europe after undertaking theirfirst FDI in a Nordic country. These firms include Jordan, the producer oftoothbrushes that invested in Denmark in 1961 before undertaking its secondinvestment in South Africa in 1969 (Dahl, 1962), and the painting producer companyJotun, that invested in Libya in 1962 after having invested in Sweden in 1951 (Bryn,1998).

We could argue that the firms that made their first FDI within the Nordiccountries and their second outside the Nordic countries, to some extent followedthe logic of the Uppsala school. However, a substantial number of investments donot fit this pattern. Five firms undertook both their first and second FDI in aEuropean non-Nordic country, like Elkem, that invested in aluminium production

Table 4. Norwegian firms’ first and second FDI 1948–1980, regional distribution.

Regional group Investment patterns No. of FDIs

1 1st and 2nd FDI in a Nordic country 92 1st FDI in a Nordic and 2nd in another

European country9

3 1st FDI in a Nordic country and 2nd outside Europe 44 1st and 2nd FDI in a European country outside

the Nordic countries5

5 1st and 2nd FDI within the same region, outside Europe 3Other regional patterns 18Total 48

Source: Author’s database.

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both in the UK and the Netherlands in 1968 (Sogner, 2003). Three firms madeboth their first and second FDI outside Europe but within the same continent, likeBrødr Hetland, that invested in the fishery industry in Peru and Chile in the early1960s (Alnæs & Høstmælingen, 1968). Finally, as many as 18 firms did not followany of the patterns described above. For example, Norcem, the producer ofcement, made its first FDI in Ghana 1967 and the second one in the Philippines in1975 (Gartmann, 1990). Kenmore Norway, the producer of refrigerationequipment, invested in Italy in 1964 before establishing itself in Singapore in1971 (Hoemsnes, 2003). The producer of glue and explosives, Norsk Spræng-stoffindustrier, later known as Dyno, invested in Germany in 1967 before alsoinvesting in Singapore two years later (Halvorsen, 2000). Frionor, the producer offrozen fish, gained experience from the US from 1965 before investing in Swedentwo years later (Frionor, 1996).

Since only 48 out of 167 firms established more than one FDI in the period, onecould argue from a methodological point of view that the relevance of theinternationalisation process theory has some limitations based on investmentpatterns that only include firms that undertook FDIs in two or more countries. If we,therefore, as an alternative, focus only on the first FDI, Table 5 shows that 41.9% ofthe first FDIs were undertaken in other Nordic countries, and 30.5% in otherEuropean countries.

Among the host countries, Sweden had the most first FDIs with 24.8%, while12.6% of all first FDIs were undertaken in Denmark. What is more interesting isthat 14.4% of all first FDIs were in the UK. The grouping of countries has beenbased on Hofstede’s (2001) clustering of nations, using cultural criteria. It thereforemakes sense – as a general guideline – to define the Nordic countries as one culturalregion. We could, however, argue that historically there has been significantbusiness, as well as political, contact between Norway and the UK. Since mostNorwegians spoke English at the time, it seems, as Juul and Walters (1987) argue,‘safe to argue that the ‘‘distance’’ between Norway and UK is relatively short.’

If we include the UK among the countries that are close in cultural distance toNorway, 56.3% of all first FDIs undertaken by Norwegian firms within themanufacturing industry from 1945 to 1980 were established in countries culturallyclose to Norway. Thus it seems reasonable to argue that the Norwegian firms duringthis period made their first FDI in countries that are culturally close, and that it is

Table 5. Geographical distribution of Norwegian manufacturing firms’ first FDI, 1948–1980.

Regional groups

Number of first FDI %

1948–69 1970–80 Total 1948–69 1970–80 Total

Nordic countries 35 35 70 41.7 42.2 41.9Other European countries 23 28 51 27.4 33.7 30.5North America 3 6 9 3.6 7.2 5.4South America 7 1 8 8.3 1.2 4.8Africa 10 4 14 11.9 4.8 8.4Asia 6 9 15 7.1 10.8 9.0

84 83 167 100.0 100.0 100.0

Source: Author’s database.

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valid to re-examine the usefulness of the internationalisation process theory in theNorwegian case.

Adding networks to cultural distance

Above we have discussed the Norwegian internationalisation in relation to the originalinternationalisation process theory, claiming that firms tend to invest in countries thatare culturally close to the home country. Based on Johanson and Vahle’s (2003)revision of their earlier work, we suggested that the existence of business networks isnot only a new phenomenon that should replace the psychic distance dimension in anew internationalisation process theory, but that business networks can be seen as anadditional dimension to culture also in the ‘old’ economy. In this section we will seehow the existence of different types of networks may contribute to explaining theinvestment patterns. This will primarily be done by focusing on the 73 first FDIsoutside the Nordic countries and the UK. Twenty-seven first FDIs were undertaken inEuropean countries other than the UK, nine in North America, and eight in SouthAmerica. Interestingly enough, there were more first FDIs in Africa (14) and Asia (15)than in the US (5), a fact that needs further examination.

We shall focus on five types of network. Firstly, personal networks linked tostrong personal ties between a key actor in the investing firm and another person inthe host country, or networks created through education abroad. Secondly,investments made as a result of invitation. Thirdly, networks with strong ties tofirms that had already invested abroad. Fourthly, networks created throughmissionary activities, and finally, networks involving governmental actors.

To prove the existence of such networks prior to the decision to establish FDIsmay be difficult, The motives may, however, be found in minutes from boardmeetings, correspondence, and compiled from other archival sources usingtraditional historical methods. However, these sources are difficult to find for amajority of companies. Some companies have closed down, others may be difficult toapproach when it comes to access to archives, if they exist. We have tried tocompensate for this weakness by searching actively for all types of relevant companyhistory. Even though we have been able to identify a large number of different typesof networks, we are not able to quantify these precisely. The following arguments areconsequently based on several concrete examples to illustrate the relevance of thementioned approach.

We are fully aware of the fact that some firms first began to invest abroad basedon economic motives like access to raw material, cheap labour or to protect a foreignmarket from new competitors, as argued by Benito and Gripsrud (1992). When, forexample, Scansia, representing the Norwegian furniture company Slettvoll, theproducer of so-called Manila furniture, decided to undertake its first FDI inMalaysia in 1978, the main motive was to get better access to raw materials(Svendsen, 1979). This was also the main motive, in addition to access to cheaplabour, when the producer of rubber boots, Viking-Askim, in 1973 invested inMalaysia (Middelthon, 1992). The refrigeration equipment manufacturer Kenwoodis a good example of a first FDI that was made in order to protect a foreign market.It decided to start production in Italy in 1964 when new competitors had establishedthemselves there (Hoemsnes, 2003). In some cases such examples do not support ourargument for the existence of networks. In other cases, as we will show, the examplesillustrate the existence of strong networks.

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In 1941 the Norwegian ship owner Thomas Olsen bought the American producerof watches, Timex (McDermott, 1998). This is a good illustration of the importanceof strong personal networks. Olsen’s close friend, Joachim Lehmkuhl, who was theone that initiated the takeover, had cooperated closely with Olsen during a politicalcampaign in the inter-war period in order to introduce Frederic Taylor’s scientificmanagement principles to Norwegian industry. Lehmkuhl had been introduced toTaylor’s principles as one of the first Norwegian students at MIT in Massachusetts.Due to the German occupation of Norway in 1940, both Lehmkuhl and Olsen fled tothe US. In New York they cooperated very closely within the exile milieu ofNorwegian industrialists and politicians who were preparing for the rebuilding ofNorway after the war based on American business principles (Amdam, 2000).During his period in exile in the US, Lehmhuhl re-activated his business contactswith the Americans, and he changed from being a Norwegian industrial activist to anAmerican industrialist.

Similar examples of the importance of personal networks are many. In 1959,Grorud Jernvarefabrik, the producer of saws and other equipments for the forestryindustry, changed to a MNE when the company established production in the UK.The company had for decades exported to Canada, India, Malaysia and otherCommonwealth nations. Due to the new Imperial preference duty that shouldprotect British producers, the company was facing a 34% increase in import tariff.Through his personal friendship with Lord Thornycroft, who was also a closepersonal friend of the British Minister of Industries, the Norwegian CEO wasconvinced to invest in the UK to avoid this tariff (Smedstad, 1992, p. 99). When theNorwegian producer of aluminium, Elkem, in 1968 decided to invest in the UK andthe Netherlands, the CEO was encouraged to invest inside the EEC by his closefriend, the CEO of Alcoa, an American MNE that had established a joint venturewith Elkem in Norway in 1963 (Sogner, 2003, p. 169). This example also illustratesthe importance of networks with other firms, which are discussed below.

In other cases, the decision to invest abroad for the first time was made as a resultof an invitation from actors in the host country. Ila og Lilleby Smelteverker, theproducer of silicon metal, was strongly focusing on the export market, and wasactively searching for countries in which to invest. Portugal, Iceland and Australiawere considered. However, when management decided to choose Canada as the firstcountry for an FDI in 1975, this was as a result of an invitation from the GermanSuddeutsche Kalkstickstoffwerke (SKW) to establish a joint venture in Becancour(Sellæg, 1988). When Kjættingfabrikken, the producer of chains and otherequipment for the forestry industry, decided to invest in Canada in 1959, this wasalso the result of an invitation. As a member of the Chain Tester Association ofGreat Britain, management from 1953 established contact with some Canadians. In1956 the firm received an invitation to visit Vancouver from the IndustrialCommission of Greater Vancouver, which wanted to attract FDIs. During the visitthe Norwegian team received an offer to invest in a fully commissioned plant, whichthey could rent for 10 years, with an option to subsequently purchase. The reason forthis offer was that the Norwegian technology was considered superior to that of theCanadian producers. Consequently, a joint venture, the Canadian Norwegian ChainCompany, was formed between Canada Chain & Forge Co. Ltd and Kjættingfab-rikken (Spilhaug, 1989). When Norcem, the cement producer, decided to invest inGhana as its first foreign country, it was not only because the company had been thelargest international exporter of cement to Ghana for years, but also because it was

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invited by the government of Ghana to establish a production unit in order tosupport the building of a large dam for a hydro-electrical plant (Backe, 1968).

A third type of network is strong networks to other firms that had already investedabroad. Such networks may include foreign companies, with which Norwegian firmshad created strong alliances, such as the aforementioned alliance between Alcoa andElkem that contributed to Elkem’s decision to invest in the UK and the Netherlands(Sogner, 2003). In other cases networks with foreign companies influenced thedecision as to where to invest abroad for the first time. In 1973 Viking-Askim, theNorwegian producer of rubber boots, decided, as previously mentioned, to invest inMalaysia in order to gain access to raw materials and reduce labour costs. Anotherfactor contributing to this decision was close relations to the Danish Østasiatisk(East Asian) Kompany, a trading company that had operated in Malaysia for morethan 50 years; 2500 of the Danish company’s 40,000 employees were employed inMalaysia, and the Danish firm invested 35% of the shares in a Malaysian jointventure with Viking-Askim (Middelthon, 1992, p. 178). One reason why the Danishfirm was so positive towards the idea of a joint venture was that it was underpressure by local government to create new jobs in Malaysia (Svendsen, 1979, p. 52).

More important than networks involving foreign actors were networks involvingother Norwegian firms already operating abroad. In 1952 Vestfold Flatbrødfabrik,the producer of thin wafer crisp-bread, for example established itself in the UK. Thefirm had for a long time exported to the UK and been cooperating closely with theNorwegian producer of cheese, O. Kavli. This was due to the fact that their productscomplemented each other. O. Kavli had already established a production unit in theUK in 1936. When Vestfold Flatbrødfabrik met heavy export restrictions around1950, the firm decided to establish a joint venture with O. Kavli at Aycliffe, south ofNewcastle (Vestfold Flatbrødfabrik, 1969).

Several of the first FDIs that were made in developing countries followed earlierinvestments by other Norwegian business partners with international experience, orfollowed the activities of shipping companies. In general the internationallocalisation of the Norwegian cement industry reflected the traffic of the Norwegianbulk fleet (Heiberg & Odegard, 1983). The ‘following your partner logic’ is alsoevident when looking at the Norwegian expansion in Southeast Asia. WhenNorsechem invested in a unit to produce glue in Malaysia in 1971, the companyestablished a joint venture with the Norwegian paint producing company, Jotun, theNorwegian shipping company Wilh. Wihelmsen, and the Norwegian investor JohanH. Andresen (Halvorsen, 2000, p. 193). Jotun had made its first FDI in Sweden in1951, followed by establishments in Libya in 1962, Thailand in 1968, Spain 1969, andMalaysia in 1970, and was one of the most experienced Norwegian internationalcompanies (Bryn, 1998). Johan H. Andresen, who mainly produced tobacco inNorway, had established an FDI in Malaysia in 1969. Wilh. Wilhelmsen was one ofthe largest international shipping companies with offices around the world. Havingestablished itself in Singapore, the firm had contributed to the establishment of arelatively strong milieu of Norwegian shipping companies and shipping agents inthat area from the 1960s. As a result of such shipping activities, Singapore becamethe city with the largest population of Norwegian expatriates outside Europe duringthe 1970s. Their presence served as a magnet to Norwegian investors (Gisnas, 1995).

The fourth type of network is networks that are linked to missionary activities.Such networks are not strongly represented in our database, but could explain whyEthiopia was attractive to Norwegian investors. The shipping company Mosvold &

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Co, managed by Torrey Mosvold, undertook its first FDI in Ethiopia in 1949. TerryMosvold was an internationalist who had returned to Norway from the US in 1946at the age of 36. In addition to shipping he became involved in insurance, furnitureproduction, and other industries on several continents during a long life. He was alsovery active in different religious organisations, among them a missionary society.The reason why Ethiopia attracted his interest was that some of his friends in themissionary society had convinced him of the business opportunities in Ethiopia. As aresult, he established a department store with a small furniture factory with 250employees in Addis Ababa in 1949 (Vetland, 2004). One of the Norwegian producersfor the Ethiopian department store was Ekornes, the Norwegian producer offurniture and mattresses, owned and managed by another industrialist with strongreligious interests, Jens Ekornes. The export of mattresses to his friend’s store inEthiopia attracted Ekornes to Africa as a location for business operations. In 1967he considered Algeria as the location for the firm’s first FDI, but the idea wascancelled for political reasons (Høidal, forthcoming).

The final type of network is networks with governmental actors, which are ofimportance in explaining the large number of FDIs in Africa and other developingcountries. During the 1960s and 1970s Norway developed a relatively ambitiouspolicy for multilateral foreign aid to developing countries. In 1978 this aid reached0.9% of Norway’s GNP, putting Norway in third place among OECD countriesafter Sweden and the Netherlands (Smukkestad, 1979). Several political institutionswere established to promote this development. In 1964 a special guarantee schemefor private investors administered by the Guarantee Institute (GIEK) wasestablished. In order to obtain guarantees, investors had to secure the priorapproval of NORAD, the Norwegian Agency for International Development. Suchguarantees protected the invested capital for a maximum period of 20 years, andguaranteed earnings up to 8% a year for a maximum period of three years. Anotherincentive administered by NORAD was the financial assistance of pre-investmentsand feasibility studies undertaken by private firms. This subsidy normally matchedthe company’s outlay. However, for the main recipients of Norwegian foreign aid(Botswana, Zambia, Kenya, Tanzania, Mozambique, Pakistan, India, Sri Lanka andBangladesh) the contributions sometimes covered 100% of the costs (Smukkestad,1979). As a result of the White Paper from the Onarheim committee in 1967, theNorwegian government accepted that a larger proportion of this aid was linked toprivate firms’ FDIs (Christiansen, 1968). This policy was also strongly supported bythe UN (Simensen, 2003).

We can now make the following observations. Firstly, a survey from 1975showed that 20.8% of all the subsidiaries of Norwegian manufacturing firms werelocated in developing countries (Samdal, 1976, p. 72). Our database shows that16.2% of all first FDIs between 1948 and 1980 were established in South America,Africa and Asia. Secondly, 49% of the FDIs in developing countries undertaken in1975 or earlier were horizontal investments, 22% were vertical, and 29% wereundertaken by conglomerates (Samdal, 1975, Table 4.7). The high percentage ofhorizontal investments indicates that the investors were not primarily looking toinvest to get access to raw materials. Still, it has been claimed that the investmentpatterns did not follow the priorities of the political authorities (Smukkestad, 1979).Case studies show, however, that a large number of first FDIs on these continentswere linked to particular initiatives from – and networks relating to – theaforementioned political institutions.

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When, for example, the Norwegian furniture company Scansia (Slettvold)decided to invest in Malaysia in 1978, NORAD financed 50% of the firm’spre-studies (Svendsen, 1979). When the mechanical company Sverre Munch enteredBrazil in 1957, the firm experienced a problem with the quality of the labour force.This problem was solved by establishing a vocational school, financed by NORAD(Alnæs & Høstmælingen, 1968, p. 31). NORAD also contributed to the financing ofthe Norwegian road constructing firms Veidekke and Furhuholmens’ project tobuild 320 km of new roads for the Kenyan state from 1971 (Horn, 2004, p. 55), andGIEK also guaranteed Ing. F. Selmer’s project to build 15,000 new houses on theIvory Coast in 1962. In addition, GIEK supplied a guarantee when the pulp andpaper company Borregaard invested in Brazil in 1968. This project was at that timethe largest GIEK had ever become involved with (Samdal, 1976).

In some cases the governmental institutions played a very active role by creatingnetworks and encouraging investments. In 1966, the Norwegian Council of Exportsent a trade mission to Zambia to investigate the possibilities for Norwegianinvestments. Several options were considered, such as the production of weldingelectrodes based on the country’s rich copper resources. As a result, the Norwegiancompany UNITOR made its second FDI in Zambia after having invested in Brazil10 years earlier (Christiansen, 1970b). Furthermore, the mission showed an interestin developing a fishery industry using fish from the lakes. ‘Is it possible to find aproducer in Norway that could invest in this activity?’ was one question they asked(Christiansen, 1970a, p. 164). A consulting firm was asked to find such a company.As a result, S.L. Paulsen in Bergen became involved and made its first FDI. Oneconsultant from the Export Council was appointed as director of the new firm inZambia. Finally, the trade mission also investigated how the quality of the localboats on the lakes could be improved. Traditional boats were wooden, and there wasa growing need for more boats. The mission proposed that plastic boats could bebuilt instead. After the Zambian government guaranteed a certain number of plasticboats, the Export Council was able to find a Norwegian partner, Myra Plast, andsubsequently convinced the firm to make its first FDI (Christiansen, 1970b).

Conclusion

In this paper we have critically examined the internationalisation process ofNorwegian manufacturing firms, focusing on the period between 1945 and 1980. Wehave shown that during this period a larger number of firms invested in internationaloperations than identified in earlier studies. Therefore, we argue that the late 1960sshould be regarded as the turning point that paved the way for a new stronginternationalisation wave from the 1980s. Further, the paper has examined theinternationalisation process in light of the internationalisation process theory.Several arguments are given supporting the internationalisation process theory.Firstly, if we focus on the first FDIs only, as many as 41.9% of the firms during theperiod in question invested in another Nordic country when establishing their firstinternational operation. If we then also include the UK, which we consider culturallyclose to Norway – and closer than other non-Nordic European countries – as manyas 56.3% of first-time FDIs were undertaken in countries culturally close to Norway.Secondly, we argue that by adding the existence of strong personal networks to thedefinition of psychic distance, the internationalisation process theory is very relevantin order to understand the Norwegian internationalisation process during this

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period. By adding the existence of business networks as a dimension influencing thedecisions as to when and where to invest, in addition to the other criteria defined aspsychic distance, a surprisingly large number of firms followed the patternssuggested by the internationalisation process theory.

The empirical contribution of this paper is that it adds new knowledge to ourunderstanding of the early internationalisation of Norwegians firms. This findingmay also be of general interest to other European latecomers concerninginternationalisation, such as Spain (Guillen, 2005). The theoretical contribution isthat the paper not only illustrates the usefulness of bringing international businesstheories into business history, but also develops the discussion on the usefulness ofbringing networks into the internationalisation process theory. Based on theNorwegian case, we argue that there seems to be a need for including personalnetworks as one dimension of the psychic distance concept, not only in the neweconomy but also in the old economy.

Notes

1. Manufacturing firms include production and engineering firms.2. Norges industri, 14/1969; 12/1974; 19/1982; 14/1984.3. Company histories of different quality and size – including small leaflets – from 112 out of

167 firms have been identified and checked.

Notes on contributor

Rolv Petter Amdam is Professor of Business History at BI Norwegian School of Management.He is also attached to ISM University of Management and Economics, Lithuania.

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