The impact of digitalization on internationalization from an internalization theory lens

Digitalization is challenging traditional international business theories, shifting emphasis from the flows of goods and services to the flows of data, information, and knowledge, changing the distribution of international activity. From the internalization theory lens, we suggest that digitalization is reducing market imperfections, but this effect varies across industries, positing a linkage between industry digital intensity and internationalization. Digitalization effects can also influence the location-bound constraints of FSAs. Examining one non location-bound FSA, innovation, and one location-bound FSA, brand, we argue that it is the moderating effects, or interaction, of these FSAs and industry digital intensity that drive internationalization. Furthermore, we highlight that these interaction effects change over time, as digital innovations have diffused. We test these arguments on a sample of 2370 U.S. firms over an 18-year period. The findings support our arguments that the conditions under which MNEs increase internationalization is dependent upon the combination of industry digital intensity and innovation and brand. In addition, these interaction effects appear to change over time as digitalization has evolved and become more widespread. Our findings indicate a more nuanced set of relationships within internalization theory in a digital world.