The Role of Information Technology as a Firm-Specific Advantage in Internationalization of firms: Theory and Evidence

This study examines how IT influences the extent of internationalization of firms by using firmlevel data on the IT investments and international operations of US multinationals for the 19992005 period. We identify managerial/operational complexity, geographic dispersion of subunits, and contextual differences between home and host countries as the main challenges involved in internationalization, and investigate whether IT plays a role in resolving these challenges. Our results suggest that firms’ IT capability plays an important role in their internationalization by resolving the aforementioned challenges. Moreover, a firm’s IT capability (as reflected in its IT investments) and production knowledge (as reflected in its R&D investments) are complementary in their influence on the internationalization of the firm. Given the lack of firm-level empirical evidence on the role of IT in the internationalization and global operations of firms, the current study provides a richer understanding of the impact of IT on firms’ international operations.