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Introduction
The phenomenon of internationalization of the enterprises is considered one of the principal areas of study of international businesses (e.g., Ciravegna et al., 2014; Nguyen, 2017; Mendoza et al., 2019). This is because during the past 40 years the phenomenon of globalization has received considerable attention and some scholars have argued that this phenomenon has induced many companies to internationalize themselves (multinational enterprises), as a way of being more competitive (Oviatt and McDougall, 1994).
Given this, the literature postulates that the international diversification can be considered as a strategic decision for the company to reducing risks derived from the reduction of demand in the domestic market (e.g., Bobillo et al., 2012; Ciravegna et al., 2014; Hernández-Perlines et al., 2019), as a growth strategy that allows companies to capture opportunities offered by foreign markets (e.g., Capar and Kotabe, 2003; Bobillo et al., 2008; Mendoza et al., 2019), and to maintain or even to improve their competitiveness (e.g., Autio et al., 2000; Sapienza et al., 2006; Araya-Castillo et al., 2019).
Then, we can argue that internationalization has represented an opportunity for those firms that possess some unique capabilities that can be exploited internationally (Lessard, 2003). With greater international competition and the rise of emerging market economies, multinational enterprises (MNEs) increasingly face highly uncertain foreign environments in which to do business (Cuypers and Martin, 2010).
Furthermore, economic and regulatory environments have changed dramatically, which explains why company behavior has changed in some respects (Johanson and Vahlne, 2009). Thus, multinational firms exist because certain economic conditions and proprietary advantages make it advisable and possible for them to profitably undertake production of a good or service in a foreign location (Guillén and García-Canal, 2009).
The case of Spain responds to this dynamic, because the internationalization of Spanish firms is overall a success story. In fact, during the past two decades Spanish firms have started to invest massively abroad, mainly in other EU countries but also elsewhere, particularly in Latin American countries (Barrios and Benito-Ostolaza, 2008; Puig, 2008; Puig and Fernández, 2009).
In this scenario, investing overseas presents substantial challenges for multinational enterprises. One fundamental challenge is how to design an appropriate ownership strategy when MNEs make new investments in a foreign market (Li and Li, 2010). This context justifies that we have witnessed a growing amount of research about the internationalization of firms (Pla-Barber et al., 2010).
Evidently, this expanding research reflects an increasing internationalization of firms and industries. The research in international business has shown an increasing interest in the study of the internationalization of firms (Johanson and Vahlne, 1990), and the scholars have given answers to basically three questions: why, where, and how do internationalize companies.
Different factors have been proposed in order to explain “why” firms decide to internationalize their operations, such as the liberalization of capital markets, the acceleration of information flows, the higher mobility of people and products, the decline in transportation costs and a relative global regulatory harmonization (Dunning, 2001, 2002; Gatignon and Kimberly, 2004). In this same point, increases in the homogeneity of markets and improvements in the efficiency of communication and international transport make internationalization a more attractive option for firms than before for the firms to internationalize themselves (Bloodgood et al., 1997).
Other authors have argued that internalization of markets has advantages such as economies of scale, scope, and learning (e.g., Kogut, 1985; Ghoshal, 1987; Kim et al., 1989, 1993), and sharing core competencies among different business segments and geographic markets (Hamel, 1991). Capar and Kotabe (2003) hold that firms with strong competencies that are developed at home can utilize these in international markets (Bartlett and Ghoshal, 1989).
Furthermore, in the literature it is important to analyze “where” the firms decide to internationalize their operations. Flores and Aguilera (2007) argue that some of the key determinants of the foreign entry choices are the firm level characteristics (e.g., Horst, 1972; Terpstra and Yu, 1988; Nachum and Zaheer, 2005), the firm relational linkages (Chen and Chen, 1998), as well as home country level (Henisz and Delios, 2001; Harzing and Sorge, 2003) and host country level characteristics (Loree and Guisinger, 1995; Dunning, 1998).
The modes of “how” to enter foreign markets can be manifested in the establishment of foreign subsidiaries, in international joint ventures, in licensing agreements, in international advertising campaigns, in international trade, exhibitions and a multitude of other events and actions (Johanson and Vahlne, 1990).
Two principal approaches have been developed in order to explain “how” firms choose a foreign market: the eclectic paradigm and the Uppsala model. The eclectic paradigm predicts that production will be established where advantages (capabilities and resources) can be enjoyed and that the company will optimize rationally (Dunning, 1988). On the other hand, the Uppsala model (U model) sees the internationalization of the firms as a process where the enterprise gradually increases its international involvement (Johanson and Vahlne, 1977).
However, the theories and models about the internationalization process of companies have been developed based on research on manufacturing companies (Clark and Rajaratman, 1999), even when in developed countries, such as the US, Japan, Germany, France, or the UK, services account for more than 70 percent of the gross domestic product (GDP) (Central Intelligence Agency, 2011). That is, even when in developed nations a shift in weight from the manufacturing towards the services sector can be observed, the literature in international business has been mostly developed in the manufacturing sector (Sánchez-Peinado et al., 2007).
Thus, this paper aims to analyze the internationalization process of Spanish service companies, because this sector has been little studied and because some studies demonstrate that the theories of internationalization can still be applied to the services industry (Sacramento et al., 2002) and the services is one of the areas in which Spanish multinationals have become best known internationally (Guillén and García-Canal, 2010).
Specifically, this paper seeks to respond to the questions of where and how of the internationalization process of Spanish firms providing services to other companies (henceforth referred as “business services”). We analyze this sub sector of the service given that Spain is a significant exporter of this kind of services and a number of these companies have internationalized successfully.
The “where” question is analyzed through the study of the focus of internationalization of the Spanish multinational service firms (globalization versus regionalization). While, the “how” question is analyzed by the degree of control the parent company has over its subsidiaries.
This analysis is important, because even when this research is focused in specific sub sectors of business services, the results are in concordance with other empirical studies. Specifically, these results contribute to a better understanding of the internationalization patterns of Spanish multinationals offering business services.
Literature review
During the past decade Spanish firms have started to invest massively abroad, mainly in other EU countries but also elsewhere, particularly in Latin American countries (Barrios and Benito-Ostolaza, 2008). Durán (2006) notes that the flows of foreign direct investment (FDI) of the Spanish multinationals made between 1993 and 2005 have been concentrated in Europe and Latin America, representing each one of those near 40 out of 100 of the totals. Therefore, the evidence suggests that cultural and distance proximity provides a significant incentive for Spanish multinationals to invest in foreign markets (Barrios and Benito-Ostolaza, 2008).
Additionally, the new MNEs are the result of both imitation of established MNEs from the rich countries - which they have tried to emulate both strategically and organizationally - and innovation in response to the peculiar characteristics of emerging and developing countries (Guillén and García-Canal, 2009). This explains that the geographical and sectorial distribution of Spanish FDI has varied over time, responding just as much to institutional elements (of the country of origin as well as the country of destination) as to specific business advantages (Durán, 2002).
In this context, it is argued that the observed phenomenon of Spanish multinationals corresponds to the latest studies on the focus of internationalization of MNEs, which indicate that modern company is “semi global” (e.g., Osegowitsch and Sammartino, 2008; Asmussen, 2009; Banalieva and Eddleston, 2011). Given this, the first hypothesis of this paper is formulated as follows:
Hypothesis 1: Spanish multinationals in the service sectors present a pattern of semi global internationalization, principally focused on countries in the regions of Europe and Latin America.
Prior experience in foreign markets, especially of multinational nature (Durán and Ubeda, 2001), not only generates a greater capacity for evaluating the advantages of localization offered by culturally distant countries (Erramilli, 1991), but it provides access to potential efficiency gains through a greater capacity of coordination of its international operations (Durán, 2002).
This explains why firms with little foreign market experience prefer markets at a short cultural distance, since a firm’s existing experiential knowledge is less relevant in culturally dissimilar environments (Blomstermo et al., 2006). Also, company age is related to size which means that older companies tend to be larger and possess more resources. Given this, the second hypothesis of this paper is stated as:
Hypothesis 2: The greater the years of experience a Spanish service multinational company has, the greater will be its international scope.
The choice of foreign market entry mode is critical and related to control (Blomstermo et al., 2006). Various entry modes are available to firms, from full-control modes, such as greenfield or acquired wholly owned subsidiaries, to shared-control modes, such as partial acquisitions and joint ventures (Sanchez-Peinado et al., 2007).
It is relevant, because when entering new markets, multinational companies must cope with the unpredictability of an investment in a politically, economically, and culturally different environment (Blomstermo et al., 2006). In fact, the information acquisition costs can be expected to increase with the increasing cultural distance (e.g., Gatignon and Anderson, 1988; Johanson and Vahlne, 1977; Kogut and Singh, 1988).
Given that, perceptions of significant cultural distance between the country of origin and the target country have been found to support the use of entry modes involving smaller resource commitments (Pla-Barber et al., 2010). Then, in order to mitigate this uncertainty, firms should reduce their ownership levels, seek locally based assets, and solicit the participation of local partners (e.g., Anderson and Gatignon, 1986; Hill et al., 1990; Hennart, 1991). Considering this, the third hypothesis is proposed:
Hypothesis 3: The lower the cultural distance to a foreign market (Europe and Latin America), the higher will be the levels of subsidiary control exerted by Spanish service multinationals.
Research concerning control and entry mode for internationalization of services is important (Blomstermo et al., 2006). Control reflects the ability of the firm to influence the decisions within the organization in order to improve its competitive position and maximize returns on firm-specific assets (Pla-Barber et al., 2010).
The type of service moderates the relationship between proprietary assets (e.g. commercial assets, knowhow, brand reputation) and the desire for control (Pla-Barber et al., 2010), since the intimate contact between producer and customer during the process of service delivery and the involvement of the customer in the production of the service instigates the need for greater control (Capar and Kotabe, 2003).
The degree of customization is crucial in the professional services firms rather in other services firms, since the standardization no always is viable. Furthermore, in professional service firms more experiential knowledge of foreign markets and foreign clients is required. Therefore, the degree of customization present in this type of companies would strengthen the probability of choosing full-control modes, since the consequences of opportunistic behavior would be too costly. With this, the fourth hypothesis is stated as:
Research Methodology
There is little research on the growth and internationalization of service firms (Contractor et al., 2003). Therefore, there is a lack of empirical studies in international business literature on which foreign market entry modes apply to service firms, and similarly, on target market selection (Blomstermo et al., 2006).
Additionally, even though recent empirical studies about the internationalization of Spanish companies exist (Durán (ed), 2005; Guillén, 2006; Buisán and Espinosa, 2007; Cámaras, 2007; Interstrategies, 2007; Casilda (ed), 2008; Puig (ed), 2008; Afi, 2010), their profile and process of multi-nationalization continue to be a phenomenon about which our knowledge is incomplete (Mendoza and Vives, 2010). This situation is even more acute for service companies since the empirical studies related are surprisingly scarce (Rubalcaba and Maroto, 2008).
Considering this situation, we seek to contribute to this literature by analyzing the internationalization process (the “where” and “how”), in several sub-sectors within the service sector.
This paper will use the database built by the Observatory of Spanish Multinational Companies (OEME) of ESADE Business School, which comprises data on foreign affiliates. The database of OEME incorporates information corresponding to 80% of the total of internationalized Spanish companies that in the year 2009 had direct investments abroad. Since in this research only information corresponding to companies of professional services and other services will be used, the sampling size includes 171 Spanish service multinationals and their 437 affiliates and subsidiaries abroad.
Using NACE rev 2 industry codes services firms have been divided into two groups. The first group is composed of those firms that offer professional services, such as activities like consulting, public relations, architecture and engineering services, research and development, advertising and market research studies, and other professional activities. The second group is composed of those businesses that offer other services, such as processing data, placement agencies and temp work, facility services (cleaning, private security, etc.) commercial information, call centers and other supporting activities for businesses.
Variables
The objective of this research is to respond to the “where” and “how” questions of the internationalization process of Spanish service multinationals. The decision about foreign markets (where) is analyzed by the internationalization focus of Spanish multinationals in the service-sector in different countries and regions. Meanwhile, the way in which Spanish service multinationals internationalize (how) is analyzed by the degree of control (participation on the capital) over their subsidiaries.
The global/regional focus of Spanish multinationals in the service-sector is analyzed through a descriptive analysis of the countries in which subsidiaries operated, according to the following regions: a) Europe; b) United States; c) Latin America; d) Middle East; e) Africa and f) Asia. Since Spanish multinational companies can operate in one or more regions, actual combinations were identified. Likewise, a descriptive analysis is applied in order to discover if Spanish multinationals in the service sector present differences in their international focus according to their years of experience in the market.
Control is defined as the capacity to determine the general policies of a business through its administrators (Mendoza and Vives, 2010). Services firms tend to use high control entry modes with the aim of supplying timely and good quality services to international clients, which protects reputation (Blomstermo et al., 2006). This research will analyze the mode of control established by Spanish service multinationals regarding two factors, the cultural distance and market experience. For this analysis, the kinds of control that the parent company of the Spanish multinationals have over the subsidiaries are classified as: a) Only Shareholder (wholly owned), whose participation in the subsidiary is 100%; b) Majority Shareholder (majority owned), whose participation in the subsidiary’s capital is more than 50% and less than 100%; c) Equal Joint Venture (balanced joint ventures), whose participation is 50%/50%; d) Minority Shareholder (minority owned) whose participation is more than 10% and less than 50%.
Therefore, the decision about the degree of control (how) is analyzed through the comparison of means. The analysis checks whether there are statistically significant differences in the degree of control by Spanish multinationals in relation to their level of experience and focus of internationalization.
The results of this research are obtained from service companies in specific sub sectors, which will enable an analysis of whether these correspond to the results indicated in the international business literature for manufacturing firms. Furthermore, unlike other previous studies, this paper analyzes various subsectors within the business services (professional services and other business services), which will enable the results to be more consistent in terms of internal validation.
Sampling
In this paper, the definition of a Spanish multinational company is the following: a company incorporated in Spain, who’s global headquarter is also located in Spain, and that has one or more subsidiaries abroad with an ownership participation of at least 10% (Mendoza and Vives, 2010). An affiliate is a company in a country whose decision-making process is influenced by a foreign investor while a subsidiary is a company that is controlled by a foreign investor (Mendoza and Vives, 2010).
In the statistics of Foreign Direct Investment (FDI), a foreign investor exerts “influence” when he owns more than 10% but less than 50% of a company’s capital and “control” when his participation exceeds 50%. It is also understood that there cannot be an influence in the management of a company when the participation in the capital is less than 10%. This paper will only deal with affiliates and subsidiaries where the foreign investor has at least 10% of participation in their capital.
Furthermore, with the objective of increasing the levels of internal validation, this research proposal will only consider Spanish firms with a low degree of diversification. This is relevant in that it allows us to extract conclusions about comparable firms and their strategic behavior.
Given the previous, this research analyzes 171 Spanish multinational companies offering business services, which can be divided between those that offer professional services (145) and those that offer other types of business services (26). In Table 1 it is noted that 70.8% of Spanish multinationals are headquartered in the autonomous communities of Madrid and Catalonia. Furthermore, these firms have an average of 13.72 years of experience in the market and 3.36 foreign subsidiaries. Moreover, it can be noted that Spanish service multinationals are present in a limited number of international regions, since the average reaches 1.43.
This could present a difference with respect to the manufacturing sector, since services require to maintain a higher level of control in the interaction with the client. This could imply a greater difficulty in internationalizing services, since it is necessary to establish mechanisms of centralization and formalization that ensure the quality of a given service.
Table 1. Profile of Spanish Service Multinationals
| Localization | Years of Experience | Number of Subsidiaries | Number of International Regions | |
| Business Services Firms | Madrid (82; 48%); Cataluña (39; 22.8%); Andalucía (11; 6.4%); País Vasco (11; 6.4%); Baleares (2; 1.2%); Aragón (2; 1.2%); Principado de Asturias (6; 3.5%); Castilla y León (5; 2.9%); Galicia (5; 2.9%); Comunitat Valenciana (5; 2.9%); Navarra (2; 1.2%); Cantabria (1; 0.6%) | Mean= 13.72 Desv. = 9.64 Min. = 0 Max. = 49 N = 171 | Mean = 3.36 Desv. = 3.74 Min. = 1 Max. = 28 N = 171 | Mean = 1.43 Desv. = 0.78 Min. = 1 Max. = 5 N = 169 |
| Professional Service Firms | Madrid (70; 48.3%); Cataluña (35; 24.1%); Andalucía (8; 5.5%); País Vasco (10; 6.9%); Baleares (2; 1.4%); Aragón (2; 1.4%); Principado de Asturias (6; 4.1%); Castilla y León (3; 2.1%); Galicia (4; 2.8%); Comunitat Valenciana (4; 2.8%); Navarra (1; 0.7%); Cantabria (0; 0%) | Mean= 12.99 Desv. = 9.25 Min. = 0 Max. = 49 N = 145 | Mean = 3.23 Desv. = 3.37 Min. = 1 Max. = 16 N = 145 | Mean = 1.44 Desv. = 0.81 Min. = 1 Max. = 5 N = 144 |
| Other Business Services Firms | Madrid (12; 46.2%); Cataluña (4; 15.4%); Andalucía (3; 11.5%); País Vasco (1; 3.8%); Baleares (0; 0%); Aragón (0; 0%); Principado de Asturias (0; 0%); Castilla y León (2; 7.7%); Galicia (1; 3.8%); Comunitat Valenciana (1; 3.8%); Navarra (1; 3.8%); Cantabria (1; 3.8%) | Mean= 17.81 Desv. = 10.93 Min. = 0 Max. = 39 N = 26 | Mean = 4.04 Desv. = 5.43 Min. = 1 Max. = 28 N = 26 | Mean = 1.36 Desv. = 0.57 Min. = 1 Max. = 3 N = 25 |
Source: By the authors with information from OEME database
These 171 Spanish multinationals operate internationally in Europe, Latin America, the US, Africa, Asia and the Middle East. Their operations are carried out by 437 subsidiaries, mostly located in Europe and Latin America (82.1%). Additionally, Table 2 shows that Spanish service firms have a controlling stake in 86.9% of the foreign companies in which they have invested.
Table 2. Profile of Affiliates and Subsidiaries of Spanish Service Multinationals
| Type of | Subsidiary | Control | Subsidiary | location | ||||||
| Minority Owned | Balanced Joint Venture | Mayority Owned | Wholly Owned | Europe | Latin America | United States | Middle East | Africa | Asia | |
| Business Service Firms | 38 9.43% | 15 3.72% | 182 45.16% | 168 41.69% | 183 42.1% | 174 40% | 31 7.1% | 10 2.3% | 28 6.4% | 9 2.1% |
| Professional Service Firms | 32 9.73% | 10 3.04% | 143 43.47% | 144 43.77% | 142 40.6% | 139 39.7% | 28 8% | 8 2.3% | 24 6.9% | 9 2.6% |
| Other Business Services Firms | 6 8.11% | 5 6.76% | 39 52.70% | 24 32.43% | 41 48.2% | 35 41.2% | 3 3.5% | 2 2.4% | 4 4.7% | 0 0% |
Source: By the authors with information from OEME database
Analysis of results
Internationalization scope of Spanish business services multinationals
Mendoza and Vives (2010) indicate that the international presence of a company can be evaluated using different indicators, for example, the number of countries and geographic regions in which the company operates, the number of foreign affiliates and subsidiaries, and the percentage of foreign sales to total sales or the percentage of the foreign employees to total employees.
In this paper the number of international regions where Spanish multinationals operate is used as a form of evaluating their international strategies (or focus of internationalization). Table 3 provides information about the internationalization strategies followed by 169 Spanish service multinationals based on where they locate their operations in a range of one to five international regions.
Table 3. International Focus of Spanish Multinationals offering Business Services
| One Region | n | % | Two regions | n | % | Three Regions | n | % |
| Europe Latin America United States Africa Asia Middle East | 63 44 6 5 1 - | 37.3 26.0 3.6 3.0 0.6 - | Middle East - Asia Middle East - Africa Europe - LatAm US - Europe Europe - Africa Africa - LatAm Latin America - US Middle East - LatAm Latin America - Asia | 1 1 15 5 2 2 3 2 2 | 0.6 0.6 8.9 3.0 1.2 1.2 1.8 1.2 1.2 | Europe - Africa - Latin America Europe - Africa - Middle East Latin America - US - Europe Asia - Europe - Latin America US - Europe - Africa Asia - US - Europe | 2 2 5 1 1 1 | 1.2 1.2 3.0 0.6 0.6 0.6 |
| Four Regions | n | % | Five Regions | n | % | Information of MNEs | n | % |
| US - Europe - Africa - LatAm Africa - LatAm - Middle East - Asia | 3 1 | 1.8 0.6 | Europe - Africa - Asia - LatAm - Middle East | 1 | 0.6 | One region Two Regions Three Regions Four Regions Five Regions | 119 33 12 4 1 | 70.4 19.5 7.1 2.4 0.6 |
Source: By the authors with information from OEME database
Contrary to the stereotype that Latin America is the main destination of Spanish investment, the data shows that the larger investment by Spanish service multinationals is in European countries. This phenomenon can be explained by the savings in costs and the management advantages of a favorable geographic distance and the European single market. Thus, 37.3% of Spanish multinationals offering business services concentrate their subsidiaries only in Europe while 26% of Spanish multinationals concentrate their subsidiaries only in Latin America.
The presence of Spanish multinationals in Latin America is explained by the minimum existing cultural distance due to the common language and some shared customs (Casilda and Llopis, 2009). This linguistic and cultural closeness is key to quickly establishing organizational mechanisms for the management and control of the subsidiaries, such as centralization and formalization (Casilda and Llopis, 2009).
According to Mendoza and Vives (2010), Spanish service multinationals, after having invested extensively in Latin America during the 1990s, have redirected their investment flows during the past decade mainly to the European Union and other developed countries like the United States.
The importance of Europe and Latin America in the process of the internationalization of Spanish multinationals is manifested in the internationalization strategies they adopt. Of the total of 169 Spanish multinationals in the service sector that are analyzed, 70.4% and 19.5% are only focused in one or two regions, respectively; this represents 89.9% of the studied multinationals. Of the remaining multinationals, 7.1%, 2.36% and 0.6% are focused in three, four and five regions, respectively. In other words, only 10.1% of Spanish multinationals offering business services are located in three or more regions (Table 4).
Table 4. International Focus of Spanish Multinationals in the Professional Services Sub Sector
| One Region | n | % | Two regions | n | % | Three Regions | n | % |
| Europe Latin America United States Africa Asia Middle East | 57 34 6 4 1 - | 39.6 23.6 4.2 2.8 0.7 - | Middle East - Asia Middle East - Africa Europe - LatAm US - Europe Europe - Africa Africa - LatAm Latin America - US Middle East - LatAm Latin America - Asia | 1 - 12 3 2 1 3 2 2 | 0.7 - 8.3 2.1 1.4 0.7 2.1 1.4 1.4 | Europe - Africa - Latin America Europe - Africa - Middle East Latin America - US - Europe Asia - Europe - Latin America US - Europe - Africa Asia - US - Europe | 2 1 5 1 1 1 | 1.4 0.7 3.5 0.7 0.7 0.7 |
| Four Regions | n | % | Five Regions | n | % | Information of MNEs | n | % |
| US - Europe - Africa - LatAm Africa - LatAm - Middle East - Asia | 3 1 | 2.1 0.7 | Europe - Africa - Asia - LatAm - Middle East | 1 | 0.7 | One region Two Regions Three Regions Four Regions Five Regions | 102 26 11 4 1 | 70.8 18.1 7.6 2.8 0.7 |
Source: By the authors with information from OEME database
It is possible to relate the presence of Spanish companies in Europe and Latin America to their geographic or cultural proximity to Spain. The predominant focus of the Spanish multinationals in Europe and Latin America is manifest when considering a global analysis of the data. It can be noted that 91.7% of Spanish multinationals offering business services have a presence in Europe or Latin America. This is obtained after adding the percentages of presence of the Spanish multinationals in Europe or Latin America in each one of the international strategies followed (from one to five regions).
Nevertheless, the Spanish multinationals in the service sector have started to focus their international operations in other markets that present business opportunities. This explains how 3.6% of these companies are located only in the United States. If considering the total participation of Spanish service multinationals in the United States, it can be concluded that the participation increases to 14.4%. This can be attributed to the size of the economy of the United States.
The decisions of the Spanish multinationals to focus on new markets is not limited to developed economies (like the United States), but also to those called emerging countries. For example, 3% of Spanish multinationals have their subsidiaries only in Africa. If we analyze the distinct internationalization strategies adopted by Spanish multinationals, the presence in Africa rises to 12%.
The strength of Europe and Latin America, and secondly the United States and Africa, contrasts with a very reduced presence, in absolute values as much as percentages, of Spanish multinationals offering business services in Middle East and Asia (only 7.8% of Spanish companies have established subsidiaries in these two regions). This level of presence does not correspond to the actual size and growth potential of these economies.
Therefore, it is possible to argue in favor of Hypothesis 1, that the focus of internationalization of Spanish multinationals offering business services is “semi global”. Even though some authors might argue that the focus of internationalization of Spanish multinationals in the service sector is regional, given that the subsidiaries are concentrating mostly in Europe and Latin America, it is also evident that there exists a continuous expansion beyond these two regions to economies that offer market opportunities.
This explains how Spanish multinationals in the service sector have a presence in developed economies as well as emerging countries. Despite these new destinations, it is not possible to argue that the focus of internationalization has become “global”. This is because the presence of Spanish companies in the regions of Asia and the Middle East is hardly relevant if compared to the potentials of these markets.
Similar conclusions are obtained when the analysis is made by distinguishing professional service firms from other business service companies. Regarding professional service firms, 70.8% and 18.1% concentrate their operations in only one and two regions, respectively. Furthermore, 91.6% of Spanish multinationals are operating in Europe and Latin America. Likewise, 7% of these companies are operating only in United States or Africa.
In the group of other business services, 96% of Spanish multinationals are operating in one or two regions. Likewise, 24% and 40% of these companies are operating only in Europe or Latin America, respectively. Moreover, in this type of service we don’t observed companies with presence in three or more regions (Table 5).
Table 5. International Focus of Spanish Multinationals in the Other Business Services Sub Sector
| One Region | n | % | Two regions | n | % | Three Regions | n | % |
| Europe Latin America United States Africa Asia Middle East | 6 10 - 1 - - | 24.0 40.0 - 4.0 - - | Middle East - Asia Middle East - Africa Europe - LatAm US - Europe Europe - Africa Africa - LatAm Latin America - US Middle East - LatAm Latin America - Asia | - 1 3 2 - 1 - - - | - 4.0 12.0 8.0 - 4.0 - - - | Europe - Africa - Latin America Europe - Africa - Middle East Latin America - US - Europe Asia - Europe - Latin America US - Europe - Africa Asia - US - Europe | - 1 - - - - | - 4.0 - - - - |
| Four Regions | n | % | Five Regions | n | % | Information of MNEs | n | % |
| US - Europe - Africa - LatAm Africa - LatAm - Middle East - Asia | - - | - - | Europe - Africa - Asia - LatAm - Middle East | - | - | One region Two Regions Three Regions Four Regions Five Regions | 17 7 1 - - | 68.0 28.0 4.0 - - |
Source: By the authors with information from OEME database
On the other hand, it can be argued that the internationalization focus of multinationals in the service sector is influenced by the years of experience they have in the market. Therefore, the companies with more years of experience could have acquired the know-how and economic resources that allow them to be more successful in international markets.
Table 6 shows the information of the years of experience for the 169 Spanish service multinationals considered in this analysis. It can be observed that the average year of experience in the market is 13.72. The average year of experience is 12.99% in the case of professional service firms; and in the other business service companies this value reaches 17.81%. This is an indicator that the process of internationalization of Spanish multinationals has increased in recent years, since those companies with 0 to 10 years of experience represent 42.7% of the total.
Table 6. Years of Experience of Spanish service multinationals
| Range | of | Years 1 | Range | of | Years 2 | |||
| 0-10 | 11-20 | 21-50 | 0-10 | 11-20 | 21-30 | 31-40 | 41-50 | |
| Business Services Firms | 73 42.7% | 65 38% | 33 19.3% | 183 42.7% | 143 38% | 48 12.9% | 46 4.7% | 17 1.8% |
| Professional Service Firms | 67 46.2% | 54 37.2% | 24 16.6% | 67 46.2% | 54 37.2% | 17 11.7% | 4 2.8% | 3 2.1% |
| Other Business Services Firms | 6 23.1% | 11 42.3% | 9 34.6% | 6 23.1% | 11 42.3% | 5 19.2% | 4 15.4% | 0 0% |
Source: By the authors with information from OEME database
Table 7 shows how Spanish multinational with fewer years of experience (from 0 to 10 years) concentrate their operations principally in Europe and Latin America. Of the 73 Spanish multinationals with 10 or less years of experience, 69.9% concentrate their operations in only one region. This situation is different with the companies that have between 21 and 50 years of experience, where only 59.4% are concentrated in one region. In companies with 11 to 20 years of experience, Spanish multinationals that focus on only one region rise to 76.5%.
Table 7. Focus of Internationalization of Spanish Multinationals in the Service Sector according to their years of experience in the market
| Strategy of Internationalization | “0 - 10” | years of experience | “11 - 20” | years of experience | “21 - 50” | years of experience |
| One region Two regions Three regions Four regions Five regions | 51 16 5 1 - | 69.86% 21.92% 6.85% 1.37% - | 49 10 3 2 - | 76.56% 15.62% 4.69% 3.13% - | 19 7 4 1 1 | 59.38% 21.88% 12.5% 3.12% 3.12% |
| Total cases | 73 | 100.00% | 64 | 100.00% | 32 | 100.00% |
Source: By the authors with information from OEME database
In addition to the companies with fewer years of experience (from 0 to 10 years) characteristically concentrate their operations principally in Europe and America. This explains how 39.7% of Spanish multinationals only have foreign subsidiaries in European countries. Also, 27.4% of Spanish multinationals are only concentrated in Latin America. If the total presence of Spanish multinationals in the business services sector in Europe and Latin America are analyzed, the participation grows to 94.5%. These results contrast with those observed for companies with 11 to 21 years of experience. In this type of companies, the presence of Spanish multinationals in Europe or Latin America only reaches 84.4%.
Furthermore, in companies with less years of experience (from 0 to 10 years) a lower level of presence in other developed economies or emerging countries that are not Europe or Latin America, respectively, can be observed. Only 16.44% of Spanish multinationals have a presence in the United States or Africa. Likewise, only 12.33% of these companies are concentrated in Asia or the Middle East. This situation is different from that observed by companies that have between 21 and 50 years of experience. In this case the company presence in the United States or Africa rises to 28.12% (Table 8).
Table 8. Focus of Internationalization of Spanish Multinationals in the Service Sector according to their years of experience in the market
| Strategy of Internationalization | “0 - 10” years of experience | “11 - 20” years of experience | “21 - 50” years of experience |
| One Region | Europe (29; 17.16%) Latin America (20; 11.83%) United States (1; 0.6%) Africa (1; 0.6%) Asia (0; 0%) | Europe (24; 14.2%) Latin America (16; 9.47%) United States (5; 2.95%) Africa (3; 1.8%) Asia (1; 0.6%) | Europe (10; 5.92%) Latin America (8; 4.73%) United States (0; 0%) Africa (1; 0.6%) Asia (0; 0%) |
| Two Regions | Middle East - Asia (1; 0.6%). Middle East - Africa (0; 0%) Europe - Latin America (6; 3.55%) United States - Europe (3; 1.8%) Europe - Africa (1; 0.6%) Africa - Latin America (0; 0%) Latin America - United States (1; 0.6%) Middle East - Latin America (2; 1.2%) Latin America - Asia (2; 1.2%) | Middle East - Asia (0; 0%). Middle East - Africa (1; 0.6%) Europe - Latin America (4; 2.37%) United States - Europe (0; 0%) Europe - Africa (1; 0.6%) Africa - Latin America (2; 1.2%) Latin America - United States (2; 1.2%) Middle East - Latin America (0; 0%) Latin America - Asia (0; 0%) | Middle East - Asia (0; 0%). Middle East - Africa (0; 0%) Europe - Latin America (5; 2.96%) United States - Europe (2; 1.2%) Europe - Africa (0; 0%) Africa - Latin America (0; 0%) Latin America - United States (0; 0%) Middle East - Latin America (0; 0%) Latin America - Asia (0; 0%) |
| Three Regions | Europe - Africa - Latin America (0; 0%) Europe - Africa - Middle East (1; 0.6%) Latin America - United States - Europe (1; 0.6%) Asia - Europe - Latin America (1; 0.6%) United States - Europe - Africa (1; 0.6%) Asia - United States - Europe (1; 0.6%) | Europe - Africa - Latin America (1; 0.6%) Europe - Africa - Middle East (1; 0.6%) Latin America - United States - Europe (1; 0.6%) Asia - Europe - Latin America (0; 0%) United States - Europe - Africa (0; 0%) Asia - United States - Europe (0; 0%) | Europe - Africa - Latin America (1; 0.6%) Europe - Africa - Middle East (0; 0%) Latin America - United States - Europe (3; 1.8%) Asia - Europe - Latin America (0; 0%) United States - Europe - Africa (0; 0%) Asia - United States - Europe (0; 0%) |
| Four Regions | United States - Europe - Africa - Latin America (0; 0%) Africa - Latin America - Middle East - Asia (1; 0.6%) | United States - Europe - Africa - Latin America (2; 1.2%) Africa - Latin America - Middle East - Asia (0; 0%) | United States - Europe - Africa - Latin America (1; 0.6%) Africa - Latin America - Middle East - Asia (0; 0%) |
| Five Regions | Europe - Africa - Latin America - Middle East - Asia (0; 0%) | Europe - Africa - Latin America - Middle East - Asia (0; 0%) | Europe - Africa - Latin America - Middle East - Asia (1; 0.6%) |
Source: By the authors with information from OEME database
Likewise, it can be observed that companies with less years of experience concentrate their foreign operations in a smaller number of regions. So that 18.8% of Spanish companies that have between 21 and 50 years of experience concentrate their subsidiaries in three or more regions. Also, the only case of a company that operates in 5 regions is found in this group of companies. In the companies with 0 to 10 years of experience only 8.2% of the subsidiaries are in three or more regions. A similar situation is observed in companies with 11 to 20 years of experience, where the figure reaches 7.8%.
Another important analysis is related to the internationalization of the Spanish business services companies in new markets. From the companies with 0 to 10 years of experience, 14.4% are operating in United Stated or Africa. In the case of companies that have between 11 and 20 years of experience, 25% are localized in United States or Africa. And when the companies have 21 or more years of experience this value rises to 28.1%.
Considering these results, it is possible to argue in favor of Hypothesis 2, that companies with greater years of experience present a more global focus in their international operations. This can be explained in the levels of risk that companies with less years of experience and know-how of the market are willing to assume. This is especially important in the service sector in which a profound knowledge of the market is a differentiating element in the strategic behavior of companies. Therefore, this type of company opts first to internationalize its operations mainly in those markets where there exists a minimum geographic and cultural distance.
Similar results are obtained with the analysis of professional services firms (see Table 9). The companies with less years of experience are focused principally in one or two regions. In fact, 92.5% of these companies with 0 to 10 years of experience are operating in one or two regions. In the case of companies with 11 to 20 years of experience this value reaches 90.6%. Also, 75% of the Spanish professional service companies with 21 or more years of experience are localized in one or two regions. In this same point of analysis, results are very similar when other business services companies are analyzed (see Table 10). However, in this type of services we don’t observe companies with more years of experience (both 11 to 20 and 21 or more years of experience) operating in three or more regions.
Table 9. Focus of Internationalization of Spanish Multinationals in the Professional Services Sub Sector according to their years of experience in the market
| Strategy of Internationalization | “0 - 10” years of experience | “11 - 20” years of experience | “21 - 50” years of experience |
| One Region | Europe (29; 20.14%) Latin America (17; 11.81%) United States (1; 0.6%) Africa (1; 0.69%) Asia (0; 0%) | Europe (20; 13.89%) Latin America (13; 9.03%) United States (5; 3.47%) Africa (2; 1.39%) Asia (1; 0.69%) | Europe (8; 5.56%) Latin America (4; 2.78%) United States (0; 0%) Africa (1; 0.69%) Asia (0; 0%) |
| Two Regions | Middle East - Asia (1; 0.69%). Middle East - Africa (0; 0%) Europe - Latin America (5; 3.47%) United States - Europe (2; 1.39%) Europe - Africa (1; 0.69%) Africa - Latin America (0; 0%) Latin America - United States (1; 0.69%) Middle East - Latin America (2; 1.39%) Latin America - Asia (2; 1.39%) | Middle East - Asia (0; 0%). Middle East - Africa (0; 0%) Europe - Latin America (3; 2.08%) United States - Europe (0; 0%) Europe - Africa (1; 0.69%) Africa - Latin America (1; 0.69%) Latin America - United States (2; 1.39%) Middle East - Latin America (0; 0%) Latin America - Asia (0; 0%) | Middle East - Asia (0; 0%). Middle East - Africa (0; 0%) Europe - Latin America (4; 2.78%) United States - Europe (1; 0.69%) Europe - Africa (0; 0%) Africa - Latin America (0; 0%) Latin America - United States (0; 0%) Middle East - Latin America (0; 0%) Latin America - Asia (0; 0%) |
| Three Regions | Europe - Africa - Latin America (0; 0%) Europe - Africa - Middle East (0; 0%) Latin America - United States - Europe (1; 0.69%) Asia - Europe - Latin America (1; 0.69%) United States - Europe - Africa (1; 0.69%) Asia - United States - Europe (1; 0.69%) | Europe - Africa - Latin America (1; 0.69%) Europe - Africa - Middle East (1; 0.69%) Latin America - United States - Europe (1; 0.69%) Asia - Europe - Latin America (0; 0%) United States - Europe - Africa (0; 0%) Asia - United States - Europe (0; 0%) | Europe - Africa - Latin America (1; 0.69%) Europe - Africa - Middle East (0; 0%) Latin America - United States - Europe (3; 2.08%) Asia - Europe - Latin America (0; 0%) United States - Europe - Africa (0; 0%) Asia - United States - Europe (0; 0%) |
| Four Regions | United States - Europe - Africa - Latin America (0; 0%) Africa - Latin America - Middle East - Asia (1; 0.69%) | United States - Europe - Africa - Latin America (2; 1.2%) Africa - Latin America - Middle East - Asia (0; 0%) | United States - Europe - Africa - Latin America (1; 0.6%) Africa - Latin America - Middle East - Asia (0; 0%) |
| Five Regions | Europe - Africa - Latin America - Middle East - Asia (0; 0%) | Europe - Africa - Latin America - Middle East - Asia (0; 0%) | Europe - Africa - Latin America - Middle East - Asia (1; 0.69%) |
| Information of MNEs | One region (Cases = 48; Participation = 33.33%) Two regions (Cases = 14; Participation = 9.72%) Three regions (Cases = 4; Participation = 2.78%) Four regions (Cases = 1; Participation = 0.69%) Five regions (Cases = 0; Participation = 0%) Total Cases = 67 | One region (Cases = 41; Participation = 28.47%) Two regions (Cases = 7; Participation = 4.86%) Three regions (Cases = 3; Participation = 2.08%) Four regions (Cases = 2; Participation = 1.38%) Five regions (Cases = 0; Participation = 0%) Total Cases = 53 | One region (Cases = 13; Participation = 9.03%) Two regions (Cases = 5; Participation = 3.47%) Three regions (Cases = 4; Participation = 2.78%) Four regions (Cases = 1; Participation = 0.69%) Five regions (Cases = 1; Participation = 0.69%) Total Cases = 24 |
Source: By the authors with information from OEME database
Table 10. Focus of Internationalization of Spanish Multinationals in the Other Services Sub Sector according to their years of experience in the market
| Strategy of Internationalization | “0 - 10” years of experience | “11 - 20” years of experience | “21 - 50” years of experience |
| One Region | Europe (0; 0%) Latin America (3; 12%) United States (0; 0%) Africa (0; 0%) Asia (0; 0%) | Europe (4; 16%) Latin America (3; 12%) United States (0; 0%) Africa (1; 4%) Asia (0; 0%) | Europe (2; 8%) Latin America (4; 16%) United States (0; 0%) Africa (0; 0%) Asia (0; 0%) |
| Two Regions | Middle East - Asia (0; 0%). Middle East - Africa (0; 0%) Europe - Latin America (1; 4%) United States - Europe (1; 4%) Europe - Africa (0; 0%) Africa - Latin America (0; 0%) Latin America - United States (0; 0%) Middle East - Latin America (0; 0%) Latin America - Asia (0; 0%) | Middle East - Asia (0; 0%). Middle East - Africa (1; 4%) Europe - Latin America (1; 4%) United States - Europe (0; 0%) Europe - Africa (0; 0%) Africa - Latin America (1; 4%) Latin America - United States (0; 0%) Middle East - Latin America (0; 0%) Latin America - Asia (0; 0%) | Middle East - Asia (0; 0%). Middle East - Africa (0; 0%) Europe - Latin America (1; 4%) United States - Europe (1; 4%) Europe - Africa (0; 0%) Africa - Latin America (0; 0%) Latin America - United States (0; 0%) Middle East - Latin America (0; 0%) Latin America - Asia (0; 0%) |
| Three Regions | Europe - Africa - Latin America (0; 0%) Europe - Africa - Middle East (1; 4%) Latin America - United States - Europe (0; 0%) Asia - Europe - Latin America (0; 0%) United States - Europe - Africa (0; 0%) Asia - United States - Europe (0; 0%) | Europe - Africa - Latin America (0; 0%) Europe - Africa - Middle East (0; 0%) Latin America - United States - Europe (0; 0%) Asia - Europe - Latin America (0; 0%) United States - Europe - Africa (0; 0%) Asia - United States - Europe (0; 0%) | Europe - Africa - Latin America (0; 0%) Europe - Africa - Middle East (0; 0%) Latin America - United States - Europe (0; 0%) Asia - Europe - Latin America (0; 0%) United States - Europe - Africa (0; 0%) Asia - United States - Europe (0; 0%) |
| Four Regions | United States - Europe - Africa - Latin America (0; 0%) Africa - Latin America - Middle East - Asia (1; 4%) | United States - Europe - Africa - Latin America (0; 0%) Africa - Latin America - Middle East - Asia (0; 0%) | United States - Europe - Africa - Latin America (0; 0%) Africa - Latin America - Middle East - Asia (0; 0%) |
| Five Regions | Europe - Africa - Latin America - Middle East - Asia (0; 0%) | Europe - Africa - Latin America - Middle East - Asia (0; 0%) | Europe - Africa - Latin America - Middle East - Asia (0; 0%) |
| Information of MNEs | One region (Cases = 3; Participation = 50%) Two regions (Cases = 2; Participation = 33.33%) Three regions (Cases = 1; Participation = 16.67%) Four regions (Cases = 0; Participation = 0%) Five regions (Cases = 0; Participation = 0%) Total Cases = 6 | One region (Cases = 8; Participation = 72.73%) Two regions (Cases = 3; Participation = 27.27%) Three regions (Cases = 0; Participation = 0%) Four regions (Cases = 0; Participation = 0%) Five regions (Cases = 0; Participation = 0%) Total Cases = 11 | One region (Cases = 6; Participation = 75%) Two regions (Cases = 2; Participation = 25%) Three regions (Cases = 0; Participation = 0%) Four regions (Cases = 0; Participation = 0%) Five regions (Cases = 0; Participation = 0%) Total Cases = 8 |
Source: By the authors with information from OEME database
Choice of control mode of foreign affiliates and subsidiaries
Table 11 shows how Spanish multinationals in the service sector have a clear preference for exerting full control over their foreign operations. 86.9% of Spanish multinationals offering business services own between 51% and 100% of the capital of their subsidiaries.
Table 11. Levels of Foreign Subsidiary Control by type of Spanish service multinational
| Minority Owned | Balanced Joint Venture | Mayority Owned | Wholly Owned | ||
| Business Services | Number of Cases | 38 | 15 | 182 | 168 |
| Firms | Frequence | 9.43% | 3.72% | 45.16% | 41.69% |
| (403) | Average of participation | 29.81% | 50% | 83.95% | 100% |
| Professional Service | Number of Cases | 32 | 10 | 143 | 144 |
| Firms | Frequence | 9.73% | 3.04% | 43.47% | 43.77% |
| (329) | Average of participation | 28.95% | 50% | 84.00% | 100% |
| Other Business | Number of Cases | 6 | 5 | 39 | 24 |
| Services Firms | Frequence | 8.11% | 6.76% | 52.70% | 32.43% |
| (74) | Average of participation | 34.39% | 50% | 83.76% | 100% |
Source: By the authors with information from OEME database
This can be explained by the characteristics of services, knowing they are intangible, heterogeneous, inseparable and perishable. In services, control over the operations is fundamental for achieving competitive advantages. Given this, companies opt to control all those activities that can have an impact on the final delivery of the service.
A similar situation is observed in those companies catalogued as “professional services” or of “other business services”. In the first ones, Spanish companies that maintain a level over 50% reach 87.25% of the total. In the case of other business services multinationals, the companies with percentages of control over 50% reach 85.13% of the total.
At the aggregate level Spanish companies offering business services present an average of 83.71% of control over subsidiaries. In the companies “professional services” and “other services”, the averages are 84.15% and 81.77%, respectively. It can be noted that companies of professional services present a slight superiority in the levels of subsidiary control when compared to companies that offer other types of business services. This is due to the characteristics of professional services, which demand higher levels of contact with the client in order to satisfy their needs.
A question to pose is whether the levels of control over subsidiaries are influenced by distance (cultural and geographic). If so, it could be argued that multinationals exert lower levels of control over the subsidiaries that are in distant regions, both culturally and geographically. Given that the development of competitive advantages occurs by achieving high levels of quality and answering to clients’ needs in a superior way than competitors, it can be argued that the search for a partner favors the management of subsidiaries in distant regions, geographically and/or culturally.
The Spanish service multinationals studied develop their operations in Europe, Latin America, the US, Africa and the Middle East. Of this set of markets, Spanish multinationals maintain a minimal distance with Europe (geographical distance) and Latin America (cultural distance). Given this, contrast media tests (comparison of means) have been developed for the levels of control over subsidiaries located in distinct geographical regions.
Table 12 shows the set of pairs that are obtained between the countries with less and greater distance (geographical and cultural). These results indicate that it does not exist a statistically significant difference in the levels of control exerted by Spanish service multinationals according to the location of their subsidiaries. This analysis was developed for business services companies as well as for companies that offer professional services and those that offer other business services.
Table 12. Comparison of means of the levels of control over subsidiaries by region
| Services Firms | Professional Services | Other Services | |||||||
| N | Mean | p-value | N | Mean | p-value | N | Mean | p-value | |
| Europe Latin America | 172 160 | 83.22 83.78 | 0.837 | 135 131 | 83.34 83.80 | 0.879 | 37 29 | 82.79 83.68 | 0.885 |
| Europe United States | 172 30 | 83.22 89.77 | 0.215 | 135 27 | 83.34 89.56 | 0.284 | 37 3 | 82.79 91.67 | 0.535 |
| Europe Africa | 172 26 | 83.22 81.57 | 0.764 | 135 23 | 83.34 83.79 | 0.940 | 37 3 | 82.79 64.55 | 0.206 |
| Europe Middle East | 172 8 | 83.22 77.88 | 0.581 | 135 6 | 83.34 83.17 | 0.988 | 37 2 | 82.79 62.00 | 0.239 |
| Europe Asia | 172 8 | 83.22 90.00 | 0.484 | 135 8 | 83.34 90.00 | 0.506 | 37 0 | 82.79 NA | NA |
| Latin America United States | 160 30 | 83.78 89.77 | 0.183 | 131 27 | 83.80 89.56 | 0.221 | 29 3 | 83.68 91.67 | 0.604 |
| Latin America Africa | 160 26 | 83.78 81.57 | 0.631 | 131 23 | 83.80 83.79 | 0.998 | 29 3 | 83.68 64.55 | 0.218 |
| Latin America Middle East | 160 8 | 83.79 77.88 | 0.460 | 131 6 | 83.80 83.17 | 0.943 | 29 2 | 83.68 62.00 | 0.255 |
| Latin America Asia | 160 8 | 83.78 90.00 | 0.437 | 131 8 | 83.80 90.00 | 0.425 | 29 0 | 83.68 NA | NA |
Source: By the authors with information from OEME database
This can be explained by the services’ own characteristics and by the effects of globalization. Business services companies, as a particularity, follow their clients to those foreign markets that their clients enter. And this client, as a result of globalization, has expectations and requirements that the services offered by its provider will be of similar quality regardless the location of delivery. Given this, service companies must establish similarly high levels of control in the different countries / regions where they are operating in order to satisfy the requirements of their clients.
Consequently, the service companies studied in general, and those of professional services and other services, would seek to maintain high levels of centralization by controlling their subsidiaries. This situation can be appreciated in comparing the averages of the control of the companies in professional services (84.15%) and other services (81.77%), although a statistically significant difference is not observed (p- value = .444).
In short, he does not provide support to Hypothesis 3, that the degree of subsidiary control by Spanish service multinationals is greater in those regions with less geographical and/or cultural distance. These results differ from those found by other authors in studies on the process of internationalization of manufacturing companies. One explanation is that the inherent complexity associated with studying a heterogeneous sector such as services requires researchers to investigate variables that go beyond those drawn from traditional empirical work on the manufacturing sector (Sanchez-Peinado et al., 2007).
It can be noted that the decision over the level of subsidiary control is quite similar in the different geographic regions in which the Spanish companies are present. Table 13 shows information over types of ownership for 401 foreign affiliates and subsidiaries. According to this information, in Latin America 88.7% of the Spanish service multinationals maintain levels of control over their subsidiary’s superior to 50%. In Europe, this figure is 84.7%.
Likewise, in the new locations Spanish multinationals opt for maintaining high levels of control over the subsidiaries. In the emerging economies of Africa and Asia these levels are 92.3% and 87.5%, respectively. This figure is 90% for Spanish companies that decide to internationalize in the United States.
Table 13. Types of subsidiary control by Spanish service multinationals by region
| Minority Owned | Balanced Joint Venture | Mayority Owned | Wholly Owned | Total | |
| Europe | 21 12.35% | 5 2.94% | 56 32.94% | 88 51.76% | 170 100.00% |
| Latin America | 10 6.29% | 8 5.03% | 100 62.89% | 41 25.79% | 159 100.00% |
| United Stated | 3 10% | 0 0% | 4 13.33% | 23 76.67% | 30 100.00% |
| Africa | 1 3.85% | 1 3.85% | 16 61.54% | 8 30.77% | 26 100.00% |
| Asia | 1 12.5% | 0 0% | 1 12.5% | 6 75% | 8 100.00% |
| Middle East | 2 25% | 0 0% | 4 50% | 2 25% | 8 100.00% |
Source: By the authors with information from OEME database
In addition to the previous analysis, it is possible to relate the levels of subsidiary control exerted by Spanish multinationals with the type of business service. The literature on international business indicates that a higher degree of customization would strengthen the probability of choosing full-control modes (Pla-Barber et al., 2010).
Considering this assumption, we could argue the existence of higher levels of control in the professional service firms, since they can only partially standardize the business process. It is because the clients of professional services firms have different requirements, problems and organizational characteristics. Then, the company must design a solution and service standardization is not viable.
This situation is not observed in the other business services, such as data processing, activities of placement agencies and temp work, facility services such as cleaning and private security, commercial information, call centers and other supporting services to businesses. In this type of services companies can formalize both service quality standards and services delivery processes.
Therefore, in the professional services their entry mode choices may be influenced more by strategic reasons than by traditional variables (especially those derived from an economic perspective). For example, in professional services the choice of entry mode may be related with the strategic positioning of the company or with characteristics of the market.
The use of high control modes in the professional services is even more relevant when the companies have difficulties and high costs involved in transferring tacit know how. In this situation the use of high control modes facilitates the intra-organizational transfer of tacit know how by relying on human capital.
Given this, a contrast of means was done on the levels of control of Spanish multinationals over their subsidiaries. On average the Spanish multinationals offering business services sector have 84.27% of control over their subsidiaries. If the companies are analyzed as a set, it can be noted that professional services have higher levels of control in the sub type “majority owned”, while they have lower levels of control in the “minority owned”.
In Table 14, it can be noted that professional service companies maintain higher levels of control over their subsidiaries in comparison with the other business services companies. These results are in line with the line of though argued in the developing of hypotheses, but the conclusions are not statically significant. It can be noted that service companies do not present significant differences in the levels of control they have over subsidiaries in relation to the type of service. Then, the does not allow the confirmation of Hypothesis 4.
Table 14. Contrast of hypothesis for the levels of control of Spanish multinationals on their subsidiaries
| N | Mean | p-value | ||
| Average of Control | Professional Services | 329 | 84.62% | 0.535 |
| Other Services | 74 | 82.74% | ||
| Minority Owned | Professional Services | 32 | 28.95% | 0.371 |
| Other Services | 6 | 34.39% | ||
| Balanced Joint Venture | Professional Services | 10 | 50% | NA |
| Other Services | 5 | 50% | ||
| Mayority Owned | Professional Services | 143 | 84.00% | 0.930 |
| Other Services | 39 | 83.76% | ||
| Wholly Owned | Professional Services | 144 | 100% | NA |
| Other Services | 24 | 100% |
Source: By the authors with information from OEME database
Conclusions, limitations and future research
Internationalized companies constitute a key strategic group for the present and future of the Spanish economy, and for the international projection of Spain as a country in a globalized world (Mendoza and Vives, 2010).
Several companies in the service sector have shown high levels of success in recent years in their internationalization process (Rubalcaba and Maroto, 2008). This is because the internationalization process of Spanish companies acquired notable visibility because of the rapid internationalization of large firms, especially in the service sector (Durán 2006, Guillén, 2006).
Nevertheless, the knowledge of the profile and process of internationalization of Spanish companies offering business services is a phenomenon of which little is known (Rubalcaba and Maroto, 2008). This can be seen in the literature of international business, where it has been argued that knowledge of the internationalization process of businesses has been obtained by principally analyzing those firms that operate in the manufacturing sector.
The objective of this paper is to contribute to the literature on Spanish service multinationals and respond to two important questions that have been analyzed in the literature on international management, the “where” and the “how”. The decision of Spanish service multinationals on the location (where) is analyzed in relation to the regions where their subsidiaries are found. Likewise, the decision of the Spanish service multinationals over their entry mode into different foreign markets (how) is analyzed in relation to the percentages of equity ownership of foreign affiliates and subsidiaries, that is, the degree of control exerted.
The findings of this paper provide support to Hypotheses 1 and 2, but not to Hypotheses 3 and 4. Although the analysis carried out is clearly exploratory in nature, it provides new insights on the location patterns and internationalization strategies of companies offering services to other business firms.
The resulting analysis indicates that Spanish multinationals in the service sector have a semi global focus in their international operations and are located principally in Europe and Latin America. Also, in recent times this kind of firm is internationalizing in regions that present market opportunities for the size of their economy (as is the case with the United States) and in emerging economies (as is the case with Africa).
Furthermore, we found that Spanish service multinationals exert high levels of subsidiary control. Likewise, we found that Spanish multinationals in the service sector do not present significant differences in the levels of control they have over subsidiaries in relation to the type of service.
Notwithstanding the merits of this research, it is possible to mention some limitations referring to the sample size and type of variables considered in the analysis. The sample size of 171 multinationals and 437 subsidiaries could be greater but isn’t by reason of not having complete or trustworthy information in some cases. The information contained in the present study has been corroborated with publicly available information about the studied companies. Also, the number of variables used to analyze the decisions of “how” and “where” is scarce compared to the great complexity that these decisions imply for the businesses.
Despite the exposed limitations, the methodological design of the current investigation and the revision of the literature will allow an analysis of multinational companies in the service sector with valid and reliable results. Each hypothesis was formulated with respect to an analysis of the literature and the results obtained resemble those shown in other empirical studies.
In terms of future research, natural extensions of this paper refer to: 1) using more variables (e.g. different measures of distance, the existence of multinational clients, etc.); 2) carrying out a two-level analysis, country and region; 3) enlarging the sample and looking at differences between different sub-sectors; 4) making an explicit comparison between manufacturing companies and service firms.
Further research opportunities would also be related to a deeper analysis of both parent company characteristics (e.g. size, growth rates, profitability, degree of diversification, etc.) and affiliates and subsidiaries’ characteristics (e.g. size, growth rates, profitability, type of value-adding activities carried out) as well as analyzing both sets of characteristics (e.g. how does affect the internationalization process being part of a diversified parent company).
In conclusion, we can hold that the present research highlights, as have other empirical studies, how the service sector requires a special analysis in its process of internationalization, because it possesses characteristics different from those of the manufacturing sector. Furthermore, services are a key element in impelling competition of advanced economies like Spain, which are fundamentally based on the service sector (Rubalcaba and Maroto, 2007).
