The Role of Networks in Internationalisation in Latin America

Frances Van Ruth

Networks are a powerful and expedient way for firms to gain knowledge about foreign markets and are integral to the internationalisation of Australian firms in Latin America. This is the finding of a recent research project into Australian foreign direct investment in Latin America conducted at the University of Melbourne in collaboration with the Council on Australia-Latin America Relations.

A wide variety of networks contribute to internationalisation for Australian firms in Latin America including both business and social networks; the two often being intertwined. Networks facilitate internationalisation by providing access to knowledge. Whether in relation to language, institutions, or cultural practices increased knowledge and understanding both reduces the ‘distance’ between Australia and Latin America and expedites market entry and expansion. Networks provide a range of knowledge including knowledge about the initial opportunity, knowledge about the competitive environment, knowledge about the institutional environment as well as knowledge about the process of internationalisation itself.

As well as providing knowledge, networks perform multifarious additional roles in internationalisation. These roles include generally ‘unlocking doors’; helping to find employees, agents or local partners; providing customers and suppliers; providing reassurance, providing credibility; as well as sharing and learning from each others’ experiences.

Notably, it is not one specific type of network that fulfils one specific role. For example, in relation to the role of finding employees or agents, the type of network ties mentioned as having carried out this role include customer relationships, parent company ties, previously working in the same company, industry associations, Austrade, social networks including friends and family as well as university alumni links.

Networks are important to business everywhere; they are not a uniquely Latin American phenomenon. The importance of networks is heightened in international business because firms are less knowledgeable about the environment in which they are operating. Networks help firms overcome the ‘liability of foreignness’ wherever they internationalise. There are some important caveats, however, that make networking in Latin America unique.

There is a precedent in Latin America, both cultural and institutional, that places greater emphasis on relationships. Due to an on-going perception of weak institutions, networks provide reassurance when institutions do not. It is possible that the negative reputational effect of opportunism is a greater deterrent than legal recourse. Having acknowledged the importance of networks and networking in Latin America, it seems that it is easier for Australian firms than networking in Asia; possibly due to the greater similarities in our cultural heritage. Additionally, networks in Latin America are relatively small due to wealth concentration.

For more information in relation to this research, please contact Ms Frances Van Ruth, PhD Candidate, Department of Management and Marketing, University of Melbourne at vanruthf@unimelb.edu.au.