Improving the Efficiency of Internationalisation Policy in the EU

In recent years, the official promotion of outward foreign direct investment (FDI) has undergone something of a transformation, becoming more widespread and more popular. However, very little scientific work has been done to understand how policy to promote internationalisation by domestic firms actually works.

In the academic sphere, there are theories of enterprise internationalisation but no theoretical accounts of the mechanisms through which pro-internationalisation policy actually operates. Equally, in the realm of policy making, policy measures are entirely founded on custom and practice, using feedback from evaluations submitted by an inadequately small, and unrepresentative, number of past beneficiary firms.

There is a gap in academic understanding and also a gap in knowledge in policy circles regarding pro-internationalisation policy. My research project - ‘Pro-Internationalisation Policy in the European Union: The Challenge of Policy Efficiency and Coherence Post Lisbon (PI-PEC)’ - aims to address this dual gap.

Outward FDI is considered by policy makers, business representative organisations and firms as an important issue for today’s European Union. Member States of the EU have adopted individual policy stances and policy measures towards outward internationalisation. From this alone, it is clear that there are two distinct challenges for the EU. First, policy efficiency and efficacy is likely to differ widely (and to generally be inefficient) across the EU. Second, this in turn creates a problem of policy coherence that needs to be solved since it endangers the stability of the Union’s policy domain.

The goal of this research is to deepen scientific understanding of the mechanisms through which pro-internationalisation policy intervention operates, and through this, contribute to the design of more effective policy interventions and coherence between the Member States, yielding performance benefits for firms and economic growth.

The project follows on from my PhD studies in Portugal where my research on Portugal’s policy demonstrated that there is potential for considerable benefit from improved policy redesign.

The research will investigate ideas such as: why governments in some countries support firms to invest abroad and whether their financial and strategic support is justified; how the intermediation of the support actually works; what incentives are in place for organisations and policy makers; and how firms behave in response to these incentives.

There are three objectives for the project:

• Discover the nature and prevalence of pro-internationalisation policy inefficiency in a sample of EU member states
• Establish the scope for improvement in policy efficiency and efficacy
• Use the findings from original theoretical analysis and empirical work to produce new academic understanding and a prototype policy of potential value to practitioners at the member state and EU levels.

Questionnaires will be given to policy makers who have designed past incentives towards internationalisation and firms that have used these same incentives. The insights gained will be used to generate models to explain the behaviour and actions of both managers and policy makers. Companies and policy makers will be surveyed in six European countries.

This work will be carried out in four stages:

1. Exploring and developing theory
2. Developing a framework to accommodate the literature and its application to the EU, designing the questionnaire and conducting the interviews
3. Data collection, construction and organisation
4. Testing the primary data using statistical software and forecasting tools; producing case studies to gain insights into the interpretation of the statistical results; interpreting the results; and generating propositions that will become testable hypotheses for a future large scale project at the EU level.

The research will be executed at a crucial time when there is a drive towards constructing EU-level policy, post-Lisbon Treaty. This highlights the need for the co-ordination of national policies, coherence in external relations, and consistency across external sector policies – given the potential complementarities between trade and FDI within, and across, each EU member, and not forgetting important third countries, such as China.

Pro-internationalisation policy remains “under the radar”, yet it should be central to effective trade and investment treaty negotiations between the EU and the major, and the rising, economies of the world.

This research focuses on how to design policy efficiency into policy making, and how to accomplish improved coherence across the range of home country support measures towards internationalisation (HCSMIs). The project therefore addresses a crucial missing piece of the international business and public policy puzzle.

I, together with Jeremy Clegg, believe that our findings will allow us to develop a framework for companies and policy makers which have a direct impact on improving the efficiency of internationalisation in terms of policy, but also with a strong impact on firms. It will extend academic and practitioner understanding of the mechanism and effectiveness of policy incentives – towards building greater social value and economic growth at the EU level.

If you are interested in finding out more about this project, contact research.LUBS@leeds.ac.uk. 

This project has received funding from the European Union’s Horizon 2020 Marie Sklodowska-Curie under grant agreement No 661629