Clifton explores the relationship between domestic liberalization policies and incumbent (i.e. large companies with dominant market shares) internationalization for telecommunications and electricity multinationals in Europe.  Liberalization policies encouraged by the European Commission have corresponded with many domestic incumbents becoming dominant multinational corporations. However, the exact relationship between liberalization and internationalization remains disputed.

Clifton tests three major hypotheses:

1.     “Faster, deeper liberalization at home is associated with greater incumbent internationalization” (989.) Companies are motivated to internationalize for fear of the potential pressure on their market share at home.  This argument assumes that all firms react in the same manner to liberalization policies; competition is boosted, resulting in reduced price and enhanced choice for consumers. This is part of the European Commission’s rationale for touting liberalization policies.

2.     “Greater incumbent internationalization is associated with slower and partial liberalization” (990). Companies encourage their governments to slow liberalization in order to capitalize on opportunities in other countries that are liberalizing more deeply and quickly. As with the first hypothesis, this argument assumes that all firms react in the same manner to liberalization. This argument emphasizes state protection of these network industries. There is a current perception in the EU that incumbents are pursuing “aggressive internationalization” while simultaneously pressuring their home countries to slow liberalization. This would be problematic for successful integration of network industries by the European Commission.

3.     “National and sectoral responses to liberalization will result in various internationalization responses, explained by institutional difference” (990). Country, sector, and firm characteristics affect internationalization strategies. This hypothesis takes a comparative political economy approach, emphasizing that context matters in anticipating firm response to liberalization.

Clifton also explores two secondary hypotheses related to firm size and ownership:

4.     “More privatization means a firm is more likely to respond to go abroad, seeking out profitable markets” (992). This is a corollary to hypothesis one; privatization holds firms accountable to shareholders, encouraging the firm to maximize profits, i.e. to internationalize.

5.     “Less privatization should be correlated to more internationalization” (992). This is a corollary to hypothesis two; political involvement in firms with less privatization allows for easier access to important strategic information, thereby enhancing internationalization.

 As a control variable, Clifton uses firm size, as there may be some minimum size that a company needs to be in order to internationalize.

For hypotheses 1, 2, 4, 5, Clifton does a correlational analysis to explore the relationship between internationalization and liberalization and internationalization and privatization in 12 telecoms and 17 electricity multinationals in the EU and Norway. To test hypothesis 3, she utilizes a cluster analysis to explore the various paths for internationalization and liberalization. To operationalize internationalization, she uses foreign revenues as a percentage of overall revenues. Liberalization is operationalized for telecommunications by two indicators: entry regulation (legal allowance for new entrants) and market structure (level of market share held by new entrants). For electricity, liberalization is measured by entry regulation (terms and conditions for third party access) and vertical integration (extent of unbundling).

Her analysis does not support hypotheses 1, 2, 4, or 5. No correlations between liberalization and internationalization or liberalization and privatization were found for either electricity or telecoms multinationals. Hypothesis 3 is supported.

With respect to hypothesis 3 for telecoms, she found four clusters for both her comparison of internationalization and market entry and internationalization and market structure in 1999, 2003, and 2006: (1) low internationalization and low liberalization; (2) high internationalization and low liberalization; (3) low internationalization and high liberalization; and (4), high internationalization and high liberalization.  With respect to hypothesis 3 for electricity, she also found four similar clusters comparing internationalization and entry regulation and internationalization and vertical integration for 1999, 2003, and 2006. 

Clifton found that for telecommunications and electricity firms, the dominant multinationals were from France and Germany; however, neither country had either slow or fast liberalization policies, but rather both had relatively “middle of the road” policies (1003). She did find firm level differences with respect to Spanish electric companies, with the fastest internationalizing company being the least privatized. Multinationals from the UK do not have the market share, while the UK was a much quicker and stronger privatizer and liberalizer than France or Germany. For countries with smaller economies, Nordic companies had fast liberalization and internationalization, whereas in Greece, the Netherlands, and Portugal, we saw slower liberalization and slower internationalization.

Clifton concludes by emphasizing that the arguments that generalize the relationships between liberalization and internationalization are “overly-deterministic” (1004). Patterns for electric and telecommunications companies in Europe show a diversity of responses to liberalization policies reflecting various institutional differences.  As Clifton states, “policy space matters”  (990).