Internalization is a concept used in organizational behavior and economics to describe the process of transferring resources, skills and knowledge from one location to another within the organization. In simple terms, it involves taking something that exists outside of the organization, such as a new skill or customer service technique, and utilizing it successfully at the organizational level. It can also involve transferring expertise and resources from one subsidiary to another.

The concept of internalization is closely related to that of organizational learning, a process by which organizations can put new structures, processes and practices into place in order to develop new competencies, to become more efficient, and to gain competitive advantage. Internalization of knowledge can be an effective way for an organization to tap into its collective organizational learning, by setting up the structures, processes and practices necessary to share the newly obtained knowledge and skills.

Internalization is most frequently used when referring to the transfer of knowledge and resources from a parent company to its subsidiaries, as well as the transfer of resources between subsidiaries within the same business. An example of this could be when a parent company sets up a new subsidiary in a different country, and provides the necessary resources and knowledge to enable the subsidiary to become successful in that particular market. This process is sometimes seen as a form of global sourcing, as the business is aiming to take advantage of the resources already present in the company.

Internalization is also an important part of the internationalization process, whereby organizations try to increase their presence in foreign markets. By transferring the knowledge and resources necessary for success in those markets, an organization is able to lower the costs associated with international expansion. This can include everything from developing international marketing strategies, setting up local offices, building relationships with customers and suppliers, and hiring international staff.

There are many potential benefits to internalization, such as becoming more competitive, reducing costs, and increasing access to a wider talent pool. However, it is important to carefully consider the risks associated with internalization, such as the potential for cultural misalignment and a lack of understanding of local contexts. Organizations should therefore ensure that they assess the risks of internalization and plan their strategies accordingly.