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Differences Between Born Globals and Other Internationalizing Young Firms

Seminar Paper 2010 18 Pages

Business economics - Business Management, Corporate Governance

Excerpt

Table of Contents

1 Introduction

2 Short Discussion of Theoretical Background

3 “The Born-Global Phenomenon: A Comparative Case Study Research“ as Background
3.1 Conceptual Framework of the Paper/p> 3.2 Empirical Methodology
3.3 The Case Companies
3.4 Literal Replication
3.5 Theoretical Replication
3.6 Results of the Replications

4 Discussion and Conclusions

Abbreviations

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1 Introduction

It is a well-known fact that in the past decades globalization has taken international trade to another level, i.e. there are more and more companies involved in international business, importing and exporting at a higher level than ever before. From the scientific point of view though there have been made observations concerning a specific kind of companies whose international activities seem to contradict the traditional, incremental models of the internationalization process of a firm. These traditional theories assume that just after having established a certain domestic market position and having gathered enough business experience the internationalization process of the firm begins (cf. Uppsala-Modell: Johanson and Vahlne, 1977, 1990).

The contradiction though consists in the fact that the mentioned specific kind of companies goes international right from its inception and seems to perceive the whole world as one single market which can be entered and supplied just as easy as the domestic one (Oviatt and McDougall, 1994). So what will be discussed in this paper is in general the phenomenon of the so-called born globals (Rennie, 1993) and in specific the differences that might exist between those born globals and other young traditional internationalizing companies.

This research topic is a quite unexplored one and so it is very interesting to take a look at empirical studies that have been conducted so far in order to better understand the born global phenomenon and eventually deduce key characteristics for their success and which might differentiate them significantly from other young firms. Like this, there can be developed new models and theories that reproduce reality in a better way and there might be the opportunity to derive recommendations, e.g. for politics, in order to bring forward and develop the founding of global- oriented entrepreneurial activities.

2 Short Discussion of Theoretical Background

The topic of the paper is basically embedded in the question “when to internationalize?“. It does not refer to the decision wether to internationalize or not, but to the timing of internationalization of a company. In specific the topic aims to point out differences between two types of internationalizing firms that can be broadly distinguished: the so-called “born globals“ (also called “international new ventures“, “global start-ups“, “instant exporters“) and the so-called “late internationalizers“ (also called “late exporters“, “traditional exporters“).

There are no generally accepted definitions for the two types but often a “born global“ is considered to be “a firm with international business activities right from its inception or very soon after“.

Additionally there can be made a restriction which only admits companies which started being internationally active during their first year of business being called a “born global“ (Fryges, 2010). However, a more specific and detailed definition for the case-based analysis will be given later on. On the other hand, a “late internationalizer“ or, how it will be called from now on, a “traditional exporter“ is often defined as being a company that after having established a good and economically stable position in the domestic market starts to doing business abroad later on; an orientation could be a maximum period of time of five years before being active internationally.

These two types stand for two fairly different approaches of being involved in international business and are mainly differentiated referring to three dimensions of analysis: the founder‘s (or founding team‘s) characteristics, organizational capabilities and the firm‘s strategic focus regarding its internationalization process (Rialp et al., 2005). The first dimension, the founder‘s characteristics, refers to such aspects as managerial vision, prior international experience, managerial commitment and networking.

The second dimension, the framework of organizational capabilities which derives from the resource-based view of the firm, refers to such attributes as market knowledge and market commitment, intangible assets and value creation sources.

The third dimension, the strategic focus, is linked to the extent and scope of international strategy, the selection, orientation and relationships with foreign customers and finally to the strategic flexibility (Rialp et al., 2005).

The comparison between born globals and traditional exporters which will be discussed later on, will mainly be based upon those three dimensions. Therefore, they and their specific attributes will be discussed more in depth in the upcoming chapter.

3 “The Born-Global Phenomenon: A Comparative Case Study Research“ as Background

In order to answer the question what differences exist between born globals and other internationalizing young firms it will be fallen back to a paper called “The Born-Global Phenomenon: A Comparative Case Study Research“ (Rialp et al., 2005). This paper which was written by four professors of the Business Economics Department of the Autonomous University of Barcelona consists mainly of a comparative analysis of four representative young spanish SMEs from the geographic area of Catalonia inside Spain. These four companies were classified and analyzed in order to eventually being compared referring to the three dimensions mentioned above.

3.1 Conceptual Framework of the Paper

Traditional theories and approaches try to explain the internationalization process of young firms referring to the idea of an incremental and gradualist process (Johanson and Vahlne, 1977). This means that they do not begin exporting into other countries until having established a strong base in the domestic market and having evaluated all the risks related with entering an unknown market. These risks may have to do with fear of unknown market structures as well as the psychic distance order logic which lets such firms avoid entering markets and countries with which culture-wise they do not have much in common (Rialp et al., 2005).

These traditional theories fail though to explain the phenomenon of those firms called born globals that entering different foreign markets soon after their birth at the same time do not seem to be driven by risk-avoidance or psychic distance order logic but by other factors that need to be defined.

Thus in order to be able to classify the analyzed firms and to distinguish them afterwards there were made some basic assumptions on the expected patterns of born globals and traditional exporters referring to the three dimensions of analysis that were mentioned before:

a.) Founder‘s (and/or found team‘s) characteristics:

i) Managerial Vision: While a born global is thought to have a global vision right from the beginning, a traditional exporter just turns his attention to international markets after having established a strong domestic market base
ii) Prior International Experience: The founding entrepreneur/manager of a born global company is supposed to have a high degree of previous international experience whereas for the traditional exporter and his manager this experience does not play a big role.
iii) Managerial Commitment: High and dedicated commitment for early internationalization efforts and challenges should be observable with a born global and normal commitment with business which is not necessarily and directly related to internationalization with a traditional exporter.
iv) Networking: While for a born global the very early use of both personal and business networks at local and international level is essential in order to be successful at a global scale, for a traditional exporter networking is not that important, i.e. there will be just used a loose network in order to sustain normal business and maybe some connections to foreign distributors.

b.) Organizational Capabilities:

Being an extension of the resource-based view of the firm, the framework of organizational capabilities describes the fact that not just a single resource, like human capital or financial assets, are crucial for a company‘s success and its creation of competitive advantages but complex processes across the whole organization. These processes which additionally are specifiable in static and dynamic context can be considered a bundle of characteristics, processes, patterns and inimitable aspects like the following key attributes of the second dimension of analysis:

i.) Market Knowledge and Market Commitment: Very high level at born globals due to superior internationalization knowledge, e.g. from former ventures and business activities; a traditional exporter however, due to the incremental character of its internationalization, needs to accumulate this knowledge and commitment over time until reaching a similar level.
ii.) Intangible Assets: For the traditional exporter the existence of intangible assets is not as important for successful gradual internationalization as it is for the born global: for his early internationalization objectives the livelihood and use of those unique and intangible assets which are usually based on management knowledge processes is crucial.
iii.) Value Creation Sources: This is where the born global shows one of its biggest strengths by creating high values through product differentiation, leading-edge technology, technological innovativeness and quality leadership compared to the limited value creation capability of the traditional exporter which derives from its product‘s less innovative and leading edge nature.

c.) Strategic Focus:

i.) Extent and Scope of International Strategy: The born global focusses at niche businesses while developing an internationally wide spread strategy that can be considered highly proactive. In comparison, the traditional exporter is not that niche-focused in its international strategy and acts more in a reactive way - at best, international markets will be entered one after the other, in order of psychic distance logic.
ii.) Selection, Orientation and Relationships with Foreign Customers: There is a very close relation and direct orientation towards the born global‘s, very narrowly-defined, customer/ client groups abroad.

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Details

Pages
18
Year
2010
ISBN (eBook)
9783640980772
ISBN (Book)
9783640980949
File size
563 KB
Language
English
Catalog Number
v176680
Institution / College
University of Augsburg
Grade
1,3
Tags
entrepreneurship international entrepreneurship born global internationalization internationalisierung young firm vahlne rialp johnson

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Title: Differences Between Born Globals and Other Internationalizing Young Firms