International Entrepreneurship: Volume 8

This eighth volume in the series Advances in Entrepreneurship, Firm Emergence and Growth focuses on international entrepreneurship. We are fortunate to draw on scholars both new to the field as well as some of those who founded this unique specialty. International entrepreneurship, perhaps more than any subfield of entrepreneurship, is a product of our particular zeitgeist. The last quarter of the 20th Century brought about one of the periods of the greatest internationalization in all phases of business.

Internationalizing new firms face the dual challenge of overcoming the liabilities of newness and liabilities of foreignness (Stinchcombe, 1965; Dunning, 1981; Zaheer, 1995). Because of their newness, new firms are constrained in their ability to access external resources required for survival and growth. Because of their foreignness relative to the foreign target market, internationalizing firms are disadvantaged relative to domestic firms when establishing business relationships. These disadvantages are exacerbated by the additional knowledge inputs required by the internationalization process itself: internationalizing firms face the dual challenge of both learning how to do business in a new national and institutional environment while also learning to manage the inherently complex international business organization (Johanson & Vahlne, 1990).

In explaining international expansion and performance, the traditional explanation in international business literature has mainly offered country, and firm-level structural explanations for performance. Moreover, this literature has been biased toward larger, established multinational manufacturing companies (Dunning, 1958; Hymer, 1960; Aharoni, 1966; Vernon, 1966). This was understandable as, for much of the 20th century, manufacturing occupied the dominant share of the economy. However, by the early 1960s, the service sector already accounted for more than half of the domestic economic activity in developed nations. Today, even in international operations, the share of services is rapidly increasing. For example, the share of services in U.S. exports in 1997 had grown to 27%, and to 16% in U.S. imports (Contractor, 1999). Moreover, in sectors such as information technology, telecommunications or biotechnology, recent years have seen a proliferation of entrepreneurial start-up companies, where the characteristics of their founders and leaders appear to have as much, or greater, impact on performance, as traditional firm-level explanations. Since the late 1980s, the growth of venture capital markets and rise in entrepreneurship have been observed in technology-driven industries (The Economist, 1993; Gupta, 1989; Mamis, 1989). Could entrepreneurial and leadership factors assume greater importance in explaining performance, especially international performance, of younger companies in such sectors? This is the broad hypothesis pursued in this study.

Accelerated internationalization occurs when a firm engages in international business early in its life cycle or when it builds international business experience with great speed, perhaps incorporating international activities in more parts of the firm's value chain than has occurred historically. Such acceleration seems to have been occurring since the late 1980s, and evidence indicates that it is not a temporary or abnormal phenomenon (Organisation for Economic co-operation and development (OECD), 1997). Many firms around the world experienced an era of accelerated internationalization in the 1990s (OECD, 1997) and many are continuing to do so.

International new ventures have been argued to seek foreign markets from inception in response to the external environment and/or motivations internal to the firm. For example, a new venture that exists in an industry that is more globally integrated is more likely to have a need to internationalize in order to remain competitive (Shrader, Oviatt, & McDougall, 2000). Similarly, those new ventures that have limited domestic growth due to the size of their home country may look elsewhere in order to gain a sufficient level of sales to survive (Zahra & George, 2002). Some of the many firm-specific motivations to internationalize might include the desire to fully exploit a unique product (Burgel & Murray, 2000; Oviatt & McDougall, 1994, 1995), capitalize on the learning advantage of newness (Autio, Sapienza, & Almeida, 2000) or take advantage of networking opportunities (Reuber & Fischer, 1997).

Most of us have experienced the “small world” phenomenon; you meet a stranger while traveling or waiting in a queue, for example, and begin to discuss where you are from, what type of work you do, or why you are at this certain location. Surprisingly, you and the stranger discover you both know the same person, possibly from your hometown, academic department, or children's school. You both remark “what a small world” and then go on your way. Small worlds are just one example of social networks, or how individuals know one another. Social scientists have been interested in this phenomenon since the 1930s and have developed network analysis tools to gain an understanding of how social networks are formed and evolve. These methods have improved significantly over the past 15 years and may provide an informative lens through which to investigate international entrepreneurship (IE).

In the process of starting new ventures, entrepreneurs typically reallocate existing resources to new uses. These resource reallocations challenge the status quo, and are therefore often viewed with suspicion by others (Aldrich & Fiol, 1994). Thus, entrepreneurs need to convince others that the actions required of their new venture are desirable, proper and/or appropriate – they need to gain legitimacy. Institutional theory holds that new ventures have to conform to institutional pressures in order to gain legitimacy. Legitimacy is essential for the new ventures’ chances of survival (cf. Aldrich & Auster, 1986; Aldrich, 1999; Stinchcombe, 1965; Singh, Tucker, & House, 1986). For example, a new venture's reputation facilitates its entry into business networks, which enhances growth (Larson, 1992) and an individual's associations with government agencies and community organizations have positive effects on business founding and survival (Baum & Oliver, 1996). Consequently, institutional theory may lead us to expect that those new ventures that adapt most to institutional pressures would have the greatest chances of success.

Most of us believe that entrepreneurs are special. We do this because both scholars and practitioners tell us so.

There has been considerable debate concerning the contribution of venture capitalists (VCs) to their investee companies (Sapienza, Manigart, & Vermeir, 1996). This research has shown that VCs can add value and impact the strategic direction of their investee firms through their skills and knowledge. These skills lie in two distinct areas: financial (monitoring) and non-financial (strategic and operational involvement) skills (Pruthi, Wright, & Lockett, 2003). The monitoring and involvement of VC firms in their investees have been shown to vary according to their needs (Lerner, 1995). On balance, the evidence suggests greater involvement during the more uncertain earlier stages than during the later stages when the firm is more established (Sapienza, Amason, & Manigart, 1994; Elango, Fried, Hisrich, & Polonchek, 1995). This suggests that the VC's ability to bring about change will be mediated by the impact of the history of the firm via path dependency (Teece, Pisano, & Shuen, 1997).

In recent years, there has been an upsurge in firms entering the international market at increasingly early age. The Organization for Economic Co-operation and Development (OECD) estimates that more than a quarter of the world's small manufacturing firms enter international markets within 10 years of their founding and derive a substantial percentage of their revenue from foreign sources (OECD, 1997). In addition, between 1 and 2% of small manufacturing firms are estimated to be international at inception – that is, within 2 years of their founding (OECD, 1997). Being new and proactively international at the same time, international entrepreneurial firms seem to contradict prevailing theories that see internationalization as a gradual process (McDougall, Shane, & Oviatt, 1994).