Born Globals and Entrepreneurial Perspectives An exploratory study of entrepreneurial perspectives & Born Globals. Authors:
Sahibzada Muhammad Ziaullah Muhammad Ahsan Hassan
Supervisor: Vladimir Vanyushyn Umea School of Business and Economics Spring Semester 2012 Masterâ€™s Thesis, Second year, 15 hp
Acknowledgement Completion of this theoretical research within the scope of a 15-credit thesis was a challenging job requiring consistent concentration and hard work. Thus we considered it an opportunity for an effective learning experience to work competently and to bridge between academic demand and future anticipation of professional work. We believe, it was our supervisor Vladimir Vanyushyn who kept us motivated and focused, in times when we were down in our energies. Indeed, his supervision made it possible to finish this work in a true spirit and on time. We are thankful to CIIR (Center for Inter-organizational Research) and all of its members, for their encouragement. We are thankful to our families for being a permanent source of encouragement and support for us. We are thankful to USBE for maintaining a wonderful research environment with cooperation. We are thankful to God for providing us wonderful lives.
Sahibzada Muhammad Zia Ullah firstname.lastname@example.org
Muhammad Ahsan Hassan email@example.com
Abstract This research study further strengthens academic research on Born Globals (BGs). It provides an understanding concerning the role of entrepreneurial perspectives in rapid internationalization process of Born Global SMEs, which do not follow the traditional incremental models of internationalization. A systematic literature was synthesized by reviewing past 13 years of academic developments in the area of Internationalization and specifically BGs with Web of Science used as a primary database. In order to encompass the whole longitudinal process of BGs, we decided to use a theoretical framework based on distinguishing characteristics of Pace Scale and Pattern. These are the most commonly agreed characteristics that differentiate a Born Global from traditional firm that follow incremental internationalization process. In order to understand the creation of these three distinguishing characteristics we identified not only the underlying factors that give rise to these distinguishing characteristics but also the role they play in development of these distinguishing characteristics. Further, this role is divided into corresponding developmental phases (Pre-startup, Pre-Internationalization and Post-Internationalization). Then by interpreting this role in terms of entrepreneurial perspectives, we have tried to find out the role of entrepreneurial perspectives in corresponding developmental phases and ultimately formation of distinguishing characteristics which symbolize a Born Global. Two entrepreneurial perspectives involved in venture development process i-e Causation and Effectuation that were broadly explained in the literature. According to Sarasvathy: “Causation is based on “prediction logic” while Effectuation that is based on “control logic” (Sarasvathy, 2001, p.243). Both are considered essential areas of human reasoning and entrepreneurial decision-making. Further Data was analyzed in connection with BGs distinguishing characteristics, underlying factors and their relation with entrepreneurial perspectives of Causation and Effectuation The findings showed that BGs and the creation of distinguishing characteristics (Pace Scale and Pattern) are explained by entrepreneurial perspective of Effectuation while Causation was contradictory and further explanation to causation was abandoned. Effectuation theory based on it four principles fits with the development of Born Global firms characteristics and its Internationalization phases. The logic has improved the understanding of a firm international market behavior to internationalize since inception and its entrance into several markets. The core supporting areas where effectuation better explains the BGs are; to create opportunities by exploiting its means, that are the entrepreneurial traits, knowledge of corridors and social networks. These means are helping a firms in origination, development of its pace, scale, pattern and further supports in phases of internationalization. Similarly the ways to limit the loss, developing partnership and acknowledging the contingencies were the key effectual areas explained the BG distinguishing characteristics and contributed to the Phases of internationalization. Over all effectual logic gives insight to the BG firm’s development, its operation, expansions and fits with the explanation of rapid internationalization concept. Key words: Born Globals, Effectuation, Causation, Distinguishing Characteristics, Pace Scale, Pattern, Rapid Internationalization, SMEs
Contents List of figures
1. 2. 3. 4. 5. 6. 7. 8.
Conceptual Framework..……….……………………………….....................08 Effectuation Process of a Firm.........................................................................18 Effectuation theory ………………………………………………………….20 Dynamic model of Effectuation………………………………………..……25 Firm Distinguishing Characteristics…………………………….……………33 Factors Affecting the Pace of BGs………………………………………….. 37 Key distinguishing factors of BGs………………………………….………..39 Conceptual Model……………………………………………………………49
List of Tables 1. SME’s Definition……………………………………………………………...10 2. Causation and Effectuation Differences ….......................................................19 3. Summary of difference between effectuation and causation ……………....... 21 4. Paper distribution……………………………………………………………...29 5. Difference in internationalization behavior …………………………………..42
List of Charts 1. Published Articles..............................................................................................29 2. Filtured Literature .............................................................................................30 3.Analysed Literature.............................................................................................30 Appendix…………………………………………………………………………60
This chapter introduces the subject and problem background. It further illustrates issues with logical reasoning and discussion to clarify the research gap. Further, it leads to research questions, purpose of research and outline of the study.
Early internationalization of SMEs is a worldwide phenomenon and despite increased concentration in high tech industry sectors, it is not limited to any specific industry or sector (Mort et al., 2012, p. 546). Lower trade barriers, increased competition and rapid technological developments are facilitating, the idea of making significant part of revenue from foreign market operations (Anderson, 2011, p. 628). Small and medium size enterprises (SMEs), starting international business activities at very beginning of their operations are increasing (Anderson, 2011, p. 628). Firms exhibiting this phenomenon of early internationalization are commonly called International New Ventures or Born Globals. These firms are usually defined as: “business organizations that from inception, seek to derive significant competitive advantages from use of resources and sale of outputs in multiple countries” (Oviatt & McDougal, 1994, p. 49). In lines with previous studies, we will also use the term, Born Globals (BGs) to refer to these SMEs (Anderson, 2011, p.628).
BGs have several distinguishing operational and behavioral characteristics, which makes them leading example of successful SMEs internationalization (Knight & Cavusgil, 1996). Firms’ direct entry into global markets with highly innovative products: where domestic market is often bypassed, challenge conventional theories of internationalization (Oviatt & McDougall, 1994). In addition, their internationalization also contradicts traditional beliefs’, where SMEs are considered to have fewer strategic options because of their low financial and managerial resources (Mort et al., 2012, p.546). Over the last decades, BGs have attracted both academic and practitioner’s interest (Rialp et al., 2005). These highly entrepreneurial, high performing small firms challenge the conventional theories of incremental or gradual internationalization (Mort et al., 2012, P.546). The so called Uppsala model by Johansson and Vahlne (1977) is one of the most comprehensive efforts made to explain SMEs internationalization. It takes internationalization as a gradual process, mainly based on successive organizational learning and increased commitment. Psychic distance is described as a determining factor for, selection of a specific foreign market and entry mode chosen for operations in that market. Experiential knowledge is described as one of the main driving force to affect firms’ behavior in a specific market (Anderson, 2011, p.628-29). Earlier theories used in international business do not fully explain the phenomenon of BGs (Oviatt & McDougall 1994; Anderson, 2011, p.628-29). There is a big gap between these theoretical internationalization models and actual practices being observed in BGs firms (Andersen &Strandskov 1998; O’Farrell; Crick & Jones 2000). Internationalization is often affected by individual decision-making and strategic choices; where different entrepreneurs choose to internationalize in different ways (Andersson, 2000; Andersson & Evangelista, 2006). Gradual process of
internationalization is not followed all the time and firms start internationalization activities at a very early stage or inception. Therefore the internationalization is rather rapid and firms become global very early (Knight & Cavusgil, 1996; Madsen & Servais, 1997) (cited by Anderson, 2011, p.629). Johanson and Vahlne (2009) have also acknowledged that, these BGs firms do not follow the gradual process of internationalization completely in line with psychic distance concept explained in their model. However, they still maintain relevancy of their model by arguing that, in BGs, entrepreneurs already have required knowledge and networks has been established in rather early stages, which results in some leapfrogging and deviation from gradual internationalization model (Johanson & Vahlne, 2009). In 2010, they have explicitly discussed the importance of entrepreneurial capabilities and have used Sarasvathy’s (2001) Effectuation logic to analyze BGs’ internationalization process (Anderson, 2011, p.629).
1.3 Born Globals and Entrepreneurial Perspectives Causation and Effectuation are two different entrepreneurial perspectives (Sarasvathy 2001, 2008; Sarasvathy & Dew, 2005). Causation is called designing before execution (Baker et al., 2003), where particular effect is taken as a goal and an increased focus is exerted towards means which can create that effect (Sarasvathy, 2001, p. 245). While in Effectuation, means are considered first and then the focus is on possible effects that can be created with those means (Sarasvathy, 2001, p. 245; Sarasvathy, 2008). Thus in case of BGs, existing means of vision, knowledge, experience, connections are used to create new firm and opportunities (Evers & Gorman, 2011, p.550). Although there are few studies that have used Effectuation to understand internationalization of BGs (Anderson, 2011, p.627), yet the evidence is increasing that, process can be well explained by Effectuation (Baker et al., 2003; Dew et al., 2009). Keeping in view these evidences, we have decided to study BGs from an Effectuation perspective. Another drawback of earlier researches is that, much enquiry is cross-sectional in nature, and consequently has been unable to capture the whole process involving development of BGs (Anderson, 2011, p. 630-31). Many researchers have suggested that, observational studies will be useful to find out what decision-makers actually do in different developmental phases (Andersson & Floren, 2008). It would be interesting to explore how a company deals with challenges that arise when the company grows (Anderson, 2011, p.639). An advantage with Effectuation theory is that, it treats the individual level, the firm level and the environment /network level with a process perspective (Anderson, 2011, p. 631). Therefore, it further supports our choice of subject. Some of the earlier researches pointed out, Causation can be more useful in later stages of a firm’s development (Read & Sarasvathy, 2005). Thus, it will also be interesting to investigate, if it is possible for a firms’ perspective to change from Effectuation to Causation (Anderson, 2011, p.639). We understand that the conceptual application of effectuation can advance our understandings of Born Globals because internationalization is a part of entrepreneurship with a broad vision of cross boundary activities. Hence “International entrepreneurship is the development of international new ventures or startups, that from their inception, engage in international business, thus viewing their operating domain as international from the initial stages of the firm operations” McDougall (1989, 387). Similarly effectual entrepreneurship deals with the same logic of venture development, new product development but shaping the future practically rather than predicting it. It “controls the future risk and uncertainties by its decisions action, working in conjunction with pre-committed stakeholders and customer partners” Sarasvathy (2001, 243-263). Therefore if looked into BGs characteristic, for example its personal network
development, acting in new markets, the role of risk taking and dealing with uncertainty, seems to be consistent with the core areas of effectual logic. Therefore, to enhance complete understanding we need a comprehensive holistic approach. In this way we will conduct a complete study based on internationalization process, BGs developments, and explanation with entrepreneurial perspective to see if effectuation can explain BGs.
Problem Statement How Effectuation can explain Born Globals? What can be an optimal mix of Causation and Effectuation for explaining BGs internationalization process?
Purpose of this research is to better understand and explain BGs in terms of entrepreneurial perspectives. In this study, we will encompass the whole longitudinal process of BGs development i.e. from inception to internationalization and analyze it in terms of entrepreneurial perspectives. An evaluation will be made to see, if Effectuation alone can explain BGs or if it is a mix of Effectuation and Causation. We will also try to find out phases of BGs that support Effectuation and the ones that can be better explained by Causation or where Causation is a better strategy to adopt with.
During the preliminary literature review about the subject, we came across several articles and books related to BGs. This exposure of existing literature further broadened our vision and understanding of the subject and in combination with our own analytical thinking. We come up with the idea of studying BGs in terms of entrepreneurial perspectives. In order to further elaborate idea of this study, we have developed a conceptual model. The model represents structure of the study and address the research gap mentioned in introduction. In this conceptual model, we assume that, entrepreneurial perspective plays a vital role in the creation of BGs. We think entrepreneurial perspective is one of the major reasons that differentiate BGs from incremental SME internationalization. At the commencement of study the importance and composition of entrepreneurial perspective in creation of BGs is not fully known. Hence, we are not sure that, if this entrepreneurial perspective is Causation or Effectuation or if it is a combination of both. Our results and analysis will further clarify our assumptions.
Entrepreneurial Perspective SME Internationalization
Figure.1, Source: Self-Developed The conceptual model starts with two significantly different entrepreneurial perspectives that are, causation and effectuation. The effectuation is based on control logic while causation is based on prediction logic. The figure link both perspectives to the knowledge gap where decision for internationalizing firm is based on whether to adopt an effectual a non-predictive reasoning perspective or casual a predictive and rational reasoning perspective. Both perspectives can affect internationalization process with its core principles and can result in incremental or rapid international operation. The non-predictive logic deals with the minimizing risk and uncertainty by considering affordability and acceptability criteria of its resources and takes direct action without complete planning process. Hence the future is controlled by exploiting firm resources, knowledge and developing partnership. While the market shares are obtained through cooperative strategies. Hence, in venture development, surprises and contingencies (unplanned activities) are considered useful for innovation and opportunities development. Sarasvathy (2003, p. 203-220). On the other side the predictive logic stands on preferred outcome through rational planning, broad market analysis, conducting a research process, identifying the need of a specific most attractive segment and designing strategies to market their products or services. Here the logic to control the future by planning in advance and surprises are not accepted Sarasvathy (2003, p. 203-220). Thus our conceptual model limits our boundary of the research to these two perspectives and assumes that entrepreneurial perspective play a key role in the development of BG SMEs that can be further explained and investigated. Causation: Market definition, Segmentation, Targeting, Positioning, Sarasvathy (2003, p. 209). Effectuation: Customer identification, segment definition through effectual partnership and selling, Adding segments and partners, Definition/creation of one or several possible markets, Sarasvathy (2003, p. 209).
1.7 Key Definitions 1.7.1
Small and Medium Enterprises
First step in our research study on internationalization of SMEs is to get an idea; what are the proper criteria to define an enterprise as an SME? Depending on the nature and composition of the industry, there are several connotation-defining SMEs in different countries. However, for this research project, we will follow European Commissions’ definition of an SME. It defines “ the category of micro, small and medium-sized enterprises (SME’s) is made up of enterprises which employ fewer than 250 persons and which have an annual turnover not exceeding 50 million euro, and/or an annual balance sheet total not exceeding 43 million Euro”(European Comission,2003). Enterprise Headcount Turnover Balance sheet Category Medium< 250 ≤ € 50 Million ≤ € 43 Million Sized Small-Sized
≤ € 10 Million
≤ € 10 Million
≤ € 2 Million
≤ € 2 Million
Source: European Commission
There is no generally accepted definition explaining “internationalization or international entrepreneurship, but internationalization is viewed as the process of increasing involvement in international markets” (Welch & Luostarinen, 1998) (cited by Gerlad & Susman, 2007, p.281). According to Lehtinen & Penttinen, “Internationalization of a firm concerns the relationships between the firm and its international environment, derives its origin from the development and utilization process of the personnel’s cognitive and attitudinal readiness and concretely manifested in the development and utilization process of different international activities, primarily inward, outward and cooperative operations”(1999, p.13).
“Several terms have been used to refer to these firms: International New Ventures (McDougall et al., 1994; Oviatt & McDougall, 1995), BGs (Knight & Cavusgil, 1996; Madsen & Servais, 1997), Born International SMEs (Kundu & Katz, 2003), or early Internationalizing firms (Rialp et al. 2005a as cited by Rialp et al., 2010, p.109). BGs are the firms that start international operation rapidly after inception (Efrata & Shoham, 2012, p.01), Oviat & Mcdougall defined BGs as, “a business organization that, from inception, seeks to drive significant competitive advantage from the use of resources and the sale of output in multiple countries” (Oviatt & Mcdougall, 1994, p. 49).
Causation is where, “a process takes a particular effect as given and focus on selecting between means to create that effect”, it is based on “prediction logic” (Sarasvathy, 2001, p.243-45). It is called designing before execution (Baker et al., 2003), where particular effect is taken as a goal and an increased focus is exerted towards the means which can create that effect (Sarasvathy 2001, 245).
1.7.5 Effectuation Effectuation is defined as, “a process that takes a set of means as given and focus on selecting between possible effects that can be created with that set of means”. Effectuation is based on “control logic”, in which means are considered first and then focus is on possible effects that can be created with those means (Sarasvathy 2001, 243245; Sarasvathy, 2008).
In this study, BGs are discussed; based on three distinguishing characteristics of Pace Scale and Pattern. In our study, we have used the same criteria of BGs developmental phases that is used by Rialp et al (2010). According to this criterion, development of BGs is divided into following phases 1. Pre startup and New Venture Creation Phase 2. Pre Internationalization Phase (Internationalization Preparation) 3. Post Internationalization Phase 1 (early international entry - development) 4. Post Internationalization Phase 2 (International Growth and Consolidation) Our study is only fully valid for first three phases of BGs development. Due to transformational change and highly dynamic environment of Post Internationalization Phase 2 (International Growth and Consolidation) the implications may be different. As cited by (Gabrielsson et al, 2008 p.1) there are different types of BGs 1. BGs, which are SMEs with potential for accelerated internationalization and a global market vision and which are going to be international for the first time. 2. Born Again Globals, which attempt to internationalize but achieve limited success, then turn to building up domestic support and later return to internationalization by means of great leaps and a global vision (Bell,McNaughton, & Young, 2001). 3. Inward internationalizers, which import intermediates and components from global sources and/or import R&D and internationalize rather rapidly through exports and/or in other ways (Korhonen, Luostarinen, &Welch, 1996). 4. The usual more slowly internationalizing SMEs, which are a subset that includes small spin-offs from MNEs. Among all different types of BGs, we want to be more specific, thus our study is mainly related to type 1 BG and we limits our boundaries to other types of BGs to avoid complication. The role of different underlying factors giving rise to Pace Scale and Pattern in different developmental phases of BGs is discussed. That is later generalized as their role in BGs. This role is divided into corresponding developmental phases. This discussion is based on the evidence from existing literature about their emphasized role in those particular developmental phases. This discussion does not define the clear boundaries of their role and further empirical studies will be required for a clearer definition of these factors and their roles.
1.9 Outline of the Research Study Following outline structures this study Chapter-2 Methodology This chapter illustrates scientific methods related to this research study. It provides information addressing research philosophy, design, methods, and strategy to conduct the whole research. Scientific methods include choice of subject and plan for conducting research. It also includes information about data collection, analysis and data presentations. Chapter-3 Causation and Effectuation This chapter focuses on entrepreneurial perspectives of Causation and Effectuation. The chapter also describes various principles of these entrepreneurial perspectives. Chapter-4 Reviews & Synthesis of BG Studies This chapter is composed of literature related to BGs and Internationalization models. It also describes our theoretical framework for BGs that is developed by synthesizing data from the review of previous literature. Data is mainly categorized into distinguishing characteristics of BGs i.e Pace Scale and Pattern. The underlying factors giving rise to these distinguishing characteristics and the role of these factors in various developmental phases of BGs (Venture Creation, Internationalization and Post Internationalization). Chapter-5 Link to Causation and Effectuation This chapter focuses on analysis of already developed and structured data to search appropriate answers to research question. Data is analyzed in connection with Born Globalsâ€™ distinguishing characteristics, underlying factors and their relation with entrepreneurial perspectives of Causation and Effectuation Chapter-6 Conclusion This chapter provides outcomes obtained from analyzed data and answer to research problem with new conceptual model. In addition, it also provides suggestion for further research. Chapter-7 Quality Criteria In this chapter quality of the research is explained on the basis of Creditability, Transferability, Dependability, and finally Conformability.
This chapter illustrates scientific methods related to this research study. It provides information addressing research philosophy, design, methods, and strategy to conduct the whole research. Scientific methods include choice of subject and plan for conducting research. It also includes information about data collection, analysis and data presentations.
2.1 Choice of the Subject Very idea of this study originated in our minds while, we started to analyze our postgraduation options in terms of employment and businesses. Our profiles include higher education from a top ranked European university, international travelling experiences, multicultural group works and background of a developing country. All of these factors are persuading to generate such business idea where we can use all of these skills, knowledge and experience. We believe that realization of this idea seems very closer to the emergence of a BGs idea. This was one of the main reasons for selection of this subject as a research area. As explained in literature, phenomenon of BGs is becoming more frequent and more global. Hence, it is getting more and more attention of people belonging to the domain of Business Administration and specifically to Business Development and Internationalization. On the other hand, Effectuation is a relatively new entrepreneurial perspective, which is getting attraction, because of its better explanation and closer proximity to real world entrepreneurial operations and practices. As being the students of Master’s In Business Development and Internationalization, we also got some exposure of these two significant developments and our inherent interest of being successful entrepreneurs urged as to make an effort, where we can contribute to the existing knowledge and mean while further enhance our understanding of the subject. Our motivation and passion to be innovative leaders developed our interest in emerging subjects like BGs, Effectuation and their relation. We believe this subject will satisfy our desire to some extent, increase our attractiveness for International employers and help us to be better entrepreneurs and researchers.
If we talk about our previous knowledge, experiences and skills towards the topic we will say that, it is highly influenced by our Master program In Business Development and Internationalization. Both authors are admitted to this program at Umea University. This program contains several courses of subjects related to SMES and Internationalization. Further. Both authors have already taken courses like Business Research Methods and have already successfully conducted two different research projects named “Managing Commercialization of Academic research” and “Role of Emotional Factors in Outsourcing of SMES”. These researches were conducted as oneyear master thesis. Based on above-mentioned facts we can claim that we have enough theoretical preconceptions to study this subject and conduct this research. If we talk about practical experiences, one of the authors has worked in Philippine as a part of a BPO industry. His further experiences include working in organizations like Trade Development Authority Pakistan and ENS Umea University. While the second authors have experience as an internee in telecommunication company and selected by
Marcus Evan Company as a business developer for Business Intelligence Services, that developed a good knowledge to understand business activities of companies and trends in the market. Both authors have also worked at Uminova Innovation, which is Umea University’s Business Incubator. We believe that these theoretical and practical preconceptions positively affect our perception towards International Businesses and have broadened our vision. We think this will help us in better understanding of the subject, conducting this research and better interpretations. There is always a possibility that preconceptions can have some negative impact on the research. Therefore, we will try our best to be neutral, and unbiased. Our mission will be to produce, as much objective knowledge as possible, without being affected by our preconceptions.
Research philosophy means: the nature of knowledge and how that knowledge will be produced (Saunders et al., 2009, p. 107). It contains essential statements concerning the way author view the world and it helps to construct research strategy and the methods used as part of that strategy. The adopted philosophy is influenced by practical considerations: where the main influence is the particular view of the relationship between the knowledge and the process by which it is developed” (Saunders et.al, 2009, p.108). Philosophy of this research is ontologically constructionist that “asserts that social phenomena and their meanings are continually being accomplished by social actors” (Bryman & Bell, 2009, p.23). For this research, paper concepts will be developed through existing knowledge from literature. Thus, the reality will be constructed on the basis of available literature which describes different distinguishing characteristics of BGs and the process by which BGs come into existence. Literature also explains the role of the important factors and actors, where different researchers have interpreted them in different way and we are going to study it from an Effectuation perspective. So the reality is socially constructed. As the purpose of our study is to produce a better understanding and enrich the existing theories thus it will be done by the review and synthesis of data from existing theories. Thus we can say that, our research is a combination of deduction and induction. In the same way “Interpretivism is an epistemology which advocates that, it is necessary for the researcher to understand differences between humans role as social actors” (Saunders et.al, 2009, p.116). In this research, we will consider the subjective discussion and opinion given by the previous authors.
Research design is considered a general plan of how to turn research question and given objectives into a complete project: with consideration of, adopted strategies, choices and time horizons (Saunders et.al, 2009, p.137). As in this research we are trying to have a better understanding of BGs with an objective of interpreting them in an entrepreneurial perspective of Effectuation, thus it is comprehensible, that an exploratory research can better clarify and explain our research. “An exploratory study is valuable means of finding out “what is happening: to seek new insights: to ask questions and assesses phenomena in a new light, Robson (2002)” (cited by Saunders et.al, 2009, p.139). For the same reasons Our Systematic Literature Review was to collect the best possible available information related to problem area in order to develop a framework. We have developed an inclusion and exclusion criteria in other to keep only reliable and authentic literature that will further keep a higher quality of the research. As the phenomenon of our research was to see how entrepreneurial perspective can define the rapid internationalization approach. Therefore to develop a significant insight, a
framework was developed from available internationalization theories, models and more importantly the BGs that is the core area of the research. We mainly considered the basic areas of the study and generated relevant literature systematically from web of science data base. Therefore we adopted a longitudinal process with a holistic approach rather than conducting interview or selecting some specific cases. Similarly literature relevant to entrepreneurial perspectives was gathered from Sarasvathy articles, books and journals that broadly explained the core areas: causation and effectuation. As we were dealing with two core ideas BGs and entrepreneurial perspectives therefore our starting aim was to describe, develop, correlate and make explanations in the interested area to further predict the phenomena, such process is almost similar in other studies (Bunge, 1997; DiMaggio, 1995; Sutton and Staw, 1995; Weick, 1995). The generated information in the developed framework was further analyzed and discussed. As a result of knowing extensively from literature about BGs and two perspectives, we were at the position to make comparisons and explore areas where entrepreneurial perspectives has a role in defining and development of BG SME firms.
Qualitative and Quantitative are two main strategies available for research studies and selection of research strategy further determines selection of different methods that will be used for data collection (KekĂ¤le & Borelli, 2009). According to business dictionary, a qualitative research is â€œassociated with subjective quality of a given phenomenon and knowledge of qualitative aspects is gained through interpretive understandings of the underlying phenomenonâ€? (Business dictionary). Our study is based on key, concepts BGs, which requires more subjective knowledge providing better understanding of different context as well. Therefore based on the research question, philosophical constructs and the mentioned objective of the research, the choice of the research strategy is qualitative. Which asserts that, subject is not quantifiable, but can be based on deep explanation and understanding of the phenomenon.
2.6 Research Methods In order to have a good understanding of the existing knowledge about BGs and to evaluate contribution of previous studies, we decided to start with a well-organized systematic review of literature. This review was also helpful in performing a scientific analysis leading to identification of research gaps in subject areas (Ginsberg & Venkatraman, 1985). With the application of logically connected and well-defined procedures of data collection, evaluation and categorization, we have tried to maintain the quality of our research. We believe this approach will increase the understanding, transparency and standardization of our review process and will differentiate it from an unstructured review (Tranfield et al., 2003). Although there were several challenges like, time constraints as compared to number of articles, their examination to see relevancy with and then finding logics for their use and synthesis of theoretical framework. However, we believe we followed a scientific approach that helped us in accomplishing the objectives of our study within our limitations (Pittaway et al. 2004). The data collection process can be divided into following three steps, data collection, and data analysis and data synthesis.
2.7 Data Collection Data can be collected by utilizing several methods, for example; a researcher having knowledge in specific area can look for relevant articles based on his understanding related to phenomenon. Relevant data can also be searched by using specific keywords in several databases. In addition, involvement of a specialist team can direct a researcher towards relevant literature.
Thus, data collection can be more debatable and arguable. Therefore In order to eliminate the prejudice argumentation related to subjective nature of data collection, we based our study on systematic review with predefined eligibility and selection criteria. In this connection, we will search for data that is relevant, rich of information and helpful to support our subsequent argumentation. Therefore, In order to strive for relevant literature, we mainly used Web of Science database to look for scientific articles and journals.
2.8 Data Analysis “Data collection, analysis and verification of proposition are very much interrelated and interactive set of processes” (Sander et al, 2009, p.488). For example analysis can also occur during collection of data and after selection of data, in this way data analysis during data collection directed us to specific and relevant data to shape our literature framework in a consistence way. Based on research objective, analysis can be performed in several ways. However, the result of analysis will depend on the review of the articles that are selected during data collection process carried in several methods. Thus, an analysis aimed to reflect the combined contribution of several empirical studies could be performed both qualitatively and quantitatively. But a qualitative analysis is considered superior to support meta-analysis (Hunter & Schmidt, 1990). Aim of our review was to develop a conceptual insight and a broad overview to understand BGs and the core areas in a coherent way. Therefore, in our analysis, we restricted to explanation based on subjective quality rather than statistical interpretation. As in our study, we have used key concepts of BGs, and entrepreneurial perspectives that are qualitative in nature. Therefore by using “pattern matching” and “explanation building” techniques in accordance to the nature of the phenomenon, we followed qualitative data analysis. In order to be more precise we further followed eyeballing technique to search to reach a conclusion. “The pattern-matching is not a precise science and thus the researcher should look for gross matches and mismatches in which ‘even an “eyeballing” technique is sufficiently convincing to draw a conclusion’ (Yin, 1994 cited by Grossan & Apaydin 2010, p.1155).
3 Causation and Effectuation Approach This chapter focuses on entrepreneurial perspectives of Causation and Effectuation. The chapter also describes various principles of these entrepreneurial perspectives.
3.1 Causation and Effectuation Causation and Effectuation are two perspectives which are involved in any entrepreneurial venture development process. According to Sarasvathy: “the creation of artifacts” relies on two notions: Causation that is based on “prediction logic” while Effectuation that is based on “control logic” (Sarasvathy, 2001, p.243). Both are considered essential areas of human reasoning and entrepreneurial decision-making. Causation: “a Causation process take a particular effect as given and focus on selecting between means to create that effect” (Sarasvathy,2001, p.245).
Effectuation: “Effectuation, take a set of means as given and focus on selecting between possible effects that can be created with that set of means” (Sarasvathy, 2001, p.245) Suppose, to develop a new firm the Causation process will focus on a goal (“new firm”) as an effect and will set off for different means i.e. market research, segmentation, marketing strategies and several other analytical efforts to predict the uncertain future. On other side, Effectuation begins with possible means i.e. “What they know? Whom they know? Who they are?, their knowledge corridors and the social network”, (Sarasvathy, 2001, p.249). After recognizing the means, Effectuation involves focus on other actions like: search for investor, strategic partners, or opening a counter in existing business. However, the basic thing that differentiates and distinguishes between Causation and Effectuation is the perspective towards means and effect. Setting a particular effect as a goal first and then selecting particular set of means to create that effect is Causal perspective. While on the other hand identifying the available means first and then recognizing the set of possible effects that can be created from these means is Effectuation, where the selection of a particular effect is determined later. Therefore, we can say that, Causation model can be mapped as many to one, while Effectuation is one to many ” (Sarasvathy, 2001, p.245). Causation ----------Effects-------------Means Effectuation--------Means------------ Effects
Effectuation Process of a Firm
Fig.2, self developed, Based on the explanation made by Sarasvathy (2001, 243-263). To concise the whole discussion, the core difference between Effectuation and Causation mentioned by Sarasvathy are as follows: Causation is the maximization of a potential return for a particularly selected decision by selecting optimal means and the strategy to use those means, while Effectuation is experimentation based, where means are identified first and an affordable loss is
predetermined, and then focus is on experimenting as many strategies as possible. The effectuator prefers long term benefits as compared to short term returnsâ€? (Sarasvathy, 2001, p.252). Causation is more focused on competitive analysis, while Effectuation focuses on strategic alliances and pre commitment to involve stakeholders to create synergic effects like, reducing uncertainties, increased capabilities and resources (Sarasvathy, 2001, p.252). Effectuation can handle surprises in a better way and is more flexible in terms of exploiting opportunities that arise out of contingencies, while Causation is better structured to exploit pre-existing knowledge (Sarasvathy, 2001, p.252). In Causation the logic is, if we can predict the future, we can control it. The focus is on predicting the future first and then controlling it. Effectuation contradicts by arguing that, we should focus on the extent of future which we can already control, thus we do not need to predict it (Sarasvathy, 2001, p.252). To understand Causation and Effectuation from different entrepreneurial characteristic two summarized tables are derived from Sarasvathy articles with clear specific areas.
Categories of Differentiation
Contrasting Causation and Effectuation Causation Process
Effect is Given
Help choose between means to achieve the given effect
Selection criteria based on expected return Effect Dependent: Choice of means is driven by characteristics of the effect the decision makers wants to create and his or her knowledge of possible means
Excellent at exploiting knowledge
More ubiquitous in nature
Context of relevance Nature of Unknowns Underlying Logic Outcomes
Focus on the predictable aspects of an uncertain future To the extent we can predict future we can control it Market share is existent through competitive strategies
Table. 2, Causation and Effectuation Differences by Sarasvathy (2001, p.25).
Help choose between w
Selection criteria bas
Actor dependent: Gi is driven by charac abilities to dis
Focus on the controll
To the extent we ca
New markets are cooperative strategies
The Theory of Effectuation Who I am (t1...t...) Individual’s level: Traits, tastes and abilities Firm level: Physical resources Level of economy: Demographics
What I know (t1.., t2...) Individual Level: Knowledge corridors Firm Levels: Human Resources Level of economy: Technology regimes
What I know (t1, t2...) Individual Level: Social networks Firm Levels: Organizational Resources Level of Economy: Social political Institutions The Effectuation’s (given) set of means
Effect 1 Effect 2 Effect 3 Effect Effect Effect Effect Effect Effect Effect Effect The Effecuator’s (Contingent) Aspiration The logic of Control Strategic Partnership Acceptable Risk Affordable Loss
Immigration Contingencies Human Aspiratiion T1 Human Aspiratiion T2 Human Aspiratiion T3 Human Aspiratiion T4 Human Aspiratiion T5
Fig. 4, Effectuation Model by Saravathy (2001, p. 251) Causation is upside down because it is effect dependent and is excellent in exploiting pre-existing knowledge and focus on the predictable aspects of an uncertain future, while Effectuation is downside up process. It is actor dependent and excellent at exploiting contingencies and focus on the construable aspect of an unpredictable future. (Sarasvathy, 2001, p.250). Some of the contrasting difference between effecual and casual logic are mentioned in the table 4. It show the findings of several emperical studies conducted to see if entrpereures use effectual elements in developing new ventures, Dew et.al (2008, p .46)
Table. 3, Contrasting Casual and Effectual Logics, Dew et.al (2008, p .46).
3.2 Key Principles of Effectuation and Casual Contrast Sarasvathy developed five distinguished set of principles that were named Effectuation Principles. All of these principles deal with uncertainty. 1. “The Bird in Hand Principle”: this principal is based on assessment of means. (Who am I? What do I know? Who do I know? Where entrepreneurs emphasizes and focus on creating something new with existing means, rather than discovering new means to achieve some predetermined goal (Sarasvathy, 2008, p.15). It is a more actionbased principal that says: Instead of waiting for the opportunity and right time we should act and create an opportunity. Nevertheless, the action should be in connection with possible available means to create that opportunity. According to Sarasvathy there are normally two methods complete a business task (2008, p.15) the causal logic and effectual logic. The casual logic forces an entrepreneur first to develop a goal and onward analyze the market for best possible opportunity. When an opportunity is explored with a regular search then effective marketing strategies are adopted. For the same purpose Kotler (1991) process for market entrance to launch a new product or service is the best example that can explain the typical causal logic. Thus causal procedure starts with the following assumptions that are derived from Saravathy book on Effectuation (2008, p.77). 1. Analyze the long term opportunities in the market 2. Research and select target markets a) Identify segmentation variables and segment the market b) Develop profiles of develop segments c) Evaluate the attractiveness of each segment d) Select the target market e) Identity the possible positioning concepts for each target segment f) Select, develop and communicate the chosen positioning concept 3. Design marketing strategies 4. Plan marketing programs 5. Organize, implement and control marketing effort, (Sarasvathy (2008, p.75). Thus, the causal logic is a complete rational process based on evaluation of effective methods to explain the opportunity and calculate the expected outcomes. An entrepreneur move from a general wide market to a most advantageous segment that is predetermined through a developed plan. The second contrasting way to solve or organize task is Effectuation. In effectuation an entrepreneur follows a bird in hand principle that can be adopted both at individual and firm level. They utilized available set of means that are entrepreneur taste, trait, abilities, the knowledge, and social networks. At a firm level it is Physical resources, Human resources, Technology, organizational resources and sociopolitical institution. On the basis all these available means are made a starting point. Entrepreneur directly takes action without broad planning and creates an opportunity rather the waiting for the opportunity. In this way innovation and creativity take place by utilizing available means and creating venture rather than predicting. 2.“The Affordable loss Principle”: this principle suggests that, instead of focusing on historic data and future prediction, entrepreneurs should focus on calculating affordable loss and possible ways to limit that loss. “It prescribes committing in advance to what one is willing to lose rather than investing in calculations about expected returns to the project” (Sarasvathy, 2008, p.15). 21
Again if we look into Kotlar principles, casual logic aims to increase the expected return. It adopts the best possible strategy that can increase the predicted outcomes. In these way entrepreneurs makes marketing calculation and come up with future sales estimations, cost of the production, and the capital that is required in venture investment. Thus in a causal process entrepreneurs have an estimated budget for all kind of expanses and future investment. Hence this process can be expansive and timing consuming and searching for enough capital to make it happen in advance. In contrast effectuation logic is independent of prediction, an entrepreneur tries “to estimate the down side and examine what he/she is willing to lose in order to start the venture” (Sarasvathy, 2008, p.81). For the same purpose entrepreneur tries to involve other stake holders to develop the venture successfully from the very beginning. In this way all resources are utilized and more options for success are developed. In order to make calculation of the affordable loss, an entrepreneur needs to know their resources and commitment in order to be prepared for worst situation. Thus Effectuation is a sort of cognitive logic to think how one can utilized his knowledge, skills, and limited financial resources to start a new venture and draw limits for investment. All information’s are in the control of effectuator, while in casual logic information’s are not in the control of entrepreneur but dependent on effect that he want to create. For example for an effectuator if one door is closed he can find other door according the strength of his means, commitment and action, while in causation one have to follow one direction to reach goal and in case of failure he will not make profit. 3. Crazy Quilt: In this principle, entrepreneurs are not supposed to be puzzled with development of a competitive strategy or “opportunity cost”. They are supposed to develop partnership with stakeholders who are ready for “actual commitment” (Sarasvathy, 2008, p.15). In the third principle, effectuation supports cooperation and alliance development while causation is based on based on competitive analysis development. Effectuators develops partnerships, alliance and further build up stakeholders pre-commitment from the very beginning of the action. The alliance is not develop after knowing the project or goal but it is develop from the beginning in order to eliminate the role of risk and uncertainty from the start. Thus stakeholders join the venture without knowing the future cost and opportunities. According to Sarasvathy “A bird in hand is worth two in the bush” (Sarasvathy, 2008, p.15). In short, products, firms and markets are developing by joint working in a partnership either with people or organization. Sarasvathy in her book “Effectuation” mentioned that causal logic is similar to “Porter model in strategic management: emphasizes on detail competitive analysis” (2008, p.88). Such analysis enhances understanding to know about competitor objective, his strategy, and resources. Thus competitor analysis is considered very important in the strategic planning. Hence, effectuation considers partnership to build up future, while causation focuses on competitive analysis to compete with one another.
4.“lemonade Principle”: “this principle suggest that acknowledging and appropriating contingency by leveraging surprise rather than trying to avoid them, overcome them, or adopt to them” (Sarasvathy, 2008, p.15). For an effectuator the un-expecting events and happening are considered as opportunities, thus contingencies are welcomed and not avoided. According to Sarasvathy “When life give you lemon make lemonade” (Sarasvathy, 2008, p.90). 22
Contingencies give opportunities and possibilities that can be completed interestingly and entrepreneur need to get hold on the emerging happenings rather than avoiding. In contrast the effectual logic is against the unexpected events because everything is planned and predetermined. For planned business contingencies may not considered as opportunities because it can increase risk and uncertainties and are considered errors. 5. “Pilot in the Train”: This principle focus on working practically rather than thinking theoretically. “It Urges to relying on and working with human agency as the prime driver of opportunity rather than limiting entrepreneurial efforts to exploiting exogenous factors such as technological trajectories and socio economic trends” (Sarasvathy, 2008, p.16). Both logics seek to control the future but with different approaches. “Causation focuses on the predictive aspect of an uncertain future, it says that the extent we can predict the future, we can control it” Sarasvathy (2008, p.91). While effectuation stands on” controllable aspects of un-predictive future” that is not planned. Thus future comes from what entrepreneur and his co partners want to decide and their commitments. Hence, effectuation logic here is “to the extent that we can control the future, we don’t need to predict it” Sarasvathy (2008, p.91). When the future is predicted may be it is not controlled, but when actions are controlled by means then future don’t need prediction.
3.3 Dynamic Model The dynamic model is presentation of the effectual mecahnism that illistrates the operation of effectual entrepreurship in creation of a venture (Sarasvathy & Dew, 2005,p. 543). In the dynamic model in Fig 6, the project starts questioning “who I am, representing entrepreneurial traits, abilities and resources, what I know, the knowledge corridor and whom I know” the social networks. With available means that are the information and resources lead an entrepreneur towards possible actions. Thus an entrepreneur is not searching for an opportunity but, utilizing their available means to create an opportunity. It further reaches to self-selected stakeholders who makes commitments on the venture and shares their knowledge, skills and increases the resources of the venture. Hence, this process is continuously developed with a network of stakeholders that later results into a new market, products or services. All the core principles of effectuation are applied at each stage of processing and the model repeats itself at the end with new means and resources.
Fig. 5, “Dynamic model of Effectuation”, by Sarasvathy (2008, p.101). 23
In contrast to the dynamic model, causal process begins with exploration and exploitation of the markets that are more predictable. Here entrepreneurs first explore the market and recognize or discover the market opportunities. It is â€œfollowed by a series of tasks to exploit the market opportunities. The standard set of causal tasks includes (a) developing a business plan based on (b) extensive market research and(c) detailed competitive analyses, followed by (d) the acquisition of resources and stakeholders for implementing the plan, and then (e) adapting to the environment as it changes over time with a view to (f) creating and sustaining a competitiveâ€? (Sarasvathy & Dew, 2005, p. 543).
3.4 Summary This chapter outlined the key prespectives that are going to inform the subsequent anlaysis. It developed and understading of decision making related to entrepreurial exptise: casuation and effectuation that are two contrasting logics involved in venture creations. The causation process is more predictive and rationally planed process where entreprure follow a certian rules, keep the goal clearer and abdopt possible means to reach that goals. While the effecutal process is based on non predictive control logic, where means are utalised to see what can be best possible produced rather then planning and predicting. Casuation follows kotlar priniciples of marketing and is considered to be more useful when the product idea is converged and business is devloped. Such convergens need no replication for further extenstion but need to scale the busniess. While effecutaion birngs people on bord and develops its own business opportunities and limit the associated risk by analysing each step if they can afford. Effectuation is based on the its own five priciples that keeps to shape the future rather then prediction. Hence both effectuation and causation are completly crotradictary logics on goal development, decisionmaking, market competition development and future unespected happenings. The principles that develops effecual logic sucessfully, seems to be errors or can be associated with risk and uncertainity in caual logic. Both logics play very important role in venture development and decision making. To know the best opstion one must know the pros and cons of each performance for the projects.
4 Review & Synthesis of BG Studies This chapter is composed of literature related to BGs and Internationalization models. It is divided in two parts the first part is related to data synthesis process, while the second part describes our theoretical framework for BGs that is developed by synthesizing data from the review of previous literature. Data is mainly categorized into distinguishing characteristics of BGs i.e Pace Scale and Pattern. The underlying factors giving rise to these distinguishing characteristics and the role of these factors in various developmental phases of BGs (Venture Creation, Internationalization and Post Internationalization).
Data synthesis “is the primary value-added product of a review as it produces new knowledge based on thorough data collection and careful analysis” (Grossan & Apaydin 2010, p.1157). Our data synthesis process was mainly comprised of three steps. Step one In first step, we analyzed collected data related to entrepreneurial perspectives and compiled our chapter related to entrepreneurial perspectives of Causation and Effectuation. All the data related to entrepreneurial perspective was generated from Saravathy published literature. While data obtained on internationalization was from several theories, models, and published articles. The next step was to organize the data systematically. For the same purpose we developed two chapters: chapter three based on causation and effectuation while chapter was based on the review and synthesis of BGs firm. The two chapter’s idea was to clearly explain the core areas individually and later make correlation. Thus, causation and effectuation were broadly explained theoretically and presented along with key four principles in tables and figures. Similarly the data generated from articles and theories of BGs were divided into mainly two dimensions, the internationalization processes, and the Born Globals. Internationalization processes explained all the previous models, trends and development in the internationalization process, while the second parts mainly focused on the internationalization of BG SMEs. Step two The second step was more critical and analytical, in which we reviewed previous literature related to BGs. In this step we developed a theoretical framework for BGs’s distinguishing characteristics of Pace Scale and Pattern. Although the criteria of Pace Scale and Pattern was already developed in few earlier studies But in this study we tried to make it more comprehensive by fetching data from several other articles finding its logical connections and then categorizing it to the defined categories. In order to raise the depth of our study we further categorized these characteristics into their sub categorize, which were composed of factors giving birth to these distinguishing characteristics. Data was further analyzed to find links towards role of these underlying factors in the development of BGs. Later based on relevance and logical connections, these links were categorized in different developmental phases of BGs (Venture Creation Internationalization and Post Internationalization). Step three In third step, data from first two steps was analyzed and interpreted in a way to find the logical connection between BGs and entrepreneurial perspectives. Our aim was to ultimately answer the research questions and fulfill the purpose of research. For the same purpose systematically developed literature from preceding chapters made it easier to conduct analysis of designed data. In the succeeding chapter all BGs distinguishing characteristics were allocated into three phases according to their similarities and properties. Thus, in the step three we developed two dimensions: causation and effectuation, and correlated each phase based on BG characteristics to see if these phases have links to effectuation and causation. Each phase was broadly explained and compared with effectuation and connections were developed. In the same way we approached to the last part of concluding comments obtain from analyzed data in order to answer the research question. 25
4.2 Methodology Description In order to precede our study and present data in coherent way, we followed Tranfield three stage processes that include planning, execution and reporting (Grossan & Apaydin 2010, p. 1157). In first stage of planning, we clearly formulated our research objectives and focused on relevant and significant data from Web of Science database. We aimed to develop a conceptual input, to generate knowledge about BGs, differentiate such firms based on distinguishing characteristics compared to traditional incremental internationalization and analyze them in terms of entrepreneurial perspective. We limited our search to most citied, highly reviewed and most recent articles. This systematic process for literature selection thus increased validity of the knowledge and showed potential in the field (Podsakoff et al, 2005). For the whole selection process, we followed Web of Science database, which provided a comprehensive coverage to the world papers and provides a meaningful data, based on its unique features and researcherâ€™s needs. This database made it easier to search for most citied, revived and recent articles along with proceeding and refining contents. In second stage we have five parts; the first three are related to data collection and organization, while the last two are more associated with processing and analysis. Thus the second part of data review includes, (1) Initial Selection Criteria, (2) Grouping Publication, (3) Data Compilation, (4) Data Classification and (5) Data Synthesis
4.3 Initial Selection Criteria: Key words and Search Terms To generate published information systematically, we focused on a comprehensive search to be unique from traditional way of searching information. â€œHowever, traditional 'narrative' reviews frequently lack thoroughness, and in many cases are not undertaken as genuine pieces of investigatory scienceâ€? (Tranfield, 2003, p.207). As internationalization is a wide topic and BGs is a form of internationalization, therefore, in order to be more systematic and specific, we developed our selection requirement. In this way, database was limited to Web of Science, and only business and management category as a subject area were selected. The basic keyword used for the initial search was Born Globals and its characteristics. For example, Topic = (Born Globalss), Refined by web of science categories = (Business). In order to get knowledge and understand the international phenomena, there was a need to read all-important articles titles and abstracts of BGs firms. So we did not put any further restriction at initial search. At first search, we found 400 samples of papers that develop a base for the rest of study, later on we further refined the search with BGs characteristics and other relevant areas.
4.4 Grouping Publication The core purpose of our research was to comprehend clearly the extensive literature related to the BG firms in order to develop a base for the study and to come up with some specific research area. Therefore, for a theoretical foundation we constructed four groups systematically. First group was based on articles reviews and meta-analysis, while the second selected group was based on citation criteria. In similar way, the third group was based on the most recent publications. We selected some books in-group four for a holistic view of the phenomenon because articles are published with a specific objective and not fully covering all areas. In group four we also followed some articles and books from Science Direct and university data base. In case of duplication, we focused on main themes of groups, regardless of the other group characteristics. For example, in group one, the subject was to collect all articles based on review or Metaanalysis, there might be some articles that were highly viewed and at the same time can 26
be highly cited, but we have to put them in group one regardless of their overlapping with group two. However, in other groups we eliminated the duplication as the papers were already selected in former groups.
4.5 Compiling the consideration Set In order to practically generate the available literature from Web of Science database we used two titles and two topics i-e Title= (Born Globals) OR Topic= (Born Globals) OR Title= (International New Venture) OR Topic= (International New Venture). Hence, a total number of 6837 results were obtained having Born Globals and International new venture in the topic or title. In order to condense this pool of data result into more specific context, we refined the search criteria to business and management literature. Thus, we obtained results 400 papers. Group 1: Review and Meta-analysis: In order to classify articles based on review and Meta-analysis we focused on the 400 refined articles for further purification. Again, we limited our search to only review and a total number of 39 papers were obtained. We did not include the rest of paper that were preceding papers, editorial material and book chapters. Group 2: Highly Cited Papers: Analysis based on citation validates quality of the research paper and takes part in knowledge contribution, generation and further development (Saha et al, 2003). As we started with title and topic search a total number of 6837 papers were obtained. Out of this big total result, 400 articles belonged to business and management area. For citation purpose, we considered 1992 as a base year and for highly citied articles in the last 20 years. The lower limit for citation was selected 10 to any higher value. Thus, we obtained a total number of 121 articles by excluding the books, preceding papers and editorials. These 121 were still complicated to generalize therefore we further reduced it by reading their titles and abstract in order to be more specific and decrease the overlap with group one. Group 3: Recent Papers: The citation and review methods for articles selection can be more subjective and favoring articles published years back or older ones. It can show biased result for the most recent articles as being published recently and not yet get citation and reviews. Thus, we formed a group representing recent publication because such publication explore new area in filed and discover new dimensions. Therefore, we obtained 125 articles published during 2010 until 2012. In order to reduce the number to be more specific, we eliminated the articles that were overlapping with other groups. Group 4: In group four we included books from Science Direct as required for a holistic view of the problem area, because articles are written with a specific purpose that limit other areas of interest. We obtained a total number of 10 books according to search criteria, and seven books were used in this study. We also followed research books from university library in order to be aware of research procedure, structure and laws of conducting pure theoretical research. In some situation, we needed to reach the primary source mentioned in secondary data so some articles were generated from Science Direct database. Group Initial Pool Business Filtered Abstract Related Analyzed Literature 6837 Group-1: 400 39 25 Highly Reviewed Papers 27
Group-2: Highly Cited Articles
Group -3: Recent Papers Group-4: Books Total
Table. 4, Paper distribution in each group.
Published articles on BGs and International New Venture. Derived from Web of Science Data base.
Chart. 2, The Pie chart shows the number filtered papers for different groups out of 400 papers that belong to business and management area from total pool of 6837 papers. 28
Chart. 3, The pie chart presents the analyzed papers contribution of each group.
4.7 Internationalization Processes Internationalization related to SMEâ€™s can be viewed as a holistic approach by focusing on different theories and models. It is not important to follow a single approach for internationalization process; firms can follow some parts from different theories to develop its internationalization process. Hence, there is no generally acceptable model that can assure an SMEâ€™s successful international operation. Several approaches have been developed, but our study will focus on the main areas that captured international importance. Therefore, the main areas i.e. the Stage Models, International New Ventures Theory and Network approach will be explained to get an overview of internationalization.
4.7.1 Stage Models Vermon in 1960s developed three-stage model based on product lifecycle and international trade. He suggested that new products are produced in home countries because of domestic environmental favorability and awareness of market trends that encourage innovation. After local market success, the products are lunched internationally by exporting. As the company gets maturity in the local market and the product obtain international orientation due to standardization and increase in demand, the company focus on huge production to get economy of scales. While In the maturity stage, companies approach to low advanced countries for foreign direct investment to further minimize the production cost and new international markets links to explore. This theory showed how product could be locally produced and gradually moved internationally with cost minimization (Vermon, 1966, p.190-207). Second stage model was developed by Johanson and Vahle (1977) and is based on the behavioral approach of a firm. It has similarity with Vermon stage model. In both cases firm initially get experience in domestic market and then internationalize incrementally. In Uppsala model, the mechanism is based on the gradual internationalization with 29
process of increasing market commitment and knowledge. It focus on four stages of internationalization i-e (1) No regular export, (2) Export via Agent, (3) Sales subsidiary and finally (4) Production unit in foreign market. The core assumption of Uppsala model was lack of knowledge about foreign market trends and culture that increase psychic distance and result in barriers to international operations. More attention is given to individual host country’s international involvement that is closer and has fewer barriers. However, this study fell short to explain the rapid internationalization process of firms as Uppsala model was based on incremental increase (Bell, 1995; Madsen & Servais, 1997; Urbano &Vilant, 2005). “Further, the incremental and sequential approach is deterministic and path dependent and does not recognize the role of other firm’s profile factors such as the path-breaking strategic choices of internationallyoriented entrepreneurial owner-managers that leads to accelerated internationalization” (McDougall, Shane, & Oviatt, 1994; Knight & Cavusgil, 1996)( cited by (Weerawardena, et al., 2007, p.295).
4.7.2 Uppsala Revisited Model Johanson & Vahlne (2009), made changes in Uppsala model due to valid criticism based on changes in technological environment and new trends in businesses. The revisited model explained that, business environment is based on network relationship and opportunities are grabbed of being a part of that network that increases liability of insider-ship of a firm. The liability of outsider-ship and individualism will increase psychic distance resulting in uncertainty and risk. They also included trust and knowledge as core elements of international operation (Johanson & Vahlne, 2009, p.411-431). The model has not made clear, the idea of accelerated internationalization growth from inception. It has provided a good knowledge for incremental internationalization for decreased level of risk and uncertainty through knowledge and network relations. Yet it does not fully describe the rapid international business idea. They suggested existence of an incremental learning and responsive model, which is based on pre-existing relationship (Freeman et.al, 2009, p. 70).
4.7.3 Networking Theory Johanson & Mattsson (1988) focused on internationalization as a networking relationship inside a business environment; a firm has to develop relation with actors including suppliers, distributers, and customers inside a network. In this way a network relationship, provide opportunities of access to foreign market and resources. Networking relation takes place in three stages i.e. extension, penetration and integration. In extension the firm looks for new markets relation development, while in penetration it focus on increasing commitment with already existing relation in established markets, lastly in integration; a firm make analysis of its overall relation and position in all countries. Network model was further divided in four categories: Early Starter Period, where the internationalization is at lower scale because a firm has low international relation with low awareness and less foreign market knowledge. Such lower relation, where a firm has fewer opportunities and high risk, can be reduced by hiring an agent with international market knowledge and experience. In second stage, which is “Lonely International” stage where firm has competency on domestic market even it is internationalized. Firms have experience and knowledge but still involve in the process of knowledge development. In third stage “The Late Starter”, the firm is internationalized but it have indirect relationship with actors for example the distributer and suppliers relationship etc. in this stage the psychic distance can create barriers to fully internationalize in more complex markets. While in last stage “The International 30
Among Others” the firm has good knowledge of foreign market, it has its own subsidiaries and it looks for other markets, (Johanson & Mattsson , 1988, pp.303-321).
4.7.4 International New Ventures or Born Globals (INV) Both stage models failed to explain the concept of rapid internationalization right from inception. Oviat and Mcdougall defined International new venture as “business organization that, from inception, seeks to drive significant competitive advantage from the use of resources and the sale of output in multiple countries” (Oviatt & Mcdougall, 1994, p. 49). “Several terms have been used to refer to these firms: international new ventures (McDougall et al., 1994; Oviatt & McDougall, 1995), Born Globals (Knight & Cavusgil, 1996; Madsen & Servais, 1997), Born International SMEs (Kundu & Katz, 2003), or, more generally, Early Internationalizing Firms (Rialp et al. 2005a), (cited by Rialp et al., 2010, p.109). Oviat and Mcdougall developed a framework explaining existence of international new ventures. This framework is based on four elements i.e. “(1) Organizational formation through internationalization of some transactions, (2) Strong Alliance on alternative governance structures to access resources (3) Establishment of foreign location advantage, and (4) Control over unique resources” (Oviatt & McDougall, 1994, p.45). Despite of high prevalence and new insight in internationalization theory, no model has been able to clearly explain INV approach (Spowart & Wickramasekera, 2009, p.08). There are concern that “how the rapid internationalization process of INVs is to be explained” (Oviatt & McDougal), because INV approach still lacks an extensive explanation form literature (Moen, 2002, Rialp, Urbano, & Vaillant, 2005) (cited by Spowart & Wickramasekera, 2012, p.68).
4.8 Theoretical Framework for Bon Global Several studies have been conducted to define and explain the rapid pace of internationalization or BGs. Most of these studies have highlighted distinguishing characteristic and the specific operational activities of BGs. Oviatt and McDougall defined BG on the basis of global vision from the inception, international experience and strong network relationships (1995, p.34-39), Knight and Casugil, argued global vision, innovative culture, International experience and Knowledge as the key factors for success in the international markets (2004). Madsen and Servais focused on general background and growth related characteristics of BGs that are assumed to be based on entrepreneurial experience, degree of internationalization of the market, niche market focus, and market selection in association with entrepreneurial past experience of economic activities and customer knowledge. They further stated that, BGs firms need additional distinctive competency that is derived through hybrid structure. Some of the other important characteristics mentioned are, firm’s innovative skills towards research and development, partnership development and collaboration in new markets. While a commonly identified basic reason for international movement is small structure of domestic markets (Madsen & Servais, 1997, p. 561-583). Despite of high research work and identification of different characteristics, still the literature lacks an integrative framework, which can incorporate all the distinguishing characteristics and factors that most of BGs exhibit during the process of internationalization. Moreover, the critical relationship between, the low resources and question of how and why BGs firms internationalize; is also highly dependent on the context of a firm’s industry and external environment. After reading, several article and research studies we have tried to develop our own conceptual framework in which we have tried to encompass most of the distinguishing and critical factors, characteristics and phenomena that BGs exhibit. Pace Scale and 31
Pattern, are the most commonly agreed basic distinguishing characteristics of BGs, which differentiate them from other internationalized SMEs. We have further enriched our knowledge with identification of several underlying factors and process that give rise to these characteristics and the role of these factors in development of these distinguishing characteristics is discussed. Then this role is divided into phases of PreStartup (Venture Creation), Pre Internationalization and Post Internationalization. In this study, our focus will be on these distinguishing characteristics and the exhibition of these characteristics will be generalized as a BGs phenomenon. Sacale
Figure. 6, Self Developed Firm Distinguishing Characteristics
4.9 Internationalization Pace Pace is the core characteristic that differentiate BGs from a traditionally internationalized firm. Pace actually represents the time taken by a firm from inception to entry into a foreign market (Taylor & Jack, 2012, p.03). The pace between traditional and BGs firm varies in intensity and pattern. Traditional firms tend to focus on the domestic market first and then expand incrementally to the markets that are considered close in terms of psychic distance (Bell & Naughton 2000, p.176). BGs differentiate in terms of pattern and time taken for this process. Different researchers has different point of view towards the pace of a firmâ€™s internationalization to be classified as a BG firm. For a firm to be categorized as BG, existing literature has a wide range for pace. This is internationalization right from inception to eight years from inceptions. Several factors are argued to affect the internationalization pace of a firm. Some of these are described below.
Factors Affecting the Pace of BGs 4.9.1 Entrepreneurial Orientation Motivational drivers like vision, knowledge, and experience are some of the factors identified to develop the pace of a firm. Hagen and Zucchel have taken special interest in entrepreneurial orientation of BG firms, because such firms are held by individuals or a few members. An international entrepreneur is considered an individual: who possess the ability to take risk, having global vision with unique innovative ideas and proactive behavior. Hence for a BG firm, key additional driver are the entrepreneurial global vision and commitment to international operation from the beginning of the firm development (2011, p.487). Madisen and Servais mentioned more characteristics including the level of previous international experience, educational level and previous background (Hagen & Zucchel, 2011, p.487). Thus commitment, creativity, risk taking, innovative ideas ambition for new venture creation, educational level, ability to take risk, global vision with unique innovative ideas, international experience, proactive behavior are some of the characteristics which describe the entrepreneurial orientation of the founders of BG firms (Rialp et al, 2009, 114; Hagen & Zucchel, 2011, p.487). Effect of entrepreneurial orientation on different phases of BGs is given below. Pre-start up and new venture creation phase: 32
As described by Gabrielsson et al at the formation of a BGs company, unique skills of the founders are principal resources of a firm (Gabrielsson et al.2008, p. 385). An entrepreneur’s prior knowledge can explain how they discover entrepreneurial opportunities, including international opportunities (Evers et al., 2011, p.550). Prior knowledge and experience are the two key determinants for discovery of opportunities and the process is highly influenced by them. Work experience, personal events and education results in prior knowledge, which can be developed through a number of different roles. It results in a unique ‘knowledge corridor’, for every individual and this knowledge will determine the entrepreneurial opportunities that he will exploit (Venkataraman, 1997, p. 122). Management contacts, customer contacts and suppliers’ contacts positively developed during the international experience impact on the level of foreign market knowledge (Evers et al., 2011, p.550) Knowledge about markets, ways to exploit and serve these markets and the knowledge about customers and their problems are certain different types of prior knowledge, which are important to the discovery of international opportunities. It is further argued that awareness of these foreign market opportunities provides the motivation and is a crucial antecedent to the internationalization process (Evers et al., 2011, p.550). International opportunities can be identified through active and passive search along with specific knowledge, experience awareness and understanding of the market (Karra et al., 2008, p. 448). Prior work experience is often measured as number of years working overseas but mere exposure to the international arena is not sufficient for the development of a deep understanding of markets. Rather managers develop a deep understanding of foreign markets when they have worked in these markets, or when they are required to spend considerable time overseas. (Evers et al., 2011, p.550) Pre Internationalization Phase (Internationalization Preparation): According to Crick and Spence (2005), not only opportunity recognition but also the alertness and exploitation mechanism also really matters. Thus, the perception and reaction to serendipitous and contingent opportunities is also necessary for successful international entrepreneurship (Dimitratos & Jones, 2005). Entrepreneur’s prior international and overseas work experience results in this prior consciousness and entrepreneurs develop international relationships on the basis of these experiences. (Evers et al., 2011, p.550). International opportunity identification, institutional bridging, preference and a capacity for cross-cultural collaboration are the desired entrepreneurial capabilities required for successful entrepreneurship (Karra et al., 2008, p. 446). Institutional bridging is related to, the gap between local and international markets that can be overcome through, “(1) knowledge about potential customers and their buying behavior, so the product and services can be customized to local needs (2) Cultural knowledge about norms and practices that underpin commercial transaction and (3) knowledge of the legal and regulatory environment, both formal and informal” (Karra, et al., 2008, p.448). Whereas the last capability related to crosscultural collaboration is based on the social relation development through network development and building up alliance (Karrae et al., 2008, p.448). In pre internationalization phase of a firm where founder or founding team has some international experience probability of developing unique products having a global market potential is high (Gabrielsson et al.2008,p. 385). All the mentioned key features are considered the means for a global firm to look and to avail these opportunities by the involvement of stakeholders and acquisition of required resources (Hagen & Zucchel, 2011, p.487). Therefore, we can say that distinctive and sophisticated entrepreneurial orientation of decision makers and entrepreneurs allow them to exploit opportunities that others overlook (Rialp, 2009, p.112) 33
Post-internationalization phase 1 (Early international Entry-development) According to Gabrielsson, global vision and effective commitment are the two necessary and sufficient conditions for continuance as a successful BG (Gabrielsson et al.2008, p. 391).The entrepreneurial orientation of the founders helps in developing networks and accessing resources in a post internationalization stage as well (Hagen & Zucchel, 2011, p.487). Subsequently it further affects the overall international growth of BGs. (Evers et al., 2011, p.550).
4.9.2 Firm’s Internal Resources Internal environment of an organization include internal resources like labor, capital, technology, knowledge, property rights. It also includes structures, routines and processes that are required to support firm’s activities (Hagen & Zucchel, 2011, p.487). Pre Internationalization Phase (Internationalization Preparation) Firm’s internal resources are the critical inducers of a firm, towards internationalization. Availability of internal resources facilitates an SME to enlarge its scope from local to international market and encourage the rapid internationalization. While the firm capabilities, which refer to the firm’s ability to utilize its resources effectively, are embedded in a firm’s processes and routines and, together with the firm’s resources they form distinctive competencies (Hagen & Zucchel, 2011, p.487).
4.9.3 Innovation Normally a firm has major concern on “innovation, production and market management capabilities” that utilize the tangible resources and develop value and competency for the firm that further help in opportunities identification (Hagen & Zucchel, 2011p.487). Pre Internationalization Phase (Internationalization Preparation) Examination of a business idea or strategy, by which a company identifies and exploit a market opportunity, organizes its value chain, select areas to be internationalized, and defines ways to reach potential customers is crucial” (Hagen & Zucchel,2011p.487). Innovation is considered a key approach, by utilizing resources and taking risk to search gap in international market firm is able to conduct operations (Hagen & Zucchel, 2011p.488). Firms with strong innovation culture and a proclivity to pursue international market tend to internationalize earlier as compared to other internationally oriented young firms lacking innovation (Taylor and Jack, 2012, p. 04). An entrepreneurial behavior of searching opportunities and involvement of ecommerce to generate ideas and avail opportunities develop competitive advantage that create internationalization options” (Hagen & Zucchel, 2011p.487). Post-internationalization phase (Early international Entry-development) As the BGs offer unique innovative products and services that are not yet on the market, so it reduces the chances of a direct competition (Gabrielsson et al.2008, p. 391).
The external market factors are considered to have a moderate effect on the international operations. It includes the trends in the market, the market condition and the role of technological developments (Hagen & Zucchel, 2011, p.489). Several enabling and motivating factors further stimulate and accelerate the process of internationalization (Taylor & Jack, 2012, p.4). Entrepreneurial decisions based on these factors influence the speed of internationalization by interpreting these enabling and motivating forces and acting upon them. Oviatt and McDougall (2005) propose that 34
entrepreneurs act as interpreters to both the enabling and motivating forces of accelerated internationalization (Oviatt & McDougall, 2005).
4.9.5 Motivating Factors Motivating factors include market conditions like; competition, domestic regulation institutional structure and its features (Oviatt and McDougall, 2005). According to Taylor and Jack, the size of the domestic market also matters. It affects both the frequency of internationalization as well as the time taken from inception to internationalization (Taylor and Jack, 2012, p.4). Pre Internationalization Phase (Internationalization Preparation) These factors encourage entrepreneurs to enter markets quickly, either to capitalize on technological opportunities, or react to the presence (or potential presence) of competitors (Oviatt and McDougall, 2005). If the size of the domestic market is sufficient the chances will be low for a firm to internationalize and similarly firm belonging to smaller insufficient markets are expected to internationalize more and early. The hostility of the domestic market adds to the firmâ€™s internationalization (Taylor & Jack, 2012, p.4).
The advancement of information and communication technology, developments in transportation, manufacturing and production has increased. That resulted in alliance development internationally and to remain inside networks. It can be assumed that technological development affects the scope and the pace of international activities (Hagen & Zucchel, 2011, p.489).
Pace Entrepreneurial Orientation External Factors Internal Factors
Fig. 7, Self Developed, Factors Affecting the Pace of BGs Pre Internationalization Phase (Internationalization Preparation) New production technology has implied that small-scale operations may also be economically sound. Now a days, by the improvement of information technologies accessing world market is less costly and more convenient (Rialp et al, 2010, p.116). Small firms can communicate globally through internet while the role of information technology is diminishing the psychic and cultural barriers so far discussed in basic internationalization literature. Thus, internet is the critical factors that can decrease the distance between countries and has increased the liability of insider ship (Hagen and Zucchel, 2011, p.489). Therefore, technology intensiveness, information, communication, technologies (internet) and transport can be classified as enabling factors for internationalization. These factors help in faster and more efficient shipping and airline routes. Improvements in digital technology enable firms to have enhanced forms of communication and increased transportation efficiencies for their products (Taylor & Jack, 2012, p.4; Oviatt & McDougall, 2005). 35
4.10 Scale of Internationalization The survival and growth of BGs is largely dependent on selling their innovative products worldwide. In spite of limited resources, operating in specific market niches (i.e. high-technology market segments) and set of distinctive competencies, they need to establish more flexible and dynamic international business operations rapidly from inception which make them capable to compete with larger and long-established competitorâ€™s abroad (Madsen & Servais, 1997; McAuley, 1999) ( cited by Rialp et al., 2010, p.112). Internationalization scale is related to the extent of a firmâ€™s international operations and can be judged in two dimensions, (1) the firm turnover from its operation in a foreign market and (2) the number of market where a firm penetrates. There is no mentioned criterion regarding these two dimensions that can clearly distinguish a BG from a traditional firm. Some studies have used acquisition of 25% of total turnover from foreign markets, for a firm to be called a BG, while entry into multiple countries is usually regarded as Born Global-ness of an SME. Pace of Firm Internationalization Scale of International Market Selection Pattern of International Market Expansion Innovative Culture and Entrepreneurial Drive Rapidity and Extent of Firm Internationalization Choice of Markets Entry Mode Choice Size and Maturity of Domestic Market
Fig. 8, Key distinguishing factors of BGs: by Taylor and Jack (2012, p. 06)
Factors Influencing the Scale of Internationalization 4.10.1
BGs firms are usually comparatively new and seek to grow. They do not have developed embedded routines or inertial constraints so they are flexible in terms of their business model. While traditional firms are more rigid and these constraints can limit older, more established firms (Taylor & Jack, 2012, p. 04). Post-internationalization phase (Early international entry development) We can say that, the earlier a firm internationalizes, the faster it seems to grow. By entering markets sooner, young firms have a learning advantage of newness that enables them to identify and take advantage of opportunities better than those who internationalize later (Taylor & Jack, 2012, p. 04). As explained by Rialp some companies can quickly and efficiently respond to continuously changing environment and challenges. These firms react more rapidly, ensure the most proper adaptation and have operational flexibility. These changes provide opportunities as well and by capitalizing on these opportunities, certain companies are able to become competitive global players in a relatively short period (Rialp et al, 2010, p.116).
4.4.2 Organizational learning and collaboration BGs across several industries found that a significant relationship existed between the time before a firm exported, and the number of markets that it entered (Taylor & Jack, 2012, p. 04). The extent of the firmâ€™s preparedness for globalization is dependent on the organizational learning and resources, while a BG learns from its partners and the channels and/or network (Solberg, 2005). Pre Internationalization Phase (Internationalization Preparation) The social and business networks serve as a continuous source of learning. Interaction with them results in a lot of information sharing which helps in analyzing both national and international market conditions, which ultimately helps in organizational strategy making (Aldrich & Zimmer, 1986; Oviatt & McDougall, 1994). The development of such business and social networks reduce companyâ€™s dependence on their own limited resources and, establishment of international links increase and accelerate their tendency to internationalize (Jones, 1999). The rapid and wide development of these networks enables them to achieve global reach quickly and provide simultaneous access to multiple foreign markets alike (Chetty & Campbell-Hunt, 2004). Post-internationalization phase (Early international Entry-development) In case of BGs early internationalizing helps firms to develop knowledge and routines that enable them to enter additional foreign markets quicker and earlier (Taylor & Jack, 2012, p. 04). These inter organizational relations; also help to overcome the so-called liabilities of newness, smallness and foreignness that characterize this type of firms (Autio et al., 2000). Although BGs usually operate in an uncertain environment but this information gathering through these networks makes it less confusing (Rialp et al, 2010, p.116). Such relationships are becoming especially important among newly or recently internationalized firms and a typical born-global early and rapid international expansion is being conceived a result of this continuous, interactions between these organizations and their international networks of foreign suppliers, intermediaries, distributors, customers, competitors (Coviello &Munro, 1995; Sharma & Blomstermo, 2003; Andersson & Wictor, 2003; Angdal & Chetty, 2007; Gabrielsson et al., 2008).
Pattern of internationalization
Pattern of internationalization refers to, choice of international market and choice of entry mode (Taylor & Jack, 2012, p. 04). Entry mode in BGs is a subject that is not significantly emphasized in literature. Usually exporting is considered, as a common entry mode for BGs. Less resources and strategic flexibility are the two usually described underlying reasons for selecting export as entry mode. By exporting BGs are able to evolve foreign markets in a cost effective way, which also help them to change their approaches accordingly (Taylor & Jack, 2012, p. 05)
Factors Influencing the Pattern of Internationalization 4.51 Human and Organizational Character In some studies entry mode of BGs firm is found to be characterized by its human and organizational character (Gleason & Wiggenhorn, 2007: Rialp, 2007). As the founders and entrepreneurs have a great influence on a BG firm. Their international entrepreneurial orientation and innovative approach to take advantage of advanced technologies give rise to successful BGs (Madsen and Servais, 1997). Pre Internationalization Phase (Internationalization Preparation) 37
Now a day a large number of individuals are obtaining international education that result in increased mobility across nations. Persons having this international orientation prove to be high potential employees and managers with skills to establish advance and more developed alliances in international markets. They have good international exposures, standard business knowledge and enough ability to interact and negotiate with companies from other cultures. Therefore, human resource is becoming an important factor in BGs and more or less these improved abilities are becoming a basic technical requirement to take advantage of opportunities offered by new technologies in production, communication and transport (Rialp, et al., 2010, p.113). Past experiences, current ambitions, and motivation levels of the company’s leaders, employees and managers are becoming more and more important and influence the important operational and entry mood decision (Madsen & Servais, 1997). It means knowledge intensity related to a specific market make it closer in terms of its psychic distance (Gleason & Wiggenhorn, 2007, p.322).
4.5.2 Corporate Culture and Environment Characteristics of the management team, firm’s specific environment and cultural similarity can result in more advanced entry moods like joint ventures and acquisitions (Taylor & Jack, 012, p.05). It can be argued that, BGs firms also appear to minimize the relevance of psychic distance in strategic decisions related to market entry (Taylor & Jack, 2012, p. 05). Pre Internationalization Phase (Internationalization Preparation) Corporate Cultural similarity affects mode choice and more closed market, favors firms to announce joint ventures, rewarding them with significantly positive abnormal returns” (Gleason & Wiggenhorn, 2007, p.322). It has been argued in the literature that, the BGs with innovative corporate cultures in knowledge-intensive industries may not follow a psychic distance based entry mood approach. Their knowledge intensiveness, industry conditions and innovative products may allow them to prevail over cultural distance (Autio et al., 2000; Bell et al., 2001; Knight & Cavusgil, 2004). Even in these special industries, human resource plays an important role. Senior managers are able to use their established networks to connect to lead markets and enable access to key foreign customers and suppliers. New partners can be involved as stakeholders to complement firm’s competency with their own competencies. The empirical evidences where this kind of firm’s strategy completely discount the psychic distance are not so evident (Taylor & Jack, 2012, p.05). Difference in Internationalization Behavior Traditional Firms
Motivation to Internationalize
Reactive Adverse home market condition Unsolicited/enquiries orders Reluctant Management Cost of new production processes Force export initiation
proactive Global niche markets Committed management International from inception Active search
Firm survival/growth Increasing sales volume Gaining market share Extending production life-cycle
Competitive advantage First-mover advantage Locking-in customers Rapid penetration of global
International Expansion ppatterns
“born again” global
niches or segments Protecting and exploiting Proprietary knowledge
Domestic expansion first
Focus on psychic markets Low-tech/less sophisticated Markets targeted
Near-simultaneous domestic and export expansion (exporting may precede domestic market activity Focus on lead markets Evidence of client Followership
Limited evidence of networks
Strong evidence of network
Gradual Slow internationalization (small number of export markets)
Rapid Speedy internationalization (Large number of export Markets) Many markets at once Global new production developments
Single market at a time Adaption of existing offering Method of Distribution/ Entry Mode
Conventional Use of agents/distributors or Wholesalers Direct to customers
Ad-hoc and opportunistic Evidence of continued reactive behavior to export opportunities Atomistic expansion with Unrelated new customers/markets
Flexible Use of agents or distribution but also Evidence integration with clients Channels, use of licensing, joint Ventures, overseas production, etc Structured Evidence of a planned approach to International expansion Expansion of international networks
Table. 6, Bell and McNaughton (2000, p.179)
Link to Causation & Effectuation
This chapter focuses on analysis of already developed and structured data to search appropriate answers to research question. Data is analyzed in connection with Born Globals’ distinguishing characteristics, underlying factors and their relation with entrepreneurial perspectives of Causation and Effectuation Data Presentation In this section the data will be presented in a way to show the role of Effectuation and Causation in development of Pace Scale and Pattern at developmental phases of 39
(Venture Creation or Pre startup, Pre Internationalization and Post Internationalization) of BGs
Link to Effectuation 5.1 Pre-startup or Venture Creation Phase Role of Entrepreneur According to Sarasvathy, at given means an entrepreneur is most knowledgeable of how to utilize given means and what effect to produce, (2008, p .49). “If means are available then entrepreneurs have not to wait for opportunities, opportunities are created by working with things, that are in control and people who want to help co create it, one don’t need to worry about predicting the future, determining the perfect timing or finding the optimal opportunity” (Read et al, 2011). Similar observation about the role of an entrepreneur in BGs is evident where entrepreneur act as an interpreter of different factors and produce specific effects, which result in greater Pace Scale and informal Pattern of internationalization.
Bird in Hand Principle If we analyze the importance of entrepreneurial orientation in the Pre- Startup or Venture Creation phase. It corresponds to Bird in Hand Principle of Effectuation, that focuses on means (Who am I? What do I know? Who do I know?). Where entrepreneurs emphasizes and focus on creating something new with existing means, rather than discovering new means to achieve some predetermined goal (Sarasvathy, 2008, p.15). It is a more action based principal which say that, Instead of waiting for the opportunity and right time we should act and create an opportunity. However, the action should be in connection with possible available means to create that opportunity. ”Who I am”, consists of stable traits, abilities and attributes of the effectuator” (Sarasvathy, 2008, p .49). Which in BGs correspond to; commitment, creativity, risk taking, innovative ideas, ambition for new venture creation, ability to take risk, global vision with unique innovative ideas and proactive behavior. “What I know” includes entrepreneur’s education, experience and expertise (Sarasvathy, 2008, p .49) which In BGs represents; entrepreneur’s prior knowledge international experience and expertise. Knowledge about markets, ways to exploit and serve these markets, knowledge about customers and their problems, cultural knowledge about norms and practices that underpin commercial transaction and knowledge of the formal and informal legal and regulatory environment “Whom I know refers to entrepreneur social networks; the effectuator’s pool of resources” (Sarasvathy, 2008, p .49). In BGs, it corresponds to Management contacts, customer contacts and suppliers’ contacts, developing networks and accessing resources. As, In case of a BG where an entrepreneur already has a prior international experiences, and knowledge the first thing required for opportunity recognition will be an awareness of the availability of these resources. This awareness combined along with a cognitive approach of using them to generate a particular effect can give rise to the idea of BG. This cognitive approach will be highly dependent on personal traits and characteristics of an entrepreneur. International knowledge and experience, self-awareness, cognitive approach personal traits of the entrepreneur and a perspective to make use these availabilities can result in inception of BGs. In companies where this Effectuation process starts before creation those, become BGs from inception. On the other hand, this Effectuation approach can also develop in later stage of a firm and can be triggered by some other elements like external environment (market conditions like; competition, 40
domestic regulation institutional structure and its features) or motivating factors. These motivating factors encourage entrepreneurs to enter markets quickly, either to capitalize on technological opportunities, or react to the presence (or potential presence) of competitors (Oviatt & McDougall, 2005). This is very much in line with Lemonide principle and thus these companies decide to go global at that time.
5.2 Pre Internationalization Phase (Internationalization Preparation) Crazy Quilt and Affordable loss Principles In order to exploit that recognized opportunity the firm can use its internal resources like labor, capital, technology, knowledge, property rights etc. It also includes structures, routines and processes that are required to support firm’s activities (Hagen & Zucchel, 2011, p.487). In case of deficiency of these resources firm can go for making alliances and partnership. Enabling factors like advancement of information and communication technology, developments in transportation, manufacturing and production helps in formation of these alliances (Hagen & Zucchel, 2011, p.489). This alliance formation is a measure of Effectuation. “Expert entrepreneurs build partnerships with self-selecting stakeholders. (Effectual Entrepreneurial Program, Internet). These alliances not only provide additional resources but they also provide further knowledge to select serve and exploit markets. There are several different kinds of alliances for example, alliances that are built during prior international experience and there are alliances that are built in the local markets. The interaction with these alliances and networks results in generation of several different kind of knowledge. This knowledge help reduce uncertainty. By obtaining pre- commitments from these key partners early on in the venture, experts reduce uncertainty and co-create the new market with its interested participants” (Effectual Entrepreneurial Program, Internet) while entrepreneur’s prior knowledge is already there, which further helps in institutional bridging, preference and cross-cultural collaboration (Karra et al. 2008, p. 446). This knowledge not only helps in organizational strategy making but also helps to increase the scale of a firm (Aldrich & Zimmer, 1986; Oviatt & McDougall, 1994). This knowledge intensiveness makes markets closer in terms of psychic distance. In some case, industry conditions and innovative products may also allow some BGs to prevail over cultural distance (Autio et al., 2000; Bell et al., 2001; Knight & Cavusgil, 2004). This can result in advance entry modes like joint ventures and acquisitions (Taylor & Jack, 2012, p.05). Therefore, BGs with innovative corporate cultures in knowledgeintensive industries may not follow a psychic distance based entry mood approach (Knight & Cavusgil, 2004). The development of such business and social networks reduce company’s dependence on their own limited resources and, establishment of international links increase and accelerate their tendency to internationalize (Jones, 1999). The rapid and wide development of these networks enables them to achieve global reach quickly and provide simultaneous access to multiple foreign markets alike (Chetty & Campbell-Hunt, 2004). Effectuation focuses on strategic alliances and pre commitment to involve stakeholders to create synergic effects like, reducing uncertainties, increased capabilities and resources (Sarasvathy, 2001, p.252). This Innovation in opportunity identification, area to be internationalized, selection of markets and reaching customers, helps to reduce direct competition. This is very much in line with Crazy Quilt principal of Effectuation that suggests, “Entrepreneurs are not supposed to be puzzled with development of a competitive strategy or “opportunity
cost”. They are supposed to develop partnership with stakeholders who are ready for “actual commitment” (Sarasvathy, 2008, p.15).
5.3 Post Internationalization phase Crazy Quilt and Lemonade Principles The alliances and networks built in Pre internationalization Phase or earlier, also help in Post internationalization phase as well. Although at the beginning of operations in an international market BGs usually operate in an uncertain environment but this information gathering through these networks makes it less confusing (Rialp et al, 2010, p.116). These inter organizational relations and network and alliance help firms to overcome the so-called liabilities of newness, smallness, and foreignness that characterize this type of firms (Autio et al., 2000). As the BGs offers unique innovative products and services that are not yet on the market, so it reduces the chances of a direct competition (Gabrielsson et al.2008, p. 391) which is again in connection with Crazy Quilt Principal. BGs are usually newly born companies. They learn quickly have good exposure of international market at an early age and then change their business model and routines accordingly. This is very much in line with lemonade principal of Effectuation that states that, “embrace surprises that arise from uncertain situation, remaining flexible rather than tethered to existing goals” (Dew et al 2011). This experiential learning results in some general internationalization knowledge as well, which ultimately help in internationalization in other countries. The entrepreneurial orientation of the founders in developing networks and accessing resources in a pre-internationalization stage continuous in post internationalization phase as well (Hagen & Zucchel, 2011, p.487). Link to Causation Based on the above discussion we can say that Effectuation and its principle can explain BGs and its phases of (1) Pre startup and New Venture Creation Phase (2) Pre Internationalization Phase (Internationalization Preparation (3) Post Internationalization Phase 1 (early international entry - development) Therefore, we will consider BGs as an Effectual process which is contrary to Causation and further analysis to find out the role or possibility of Causation or finding optimal mix will not be conducted. Further studies can be conducted to see the role of Causation in Post Internationalization Phase 2 (International Growth and Consolidation).
This chapter provides outcomes obtained from the analyzed data to answer the research problem with new conceptual model. In addition, it provides study contribution, managerial implication and further research suggestions. Effectuation and its principal explains BGs, while distinguishing characteristic of Pace Scale and Pattern came into existence due to the effectual interpretation of several underlying factors by an entrepreneur. This is their Effectual perspective that provides greater pace, scale and informal pattern to BGs. BGs in general and Pre startup phase in particular are highly influenced by the entrepreneurial orientation of their founder or mangers acting as entrepreneurs. Their entrepreneurial perspective of Effectuation combined along with their prior international knowledge and experience give rise to the idea of BGs that is in line with Bird in hand principle of Effectuation. Triggering effect of motivating factors in opportunity creation or recognition is in line with lemonade principal. In Pre Internationalization Phase making of alliances, acquisition of resources, innovation, accumulation of knowledge is in line with Crazy Quilt principal. Formation of these alliances is also explained by affordable loss principle. In Post internationalization Phase 1, Lemonade Principle explains business model flexibility. While effect of prior and new alliances is again in line with Crazy Quilt principle which helps BGs in terms of liability of newness and outsider-ship.
6.1 Revised Conceptual Model Our revised conceptual model starts with highlighting distinguishing characteristics of Pace Scale and Pattern. All these characteristics developed Born Globals and identified from incremental firms. The identification of pace was mainly based on the speed of international operation from inception to foreign market entry. Secondly, scale was based on the level a firm internationalize and the number of markets where it penetrates. Lastly, pattern was based on the choice of international market and choice of entry mode. All these characteristics were explained by their associated factors thatâ€™s comes in the effectuation area. In the model the highlights of these underlying factors, giving rise to Pace Scale and Pattern and contribute to Three Phases of BGs development. These are Venture Creation or pre startup Phase, Pre Internationalization Phase and Post Internationalization. The relationship of these underlying factors towards distinguishing characteristics and BGs phases are linked according to similarities and roles. Thus when effectuation explains the factors simultaneously it also contributes to the pace scale, pattern and phases of BGs Internationalization. Factors contributing to BGs characteristic and internationalization phases are as follows. Pace Pace is first the distinguishing characteristic of a BG firm, it represent the time taken by a firm from inception to entry into a foreign market. In our study findings it depends on: Entrepreneurial Orientation, Firm Internal Resource, Innovation, Motivating Factors and Enabling Factors erosion. Scale
Scale is the second characteristic that is related to the extent of a firmâ€™s international operations. It is depends on: Business Model and Organizational learning and Collaboration play. Pattern Pattern is the third BG distinguishing character that refers to the choice of international market and choice of entry mode of a BG firm. According to our study it depends on: Human and Organizational Character, Corporate Culture and Environment Venture Creation or startup Phase This phase is the early stage ideation from inception to the creation of new Born Global firm. According to our research findings it is more influenced by Entrepreneurial Orientation Pre Internationalized Phase Pre Internationalized Phase is related to preparation for international operations. This according to research findings this phase is influenced by Entrepreneurial Orientation Firmâ€™s internal resources, Innovation, Motivating Factors, Enabling Factors, Organizational Learning and Collaboration, Human and Organizational Characters and Corporate Culture & Environment. Post Internationalization Phase Post Internationalization Phase is related to early international entry development and expansion. According to our study it is influenced by Entrepreneurial Orientation Innovation Organizational Learning and Collaboration, and Business Model Role of Entrepreneurial Perspective is elaborated
Ef f e c t u a t i o n Pre startup Pre-Internationalization Post Internationalization Entrepreneurial Orientation Motivating Factors Enabling Factors Corporate Culture and Environment
Pace Pattern Scale Organization Learning and Collaboration Human and Organizational Character
Fig.9, Conceptual Model Effectuation can appropriately explain BGs. Effectual perspective of entrepreneur gives rise to distinguishing characteristics of Pace, Scale and Pattern. 45
Firm Internal Resources Innovation
6.2 Contribution of our study Most of the previous studies conducted earlier were mainly focused on the entrepreneurial perspectives involved in startup phase of Bon Globals. In this study, we have analyzed the role of entrepreneurial perspective in the whole longitudinal process of BGs. This objective was achieved by developing a framework comprising the distinguishing characteristics of Pace Scale and Pattern. Although this criteria of distinguishing characteristics was already developed in literature. But by identification of the underlying factors which give rise to these distinguishing characteristics and by analyzing the role of these factors at various developmental phases of BGs. We have produced a rather comprehensive theoretical framework. Building of this theoretical framework itself is a contribution to the existing literature. This theoretical framework will also be useful in building a Phase model for BGs. With the identification of underlying factors their role and linking it to developmental phases and entrepreneurial perspective, we have produced a new level of understanding of BGs. In general, this study will strengthen the literature in the field of BGs, SME Internationalization and Entrepreneurship.
6.3 Managerial Implications The conclusions drawn from this study has some practical implementations for Small and Medium Sized Firms. This study will help entrepreneurs having limited resources to overcome their perceived lack of competence and will encourage them to better internationalize with their limited resources. This study can also guide entrepreneurs towards internationalization in risky and uncertain environments. It gives an insight to understand the use of effectual decision and control the uncertainties through networking. This study also highlights and increases the awareness about role that entrepreneur can play in BGs in general and in international opportunity identification, creation and exploitation in particular. It also helps in strategy formation in terms of Pace Scale and Pattern in SMEâ€™S internationalization. This study can help formulate strategies for knowledge acquisition in SMES. It can provide a better understanding in terms of alliances and their role in internationalization. Our research will help policy makers, government agencies and investors in the field of international entrepreneurship.
6.4 Future Research The study that we have conducted is a pure theoretical study. Conducting a similar study with empirical results will be interesting. An interview guide to conduct an empirical study is attached in the appendix. In this study, we have introduced some new factors giving birth to distinguishing characteristics to Pace Scale and Pattern. Further studies to clarify the relationship between these factors and the skills they produce will provide more clarity in terms of their validity and the boundaries of their role. This role was also linked to developmental phases of BGs. A study conducted with an objective to validate this role and define its boundaries in terms of these phases will generate new knowledge. Based on the explanation provided in this study, formation of a stage/phase model for BGs will be a good contribution to existing knowledge. Our study has only covered first three phases of BGs. A similar study to analyze the role of underlying factors in Post Internationalization Phase2 (Internationalization Development and Consolidation) will be interesting. Similarly, the role of entrepreneurial perspectives in Post Internationalization Phase 2 is also not known and can be discussed to strengthen the existing knowledge. Further studies specifically focused on post internationalization 47
conditions and transformation for BGs requiring change in entrepreneurial perspectives will be a matter of greater interest. After explanation with Effectuation, the Causation perspective was not discussed in detail. A study conducted with an intention to only see the role of Causation in BGs will further clarify the results of our study.
This section will examine the quality criteria of our research study, thus for the concerned matter we will evaluate a specific criteria that is used for a qualitative research. In this way for our study we will follow Guba (1984) and Lincoln (1994) four primary criteria for qualitative research assessment. Such criteria are considered alternative for validity and reliability used in quantitative research (Bryman & Bell, 2007, 411). Thus, the quality criterion includes creditability, transferability, dependability and conformability.
7.1 Creditability According to Herbst and Coldwell (2004, p.124), “credibility refers to the extent to which the study is carried out according to known and accepted research procedures”. We believe that higher creditability will increase our research acceptability to other peoples because we followed all the known procedures according to the canon of good practice (Bryman & Bell, 2007, 411). We used scientific methods to collect data systematically and then synthesized it in logical connections that are clearly explained in methodological section, so we can say that our research is high in terms of credibility.
7.2 Transferability Transferability criteria shows the extent to which obtained result can be replicable if another author carries the same research in similar situation (Gass & Mackey, 2005, p. 368). As in the methodological section, we have used a scientific approach and then clearly explained the methods used for data collection and synthesis. Therefore, we can say that the transferability in this case is high and it is possible to follow the similar methods in similar conditions.
7.3 Dependability According to Bryman and Bell (2007, p. 414) Guba (1984) and Lincoln (1994) developed dependability criteria in order to set the merits of trustworthiness, a “researcher should adopt an auditing approach” (Bryman & Bell, 2007, p.414). The auditing approach “entails ensuring that, complete records are kept of all phases of the research process” (Bryman & Bell, 2007, p.414). By clear explanation of research structure, data collection methods and data synthesis, we have kept the proper record of procedure followed to conduct the research. Further, a list of references was provided to highlight the sources that were used to construct this research. These sources are also available on the database that was used to collect them. Therefore, we can say that our research is highly dependent.
Conformability can be referred as, “the researcher has determined the accuracy or credibility of the findings through specific strategies” (Stonner, 2010, p.28). As In our study, the findings are derived from existing literature and a cognitive approach is used. Thus, these findings will require further empirical studies to be fully confirmed. Therefore, we can say that our research is low in terms of conformability.
7.5 Authenticity The major authenticity provided by our study is fairness authenticity, (Bryman & Bell, 2007, p.414). We have used existing literature, from a database “Web of Science”. Further by explaining the limitations of our research and by collecting data through a systematical procedure and synthesis, we have tried to preserve the element of fairness in our research. Further, we kept only authentic information for theory development and processed only authentic information in analysis part. Thus, we are confident about the authenticity of our attained results.
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Appendix Questionnaire regarding Inception Can you please briefly describe your business idea? How many owners are there and what are their qualification and experiences? How much time did you spent on planning before starting your business? Did you made proper business plan for your business? Did you started business on the basis of available resources or you first developed some specific goal and then focused on resources to achieve that goal? Was there some specific background (In terms of knowledge and experience) which helped owner to identify business opportunities? What was your general approach, did you followed low cost and low loss consideration, or you focused on high return? What were the important decision that you have to take at the beginning and three most important / biggest challenges / obstacles that needed to be "solved" before starting? How confident you were about your business and what you did to lower the risk and increase chances of success?
Did the firm tried to involve stakeholders at the beginning or later stages? What was the reason behind it? Was there any pre-planned criterion that was followed? How their involvement affected the development of firm? How the early recruitment was done? Did you use specific criteria regarding the recruitment of managers or employees? Personal Orientation Tell me about the idea / ambition to go international - Was built already when the company began? How the idea aroused in their/your minds? How and why did you identify international market as an opportunity? What will you say about the personal motivation and vision of the owners, managers or staff? Moreover, how it has affected the firmâ€™s internationalization? How many of them have already worked overseas? How their previous experience, previous knowledge resources and networks affected the firm? Did you hire/hired some specific employees because of being Global in a Specific market? Did the recruitment of some employees lead to internationalization in any specific market? Firm How will you differentiate your organization from other organizations, what are your competitive advantages and core competencies? What are your key competencies and competitive advantages? Internal Environment What role your internal resources have played in your internationalization and how you have used them? Labor, capital, technology, knowledge, and property rights structures, routines and processes? How will you describe innovation in terms of product processes and business model? Did you develop it from the beginning or if it was a result of your experiential learning over time? External Environment Did you considered the local market first and if not, then why not? Was there any role of local market conditions? i.e. market trend/technological development/size of the market/competition/regulation/institutional structure/business scope/opportunity How was your approach towards, Information and communication technology, developments in transportation, manufacturing and production processes? Did they played significant part in your success? Or you have to improve them later on Scale and Entry Mode In how many markets you are operating now? how much of your total turnover you make from foreign market operations. What was your strategy or criteria for international market selection? Was it your resources that lead you to a specific foreign market or you conducted a proper market research and developed a target market plan? Were there any competencies that you specifically developed before operations in a specific market? What entry mode your firm has used and why? What were the determinants of entry mode choice? What will you say about elements of risk and uncertainty in those markets and how did you tackled them?
How much was the institutional gap between local and foreign market and how did you overcome that gap? Did you thought about, the cultural gap? How did you managed to overcome that gap? How did you dealt with geographic distance? e.g. travel, exhibitions, internet, mail or telephone? Were there any cases where you decided to internationalize in an unplanned market and why? How did you dealt with larger established firms abroad? Did you, developed alliance or competed with local businesses on the bases of your competencies? Or focused on niche markets? Was there any experience from some markets that helped you to enter into other markets? What changes you have made to your organizational structure or business model since you have gone international? What were the reasons behind those changes? Were there any specific competencies that you developed after operations in a specific market i.e based on your learning? Do you think that setbacks can occur and they are more informative for the business to learn for mistakes or you do not accept setbacks and mistakes?