DISCUSSIONS AND CONCLUSIONS
This is one of the first longitudinal studies of the relationship between internationalization strategy and the survival of SMEs in the export market. Our unique sample includes all Canadian exporting SMEs and an average firm size of 20 employees. Our results suggest that born-global and born-regional firms were smaller and less productive than gradual internationalizers when they began to internationalize. Based on a conventional analysis, it would seem that born-global firms have the lowest survival rate in the export market, followed by born-regional firms. Firms that gradually internationalize have the highest export market survival rate. After endogenizing firm strategic choice, however, we find no significant differences between these three internationalization strategies with respect to their effect on survival. These results suggest that small new ventures, similar to larger firms (Mudambi & Zahra, 2007), are rational and efficient in choosing the internationalization strategies that best fit their resource base. As such, export promotion agencies and financial institutions should not underestimate management capability and the growth potential of small entrepreneurial firms.
These results also advance our knowledge by presenting a more nuanced perspective on internationalization strategies based on the distinction between the born-global and born-regional strategies. We thus contribute to the discussion regarding internationalization strategies by showing that the born-regional strategy, such as the born-global or gradual internationalization strategy, may only be optimal for certain types of firms, that is, those that have the necessary resources and capabilities to effectively pursue the specific strategy.
More generally, our results contribute to the ongoing debate in international business research regarding endogeneity of internationalization strategy. If we had not controlled for endogeneity, our study would have produced significantly different results and led to the conclusion that born-global firms and born-regional firms have significantly lower chances of survival than gradual internationalizers. Studies of performance outcomes of different internationalization strategies should control for endogeneity.
Contributing to the role of resources in the INV context, our results show that firm slack and innovation resources facilitate firm survival in the export market. Our findings support previous studies that argue that survival abroad is resource dependent (Mudambi & Zahra, 2007). We also advance those studies by showing that internationalization strategy moderates the function of firm resources for export market survival. Consistent with our hypotheses, we show that resources are significantly more important for the survival of born-globals than for other strategies. Our results suggest that born-globals face increased liabilities of foreignness compared with other strategies. This makes them prone to failure and increases their demand for slack and innovation resources that can be utilized to adapt to turbulent environments. Therefore the bornglobal strategy may lead to a greater growth potential for certain types of firms but also requires significantly more resource input to survive than other internationalization strategy types. This is consistent with the study of Pedersen and Shaver (2011) that argued for a “big step” of initial internationalization. We demonstrate that to take such a big step earlier in firm’s life cycle, slack and innovative resources are required to survive in international environments.
We show that high levels of innovation are particularly important for born-global firms, followed by born-regional firms. We find that the ability to acquire adequate resources during internationalization will be critical to the survival of born-globals in the international market. Previous studies have shown that innovation (Golovko & Valentini, 2011) is positively related to firms’ internationalization. We corroborate and advance these studies with our results by suggesting that innovation is not only a driver of early internationalization but also an important factor for survival in the international environment. In particular, firms that venture into foreign markets soon after inception (i.e., born global and born-regional firms) require such intangible resources to adapt efficiently to demand changes and the cultural and institutional plurality of international markets. Because they cover a wider spectrum of countries, born-global firms, in particular, require innovation to adapt their products to multiple and diverse market conditions. Gradual internationalizers operate in less risky and turbulent environments because they step incrementally into foreign markets and can draw on experiential learning. Although our findings largely concur with previous research on born-globals, our study also indicates that the underlying mechanisms for the positive relationship between innovativeness, productivity and international success might not be based only on the enhanced learning effects from early internationalization; in addition, selection bias may also account for this relation.
Early internationalizing firms might have been found to be more innovative than other firms
(Knight & Cavusgil, 2004) because those early internationalizers who were not innovative and productive enough did not survive and therefore could not be observed in cross-sectional studies. Thus the remaining firms are more innovative then others, but not only because they learned more from their enhanced operations but also because the chances of survival were stronger. Thus innovation resources are not only important to become a successful early entrant into foreign markets but also to stay alive in the foreign market. Our study thus highlights the necessity for studies on learning in the international domain that employ longitudinal data. In sum, our study indicates that there is no simple answer to the question as to whether a firm should pursue a born-global, a born-regional or a gradual internationalization strategy. Our results underscore the importance of considering a firm’s slack and innovation resources as contingencies in answering this question. Firms thus must reflect on their resource base and whether it is suitable for a targeted internationalization strategy. Thus the outcomes of this study may provide helpful information to exportoriented SMEs. Managers of SMEs should not rush into rapid internationalization; instead, they should choose an internationalization strategy that is consistent with the firm’s resource building strengths. The results of this study may also be relevant to policymakers who design and implement export promotion programs to assist SMEs. Policymakers should not try to influence firms’ internationalization strategies without understanding their resources and capabilities; policies should help firms acquire sufficient financial support and develop innovative capabilities.
This study has limitations that suggest interesting avenues for future research. Although we believe that our sample of Canadian exporters has numerous advantages because it allowed us to utilize multiple large-scale databases, this approach limits our investigation to the internationalization of SMEs from one developed country. Firms from other countries (e.g., emerging economies) may have different strengths in facing the challenges of sustaining their international activities. Future studies should attempt to construct longitudinal databases that cover multiple countries. Moreover, we examine firms’ overall export market survival rather than their survival in individual foreign markets. Although our approach to measure export market survival is consistent with previous studies (Efrat & Shoham, 2012; Mudambi & Zahra, 2007), we also understand that internationalization is a complex process, and each commitment to a foreign market affects a firm’s activities in other markets. We partially account for potential difference in export market entry and exit decisions among heterogeneous firms by including sector, province, year and export region dummies into our analyses. Future studies might attempt to examine the relationship between survival and expansion into multiple international environments simultaneously and advance the understanding of survival in different environments. Although we used multiple procedures to account for endogeneity and to thoroughly address the limitations of the different approaches by (1) combining different approaches and (2) by performing multiple robustness checks, it should be noted that endogenizing holds several limitations such as the choice of exogenous variables or the use of exogenous variables in multiple stages. More research on endogeneity and on variables choice in the INV domain is therefore required in the future. Previous studies have also argued for the duration dependence of internationalization activities (Mudambi, 1998; Pedersen & Shaver, 2011). In the context of SME survival in the export market, future longitudinal studies might study the extent to which a longer commitment to a specific region affects the survival of firms in this region. In this context, we also require further studies on small and young firms’ FDI and how different FDI strategies affect firm survival (Chang & Rhee, 2011).