Network Influences
Networking is a powerful tool for the entrepreneur (Dubini & Aldrich, 1991), and network analysis has been a powerful framework for international entrepreneurship researchers (Bell, 1995; Coviello & Munro, 1995, 1997; Oviatt & McDougall, 1994). Focusing on the personal and extended networks of the entrepreneur and his/her management team, several studies challenging traditional models of internationalization have drawn upon network theory. For example, a comparative study of export behavior among entrepreneurial software firms in Finland, Ireland, and Norway led Bell (1995) to conclude that the network approach was a better explanation of the internationalization process of these firms. McDougall et al. (1994) explained that networks helped founders of international new ventures, or born-globals, to identify international business opportunities, and those networks appeared to have more influence on the founders’ country choices than did their psychic distance. Oviatt and McDougall (1995) identified strong international business networks as one of the seven most important characteristics of successful global start-ups. Servias and Rasmussen (2000) found that networks were important to the majority of the Danish firms in their study, although Rasmussen, Madsen, and Evangelista’s (2001) case studies of five Danish and Australian born-globals did not find support for the importance of the founder’s network. Finally, much of Coviello and Munro’s international entrepreneurship research has used network theory to examine international market development and marketing-related activities within international markets. Based on the findings of their study of the internationalization processes of New Zealand software firms, Coviello and Munro (1995) noted:
Our understanding of the internationalization processes of entrepreneurial firms is enriched when we expand the analysis beyond the individual firm’s actions and address the impact of a firm’s role and position within a network of relationships. From this perspective, foreign market selection and entry initiatives emanate from opportunities created through network contacts, rather than solely from the strategic decisions of managers in the firm. . . . it is not surprising that the observed patterns of international market growth for entrepreneurial high-technology firms differ from the processes of the larger manufacturing firms outlined in the literature. Their relatively rapid and dispersed involvement in foreign markets creates the impression of being random and somewhat irrational, when in fact the span of activities can be linked to opportunities emerging from a network of relationships. (p. 58)
In summary, networks help entrepreneurs identify international opportunities, establish credibility, and often lead to strategic alliances and other cooperative strategies. Our model in Figure 1 depicts network relationships as a moderating influence on the speed of internationalization. After an entrepreneurial actor discovers or enacts an opportunity and perceives the technologies that enable internationalization and the competitors that motivate it, the entrepreneur uses established network links that cross national borders to explore where and how quickly the opportunity can be exploited in foreign locations. We believe there are three key aspects of such networks that moderate the speed of internationalization: (1) the strength of network ties, (2) the size of the network; and (3) overall density of the network.
In formal network analysis, the actors are called nodes and the links between them are called ties. Aldrich (1999) identified two types of ties. Strong ties between nodes, or actors, are durable and involve emotional investment, trust, reliability, and a desire to negotiate about differences in order to preserve the tie. Entrepreneurs are most dependent upon strong ties at start-up, and because strong ties require considerable investment and maintenance, their number for any individual entrepreneur rarely exceeds 20, and is more often in the range of 5 to 10. Because of their small number and the investment required, we believe strong ties are not the most important type for internationalization.
Weak ties are. They are relationships with customers, suppliers, and others that are friendly and business-like. Weak ties are far more numerous than strong ties because they require less investment. Their number can grow relatively quickly, and they are important because they are often vital sources of information and know-how. Especially important are weak ties with brokers. Brokers are nodes in a network, or actors, who are tied to nodes that are not tied themselves. In other words, brokers establish ties between actors who, without the broker, have no link to each other. Thus brokers enable indirect ties. In international business, brokers often provide links across national borders between actors who want to conduct international business with each other. For example, suppose a Swiss consultant handles the sale to a French buyer of equipment produced by an Italian manufacturer. The consultant is, therefore, in the role of a broker establishing an indirect tie between the Italian manufacturer and the French buyer.
In our model (Figure 1), entrepreneurial actors with an opportunity (enabled by technology and motivated by competition) and with an existing broker or brokers who can help tie them indirectly to other actors in a foreign country have the ability to engage in international business very soon after discovering or enacting the opportunity. Of course, it is also possible that the entrepreneurial actor has existing direct ties to other actors across national borders that do not rely on the indirect ties that brokers provide. In either case, we believe the existence of cross-border weak direct or indirect (i.e., brokered) ties can positively and significantly moderate the speed of venture internationalization. If an entrepreneur already has such ties when he or she discovers or enacts an opportunity, the initial foreign entry may occur with unusual speed. If the ties are yet to be established, internationalization is likely to be slowed.
Following from the above logic, the more direct or indirect cross border weak ties that an entrepreneurial actor has established, the greater the potential country scope of internationalization and the greater possible speed for increasing that scope. Thus, the size of an entrepreneurial actor’s network is the second key aspect (after tie strength) that will moderate the speed of internationalization. As depicted in Figure 1, larger entrepreneurial networks are associated with faster venture internationalization and more rapid increases in country scope. Furthermore, with a large network in place, a relatively large portion of venture revenue comes rapidly from foreign sources, and the venture, therefore,has more rapid commitment to internationalization.
The third and final key moderating aspect of entrepreneurial networks is density. While sparse networks are especially good at gathering new information, dense networks are useful when trust and reciprocity are vital. Actors are said to have sparse networks when the nodes to which they are tied are, for the most part, not tied to each other. For example, if a German new venture has a link to two businesses in the United States, but
those businesses have no ties to each other, then the network of the German venture is less dense than it would be if the two U.S. businesses were directly linked in some way. Sparse networks are believed to produce new information better than dense networks because the sparse networks link disparate nodes while the dense networks link nodes through redundant ties. For example, if the two U.S. businesses mentioned above sell to distinctively different product markets and have no ties to each other except their individual links to our German venture, the German venture has a chance to learn information about both markets. Alternatively, if the two U.S. firms sell to each other in addition to those distinctive product markets, then the German venture has redundant links through which it may get information about both U.S. firms and the markets that they serve. In summary, the redundant links of a dense network are believed to be inefficient at producing unique information. Sparse networks are believed to be more efficient.
The redundant links of dense networks, however, have the advantage that there are more links and, therefore, more interaction among all the actors in the network. Thus, monitoring of behavior is more efficiently accomplished and reputations are more quickly communicated to all actors in the network. Business behavior regarded as illegitimate in a dense network is quickly detected, widely known, and punished. Thus, trust is stronger in a dense network than in a sparse one because there are penalties for opportunistic behavior. Indeed, dense networks can be seen as a partial substitute for strong ties across national borders. Density engenders trust among network actors linked by weak ties, but the trust is established by the monitoring potential in a dense network rather than by the emotional investment present in strong ties. Since successful international business operations are dependent upon reliable interaction among actors in multiple foreign countries, dense cross-border networks provide relatively efficient support for internationalization. Entrepreneurial actors who have already established such networks can internationalize rapidly.
Network Influences
Networking is a powerful tool for the entrepreneur (Dubini & Aldrich, 1991), and network analysis has been a powerful framework for international entrepreneurship researchers (Bell, 1995; Coviello & Munro, 1995, 1997; Oviatt & McDougall, 1994). Focusing on the personal and extended networks of the entrepreneur and his/her management team, several studies challenging traditional models of internationalization have drawn upon network theory. For example, a comparative study of export behavior among entrepreneurial software firms in Finland, Ireland, and Norway led Bell (1995) to conclude that the network approach was a better explanation of the internationalization process of these firms. McDougall et al. (1994) explained that networks helped founders of international new ventures, or born-globals, to identify international business opportunities, and those networks appeared to have more influence on the founders’ country choices than did their psychic distance. Oviatt and McDougall (1995) identified strong international business networks as one of the seven most important characteristics of successful global start-ups. Servias and Rasmussen (2000) found that networks were important to the majority of the Danish firms in their study, although Rasmussen, Madsen, and Evangelista’s (2001) case studies of five Danish and Australian born-globals did not find support for the importance of the founder’s network. Finally, much of Coviello and Munro’s international entrepreneurship research has used network theory to examine international market development and marketing-related activities within international markets. Based on the findings of their study of the internationalization processes of New Zealand software firms, Coviello and Munro (1995) noted:
Our understanding of the internationalization processes of entrepreneurial firms is enriched when we expand the analysis beyond the individual firm’s actions and address the impact of a firm’s role and position within a network of relationships. From this perspective, foreign market selection and entry initiatives emanate from opportunities created through network contacts, rather than solely from the strategic decisions of managers in the firm. . . . it is not surprising that the observed patterns of international market growth for entrepreneurial high-technology firms differ from the processes of the larger manufacturing firms outlined in the literature. Their relatively rapid and dispersed involvement in foreign markets creates the impression of being random and somewhat irrational, when in fact the span of activities can be linked to opportunities emerging from a network of relationships. (p. 58)
In summary, networks help entrepreneurs identify international opportunities, establish credibility, and often lead to strategic alliances and other cooperative strategies. Our model in Figure 1 depicts network relationships as a moderating influence on the speed of internationalization. After an entrepreneurial actor discovers or enacts an opportunity and perceives the technologies that enable internationalization and the competitors that motivate it, the entrepreneur uses established network links that cross national borders to explore where and how quickly the opportunity can be exploited in foreign locations. We believe there are three key aspects of such networks that moderate the speed of internationalization: (1) the strength of network ties, (2) the size of the network; and (3) overall density of the network.
In formal network analysis, the actors are called nodes and the links between them are called ties. Aldrich (1999) identified two types of ties. Strong ties between nodes, or actors, are durable and involve emotional investment, trust, reliability, and a desire to negotiate about differences in order to preserve the tie. Entrepreneurs are most dependent upon strong ties at start-up, and because strong ties require considerable investment and maintenance, their number for any individual entrepreneur rarely exceeds 20, and is more often in the range of 5 to 10. Because of their small number and the investment required, we believe strong ties are not the most important type for internationalization.
Weak ties are. They are relationships with customers, suppliers, and others that are friendly and business-like. Weak ties are far more numerous than strong ties because they require less investment. Their number can grow relatively quickly, and they are important because they are often vital sources of information and know-how. Especially important are weak ties with brokers. Brokers are nodes in a network, or actors, who are tied to nodes that are not tied themselves. In other words, brokers establish ties between actors who, without the broker, have no link to each other. Thus brokers enable indirect ties. In international business, brokers often provide links across national borders between actors who want to conduct international business with each other. For example, suppose a Swiss consultant handles the sale to a French buyer of equipment produced by an Italian manufacturer. The consultant is, therefore, in the role of a broker establishing an indirect tie between the Italian manufacturer and the French buyer.
In our model (Figure 1), entrepreneurial actors with an opportunity (enabled by technology and motivated by competition) and with an existing broker or brokers who can help tie them indirectly to other actors in a foreign country have the ability to engage in international business very soon after discovering or enacting the opportunity. Of course, it is also possible that the entrepreneurial actor has existing direct ties to other actors across national borders that do not rely on the indirect ties that brokers provide. In either case, we believe the existence of cross-border weak direct or indirect (i.e., brokered) ties can positively and significantly moderate the speed of venture internationalization. If an entrepreneur already has such ties when he or she discovers or enacts an opportunity, the initial foreign entry may occur with unusual speed. If the ties are yet to be established, internationalization is likely to be slowed.
Following from the above logic, the more direct or indirect cross border weak ties that an entrepreneurial actor has established, the greater the potential country scope of internationalization and the greater possible speed for increasing that scope. Thus, the size of an entrepreneurial actor’s network is the second key aspect (after tie strength) that will moderate the speed of internationalization. As depicted in Figure 1, larger entrepreneurial networks are associated with faster venture internationalization and more rapid increases in country scope. Furthermore, with a large network in place, a relatively large portion of venture revenue comes rapidly from foreign sources, and the venture, therefore,has more rapid commitment to internationalization.
The third and final key moderating aspect of entrepreneurial networks is density. While sparse networks are especially good at gathering new information, dense networks are useful when trust and reciprocity are vital. Actors are said to have sparse networks when the nodes to which they are tied are, for the most part, not tied to each other. For example, if a German new venture has a link to two businesses in the United States, but
those businesses have no ties to each other, then the network of the German venture is less dense than it would be if the two U.S. businesses were directly linked in some way. Sparse networks are believed to produce new information better than dense networks because the sparse networks link disparate nodes while the dense networks link nodes through redundant ties. For example, if the two U.S. businesses mentioned above sell to distinctively different product markets and have no ties to each other except their individual links to our German venture, the German venture has a chance to learn information about both markets. Alternatively, if the two U.S. firms sell to each other in addition to those distinctive product markets, then the German venture has redundant links through which it may get information about both U.S. firms and the markets that they serve. In summary, the redundant links of a dense network are believed to be inefficient at producing unique information. Sparse networks are believed to be more efficient.
The redundant links of dense networks, however, have the advantage that there are more links and, therefore, more interaction among all the actors in the network. Thus, monitoring of behavior is more efficiently accomplished and reputations are more quickly communicated to all actors in the network. Business behavior regarded as illegitimate in a dense network is quickly detected, widely known, and punished. Thus, trust is stronger in a dense network than in a sparse one because there are penalties for opportunistic behavior. Indeed, dense networks can be seen as a partial substitute for strong ties across national borders. Density engenders trust among network actors linked by weak ties, but the trust is established by the monitoring potential in a dense network rather than by the emotional investment present in strong ties. Since successful international business operations are dependent upon reliable interaction among actors in multiple foreign countries, dense cross-border networks provide relatively efficient support for internationalization. Entrepreneurial actors who have already established such networks can internationalize rapidly.
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