Internationalization strategy, firm resources and the survival of SMEs in the export market
Abstract
Does “born-global” internationalization enhance or threaten a firm’s chances for survival in the export market? Despite the ongoing debate about born-global firms, we know little about what drives their survival in the export market. In particular, different theories yield conflicting predictions regarding whether born-global internationalization is superior or inferior to born-regional internationalization or gradual internationalization. Analyzing a longitudinal data set (from 1997 to 2005) of 1959 newly established Canadian small- and medium sized enterprises (SMEs), we show that no single strategy is superior per se but that internationalization strategy moderates the relative importance of resources to SMEs’ survival abroad. Although resources are important for the survival of all SMEs, the relative importance of slack resources and innovation resources are most important for born-global firms followed by born-regional firms, and are the least important for gradual internationalizers.
INTRODUCTION
Born-global firms, sometimes called “international new ventures” (INVs), have been described as “companies that from or near foundation, obtain a significant portion of total revenue from sales in international markets” (Knight & Cavusgil, 2005: 15). Although born-global firms have attracted significant research attention (Autio, 2005; Jones, Coviello, & Tang, 2011) that has emphasized their ability to achieve considerable foreign sales early in their evolution (Autio, Sapienza, & Almeida, 2000) with limited resources, little is known about the continuing ability of these firms to remain active in international markets and about the types of resources that determine their survival abroad (Keupp & Gassmann, 2009; Sapienza, Autio, George, & Zahra, 2006; Zahra, 2005). As Kuivalainen, Sundqvist, Saarenketo, and McNaughton (2012: 449) note: “there is still a paucity of empirical research on whether accelerated internationalization (or another internationalization path) plays a role in determining long-term survival, success and/or growth. The few studies that have investigated this, report contradictory or ambiguous findings (e.g., Bloodgood, Sapienza, & Almeida, 1996), are based on small samples (e.g., Gabrielsson, Kirpalani, Dimistratos, Solberg, & Zucchella, 2008), or focus on a limited number of pathways (e.g., Mudambi & Zahra, 2007)”.
The dominant theoretical approaches in the field – the internationalization process model (IPM) (Johanson & Vahlne, 2009), the INV framework (Oviatt & McDougall, 1994) and the regionalization hypothesis (Rugman & Verbeke, 2007) – result in significantly different predictions regarding which internationalization strategy is most beneficial for the export market survival of small- and medium sized enterprises (SMEs). The IPM implies that born global internationalization endangers a firm’s survival in the export market because such firms do not have sufficient time to learn about foreign markets well, which increases their probability of failure (Figueira-de-Lemos, Johanson, & Vahlne, 2011). According to the INV framework, firms may profit from a born-global strategy by exploring and capitalizing on international opportunities and by exploiting certain learning advantages that accompany newness (Autio et al., 2000). The regionalization hypothesis postulates that rapid internationalization is possible but that such development will be most valuable if revenues are restricted to coming from the firm’s home region to diminish the liability of foreignness (Rugman & Verbeke, 2004). This theoretical discord makes it imperative that researchers empirically examine the implications of different internationalization strategies for firm survival.
In this study, we investigate the effect of different internationalization strategies (born-global, born regional and gradual internationalization strategies) on the export market survival of SMEs. We show that, in addition to internationalization strategy, firm slack resources and innovation resources determine INVs viability in the international market. Firms that are better able to acquire adequate resources during internationalization are more likely to sustain their export market activities. Several studies highlight the importance of resources to the survival of INVs. Sapienza et al. (2006), for example, argue that the ability to shift resources is important to the survival of young firms because the uncertainty inherent in unknown foreign environments can generate unexpected requirements to adjust established routines and capabilities. Firms with more fungible resources are better able to adapt their routines, which allows them to better react to environmental changes and bolsters their survival chances abroad.
In a parallel vein, we propose that, although firm specific resources are important for the export market survival of all SMEs per se, the relative importance of slack resources and innovation resources is contingent upon which internationalization strategy is employed. Compared with other more incremental internationalization approaches, a born-global firm will have greater demand for resources to prevail in international markets. Born-global firms require slack resources and innovation resources more urgently for their survival than other internationalizing SMEs because the twin liabilities of newness (Stinchcombe, 1965) and foreignness (Hymer, 1976) are particularly strong for born-global firms, entering multiple foreign environments at an enhanced speed. For this aggressive internationalization, born-globals have to establish business routines and learn about their multiple markets at the same time, in order to overcome the “shock of entry” (Carr, Haggard, Hmieleski, & Zahra, 2010: 184) effectively.
By contrast, the export market survival of gradually internationalizing firms will be the least dependent on slack resources and innovation resources compared with born-global and born-regional firms. The liabilities of newness and foreignness do not adhere that strongly to gradually internationalizing firms because these firms enter foreign markets sequentially and can more easily learn from their own operations and build experiential knowledge. Accordingly, their survival in the international environment will be less dependent on slack resources (Chang & Rhee, 2011) and innovation (Shrader, Oviatt, & McDougall, 2000). In this study, we further sharpen the understanding about the impact of resources on the survival of INVs and show that resources are an important boundary condition for the functionality of different internationalization strategies regarding international market survival.
Our study provides three important contributions to understanding SME survival abroad.
First, by observing the effect of different internationalization strategies on the survival of SMEs in the export market, we underscore the strategic-choice rationale and find strong empirical support for the notion that firms self-select into a fitting strategy. Based on the foreign direct investment (FDI) activity of 275 UK firms, Mudambi and Zahra (2007) find that employing a born-global strategy has no direct impact on firm survival. Based on this finding, that study proposed that the firms in its sample were able to decide efficient strategies during the process of internationalization. In our study, based on the export activity of all Canadian SMEs, the results suggest that neither the born-global nor born regional strategy has a statistically significant effect on firm export market survival.
Therefore we further demonstrate that small, new ventures firms are as rational as large firms; they are able to pursue strategic choices and decide upon the optimal internationalization strategy that best fits their resource endowment and environmental conditions.
Second, we differentiate previous studies on internationalization strategies by introducing the born regional strategy into our analysis. Previous studies either focused on a single strategy (Efrat & Shoham, 2012) or compared only born-globals and gradual internationalizers (Mudambi & Zahra, 2007). We turn to more recent notions that show that bornregionals employ a distinct type of internationalization strategy (Lopez, Kundu, & Ciravegna, 2009), which might better balance the risks and benefits of early internationalization.
Our third contribution lies at the intersection of internationalization strategies and resources.
Although no single internationalization strategy dominates other strategic approaches under every condition, we demonstrate that internationalization strategies are an important moderator for a firm’s survival and firm resources. Firm resources not only directly affect a firm’s survival and its strategic self-selection but also interact with a firm’s applied internationalization strategy. In contextualizing the firm resources–survival link through internationalization strategy, we add to previous studies on born global firms and suggest how SMEs might better sustain their international activities with different internationalization strategies. This is an important advancement in the current understanding because it suggests that although small, new ventures are able to internationalize early with limited resources, it is particularly critical for born-global firms to acquire adequate resources during the internationalization process to survive abroad.
The data set used to examine our research questions is taken from the administrative databases produced by Statistics Canada. The sample includes all Canadian small- and medium-sized manufacturers that had at least one shipment to a foreign market between 1997 and 2005. Combining this unique data set with empirical analyses that control for possible sample selection bias and endogeneity, we provide a valid and reliable
สนับสนุนกลยุทธ์ ทรัพยากรของบริษัท และความอยู่รอดของ SMEs ในตลาดส่งออกบทคัดย่อไม่สนับสนุน "เกิดสากล" เพิ่ม หรือคุกคามโอกาสของบริษัทเพื่อความอยู่รอดในตลาดส่งออก แม้ มีการอภิปรายอย่างต่อเนื่องเกี่ยวกับบริษัทเกิดทั่วโลก เรารู้น้อยเกี่ยวกับอะไรไดรฟ์ของตนอยู่รอดในตลาดส่งออก โดยเฉพาะ ทฤษฎีต่าง ๆ ผลผลิตคาดการณ์ความขัดแย้งว่านานาเกิดส่วนกลางเป็นห้อง หรือน้อยไปสนับสนุนภูมิภาคเกิดขึ้นนานา การวิเคราะห์ชุดข้อมูลระยะยาว (ตั้งแต่ปี 1997 กับปี 2005) ของ 1959 เพิ่งก่อตั้งแคนาดาขนาดเล็ก - ขนาดกลาง (SMEs) วิสาหกิจ เราแสดงว่า กลยุทธ์เดียวไม่ได้ต่อ se แต่กลยุทธ์ที่สนับสนุน moderates ความสำคัญของทรัพยากรเพื่อความอยู่รอดของ SMEs ต่างประเทศ แม้ว่าทรัพยากรมีความสำคัญสำหรับความอยู่รอดของ SMEs ทั้งหมด ความสำคัญของทรัพยากรขึงและนวัตกรรมทรัพยากรสำคัญที่สุดสำหรับบริษัทเกิดสากลตามภูมิภาคเกิดบริษัท และสำคัญน้อยที่สุดสำหรับ internationalizers สมดุลแนะนำBorn-global firms, sometimes called “international new ventures” (INVs), have been described as “companies that from or near foundation, obtain a significant portion of total revenue from sales in international markets” (Knight & Cavusgil, 2005: 15). Although born-global firms have attracted significant research attention (Autio, 2005; Jones, Coviello, & Tang, 2011) that has emphasized their ability to achieve considerable foreign sales early in their evolution (Autio, Sapienza, & Almeida, 2000) with limited resources, little is known about the continuing ability of these firms to remain active in international markets and about the types of resources that determine their survival abroad (Keupp & Gassmann, 2009; Sapienza, Autio, George, & Zahra, 2006; Zahra, 2005). As Kuivalainen, Sundqvist, Saarenketo, and McNaughton (2012: 449) note: “there is still a paucity of empirical research on whether accelerated internationalization (or another internationalization path) plays a role in determining long-term survival, success and/or growth. The few studies that have investigated this, report contradictory or ambiguous findings (e.g., Bloodgood, Sapienza, & Almeida, 1996), are based on small samples (e.g., Gabrielsson, Kirpalani, Dimistratos, Solberg, & Zucchella, 2008), or focus on a limited number of pathways (e.g., Mudambi & Zahra, 2007)”.The dominant theoretical approaches in the field – the internationalization process model (IPM) (Johanson & Vahlne, 2009), the INV framework (Oviatt & McDougall, 1994) and the regionalization hypothesis (Rugman & Verbeke, 2007) – result in significantly different predictions regarding which internationalization strategy is most beneficial for the export market survival of small- and medium sized enterprises (SMEs). The IPM implies that born global internationalization endangers a firm’s survival in the export market because such firms do not have sufficient time to learn about foreign markets well, which increases their probability of failure (Figueira-de-Lemos, Johanson, & Vahlne, 2011). According to the INV framework, firms may profit from a born-global strategy by exploring and capitalizing on international opportunities and by exploiting certain learning advantages that accompany newness (Autio et al., 2000). The regionalization hypothesis postulates that rapid internationalization is possible but that such development will be most valuable if revenues are restricted to coming from the firm’s home region to diminish the liability of foreignness (Rugman & Verbeke, 2004). This theoretical discord makes it imperative that researchers empirically examine the implications of different internationalization strategies for firm survival.In this study, we investigate the effect of different internationalization strategies (born-global, born regional and gradual internationalization strategies) on the export market survival of SMEs. We show that, in addition to internationalization strategy, firm slack resources and innovation resources determine INVs viability in the international market. Firms that are better able to acquire adequate resources during internationalization are more likely to sustain their export market activities. Several studies highlight the importance of resources to the survival of INVs. Sapienza et al. (2006), for example, argue that the ability to shift resources is important to the survival of young firms because the uncertainty inherent in unknown foreign environments can generate unexpected requirements to adjust established routines and capabilities. Firms with more fungible resources are better able to adapt their routines, which allows them to better react to environmental changes and bolsters their survival chances abroad.In a parallel vein, we propose that, although firm specific resources are important for the export market survival of all SMEs per se, the relative importance of slack resources and innovation resources is contingent upon which internationalization strategy is employed. Compared with other more incremental internationalization approaches, a born-global firm will have greater demand for resources to prevail in international markets. Born-global firms require slack resources and innovation resources more urgently for their survival than other internationalizing SMEs because the twin liabilities of newness (Stinchcombe, 1965) and foreignness (Hymer, 1976) are particularly strong for born-global firms, entering multiple foreign environments at an enhanced speed. For this aggressive internationalization, born-globals have to establish business routines and learn about their multiple markets at the same time, in order to overcome the “shock of entry” (Carr, Haggard, Hmieleski, & Zahra, 2010: 184) effectively.By contrast, the export market survival of gradually internationalizing firms will be the least dependent on slack resources and innovation resources compared with born-global and born-regional firms. The liabilities of newness and foreignness do not adhere that strongly to gradually internationalizing firms because these firms enter foreign markets sequentially and can more easily learn from their own operations and build experiential knowledge. Accordingly, their survival in the international environment will be less dependent on slack resources (Chang & Rhee, 2011) and innovation (Shrader, Oviatt, & McDougall, 2000). In this study, we further sharpen the understanding about the impact of resources on the survival of INVs and show that resources are an important boundary condition for the functionality of different internationalization strategies regarding international market survival.Our study provides three important contributions to understanding SME survival abroad.
First, by observing the effect of different internationalization strategies on the survival of SMEs in the export market, we underscore the strategic-choice rationale and find strong empirical support for the notion that firms self-select into a fitting strategy. Based on the foreign direct investment (FDI) activity of 275 UK firms, Mudambi and Zahra (2007) find that employing a born-global strategy has no direct impact on firm survival. Based on this finding, that study proposed that the firms in its sample were able to decide efficient strategies during the process of internationalization. In our study, based on the export activity of all Canadian SMEs, the results suggest that neither the born-global nor born regional strategy has a statistically significant effect on firm export market survival.
Therefore we further demonstrate that small, new ventures firms are as rational as large firms; they are able to pursue strategic choices and decide upon the optimal internationalization strategy that best fits their resource endowment and environmental conditions.
Second, we differentiate previous studies on internationalization strategies by introducing the born regional strategy into our analysis. Previous studies either focused on a single strategy (Efrat & Shoham, 2012) or compared only born-globals and gradual internationalizers (Mudambi & Zahra, 2007). We turn to more recent notions that show that bornregionals employ a distinct type of internationalization strategy (Lopez, Kundu, & Ciravegna, 2009), which might better balance the risks and benefits of early internationalization.
Our third contribution lies at the intersection of internationalization strategies and resources.
Although no single internationalization strategy dominates other strategic approaches under every condition, we demonstrate that internationalization strategies are an important moderator for a firm’s survival and firm resources. Firm resources not only directly affect a firm’s survival and its strategic self-selection but also interact with a firm’s applied internationalization strategy. In contextualizing the firm resources–survival link through internationalization strategy, we add to previous studies on born global firms and suggest how SMEs might better sustain their international activities with different internationalization strategies. This is an important advancement in the current understanding because it suggests that although small, new ventures are able to internationalize early with limited resources, it is particularly critical for born-global firms to acquire adequate resources during the internationalization process to survive abroad.
The data set used to examine our research questions is taken from the administrative databases produced by Statistics Canada. The sample includes all Canadian small- and medium-sized manufacturers that had at least one shipment to a foreign market between 1997 and 2005. Combining this unique data set with empirical analyses that control for possible sample selection bias and endogeneity, we provide a valid and reliable
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