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For much of the history of modern business, entrepreneurial ventures were inherently local during their early years. Most startup companies today, however, consider overseas expansion from their inception. (1) Several developments have facilitated the trend. Technological progress--including the development of fast, low-cost telecommunications connections and the advent of the Internet--plus international airline competition and lower cross-border shipping costs for goods make it seem temptingly easy for startup companies to venture abroad. (2) Yet it requires a lot of management bandwidth and experience to do things right. (3) Entrepreneurs and their managers often underestimate the cost of an expansion move to foreign shores and, more critically, lack a clear conceptual framework for international expansion. Too often the results are haphazard decision making, insufficient intracompany communication and even financial disaster.
Many entrepreneurs behave reactively, expanding abroad in response to stimuli rather than according to a thoughtfully crafted strategy. Granted, it is hard for a company to develop a clear international expansion plan when its business model and organization are new, untested and still evolving. But there are some topics and dimensions with which entrepreneurs should be familiar. Over recent years, I have studied entrepreneurial ventures in more than 20 countries, many of which had expanded across borders. Examining why some of these ventures failed while others succeeded, patterns emerged. (See "About the Research," p. 44.) Ventures followed different expansion paths and the best entrepreneurs successfully anticipated and managed the tension that arose along these paths. To understand this, it is useful to view the path taken by an entrepreneurial venture as an ongoing matching of its perceived opportunities to its available resources.
Opportunities come in many different forms: demand for a new product or service, or for an existing product or service delivered at lower cost or through a new business model. Selling existing products or services in new geographic markets also represents an opportunity. Common to opportunities is the uncertainty about their size and exact nature. Customers almost never accept an entrepreneurial idea in its original conception. In most instances the entrepreneur needs to experiment before finally getting it right.
Resources comprise everything that the entrepreneur might enlist to pursue an opportunity. Most novice entrepreneurs think primarily of financial capital when they think of resources. But there are many other resources that are less obvious. These include specific talent and human capital, specific information useful for pursuing a business opportunity and risk-capital providers that can offer more than financial capital--namely, expertise and deal-structuring advice. Also crucial for entrepreneurs are social and professional networks. Often these networks form the basis for a venture's success because they provide unique and timely access to the more visible resources such as capital and management talent for a startup company. (4)
Most entrepreneurs first see an opportunity and then think about the best way to accumulate the resources needed to pursue it. (5) However, the key skill entrepreneurs must master is the art of continually matching opportunities to resources (6) That ongoing experimentation is what determines the structure of an entrepreneurial venture on both strategic and organizational levels. The mapping of opportunities to resources is particularly useful with respect to the question of international expansion. Going abroad can significantly increase opportunity inasmuch as it expands the market for existing product and introduces the possibility of product-line extension. Similarly, setting up a subsidiary abroad can afford a company better access to resources such as capital, well-trained managers and engineers, and specialized supplier services. Often entrepreneurs expand both to enlarge their opportunities and to gain access to more resources, but sometimes they expand for just one of these reasons. (7) The more successful ventures in the research were able to define precisely and communicate within the company the reason or reasons for which a strategic investment abroad is being made.
The International Expansion Matrix
How do businesses typically expand across borders? What patterns are observed among high-performing ventures and what lessons can be drawn from them? To answer these questions, it is useful to think of the international opportunity facing a venture as a continuum that ranges from purely local to worldwide. (8) We can think of resources the same way. If we then juxtapose these two continua, we create an international expansion matrix. (9) (See "The International Expansion Matrix," p. 45.) This matrix defines the choices that a venture has at its inception and throughout its life. The matrix can be used not only to assess and direct a venture but also as a tool for communicating with investors and employees. Even though startup companies are small and one would expect communication within such companies to be straightforward, given the high level of uncertainty inherent in new ventures, there is a particular need for clear messages to employees, investors and customers.
To understand the connection between the international expansion matrix and the development of a venture, first consider the path taken by Softwarecorp (not its real name), a typical company organized around a software design that the founder had explored in his engineering doctoral thesis. (See "Three …