|
COPYRIGHT 2000 Academy of Management
We employed knowledge-based theory to shed light on international growth in entrepreneurial firms. We found earlier initiation of internationalization and greater knowledge intensity to be associated with faster international growth. However, contrary to expectations, firms with more imitable technologies also grew faster. The former results suggest that early pursuit of international opportunity induces greater entrepreneurial behavior and confers a growth advantage, whereas the latter call into question current views of the role of imitability in international growth.
The emerging phenomenon of "born-global" firms (firms that internationalize virtually from their inception) has focused considerable research interest on examining why so many entrepreneurial firms are going international at such an early age (Brush, 1992; McDougall, Shane, & Oviatt, 1994; Oesterle, 1997; Oviatt & McDougall, 1997). Much of the theorizing on new venture internationalization has challenged traditional theories. On the surface, traditional process theories of internationalization (Johanson & Vahlne, 1977, 1990) and new venture internationalization theories (McDougall et al., 1994; Oviatt & McDougall, 1997) appear at odds regarding the likely speed and outcomes of internationalization processes. Our view, however, is that research has not sufficiently distinguished between two closely related but distinct issues: first, the time lag between the founding of a firm and its initiation of international operations (time lag = [t.sub.(1st international sales)] -- [t.sub.(founding)] and, second, the sp eed of a firm's subsequent international growth (how rapidly it increases international sales once an initial commitment has been made). It is our objective here to shed light on the effect of when in its development a firm first goes international on the rate of its subsequent international growth.
The process theory of internationalization (Johanson & Vahlne, 1977, 1990) explains why firms generally initiate internationalization processes later in their development and why such processes generally proceed slowly once initiated. Building on the behavioral theory of the firm, Johanson and Valilne postulated that firms tend to operate in the vicinity of existing knowledge and remain domestic unless provoked, pushed, or pulled by an event such as unsolicited export orders. Their model further suggested that, once initiated, internationalization proceeds incrementally, regulated by the experience-based accumulation of "foreign organizing knowledge." This view emphasizes the inertial and reactive character of business organizations, leaving little room for entrepreneurial strategic choice.
Researchers at the intersection of entrepreneur-ship and internationalization have objected that the process view fails to explain entrepreneurial firms that go international early in their existence (McDougall et al., 1994; Oesterle, 1997; Oviatt & McDougall, 1997; Preece, Miles, & Baetz, 1999). McDougall and her coanthors (1994) posited that many new firms make an early leap into international competition because of unique entrepreneurial capacities and outlook. According to this new venture theory of internationalization, some entrepreneurs possess a constellation of skills and knowledge that allow them to see and exploit windows of opportunity unseen by others; thus, many choose an early internationalization strategy as a path to growth and success. However, although this view helps explain why some firms might act in ways not anticipated in the process model, it stops short of explaining what this strategic choice might mean for subsequent behavior and for the rate of subsequent international growth of an entrepreneurial firm.
A key strategic issue faced by entrepreneurial firms considering internationalization as an option for addressing current strategic needs is whether it is better to start the internationalization process soon after founding, as born-global firms do, or to postpone international entry until the firm has accumulated significant resources. In this article, we develop a knowledge- and learning-based framework to examine the effects of the age of a firm at first international sales, its knowledge intensity, and the imitability of its core technology on its subsequent international growth. The knowledge-based framework has proven useful for explaining international expansion choices (Barkema & Vermeulen, 1998), and knowledge plays an important role in both the process theory of internationalization and the new venture theory of internationalization. In the former theory, foreign experiential knowledge is the key regulator of resource commitments to foreign markets. In the latter, entrepreneurial knowledge and visi on are seen as the keys to aggressive international opportunity seeking.
In order to focus on the strategic implications of age at entry, knowledge intensity, and imitability on international sales growth, we collected panel data on international sales over five years for 59 entrepreneurial, privately held electronics firms in Finland. Finland was an attractive venue because internationalization was common there. For example, in 1997, exports in Finland stood at 40 percent of gross domestic product (GDP) versus 11 percent in the United States. Further, knowledge creation and application have been seen as especially salient in high-tech sectors (Covin, Slevin, & Covin, 1990; Eisenhardt & Schoonhoven, 1990), and internationalization is increasingly common in these sectors among firms of all ages and sizes (Almeida & Bloodgood, 1996). Given the difficulty of measuring with great precision intangibles such as knowledge intensity and imitability, controlling for variations caused by industry or country differences was essential (Hitt, Gimeno, & Hoskisson, 1997). Limiting our study to a single industry in a single country also helped to ensure that variations in age at entry were more likely associated with strategic choice than with variations in market favorability or industry innovation phase (Oesterle, 1997). Finally, the entrepreneurial character of the sample was partially ensured by selecting a set of privately held firms in a rapidly growing, high-tech market. As explained later, in the Methods section, an examination of multiple criteria helped confirm the generally entrepreneurial character of our sample.
KNOWLEDGE, LEARNING, AND INTERNATIONAL GROWTH
The causes and rates of organizational growth are important issues in the entrepreneurship literature (Cooper & Gascon, 1992). Some authors have looked at why certain firms grow more rapidly than other firms, and others have looked at environmental effects on growth-seeking firms (Covin et al., 1990; Hoy, McDougall, & Dsouza, 1992). From a theoretical point of view, the determinants and outcomes of growth have been seen as a way of understanding the development of entrepreneurial firms. Much of the entrepreneurship literature has focused on sales growth, and some have even used sales growth to distinguish entrepreneurial from nonentrepreneurial firms (Birch, 1987; McDougall et al., 1994).
A premise of our study is that knowledge about international markets and operations, as well as the efficiency by which such knowledge is learned, is an important determinant of international sales growth for entrepreneurial firms. Penrose (1959: 37), for example, saw growth as an outcome of a firm's entrepreneurial and managerial knowledge capacities, and recent research has demonstrated the value of knowledge-based and learning theory views for understanding international expansion decisions (Barkema & Vermeulen, 1998; Eriksson, Johanson, Majgard & Sharma, 1997). Therefore, in this section, we lay out the background theory of organizational knowledge and learning. Then, we systematically look at the impact of a firm's age at the point when it first initiates international sales on its subsequent international growth, the impact of its knowledge intensity on its international growth, and the impact of the imitability of its core technology on its international growth.
A few points regarding our framework should be kept in mind in the sections that follow. First, we frame our hypotheses in terms of high-technology firms, not because we believe the principles underlying our arguments apply only to such firms, but because we have only high-tech firms in our sample. The dynamism of high-tech industries may make the types of firms in our sample the clearest representatives of a more general phenomenon. Indeed, many of our arguments are not specific to high-tech firms but would apply to many other settings as well. In the Discussion section, we present our views on the likely generalizability of our results, especially as regards possible moderating effects of industry type. Second, it should also be kept in mind that we focused on entry timing relative to the age of a venture itself, not relative to the order of entry of other firms into particular foreign markets: we do not compare first mover and follower advantages. In our model, the last entrant into a particular foreign m arket would be an early internationalizer if it entered at a young age and would be a late internationalizer if it were old. Finally, we recognize that firms may go international for a variety of push (threat) or pull (opportunity) reasons. High-technology firms, for example, may proactively choose to go international, or they may be forced to do so to recover significant R&D costs (e.g., Preece et al., 1999). However, our focus is not on why a firm has gone international but on the effects of its age at entry, regardless of its motivations for going international.
A Knowledge and Learning Framework
Organizational learning theory suggests that the generation of new organizational knowledge is maximized in domains close to the domain of existing knowledge, in conditions under which there are few existing organizational routines to unlearn and organizational assimilation and subsequent retrieval of the knowledge occurs in an intense and repetitive fashion. We define an organization's knowledge as its capacity to apprehend and use relationships among critical factors in such a way as to achieve intended ends. Organizational learning we define as the process of assimilating new knowledge into the organization's knowledge base. Organizational learning begins at the individual level. New individual knowledge is incorporated into organizational knowledge only when it is shared and is assimilated into organizational routines, documents, and practices (Cohen & Levinthal, 1990). Knowledge and learning can be expected to have an impact on international growth in that internationalizing firms must apprehend, share, and assimilate new knowledge in order to compete and grow in markets in which they have little or no previous experience.
Learning is most efficient in domains close to an existing knowledge base. Cohen and Levinthal explained that a firm's absorptive capacity, which they described as its ability to "recognize the value of new, external information, assimilate it, and apply it to commercial ends" (Cohen & Levinthal, 1990: 128), depended on its prior, related knowledge and evolved in a history-dependent fashion as the firm accumulated (or failed to accumulate) knowledge critical to its later growth. They posited that the more similar prior knowledge is to new knowledge, the easier the absorption of the new knowledge. Thus, a self-reinforcing pattern occurs whereby exploitation is most likely to occur in the areas nearest existing knowledge, as is the eventual assimilation of the new knowledge into an organization. Therefore, strong history dependencies tend to be formed in...
Read the full article for free courtesy of your local library.
|
Bookmark this article
Print this article
Link to this article
Email this article
Digg It!
Add to del.icio.us
RSS
