Venturing in International Firms

Contexts and Cases in a High-Tech World

Christopher Williams

• Publisher: Routledge
• Year: 2018
• eBook ISBN: 9781351744812
• Topic: Business
• Subtopic: Business General
• Index: Business

This book gives students a new perspective on entrepreneurial venturing in an international context. By analyzing the dynamics in international companies, they will be armed with the skills they need to build successful strategies for entering new international markets.

Williams presents a framework built around four contexts for international venturing: headquarters-driven through internal capabilities; subsidiary-driven through peripheral capabilities; headquarters-driven through external capabilities; and subsidiary-driven though external capabilities. Through this, students gain insight into the conditions that enable venturing in different types of MNEs, the mechanisms by which MNEs pursue international opportunities, and the leadership and managerial challenges of developing entrepreneurial capabilities across borders. Following a definition and analysis of each context, the book synthesizes the outcomes in an integrative way, providing implications for strategic leaders in international firms as well as for researchers and students. These contexts are used to frame the literature and engage with eight topical cases, which are also published in full in the Appendix of the book.

With case studies from around the world that focus both on smaller and larger enterprises, Venturing in International Firms will give students of international entrepreneurship, corporate entrepreneurship and international business an edge when venturing internationally in the real world.

1
Introduction

In Search of a Better Deal

Over the course of history, man has never stood still. There is something about us that drives us to travel to far-off lands in search of a better deal. From the legendary travelers of the ancient Greeks and Polynesians, through the traveling merchants of the silk route between China and Europe, and on to the Vikings, Muhammad al-Idrisi, Marco Polo and Columbus, human beings have taken it upon themselves to seek out new pastures in a quest for scientific advancement, knowledge, profit and/or power (Obregón, 2001). And this is not just restricted to powerful peoples and those with military strength. A former colleague of mine, Richard Reed, once drove a Land Rover Defender around the planet. Along with friend, Dwyer Rooney, they drove from London to Sydney, taking in 25 countries in 12 months. They converted a second-hand Defender from mode of transport into a combined vehicle + sleeping space + cooking and dining space, crossing Iran during heightened tension around the country’s nuclear plans, weaving through Pakistan during political unrest due to the murder of a local tribal leader, navigating the relentless bureaucracy of China, and journeying into Myanmar at the time of the ruling junta’s house arrest of Aung San Suu Kyi. Why did he do it? Let’s ask him

I was once told that travellers are either running away from something or trying to find something, and it’s probably true. With every exploration it has provided perspective, and no more so than the journey from London to Sydney. In our cramped and un-air-conditioned sweat-box, every day we experienced something new, and depending on your outlook, on your own constitution, it could be utterly breathtaking. You can read or watch the adventures of others, but discovering with your own eyes, drawing your own conclusions from your own experience is priceless. On most journeys, paradoxically, you’re discovering yourself: your capacity for constant flux; problem solving; vastly different social and environmental interactions that test your fortitude; and the realisation of how immensely fortunate you are. Even from this paragraph, my mind is transported from my desk in Australia all over the world on previous adventures, and these snippets of life mean more to me than any physical asset I could ever possess¹

Richard Reed (April 2017)

People don’t stay in one place. And neither do organizations, especially ones of a competitive nature. Firms have found out that they can compete better by seeking and exploiting new opportunities at great distance from their initial physical starting point. As part of Richard and Dwyer’s adventure from London to Sydney, they visited Land Rover dealerships and mechanics in every country they drove through. As they went they wrote monthly updates for Land Rover Monthly, a Land Rover enthusiasts’ magazine, sharing their story with other Land Rover fans around the world. It turns out that Land Rover (the company) had got to these locations first! The Land Rover company had already internationalized, taking its products, technology and brand with it. As a result of the company’s internationalization, customers and dealers around the world became loyal to the brand; there was global diffusion of the underlying technology, and global sharing of know-how related to the use of the technology in diverse driving conditions (Chapman, 2013). Indeed, dealers had sprung up in all kinds of fascinating places. In one sense, Richard and Dwyer’s drive around the planet was an exploration of this particular global community, the creation of which had already been spearheaded by a private sector, for profit, company.

Indeed, it was over half a century earlier that Land Rover had pursued international entrepreneurship. It had ventured into international markets with its first official launch at the Amsterdam Motor Show in 1948. But what do we mean by these terms? What do we mean by international entrepreneurship and venturing? Academic definitions of these constructs have evolved in the past 25 or so years as the research literature has grown (Coviello et al., 2011). Back in 1989, Patricia McDougall spoke about international entrepreneurship in terms of the study of “international new ventures or start-ups that, from their inception, engage in international business” (McDougall, 1989: 387). Oviatt and McDougall (1994: 49) continued in this vein, defining an international new venture as a business organization that “from inception, seeks to derive significant competitive advantage from the use of resources from and the sale of outputs to multiple countries”. Zahra and George (2002: 261) described the wider phenomenon of international entrepreneurship as a “process of creatively discovering and exploiting opportunities that lie outside a firm’s domestic markets in the pursuit of competitive advantage”. Oviatt and McDougall (2005: 540) described international entrepreneurship as: “the discovery, enactment, evaluation, and exploitation of opportunities – across national borders – to create future goods and services”.

We have, from those earlier definitions, the notion of the international new venture itself, as well as the notion of the phenomenon of entrepreneurship in an international context from which specific international ventures arise (Coviello et al., 2011). Some of the technology-intensive companies we discuss in this book, such as Expatica and Roq.ad, were small-sized companies that indeed sought resources and/or sales in international markets at or soon after inception. Other cases we will discuss, such as 3M and Xerox, were much larger, well-established and highly internationalized companies, but still initiating and co-ordinating new projects to hunt down and exploit opportunities in international markets. And in between these poles, we will discuss cases of companies that were neither big nor small, such as Infusion Development Corporation and Time Out Group. In these cases, the companies had started to internationalize into a few select countries but faced various strategic and organizational pains. They were confronted by significant challenges in how to maintain an entrepreneurial spirit, develop their technology and grow internationally.

In their review of the international entrepreneurship field, Keupp and Gassmann (2009: 617) note how “none of these [previous] conceptual foundations of entrepreneurship depends on firm size – opportunities can be recognized and exploited by both small and large firms”. I agree and will use this point throughout this book. Our notion of venturing in international firms extends from small, new ventures seeking inter-national advantage from the outset (da Rocha et al., 2017), through to small- and medium-sized enterprises (SMEs) with a narrow but established presence in international markets (Dimitratos et al., 2010; Turunen and Nummela, 2017), through to the large, highly internationalized giants. I will use the term ‘multinational enterprise’ (or ‘MNE’) and international firm interchangeably in this book to refer to all of these categories of firms as long as they have assets in more than one country. Across the spectrum, we find international firms (MNEs) seeking to create future goods and services in new areas while extending beyond existing geographic markets where they had a presence.

In Search of Better Theory

Various theoretical frameworks have been used in research on how firms venture in international markets. These indeed can be used to analyze aspects of the phenomena we discuss in this book and the situations in the cases in the Appendix. They include resource-based theory (Barney, 1991; Penrose, 1959), transaction-cost and internalization theories (Buckley and Casson, 1976; Hennart, 1982; Rugman, 1980; Williamson, 1991), evolutionary theory (Kogut and Zander, 1993; Verbeke, 2003), institutional theory (North, 1990; Powell and DiMaggio, 2012; Scott, 1995), social network theory (Zhou et al., 2007), principal-agent theory (Eisenhardt, 1989a; George et al., 2005) and others. Despite all these tremendous contributions to human thinking, there is no single unified theory that explains all things entrepreneurial and all things international.

Consequently, the field of international entrepreneurship has not been without criticism. As Dimitratos and Plakoyiannaki (2003) and Jones et al. (2011) pointed out, the field is fragmented, but it is still relatively young and is growing. Jones et al. (2011) documented a comprehensive inventory of research in the field of international entrepreneurship – based on work published between 1989 and 2009 – to help with theorizing in the field. They identified three domains: entrepreneurial internationalization, international comparisons of entrepreneurship, and comparative entrepreneurial internationalization. Entrepreneurial internationalization relates to studies concerned with entrepreneurship that crosses international borders. The focus here has been on venture types, internationalization patterns and influences, networks and social capital, organizational issues and entrepreneurship per se. International comparisons of entrepreneurship consists of research examining country differences pertaining to entrepreneurs and entrepreneurship. It also encompasses research on cultural differences of entrepreneurs, looking at these differences across countries. Work on comparative entrepreneurial internationalization examines venture types and patterns of internationalization but comparing these across countries. The logic and ideas of this book fall squarely into the first domain identified by Jones et al. (2011). Our principal aim is not to compare entrepreneurial phenomena across countries. But we will examine internationalization, networks, organizational issues and entrepreneurial dynamics in different types of firms.

While we fall squarely into the first of Jones et al.’s (2011) categories, where do we stand in terms of core theory in our discussion? Will we be as fragmented as the literature is? In short, no. Instead, we will be developing one central theoretical perspective throughout the book – that of the internationally venturing firm as a guided heterarchy (Hedlund, 1994; Lee and Williams, 2007; Nonaka et al., 2006). In essence, there is a knowledge-based underpinning to all we do in this book. According to the knowledge-based view, firms specialize in the creation and transfer of knowledge. Their efficiency in so doing relative to other firms is a key factor when making strategic choices (Kogut and Zander, 1993). We will draw from, and build on, concepts related to ‘heterarchical’ organization, as well as on a knowledge-based view of the entrepreneurial process as it pertains to international venturing.

The starting point for this approach is embedded in the broadly accepted definition of the field of entrepreneurship research developed by Venkataraman (1997) and Shane and Venkataraman (2000). This is given as “the scholarly examination of how, by whom, and with what effects opportunities to create future goods and services are discovered, evaluated, and exploited” (Shane and Venkataraman, 2000: 218). What is embedded in here is the notion of entrepreneurship as a process of discovery, evaluation, and exploitation of opportunities (Shane and Venkataraman, 2000). What is not captured here is the international nature of what we are looking at. Both process and international elements were later captured by Oviatt and McDougall (2005: 540), as noted above: “the discovery, enactment, evaluation, and exploitation of opportunities – across national borders – to create future goods and services”.

So why a knowledge-based stance? I argued in my PhD and in various academic articles published since that a particular type of knowledge will underpin this entrepreneurial process. Harnessing and managing this type of knowledge in international firms deserves careful appraisal and analysis. We will refer to knowledge that underpins the entrepreneurial process as entrepreneurial knowledge (Lee and Williams, 2007; Williams, 2009; Williams and Lee, 2011a). Not to put too fine a point on it, entrepreneurial knowledge is gold dust for international companies.

In Search of Entrepreneurial Knowledge

In order for entrepreneurial knowledge to underpin the entrepreneurial process it must provide some benefit to that process. It provides benefit by allowing awareness of untapped opportunities to be shared, by allowing potential solutions to opportunities to be developed, and by allowing learning from outcomes to take place across the company (Williams, 2009; Williams and Lee, 2011a). Furthermore, managers in all types of firms need to understand international entrepreneurial knowledge as they develop and deploy capabilities in search of growth. Globalization and the growing interconnectivity of nations and people (Dunning, 2002; Ghemawat, 2011; Guest, 2011) provides the environment for international entrepreneurial knowledge as it is created, shared and exploited by international firms.

First, knowledge of untapped international opportunities is needed. This forms the basis for sharing awareness of what an opportunity is and even why some people perceive it as being an opportunity in the first place, while others might not. Without a shared awareness of new opportunity, its evaluation within the company cannot effectively take place. Decisions about whether to allocate resources to pursuing it cannot be made. All of the cases highlighted in this book require some kind of decision to be made about specific opportunities. Scholars have highlighted the need for entrepreneurial theory to consider characteristics of opportunities in addition to actions of people involved in entrepreneurship. Indeed, it is the nexus of entrepreneur and opportunity that creates the foundation for new goods, services and methods of production to be developed (Eckhardt and Shane, 2003; Venkataraman, 1997). In the international firm, an opportunity with the potential to become a new and commercially viable good or service may exist in different places. It may only be an idea in the mind of the CEO based at headquarters. Or an alert individual located in an overseas subsidiary unit may spot the new opportunity for the first time. Time-honored research has shown how various actors then become involved in influencing the sharing of awareness and understanding of what the opportunity actually is (Burgelman and Sayles, 1986; Kanter, 1983). Later work argued how social networks become important mechanisms by which knowledge of opportunities is shared and then appraised (Ardichvili et al., 2003; Lee and Williams, 2007).

In the case of Toronto-headquartered Infusion Development Corporation, the company faced a crisis when Lehman Brothers, its primary client in New York at the time and the source of the majority of the company’s revenues, decided to end its relationship with Infusion in favor of an offshoring strategy using companies in India. This could have been a disaster for Infusion, but the company did not see it as a disaster. It was seen as an opportunity, not as a doomsday scenario. Despite having no resources in India, no experience of delivery out of India, and no experience of recruiting talent in India, the company managed to convince Lehman Brothers that it could join it in its transition to India. It persuaded its most important client that it could accompany it on its own global journey. This was not without risk, but the company had limited choices at that point. More importantly, Infusion had recognized Lehman’s move as an opportunity and pursued this opportunity full on.

In the case of Berlin-based Roq.ad, a job advertisement placed by the company alerted a technical team in Poland to the need the company had for software and programmatic solutions in the ad-tech industry. The ad-tech industry had become a global and fast-moving industry with many leading, international companies with large resource pools competing in global markets. For a company to compete in this market, technology and knowledge of cutting-edge (but legal) ways of linking users across multiple devices was needed. I personally, still find this fascinating: you can search for a product or service on one internet-connected device, and a short while later companies in that industry are advertising to you on other devices. In the Roq.ad case, the Polish team contacted Berlin, and the company responded by recruiting the whole team rather than just one individual! The company’s near-shoring strategy was born. Roq.ad saw the Poznan team as an opportunity for enhancing the company’s core technological competence and it also – just like Infusion in India – pursued the opportunity full on.

In the case of 3M in Taiwan, the overseas subsidiary manager in the Taiwan office was alerted to the potential application of hydrocolloid dressing to treat acne. The corporation had ownership rights over the hydrocolloid dressing technology which previously had been developed centrally within the company. However, the company had never manufactured the product in a format that could be sold ‘over the counter’ to acne sufferers in East Asia. The product would normally come in jumbo-sized rolls, totally inappropriate for use on customers’ faces! And it had not been tested for this purpose or marketed for this purpose in any of the 3M subsidiaries around the world. The subsidiary not only identified this opportunity, but it spearheaded an initiative to develop the new product and market it in East Asia.

Second, knowledge of international solutions to international opportunities is needed. Resources and capabilities spread out across borders need to be harnessed in new ways in order for international firms to seize new opportunities. Clearly, not all newly identified opportunities can be – or should be – pursued. Some may be inappropriate and inconsistent with the strategy of the company. Others may be deemed too risky. Yet others might be seen as too expensive to finance or incurring an opportunity cost that the company is not willing to bear. But without knowledge about how an opportunity might be pursued, and what resources and capabilities the company will need to harness the opportunity, the company will not be able to effectively decide whether the risks are worth bearing, whether benefits outweigh the costs and whether the pursuit of the opportunity aligns with the current and future strategic direction of the company. Hence knowledge of solutions matters. This relates to how the allocation of resources for exploiting a specific opportunity might be achieved, whether resources predominantly should be sourced from inside the firm (i.e., internal resources) or from outside the firm with partnering firms or other organizations such as universities, non-governmental organizations (NGOs) or governments (i.e., external resources). The task of finding solutions to problems has been highlighted by researchers as a central aspect of entrepreneurship within established firms (Ahuja and Morris Lampert, 2001; Hsieh et al., 2007). Schumpeter’s (1934) semi...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• Preface
• Chapter 1 Introduction
• Chapter 2 ‘Context A’ – Headquarters-driven Venturing: A Strategic Direction for Internal Capabilities
• Chapter 3 ‘Context B’ – Subsidiary-driven Venturing: Unleashing Peripheral Capabilities
• Chapter 4 ‘Context C’ – Headquarters-driven Venturing: Accessing Strategic External Capabilities
• Chapter 5 ‘Context D’ – Subsidiary-driven Venturing: Local Embedding to Drive Change
• Chapter 6 ‘Across the Contexts’ – Strategic Integration and Leading the Firm in International Venturing
• Chapter 7 Summary and Conclusion
• Appendix: Cases of Venturing in International Firms
• References
• Index