Understanding the Born Global Firm

Neri Karra

• Publisher: Routledge
• Year: 2016
• Print ISBN: 9781138219113
• eBook ISBN: 9781315436159
• Topic: Business
• Subtopic: Business General
• Index: Business

The challenges and opportunities that are presented to both small and medium-sized enterprises have changed dramatically in recent decades as the world's economy becomes more globalised. The policies of open borders, a decrease in protectionism and the demise of the nation-state, have enabled small and large firms to engage in international activity from the outset.

Understanding the Born Global Firm, combines the many different theoretical perspectives on born globals that have been previously researched, providing a unified framework to connect the antecedents, types and outcomes of entrepreneurial activities pursued by such new ventures. A central case study of an international fashion firm which operates in over nine countries, runs through the text, highlighting the formation and success of born globals and the importance of cultural competence.

This book will be invaluable to post-graduate students in the field of international business; entrepreneurship; ethnic entrepreneurs; global entrepreneurship, and international networks.

1 International entrepreneurs

The founding and success of a born global fashion firm

Iso Cara¹ was one of 360,000 Turkish Bulgarians who left Bulgaria in 1989 to make a new life in Turkey. He was a welder, who started an entrepreneurial venture with his wife. He opened a store in the luggage trade to benefit from the rush of Russian entrepreneurs with an idea that was deceptively simple: He would source fine leather and high-quality accessories like zippers and clasps in Italy, manufacture wallets, mobile phone cases, and other leather fashion goods in Istanbul, and then sell them in Russia and the former Soviet republics.

Years later, Cara’s fashion firm, Neroli, is highly successful. He sells several million dollars’ worth of leather goods every year in a market that established global leather brands have found too risky. And he does so without selling a single bag or wallet in his home market.

Cara’s story shows how the nature of entrepreneurship is shifting. In the past, men like him would build their new ventures in their domestic market long before they’d expand globally. Now these same entrepreneurs have the opportunity and challenge of participating in a highly internationalized market from the moment they are founded.

These “born global” firms face a very different challenge from their more traditional, domestically focused counterparts, which leads us to ask: Why do they internationalize at founding, and what factors drive their success – or their failures? What are the complex dynamics surrounding this increasingly common form of business in our rapidly evolving business landscape?

International ventures from the start

Geography, today, is history. But technology marches on, connecting us ever more easily and cheaply.

– Newsweek Staff, 2004

The term “international entrepreneurship” first appeared in a short article by banker J. F. “Chip” Morrow in 1988. Since that early use, it has become an area of ever-increasing interest in the research community. Some authors have argued that the increasing globalization of markets has made international activity as much an area of activity for multinational firms as it is for entrepreneurs. In fact, the idea that international trade is solely the purview of large multinationals has been challenged by the increasing involvement of young, small- and medium-sized entrepreneurial firms.

The early focus of research on the internationalization of large domestic firms led to an overemphasis on gaining “domestic experience” before moving into foreign markets. With the increasing globalization and saturation of markets, entrepreneurs often face competition both from local and international firms from the first moments of their existence. Gaining domestic experience, therefore, has increasingly less relevance for new firms, and the number of firms that begin their commercial activity in an international context can only be expected to increase. As a result of these trends, there is a critical need for further research that focuses on the internationalization process of new, small ventures.

Early studies on international entrepreneurship attempted to understand what leads to the emergence of this phenomenon, usually by trying to disprove the traditional frameworks of internationalization. While these early attempts have made important contributions, especially in terms of challenging the notion of traditional internationalization, interest has shifted to attempt to explain why born global firms become international new ventures from their inception and to determine the factors that drive superior international performance in international new ventures. Despite the work to date, there is still not a coherent framework that explains the dynamics of international entrepreneurship.

In addition to this, there has been some criticism of the ethnocentrism of the literature on international new ventures and the fact that the existing studies focus mostly on high-technology firms from a small number of countries, such as the United States. These limitations in the existing research suggest that there is an opportunity to build upon the existing work and to extend our understanding of what makes firms invest abroad early in their existence and what leads to their success in those foreign markets, by studying different types of firms in different geographic areas.

Cara’s Neroli is one of those born global companies that derives its competitive advantage from the use of resources and the sales of its products in multiple countries. It produces and distributes high-quality leather goods, and, more recently, men’s and women’s clothing, with production facilities in Istanbul and sales throughout the countries of the former Soviet Union.

What determined the founder’s decision to focus internationally from the beginning, and what were the key factors that led to the firm’s rapid growth and profitability? It’s those questions I set out to answer with my case study of this Turkish fashion firm. Unlike other research, which looks at established firms or, more recently, at the high-tech industry in the developed countries of the West, this study focuses on a new venture that spans a whole different geographical territory and provides an entirely different perspective.

Although the reasons for the increasing prevalence of born globals are complex and not completely understood, management researchers have made significant progress in understanding the most important factors. I will draw on my own work and on the broader academic literature to develop a framework to understand the drivers that lead to the increased prevalence of international entrepreneurship. I will consider the theoretical models and emerging research, methodology, data collection, and empirical context, and then analyze the results that lead to a model of the factors that motivate successful international entrepreneurs.

International entrepreneurship in context

The history of international business as a field has been largely one of attempting to understand multinational corporations. Why they exist, how they come to be, and what makes them more or less successful in their operations has formed the focus of decades of intense interest among researchers in management and economics. This focus on the international activities of large, mainly North American and European firms has resulted in the development of a body of theoretical work that goes a substantial way toward explaining the international activities of multinational corporations.

The Uppsala model remains the most widely recognized and cited model of firm internationalization, especially among entrepreneurship scholars. This model highlights how domestic and international operations relate to each other, and claims that business internationalization occurs in stages. That means a firm would learn and increase its foreign market knowledge over time, most likely first through domestic experience, and then would increase its foreign market commitment and expand slowly into distant markets.

This model remains an effective way to understand the traditional internationalization processes of firms. More recently, however, there has been an increasing recognition that firms are able to engage in international activities by skipping certain fundamental stages of internationalization, in particular foregoing the efforts of gaining domestic experience before moving into foreign markets. Technological change, combined with a decrease in protectionist policies and the boundaries between domestic and international markets, has resulted in an environment where it is not only large firms, but also small firms that consider international competition to be the norm.

This interest in the international activities of small firms has led to the development of an interest in the international activities of new entrepreneurial ventures – referred to as international entrepreneurship. This study focuses on new ventures that are variously called born globals, global start-ups, instant exporters, micro-multinationals, international ventures, and international new ventures.

While the above-mentioned terms all could be described as organizations that do business in multiple countries, there is no clearly accepted definition of an international new venture. It remains a matter of debate, with definitions varying from the very specific to the very broad, and with some going so far as to include corporate entrepreneurship. However, for the purposes of this study, an international new venture is defined as a firm that has at least 25 percent international sales within three years of founding and derives its competitive advantage from the use of resources and the sales of its products or services in multiple countries.

Theoretical models and emerging research questions

Forms of accelerated internationalization, such as international entrepreneurship, require alternative theoretical approaches from well-established explanations of multinationals and their international expansion. In 1994, Benjamin M. Oviatt and Patricia P. McDougall were the first to provide an explanation for international entrepreneurship. Their initial work identified rapidly changing computer, communication, and transportation technology, in addition to decreased protectionist policies, political economy, industry conditions, firm effects, and the management team as initial elements that lead to international entrepreneurship.

Despite the importance of this initial contribution, these elements are now accepted as accelerators of international entrepreneurship, rather than the dynamic processes that lead to the formation of international new ventures. In fact, in 2003, these researchers largely agreed with this later work in that they argued that such firms possess certain valuable assets, use alliances and network structures to control a relatively large percentage of vital assets, and have a unique resource that provides a sustainable advantage and is transferable to a foreign location – the same factors that were later identified as drivers of international entrepreneurship.

In addition to this, Shaker Zahra and Gerard George (2002) proposed a model of forces that influence the degree, speed, and geographic scope of corporate international entrepreneurship. They claimed that an organization’s strategy and its political and economic environment moderate the effects of organizational factors – such as the nature of the management team and firm resources – on international entrepreneurial behaviour and competitive advantage. Their model, however, is directed more toward the activities of large multinationals and does not provide an extensive list of key factors that may influence new ventures to internationalize.

Among all the existing theoretical explanations of international new ventures, a limited number of themes have emerged. These include network theory, knowledge management, and organizational capabilities of firms. Network theory has been suggested as a much more suitable approach to explain international entrepreneurship and as a defining characteristic of such firms. McDougall, Shane and Oviatt (1994) claim that founders of international new ventures rely on networks in order to identify opportunities in the international business arena and that network effects have more influence than psychic distance on the choice of country for international new ventures. More recent authors have built on this early observation to argue that the uncertainty and risk associated with foreign markets can be overcome by using local market knowledge and the competencies of foreign intermediaries.

Knowledge and organizational capabilities have also been used to explain international new ventures. Existing research suggests that such firms are inherently entrepreneurial and innovative, leading to superior performance because of their specific knowledge about international markets and operations. Capabilities-based resources have been seen as especially important to international new ventures, as these help fi...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Dedication
• Table of Contents
• List of illustrations
• Preface
• Acknowledgements
• Introduction
• 1. International entrepreneurs: the founding and success of a born global fashion firm
• 2. Building a business on ethnic ties: a study of the effects of ethnic networks on entrepreneurial activities
• 3. Cross-cultural research as autoethnography: the challenge and opportunity of studying your own culture in international management
• Appendix
• Bibliography
• Index