Rapid Internationalization of Internet Companies

How Do Success Factors of "Born Globals" Apply to Internet Companies?

Jakob Hahn

• Publisher: Books on Demand
• Year: 2015
• Print ISBN: 9783740792299
• eBook ISBN: 9783740792305
• Edition: 1
• Topic: Business
• Subtopic: Business internazionale
• Index: Business

Die folgende Thesis befasst sich mit Erfolgsfaktoren, die eine rapide Internationalisierung von sogenannten "Born Globals" in den verschiedensten Industrien positiv beeinflussen und untersucht ob diese Faktoren auch für junge Internetunternehmen zutreffen. Somit enthält diese Thesis eine Auswahl an Erfolgsfaktoren, die jungen Unternehmen im Internetsektor bei einer rapiden und vor allem erfolgreichen Internationalisierungsstrategie von großer Hilfe sind. Als besonders signifikante Faktoren wurde befunden: ein starker Einsatz des Management Richtung Internationalisierung, Nutzung von privaten und geschäftlichen Netzwerken sowie detailliertes Wissen über internationale Märkte und ein hoher Einsatz von Ressourcen in den einzusteigenden Märkten. Nicht im Fokus der Untersuchung, jedoch auch als sehr relevant befundene Faktoren stellen eine signifikante Finanzierung durch Risikokapitalgeber dar und die Skalierbarkeit des Geschäftsmodelles. Die genaue Analyse und Definition der einzelnen Faktoren wird im Rahmen dieser Thesis detailliert besprochen.

1. Introduction

Over the three decades fundamental technological, economic and social changes have been taking place (Rialp, Rialp, Urbano & Vaillant 2005a) influencing the international market place, allowing small companies to trade internationally and expand to foreign markets more effectively (Madsen & Servais 1997). The strong rapid development of communication and information technology (Oviatt & McDougall 1994), enabling small companies to share information around the globe, in turn analyzing markets more efficiently, and so reaching a faster decision on economically priced market entry (Rennie 1993). The transportation of both people and goods has reduced in price yet growing more reliable (Oviatt & McDougall 1994). Meanwhile, with the global development of emerging markets, like the BRIC-states, markets with similar customer needs evolve (Oviatt & McDougall 1994) providing the opportunity to focus on international niche markets and forming global distribution networks (Madsen & Servais 1997). Development of free trade areas, like the European Union and NAFTA, fewer import-restrictions and lower taxes enabling foreign companies easier access to new emerging markets (Knight & Cavusgil 1996). In the education field the growth of international exchange programs, with the closer collaboration between countries is fostering an internationally focused body and cohort of students providing companies with access to employees and managers who are multilingual, have international cultural and work experience and additional webs of networks (Madsen & Servais 1997). These changes mean small and medium sized companies are confidently stepping beyond their familiar home markets and exploring foreign markets shortly after inception, these are also known as “Born Global” (Rennie 1993). These so called “Born Global” companies no longer follow the established “Uppsala stage model”¹ of internationalization by Johanson & Vahlne (1977), but skipping and ignoring some of the traditionally described internationalization stages (Hedlund & Kverneland 1985).

1.1. Problem

When the “Born Global” phenomenon was first described by Hedlund & Kverneland in 1985, it received considerable attention in the 90s and the subsequent decade. Many quantitative and qualitative studies about the “Born-Global” phenomenon were written, describing “Born Globals” from different industries and countries as can be seen in summaries by Wessely (2007) as well as Rialp, Rialp & Knight (2005b). This includes studies focusing on the spectrum of factors which foster the rapid internationalization process of “Born-Globals”. Studies cover high technology product industries (Lindqvist 1991) to pharmaceuticals (Stray, Bridgewater & Murray 2001) to the software industry (Coviello & Munro 1995) to even including the industry of handcrafted products (McAuley 1999). But there is limited research in the internet based business models field (cf. Schmidt-Buchholz 2001; Mahnke & Venzin 2003). The cause of this is most likely due to the fact that most research in the field of “Born Globals” was carried out in the 1990s and early part of this 21st century when the industry of internet companies was not so mature.

1.2. Relevance

As previously mentioned, early fundamental technological, economic and social changes have been taking place leading to the conclusion by Madsen & Servais (1997) that: “the rise of Born Globals may be attributed to at least three important factors: (1) new market conditions,

(2) technological developments in the area of production, transportation and communication and finally (3) more elaborate capabilities of people, including the influence of the founder/entrepreneur who starts the Born Global firm.” (Madsen & Sevais 1997, p.565).

Therefore, it can be assumed that these changes will continue to generate other positive effects with yet more growth of “Born Globals”, drawing further analysis and focus onto, “Born Globals” (Madsen & Sevais 1997).

But this phenomenon reaches beyond academic interest. Whilst an increasing number of “Born Globals” are being identified across industries and countries (Oviatt, McDougall & Loper 1995) this phenomenon attracts attention from investors, managers and politicians who want to understand this new growth venture of internationalization and development (Bell, McNaughton, Young & Crick 2003). The “Born Globals” innovation, provides new jobs in turn demanding greater understanding (Moen 2002).

Furthermore, the focus of research on “Born Globals” should be investigating the growth of internet companies, and their potential customers, as the number of internet users continues to grow rapidly worldwide (Statista 2015). Alongside comes growth of the global infrastructure and as a result new business models emerge and prosper, providing the opportunity for the new players to enter the fast expanding market.

This growth, in the internet field, cannot be ignored yet the level of accompanying research in “Born Globals” has not yet caught up. This thesis is going to examine and analyze some of the major factors which spur the fast internationalization of “Born Globals” in other industries and challenge the premise whether these are applicable for the internet sector. In addition, this thesis will investigate which other factors are crucial, or not, for a rapid internationalization of internet companies.

1.3.Structure

This thesis will begin with a conceptual foundation in chapter 2. by providing a definition of “Born Global” and the “Born-Global” phenomenon. To date there is no one single accurate definition. Chapter 3. will explore crucial factors common to “Born Globals” and explain each one of these in detail. Chapter 4. will contain a detailed description of the research method used and how the relevant data was gathered. Chapter 5. is case studies of six individual internet companies. By providing a clear definition of “Born Globals” these six internet companies will provide an initial step to understanding the key factors that “Born Globals” all contain. Chapter 6. will present the conclusions drawn from this examination. Closing the thesis with a discussion in chapter 7. focusing on the economy and the next steps required in deepening our understanding in the field of “Born Globals”.

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¹ Uppsala stage model is described as an internationalization process taking place in stages, preferably in countries with a low “psychic distance”, which implies in most cases neighboring countries (Johanson & Wiedersheim-Paul 1975).

2. Conceptual foundation

The following paragraph focuses on the definition of the term “Born Global” and what is actually meant by the term “Born Global”. A clear explanation, will remove myths, and in turn will help to define the important distinguishing characteristics between the Uppsala model and the “Born Global” phenomenon and clarify “[…] whether the Born Global concept is just old wine in new bottles or if we really witness new types of international firms, which have not been seen before” as Rasmussen & Madsen (2002, p. 4) put it.

2.1. Term “Born Global”

The first time the term “Born Globals” appeared was in 1993. In a study of Rennie and McKinsey & Company about Australian SMEs, Rennie used this term to describe the findings of a significant volume of young companies which from start up were expanding directly into international markets (Rennie 1993). Since then, and over the coming years many more definitions appeared. Starting out with Ganitsky in 1989, who called this new kind of companies „Innate Exporters”. One year later Litvak (1990) calls them „Instant Internationals“, followed by Jolly, Alahuhta & Jeannet (1992) with ”High Technology Start-ups“. Oviatt & McDougall who today are active researchers in this field, took notice and started focusing on these companies back in 1994, defining this phenomenon as „International New Ventures“. To this point the term “Born Global” was already being cited in other publications. By the end of the 90s researchers emerged with definitions like “Born Internationals“ as Kandasaami (1998) calls them as well as „Instant Exporters“ (Aspelund & Moen 2001). However, two main terms have ridden the course of time and survived: “Born Globals” (cf. Rennie 1993; Madsen & Servais 1997; Schmidt-Buchholz 2001; Rialp et al. 2005a) and “International New Ventures“ (cf. Oviatt & McDougall 1994; Rialp et al. 2005b; Zahra 2005). A comparison of Google trends of the last decade reveals the term “Born Global” is the now accepted definition for this new phenomenon, and this term will be quoted in this thesis as well.

2.2. Definition “Born Global” phenomenon

The first time this occurrence of rapidly internationalizing companies was noted by Hedlund & Kverneland in 1985. They identified companies which do not follow the established stage model of internationalization by Johanson & Vahlne (1977); these companies deliberately skip some of the described internationalization stages; by a method known as “leapfrogging” (Hedlund & Kverneland 1985).

Even though the current phenomenon of “Born Globals” generates great interest, there has not been as much research in the field as might have been expected. This could be partially due to the absence of an agreed definition of the term “Born Global” (Kuivalainen, Sundqvist & Servais 2007). As Rasmussen & Madsen (2002) put it: “[…] there is absolutely no clear definition – neither theoretically nor empirically – of a Born Global or similar concepts” (Rasmussen & Madsen 2002, p. 13). This gap continues. Nevertheless, there have been various attempts to define the term, “Born Global” in different studies (cf. Rennie 1993; Rialp et al. 2005a).

However, as observed by Pock (2010) the most commonly cited definitions are by Oviatt & McDougall (1994) and Knight & Cavusgil (1996). Frequently quoted is the definition by Oviatt & McDougall (1994) alongside (Pock 2010) in Journals of various known researchers (cf. Madsen & Servais 1997; Moen & Servais 2002; Rialp et al. 2005a).

To put it in the words of Oviatt & McDougall (1994): “We define an international new venture as a business organization that, from inception, seeks to derive significant competitive advantage from the use of resources and the sale of outputs in multiple countries. The distinguishing feature of these start-ups is that their origins are international, as demonstrated by observable and significant commitments of resources (e.g., material, people, financing, time) in more than one nation. The focus here is on the age of firms when they become international, not on their size.” (Oviatt & McDougall 1994, p.49).

Knight & Cavusgil (1996) define “Born Globals” as small technology-oriented companies, which from inception are active in international markets and seek a revenue of 25% from outside their home market in the first 2 years of their existence. This definition has also been cited by various Journals over the last two decades of research (cf. Schmidt-Buchholz 2001; Moen 2002 etc.).

There are a couple of definitions which combine the definition of Oviatt & McDougall (1994) with the one by Knight & Cavusgil (1996). What these definitions have in common is to define “Born Globals” as possessing an accelerated speed of entry and expansion into new markets by young companies.

Wessely (2007) in her review about “Born Globals”, stated that all definitions can be summed up in two attributes: the “speed (born)” of internationalization and the geographical “scope (global)” of the internationalization. The main focus is thereby on the speed of internationalization, which is one of the key attributes of “Born Globals” (Pock 2010).

To define this phenomenon more detailed, many definitions use multiple criteria. The most used ones are the speed of internationalization, percentage of international revenue compared to total revenue and number of foreign countries which the company is active in, as well as their geographical location compared to each other (Pla-Barber & Escriba-Esteve 2006).

These two vital attributes, as mentioned by Wessely (2007) earlier, will influence the subsequent points and should be noted.

Speed (born) of internationalization

The speed (born) of internationalization as Wessely (2007) puts it, can also be described in a time span of certain events. Reaching from inception of the company to the first foreign activities (Wessely 2007). This time span has been numbered very differently over the years of research. Up from one year after inception in a study about “Born Globals” in the Scottish Arts and Crafts Sector which was conducted by Andrew McAuley (1999), up to two years (Rennie 1993) to three years (cf. Wessely 2007, Pock 2010). Besides research papers which define this time span up to even five (Johnson 2004). Conclusion is as follow: three years between inception and the first foreign market activity seem appropriate and have been used by many research papers before. And when the time span exceeds three years, there can hardly be spoken about a global vision of the founders anymore (Wessely 2007).

To finalize the definition of this attribute, the points in time which “frame” the time span have to be defined. Oviatt & McDougall (1997) deal with this topic in their research paper in detail and identify four different points in time which might be used for the term inception. The definition of this point in time could be either when the entrepreneurs start planning the venture, the actual date of foundation, the starting point of business activity or when the business starts generating its first revenue (Oviatt & McDougall 1997). For this study the term inception is defined by the launch of the company’s website, marking the starting point of business activity.

Growth (global) of internationalization

As for the speed of internationalization, there is no consistent ...

Table of contents

• Abstract
• Table of Contents
• I. List of Appendices
• II. List of Figures
• III. List of Tables
• IV. List of Abbreviations
• 1. Introduction
• 2. Conceptual Foundation
• 3. Influential Factors
• 4. Research Method
• 5. Case Studies
• 6. Results
• 7. Discussion
• V. References
• VI. Appendices
• Copyright