The internationalisation of new ventures can be seen as a time-based entrepreneurial process determined by the venture’s knowledge and resource base as well as the strategic decisions taken over time.
A group of researchers led by Niina Nummela of Turku School of Economics observed: “In the case of international new ventures, the key strategic decision – to go international – is made very early in the company lifecycle, maybe at the time of its founding or even before the company legally exists. Later strategic decisions include the choice of country and entry mode. Ventures entering international markets early on develop knowledge and routines that facilitate entry into additional foreign markets, [while] ventures that internationalise later on in their lifecycle may have developed routines within the domestic market that hinder their capability or willingness to absorb knowledge about oppor-tunities and practices in foreign markets.”
Against this background, Alina Kudina of Warwick Business School led a study of a dozen high-technology ventures in Silicon Fen – Cambridge, UK – that rapidly became global players, often much faster than larger and more established competitors. The study unveiled a number of factors shared by the “born global” high-tech ventures, including knowledge insensitivity, hard-to-imitate technology and a competitive advantage strategy based on differentiation rather than cost.
Perhaps more surprisingly, the success of this early, rapid internationalisation was, in part, attributed to the effective use of networks. The authors observe: “A company is successful because it has created an ecosystem – that is, a whole network – of companies beyond its clients. This network results in a flow of technological knowledge, experienced people and contacts with local venture capitalists and so on. These local networks and the knowledge they imply are also a basis of global competitive advantage.”
The study also provides insights into the decision-making process required to commit to a global strategy. So under what conditions should a high-tech venture pursue early, rapid internationalisation? It should be considered when:
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The market in the home country is not large enough to support the scale at which the venture needs to operate.
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Most potential customers are foreign multinational companies.
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Many potential customers have overseas operations where they will use your products or services. The venture operates in a knowledge-intensive or high-tech sector.
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Having the most technically advanced offering in the world is key to the competitive advantage of the venture.
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The product or service category faces few trade barriers.
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The product or service has a high value relative to its transportation and other logistics costs.
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Customer needs and tastes are fairly standard across potential country markets.
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Products or services have significant first-mover advantages or network effects.
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Major competitors have already internationalised or will do so soon.
- The key managers of the venture are experienced in international business.
Nummela N, Puumalainen K, Saarenketo S (2009) Why do some international new ventures become global start ups? An exploratory study of the Finnish ICT industry. In Larimo J, Vissak T (eds), Research on Knowledge, Innovation and Internationalisation, 21-40.
Kudina A, Yip GS, Barkema HG (2008) Born global. Business Strategy Review, 19(4): 38-44.
Boris Battistini is a senior research fellow at ETH Zurich and a project leader of the Corporate Venturing Research Initiative with Bain & Co (e-mail: bbattistini@ethz.ch) Martin Haemmig is an adjunct professor at Cetim at UniBW Munich and Leiden University (email: martinhaemmig@cetim.org)
Start ups going global from the US, Canada, Europe and Israel: As of June 2010, of all 20,679 VC-backed companies from the US, Canada, EU, Israel, China and India, a total of 2,343 companies (11.3%) have an office in another region – of 624 Israeli companies, 35% have a foreign office, split US 26.3%, Europe 5%, China 3%. With the absence of a domestic commercial market, these companies have to be global very early in their lifecycle. Of the large US pool (10,205) 10% have an international location, mainly in Europe but increasingly in India and China, where they want to tap these growth markets or access research and development talents. European companies focus primarily on the US. There is no surprise that of the 1,276 non-US international companies, 1,022 – 80.2% from the pool in Europe, Canada, Israel, China and India – have a physical presence in the US, showing the relevance of this market for innovation and commercialisation.
Start ups going global from China and India: Given the large domestic market in China, with some pretty mature industry sectors – digital media, mobile, consumer products and services – there is less of a need to go international, as domestic absorption is huge. These ventures can grow to large-revenue companies and to billion-dollar market capitalisations with pure domestic sales efforts and often amazing business model innovation. However, the more technology is involved, or technological sophistication reaches world-class levels– such as mobile gaming – the more they will also tap into foreign markets – 2.8% in the US. As for India, the consumer online services and e-commerce markets lead the investments for domestic-focused companies, while enabling tools for internet and mobile, software solutions and med-tech devices find their way mainly to the US and to some degree to Europe.