Examination of factors that drive, influence and enable the early and rapid internationalization of companies producing final goods and the impact of the external environment of Austria

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University of Amsterdam Faculty of Economics and Business

MSc. in Business Administration – International Management Track First Supervisor: Erik Dirksen MSc.

Second Supervisor: Dr. Ilir Haxhi Master Thesis

Submitted by:

Levin Dannenhauer -10824596 Word count (tables excluded): 21469 Word count (tables included): 26790

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Statement of originality

This document is written by Student Levin Dannenhauer who declares to take

full responsibility for the contents of this document.

I declare that the text and the work presented in this document is original and

that no sources other than those mentioned in the text and its references have

been used in creating it.

The Faculty of Economics and Business is responsible solely for the supervision

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In the business environment of 2016, with a globalized world as a marketplace, early and rapidly internationalizing ventures, or International New Ventures (“INVs”), are of great interest. A lot of these INVs originate from small and open economies (“SMOPECS”). While there are scholars of several different perspectives that work on understanding, describing, and interpreting the rationales for the formation of INVs, the literature lacks a focus on INVs that solely produce final goods. This paper investigates what the most important factors are that drive, influence and enable the early and rapid internationalization of companies producing final goods and how the external environment of SMOPECs, in this paper Austria in particular, influence the early and rapid internationalization of INVs. The resource-based theory is used as the base of the research and then combined with the network theory and the entrepreneurship theory. To examine these topics, a multiple case design with a single unit of analysis is conducted. Ten small and young INVs from Austria that produce final goods, all founded in 2010 or later, are used as the cases. To collect the data ten semi-structured interviews with the CEO/Founder of each company was conducted. The results suggest that the cultural environment of Austria impacts the early and rapid internationalization of ventures negatively, because the culture of Austria tends to be risk adverse which might be shown e.g. in the behaviour of potential investors. Some interviewees suspect that such a risk-averse behaviour of investors might be a phenomenon of most of Europe, which could be further investigated in future research. In addition, the results suggest that there are signs that the most important factors that enable and drive an early and rapid internationalization of an INV producing final goods are the intangible resources customer orientation and having the capability to build and sustain a functioning, competent and trustworthy network of distribution partners.

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1. Introduction

In the entrepreneurship research on international issues, there is a “traditional” multinational enterprise (“MNE”). Such a “traditional” MNE develops after a period of domestic maturation. This is partially based on the theory of an internationalization process of Johanson and Vahlne (1977) that suggests that the internationalization of a firm consists of a series of small steps, whereby firms gradually increase their international involvement usually from more familiar countries to less familiar countries. Factors that come into consideration to back up this “traditional” MNE approach are e.g. that large size is often argued to be key to internationalization. This is because economies of scale in R&D, production, marketing and so on give the company enough monetary possibilities to expand internationally. Since it usually takes a company time and experience to become a large sized company, internationalization is more likely to occur in a relatively later state of the company’s existence.

However, about 25 years ago the idea of early and rapidly internationalizing new ventures, so called International New Ventures (“INVs”), came up. Several scholars in the field of international management suggest that not all MNEs follow an internationalization process consisting of small steps, since they observe firms skipping the stages suggested by the internationalization theory, or observe very quick internationalizations (Zahra, 2005). They suggest that some companies are INVs, companies that are born global (their origin is international), which challenge the traditional internationalization process theory (Oviatt & McDougall, 1997; Knight & Cavusgil, 1996). In the business environment of 2016, with a globalized world as a marketplace, such INVs become of great interest. This is also because of technological progress, as e.g. IT start-ups can internationalize with less tangible resource commitment than e.g. companies from the industrial sector, which were dominating in most of the 20th century. As one can see, an INV is a special type of MNE and an important

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phenomenon. There are several different names for early and rapidly internationalizing ventures, but in this study they are mainly called INVs, because the scholars who named it INVs where one of the very first ones to research about the phenomenon (Oviatt & McDougall, 1994). A lot of these INVs originate from small and open economies (“SMOPECS”), since their small domestic market and hence limited profit potential increases the importance of generating revenue from foreign countries (Freeman & Cavusgil, 2007). This is the reason why in this paper INVs of Austria, which is a SMOPEC, are examined. The reason to chose Austria was because there is currently barely any research from Austria. It is also believed that the external environment, such as the culture, impacts the formation of INVs (Zhang & Dodgson, 2007). In addition, this study focuses on INVs that produce final goods. Final goods are goods that are consumed instead of being used in the production of another good. On the contrary, intermediate goods are used as inputs of the production of other goods. While there are scholars of several different perspectives, like the resource-based theory, the knowledge-based view, the dynamic capabilities perspective, the network theory or the entrepreneurship theory, that work on understanding, describing, and interpreting the rationales for the formation of INVs (Rialp, Rialp & Knight 2005), the literature lacks a focus on INVs that solely produce final goods. Such a focus is important to gain more precise and meaningful results and helps to ensure a valuable contribution to the theory, since an INV producing and selling intermediary goods might face very different challenges and needs regarding resources like capabilities, knowledge, sale strategy etc. This study puts an emphasis on the early years after the inception of the venture to examine which are the most important factors in the early years of an INV producing final goods that enable a rapid and early internationalization. To research this area, the resource-based theory is used as the base of the research and combined with the network theory and the entrepreneurship theory. The study examines the following two research questions:

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What are the most important factors that drive, influence and enable the early and rapid internationalization of companies producing final goods?

How does the external environment of Austria influence the early and rapid internationalization of INVs?

To examine these research questions a multiple case design with a single unit of analysis is conducted. Ten small and young INVs from Austria that produce final goods, all founded in 2010 or later, are used as the cases. To collect the data ten semi-structured interviews with the CEO/Founder of each company was conducted. The programme Nvivo was used to analyse the data. The process of analysing the data is separated in two steps. In the first step, within-case analyses were executed. A within-case analysis helps to become more familiar with each case as an independent entity (Eisenhardt, 1989) and patterns of each venture can be identified. In the second step, the cross-case analysis, a comparison of the within-case analyses is conducted with the aim to find consistencies and differences among the cases (Eisenhardt, 1989). The results suggest that the cultural environment of Austria impacts the early and rapid internationalization of ventures negatively, because the culture of Austria tends to be risk adverse which might be shown e.g. in the behaviour of potential investors. Some interviewees suspect that such a risk-averse behaviour of investors might be a phenomenon of most of Europe, which would be interesting for future researches. In addition, the results suggest that there are signs that the most important factors that enable and drive an early and rapid internationalization of an INV producing final goods are the intangible resources customer orientation and having the capability to build and sustain a functioning, competent and trustworthy network of distribution partners. Hence the ventures should focus early on building these intangible resources, since they could enable and drive a successful early and rapid internationalization for INVs producing final goods. This paper is structured as follows. The third section provides an overview of the emerge of INVs in the literature,

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shows the different perspectives scholars adopted when they researched the phenomenon of INVs and ends with the explanation of the theoretical framework that is underlying the examination of the research questions. The fourth section provides information about the method adopted in this study to answer the research questions. The section illustrates the research design, the case selection, the case criteria, the case description, the data collection and the strategy of the data analysis. The fifth section provides the findings of the case studies and the sixth section discusses the significance of the studies findings by explaining the theoretical contributions and the practical implications of the study and furthermore shows limitations of the research approach and suggests topics for future research. The seventh and last section serves as a conclusion of this paper.

2. Literature Review

2.1 “Traditional” Multinational Enterprises

In the entrepreneurship research on the international internationalization, there is a “traditional” multinational enterprise (“MNE”). These “traditional” MNEs develop after they matured in the domestic market. Johanson and Vahlne (1977) suggest that the internationalization of a firm is composed of a series of small steps, in which firms gradually increase their international involvement usually from more familiar countries to less familiar countries. Factors that are important for this theory are e.g. that large size of a venture is often argued to be one of the most important factors for internationalization. Advantages of being large are e.g. economies of scale in R&D, production, marketing etc. that give the company enough monetary power to expand internationally. It normally takes a company a relatively long time and experience to become a large sized company, hence internationalization is more likely to occur in a relatively later state of the company’s existence. Also other factors like the

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experience with another country´s culture and their business environment are usually gained gradually over time that makes it then easier to internationalize.

2.2 Discovery and main definitions of early and rapidly internationalizing ventures However, about 25 years ago the idea of early and rapidly internationalizing ventures came up. In the last 25 years, there was a lot of research conducted in the international entrepreneurship literature concerning early and rapidly internationalizing ventures. There are all kinds of terms for this phenomenon, like Born International, New Entrepreneurial Ventures, Global Smaller Firms, Instant Exporters or Early Internationalizing Firms (Peiris et al., 2012). But the most used underlying theory of scholars to research the early and rapid internationalization of ventures is the theory of INVs from Oviatt and McDougall (1994) followed by the theory of Born Globals (“BGs”) of Knight and Cavusgil (1996). In this paper the term INV is mostly used to describe early and rapidly internationalizing ventures.

The scholars Benjamin Oviatt and Patricia McDougall were one of the the first ones to bring attention to early and rapidly internationalizing ventures and the importance of their recognition in a more and more globalizing world. In one of the very first papers on this area of research, McDougall (1989) compares international versus domestic entrepreneurship and examines new venture strategic behaviour depending on the industry structure in which the companies compete. The research suggests that international entrepreneurs compete in industries with a higher degree of international competition, a higher degree of restrictiveness of governmental policies and their market-based strategies are much broader. Also other scholars like e.g. Jolly et al. (1992) saw the phenomenon of a fast internationalization, in their case coming from technology start-ups. However, McDougall and Oviatt first introduced the term “International new Ventures” and are seen as the pioneers of the topic.

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They published a theory of INVs (Oviatt & McDougall, 1994). In this paper, an INV is characterized as ”…a business organization that, from inception, seeks to derive significant advantage from the use of resources and the sale of outputs in multiple countries” (Oviatt & McDougall, 1994, p. 49). Important traits of INVs are that their origin is international, which can be seen by their resource commitment (e.g. intangible assets, human capital, time) in at least one more country besides the home country. The focus in this matter is on the age of a firm at the time of their internationalization, not on the firm size. They describe the phenomenon of INVs as very important, increasing, and contradictory from traditionally expected characteristics of MNEs. Reasons for the development of INVs are e.g. that there is a changing international environment that is showcased in e.g. the homogenization of many markets. In their study they suggest a framework that shows fundamental traits necessary for sustainable INVs to exist. These traits are that the firm internalizes some transactions, uses alternative transaction governance structures, and that it has a foreign location advantage and unique resources.

In the same year, McDougall and Oviatt worked together with Scott Shane (McDougall et al., 1994) to explain the formation of INVs. When it comes to the formation of INVs, the cases investigated by these three scholars followed the following pattern: The founders of INVs are individuals who see opportunities to earn returns across national boarders, who engage in international business from the time of the firm formation and who tend to use hybrid governance structures when they act internationally. McDougall and Oviatt (2000) also mention a so-called “intersection of two research paths.” They state that international business researchers start to broaden their horizon to not just focus on large MNEs but also on entrepreneurial firms and that they observe an accelerated internationalization in relatively small and new organizations. This shows the growing academic interest in INVs. McDougall et al. (2003) suggest that INVs are significantly

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different compared to domestic new ventures (“DNVs”) concerning their entrepreneurial team experience, strategy, and industry structure. For example the entrepreneurial team of INVs has more previous international and industry experience, their strategies are more aggressive, they operate in more channels of distribution, compete more on the basis of differentiation and the industries of INVs have a higher degree of global integration.

The scholars Knight and Cavusgil (1996) introduced the term “Born Globals” (“BGs”) to describe early and rapidly internationalizing ventures. In their definition, BGs are “…small, technology-oriented companies that operate in international markets from the earliest days of their establishment” (Knight & Cavusgil, 1996, p.11). At first glance, the definition of INVs and BGs, seem relatively similar. But there are different classification methods between the literature of INVs and BGs (Madsen, 2013). Both theories require the condition of a relatively early and fast internationalization to qualify as an INV or BG. According to McDougall et al. (2003) the literature suggests internationalization after 6 years of the founding to be considered an INV, while Knight (1997) suggest a limit of 3 years. Oviatt and McDougall use the speed and scope (e.g. number of foreign countries and value chain activities in which sales are generated) to define INVs and Knight uses the speed and extent (e.g. percentage of foreign sales on total sales) to define BGs (Zahra & George, 2002).

In the INV literature there are four different types of INVs: export/import start-ups, geographically focused start-ups, multinational traders and global start-ups. There are two different dimensions to classify these types, which are as follows: The first dimension is about the value chain activities coordinated by the firms across different countries. Indicators are the number of value chain activities and the type of activities. Such value chain activities could be sales, production activities and sourcing or service activities. The second dimension that classifies INVs is the number of foreign countries this firm entered. There is no specific cut-off point of countries mentioned; it has to be at least one foreign country. Hence a venture is

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considered an INV if at least one value chain activity is coordinated across borders (in at least one other country) in the time frame mentioned. In the BG literature on the other side, instead of looking at the value chain activities, the share of foreign sales on total sales is seen as the most important criterion to be a BG. Knight (1997) defines a BG as a venture that has at least 25% of foreign sales within the first 3 years of its founding, and classifies different types of BGs depending on the percentage of foreign sales.

2.3 Overview of different theories examining early and rapidly internationalizing ventures

After Oviatt and McDougall started this research stream, other scholars became interested in this research area as well. There are different research perspectives that work on understanding, describing, and interpreting the reasons for their formation (Rialp, Rialp, & Knight 2005). Since scholars started to pay attention to early and rapid internationalization, there came a lot of different research streams that try to explain the phenomenon (Peiris et al., 2012). To get a good overview over the field of early and rapidly internationalizing ventures, in the following there are presented different theories guiding the international entrepreneurship research.

2.3.1 Resource-Based Theory

The Introduction of INVs by Oviatt and McDougall (1994) was based on a resource-based view (“RBV”) and is now called the resource-resource-based theory (“RBT”) (Barney et al., 2011). The RBT draws on economics of comparative statics that are equilibrium-oriented. Scholars of the RBT assume that resources are distributed heterogeneously between ventures in an industry and not fully mobile among firms and that differences regarding resource endowments are able to lead to a competitive advantage. To achieve a competitive advantage it is necessary to conduct hard-to-copy investments in firm-specific resources. In general a

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firm must own rare, valuable, inimitable and non-sustainable resources to gain a sustained competitive advantage (Barney, 1991). These resources can be a lot of things, from specific skills of the management team or founder to having patented a unique product. It sees the firm as an accumulation of tangible and intangible resource stocks (Roth, 1995). Firm resources include all assets, processes, routines, capabilities, knowledge, information etc. that are controlled by a firm that enable the firm to conceive of and implement strategies that increase its effectiveness and efficiency (Barney, 1991). There are physical capital resources, such as access to raw materials, human capital resources such as experience, judgement, training etc. of managers and workers in firms and organizational capital resources such as coordinating systems, informal planning, controlling, and informal relations among groups within a firm and between a firm and other firms in its environment (Barney, 1991). In the context of internationalization, Oviatt and McDougall (1994) suggest that a sustainable competitive advantage for INVs could be achieved by having access to and having the ability to control unique resources, with knowledge as the key resource. The RBT is one of the most used theories to understand the phenomenon of early and rapidly internationalizing ventures. If one uses the RBT to explain international entrepreneurship it means that firms use rare tacit knowledge about global opportunities and the ability to leverage this knowledge to achieve competitive advantage (Peng, 2001). INVs are described as companies that have unique and rare capabilities and assets and through them are able to achieve an early and rapid internationalization. Oviatt and McDougall (1994) explicitly identify the entrepreneur as an important source of firm-level knowledge resources. Firms’ specific resources such as global vision, foreign work experience in the top management team, pro-activeness, innovativeness and risk-taking can lead to a competitive advantage in foreign markets (Freeman & Cavusgil, 2007). But scholars in this field have focused on all kinds of resources, e.g. on entrepreneurial capability (Zhang et al., 2009), market knowledge (Lamb & Liesch, 2002) or network

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resources (Coviello & Cox, 2006). To sum up, the RBT is used as a fundamental theory for scholars to build variables to explain the fast and rapid internationalization process and is still the most used and hence most influential perspective in the research of this field.

2.3.2 Knowledge-Based View

According to the knowledge-based view (“KBV”) knowledge is one of the most important factors in the internationalization (Prashantham, 2005). Grant (2002) describes the KBV as a set of ideas about the nature and existence of ventures that emphasize the role knowledge plays. Assumptions the KBV is based on are that knowledge is a productive resource of great importance, that the transferability of knowledge is variable – high transferability for explicit knowledge and low transferability for tacit knowledge (e.g. know how and skills), that knowledge is more expensive to create than replicate, that through specialization a greater efficiency in knowledge creation and storage can be realized and that the requirement of knowledge is often in firms´ operations. Knowledge creation requires specialized skills while knowledge application requires diverse skills. To apply the KBV in the research of early and rapidly internationalizing ventures, the scholars of this school put a lot of importance into the knowledge intensity, which means to what extent the firm depends on an existing knowledge base. Scholars have found that higher knowledge intensity leads to a growth of international sales of early and rapidly internationalizing ventures (Yli-Renko et al., 2002).

2.3.3 Dynamic Capabilities Perspective

The Dynamic Capabilities Perspective (“DCP”) came up in the early 2000s and the scholars in this field highlight that unique knowledge creation and information flows through the exploration of new capabilities and exploitation of current capabilities is of upmost

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importance for export strategy development. The essential issue of the DCP is to research how firms handle the continuous changing circumstances that are caused by rapid technology change, hence the creation of new productive knowledge and the coordination of the process of knowledge development and creation is of great importance for the DCP (Knudsen & Madsen, 2002). Mort and Weerawardena (2006) for example concentrated on a specific networking capability of the manager of a venture and they found a positive relationship between identification and exploitation of market opportunities and the cross-border performance of early and rapidly internationalizing ventures. There are several scholars that support the findings of a positive impact of certain capabilities, especially networking and learning capabilities on the process of internationalization of a venture (Evers, 2011). But it is not clearly defined what exactly a dynamic capability is and it is difficult to tell the difference between a capability and a resource.

2.3.4 Network Theory

The Network theory is used by many scholars to understand the process of internationalization of early and rapidly internationalizing ventures. For scholars of the network theory the focus is on the development of knowledge through external relationships. They see the market as an accumulation of relationships between companies in a way that these companies are interconnected and depend on each other (Johanson & Mattson, 1988). Hence in the network theory, companies are believed to be dependent on resources that others own. The access to these resources depends on the position of the firm in the network (Johanson & Mattson, 1988). Coordination in a network is attained through interaction among firms. External resources can be accessed and sales generated through exchange relationships. The relationship between firms develops over time through social exchange processes and mutual orientation (Johanson & Vahlne, 1992). One of the main functions of such a network

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is to provide contacts that could be used by the firm when they need to, for example when entering a foreign market. The capability of such a network is the extent to which network connections can deliver such advantages when required (Freeman & Cavusgil, 2007). Especially business networks and social networks got attention from scholars. Studying business networks from an inter-firm perspective helped understanding venture formation stage of early and rapidly internationalizing ventures and the study of social networks also includes all of the entrepreneurs inter-personal ties to understand the process of internationalization (Ellis, 2011). Both, strong and weak ties, which differ in amount of time, intimacy, emotional intensity, and reciprocity might be important in different stages of the internationalization of ventures (Freeman et al., 2006) and it is difficult to tell which one of these two types of ties is more important. According to Coviello (2006) the growth of networks is positively related to venture growth.

2.3.5 Entrepreneurship Theory

In the Entrepreneurship Theory there are three different key directions of research. According to Zhang et al. (2009) the first direction of research theorizes that the international entrepreneurship especially points out brokering, leveraging of resources, the creation of value, and seeking of opportunities through a mix of proactive, risk-seeking and innovative behaviour of the entrepreneur. In addition it emphasizes that every international activity is entrepreneurial because leveraging, brokering and risk-taking practices are necessary for them to occur. It is to derive that the behaviour of the entrepreneur drives the early and rapidly internationalizing ventures. Scholars who believe in this perspective see international entrepreneurship as a combination of proactive, risk-seeking and innovative behaviour that is conducted across national borders with the aim to create value for the organisation (McDougall & Oviatt, 2000). Also, the mind-set of the entrepreneur is of importance for

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international expansion, such as having a global mind-set, as well as e.g. network knowledge (Freeman & Cavusgil, 2007). A global mind-set can for example be explained as the capability to scan the world and seek opportunities and trends that may contribute to the organization in form of an opportunity or threatens the organization and can be avoided (Rinesmith, 1993).

The second perspective in this area especially emphasizes opportunities as the main focus of international entrepreneurship. According to this view, scholars suggest that international entrepreneurship is about researching by whom, how and with what effects opportunities to generate future services and goods are discovered, evaluated and exploited (Shane & Venkataraman, 2000). The scholars of this perspective suggest that international entrepreneurship consists of two main parts, which are opportunities and individuals who seek to take advantage of these opportunities. To these scholars, entrepreneurship focuses on opportunities that can be sold and bought and could also be the basis for a new organization. The entrepreneur’s creativity, innovation and experiential learning can be seen as important competencies in this process. It is supported by scholars of international entrepreneurship, that alertness, creativity, prior knowledge, optimistic behaviour, and cognition (Zahra et al., 2005) are related to opportunity identification.

The third stream of international entrepreneurship suggests that entrepreneurship is a process of discovery and enactment. It can be that opportunities are found at random, after an active search or that entrepreneurs create opportunities themselves and exploit them with innovative approaches (Mort et al., 2012). Hence the scholars of this perspective disagree that opportunities are “objective phenomena” that do not need subjective creation of people who are impacted by their social surroundings (Baker at al., 2005). According to them opportunities could be discovered and enacted. That means that people either first act and then interpret what they have created through their actions or that those creations are

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economic opportunities. Scholars of this perspective define international entrepreneurship as the discovery, enactment, evaluation, and exploitation of opportunities across foreign borders to generate future services and goods (Oviatt & McDougall, 2005). On foundation of these three perspectives, Zhang et al. (2009) conceptualises international entrepreneurship as a capability and hence defines international entrepreneurial capability as the firm level ability that allows leveraging resources through a mix of proactive, innovative and risk-seeking activities in order to find, evaluate, enact, and exploit opportunities for business in foreign countries. Hence through this capability the firm is able to leverage firm resources, find and exploit opportunities in the foreign markets to generate superior business performance.

2.3.6. Influence of the external environment

The external environment also has an impact on internationalizing ventures, as it moderates the internationalization process and is a driver of change (Jones & Coviello, 2005). Three important external environmental factors are market, industry and competitive factors such as the market´s size & profit potential, industry characteristics like the industry´s degree of internationalization and environmental characteristics like the competitive environment´s hostility and intensity. According to Fan and Phan (2007), if a venture has a limited domestic market, showcased e.g. in a limited domestic demand, it encourages the venture to internationalize early. In Addition as suggested by Thomas and Mueller (2000), the cultural environment also has an impact on the internationalization by for example influencing the risk-taking behaviour of entrepreneurs. Also, the paper of Zhang and Dodgson (2007) shows how national and cultural factors influenced an early and rapid internationalization for a Korean company.

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2.4 Theoretical background of the case study

As one can see, there are a lot of different research streams that investigate the phenomenon of an early and rapid internationalization. This study is interested in examining international new ventures from SMOPECs because there are a lot of international new ventures from such SMOPECs (Freeman & Cavusgil, 2007). The reason is that having a small domestic market makes it almost a requirement to internationalize early to survive and generate revenue. According to Fan and Phan (2007) there are two drivers for early internationalization, the firm characteristics and the environmental factors. Regarding the environmental factors, one of the primary drivers is the size of the domestic market. If the domestic market is not sufficiently large, it is more likely the new venture will choose to internationalize at or soon after its inception. In addition, when looking at the environmental factors, culture also plays a role. As suggested by Thomas and Mueller (2000), the culture influences several factors like for example the risk-taking behaviour of entrepreneurs. The culture not only has an influence on the entrepreneurs but also on the institutions of the country, as Williamson (2000) suggests, the institutional environment is embedded in the cultural environment. In the thesis it is explored how the external environment influences international entrepreneurship in Austria and if and how this is transferable to other countries that have the characteristics of SMOPECs or in general to other countries in Europe.

In addition, this study focuses solely on companies that produce final products, not on companies that produce intermediate goods. The literature lacks a focus on INVs that solely produce final goods. To the knowledge of the author, there exists no other study with this specialization in this field of research. Such a focus is important to gain more precise and meaningful results and helps to ensure a valuable contribution to the theory, since an INV producing and selling intermediary goods might face very different challenges and needs regarding resources like capabilities, knowledge, sale strategy etc. compared to a INV

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inception of the venture to examine which are the most important factors in the early years of an INV producing final goods that enable a rapid and early internationalization. The small and open economy in this case is Austria. The reason for Austria as the SMOPEC of choice is that there is barely research done focusing on INVs form Austria. To research this area, the RBT is used as the underlying theory of the research and is combined with the Network Theory and the Entrepreneurship Theory. The RBT is still one of the widely used theories to research this area and of great importance. It was used by the pioneers of this research, Oviatt and McDougall, to build the theory about international new ventures and is seen as appropriate for this research. The RBT is combined with the network theory and the Entrepreneurship theory because these theories complement each other. Network connections and network-building capabilities can also be seen as firm assets and is in line with the RBT. The concept of international entrepreneurship capabilities by Zhang et al. (2009) suggests that these capabilities make it possible for firms to leverage resources and discover and exploit opportunities in international markets, hence being as well consistent with the RBT. According to Freeman and Cavusgil (2007), the RBT, the Network Theory and the Entrepreneurship Theory are explanations of an early and rapid internationalization that overlap each other. This combination especially makes sense since the RBT has its focus on the firm´s internal resources and capabilities and the network theory has its focus on gaining knowledge and advantages through external relationships and the Entrepreneurship Theory complements the RBT with resources like the global vision of the entrepreneur.

So this study seeks to examine what resources are especially important for a company that produces and sells final goods in a small and open economy to make an early, rapid and successful internationalization possible, what role a networks plays, and how the external environment influences the early and rapid internationalization. The interview questions are build underlying these three theories to examine resources specific to the management team

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and the firm that make such a formation of an INV possible in this settings and what role a network plays.

3. Data and Method

This study applies an interpretive research philosophy and conducts semi-structured interviews to examine the research questions. In the following, the research design, the selected cases, the case criteria, the cases itself, the data collection and the data analysis strategy are described.

3.1 Research Design

A multiple case design with a single unit of analysis is conducted. Ten relatively small and young enterprises from Austria are used as the cases. The sample size is appropriate because it is a feasible amount of cases and delivers enough information for analytical generalization (Eisenhardt, 1989; Yin, 2009). The sampling rationale is typical, since the cases of companies are not in anyway atypical, extreme, deviant or unusual (Patton, 2001). The unit of analysis is holistic, since we look at each company as a whole (Yin, 2009) and the research design is exploratory and a literal replication because the aim of the research is to detect factors of an early and rapid internationalization in the setting of companies that produce final goods which are coming from an SMOPEC. Ten semi-structured interviews with the CEO/Founder of each company were conducted to collect information about the process of the early and rapid internationalization of their venture and about the several factors that play and played a role in this. This semi-structured interview approach provides detail, depth and an insider´s perspective, while allowing qualitative analysis of interview responses (Leech, 2002). Each interview lasted about 30 to 60 minutes and it was recorded and transcribed. Finally in this study an inductive approach is applied and the aim of this

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study is to find recurring patterns and factors, which could explain the drivers and factors for an early and rapidly internationalization in the setting of a company producing final goods founded in an SMOPEC. Strengths of using this research design is that it is possible to get an in-depth understanding of these 10 INVs in their real-world context and secondly it is likely to generate novel theory (Eisenhardt, 1989). A weakness is that building theories from cases may result in narrow theory, so that it is difficult to achieve an “external validity”/ “generalizability” (Eisenhardt, 1989; Gibbert & Ruigrok, 2010). In this research it is tried to achieve analytical generalization/external validity by using a research design involving 10 cases. By deriving the theoretical background of the study from the literature, it is tried to ensure internal validity. It is tried in this research to achieve reliability by transcribing all the interviews carefully (Gibbert & Ruigrok, 2010).

3.2 Case Criteria and Selection

In regard to the research questions, all the chosen companies are producers of final goods, are from an SMOPEC and meet the criteria of being an international new venture. All the companies are from Austria, since there is little research conducted about INVs from Austria and hence there could be valuable knowledge derived from these cases. The companies are from several different industries to not have results only applicable for one industry. In this study an INV is defined as a venture that has sales in at least one other country within 4 years of inception, which is in line with the definition of Oviatt and McDougall (1994). All of the cases have sales in far more than one foreign country. In addition the cut-off point of four years (Autio et al., 2000) was chosen because it is suggested by the literature that INVs enter foreign markets between two and six years after its founding. The study did not use the extent of foreign sales suggested by Knight (1997), because the

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ventures of the study are small ventures and not all of them publish this information, but if the information was available it is provided. In most of the cases it is above 25% of foreign sales. The ten companies of the sample were chosen because they all were winners of the “Austria´s Born Global Champions 2015 award” which is an award that honours early and rapidly internationalizing companies from Austria. Their homepage information confirmed the criterion of them being an INV. In addition the interviewees verified this information. For the case descriptions homepage information and the information of the interviewees was used. All these companies were founded in 2010 or later. Such young companies were chosen because this analysis is especially interested in the early years of the internationalization and because the owners of the companies are likely to still carry their initial visions and attitudes that are important for the interviews. In Addition they were chosen because of their relatively small size, which makes it more feasible to get in touch with the owner of the company. Using this parallel multiple case study approach increases the comparability of the companies within the sample (Thomas, 2011). The chosen companies have similar characteristics regarding number of employees (< 50) and the age of the company (</=6). To arrange interview appointments, the secretary or the interviewee of each company was contacted by email or phone, in which the research conducted in this paper was explained with the wish to conduct an interview.

3.2.1 Case Descriptions Case A

Case A is a company what was founded 2013 in Austria, has 5 employees and entered the international market in the same year, especially focusing on countries in the European Union, the USA, but also countries like South Korea and Australia. The company uses innovative technologies to combine board games and virtual games and sell so-called

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combined games. In such, the board game is able to interact with the social networks of the players and make them part of the game. Elements of a board game are maintained and are complemented by an app, which can be run on modern smart devices. In addition the combined games make the creation of an active online network around board games possible. The offer includes combined games for different ages and different genres. The income of the company is generated by product sales, licensing and in-app transactions. They sell their product worldwide to several countries like the US, a lot of countries in the EU like Belgium, Netherland, Benelux, Hungary, Poland, France, Spain, Italy and Sweden, once through exporting via the “amazon marketplace”, and also to distribution partners in countries such as Denmark, Belgium and other European Countries. They also have a producer in China, an illustrator from Malaysia and England and a 3D model designer from the US. 80% of their sales are generated outside of Austria.

Case B

Case B is a social enterprise, was founded in 2010 in Austria, employs 6 people and is international since 2014. The company develops and sells products for households in low-income countries. To understand their main product, it is necessary to understand the so called SODIS process. One method to make contaminated water safe to drink is to fill PET bottles with contaminated water and then expose the bottle to sunlight, which is called SODIS process. The main product of Case B is a solar powered UV-measurement device that is placed next to the PET bottles and shows on a display the time at which the SODIS process is complete and the contaminated water is safe to drink. The regions in which the products are sold are Latin America, Africa, South- and Southeast-Asia. The product generates revenues in about 8 countries but is available in more than 35 countries. The three main customer groups are local distribution partners, NGOs and companies that use the product for their social

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responsibility statement by using the product for example as a give away. The product is used by households and communities. The sales generated abroad are at more than 90% of total sales. The production site is in Austria.

Case C

Case C is a company which was founded in 2010 in Austria, has 30 employees and entered the international markets in 2014. The company produces and sells an all-in-one solar system. The system tracks the course of the sun automatically, which makes it 40% more effective than a static solar system. The product is a plug and play system, it can be set up e.g. in the garden and taken along when one moves. The main customers of the product are private households, public customers like cities and communes, and companies. The product is mainly sold via distribution partners. They produce their product in Austria and sell their product in 29 different countries such as Mexico, the Caribbean, South Africa, parts of Asia and so on. 90% of the sales are generated abroad.

Case D

Case D is a company founded in 2011 in Austria, which entered the international market in 2013 and has 6 employees. The company develops and produces a device that connects electrical devices with the Internet. The device is a mobile controller, in from of an adapter plug, with embedded SIM-card, and integrated audio, light and temperature sensors and a counter for energy consumption. The adapter plug is equipped with a technology that enables one to regulate and monitor ones electrical devices via the use of apps on smart phones, tablets and web browser, independent of place. The adapter plug needs to be placed between the socket and the electrical device of ones choice; it then connects itself to the Internet and can be regulated and communicated via the apps. The embedded SIM chip ensures the international use and has an Internet connection in every country in which a

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GPRS-EDGE connection is available. There is a deal with Telekom to provide Internet connection in the device. The company earns money via the sales of the adapter plug, which in one sales packages includes all the other services for a product lifetime, in another package they additional earn money by a yearly rate for sim card and cloud, a monthly rate for internet connection and in addition earn money when someone purchases so called credits which can be purchased in their appstore and used for new apps etc. There are several ways in which the company sells its product in Austria and abroad. For the most part, the products get sold via premium resellers or via distribution partners abroad. The focus here is on several countries in the European Union (about 6-8). In some cases it gets also directly sold to retail stores and they have an online shop via which they sell their product directly to the end customer and export the product to several countries in and outside of Europe. 70% of the sales are generated outside of Austria.

Case E

Case E is a company that was founded in 2012 in Austria, entered the international market in 2013 and has 36 employees. The company is a diabetes service company that offers apps and web services that ease the daily therapy routine of a diabetes patient that has to get treated with insulin injections, i.e. the company creates digital health solutions for people with diabetes. The products are registered and certified as medical devices. The business model of the company is based on three pillars, firstly consumers pay a monthly subscription fee in the app store, secondly in collaboration with a global and national sub-organizations for pharmaceutical and medical companies and thirdly the company gets paid by insurance companies that have their customers use its services for free. The main focus is on 6 different countries, but the apps and web services are available in 58 different countries. They are also currently setting up an office in the US right and have some global R&D collaborations.

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Case F

Case F is a company that was founded in 2014 in Austria, has 4 employees and entered the international market in 2014. The company produces and sells a beverage that has the taste of a traditional Austrian dessert. They sell their product to retail stores, to distribution partners and to caterings. The company has subsidiaries in 3 different countries, the US, the UK and the Netherlands and sells their product to 12 different countries. In addition they want to increase their product range in the future, they already have another beverage taste and an ice cream.

Case G

Case G is a company that was founded in 2010 in Austria, entered international markets within the first years and has 3 employees. The company produces patented, innovative baby and toddler carriers. The product is a combination of a carrier and a sling, which can be adjusted in a precise way to fit the baby´s size from birth and is constantly adjustable to the size of the child. The product is sold via a web shop directly to end consumers, via retailers and via distributions partners. The product is sold in about 20 different countries.

Case H

Case H is a company that was founded in 2010 in Austria, has 7 employees and first internationalized in 2012. The company is engaged in the development, production and sale of backpacks and shoulder bags with integrated solar panels. These panels charge an MPP-tracking Lithium-ion battery pack constantly, also without direct sunlight exposure. The battery pack includes an USB-port, with which one can charge several devices such as smartphones and tablets. The company has different sales channels. It sells its products

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through a web shop and amazon marketplace directly to its end customers, to distribution partners like distributors and retailers and also to corporations which can buy custom branded products for their clients or employees e.g. as a corporate design or give away.They also have sales partners in several countries such as e.g. the US, Dubai, Finland, the Philippines, countries in Africa and in Europe. The share of revenue among these 3 sales channels is about the same for all three. Recently they build a subsidiary in the US. The company generates sales in 18 to 20 different countries. The percentage of sales generated abroad is at about 60 %.

Case I

Case I is a company that was founded in 2010, has 5 employees and generated the first international sales in 2011. The company builds powerful electric motor-systems for mountain bikes and also sells bikes with already integrated kits. The kits can be built on almost any bike and set new standards regarding performance, power, and design. The company is a pioneer in the e-mobility sector. The production site is in Austria. The company sells its products directly to the end consumer worldwide by exports, as well as to distribution partners (distributors and retailers) in different countries such as the US, Canada, Germany, Switzerland, Italy, UK, New Zealand, Mexico and Russia. Sales outside of Austria are at about >60% of total sales.

Case J

Case J is a company that was founded in 2012 in Austria, has 1 employee and internationalized first in 2013. The company designs wearable electronics and smart clothing products. It cooperates with a German institute and combines innovative technology with design. The company first began in the final good production, selling, amongst others, a

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jacket with an integrated electronic system to end customers. This jackethas integrated LEDs, sensors, rechargeable batteries and a switch to turn it on and off that. Nowadays the company sells ready-made components to other companies that develop wearable products as well, and individual product development and technology in this field. As of right now the actually final good is meant for marketing purposes such as showing how the product works instead of selling it in stores or via exports, but this start-up is still kept as a case because it gives interesting insides in the beginning of the company before the sales plans changed and in addition the founder already works on another venture which focuses on selling backpacks that have an electronic alarm system integrated to prevent pocket picking. The company operates in 5 countries. The percentage of sales generated outside of Austria is 100%. Table 01 shows an overview of all the cases.

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Table 01: Overview of Cases Case Industry Year of Founding Year of entering international market Number of countries / region of focus Number of employees A Tourism, Sport and Leisure 2013 2013 European Union, US 5

B Environmental _Technologies 2010 2014 Focus on about 8 7

C Renewable Energies 2010 2014 29 30 D Information and Communicatio n Technology (“ICT“) 2011 2013 Focus on European Union 6 E Health and Medical Technologies 2012 2013 Focus on 5 36 F Food and Drink 2014 2014 12 4 G Consumer Goods and Lifestyle 2010 2010 20 3

H _{Goods and}Consumer Lifestyle

2010 2012 About 18-20 7

I _{Sport and}Tourisms Leisure 2010 2011 Worldwide & Focus on about 7 5 J Creative Industries 2012 2013 5 (Focus European Union und US) 1

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3.3 Data Collection

In this thesis an interpretive approach is used and the research was conducted by semi-structured interviews with the founder/CEO of each company, which delivers primary data. The interviews were conducted to examine the research questions and find recurring patterns. The characteristics of semi-structured interviews are that the interviewer uses predetermined questions but has the option to skip topics or add additional questions to the interviews if it seems important (Saunders & Lewis, 2012). This type of interview has a clear guiding idea about the interview process but offers the possibility to ask more specific questions. This research method is justified for this paper because it provides the ability to gather detailed information about the factors and drivers of the early and rapid internationalization and the influence of the external environment from the perspective of the founders/CEOs who are all really closely involved with this process. Since it is a complex topic, and a lot of different factors influence an early and rapid internationalization, it is of advantage that the typical spontaneity of this interview process allows the interviewer to intervene if it is necessary to adapt questions to a specific course of an interview. The interviewees asked for anonymity, so their names and their companies´ names are not revealed. Table 02 shows an overview of the interviewees and table 03 shows an example of interview questions asked.

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Table 02: Overview of Interviewees

Case Interviewees´ Position Company´s Industry

A CEO & Co-Founder Tourism, Sport and Leisure

B CTO & Founder Environmental Technologies

C CEO & President Renewable Energies

D CEO & Co-Founder ICT

E Community Relations

Lead & Co-Founder Health and Medical Technologies

F CEO & Co-Founder Food and Drink

G CEO & Founder Consumer Goods and Lifestyle

H CEO & Founder Consumer Goods and Lifestyle

I CEO & Co-Founder Tourisms Sport and Leisure

J CEO & Founder Creative Industries

Table 03: Examples of interview questions

Examples of interview questions

How was such an early and rapid internationalization possible? Follow-up questions:

Did you have international experience before the internationalization and how did that help you in internationalizing? Did theses

experiences make you internationalize early, if so how?

What were the reasons for such an early and rapid internationalization?

Follow-up questions:

What was the Influence of the size and culture of Austria as an SMOPEC?

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How did customers or partners abroad get to know your venture? Follow-up questions:

What marketing activities did you conduct? Did you conduct aimed marketing for specific markets or customer groups abroad?

How did you choose the countries you conduct business in? Follow-up questions:

How do you identify international opportunities?

What are the influences of a network on internationalization? Follow-up questions:

Did you already have a network built before or while you

internationalized? How did you build that and how did that help you in internationalizing?

Are there negative aspects of having to rely on a network? What were the cultural or institutional influences of Austria that impacted the internationalization?

How did they influence your willingness and your ability to internationalize early and rapidly?

What are the greatest challenges of an early internationalization? Follow-up questions:

What about different cultures/institutions in foreign countries? What about working together with business partners?

Which skills are especially important to internationalize early and rapidly in a successful way?

Which skills did you improve the most while internationalizing? What are the chances of an early and rapid internationalization? Follow-up questions:

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3.4 Data Analysis

By using the qualitative research programme Nvivo, themes and sub-themes were related and assigned to the data. This helps analysing the data and gives a good basis for the research. The themes this study seeks to investigate are based on an inductive approach and a priori approach (Ryan & Bernard, 2003). The three parent themes in this study are “external environment”, “intangible resources” and “early and rapid internationalization of ventures that produce final goods.” The sub-themes of the parent themes were developed to categorize information and links in the data (O´Dwyer, 2004). The parent theme “external environment” derives from the literature as Jones and Coviello (2005) suggest an influence of the external environment on the internationalization of INVs. Through the conducted interviews the sub-themes “domestic market size” and “culture” have been assigned to the parent theme “external environment”, which is in line with the literature (Fan and Phan (2007), Zhang and Dodgson (2007), Thomas and Mueller (2000)). The parent theme “intangible resources” was built from the within-case study analyses that have shown that such intangible resources have been of the greatest importance in the early and rapid internationalization, which is in line with the RBT (Oviatt and McDougall, 1994). The sub themes assigned to this second parent theme are based on the conducted interviews and are “customer orientation”, “network building and sustaining capability”, “unique product”, “global mind set”, “market orientation”, “marketing competency”, ”human resource management”, “alertness”, “flexibility”, “persistence” and “international experience”. The parent themes “external environment” and “intangible resources” both impact the parent theme “early and rapid internationalization of ventures that produce final goods” and its sub themes “willingness to internationalize early” and “ability to internationalize early” which are both based on the conducted interviews.

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The process of analysing the data is separated in two steps. In the first step, within-case analyses are executed. A within-within-case analysis helps to become more familiar with each case as an independent entity (Eisenhardt, 1989) and patterns of each venture can be identified. In the second step, the cross-case analysis, a comparison of the within-case analyses is conducted with the aim to find consistencies and differences among the cases (Eisenhardt, 1989). The result section shows the results of the cross-case analysis conducted in this research.

4. Results

This section presents and analyses the findings of the semi-structured interviews. It consists of two sections. First, the ten within-case analyses are conducted and the findings of each case are presented and analysed individually. After that the cross-case analysis is conducted and the results of it presented (Eisenhardt, 1989).

4.1 Within-Case Analyses Case A

To describe the early and rapid internationalization, the CEO and Co-Founder of Case A was interviewed. The way he first got the company´s product known on an international basis was through a crowd funding campaign, which had the benefit that it not just financed the first steps of building up the company, but it also directly reaches end customers of the product to have a feedback on who is interested in the product, what is the potential of the product, who are the potential customers of the product and what is the market of the product. This is a sign that customer orientation was important for Case A to market a final good in an international context. The CEO of the company stated: “We needed more financial support and we chose crowd funding, because we told ourselves, we are gamers and we look for other gamers, who could be interested in playing” our combined games. He mentioned the limited

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profit potential of a SMOPEC like Austria for it to be important and as a reason to use an internationally available platform to market and finance the product. The CEO stated that “since the Austrian Market is really limited/manageable and in Austria Crowd funding was not really a thing back then we decided for a platform that is internationally accessible, and through that we got a lot of international support and that is how it happened that we were strongly engaged in the international business/area from the beginning and had significantly more supporters from abroad than from the domestic market.” Hence choosing the right marketing and financing strategy seemed to be important for this company to have a quick start internationally. One should have knowledge about these options and wisely chose the right one. The CEO also stated that the regulations in the European Union make it feasible to internationalize early in a European context since it is “relatively easy to set foot in a new market, at least in our industry […] through the homogenisation of the European Union.” So in an institutional context, if one looks at whole Europe that was a helping factor in this case. Most of his network he built and strengthened after founding the company, such as to a producer in Shanghai and to the US, which is an interesting market for them. First of all they look at the potential, as they did with one of their combined games that is a strategy game. Concerning that he said that “In the US we think there is a very high potential for that product […] because of the historic background of the game” but also states that it is necessary to look at the customers there as one has to know “how the people there tick” and “how the business works over there.” He mentions as a cultural difference that “US Americans put way more emphasis on customer care.” For the Chinese market he also had an example of a cultural distance from a consumer directed perspective as he said that, regarding the strategy combined game they offer: “On the map of the game there are several different regions and one of those regions was never accepted as an independent region in china because they claimed that as part of china throughout history.” To get this knowledge about the culture, it

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seems like one has to build connections to people from abroad, which Case A usually does by going to networking events of the industry or by presenting their product on exhibitions. He said: “A lot is happening on exhibitions and we are on a lot of exhibitions […] there are exhibitions for the public and for expert audiences […] and we have a lot of people approaching us or we approach them and that is how we build a lot of connections and that is how distribution partnerships emerge.” This shows that for Case A it was important to have the ability to know how to build a network of distribution partners. Also the interview showed that a good way for this company to get to know distribution partners (distributors and retailers) or market the product to customers is through different exhibitions, like for example gaming exhibitions. He also mentioned that the connection with the end customer was essential and that they make it very easily possible via the app to get in contact with them in Whatsapp, Facebook and Skype. They have an average reaction time of less than 3 minutes to answer customer questions in Facebook, plus they offer gaming tutorials in Skype. Regarding that the CEO said: “By the way, that was also a lesson we learned in the US, because we realized there that a major reason for people to hesitate to try a new product is that the game instructions are extremely boring […] and we were on several gaming events in the US where we realized just that getting it explained and having someone who gives you Q&As right away was extremely accommodating in trying new products.” So they capitalized on the knowledge mentioned early about the importance of customer care in the US and made these services available, for some part they adjusted to accommodate the US customer, which is a sign how important customer orientation was for the early and rapid internationalization of Case A and also how one can learn from other cultures. When he talked about his experiences in the US he made while attending a start-up exhibition in Silicon Valley he mentioned that “in the US one talks more open about their ideas, but also about your failures” and that would be the difference to Austria, that “if you fail in a venture in Austria, you get labelled as a

Examination of factors that drive, influence and enable the early and rapid internationalization of companies producing final goods and the impact of the external environment of Austria

Statement of originality

This document is written by Student Levin Dannenhauer who declares to take

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I declare that the text and the work presented in this document is original and

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The Faculty of Economics and Business is responsible solely for the supervision

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