The rapid internationalization of Dutch small & medium enterprises from establishment : investigating the factors that enable the rapid internationalization of Dutch international new ventures from knowledge-intensive a

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The rapid internationalization of Dutch

Small & Medium Enterprises from

establishment

Investigating the factors that enable the rapid internationalization of Dutch international new ventures from knowledge-intensive and non-knowledge intensive sectors.

Master Thesis

Student: M. M. Keulaerds Student ID: 10883738

MSc. Business Administration: International Management First supervisor: Erik Dirksen MSc.

Second reader: dr. M.K. (Michelle) Westermann-Behaylo Date: Friday 23th of June, 2017

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Statement of Originality

This document is written by Student Maartje Keulaerds 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 of completion of the work, not for the contents.

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‘This is a very exciting time in the world of information. It`s not just that the personal computer has come along as a great tool. The whole pace of business is moving faster. Globalization is forcing companies to do things in new ways.’

Bill Gates

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Introduction

1.1. Introduction

Over the past decades small and medium enterprises (SME1) are more and more involved in diverse forms of internationalization (Laanti, Gabrielsson & Gabrielsson, 2007). Due to the impact of technological, social and economic developments, these SMEs play an increasingly active role in international markets today (Kalinic & Cipriano, 2012, p. 694). Many economies recognize the innovative ideas emanating from the international young firms as an important source of innovation and as a significant added value for the economy and to realize prosperity and jobs. Consequently, international entrepreneurship gained considerable attention amongst policy makers, government and multinational enterprises (Zander, McDougall, Rose, 2015, p. 27). The way in which SMEs expand to international markets, also known as the internationalization process, has been an increasing object of academic research in international management literature as well (Oviatt & McDougall, 1994; Madsen & Servais, 1997, p. 561).

Initially, the internationalization process of firms has been theorized as a gradual approach stating that the firm's internationalization proceeds in a slow and step-by-step manner (Madsen & Servais, 1997, p. 561; Kalinic & Cipriano, 2012, p. 694). The Uppsala Model for instance shows that the process includes incremental internationalization activities that focuses on the integration and use of knowledge about foreign markets and operations (Vahlne & Johanson, 1977, p. 23; Oviatt & McDougall, 1994). The goal is to reduce uncertainty and risk over time when expanding to different markets (Madsen & Servais, 1997). Traditionally the focus of research of internationalization was mainly on large multinational enterprises (MNEs).

However, since the invention of the original internationalization models such as the Uppsala model, the business landscape has changed and SMEs take an increasingly important role in international markets. The advances and rapid technological developments in communication, technology and transportation enable firms to discover and take advantage of business opportunities in multiple countries. Modern ICT devices increase the rapid access to global information and at a lower cost than before (Rennie, 1993; Knight & Cavusgil, 1996, Madsen & Servais, 1997). The proliferation of the Internet let arise a new distribution channel that is open and accessible to anyone at any time and has made internationalization a more viable and cost effective option (Oviatt & McDougall, 1997; Madsen and Servais, 1997; Knight and Cavusgil, 2004, p. 125). Beside these technological innovations, the changing market conditions in a significant number of industries have added the trend as well (Madsen and Servais, 1997, p. 565), especially the increased number of knowledge-intensive industries and specialized, niche markets. More firms are producing specific components and parts that can be sold globally (Madsen and Servais, 1997, p. 565). Moreover, the economic liberalization of significant markets and other related trends, such as the rapid development of the BRIC countries, enable the emergence of an open, international economy (Altshuler, 2012). The increased globalization trends empower small and medium firms to expand internationally and

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The European Commission defines the SME as the category of micro, small and medium-sized enterprises (SMEs) is made up of enterprises which employ fewer than 250 persons and which have an annual turnover not exceeding 50 million euro, and/or an annual balance sheet total not exceeding 43 million Euro.” EU recommendation 2003/361.

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enhance competitive advantages over larger and more established firms (Knight & Cavusgil, 1996; Freeman et al., 2006, p. 35; Knight and Cavusgil, 2004).

Oviatt and McDougall (2005) argue that these global developments have forced and challenged companies to expand internationally on a rapid pace (Oviatt & McDougall, 1995; Oviatt & McDougall, 2005; Freeman, 2006, p. 35). As markets become more globalized and interconnected, entrepreneurial ventures with an international outlook from inception emerge (Burgel et al, 2000, p. 33). More and more companies are born to be global. For example, Skype, HTC, and the fashion retailer Zara are respectively firms that operate in international markets from the earliest days of their establishment. This type of rapid and early internationalizing firm can be named differently, whereby two terms in particular gained acceptance and have been adopted by a large range of scholars, known as the international new venture and the born global (Rialp et al., 2005). Although the traditional Uppsala Model is still commonly held as leading theory to explain the internationalization process of firms, the traditional view of internationalization is challenged by the growing relevance of the international new venture (Rialp, et al., 2005, p. 134). This challenge can be explained by the fact that the international new venture operates differently in terms of the pattern, pace and intensity of internationalization compared to older firms following the incremental path (Bell et al., 2003). Despite the scarce financial, human and intangible resources that characterize most SMEs, these small and new firms manage to do business abroad from a very early stage, while skipping some traditional internationalization stages (Weerawardena et al., 2007, p. 294). To this extent, the traditional internationalization theories seem to be unable to explain the rapid internationalization (Oviatt & McDougall, 1994). However, disparity between researchers exists considering the implementation of the conventional stage theories.

1.2. Problem Statement

The increasing need for companies to internationalize has on its turn increased the need to understand the process of internationalization better. A number of empirical (Jones, 1999; Laanti et al., 2007; Rennie, 1993, Weerawardena et al., 2012) and theoretical (Madsen & Servais, Oviatt & McDougall, 1994) studies analyze the accelerated internationalization process of the international new ventures, both from different countries and industries (Cancino, 2014). Researchers within the field postulate various conceptualizations such as the stage, network and resource-based theories to study the factors that enhance the rapid internationalization of international new ventures (Bell et al., 2004; Madsen & Servais, 1997). Several industries have been covered, mostly focusing on the high-technology product industries and the software industries (Lindqvist, 1991). As stated by Bell et al. (2004), ‘the internationalization of small and medium firms is best explained by integrating theoretical frameworks and calls for future research based on a more holistic approach to conceptual thought, empirical work and methodological development’ (Fletcher, 2001; Bell, 2004, p. 24). Given the variety of frameworks emanating from prior research and the complexity of the international new venture phenomenon, the main objective of this study is to determine what factors enable small and medium enterprises to rapidly internationalize, based on a framework of previously conducted studies (Johnson, 2004). The focus is put on rapid internationalizing Dutch small and medium enterprises (also referred to as international new ventures and born global) both from the knowledge-intensive and non-knowledge intensive sector. To this end, the research question is as follows:

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What factors contribute to the early and rapid internationalization of Small and Medium enterprises from knowledge-intensive and non-knowledge intensive sectors, even in light of their limited age, size and foreign position?

This study is based on a theoretically developed conceptual framework that involves factors related to human, relational and strategic capital. The underlying factors are interesting to study, as new ventures that internationalize right from inception are inherently disadvantaged by their young age (Liability of Newness), small size (Liability of Smallness) and foreign disposition (Liability of Foreignness) compared to established competitors (Zahra, 2005). A lack of financial and knowledge resources is assumed to be of an important hindrance for international new ventures in order to grow and internationalize (Freeman, Edwards, Schroder, 2006). To this extent, the traditional internationalization theories are limited or even unable to explain the rapid internationalization (Oviatt & McDougall, 1994), as these theories assume the firm gains financial and knowledge resources only through experiential learning (Johanson & Vahlne, 1977) or participative network development (Johanson & Mattsson, 1987). Therefore the focus of this thesis is put on diverse factors, mainly intangible resources, that influence the accelerated internationalization of international new ventures.

A sample of ten illustrative case studies of Dutch international new ventures are studied. Small and European markets are a preferred setting to study, as these small home markets appear to have a stronger focus on internationalization (Hessels, 2004). Moreover, this may be interesting as still many SMEs in The Netherlands appear to follow the slow and incremental path of developing and internationalizing abroad2. Thereby, less exploratory research is conducted on firms originating from The Netherlands. Moreover, a special focus is put on the applicability of the theories regarding internationalizing small and medium firms from two differentiating sectors: the knowledge-intensive versus the non-knowledge intensive. In this study, knowledge-intensive sectors are defined as having a high added value of scientific knowledge embedded in both product and process (Coviello, 1994; Bell et al., 2004). The firms are typically based in information and communication technologies (ICT) (mostly in computer software sector) and extended to other (industry) sectors that recognize the technological advances, such as the use of the latest computer technology or producing products by electronic means (Bell et al., 2004, p. 30). Among the non-knowledge sectors, the technological content of products may not be relevant or limited, often involving food, drink and furniture industries (Bell et al., 2004, p. 30). As illustrated by Rialp et al. (2005), a significant portion of the current literature on the international new venture phenomenon elaborates on high-tech business and thus knowledge-intensive sectors, as these sectors usually consider more critical globalization effects (Autio & Sapienza, 2000; Autio et al., 2000; Bell, 1995; Coviello and Munro, 1995; McDougall and Oviatt, 1996; Zahra et al., 2000 ; Zahra et al., 2003 in Rialp et al., 2005). A relative limited number of researchers focus on a broader range of sectors, not limiting themselves to high-technological international new ventures, while adopting an overall or even low-high-technological sector approach in their analysis (Bell et al., 2001; McDougall et al., 2003; Moen, 2002; Rennie, 1993; Servais and Rasmussen,

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Source:

CBR Report 2012: https://www.cbs.nl/nl-nl/nieuws/2012/49/internationalisering-gunstig-voor-overlevingskans-bedrijf ING report 2013: https://www.ing.nl/media/ING_internationale-groeikansen-voor-het-MKB_tcm162-34037.pdf

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2000; Shrader et al., 2000 in Rialp et al., 2005). Moreover, less compelling evidence of differences in internationalization process exists between firms from both sectors (Bell et al., 2004; Rennie, 1993; Oviatt & McDougall, 1994). Consequently both sectors were chosen as ‘extremes’ in order to further investigate and compare (Bell et al., 2004, p. 31).

1.3. Relevance

Internationalization of SMEs has many advantages as these firms provide access to additional sales markets and international diversification reduces vulnerability to crises. Given the importance of SMEs to economic activity, employment, innovation and wealth creation, this research focuses on young firms that rapidly achieve international growth (Bell et al., 2004, p. 24). In particular the international new ventures become increasingly important in today’s international business. The continuing rapid developments in terms of technology, human capital (in terms of international experience and capabilities of people) and market conditions (Madsen & Servais, 1997) demand further analysis and research into the phenomenon. Reaching beyond this academic attention practitioners, managers and policy planners benefit from a further identification of the feasible internationalization path of young firms as well. Improving the internationalization of small businesses is regarded as an increasingly important public policy priority (Bell et al., 2004). Further research enables drafts for strategic decision making for accelerated internationalization (Weerawardena et al., 2007, p. 295). In addition, Dutch SMEs play an important role in the internationalization of the Dutch economy. They are responsible for almost two thirds of Dutch exports. This is much more than in surrounding neighboring countries, where SMEs account for about a third of the trade3. However, still many SMEs in The Netherlands appear to follow the slow and incremental path of developing and internationalizing abroad4. Studying the early internationalization process of international new ventures increases our understanding of successful strategies (Madsen and Servais, 1997). Therefore this research is interesting to support firms with scientific knowledge in order to enhance rapid, international growth.

The input of this thesis may complement existing theories within the field of international new ventures as well as traditional approaches. It provides further empirical support and theory building for the emerging phenomenon of accelerated internationalization. Exploring the differences between new ventures from both the knowledge-intensive and non-knowledge intensive sectors is important for both scientific and managerial perspectives. The relatively current emergence of rapidly internationalizing firms highlights the need for additional academic explanations and insights into the underlying antecedents of the accelerated internationalization.

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Report by ING Bank: https://www.ing.nl/media/ING_internationale-groeikansen-voor-het-MKB_tcm162-34037.pdf

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2. Literature review

2.1. Internationalization of new ventures

This chapter provides an overview of the theories concerning the internationalization of firms. The various theories are discussed and eventually linked to the international new venture theory and incorporated in this study of the internationalization process of new ventures.

2.1.1 Internationalization: definition and perspectives

Internationalization has become one of the primary strategies of firms to achieve organizational growth and has become an important theme of study across different disciplines of international business and economic research (Luostarinen, 1988). Definitions of the term internationalization vary as they highly depend on the phenomenon scholars include. It can be defined as ‘the process of adapting firm’s operations (strategy, resources, structure) to international environments’ (Calof & Beamish, 1995). In this study the term internationalization is used in the same context as Welch & Luostarinen (1988), that define the internationalization process of firms as ‘the process to increase its cross-border operations and involvement in international markets’ (Bhardwaj et al, 2011, p. 295; Altshuler, 2012).

Mutual developments within the field of internationalization research exist to explain how the internationalization process occurs. In order to understand what mechanisms, processes and explanatory variables influence the development of internationalization, Strandskov (1995) build a framework of four views on internationalization, known as the Meta-Theoretical Analytical Framework. The goal is to understand the internationalization from different perspectives as well as to organize the so called ‘theoretical jungle’ of internationalization theories (Strandskov, 1995). Two underlying dimensions are presented, as shown in figure 1, known as the internal or external explanatory variable and the planned or progressive internationalization process. The first dimension describes whether internationalization is a result of planned actions or gradual emerging processes. The latter dimension displays if the internationalization process is driven primarily from international variables or from forces surroundings and the cooperation within the surroundings (Strandskov, 1995). The different dimensions are shown in table 1 below where after the perspectives are explained shortly.

Table 1. ‘The four theoretical perspectives to internationalization of firms: drivers and nature of the decision process.’

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This thesis mainly elaborates on the learning perspective and inter-organizational perspective, as these theories are commonly used to describe and understand the international new venture phenomenon (of which a further explanation is provided in next section).

2.1.1.1. The Institutional-economic perspective (Transaction Perspective)

The transaction cost analysis (Coase, 1937; Williamson, 1975; Williamson, 1985 in Strandskov, 1995) and the internalization theory (Hymer, 1976) are the essential theories for the institutional-economic perspective (Buckley, 1988; Buckley and Casson, 1976; Buckley and Casson, 1996; Buckley and Casson, 2003; Buckley and Casson, 1998; Casson, 1983; Casson, 1987 in Strandskov, 1995). Here, the internationalization process is described as geographical growth that is related to an increase of vertical integration (Strandskov, 1995). According to the institutional economic perspective, the conditions inside the company determine whether the company’s business activities internationalize. When the transaction is higher than the control costs that build and maintain the internal hierarchical system, internalization is preferred (Strandskov, 1995). These internationalization decisions are based on a rational plan: decided upon and implemented by the top management and based on analyses of the transaction costs (Strandskov, 1995, p. 10). Leading discussions within this field of literature are based on bounded rationality, opportunism, uncertainty and small numbers condition (Williamson, 1975 in Strandskov, 1995, p.10). Size of control, coordination costs as well as decisions of centralization vs. decentralization of foreign subsidiaries are extended topics as well (Strandskov, 1995).

2.1.1.2. The learning perspective

The learning perspective assumes that decisions about future actions are based on retrospective interpretation (Strandskov, 1995). This means that companies launch a number of foreign activities and gradually acquire experience through these (Strandskov, 1995). Risks and uncertainty are balanced against the growing (economic and organizational) involvement that is obtained in the international market. The essence of the perspective is that internationalization occurs gradually. Commitment and experiential learning are the driving forces of the company's’ ‘rational’ planning (Strandskov, 1995). The perspective is represented by the Uppsala-school (Johanson & Vahlne, 1977; Johanson & Vahlne, 1990; Johanson and Wiedersheim-Paul, 1975; Vahlne & Johanson, 2002) and the stages model (Cavusgil, 1980; Luostarinen, 1970) (Strandskov, 1995). Here, Johanson and Vahlne (2002) mainly focus on the actual learning as the triggers and motives for expanding firm activities, while their contemporaries explicitly focus on stages as well as on the firm’s customer- and competitive-based motivations (Czinkota and Johnston, 1981; Samiee et al., 1993; Samiee and Walters, 1990; Samiee and Walters, 1991).

More broadly, The Uppsala model, representing the learning perspective, is one of the best known models considering the international expansion of firms. As already discussed shortly, these activities contain a process that addresses the integration and use of knowledge about foreign markets and operations (Vahlne et al., 1977, p. 23; Oviatt & McDougall, 1994). As illustrated by Johanson and Vahlne (1990), firms often develop their international operations in small steps, rather than by making large foreign production investments at single point in time using two variables (Buckley et al., 1999, p. 44). These two variables refer to the level of

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commitment in a particular host country and the level of market knowledge to steer the direction of the geographic expansion (Johanson & Vahlne, 1990). With respect to market knowledge, a strong domestic market base is firstly needed, whereafter a company internationalizes (Johanson and Vahlne, 1977). The foreign business is a step-by-step process in which it is important to learn from achieved experience over time (Wictor, 2012, p. 22). With respect to the market commitment, firms enter a new market by the lowest resource commitment as firms are risk-averse and then begin to expand gradually. Once a firm enters a foreign market, it obtains market knowledge that serves to increase market commitment and which on its turn enhances expansion toward other markets with a greater psychic distance. Psychic Distance has been introduced by Johanson and Vahlne (1990) to measure the foreignness of a market. Distance has been defined as factors preventing or disturbing the flows of information between firm and market (Johanson & Vahlne, 1990, 1997). It refers to differences between two countries in terms of development, level of education, business law, language and cultures. Initial international expansion consists of indirect exports to similar markets in order to improve its knowledge of foreign markets (Cancino, 2014). The psychic distance between markets declines when firms gain experience and knowledge over time (Medinets et al., 2009, p. 24).

2.1.1.3. The strategic competition perspective

According to the strategic competition perspective, the internationalization choices are mostly determined by external industry-related conditions (Strandskov, 1995). The choices concerning internationalization are determined based on various levels, such as competitor analysis and other alternative methods: e.g. With regards to what parts of the value chain can and should be transferred to foreign markets, where the activities should be located, and how can and should the interaction between the individual links in the chain take place? (Strandskov, 1995). These evaluations are then adjusted to the competences and resource base of the company.

2.1.1.4. Inter-organizational perspective (network-perspective)

Lastly, the inter-organizational perspective (Johanson and Mattsson, 1988; Johansson and Mattson, 1986; Johansson and Vahlne, 1992), as least researched in the internationalization literature, views the interaction of a firm with other players based on power and influence whereby the main focus is on social exchange (Strandskov, 1995). As a response to increasing globalisation and new information and communication technologies the inter-organizational perspective gained considerable attention. Boundaries between the firms and the markets become vaguer (Johanson & Vahlne, 2009). Therefore more and more firms use the resources and experience of network partners to enhance (rapid) internationalization (Mitgwe, 2006). From this perspective, companies are assumed to be part of so called internal and external coalitions that emanate from social exchange (Strandskov, 1995). Social exchange occurs as part of influence and controlling behaviours. Decision-making related to internationalization is an emerging process. This means that the results of the choices cannot be determined on forehand, as they are a result of political negotiations about services and trade-offs (Strandskov, 1995). Eventually, the decision is shaped by relative positions of power and dependence (Strandskov, 1995).

2.1.2 Challenging the traditional theories

In the last decade a new stream of research emerged into the rapid internationalization of small and young firms, known as the born global and international new venture phenomenon (Bell et al., 2004; Madsen & Servais, 1997;

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Rennie et al.,1993). According to Knight and Cavusgil (1996), and as explained in the introduction, this emergence can be explained by recent changes and developments in information and communication technologies, the emerging role of niche markets and the rapid growth of global networks that enable relationships with international partners (Bell et al., 2004, p. 26). These advances increasingly influence the rapid internationalization process of small and young firms.

As stated by Bell et al. (2004), most of the traditional theories on internationalization often refer to as Foreign Direct Investment (FDI) theories and focus on the reasons and motivation for large multinational enterprises to exist, as these established multinational enterprises used to dominate the global business landscape (Zahra, 2005; Laati, McDougall, Baume, 2009, p. 123). Although still many firms internationalize according to the gradual process, traditional theories may not be as adequate to explain the internationalization process of small and medium enterprises, especially when taking into account the rapid and accelerated internationalization of SMEs (Madsen & Servais, 1997; Cancino, 2014; Wictor, 2012, p. 28). Oviatt & McDougall (1994) for instance argue that in some cases international new ventures do not base their internationalization decisions on the lowest cost locations, neither on internalizing activities to outweigh costs (Bell et al., 2004). Other researchers state that the Uppsala model is too deterministic and that the model oversimplifies the increasingly complex process of internationalization. (Bell, 1995; Turnbull, 1987; Rialp et al., 2005). Moreover, in line with the emergence of the international new ventures, scholars noted the fact that the traditional approaches do not consider firms that leapfrog certain stages of the internationalization process, neither consider the rapid changes in global business as mentioned early in this section (Rialp et al., 2005; Oviatt & McDougall, 1994). Next section elaborates on the international new venture phenomenon, where after the influencing factors on the accelerated internationalization are discussed.

2.2. Conceptual foundation of international new venture.

This section focuses on the definition of the term ‘international new venture’ and provides a further explanation of what is meant by this phenomenon. Providing a clear description of the phenomenon may help to further understand the distinction of the characteristics between the Uppsala model (and other traditional theories) and the international new venture phenomenon. Due to the broad range of definitions and perspectives of the international new venture phenomenon, different criteria are described in this section also to complement the definitions of the international new venture (Gabrielson & Kirpilani, 2004). This research mainly employs the leading definitions and frameworks by Rennie (1993), Oviatt & McDougall (1994); Knight & Cavusgil (2004) and Madsen & Servais (1997), complemented by several other studies.

2.2.1. The term ‘international new venture’

Since the study by McKinsey & Company in 1993, the born global phenomenon has received broad attention (Rennie, 1993). The term born global was first used to describe young firms that internationalize right from establishment (Rennie, 1993). Over the past decades, this phenomenon is named differently, e.g. Born Globals (Rennie, 1993; Knight and Cavusgil, 1996; Madsen & Servais, 1997; Aspelund & Moen, 2001), global start-ups (Oviatt and McDougall, 1994), international new ventures (McDougall et al., 1994; Oviatt and McDougall, 1994, 1997), instant internationals (Preece, Miles, and Baetz, 1999) and early internationalizing firms (Rialp et

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al., 2005). Two terms in particular gained acceptance and have been adopted by a large range of scholars, known as the international new venture and the born global (Rialp et al., 2005). The tendency concerning internationalization of each phenomenon is the same, as they all share the common core principle of early and rapid internationalization. However, no agreement exists on one specific definition or characteristics of these type of firms. For consistency in this thesis, there is collectively referred to the most commonly used labels of international new ventures and born global and will be used interchangeably throughout the research (Rialp et al., 2005, p. 135).

2.2.2. Definition ‘international new venture’

Rennie and McKinsey & Company (1993) were one of the first who studied the born global phenomenon. This study covered 310 established Australian SMEs. Among these SMEs a number of firms had been found that succeeded in competing internationally from inception with established global players (Wictor, 2012). Interestingly, these born globals were very flexible, were closely related to their customers and adapted their products rapidly according to the market needs and wants (Madsen & Servais, 1997). They did not establish gradually in the international market as according to Johanson & Vahlne (1977, 1990), but skipped some of the internationalization stages - a method named ‘leapfrogging’. Instead they were ‘born global’ (Wictor, 2012). Most of these born global firms produced technology-based products and targeted international niche markets, while competing on quality and value creation. These born global firms were moreover characterized by the management that sees the world as one global market directly after inception (Rennie, 1993).

One year later, Oviatt and McDougall (1994) conducted research on young and new firms that from inception derived competitive advantage by internationalizing. Oviatt and McDougall’s (1994) article is most widely cited for drawing academic attention to the phenomenon of international new ventures (Altshuler, 2012, p. 24). Studies by Oviatt and McDougall (1994) identified the formation of the international new venture phenomenon in various countries, suggesting that the global forces promoted the development of this phenomenon (p. 47). They defined the international new venture as: a business organization that, from inception, seeks to derive significant competitive advantage from the use of resources from and the sale of outputs to multiple countries (Oviatt & McDougall, 1994). Based on this definition, the international new venture distinguishes itself in terms of their ‘observable and significant commitment of resources (such as materials, people, financing) in more than one nation’ as well as ‘the high speed of their internationalization process’ (Oviatt & McDougall, 1994). The main characteristic of the international new venture is that it goes quickly through the incremental stages of internationalization process than studied by the traditional internationalization theories (Altshuler, 2012, p. 24). Oviatt & McDougall (1994) conclude in their article that the stage models failed to explain why new ventures operate in international markets instead of their home markets. In contrast to traditional firms that expanded gradually governed by psychic distance and market knowledge, the international new venture starts with a proactive strategy and does not focus on the home market (Oviatt & McDougall, 1994).

Knight and Cavusgil (1996) conceptualize the born global in their early research as business organizations that, from or near their founding, seek superior international business performance from the application of knowledge-based resources to the sale of outputs in multiple countries. Here, Knight (1997) held 25% of its sales

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revenues as substantial. These firms mainly manufacture high technology products in niche international markets (Chetty & Campbell-Hunt, 2004). Furthermore, as salient from the definition, these firms are entrepreneurial from inception and perceive the world as one market (Chetty & Campbell-Hunt, 2004). Their article assumes that the born global firm mainly focuses on growth through international sales. Access through international networks and international financial markets enable firms to produce highly specialized and customized products in international niche markets (Knight & Cavusgil, 1996; Madsen & Servais, 1997; McKinsey & Co., 1993). As stated by Knight & Cavusgil (2004) youth and lack of experience, as well as paucity of financial, human, and tangible resources, are no longer major impediments to large-scale internationalization and global success of the firm (Wictor, 2012). They emphasize that managers of Born Global firms start with a global vision from inception. In contrast to traditional MNEs, these firms acquire a fundamental base of international experience and knowledge from the start (Knight & Cavusgil, 2004). This means that Born Global firms are an important challenge to traditional views on the internationalization of firms (Knight & Cavusgil, 2004).

In line with Knight and Cavusgil (2004), Madsen & Servais (1997) agree with the definition that born globals are firms that seek to derive significant advantages from the use or from the sale of outputs from multiple countries/continents right from their legal birth (p. 579). However, in contrast, they consider that the born global phenomenon is not limited to high-tech industries. Madsen & Servais (1997) research is an extension of the earlier research by Knight & Cavusgil (1997) emphasizing the high relevance of the international experience of the founder of the firm. They indicate that the basic assumptions of the original stage theories still have some relevance to international new ventures, considering the firm’s uncertainty due to new and unknown opportunities abroad. The difference lies in the fact that the development of the international new venture is partly affected by characteristics of the environment, as well as of the organizational characteristics and the founder at the same time (Madsen and Servais, 1997; Rialp, 2005). The uncertainty may be reduced due the founder’s knowledge of the markets and previous experience (Madsen & Servais, 1997).

In accordance to the definition by Oviatt and McDougall (1994), Autio, Sapienza and Almeida (2000) analyzed firms that internationalize virtually from inception. Moreover, Shrader, Oviatt and McDougall (2000) studied the foreign entry strategies of small new ventures. In their article of 2000, the phenomenon of accelerated internationalization has been defined as firms engaging in international business activities earlier in their organizational life cycles than they have historically (Shrader, Oviatt & McDougall, 2000; Keupp & Gassmann, 2009, p. 601). A majority of scholars opts for Oviatt and McDougall’s (1994, p. 49) definition, making this field of International Entrepreneurship equivalent to the study of new small and young firms possessing an accelerated speed of entry and expansion into new markets (Keupp & Gassmann, 2009, p. 601).

2.2.3. Criteria for international new ventures

Now that the international new venture has been defined, it can be stated that the various terms and theoretical bases that the new ventures have been analyzed from, are object of confusion within the field of research. Despite the relative consistency on the determinants of international new ventures, such as rapid internationalization and global reach, conflicts exist among defining the characteristics of international new ventures. This has led space to a large discussion in academic literature. The main definitions identify multiple

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criteria, mainly known as: the speed of internationalization, the percentage of international revenue in comparison to the total sales (export ratio), the number of foreign countries the firm expands. These criteria are described in short, where after a conclusion is drawn.

2.2.3.1. Pace: speed of internationalization

At first, the timing (pace) and speed of internationalization has not been operationalized under a common denominator (p. 51). Although the definition of Oviatt & McDougall (1994) suggests that new ventures internationalize right from inception, some scholars state that new ventures internationalize within a few years of their existence. Rennie (1993) opt for two years after establishment, Knight & Cavusgil (2004) argue three years and Freeman & Cavusgil (2007) state that, based on their extensive literature review, new ventures internationalize within two to six years after they are born (Altshuler, 2012, p. 27). In line with the latter one, within the broad range of international entrepreneurship literature it is assumed that the international new venture internationalizes within the six years after establishment (Fernhaber, Oviatt & McDougall, 2007). Interestingly, Gabrielsson et al. (2008) in contrast, suggest that the speed of internationalization is more flexible. They suggest that the speed is largely depending on the international experience of the senior management (Gabrielsson et al., 2008). Moreover, the scope and speed may be influenced by the size of the home country, the type of industry and the neighbor markets of the country (Gabrielsson et al., 2008). It should be noticed that the timing and speed of internationalization is an important distinguishing factor between the traditional internationalization theories versus the born global phenomenon. Yet, it can be stated that most new ventures do not follow the incremental path of internationalization, but rather internationalize from or near inception. Although a clear and common denominator is still lacking.

2.2.3.2. Sales

Closely related to this discussion in terms of timing is the question on how much revenue should be generated within the specific time frame. Many researches draw upon the definition by Knight et al. (2004) stating that at least 25% of the total sales is generated abroad (Moen, 2002; Moen & Servais, 2002; Mort & Weerwawaderna, 2006). Gabrielsson et al. (2004) even set the limit of revenue at 50%. The majority (McDougall et al., 1994; Shrader, 2001; Bell et al., 2003) do not consider the sales variable as imperative. When taking into account previous definitions, it can be noted that the majority of research on international new ventures focuses on the international sales as main dimension (Zahra & George, 2002; Di Gregorio et al., 2008; Altshuler, 2012, p. 28). Knight (1997) for instance only refers to the international sales as important identifying unit. However, building on the international entrepreneurship literature, the internationalization process is much broader and should be extended to the discovery, evaluation and exploitation of international entrepreneurship opportunities (Zahra & George, 2002; Di Gregorio et al., 2008; Altshuler, 2012, p. 28). The emergence of the international new venture can be explained as a way to exploit opportunities that arise within the new, international context (Alshuler, 2012, p. 28). This means that the concept of international new ventures not solely implies the timing of rapid sales internationalization as main objective. It includes the employment of cross-border resource combinations of both resources and markets as well, also defined as cross-border nexus of individuals and opportunities (Di Gregorio et al., 2008; Alshuler, 2012, p. 28). Here, value may be created through, for instance, pooling of

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international entrepreneurial talent or introducing particular products and services into more countries than its domestic one (Alshuler, 2012, p. 28).

2.2.3.3. Scope: geographical reach

A further discussion is raised about the geographical reach of international new ventures (Kuivalainen et al., 2007; Gabrielsson et al., 2004, Luostarinen & Gabrielsson, 2006). Lummaa (2002) suggests that the complexity of internationalization is raised by the differences in culture between markets, as it requires more resources. A discussion is raised about the distinction between firms that operate in just one cultural or geographical cluster and firms that operate in multiple clusters. In line with this discussion, Lummaa (2002) focuses on companies active in one to four countries and three different clusters, whereas Rialp et al. (2005) suggest international operations in two clusters or more. Chetty & Campbell-Hunt (2004) suggest that a firm is named as Born Global when it reaches markets all over the world. Thus, confusion exists whether the firm is truly ‘born global’ or rather ‘born international’, ‘born regional’ or ‘geographically focused start-up’. This distinction is explained by Luostarinen & Gabrielsson (2006) by defining the ‘global’ venture as a firm that usually starts to internationalize its operations and enters global markets, while deriving most of its income (over 50%) from non-domestic continents (Alshuler, 2012, p. 27). In contrast, the ‘international’ oriented ventures are firms which international business is the largest source of revenue (over 50% of total sales) and whose major foreign markets are located in their domestic continent (Luostarinen & Gabrielsson, 2006; Alshuler, 2012). In both definitions, no denominator exists for the number of markets that a firm must reach. In addition, Oviatt & McDougall (1994) outlined four different types of international new ventures based on the number of countries involved and the level of coordination of value chain activities (Oviatt & McDougall, 1994). As stated, some ventures coordinate the transformation of resources in mutual parts of the world and sell these outputs anywhere where most highly valued (Oviatt and McDougall, 1994). Other type of international new ventures primarily export, adding value by moving outputs to locations where they are needed (Oviatt and McDougall, 1994). Here, a distinction is made between export/import startups, multinational traders, geographically-focused startups, and global start-ups. The latter type is most often termed as born global- (Oviatt & McDougall, 1994). The framework by Oviatt & McDougall (1994) has been widely used by other authors in order to describe the characteristics of the international new venture or Born Global concept.

2.2.4. Conclusion

From these accounts, the different definitions agreed that the origins of the born global firms are international, whereby most of the significant resources are in more than one nation (e.g. material, people, financing and time) (Oviatt and McDougall, 1994, p. 49). Implicit is that solely the age of the firm is relevant, not its size. The international new venture starts with a proactive international strategy, regardless of the relative small number of employees and entrepreneurs (Johnson, 2004, p. 139; Oviatt and McDougall, 2004, p. 438; Madsen and Servais, 1997, p. 563). This thesis takes the key descriptors of the international new venture as a young firm having rapid engagement with multiple national markets near or from inception; occurring early after establishment when the firm is still small. The international new venture is a combination of both born global and born international firms that expands its international activities. The international activities are held in more than three countries apart from its home country (Bell et al., 2008). It includes the approach of a nexus of cross-border resources

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combinations in three or more countries (Altshuler, 2012). The international new venture theory is characterized as having rapid international growth, and therefore the theory regarding international new venture here examines the first three to six years of establishment. The focus is placed on the firms and the early steps of internationalization, both from the knowledge-intensive and non-knowledge intensive sector.

2.3. Factors influencing the internationalization of INVs

Now that the international new venture has been discussed extensively, it might become clearer that traditional internationalization theories may not explain the rapid internationalization of new ventures thoroughly. Several studies analyzed additional determinant factors that explain the rapid pace of internationalization. Some of these studies rely on a single theoretical framework, usually considering the Uppsala Model or other stage theories of internationalization (Bell, 1995; Knight & Cavusgil, 1996; Moen & Servais, 2002; Rialp et al., 2005). Other theories are implemented as well, such as Coviello & Munro (1995) that examine the impact of network relationships on the international development among young firms (Rialp et al., 2005). On the other hand, a number of studies are built upon competing theoretical approaches or different frameworks of analysis (Auto & Sapienza, 2000; McDougall et al., 1994; Oviatt & McDougall, 1999; Rialp et al., 2005). As illustrated by Rialp et al. (2005), some frameworks elaborate on the evolutionary economic theory in combination with the stage models and the network approach to explain the early internationalizing firm phenomenon (Madsen & Servais, 1997; Rialp & al., 2005). Rialp et al. (2005) suggest that the use of a single theoretical framework may be somewhat simplified. Combined and multiple theoretical frameworks improve richer and theoretically robust explanations and constitute a more holistic understanding of the international new venture phenomenon (Rialp et al., 2005). Therefore this study conducts a multiple theoretical approach to examine the factors that foster rapid internationalization.

In addition, among the factors that are studied, most of these factors are associated with a firm's intangible resource base, which basically consists of organizational, technological, relational, and human capital resources (Cancino, 2014; Rialp et al., 2005). These intangible resources are assumed to be of high importance in generating a critical level of firm internationalization capability (Rialp et al., 2005). This section elaborates on factors based on different studies within the field of international new ventures that also include various industries and different research approaches (mainly in line with the main theories of international entrepreneurship, network-perspective and learning-perspective). For each factor propositions are composed in order to answer the research question of this thesis. The factors applied for this research are mainly based on an extensive literature research by Rialp et al. (2005) that draws upon academic studies that examine the success factors. The factors are categorized in groups, focusing on the management and founding team; networks and international strategy.

2.3.1. Human Capital

Human Capital consists of several dimensions. Firstly, the founder has an international focus from inception (McDougall & Oviatt, 2000). Secondly, the founder’s experience in working in foreign firms or local firms with an international focus enables the firm to rapidly internationalize (Andersson & Wictor, 2003; Madsen & Servais, 1997). Thirdly, the management commitment in building international presence as a major important

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factor for international activities (McDougall, Oviatt & Shane, 1994). As stated by Andersson & Wictor (2003), entrepreneurs together with their personal network and key strategic choices are the main factors that influence the international development. Young firms are highly dependent on these factors as they do not have experiential knowledge due to their young age (McDougall, Oviatt & Shrader, 2003).

2.3.1.1. Managerial Vision

The global vision of the manager from inception seems to be an important factor that enables small firms to rapidly internationalize (Moen, 2002). As already mentioned shortly, Rennie (1993) argues that founders of a born global adopt a global vision from inception instead of a domestic focus and perceives the entire world as one. As a consequence, the management is less constrained to one single country and culture (Oviatt et al., 1995). In addition, studies by Harveston et al. (2000) and Rialp et al. (2005) illustrated that the managers of international new ventures are more globally oriented than those from more conventional firms, that are developing step-by-step when internationalizing. To illustrate the actual influence of the global vision of the management, it is suggested that the international new venture is active in at least one or two foreign markets within two to five years after inception (Pock, 2010), mainly in line with the definition of international new ventures. Following these arguments, the next proposition is as follows:

p. 1: The international development of Dutch international new ventures is positively related to the global vision from inception on behalf of the management.

2.3.1.2. Prior international experience

In addition, numerous studies within the field of international entrepreneurship have investigated the personal characteristics of the international entrepreneur as well as its correlation with the international activities of the new ventures (Oviatt & McDougall, 1994). Scholars within this field state that the entrepreneurs possess experience and knowledge of relevant international markets (Oviatt & McDougall, 1995; Madsen & Servais, 1997). This experience is based on previous international work experience or by achieving a degree at a foreign university, that bring characteristics in the company that enhance early internationalization (Andersson & Wictor, 2003; McDougall et al., 2003). The management team may deal with problems that arise during international expansion more easily and recognize foreign markets and cultures from their international experience (McDougall et al., 2003; Oviatt, Shrader & McDougall, 2004). Some scholars argue that a higher level of prior international experience among founders and entrepreneurs plays a crucial role in the founding process and the speed of learning and internationalization (Oviatt & McDougall, 1995; Madsen & Servais, 1997, Andersson & Wictor, 2003). In addition, the research suggests that the international experience plays a crucial role in the founding process as well as the increase of speed of learning and reducing the psychic distance to certain markets (Oviatt & McDougall, 1995; Madsen & Servais, 1997; Andersson & Wictor, 2003). Bell (1995) suggests that the prior experience and education of the founder enables firms to reduce psychic distance: national borders do not seem to be a barrier, rather international markets seem to provide new business opportunities (Madsen & Servais, 1997; Moen & Servais, 2002). International new venture may have human capital with international experience and a high level of knowledge in terms of language or other factors that may support the international expansion and decreases the barriers of cultural differences (Knight & Cavusgil, 2004; Cancino,

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2014). Interestingly, this is in clear contrast with the traditional theories of internationalization that do not include the prior internationalization experience of the entrepreneur (Chetty & Campbell-Hunt, 2004). Rather these theories emphasize the learning aspect, stating that the entrepreneurs learn internationalization from slowly accumulated experience (Chetty & Campbell-Hunt, 2004). Following these arguments, the next proposition is as follows:

p. 2.: The international development of Dutch international new ventures is positively related to the level of markets’ and segments’ knowledge and experience held by the founder/ managers.

2.3.1.3. Management Commitment

The management commitment refers to the extent the management is specifically oriented towards internationalization and its international success. (Rialp et al., 2005). This may include the personal contribution and involvement toward international expansion, for instance by assuming the foreign responsibilities. As stated by Moen (2002), studies on rapid internationalization from inception show that this entrepreneurial orientation of the management team is a significant success factor. Management commitment can be reflected by three characteristics of the manager, including innovativeness, risk-taking and proactiveness towards international expansion (McDougall et al., 1994; Lumpkin & Dess, 1996). As formulated by Lumpkin & Dess (1996) innovativeness reflects the tendency of the firm to engage in and support new ideas, novelty, experimentation and creative process to create new products, services or technological processes (p. 142). When it comes to the management of a new venture, Lumpkin & Dess (1996) emphasize the willingness of the management to explore new alternatives, support creativity and experimentation. A count of financial or human resources committed to innovation activities reflects the innovativeness of a firm (Lumpkin & Dess, 1996, p. 143). By risk-taking is meant the behavior of the management team to invest in financial and personal resources despite the uncertain conditions (Lumpkin & Dess, 1996). Despite the lack of having detailed and sufficient knowledge about a specific markets, the management considers to expand into new, foreign markets. Furthermore the management dares to raise high amounts of venture capital to invest in the development of its business models and products that are not fully ready for the new markets (Lumpkin & Dess, 1996). Here, risk refers to the probability of a loss or negative outcome (Lumpkin & Dess, 1996, p. 144). Lastly, proactiveness emphasizes the importance of initiative in the processes of the firm. Taking initiative by anticipating and pursuing new opportunities and markets become increasingly important for rapid international expansion. Penrose (1959) for instance argues that entrepreneurial characteristic of managers are important for growth of the firm, while Liebermann & Montgomery (1988) emphasize the importance of first-mover advantage to capitalize on market opportunities (Lumpkin & Dess, 1996). These characteristics of entrepreneurship are all associated with proactiveness - defined as ‘acting in anticipation of future problems, needs or changes’ (Lumpkin & Dess, 1996, p. 146). Proactiveness is further reflected as aggressive competitive behavior, taking into account direct confrontation with competitors in the market (Lumpkin & Dess, 1996). Following these arguments, this study posit the third proposition as follows:

p.3.: The international development of Dutch international new ventures is positively related to the risk-taking and pro-active behavior towards internationalization by the management of the company.

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2.3.2. Relational capital

• Strong use of personal and business networks

2.3.2.1. Networking: personal and business networks

The relational capital refers to the personal and business networks of the management and employees of the firm. Subsequently, the relational capital is highly in line with the network-perspective as previously discussed. As a response to increasing globalization and new information and communication technologies the network perspective challenges the traditional Uppsala Model. Boundaries between the firms and the markets become vaguer (Johanson & Vahlne, 2009). Therefore more and more firms use the resources and experience of network partners to enhance rapid internationalization (Mitgwe, 2006). The choice of country and entry mode is increasingly affected by the network as well as its position within the network (Coveillo & Munro, 1995). Faster internationalization is achieved through experience and resources of the network partners (Mitgwe, 2006). Networks consist of relationships with public and private firms, personal and social networks within the foreign market and industry (Andersson & Wictor, 2003), business networks through external investors (Lindqvist, 1991) and through cooperation with other firms (Knight & Cavusgil, 1996; Madsen & Servais, 1997; Rennie, 1993).

A network is defined as a set of two or more connected business relationships, in which each exchange relation is between business firms that are conceptualized as actors (Emerson, 1981). Networks depend on the social and informal control, not through formal contracts (Oviatt and McDougall, p. 55). The ties of a network exist between firm’s or between the firm and individuals. Firms take part in different networks that differ in complexity and closeness to other firms. Networking is seen as a powerful tool as these networks help founders to identify international opportunities, establish credibility, and often lead to strategic alliances and other cooperative strategies (Oviatt & McDougall, 2005, p. 541).

These resources and knowledge obtained from the networks may reduce psychic distance and risks when entering new markets or industries (Andersson & Wictor, 2003). In addition, international new ventures’ position within a specific market niche may, for instance, be obtained through the knowledge of local distributors (Madsen & Servais, 1997; Cancino, 2014). As apparent from the literature review, networks play a significant role in the international development of the international new venture (Johanson & Mattsson, 1988; Johanson & Vahlne, 1990; Cancino, 2014). The choice of when and how to enter a new market is highly influenced by the network. Networking is therefore be seen as a powerful tool to identify international opportunities, to establish credibility, and often lead to strategic alliances and other cooperative strategies (Oviatt & McDougall, 2005, p. 541). This position within the network mobilizes these resources which on their turn determines its internationalization process (Mitgwe, 2006). Relationships on different levels such as suppliers, financiers and customers are crucial in order to set up a new internationalizing ventures (Andersson & Wictor, 2003). As examined by Johanson & Vahlne (1990), the personal network and contact from the senior management are vital during the early stages of business activity, because of the limited business networks at that point. The network can be active prior to the inception of the firm. For instance, existing contacts of the founders or previous employment may be used in order to set up the firm’s internationalization. For many new firms the network

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grows overtime. Business networks through investors as well as cooperation with other firms are very important as well to create easier access into a market or industry (Lindqvist, 1991). Social networks manage and direct target customers in new markets (Andersson & Wictor, 2003). These network may reduce market entry barriers. This means that personal networks into the industry, and later on networks into a foreign market are highly valued (Anderson & Wictor, 2003).

The external capital investment may be a value added factor for firms’ rapid internationalization and growth (Cancino, 2014). Especially if funds also allow the transfer of knowledge and experience with international new markets. This means that the investment is not only of high value due to the amount of money, but also in terms of knowledge necessary to support decision-making processes (Cancino, 2014). Some studies even indicated that fundings provided extensive networks (Croce et al., 2013). Moreover, the positive impact of foreign capital investment on the tendency to export rapidly and its export intensity is emphasized (Cancino, 2014). In addition, fundings are assumed to result in a higher sales growth and better internationalization performances. As stated, in some cases firms gain access to new international markets via investments, without taking excessive risks (Cancino, 2014; Ohmae, 1989).

Later on, the traditional internationalization theories acknowledge networks as essential aspects of the internationalising firms (Johanson & Mattsson, 1988). They emphasize the value of intermediaries that are used in the early stage when the needed knowledge and resource base are too small (Chetty & Campbell, 2004). In contrast to the proposed learning aspect -stating that the entrepreneurs learn internationalisation from slowly accumulated experience- long-term networks that already have market and experiential knowledge are used (Chetty & Campbell-Hunt, 2004). Although both the traditional and international new venture literature acknowledge the importance of the network, the main condition of the international new ventures lies in the fact that the networks need to be geographically extensive and adequate in order to obtain global reach (Chetty & Campbell-Hunt, 2004). Following these arguments, this study posit the fourth proposition as follows:

P.4.: The international development of Dutch international new ventures is positively related to the use of a strong personal and business network in the early stages of internationalization

2.3.3. Strategic Capital

• Market knowledge and market commitment • Unique intangible assets - knowledge management • Value creation sources

• Selection orientation and relationships with foreign customers

2.3.3.1. Market knowledge and market commitment

The concepts market knowledge and market commitment are proposed by Johanson & Vahlne (1977). Market commitment can be defined as the amount of resources invested in a foreign market (e.g. marketing, sales and personnel). On the other hand market knowledge refers to the amount of knowledge and information about the foreign market. Johanson and Vahlne (1977) furthermore emphasize the experiential knowledge, gathered by

The rapid internationalization of Dutch small & medium enterprises from establishment : investigating the factors that enable the rapid internationalization of Dutch international new ventures from knowledge-intensive a