A Study on Qualities and Capabilities of Individual Entrepreneurs that
Contribute to the Successful Early Internationalization of
International New Ventures
Course: Master Thesis International Management
Student: P.G. Janssen
Student number 11402261
First Supervisor dhr. Dr. J.P. Lindeque Second Supervisor dhr. Dr. I. Haxhi Date of Submission: June 23rd, 2017 Word Count: 17.757 words
Statement of originality
This document is written by Student Pieter Janssen, 11402261, 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.
Abstract
This paper addresses the integration of the entrepreneur as an individual business actor within the internationalization of International New Ventures (INV). The research question is as following How do the qualities and capabilities of individual entrepreneurs contribute to the early internationalization of INVs? Eight working propositions connect an internationalization model by Oviatt and McDougal (1994) to seven entrepreneurial qualities that are deemed important by entrepreneurial literature. By using a questionnaire and semi-structured interviews the results showed that the most important qualities are locus of control for internalization of some transactions, risk-taking propensity for the use of alternative governance structures, innovativeness for the acquisition or initiation of a foreign location advantage, innovativeness and adaptability/flexibility for the exploration and exploitation of unique resources and need for achievement and determination/commitment for the overall internationalization process. All in all, the entrepreneur should be included when looking at the early internationalization of an INV as he proves to contribute in the various ways. The research is qualitative in nature and should therefore be checked for analytical generalizability via a quantitative analysis. Also, future research should aim to include venture from several countries, other than just the Netherlands.
Acknowledgements
I would like to thank my thesis supervisor Johan Lindeque for his patience, support and detailed feedback during the process. Also, I would like to thank my co-students, Ellen Denteneer, Mark Danhof and Niels van de Ven in particular. Lastly I would like to thank my girlfriend and my roommates for being supportive throughout the thesis process.
Table of Contents
1. Entrepreneurs and International New Ventures 1
2. INV-framework and Entrepreneurial Qualities 6
2.1. The INV Framework 6
2.1.1. Element 1: Internalization of some Transactions 9 2.1.2. Element 2: Alternative Governance Structures 10
2.1.3. Element 3: Foreign Location Advantage 10
2.1.4. Element 4: Unique Resources 11
2.2. Entrepreneurial Qualities and Capabilities 13
2.2.1. Tolerance for Ambiguity 14
2.2.2. Innovativeness 15
2.2.3. Need for Achievement 15
2.2.4. Risk-taking Propensity 16
2.2.5. Locus of Control 16
2.2.6. Adaptability/flexibility 17
2.2.7. Determination/commitment 17
2.3. Integrated Framework and Propositions 17
2.3.1. Element 1: Internalization of some Transactions 18 2.3.2. Element 2: Alternative Governance Structures 18
2.3.3. Element 3: Foreign Location Advantage 19
2.3.4. Element 4: Unique Resources 20
2.3.5. Process Related Qualities 20
3. Methodology 22
3.2. Qualitative Multiple Case Study Design 23
3.3. Case Study Design and Selection 24
3.4. Multiple Case Study Quality Criteria 26
3.5. Data Collection Method 28
3.6. Data Analysis Method 30
4. Case Results 32
4.1. Within Case Analysis Venture C 32
4.1.1. Entrepreneurial Qualities Venture C 32
4.1.2. Internationalization Venture C 33
4.2. Within Case Analysis Venture D 36
4.2.1. Entrepreneurial Qualities Venture D 36
4.2.2. Internationalization Venture D 37
4.3. Within Case Analysis Venture E 40
4.3.1. Entrepreneurial Qualities Venture E 40
4.3.2. Internationalization Venture E 41
4.4. Within Case Analysis Venture F 43
4.4.1. Entrepreneurial Qualities Venture F 44
4.4.2. Internationalization Venture F 44
4.5. Within Case Analysis Venture G 47
4.5.1. Entrepreneurial Qualities Venture G 48
4.5.2. Internationalization Venture G 48
4.6. Within Case Analysis Venture H 51
4.6.1. Entrepreneurial Qualities Venture H 51
4.6.2. Internationalization Venture H 52
4.7.1. Entrepreneurial Qualities Venture I 55
4.7.2. Internationalization Venture I 55
4.8. Within Case Analysis Venture J 58
4.8.1. Entrepreneurial Qualities Venture J 59
4.8.2. Internationalization Venture J 59
4.9. Cross-Case Analysis 62
4.9.1. Entrepreneurial Qualities 62
4.9.2. Internationalization 63
5. Discussion & Conclusion 67
5.1. Discussion 67
5.2. Conclusion 72
5.3. Limitations, Future Research & Managerial Implications 74
References 75
Appendix A: Questionnaire English 80
1. Entrepreneurs and International New Ventures
A big part of the literature in international business (IB) studies multinational entreprises (MNEs) and, more recently, international new ventures (INVs) (e.g. Knight & Cavusgil, 2009; Cerrata & Piva, 2015; Chen & Jermais, 2016). Unfortunately this research often fails to acknowledge the importance of the entrepreneur as an individual actor within the early internationalization. For example the influence of the entrepreneurial qualities adaptability/flexibility or risk-taking propensity on the use of alternative governance structures or the exploration and exploitation of unique resources. Is it interesting to note that the apparent relationship between these qualities and these elements of early internationalization is not as apparent as it seems. Therefore this paper tries to address this seemingly apparent relationship and discover the actual relationship.
With the increasingly globalizing economy, a lot of business is moving from country to country and from continent to continent. A recent report from McKinsey & Company (2016) describes the importance of understanding the global economy and emphasizes the importance of digital globalization for that matter. For example, the number of individuals connected to the internet rose from 800 million in 2005 (World Trade Organization, 2008) to almost 4 billion in 2015 (The World Bank, 2016). Eventually this will lead to the world becoming more connected, both on an individual level as well as on an organizational or institutional level. Garrett (2000) explains that globalization is changing the world at a very high pace, with the multitude of firms being affected. But it is not just the knowledge flows that can travel from one place to another with the click of the mouse. It is also trade, FDI, capital and labor that are becoming more and more global (Ghemawat, 2003). The integration
of all these factors in a period of globalization is what makes it such an important phenomenon (World Trade Organization, 2008).
This increasingly globalized economy is a great environment for INVs, which, over the last couple of years, have emerged as an important IB phenomenon taking advantage of international opportunities right from their emergence (Oviatt & McDougall, 1994). Despite the rapid growth in research with respect to entrepreneurial ventures, this research fails to successfully integrate the entrepreneur as an individual business actor as a key actor. Therefore, this research attempts to fill the literature gap that the entrepreneur as an individual business actor embodies. It will address the influence of the entrepreneurial qualities on early internationalization of start-up firms and attempts to look further than merely the network-ties of the entrepreneur and the firm. In other words, it attempts to help solve the puzzle that an INV is and to build on existing IB literature by enriching the factor entrepreneurship within the context of INVs. This includes the individual qualities of entrepreneurs’ contribution to the establishment of firm-specific advantages (FSAs) that are argued to be key in INV literature.
For INVs Internationalization can even be a strategy on its own as INVs start internationalizing right from their inception (Oviatt & McDougall, 1994). These INVs (Oviatt & McDougall, 1994) or Born Globals (Knight & Cavusgil, 2004) are not the rare phenomenon that they used to be anymore, there is still some debate on where the root of this rapid internationalization lies exactly. Knight and Cavusgil (2004) argue that the most important factor affecting the successful INV is a “distinctive mix of orientations and strategies” that give them an edge over their respective competition. This distinctive mix helps them to start, grow and hopefully succeed in the entered markets.
Oviatt and McDougal (1994, p. 49) were the first ones to come to a definition of INVs that was widely accepted: “A business that, from inception, seeks to derive significant competitive advantage from the use of resources and the sale of outputs in multiple countries”. Knight and Cavusgil (2004) later used this definition as a foundation for their research, but the use of resources was further specified as the use of knowledge-based resources. Whereas the initial definition by Oviatt and McDougal (1994) the resources seems to be mainly concerned with tangible resources, the addition by Knight and Cavusgil (2004) implies that intangible resources also play a role. Although Moen, Sorheim and Erikson (2008) used the addition of the INV focusing on a global niche market from day one, this definition would be too narrow for this paper.
The IB literature is mainly concerned with firm-level theories (Oviatt & McDougal, 1994; Brass et al., 2004; Knight & Cavusgil, 2004; Chen & Jermias, 2016). Within these theories the entrepreneur can be seen as a resource of the INV, but this does not help in explaining early internationalization of firms. It should explain how the entrepreneur as an individual business actor is involved in the creation of firm-specific for the INV. Several authors (Murray, 1984; Drucker, 1985; Bhide, 1994; Sarasvathy, 2001) highlight the importance of integrating action with analysis. Based on this research, it is fair to state that certain entrepreneurs are better fit to do so than others. Therefore, the influence of the entrepreneur as an individual business actor can be of significant importance and should be researched.
In order to righteously address the lack of integration of the entrepreneur within the INV framework, a more elaborate understanding of the entrepreneurial qualities and capabilities is important. Qualities and capabilities will hereafter be referred to as qualities. This research
provides an overview of these entrepreneurial qualities and uses these qualities to determine which qualities are important for which stage of the internationalization process of an INV. This leads to the following research question:
RQ: How do the qualities and capabilities of individual entrepreneurs contribute to the early internationalization of INVs?
To find out more about this particular topic before simply including it in INV research it is important to define the boundaries of entrepreneurial characteristics that increase entrepreneur performance. This research question will be answered by developing seven working propositions that connect the various stages of the internationalization process of Oviatt and McDougall (1994) to the entrepreneurial qualities of Montagno, Kuratko and Scarcella (1986), Begley and Boyd (1987), Entrialgo, Fernandez and Vazquez (2000), Gürol and Atsan (2006) and Singh and Rahman (2013).
To make sure this research question is answered in a structured and clear way, it is very important to have a clear theoretical foundation and define the boundaries of the research clearly (Vennix, 2011). This will be done by clearly defining the INV and the preceding literature on the topic (e.g. Oviatt & McDougall, 1994; Brass, Galaskiewicz, Greve, & Tsai, 2004; Knight & Cavusgil, 2004). This will also, again, highlight the main point of this article: the fact that the entrepreneur as an individual business actor is not taken into account when looking at the internationalization of INVs. After a clear definition is given, the entrepreneurial qualities will be outlined (e.g. Begley & Boyd, 1987; Gürol & Atsan, 2006; Singh & Rahman, 2013). Both topics combined will results in seven working propositions that resemble a step-by-step approach to, in the end, answer the research question.
After the theoretical framework the third chapter is dedicated to the methodological component of this research. That being a multiple case study design with a multiple embedded units of analysis within each case. The cases will be early internationalization of each firm, with the entrepreneurial qualities and the various elements of the internationalization process as the two embedded units of analyses. All cases will be selected using a mix of purposive- and snowball sampling, or, in other words, will be selected in to make sure they fit the purpose of this research and deepen the knowledge on this topic. The data collection will be done using semi-structured interviews after a short questionnaire determining the core qualities of researched entrepreneur. Interviews are particularly suited for this research as they can provide explanations of concepts as well as personal views on these very concepts (Yin, 2014). These personal views can be very insightful as to answer the main research question.
The analyses was conducted on two levels. After every interview a within-case analysis was conducted to make sure all relevant information surfaced in every case. Next, a cross-case analysis determined what concepts are generalizable and what concepts are unique. This lead to the extensive review of the working propositions and their implications for researchers and entrepreneurs within INVs.
2. INV-framework and Entrepreneurial Qualities
In order to have a thorough comprehension of the problem, the topics discussed in chapter one will be further explored and defined. Firstly, INV literature is briefly discussed alongside with a deeper insight into the Oviatt & McDougall (1994) model. Secondly, be equally important, the concept of entrepreneurial qualities will be further explored by laying out the different qualities found in articles by Montagno et al. (1986), Begley and Boyd (1987), Entrialgo, et al. (2000), Gürol and Atsan (2006) and Singh and Rahman (2013). For both topics a short explanation will be given on why certain research choices were made and why certain concepts were used or not used.
2.1. The INV Framework
As firms are obviously affected by the increasingly globalized economy, they sometimes have to take their practices across borders in order to keep competing in their respective markets. Johansen and Vahlne (1977) were one of the first to try and explain the internationalization of firms. In their research they propose a tree-step model, the Uppsala Model, for internationalization. This model explains how firms gradually move abroad by exporting first, followed by the establishment of a sales subsidiary and finally investing in production sites. Kim and Aguilera (2015) added the important notion that firms will only take their business abroad after fully exhausting all the opportunities in the home country.
Chandler (1986) also argues that the biggest interest in IB literature has been on big, mature corporations. The most famous and, probably, one of the most important models on this topic is of course the Uppsala model by Johansen & Vahlne (1977). Although large multinational ventures are highly important for the current economy, Oviatt and McDougal (1994) use the
notion by Chandler (1986) to argue that this has neglected the existence of INVs. For INVs the internationalization-process appears to be going much faster than described by the Uppsala model. After Oviatt and McDougal built their model in 1994, it became the basis of a lot of future research with being cited almost four thousand times by fellow researchers. Also for this research the framework will be used as a basis.
Before further investigating the model though, it is important to have a look at the definition of the INV again. More specifically one particular part of the initial definition by Oviatt and McDougal (1994), namely the ambiguity of the word inception. This part has received more discussion than on other part as it is often difficult to determine the exact date or time of inception. Knight and Cavusgil (2009) describe the period from establishing the INV to the first time entering a foreign market is often within three years. As this discussion was widely spread, the Australian and New Zealand Academy of Management conducted a review of all the literature available on this particular topic in 2009. This review concluded that an INV makes at least one international sale within two years of formation. However, as this review only addresses international sales, it is not a perfect fit for this research as well. Therefore, the definition used in this research will be a combined definition of several papers:
An International New Venture (INV) is a business that, within three years from its emergence, seeks to derive significant competitive advantage from the use of both tangible and intangible resources and the sale of outputs in multiple countries (Oviatt & McDougall, 1994; Knight & Cavusgil, 2009; Australian and New Zealand Academy of Management, 2009)
In order to derive this competitive advantage and determine the success of an INV it important to further understand the process of internationalization of the respective INV. There is very little literature on the determinants of successful venture success across national borders. Oviatt and McDougall (1994) valued the need for a framework and they provided the literature on International New Ventures with a framework that turned out to be widely adopted. The framework consists of four steps, or elements, that form the necessary and sufficient elements for an INV to exist and be successful. Element 1: Internalization of some transactions, Element 2: Alternative Governance Structures and Element 3: Foreign Location Advantage form the necessary conditions for the emergence of an INV. By adding Element 4: Unique Resources an organization assures itself from gaining not only an advantage, but also making sure this advantage becomes a sustainable competitive advantage over time. The framework’s main purpose is to provide structure to the internationalization-process of INVs.
Other approaches to INVs in International Business literature primarily focus on the importance of network ties as a source for legitimacy, capabilities and knowledge (Brass, Galaskiewicz, Greve, & Tsai, 2004). Oviatt and McDougall (1994) however, argue that some organizations consider their proprietary network as their key resource for rapid internationalization. Knight and Cavusgil (2004) build further on this argument by Oviatt and McDougall (1994) by stating that INVs can leverage a mix of different orientations and strategies that will give them a benefit over competitors in the same market. This will eventually help them to succeed in various countries all over the globe. For this paper the Oviatt and McDougall (1994) model will be used as the core of the research and the conceptual foundation.
Oviatt and McDougall (1994) argue that INVs are a special kind of multinational venture. In order to reach the status of a sustainable international new venture, three necessary requirements need to be met and one sufficient condition needs to be met. In the framework they are referred to as elements. Below an explanation of each element can be found.
2.1.1. Element 1: Internalization of some Transactions
The internalization is the basis of any multinational enterprise (MNE) theory, and therefore also the basis of the framework. Coase (1937) and later Buckley and Casson (1976) described internalization as a result of imperfect intermediate product markets. MNEs use internal transactions when the transactions in the market aren’t possible due to unreasonable transaction costs. In essence, internalizing transactions is redefining the borders or boundaries of a venture. Buckley and Casson (1976) describe a distinction between operational internalization and knowledge internalization. Where the former is mainly focused on intermediate products flowing through various steps in the production process, the latter is more focused on knowledge yield. Knowledge internalization is often more complex because of information asymmetry between buyers and sellers (Buckley & Casson, 1976). Ventures are quite hesitant to purchase knowledge because they are often unsure whether the knowledge they purchase is actually the knowledge they need.
For new ventures internalization is often a “problem” because they do not have a lot of capital or manpower to internalize. Knight and Cavusgil (2004) second this by arguing that new ventures often have scarce financial, human and tangible resources. Luckily for new ventures, Casson (1982) describes that ownership of across-border assets per se is not a characteristic of a new venture or MNE. A venture does need to own some assets though, otherwise it would not have anything to leverage in the economic process.
2.1.2. Element 2: Alternative Governance Structures
The second element, alternative governance structures relies on assets ownership, or better: asset non-ownership. Because new ventures are often still small and do not have a huge employee base they are very much focused on only fixing or owning their vital assets. Williamson (1991) described that in case of low asset specificity, different governance structures are more popular to increase the internal control and to increase the market control over the resources. For example hybrid structures, licensing or franchising are current ways of changing your governance structure that better fits your activities across border. Larson (1992) also highlight the importance of using networks in this step of the process. These networks can serve as a different approach for an INVs’ vertical integration.
As described in the first element, the internalization of some transactions is a difficult step for new ventures. Mostly therefore Oviatt and McDougall (1994) emphasize the importance of controlling assets of a new venture rather than owning them. The best way to do so is by minimal use of internalization and the greater use of alternative transaction governance structures (Oviatt & McDougall, 1994).
2.1.3. Element 3: Foreign Location Advantage
The most important factor in the third element is the distinguishment of international organizations from domestic organizations. According to Dunning (1988) ventures are considered to be international when they combine a local foreign resource with a non-local resource and find an advantage in this combination. Unfortunately, as Oviatt and McDougall (1994) argue, ventures moving their business abroad often find some force working against them in their new environment, which gives them a disadvantage compared to local firms.
Whereas MNEs can often leverage their economies of scale or scope to help tackle these disadvantages, new ventures have rely on other resources (Oviatt & McDougal, 1994).
A lot of research has been conducted on foreign location advantages up until this point. Dunning (2000) describes it as “location advantages” in his OLI paradigm, Rugman, Verbeke & Nguyen (2011) give the example of superior use of technology of the United States and call it a “country specific advantage” and Buckley and Casson (2009) describe production costs differences in different regions as “location specific advantages”.
These other resources often come in the form of knowledge, for example a lot of new ventures leverage advanced information and communications technology (Tanev, 2012). This communications technology allows the ventures to transfer knowledge quickly and communicate within the firms’ subsidiaries all over the world (Cavusgil & Knight, 2009). These rapid forms of communication of knowledge help ventures to overcome disadvantages in new environments and helps the new ventures to a rapid internationalization over step-by-step internationalization. Up until this point a venture can be considered to be an International New Venture.
2.1.4. Element 4: Unique Resources.
The distinguishing venture for INVs is the fourth element in the mix by Oviatt and McDougall (1994). In their model the first three elements are necessary for the existence of an INV, the fourth element is the sufficient element for a sustainable INV. A ventures’ sustainable factor is achieved by having unique resources (Barney, 1991; Oviatt & McDougal, 1994). The authors in their place apply this to INVs and thus state that INVs can become sustainable by their unique resource: (often) knowledge.
However, as described under element 3 the international new venture often has knowledge as its unique resource. Unfortunately, according to Stiglitz (1999, World Trade Bank) and Oviatt and McDougall (1994) knowledge is, at least partly, a public good. They argue the ICT advantage of transferring knowledge is beneficial for INVs, but also difficult to contain. Therefore an INV has to protect its knowledge in order to keep the competitive advantage over other local firms. This can be done by various ways: (1) patents and copyrights, (2) imperfect imitability and (3) licensing (Oviatt & McDougall, 1994).
Although Oviatt and McDougall (1994) provided the INV literature with a solid foundation, the research is missing an important aspect. Also the subsequent research (for example Brass et al., 2004; Knight & Cavusgil, 2004; Chen & Jermias, 2016) is failing to acknowledge the importance of the factor entrepreneurship in the research. Unfortunately this factor is not given the attention it deserves in the current IB literature. This opposed to the entrepreneurship literature, which talks highly of the importance of the entrepreneur on success of their respective firms.
Hernández-Maestro and González-Benito (2011) state that both the entrepreneur’s knowledge as well as the entrepreneur’s involvement can influence the performance of a firm. Very early in the twentieth century Schumpeter (1934) already highlighted the importance of entrepreneurs. Schumpeter (1934) argues that entrepreneurs should reform and revolutionize to exploit opportunities. Without entrepreneurs there would be hardly any new commodities or changes in production. If the importance of entrepreneurs has been established in search an early stage already it is quite odd that this important factor of the entrepreneurial literature is missing in the current INV literature. Even more importantly, it is vital to grasp a sense of this
factor in order to see if it also influences the performance of an INV more than an “ordinary” firm.
2.2. Entrepreneurial Qualities and Capabilities
Within the field of entrepreneurship, a lot of research has been conducted in various directions. Of course a lot of research is in the direction of successful entrepreneurial strategies. Drucker (1985) and Bhide (1994) argue that entrepreneurial strategies are often very flexible and agile. Bhide (1994) also stresses the importance of rapid decision making by the entrepreneur. These decisions can vary in importance and direction from potential risks versus gains to in-depth analysis versus hands-on action. As mentioned before, the importance of integrating action and analysis is stressed by multiple authors (Murray, 1984; Drucker, 1985; Bhide, 1994; Sarasvathy, 2001). The fact that some entrepreneurs are more fit to integrate action and analysis is quite important for this research as this means that the qualities of the individual entrepreneur matter. Montagno, Kuratko and Scarcella (1986), Begley and Boyd (1987), Entrialgo, Fernandez and Vazquez (2000), Gürol and Atsan (2006) and Singh and Rahman (2013) all conducted research on the entrepreneurial qualities in various situations. This research all shows various qualities of entrepreneurs with various viewpoints but all have some overlap as well, see table 1.
Montagno et al. (1986) Begley & Boyd (1987) Entrialgo, et al. (2000) Gürol & Atsan (2006) Singh & Rahman (2013)
Quality 1: tolerance for ambiguity X X X X
Q2: innovativeness X X X
Q3: need for achievement X X X
Q4: risk-taking propensity X X X
Q5: locus of control X X X
Q6: adaptability/flexibility X X
Q7: determination/commitment X X
As the qualities comes back in several articles throughout the entrepreneurial literature, a lot of research has been conducted on this topic. As described above Montagno, et al. (1986), Begley and Boyd (1987), Entrialgo et al. (2000), Gürol and Atsan (2006) and Singh and Rahman (2013) all researched various qualities. In all of these papers the following qualities surfaced: (Quality 1) tolerance for ambiguity, (Q2) innovativeness, (Q3) need for achievement, (Q4) risk-taking propensity, (Q5) locus of control, (Q6) adaptability and (Q7) determination/commitment. The first five qualities come back most often in the current literature, and many more articles can be found on these qualities. Q6 and Q7 however are less researched and often difficult to capture in a definition. In the following subchapters, each of these qualities will be further explained.
2.2.1. Tolerance for Ambiguity
Begley and Boyd (1987) argue that individuals, and therefore entrepreneurs as well, perceive ambiguity when in unstructured situations. Based on research of Budner (1962) Begley and Boyd (1987) define tolerance for ambiguity as the tendency to perceive ambiguous situations as desirable. Entrialgo et al. (2000) find that this tolerance for ambiguity is directly related to entrepreneurial success. But it also has several indirect implications on success. Entrepreneurs who have a high tolerance for ambiguity are more likely to be innovative, take more risks and are more proactive in their decision-making. Gürol and Atsan (2006) conceptualize tolerance for ambiguity as the entrepreneur’s attitude towards taking chances in decision-making situations. In this paper tolerance for ambiguity is defined as the ability to tolerate, and therefore cope with, complex and ambiguous situations.
2.2.2. Innovativeness
Innovation has been studied over and over by multiple authors, but the concept of innovativeness of entrepreneurs is more recent. Although Entrialgo et al. (2000) focus more on innovativeness as a concept that defines entrepreneurial orientation, other authors, e.g. Zacharakis (1997), define it more broadly by stating that innovativeness means entrepreneurs are always looking for new opportunities. Singh and Rahman (2013) consider innovativeness to consist of sincerity, commitment and individual smartness. For this research, innovativeness is defined as a continuous search for opportunities for new markets, intermediate markets, resources, or products (Gürol & Atsan, 2006).
2.2.3. Need for Achievement
Need for achievement can in practice be seen as the drive or the will of an entrepreneur, as high achieving individuals often raise the bar for themselves and people around them. McClelland (1961) is the founder of the need for achievement theories with his notion that need for achievement can be seen as the will of an individual to improve the performance of his or her actions. In other words, these individuals value the competition with their own standards highly and continuously try to grow their qualities by reflecting on their past actions (Begley & Boyd, 1987). Entrialgo et al. (2000) build upon this by arguing that high achievers often spend more time evaluating and increasing performance. According to Gürol and Atsan (2006) need for achievement is a characteristic that is more strongly related with entrepreneurship than other characteristics. In this paper the definition as given above by McClelland (1961) will be used.
2.2.4. Risk-taking Propensity
The indirect influence of tolerance for ambiguity on risk-taking propensity makes that this quality is quite important, because it also has an intrinsic influence on entrepreneurial success. Also Singh and Rahman (2013) argue that risk-raking propensity is closely related to tolerance of uncertainty and tolerance for ambiguity. Risk-taking propensity is defined as the likelihood of an individual, the entrepreneur in this case, to be risk-loving or risk-avoiding when in a risky situation (Begley & Boyd, 1987). Entrialgo et al. (2000) focus more on the personal involvement of the entrepreneur by arguing that the entrepreneur might get bored when not taking enough risks. For this paper however, risk-taking propensity will be defined as the willingness to take risks in risky situations regardless of emotions (like boredom) towards the situation.
2.2.5. Locus of Control
The locus of control is quite an abstract concept as, according to Entrialgo et al. (2000), it is the belief of an individual that he controls his destiny instead of external influences controlling his destiny. Because the concept of locus of control includes a subjective factor belief it is difficult to determine the influence of such a concept, but several research attempted and succeeded to show a positive correlation between locus of control and successful entrepreneurship. Research has shown that managers tend to have a higher locus of control than non-managers. Gürol and Atsan (2006) argue that entrepreneurs need the capability to control certain situations and events in their lives, for example when scouting for new business opportunities but also the controlling the current situation an organization is in. In this paper, the definition as used by Entrialgo et al. (2000) will be used to describe locus of control.
2.2.6. Adaptability/flexibility
Adaptability or flexibility as a concept is logically closely related to tolerance for ambiguity. As described, tolerance for ambiguity is defined as the ability to tolerate, and therefore cope with, complex and ambiguous situations. Coping with these situations of ambiguity can be done by adapting to the situations at hand an being flexible. Montagno et al. (1986) argue that flexibility is one of the characteristics that is very important for entrepreneurial success. Adaptability/flexibility will in this research be defined as the extent to which an individual can adapt to a different situation at hand without destroying the situation.
2.2.7. Determination/commitment
The last characteristic as described above is determination or commitment. This last characteristic is something that has not been researched much in the context of entrepreneurial success, but is included briefly in a lot of research though (e.g. Montagno et al. 1986; Timmons, 1994; Ehigie & Umoren, 2003; Singh & Raman, 2013). According to Timmons (1994) determination or commitment is crucial in an entrepreneurial team and therefore also in an entrepreneurial character. Although it is said to be influenced by personal emotions and feelings like satisfaction, cooperation and trust, determination or commitment in this study will be defined as the extent to which an individual is involved with and dedicated to the venture.
2.3. Integrated Framework and Propositions
The prolonged research in both fields, IB and entrepreneurship, has made sure this research can work with a detailed framework for INVs by Oviatt and McDougal (1994) and a broad range of qualities narrowed down to seven key qualities. Each element of the framework can be looked at separately and linked to one or more of the qualities as described in subchapter
2.2. This means that the qualities contribute to an element in the framework by Oviatt and McDougal (1994) and thus contribute to moving from one element to the next. In the end this should of course contribute to the emergence of a sustainable INV. Figure 1 below summarizes all propositions. In addition to figure 1, every element of the Oviatt and McDougall (1994) will be discussed briefly, alongside the linked quality or qualities and the corresponding working proposition (WP) next.
2.3.1. Element 1: Internalization of some Transactions
The first element, internalization of some transactions, is the foundation of any organization as a result of imperfect intermediate product markets. It redefines the borders or boundaries of a venture. As Gürol and Atsan (2006) describe that locus of control is important for entrepreneurs to control certain situations and events, there seems to be some overlap with redefining the boundaries of an organization. By coming from a starting point where the entrepreneur perceives his influence of vital importance, rather than external influences, it seems easier to determine the boundaries of the venture and the corresponding degree of internalization. This leads to the following working proposition:
WP1: Locus of control (Q5) positively contributes to the internalization of some transactions of a venture.
2.3.2. Element 2: Alternative Governance Structures
The second element, alternative governance structures, is mainly concerned with the balance between the degree of internalization and the degree of alternative governance structures (Oviatt & McDougall, 1994). Because a new venture often doesn’t have the capital to internalize everything, licensing or franchising are interesting ways to expand after all.
Because the balancing internalization with alternative governance structures is a continuous development with changing circumstances it can be argued that this brings quite some ambiguous situations with it. The extent to which a firm deals with these situations is of course dependent on the entrepreneur and management involved. As tolerance for ambiguity is the ability of an entrepreneur to tolerate, and therefore cope with, complex and ambiguous situations logic argues that a higher tolerance for ambiguity makes dealing with alternative governance structures easier. This leads to the following working proposition:
WP2: Tolerance for ambiguity (Q1) positively contributes to a greater and more efficient use of alternative governance structures.
As these complex situations also require an adaptive an flexible approach by the entrepreneurs, this quality is also important. As Montagno et al. (1986) describe: flexibility is one of the key characteristics of entrepreneurial success. This leads to the following working proposition:
WP3: Adaptability/flexibility (Q6) positively contributes to a greater and more efficient use of alternative governance structures.
2.3.3. Element 3: Foreign Location Advantage
The third element, foreign location advantage, is essential in distinguishing regular new ventures from INVs. Most INVs rely on other resources, instead of economies of scale, in the form of knowledge (Tanev, 2012). This knowledge however is not just found in stores or natural sources like raw materials. This knowledge is often gathered by an extensive process of research and analyses. This search for new opportunities in the form of knowledge can be
considered as a distinguishing factor from regular new ventures. The search for new opportunities is also called innovativeness. This leads to the following working proposition:
WP4: Innovativeness (Q2) contributes to the initiation or acquisition of a foreign location advantage in the form of new tangible or intangible resources.
2.3.4. Element 4: Unique Resources
The fourth element, unique resources, distinguishes INVs from sustainable INVs. This element logically be closely related to the third element. As most INVs have knowledge as a unique resource and knowledge is to some extent a public good, it is difficult to contain (Stiglitz, 1999; Oviatt & McDougall, 1994). The biggest challenge in this element is to protect your unique resource from competitors. As a lot of knowledge is already patented or licensed it is also difficult to find real unique new resources. In this case the venture needs to find a balance between innovating into new ways to protect their unique resource and taking risks by leaving their unique resource (partly) unprotected. This leads to the following working propositions:
WP5: Innovativeness (Q2) contributes to the exploration and exploitation of unique resources.
WP6: Risk-taking Propensity (Q4) contributes to exploration and exploitation of unique resources.
2.3.5. Process Related Qualities
A part from entrepreneurial qualities influencing every element separately, some qualities are more process related. In order to work through the entire process of building an INV, an
entrepreneur logically needs an internal motivation to push through and keep working. The entrepreneur needs to push to improve and continue the development of the venture. McClelland (1961) described this phenomenon as need for achievement: the drive or the will of an entrepreneur, as high achieving individuals often raise the bar for themselves and the people around them. In line with this, the entrepreneur also needs to invest on an emotional level. The concept of, by Timmons (1994) defined, commitment or determination is crucial in this matter as well. This leads to the following propositions:
WP7: Need for achievement (Q3) is a process related driver for internationalization of a new venture.
WP8: Determination/commitment (Q7) is a process related driver for internationalization of a new venture.
As all propositions mark steps of the INV framework, each proposition should, once proven to influence a next step or the overall process, in the end contribute to the early internationalization of a new venture in its respective market.
3. Methodology
The third chapter of this paper will elaborate on the methodology of this study. Firstly, a brief discussion of the ontology and the epistemology of the research will be given after which a more elaborate explanation of the case study design will be provided, drawing extensively on Yin’s (2014) latest work on multiple case study design. The methodology chapter will be finalized by sharing the data collection method and its corresponding documents, and a discussion of the method of data analysis.
3.1. Ontology and Epistemology
Every research includes a certain research philosophy behind it. The two main directions of research philosophy can be placed into two categories: ontology and epistemology. Whereas the former is mainly concerned whether reality is more objective or subjective in nature (Saunders, Lewis, & Thornhill, 2009), the latter is more concerned with nature and scope of knowledge and the beliefs derived from this knowledge (Ryan, 2006).
This research will adopt a more objectivist ontological approach, as this approach defines reality as an independent entity (Branninck & Coghlan, 2007). Saunders et al. (2009) further describe this approach by stating that it sees reality as an entity unrelated to a social actor’s interpretation or perception. Of course, the researcher is very much subject to bounded rationality, which means that humans are limited in their ability to adapt to complex situation due to their limited information processing capabilities (Simon, 1999). Therefore this research will also adopt a post-positivist epistemological approach, which is different from pure positivism in the sense that it takes this bounded rationality into account (Ryan, 2006). This means the post-positivist approach assumes that knowledge claims can be understood
partially and that it is not possible to fully verify these claims (Ryan, 2006). According to Henderson (2011) post-positivism attempts to explain social concerns and meanings. The combination of these contributions by Ryan (2006) and Henderson (2011) makes it a perfect fit for this research.
All in all, this research will adopt a objectivist post-positivist approach because the studied phenomenon is an external independent entity, but this entity can only be studied by a boundedly rational researcher.
3.2. Qualitative Multiple Case Study Design
As described by Eisenhardt and Graebner (2007) a lot of confusion exists around the difference between qualitative research and qualitative data. In order to avoid this confusion, this research will merely address the qualitative strategy used to gather data. In this case that means an outline of the use of case studies. More specifically, and as argued by Yin (2014), a so-called “type-4” multiple case study including several embedded units of analysis. Case studies can best be described as “rich, empirical descriptions of particular instances of a phenomenon that are typically based on a variety of resources” (Eisenhardt & Graebner, 2007, p. 25). As described in the introduction, the internationalization of the focal INVs will serve as the case. The entrepreneurial qualities on one hand and the various elements of the internationalization process on the other hand will serve as the two embedded units of analysis studied in greater detail for each case.
The case study design is a particular good fit because this thesis’ research question has an explanatory focus on the concept of entrepreneurs as individual actors within INVs. Yin (2014) stresses the fact that case study research is particularly well suited to answer
“how”-research questions. Simons (2009) further supports this by stating that a case study is a good approach for an in-depth analysis for various perspectives of a project. The perspectives in this case being the different organizations that are studied and the project being this research. Yin (2014) stresses the importance with what he calls a “holistic and real-world perspective”, which implies the process should be given enough attention. The linear process that a case study is doesn’t mean there is no room for iterations (Yin, 2014; Eisenhardt & Graebner, 2007). Yin (2014) argues that if a case study is given careful attention, the final outcome is most likely a case study of very high quality. Therefore these iterations are of the utmost importance.
Because of its inclusion of data triangulation and because of replication logic, the most compelling form of a case study is a multiple case study design (Yin, 2014). As Eisenhardt (1989) describes, it is very important to keep iterating between the results of the individual cases and the results of all the cases combined. In essence, an iterative process in this context is important to build a substantial theory based on the data and to work on the usability of the proposed working propositions. Following from this, the logic for this multiple case study will be that it predicts similar results for all cases; Yin (2014) calls this literal replication. Eisenhardt (1989) argues that the basis of the iterative process lies in this replication logic. This means that whilst conducting the analysis, the interpretation of the findings will be primarily aimed at finding similarities, but not neglecting keeping in mind potential differences.
3.3. Case Study Design and Selection
This research will use a multiple case study design with multiple embedded units of analysis. These multiple cases include several ventures that emerged in various industries, varying
from consumer goods to internet and from human resources to information technology, see table 2. The cases are defined as the “early internationalization of International New Ventures”. Of course all ventures will have to fit within proposed definition of an INV, as described in chapter 2. This means that the selected ventures are all ventures that internationalized within four years from their origin (Oviatt & McDougall, 1994; Knight & Cavusgil, 2009; Australian and New Zealand Academy of Management, 2009) and have an entrepreneur running the firm in a successful way.
Venture Description Industry
(source: LinkedIn) Est. Intl.
A (pilot)
A venture that serves as an online market for second-hand clothing, currently employing over 20
people. Information Technology and Services 2013 2015 B (pilot)
A venture that provides news, blogs, tips, videos, weather forecasts and more on skiing. Currently
employs 7 people.
Sports 2012 2014
C
A venture providing cardboard tents to festivals and their visitors. Currently employs 6 people and
active all around the world.
Consumer Goods 2015 2016
D
A venture that helps employees integrate in their new working environment. Currently employing
almost 30 people. Information Technology and Services 2012 2014 E
A venture that selects and sells fashion must-haves for their clients. Over a million unique visitors per
year and over 50 employees.
Apparel & Fashion
(online) 2012 2015
F
A venture active in groundbreaking in-flight entertainment systems. Currently employing more
than 50 employees in several countries.
Information Technology and
Services
2012 2015
G
A venture sending travelers away to an unknown destination. Embracing adventure is what they stand
for. Currently around 60 employees.
Leisure, Travel &
Tourism 2014 2016
H
A venture that helps companies conduct frequent and continuous feedback conversations with their
employees. Currently employing 30 people.
Internet / Human
Resources 2013 2015
I
A venture selling several pieces of clothing that can be customized with personal pictures or texts. Currently employs 4 FTE’s and 20 part-timers.
Internet 2014 2016
J
A venture searching for IT or Online Marketing professionals for their clients. Currently employing
around 12 people.
Human Resources 2010* 2014
Table 2. Cases
With the case being the early internationalization of the INV the case will have two embedded units of analysis: (1) the entrepreneurial qualities of the entrepreneurs and (2) the various elements of the internationalization process. Every case will be assessed on an individual level, as well as on a cross-case basis. All cases were selected using purposive sampling, or, in other words, will be selected in to make sure they fit the purpose of this research and deepen the knowledge on this topic.
3.4. Multiple Case Study Quality Criteria
Although the case study is a very widely adopted research strategy a lot of critique still surfaces. For example it is said that case studies are not rigorous enough, case studies demand too much effort or case studies provide results that are not generalizable. Therefore Yin (2014) proposes four so-called quality criteria in order to make the case study as valid and reliable as possible: (1) construct validity, (2) internal validity, (3) external validity and (4) reliability.
The first quality criterion, construct validity, is concerned with the extent to which the study is “identifying correct operational measures for the concepts being studied” (Yin, 2014, p. 46). Gibbert and Ruigrok (2010) argue that this is, in essence, the extent to which a study researches what it wants and claims to research. Post-positivist research suggest that data triangulation and a clear chain of evidence are essential in overcoming any constraints (Gibbert & Ruigrok, 2010; Yin, 2014). By using a multiple case study design multiple data sources are used, which allows for both within case analysis and cross-case analysis. In the end this will lead to pattern matching, which increases the construct validity (Yin, 2014). The use of documents provided by the entrepreneurs that are interviewed will also serve as an
additional source of data to increase the validity of this research. The review of the interviews transcripts by peers and interviewees will improve the construct validity. Also, a clear chain of evidence is used to construct the initial propositions and to gather the qualitative data. Lastly, the data gathering, via interviews, will be done in the entrepreneur’s native language. A study by Cortazzi, Pilcher and Jin (2011) shows that participants are able to express themselves better and with more additional information in their native language as compared to English.
The next quality criterion, internal validity, refers to the extent to which causal relationships are present between variables and results (Gibbert & Ruigrok, 2010). This means every step in the operationalization of the important concepts is done very precisely (Vennix, 2011). The working propositions that were constructed initially will serve as handles to structure these causal relationships. Eisenhardt (1989) also highlights the importance of a priori constructs in order to clearly define the several concepts involved in the research. This research benefits from clearly defined concepts in each step, in order to have a clear linkage between the data collection and the predefined working propositions. This, in the end, should lead to solid data analysis and clear iterations to the working propositions. As described under 3.2. this research will also include pattern matching to compare empirically observed patterns with the working propositions in order to increase internal validity.
The third criterion, external validity, is the last of three validity criteria. It is concerned with the generalizability towards theory, thus with the extent to which a research is applicable not only in the current research environment but also in a different one (Gibbert & Ruigrok, 2010). Therefore it is important to “define the domain to which the study’s findings can be generalized” (Yin, 2014, p. 46). Although is difficult to account for external validity using
case studies, Eisenhardt (1989) argues that the use of four to ten case studies in a cross-case analysis will give the research enough body to be a basis for generalization. The use of multiple cases will assure the research is theoretically generalizable.
The last quality criterion, reliability, is the extent to which the researcher will reach the same conclusions or insights if they re-do the study several times (Vennix, 2011). Yin (2014) highlights the importance that this only applies if the exact same steps are followed. If a researcher follows the same steps in several separate occasions and under the same circumstances he should always reach the same results. In order to make sure this is also applicable to this research an interview protocol has been developed and the interviews have been recorded (if permission was given by the interviewee), translated (where necessary) and transcribed. Also this chapter, in which the research design and the way of working is described in detail contributes to the reliability.
3.5. Data Collection Method
The data was collected by interviewing the unit of data collection (Yin, 2014): the entrepreneur within the various INVs. The entrepreneur, often also the owner or co-founder, can be considered a unique business figure and often a very influential figure within the venture. This was done in two steps: (1) by assessing the entrepreneurial qualities of the individual entrepreneur (Appendix A) and (2) by interviewing the entrepreneur about the internationalization of his firm (Appendix B). The interviews are of a semi-structured nature in order to stick to the topic (interviewer’s job) but let the interviewee talk freely about the topic (Vennix, 2011). As described earlier, interviews are suited for this research as interviews can provide explanations of concepts as well as personal views on these concepts (Yin, 2014). Moreover, interviews, if conducted properly, can include the interviewee’s
perceptions, attitudes and meanings to a certain extent (Yin, 2014). Because of the importance of entrepreneurial qualities’ influence on internationalization these perceptions, attitudes and meanings can potentially be very insightful to answer the research question.
The first step, the assessment of the entrepreneurial qualities of the individual entrepreneurs was done using 20 statements, with interviewees answering on a five-point Likert scale. After researching the five papers on entrepreneurial qualities that form the basis of the theoretical framework (Montagno et al., 1986; Begley & Boyd, 1987; Entrialgo et al, 2000; Gürol & Atsan, 2006; Singh & Rahman, 2013), the authors were approached to check if they were willing to share their questionnaires to assess entrepreneurial qualities. Unfortunately, no author replied. Subsequently, the questionnaire was drawn up using an online entrepreneurial quality questionnaire of the Business Development Bank of Canada as a basis (Business Development Bank of Canada, 2017).
In order to further build on the third quality criteria, as described earlier, ten interviews were conducted with entrepreneurs from ten different ventures. As described earlier, each of these ventures fit within the earlier given definition of an INV and the entrepreneur needs to have been involved in the internationalization of the venture. Out of these ten interviews, two were used as pilot studies in order to get a grip on the topic and remove any potential issues, or, as Yin (2011, p. 37) describes it, “to test and refine one or more aspects of a final study”. The opportunity to practice the interview questions and get a sense of how to make the most of the interviews with said entrepreneurs improves the external validity of this research. More specifically this meant updating several questions and including two final questions to cater for snowball sampling. Also, practicing the interviews made sure the interviewer became more comfortable talking to the entrepreneurs.
As mentioned earlier, for gathering the entrepreneurs and corresponding cases a mix of purposive sampling and snowball sampling is used. This means purposive sampling as “selecting the specific study units that will yield the most relevant data” (Yin, 2011, p. 88), but influenced by a snowballing technique. Snowballing meaning that every entrepreneur at the end of the interview will be prompted to dig in their network for potential other useful cases for this research (Yin, 2011). Atkinson and Flint (2001) also highlight the importance of snowballing sampling’s ability to take advantage of social networks of the subjects.
Table 3. Coding table
3.6. Data Analysis Method
After conducting all interviews and transcription is complete, the interviews will be subject to
Codes Definition/Description WP
Tolerance for Ambiguity
The ability to tolerate, and therefore cope with, complex and ambiguous situations.
WP2
Innovativeness A continuous search for opportunities for new markets, intermediate markets, resources, or products.
WP4 WP5 Need for Achievement The will of an individual to improve the performance of his or her
actions.
WP7 Risk-Taking
Propensity
The willingness to take risks in risky situations regardless of emotions towards the situation.
WP6
Locus of Control The belief of an individual that he controls his destiny instead of external influences controlling his destiny.
WP1 Adaptability/
Flexibility
The extent to which an individual can adapt to a different situation at hand without destroying the situation.
WP3 Determination/
Commitment
The extent to which an individual is involved with and dedicated to the venture.
WP8 Element 1:
Internalization Contribution to Internalization of some transactions
WP1 Element 2: Alternative
Governance Structures
Contribution to a greater and more efficient use of Alternative Governance Structures
WP2 WP3 Element 3: Foreign
Location Advantage
Contribution to the initiation or acquisition of a Foreign Location Advantage
WP3 Element 4:
Unique Resources Contribution to the exploration and exploitation of Unique Resources
WP5 WP6 General:
Process Related Drivers that are process related for internationalization.
WP7 WP8
coding (Vennix, 2011). The first cycle in coding provides a first look into the gathered qualitative data by developing a list of codes deductively (Miles, Huberman & Saldana, 2013). The second cycle of coding is defining pattern codes, that identify a certain pattern, theme or similar topics (Vennix, 2011; Miles et al., 2013). These codes emerge during an iterative process and can, and should, be altered throughout the process. Using these codes, a within-case analysis as well as a cross-case analysis was conducted. These analyses led to an overview of similarities and differences between the various cases and will eventually lead to the discussion on the initial working proposition in the last chapter of this paper.
4. Case Results
This chapter will provide an overview of the information retrieved from the interviews for every case. Each case will be discussed separately in a within-case analysis. Next, a cross-case analysis will lay out the similarities as well as the differences between all cross-cases. As mentioned in the previous chapter, Venture A and Venture B were used as pilot cases for the study and will not be discussed in the results.
4.1. Within Case Analysis Venture C
Venture C is an INV that is active in the consumer goods industry and was established in 2015. The venture creates recyclable cardboard tents that are sold to festivals for people to sleep in. After doing ten pilot events in the Netherlands in the first year they internationalized to Belgium and Germany in the second year after their emergence. After receiving an incredible amount of requests for the tents through social media the venture internationalized at a rapid speed to do business all over the world, varying from the Netherlands to Spain and from Australia to South Africa. The entrepreneur that was interviewed has been working for the venture since the emergence, as he was the co-founder. He founded the organization as a study project and turned it into a living. Currently he is one of the six employees working in within the organization and he responsible for all sales in Europe and the overall well-being of the firm.
4.1.1. Entrepreneurial Qualities Venture C
The questionnaire revealed that this entrepreneur can be considered as a good example of an entrepreneur. The three dimensions that scored very high, innovativeness, need for achievement and determination/commitment, were very much reflected in the questionnaire.
The remaining four dimensions were slightly less apparent but still can be considered to be highly represented in this entrepreneurial individual. Moreover, it was very interesting to note that during the interview the entrepreneur presented himself as a very passionate and hard working individual.
4.1.2. Internationalization Venture C
When looking at the first element of the internationalization model as described by Oviatt and McDougall (1994): internalization of some transactions, the entrepreneurial quality that is most apparent in the analysis is locus of control. As expected, the entrepreneur highlighted the importance for a small organization to know what’s going on and to be in control of
operations. Moreover, the entrepreneur described their supply chain as being very complex. Therefore it is important for a young organization to internalize as much coordinating tasks as possible. One could argue that the entrepreneur is reluctant to give away control and let external influences direct the outcome of the process.
The second element of internationalization, the use of alternative governance structures, includes several entrepreneurial qualities. The most frequently flagged aspect however is adaptability or flexibility. The importance of being flexible or adapting to the situation at hand was not explicitly mentioned by the entrepreneur, however, the context of the interview often suggested that this was an important aspect. For example the entrepreneur stated “the transition when up scaling is very important”. This point was discussed in the context of up scaling production and how to deal with these situations. Adapting to the situation at hand was considered to be key and could therefore be argued to be essential in the use of alternative governance structures.
