International entrepreneurship and traditional firms: The differences and similarities between their international new ventures

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International entrepreneurship and traditional firms: The differences and similarities between their international new ventures

By:

Christian Wiebe Cnossen December 6, 2010

University of Groningen

Msc. Thesis International Business & Management EBM719A25

Final version

Abstract:

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Acknowledgements

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List of figures & tables

Figure 1: Conceptual Model

Figure 2: Conceptual Model + Indicators

Table 1: Frequencies of parent/venture countries in dataset Table 2: Descriptives & Correlations for all variables

Table 3: Regression Summary Table 4: Mediator variable testing

List of equations

Equation 1: Econometric Gravity Model (Mátyás 1997) Equation 2: Return on assets calculation method

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1. Introduction

Research on the international new venture has been rather extensive ever since the first publications on the topic in the early nineteen nineties of the previous century. Indeed, the research stream has gained a relatively large amount of attention from scholars, spawning a plethora of research papers into the subject. The latest literature review by Keupp & Gassman (2009) uncovered 179 articles related to international entrepreneurship alone. Topics in the research are as widespread as one can think of, ranging from behavioural and sociological papers which mainly research the international entrepreneur himself (e.g. Mitchell et al. 2000; Gutpa 2004), to more firm-specific research on certain firm characteristics (e.g. Lee et al. 2001; Prasad 1999). The topics are various since the literature field of international entrepreneurship lies somewhere between international business research and entrepreneurship research, seeking to fill the gap in-between.

When Rialp et al. (2006, p162) stated: “[...]This suggests that perhaps the greatest problem facing scholars in the emergent ﬁeld of international entrepreneurship and of early internationalizing ﬁrms is the sheer paucity of research conducted to date”, they re-affirmed what most other literary review articles have stated to date (e.g: Coviello & Jones 2004), that there is a severe amount of inconclusive, contradicting, and wanting of research topics in the research stream of international entrepreneurship. It also says quite something about a research field when an author states the publications with the most empirical value are actually literature review studies (Abdul-Aziz & Wong 2010), which only summarize what has been researched thus far, this clearly signals the

disorganization of the international entrepreneurship research. Naturally, such findings indicate a number of research gaps in the literature stream.

It is interesting to look at the samples which are used in the various publications on international entrepreneurship. When looking at these, one fairly quickly comes to the conclusion that international entrepreneurship is limited to firms not exceeding 500 employees (Keupp & Gassman 2009) which have been established no more than six years before the study was conducted (Coviello & Jones 2004). This is inherently due to the definition set out by Oviatt & McDougal (1994) (stating international entrepreneurship research concerns only small and young firms)1. However, since the aforementioned authors have changed the definition of international entrepreneurship multiple times, foregoing the limitation to small and young firms, a literature gap becomes

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apparent2. Indeed, when one seeks to find samples in the international entrepreneurship literature which incorporates both small and young firms and larger, older firms, he will quite quickly find that there has been very limited research which incorporates both firm sizes, even though several authors have pointed to the importance of entrepreneurship, even in giant companies such as Royal Dutch Shell or Microsoft (Abdzul-Aziz & Wong 2010). Since small businesses are one of the main drivers for any economy (Day 2000), the knowledge whether or not these small businesses actually have the same opportunities as their larger counterparts, without their smaller size being an obstruction, could be valuable to entrepreneurs and policy makers alike. This thesis seeks to provide this information by filling the above indicated literature gap. The need for obtaining this information is also where the research question of this paper stems from, which is the following:

What is the influence of parent firm size on international venture key characteristics, and are those influences equal for international new ventures and traditional firms?

Brining to light whether or not the parent firm size actually does have a statistically significant effect on the international new venture’s firm characteristics, discriminating between these two groups of firms, would fill the literature gap described above, and provide information on the equality of business opportunities between small and larger firms. To this research, a traditional firm is a firm that does not meet the requirements of an international new venture. Definitions of both these typologies will be provided in further sections of this text.

It should be established which international new venture characteristics are considered key to the international venture within the context of this research. Therefore, this study features a number of sub research questions, all of which deal with one of these key characteristics. First, the aim of much theory in business is to find out the origins of profitability. This research is no different in this respect, as profitability is considered one of the main characteristics of an international venture. However, when it comes to the influence of firm size on profitability, different theoretical frameworks have very different viewpoints on this. The second key financial characteristic of interest is the size of an international venture. The importance of this subject is framed within the theoretical framework of the resource based view. Clearly, firms need to have stocks of assets to conduct operations, which makes size, being a basic asset resource, interesting to look at. The final key characteristic of interest relates to distance between the international venture and the parent firm. In the context of internationalization theory, there is much controversy what the relation is between

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parent firm size and age on the internationalization possibilities of a firm. In fact, the entire phenomenon of international entrepreneurship generally disputes many conclusions from

internationalization theory. This makes this subject interesting enough to warrant two sub research questions. Below all four of this research’s sub questions are displayed.

Sub question 1: What is the influence of parent firm size on international venture profitability Sub question 2: What is the influence of parent firm size on international venture size

Sub question 3: What is the influence of parent firm size on distance between the parent and venture

Sub question 4: What is the influence of the distance between parent and venture on international venture profitability

Note that a more detailed discussion on all these subjects is provided in the hypotheses chapter of this study, where all relevant literature on the subjects posed above is reviewed.

The topic of this study does not end with the described literature gap however. When one critically examines the above text, it will come as no surprise that firm size definition is one of the fundamental aspects on international entrepreneurship research. Without the constrictions set on firm size and age in international entrepreneurship literature, the research stream would be equal to international business research, as international business research busies itself (among other things) with research on all firms that conduct some form of business with a subsidiary in an international setting (e.g. Patterson & Brock 2002). It follows then that testing whether or not different size groups of firms display different behaviour of any kind is by extension testing whether or not there is a difference in the aforementioned research streams. This is why this thesis includes a fifth sub-research question, which is mentioned below:

Sub question 5: To what extent does the phenomenon of international entrepreneurship differ from regular international business theory?

Although the above research question seems quite harsh, going as far as doubting the conclusions of an entire research stream, all that is done is respond to the call for more broad research on different firm sizes, and acknowledging the newest definition of the literature field.

There is another issue which needs to be addressed when it comes to the usage of

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literature stream. Indeed there are quite few studies which actually use financial data rather than survey based data in their research. This phenomenon can quite easily be explained by the difficulty in obtaining financial data from a small business without contacting it, since most such businesses do not publish financial data. However, questions regarding financial indicators such as performance are quite often measured based on the opinion of the entrepreneur, rather than the researcher’s. It is therefore also a distinct goal of this thesis to seek out if purely financial data can be used to explain all relationships proposed by this study.

The rest of this paper is structured in the following way: First, the theoretical frameworks in which this thesis is framed will be briefly discussed. Second, hypotheses will be created and

grounded in the available literature on International Entrepreneurship. This hypotheses section immediately also incorporates a literature review. Third, all the methods by which this research is designed will be conveyed in the methodology section. Fourth, the results of the statistical analysis will be produced in the results section of the paper. Last, a discussion and conclusion section will discuss the findings from the results section and combine this with the earlier constructed

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2. Theoretical framework

This research is predominantly focused on the international new venture as a unit of measurement. The research stream of international entrepreneurship, which focuses on the international new venture, was already introduced in the introduction chapter. However, since this is a rather new literature stream, which does not feature any universally accepted research models, other

theoretical frameworks have to be used to ground the theory of this study in. This also unveils the purpose of this chapter, to explain which theoretical frameworks this study is framed in.

Very closely related to the literature on the international venture is the general international business theory. More specifically interesting to this research is the study on internationalization patterns of firms. As mentioned, international business theory generally entails theories on

international communication and transactions between parents and subsidiaries of companies in an international context. Notice how this is quite equal to international new venture theory, except for the latter’s research focus on the solely small and young firms. One of the ground works in

internationalization path theory is the research by Johannsson & Vahlne (1978), which has since become known as the Uppsala model of the firms. This theory, in short, poses a firm gradually internationalizes close to its home country, gradually moving on to more geographically dispersed markets as the organization ages. Now that last notion highly contradicts the theory of international entrepreneurship, since that in turn poses that firms can international anywhere in the world upon inception. Thus, this theory of internationalization patterns is used quite often as the antagonistic view to literature on international new ventures. On the other hand some researchers have attempted to frame international entrepreneurship in the context of internationalization patters, such as Mélen and Nordman (2009), who distinguish three different internationalization patterns of international new ventures based on eight case studies. The fact however that the amount of different internationalization patterns in this study was only reduced from eight observations to three different patterns, indicates the diversity in internationalization patterns of international new ventures. Similar findings were found by Madsen & Servais (1997), who conclude the

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The second theoretical framework in which this research is framed is the framework on the resource based view of the firm. In this view, which was pioneered by Barney (1991), the firm is viewed as a collection of resources which are combined in specific ways so as to attain a competitive advantage. However, the classification of these resources into groups leaves some room to

interpretation. Some researchers simply classify them in homogenous groups such as financial resources, physical resources, and so forth (e.g. Azzone et al 1996). Others group these resources into tangible and non-tangible groups (e.g. Collis & Montgommery). Hall (1992) however

distinguishes resources into assets and competencies. This distinction by Hall is most useful in the context of this research, since this research primarily looks at asset resources. While such assets may be easily to imitate or substitute, they usually are very important to an organizational due to their simple necessity for conducting business operations. Naturally, the relatively high endowment of a resource leads to a higher ability to achieve goals with such resources. By this reasoning, the more a company possesses of a resource, the better it is of, generally speaking. Naturally, these factors need to be combined successfully in order to make profits, but the absence of a resource leaves a firm unable to utilize it. Therefore, a higher endowment in factors is, theoretically speaking, beneficial to a firm. According to Keupp & Gassmann (2009), 97 of the 179 papers on international

entrepreneurship which specified a theoretical framework, 8 use resource based view ideas for conducting their research. This also indicates an interest by researchers in the field of international entrepreneurship on resource based view theory.

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3. Hypotheses

This part of this thesis will focus on the construction of measurable hypotheses to be used in the statistical analysis of this paper. As can be derived from the research questions, this thesis aims to focus on a set of important subsidiary characteristics. These characteristics are size, profitability and distance between the parent and the venture. The more detailed discussions on each of these subjects can be found in the chapter at hand. As included in the research question, there are two distinct groups of firms under study in this thesis. This entails that the hypotheses which are

constructed in this chapter are to be tested a total of three times each. Once for the entire sample of firms, once for the international new venture firms, and once for the sample of traditional firms. Therefore, all these hypotheses feature an “a” hypothesis relating to these different groups. The definitions of, and methods by which this measurement and testing is conducted can be found in the methodology chapter of this research (chapter 4).

One of the main topics of interest in any subject related to business conduct is the generation of profit. This is no different when it comes to the research on the international new venture. Much of the research in the international entrepreneurship stream attempts to find out what the main drivers of the revenue creation of a firm are. An important question to pose, concerning the topic in this thesis, is the nature of the relationship between earnings of the international venture and the size of the parent firm, as profitability is one of the key financial characteristics of any firm.

Although various studies have been conducted into the role of headquarter size and its relation to a subsidiary’s chances of profitability, the results of such research have often been inconclusive. For instance, when Zou & Stan (1998) looked at the influence of firm size on export performance in their literature review of fifty published papers, they found very little conclusive evidence that the relation was either positive or negative, or even there at all, due to the

contradicting nature of the various conclusions in research thus far. On the other hand, Calof (1993) found that research before 1993 generally assumed smaller firms are less competitive in

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More recently, Zetting & Benson-Rea (2008) argued firm size was not the important factor in gaining profitability, rather the mode of usage of available resources was found to be more

important than simply the abundance of them. Burpitt & Rondinelli (2000) pose a rationale to the possible low performance of new international subsidiaries, as profit seeking behaviour might not be the sole objective in internationalizing.

There are authors who criticize the classical theory of internationalization more directly. For instance, Abdul-Aziz & Wong (2010) state the “resource based view” of the firm (see next hypothesis for a more thorough explanation) and the classical views on internationalization (Johansson & Vahlne 1978) do not capture the drivers for internationalization of entrepreneurs. Such conclusions clearly call for a testing of whether or not a firm’s available resources are an actual driver to its

internationalization, size being one of the main indicators of a firm’s available tangible resources. Since the evidence in the relation between firm size and subsidiary performance are inconclusive at best, this paper aims to achieve solid conclusions when it comes to this topic. Therefore, the first hypothesis of this thesis is the following:

H 1: Parent firm size positively influences international venture profitability

H1a: There is a difference in the influence of parent firm size on venture profitability for international venture firms and traditional firms.

As can be seen, hypothesis 1 is worded as a positive relation between domestic firm size and subsidiary profitability. Thus, the larger the domestic firm is, the more profitable the international venture will be. Even though there is much inconclusive evidence to the relation in the literature, the classical view that larger firms are indeed more competitive in international markets will be assumed. Hypothesis H1a relates to the fact that there are two distinct groups of firms under study. Next to hypothesis 1, H1a needs is needed to fully come to a conclusion about the difference between international new ventures and smaller firms. Within the context of the vast differences in literature streams, international new ventures and traditional firms are hypothesized to behave differently when it comes to parent firm size and venture profitability, as this is the premises of international new venture research.

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resources and capabilities are generally heterogeneous among firms, which allows for variations in conducting business and differences in business opportunities (Newbert 2008). In the resource-based view, when one mentions resources, it is generally assumed we are speaking of stocks of factors which are owned by the firm (Barney 1991). Over time, different researchers have defined different classes of resources. On average however, these resources are divided between physical assets and non physical such as skills, capabilities or competences (Rangone 1998). Although companies gain competitive advantage from combining their resources in unique ways (Barney 1991), the fact remains that a company must first be well endowed in a resource before it can combine it. Since “size” in the context of this thesis is defined as both employees and physical asset value (see

methodology section for complete definition), the importance of this characteristic becomes clear for both the parent and the international venture. Physical assets are just as well important in resource based view theory as non physical assets, which makes this an important and key characteristic of an international venture to measure.

When it comes to an international new venture however, the parent firms size is usually relatively small compared to traditional firms. This entails the abundance of resources in terms of assets and employees (firm size) are not present in the firm (Rangone 1998). Reframing this to the interaction effects between the parent and international venture, the parent firm has relatively few assets and employees to employ so as to create a relatively large international new venture. Consequently, a smaller firm will struggle to be able to establish even the smallest international venture, while larger firms, due to their greater abundance of resources are more likely to create larger international ventures (O’Cass & Weerawardeena 2008). All of this reasoning however leaves one big gap. According to Oviatt & McDougal (2005), international entrepreneurship is the search for international opportunities. One would naturally consider that these opportunities are somewhat profitable in nature, otherwise they would not be deemed opportunities. That being the case, the link between parent firm size and international venture size should be unobvious, since there should be external financing sources available to a firm when an opportunity for profit arises (Scholtens 1999). This would mean that the linkage between parent firm size and venture size should be less obvious than reasoned above utilizing resource based theory. Profitable opportunities, whatever their requirement in terms of venture entry size should be irrespective of parent firm size, since external financing opportunities exist.

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is smaller than when it would stay national. This being the case, examining if the domestic size indeed leads to a certain international size is of importance, as the domestic firm transforms into a smaller international firm if this is the case. Thus, next to there being a relationship between domestic size and international performance, it should also be interesting whether or not there is also a link between domestic size and international size. Therefore, the second hypothesis is formulated as:

H2: Parent firm size positively influences international venture size

H2a: There is a difference in the influence of parent firm size on venture size for international venture firms and traditional firms.

The above stated hypothesis 2 poses that large domestic firms are more likely to have larger international ventures, and it is thus formulated as being a positive relationship. The hypothesis is stated in this way since the notion is based on the resource-based view of the firm, which would suggest a similar relationship would exist. Hypothesis H2a relates to the comparison and duality in hypothesis 2. Two different groups of firms, international new ventures and traditional firms, are researched in this study. Thus, upon testing hypothesis 2 for both these firms, hypothesis H2a can be answered.

The antithesis to the literature stream of the international new venture (Oviatt & McDougall 1994) is the “internationalization path theory”, centred around the work of Johansson & Vahlne (1978). As was mentioned, the main difference between the two research streams is the speed with which a firm internationalizes. According to the Johansson & Vahlne (1978) view, firms gradually

internationalize as soon as they have a solid basis in their home country. The internationalization process then progressively grows away from the home country, expanding into neighbouring countries before moving into distant markets. The beliefs laid out by supporters of the international entrepreneurship view on the other hand, pose firms can internationalize from inception into markets not necessarily close to the home country of the parent.

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some countries, whereas in others these simply are not present. Or the abundant availability of cheap labour in BRIC countries, which is scarce in many other countries. Imagine for a minute it would be the case that smaller firms must internationalize close to home (see hypothesis 4), it would entail the decreased opportunity for profitability for smaller firms, which are unable to access these markets.

When it comes to distance and profitability in business studies, much research has been conducted over the years. Generally, it is assumed that a higher distance between firms leads to increased risk for the investor and higher transport costs, which leads to a negative relation between distance between companies and profitability (e.g.: Altomonte 1994); favouring geographical

proximity between firms. On the other hand, looking at econometric gravity models such as by Mátyás (1997), economies seem to be attracted to each other when geographic distance between them is larger.3 Another finding of interest is one from Pennings & Altomonde (2006), who find distance to the host country of an investment from the parent company significantly decreases the probability of an early investment. This, of course, would support the Johansson & Vahlne (1978) view. Finally, Keupp & Gassman (2009) find very little application of geographic distance between headquarters and subsidiary in relation to subsidiary performance. This, along with the inconclusive findings above, should make the findings of the following hypothesis interesting:

H3: Distance between parent and international venture positively influences international venture profitability

H3a: There is a dissimilarity in the influence of distance between parent and venture on venture profitability, for international venture firms and traditional firms.

Thus, according to the hypothesis above, the further a subsidiary is removed from the parent company, the higher the average profitability will be. This view is in agreement with the gravity model proposed by Mátyás (1997), and also with general theory on international entrepreneurship, which hold international ventures can occur anywhere in the world, instead of solely close to the parent. Being a thesis about international entrepreneurship, it seems plausible to assume and embrace this view on international new ventures. H3a again relates to the duality of the sample in terms of firms under study. As stated, two distinct groups of firms are researched. It is hypothesized

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The general gravity model which is meant here is that of the form:

lnEXPijt= αi + γj + λi + β1lnYjt + β2lnYjt + β3DISTij + … + uijt (equation 1)

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these two groups of firms display different behaviour when it comes to distance and profitability, since these two groups of firms are so different in nature.

Following the reasoning above, and as can be seen in the conceptual model (figure 1), a mediating effect is theorized for the variable of distance between the parent and venture. The author is aware of this, and will take into account the statistical techniques which are required to test for mediating effects. Here, In the hypotheses section, it was chosen to include the mediating

variable of distance as a separate hypothesis, rather than a mediating hypothesis. This is due to the interesting nature of this hypothesis for this research. For more information on the mediating effects of the distance concept, consult the results chapter, which is to be found further on in this study.

Finally, and heavily related to hypothesis 3, in order to be able to fully answer the fifth sub-research question in this thesis, another question needs to be answered which lies at the basis of the

international entrepreneurship literature stream, namely the assumption that firms can internationalize anywhere in the world from inception. This notion is tested by a hypothesis on distance between the parent and the international venture and its relation to parent firm size. Basically, this proposition is a direct extension from the Gradual internationalization models, which were summarized here as the Johansson & Vahlne (1978) view. In the construction of the previous hypotheses various arguments for and against have been mentioned for either the “International new venture” and “pattern” views of internationalization. It is especially interesting to research the relationship between firm size and distance between headquarters and international venture regarding the dataset in this thesis (more details on this in the methodology section).

As was mentioned in the theory section of this paper, this paper seeks to fill a literature gap by answering whether or not international entrepreneurship performance and size are equal for all sizes of firms, instead of solely focussing on small and young firms. By incorporating larger, older firms in its sample (traditional firms), this paper is unique. Consequently, the results from testing whether or not domestic parent size influences distance between headquarters and international venture could answer the question which of the two theories, either the classical stage-growth theory or the international entrepreneurship theory, is found to be correct in the situation of this study in explaining the internationalization path of firms. A third finding is also among the

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these two differing opinions. Thus, the multidimensionality of possible results should be of high interest to anything with a slight interest on the internationalization of firms.

hypothesis states:

H4: Parent firm size positively international venture

H4a: There is a dissimilarity in the influence of parent firm size on di and parent, for international venture firms and traditional firms.

The hypothesis is positively phrased, since this follows the classical views (Johansson & Vahlne 197 of international entrepreneurship. This view was

classical views specifically mention that firms gra

Theory on international entrepreneurship (Oviatt & McDougal 1994) or Born

on the other hand, do not state firms start of far away from their domestic base, rather stating small and young firms can internationalize from inception anywhere in the world. Thus, the international entrepreneurship does not assume this is far away from the parent by default.

suggested here that the larger the domestic parent, the further away Figure 1: Conceptual model

Note: + or – indicates a positive or negative relationship. Numbers between brackets are the hypothesis numbers connected to the relationship.

Methodology section.

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these two differing opinions. Thus, the multidimensionality of possible results should be of high interest to anything with a slight interest on the internationalization of firms. The fourth and final

positively influences the distance between the parent

H4a: There is a dissimilarity in the influence of parent firm size on distance between venture , for international venture firms and traditional firms.

phrased, since this follows the classical views (Johansson & Vahlne 197 of international entrepreneurship. This view was chosen in the phrasing of this proposition

specifically mention that firms gradually internationalize, starting close to home. Theory on international entrepreneurship (Oviatt & McDougal 1994) or Born-Globals (Rennie 1993) on the other hand, do not state firms start of far away from their domestic base, rather stating small

g firms can internationalize from inception anywhere in the world. Thus, the international entrepreneurship does not assume this is far away from the parent by default. All in all, it is

suggested here that the larger the domestic parent, the further away the international new venture

indicates a positive or negative relationship. Numbers between brackets are the hypothesis numbers connected to the relationship. Control variables are discussed further in the these two differing opinions. Thus, the multidimensionality of possible results should be of high

The fourth and final

the parent and an

stance between venture

phrased, since this follows the classical views (Johansson & Vahlne 1978) in the phrasing of this proposition since the dually internationalize, starting close to home.

Globals (Rennie 1993) on the other hand, do not state firms start of far away from their domestic base, rather stating small

g firms can internationalize from inception anywhere in the world. Thus, the international All in all, it is

the international new venture

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might be. Hypothesis H4 is also supplemented with a more specific hypothesis, namely that the groups of firms under study behave differently when it comes to the influence of parent firm size on the distance between parent and venture. This hypothesis is constructed to stress that it is

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4. Methodology

This methodology section of the paper holds important information on the selection criteria of the sample used in this study, and the data sources by which this dataset was created. In addition, there are several control variables visible in the conceptual model (figure 1) which require clarification as well. Other important procedural information on designing this research is located in this chapter as well.

The dataset which is used in this paper was retrieved by using the AMADEUS database as collected by Bureau van Dijk (Bureau van Dijk 2010). This being the case, only parent firms inside the European Union are used in the sample of this thesis. The final dataset was created on June 11th 2010. Naturally, only organizations with at least one international subsidiary are selected. Also, only firms featuring information on key financial indicators, namely number of employees for the years between 2006-2008, total assets volume between 2006-2008, and Operating Revenue, Costs, and Profit between 2006-2008, were chosen to be included.

Distances between the countries were retrieved from the CEPII database, which is freely available online (CEPII 2010). This database holds information on distances between 255 countries in the world, in all possible combinations. See the “Definitions” section of this paper for a more

thorough description on how these distances are measured.

Indeed somewhat contrary to the bulk of international entrepreneurship literature, this information is not based on surveys (which is often based on likert-scale data) or other primary data, but rather on numerical data collected by tax-, and other authorities, other than data provided by the subjects under study. It is believed this method of collecting data should lead to the most accurate and least biased statistics, and should eliminate the threat of research (or question) bias, which is subject to occur in survey-based research, especially on subjective performance measures. Even though other authors as Newbert (2008) believe subjective measures of performance are fairly accurate (Newbert (2008, p753 )states the accuracy of these measures as approximately 86%), the author of this study would dispute this considering the 14% loss in accuracy on performance measures is still a significantly high percentage.

Since this research holds two size groups, one of small and young firms (international entrepreneurs), and one with larger and older firms (traditional firms), both need to be defined. When one regards other research, he will soon find most other research on international

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other works on the international new venture. Many authors of international entrepreneurship hold a small and young firm is a company with no more than 250 employees (e.g. Mélia et al. 2010), whereas others believe the measure should be no more than 500 employees (Keupp & Gassman 2009). In this thesis it was chosen to use the measure of 500 employees as a cut off point for defining a smaller firm, as various prominent governmental bodies apply this definition as well, such as the OECD (Earl, 2003) and the U.S. SBA (SBA 2008). As a result, all firms with over 500 employees were classified as larger, traditional firms. The upper limit for this size group is 5000 employees, since the objective was to exclude the largest multinationals in the world as they can skew the results in firm size. The other point of interest is the definition of a young firm. Coviello & Jones (2004) found firms of less than 6 years old were increasingly used in international entrepreneurship literature as a definition for a young firm. Therefore, this definition is also used in this paper. Larger firms do not need to meet a certain age limit, but rather are solely defined based on their size without regard for their age. Previous authors found older firms gradually display lesser entrepreneurial behaviour (Luo et al. 2005), thus the distinction between firms is theoretically present.

This research only consists of firms in the manufacturing industry. This decision was made based on a number of reasons. First of all, controlling for differences in intangible assets caused by differences between industries is an ominous, if not subjective task (Autio et al. 2000).Thus, by choosing a single industry, comparability between firms increases, which is also noted by Zou & Stan (1998). Second, since assets are used in two measures as indicators for certain company

characteristics, choosing one industry is essential since this accounts for differences in asset requirements (for instance: the financial industry). Lastly, Rialp et al. (2006) found many studies on international entrepreneurship feature only a single industry (frequently high-tech firms).

Last of the control variables in the model is that of the venture ownership. International entrepreneurial behaviour is defined by Oviatt & McDougal (2005) as the search of international business opportunities. This being the case, the definition holds no information on how such

opportunities should be exploited. It therefore follows international entrepreneurship does not limit itself to a single entry mode or ownership style from the parent firm. In this thesis, this is

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marginally similar for say, a Joint Venture or some other strategic alliance, and a wholly owned venture. Second, in order for the relationship between the parent and the international venture to be believable, the international venture needs to have only a single parent. If the relationship between firm size and performance for instance is proven, this does not necessarily have to be true for a joint venture type subsidiary, since it might have multiple parents, effectively negating the relationship. Contrary to what has been found in the literature on international entrepreneurship in writing this thesis, it should be clear that research should focus on a single entry mode so as to produce believable results.

4.1 Definitions

Up to now, only the conceptual phrasing for each of the four factors was used. Thus, in order to make these concepts measurable, these require to be quantified in a certain manner. This is what will be done in this part of the thesis.

First of all, the independent variable of domestic firm size will need to be defined. As was mentioned before, the literature on international entrepreneurship usually selects their samples based on number of employees. Accordingly, in order to increase comparability of this thesis with other research on international entrepreneurship, firm size will be measured as the number of full-time employees employed by an organization. However, since basing firm size solely on number of employees would be rather simplistic, the total assets of a firm will also be included in the analysis. Jackson & Dunlevy (1982) already found in 1982 that differing measures of firm size find different results when it comes to business size calculation. In order to come up with a more reliable measure, in this thesis two measures of organizational size are combined into one using factor analysis. Since parent firm size is the dependent variable of this paper and thus of great importance, care has to be taken that it is measured as accurately as possible.

Distance between the parent firm and the international venture is defined as the distance in kilometres between the two capitals of the two countries in which the parent and international venture are located (CEPII 2010). This space between two countries is measured “as the bird flies

The international venture profitability is measured as the return on assets of the international venture. Return on assets (ROA) is generally measured as:

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Figure 2: Conceptual model + Indicators

Where ߨ௜ stands for operating profit

Since most smaller firms are private firms, data avai However, several financial indicators could still be

international venture could be retrieved for all international ventures in the sample of this paper. However, as stated in formula 2, the venture’s operating profit is necessary for calculating the venture’s ROA. Information on the operating profit of the entire company (both international venture and parent) could be retrieved without much problem however. Si

relatively accurate approximation of the international venture’s ROA

ܴܱܣ௦௨௕_೔ =൬ ߨ௧௢௧_೔

ܴ௧௢௧_೔൰ ൈ ܴ௦௨௕೔ %"_/01$&

Where !"/012 relates to the ROA of the subsidiary in year i. Further, operating profit in year i, 4542rela

the subsidiary revenue in year i,

21 Conceptual model + Indicators

stands for operating profit in year i, while %"$& relates to the average total assets in year i. Since most smaller firms are private firms, data availability on profitability ratios is rather scarce. However, several financial indicators could still be found. First of all, revenue and total assets of the international venture could be retrieved for all international ventures in the sample of this paper.

, the venture’s operating profit is necessary for calculating the ure’s ROA. Information on the operating profit of the entire company (both international venture and parent) could be retrieved without much problem however. Since this was the case, a

accurate approximation of the international venture’s ROA can be calculated

Equation 3

relates to the ROA of the subsidiary in year i. Further, #4542is the Total firms relates to the total firm operating revenue in year i,

the subsidiary revenue in year i, %"_/01$& is the subsidiary average total assets in year i.

average total assets in year i. s is rather scarce. found. First of all, revenue and total assets of the international venture could be retrieved for all international ventures in the sample of this paper.

, the venture’s operating profit is necessary for calculating the ure’s ROA. Information on the operating profit of the entire company (both international

nce this was the case, a can be calculated as:

is the Total firms tes to the total firm operating revenue in year i, /012constitutes

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approximation of the subsidiary’s ROA is the most accurate measure of performance which could be retrieved by using non-survey data. Other measures could still also be calculated, such as sales volume of the subsidiary (O’Cass & Weerawardena 2008). It was chosen not to use such simple measures of profitability since it is believed more refined methods such as the ROA of the firms are better representatives of an organization’s profit. One might argue that there will be outliers in the population which’ profit will be estimated far too high or low by the formula in equation 3. While such errors might occur, it is believed the frequency of such occurrences will be much lower than the subjective performance rating scale’s inaccuracy of 14% used in survey studies (e.g. Newbert 2008, p753) which are generally used in international entrepreneurship literature. The reason for this is that outliers are, by definition, unique observations. Since a Z score of 4,0 (see next paragraph) is used throughout this research for defining an outlier, an outlier is an observation with a probability of occurrence of 0,02% (Hair et al. 2006), meaning that 99,8% of the cases will be relatively

accurately described.

International venture size will be measured in much the same way as total domestic company size is measured in order to increase the comparability between the two for the second hypothesis. This being the case, international venture size will be measured as both number of employees employed in the venture, as well as the total assets maintained by the venture.

4.2 Sample

With the previously stated criteria in mind, a sample was constructed using the aforementioned AMADEUS database. The sample consists of two sub-samples. First, the international new ventures (small and young firms) sample, containing only firms younger than 6 years and with less than 500 employees, consists of 31 cases. Second, the database consisting of traditional (larger and older) firms, composed of more than 500 employees, amounts to of 323 observations. Logically, the total database consists of 354 cases in total. From the companies located in the larger group of firms, only the youngest international subsidiary was taken to insure these foreign entries were as recent as possible. This measure was not necessary for the data on the smaller group of firms, since none of these companies is older than 6 years (see section on methodology for more details on why this is the case).

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sufficiently large to hold that findings between four standard deviations from the mean are not extraordinary observations (Hair et al. 2006, p75).

Missing data was accounted for in a rather rigorous way, namely by simple deletion of the data. This was chosen for two reasons. First of all, MAR or MCAR measures could have been taken to reduce the missing data, such as mean substitution. Yet, throughout this thesis, care has been taken to keep the dataset as accurate as possible. Thus, by averaging the database out, it would have made too much of an impact on the possible findings of the research. Second, according to the AMADEUS database, roughly 2962 companies were included in the total population (summation of both small and large subsamples). Naturally, this is only for EU (as explained before), however, it does mean that inside the EU roughly 12% of the population is included in the sample of this research. This is not saying the EU only houses 2962 firms, but rather features 2962 firms which meet the selection criteria of this research which were mentioned earlier. Yet, Considering 12% of all selection criteria meeting firms is actually a relatively large amount, the loss of information by deleting missing data is of lesser importance.

The sample of companies further consists of firms based in 16 different countries. These countries are, accompanied by their frequencies, ordered alphabetically located in table 1. As can be observed, all these countries are within the EU, as the AMADEUS database which was used to construct the sample only contains information on companies in these countries. The various international ventures which are used by these companies on the other hand, can be located

anywhere in the world. These international ventures are located in 32 different countries, and can be found in table 1 accompanied by their frequencies. Although the sample consists of mainly European ventures, there was no restriction in the host country in searching for the international ventures. Any significant variations in frequency of settlements in certain countries is therefore not subject to researcher bias or sample selection procedures.

Finally, the sample consists of data gathered from the years 2006, 2007 and 2008. However, this does not mean this study is of a longitudinal nature on a firm-level base. All measurements and observations for a single firm are all done within a single year. Another firm might have observations stemming from a different year, and so forth. This technique was chosen for reasons of data

availability, but also to capture the phenomenon of international entrepreneurship over the years. Even though the sample does not show growth for the single firm, it does, on the other hand, equate the phenomenon of international entrepreneurship over three years. Thus, international

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14 firms with observations in the year 2006, 74 firms with observations from the year 2007, and 266 observations from the year 2008.

Table 1: Frequencies of parent/venture countries in dataset

Country Frequency Parent Frequency Venture Country Frequency Parent Frequency Venture

Austria 5 Republic of (South) Korea 1

Australia 1 Latvia 1 4

Belgium 7 25 Lithuania 1

Bulgaria 1 Malaysia 1

Chile 1 The Netherlands 12 20

China 4 Norway 2 29

Czech Republic 8 Poland 18

Denmark 89 3 Portugal 3 Estonia 1 7 Romania 2 Spain 23 Russia 3 Finland 35 7 Slovenia 1 France 18 55 Singapore 1 Germany 66 33 Sweden 18 42

Great Britain 69 23 Switzerland 29 1

Greece 4 Ukraine 1

Hungary 3 United States 4

Ireland 7 South Africa 1

Italy 1 16

total countries: 35

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5. Results

In this section of the research, all aspects relevant to the statistical analysis will be discussed. Issues related to usage of the database, measurement technique choice, and data transformation will be conveyed in the following pages. Throughout the rest of this thesis, an alpha level of 0,01 will be maintained for the group of large firms as well as the total sample, meaning that all conclusions will be made based on a 99% confidence interval. Such a high confidence interval should be fitting to the rather large sample size. For the group of small firms, an alpha level of 0,01 is not appropriate, since the sample size is one tenth of that of the large group, namely 31. Therefore, in order to make useful conclusions on the small firms sample, an alpha level of 0,10 will be maintained, meaning conclusions will be made with 90% certainty. Such a confidence interval is more appropriate for smaller samples.

Since the dataset in this study holds two specific size-groups with many theoretical

differences, distinctions will be made throughout this results section between the international new venture and traditional firms sets of data wherever possible (also referred to as “small” and “large” firms). However, since it makes little statistical sense to report results on descriptive and correlation information separately for these two groups, only the results of the regression analysis will be divided and interpreted in the two separate groups. In the end, it will be checked whether or not the two sub-samples in this study significantly differ from one another in terms of data results.

5.1 Regression assumption checking

As can be seen in figure 2, the conceptual model of this paper with added variables for each concept, there are six most important variables to this research. Since all the variables in this study are of an interval scale, regression analysis will be applied as the main statistics technique for all the

hypotheses. In order for a regression analysis to be applied to a certain dataset, a number of dataset characteristics must be conformed to. The requirements of interest to this paper are: the sample must be normally distributed, and the sample must display a measure of linear relation among variables (Hair et al. 2006).

After removal of outliers for five out of the six variables (excluding Distance between parent and venture), a database consisting of 354 observations was left (see section 3.2 for more

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removal of outliers, it was found that the variables on employees and total assets for both the parent, as well as the international venture, were extremely non-normally distributed. Aside from this, the variable on the distance between the parent and international venture also showed signs of non-normality. Furthermore, using the Kolmogorov-Smirnov test of normality (applying the Lillefors Significance Correction) it was concluded all the mentioned variable are non-normally distributed. Thus, even though the central limit theorem is indeed applied in this paper, it was decided to take measures regarding normality for these five variables nonetheless.

Since all five variables which were to be transformed displayed a very high amount of

kurtosis, it was decided to apply a natural logarithm on each of the four variables, in order to achieve normality. The observed high kurtosis is easily explained by the observation of several extreme observations in the dataset which are left even after removing outliers. Thus, after applying the transformations, the descriptive are as they are stated in table 1.

One observations from Table 1 should spring to the eye. Even though five variables were transformed by applying a natural logarithm to the variable, some still display signs of non normality. Indeed this is the case, but it is far less extreme than the non-transformed variables displayed. Measures have been taken by transforming the variable to contain the impact non-normality might have had on the test results from the regression. For the remaining, relatively small signs of non-normality, the argumentation that the sample size is of adequate size to assume normality is applied (central limit theorem). All other information on normality and descriptive table 1 should be quite straightforward and holds no unforeseen finding either.

As was mentioned before, another one of the important prerequisites of regression analysis is the assumption of linearity between the variables under study. Such linear relationships can be shown by method of providing correlation coefficients or by providing scatter plots. Since

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Table 2: Descriptives & Correlations for all variables

Variables Mean Std. Dev Skewness Kurtosis v1 v2 v3 v4 v5 v6 v7 v8

1. ROA Venture 0,12 0,20 -0,11 9,62

2. LN Distance Parent-Venture 6,58 0,78 0,80 2,61 0,081

3. LN Employees Parent 7,05 0,93 -1,68 4,64 0,306** 0,035

4. LN Total Assets Parent 12,61 1,12 -0,27 1,26 0,180** 0,116* 0,662**

5. LN Employees Venture 3,93 1,48 -0,15 -0,17 -0,131* 0,073 0,152** 0,159**

6. LN Total Assets Venture 9,42 1,61 0,38 -0,18 -0,217** 0,077 0,118* 0,417** 0,635**

Combined Variables 7. (Factor) Parent Size

1,00 0,00 -1,16 3,45 0,267** 0,083 0,912** 0,912** 0,171** 0,293**

8. (Factor) Venture Size

1,00 0,00 0,259 -0,325 -0,198** 0,074 0,151** 0,317** 0,904** 0,904** 0,256** 1

** P < 0.01, * P < 0.05

Note 1: “Mean” represents the arithmetic mean of the variable; “Std.Dev” is the standard deviation from the mean of a variable; v1 through v8 signify

correlation coefficients and their respective statistical significances.

Note 2: Correlation with source variables for the “Factor” variables has been highlighted in red to show the equal correlation for both source variables

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5.2 New variable construction

As was mentioned before, size for both the parent as well as the venture is measured using two indicators: number of employees, and total assets. For reasons of normality these variables have been transformed already by applying a natural logarithm to these variables. Be that as it may, the situation calls for one measure of firm size rather than two, since testing which of the two firm size estimators have better outcomes makes no theoretical sense. Most literature on international entrepreneurship uses as single measure on firm size (usually number of employees), presumably because researchers are usually satisfied by a unilateral size estimator. However, in the methodology section it was already stated that combining different size measures will lead to a more accurate measure of firm size (Jackson & Dunlevy 1982), therefore, factor analysis will be used to create a single variable from the two variables at hand.

In order to simplify data using factor analysis, the appropriate technique to be used is principal component analysis (PCA). With such a PCA technique, a single new variable (factor) can be constructed which is derived from the variance equalities of the input variables, namely “LN

Employees Parent/Venture” (3&5) and “LN Total Assets Parent/Venture” (4&6). Just like regression analysis, factor analysis also has a number of prerequisites. The main ones are: inter-correlation among variables, linearity among variables, and normality (Hair et al. 2006). Clearly, these requirements have already been fulfilled earlier by making sure the dataset can be used for regression analysis.

Using PCA, a factor has been constructed for the variables on parent firm size: “3. LN Employees Parent” and “4. LN Total Assets Parent”. The required Bartlett test of Sphericity turned out significant, and sampling adequacy has been confirmed by the anti-image correlation matrix which turned out to be -0,662. These important essentials being fulfilled, factor analysis could be performed for the two variables. The resulting factor, which has been saved into a variable has an equally high correlation for both variables 3 and 4 of 0,912, which is highly significant. In table 1, descriptives and correlation coefficients for this variable can be found. The variable has been named “7. (factor) Parent Size”.

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and 6 have an equally high correlation with variable 8, namely of 0,904, which is highly significant again.

The construction of these two new variables results in a measure of parent and venture firm size which is much more reliable than simply using a single measure of firm size such as either number of employees or total asset value. In the rest of this research, variables 7 and 8 will replace variables 3 and 4, and 5 and 6, since these are accounted for in the newly constructed variables.

5.3 Relation Analysis

Now that all assumptions have been met and all required variables have been created, regression analysis can be conducted in order to uncover results on the hypotheses which were created in the hypotheses section of this paper. As mentioned earlier, all results will be split up into three different groups, namely: the total sample, the sample of international new ventures (small and young firms), and the sample of traditional (larger) firms. The results of the regressions will be done hypothesis by hypothesis. Note that this section of the study only contains results of the analysis, these results will be interpreted in the discussion and conclusions section of this paper.

The first hypothesis on the relationship between parent firm size and international new venture profitability stated the following:

H 1: Parent firm size positively influences international venture profitability

By conducting an ordinary least squares regression, one can find out the directionality and

significance of a relationship. The regression on the total sample turned out to be highly significant, as can be seen in table 2. The B value, which shows the directionality of the relationship, was found to be 0,052, being positive. Even though the relationship is not very large, featuring an R² of 0,071, meaning 7,1% of the variance of the venture profit is explained by parent firm size. Despite the somewhat small size of the relationship, it is notably present. The relatively small size of the relationship can easily be explained by the fact that organizational profit has numerous more

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proven. The conclusion when it comes to hypothesis one is two-fold then, namely that it will have to be rejected for the small group of parent firms, and supported for the large group of firms.

Table 3: Regression summary

Hypotheses N B R² F Sig

H1: Parent Size - Venture Profit

1. Total sample 339 0,052 0,071 26,025 0,000***

1. Int. new ventures 31 -0,020 0,004 0,126 0,726

1. Traditional firms 308 0,035 0,022 6,805 0,010***

H2: Parent Size - Venture Size

2. Total sample 339 0,265 0,065 22,474 0,000***

2. Int. new ventures 31 0,383 0,118 3,357 0,079*

2. Traditional firms 308 0,408 0,086 27,596 0,000***

H3: Distance - Venture Profit

3. Total sample 339 0,021 0,007 2,227 0,137

3. Int. new ventures 31 0,135 0,036 1,088 0,306

3. Traditional firms 308 0,017 0,006 1,863 0,173

H4: Parent Size - Distance

4. Total sample 339 0,065 0,007 2,430 0,120

4. Int. new ventures 31 0,048 0,012 0,351 0,558

4. Traditional firms 308 0,120 0,011 3,691 0,056*

*** P < 0.01, ** P < 0.05, * P < 0.10

Hypothesis number two deals with the relationship between parent firm size and international new venture size, and read the following:

H2: Parent firm size positively influences international venture size

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the significance of the relationship in the small group sample is slightly lower (0,000 vs 0,079), this can easily be explained by the smaller sample size, and thus the retrieved relationship can still be assumed to be noteworthy. Using a t-test to establish the statistical difference between the groups of international new ventures and traditional firms results in the finding that the groups are indeed not significantly different in nature when it comes to variation in venture size (t = -0,900; Sig = 0,369). All the former taken into account it can only be concluded that decisive evidence has been retrieved to support hypothesis 2, but not hypothesis 2a.

When it came to hypothesis 3, dealing with the relationship between distance from the parent and profitability of the venture, the following was stated in the theory section:

H3: Distance between parent and international venture positively influences international venture profitability

The regression analysis showed some poor results when it came to this relation. Testing results show the significance of the relationship is 0,137 for the total sample, while it is 0,306 for the small sample of firms, and 0,173 for the large sample of firms. None of these results indicates a statistically

significant relationship between distance from the parent and venture profitability. This being the case, hypothesis 3 & 3a cannot be supported by any statistical results and will have to be rejected on the basis of these findings. All the aforementioned figures can be found in table 2 again, which contains the regression summary of this analysis.

The final hypothesis, namely hypothesis 4, dealt with the relationship between parent firm size and distance between the parent and international venture, and read the following:

H4: Parent firm size negatively influences distance between the parent and an international venture

Looking at table 2, similar to hypothesis 3, it can easily be seen that no significant relationships were uncovered related to this hypothesis. Although a size and distance relationship bordering on

significance (0,056) was uncovered for the larger firms, this result’s significance is slightly too low to be a basis for solid conclusions. It appears for the total group the significance ended up being 0,120, and for the small group 0,558. The fact that these relationships are insignificant makes mentioning of any of the other results of these regressions unnecessary. Be that as it may, all results of testing hypothesis 4 are included in table 2. Take note though that the absence of a relationship between parent firm size and distance to international venture is still an interesting finding from the

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results of this t-test imply that the groups are not significantly different (t = -0,149; Sig = 0,882) in nature when it comes to distance between venture and parent.

5.4 Mediation Effect

As can be seen in the conceptual model, the concept of Distance between the international new venture and the parent is hypothesized to have a relationship with the profitability of the international new venture (H3). However, as can also be seen, distance between the parent and venture is hypothesized to be predictable by the independent concept of parent firm size (H4). This relationship configuration means the concept of distance between the parent and international venture is also deemed a mediator variable. While the individual relationships have been analyzed above, the indirect relationships of the mediator variable have not been tested yet. This is what will be analyzed in this paragraph.

In order to test the effect of the mediating variable, a Sobel (1982) test will be conducted for each of the three distinct groups of firms. In the framework of this thesis, this is the correct test to conduct for a number of reasons. First, although the Sobel test assumes data normality, this is no problem in the context of this thesis. Paragraph 5.1 has already extensively dealt with the normality issue of the dataset. Second, although the sample of international new ventures is rather small (N=31), it is not too small to conduct the Sobel (1982) test of mediation. Thus, following the steps of Baron & Kenny (1986), and extended by the methods of Frazier et al (2004,) a test of mediation was conducted. The results of this test can be found in table 4.

What can be inferred from the results displayed in table 4 is a number of issues. First, notice how the testing of Model2 in this analysis shows that the distance between the parent and

international venture does seem to have some effect on the strength and significance of the relationship between the parent firm size’s and international venture profitability (TS: sig 0,120 – 0,000/INV’s: sig 0,558 – 0,641/TF’s: sig 0,056 – 0,013). For the complete analysis on the effect of the parent firm’s size on the international venture, see chapter 5.3. Upon looking at the significance on the change in the strength of this relationship by the mediation variable, it appears that all three datasets display the same result when it comes to this mediation effect. That, although it is present to some small extent, the mediation effect is too small to be branded as significant (TS: sig

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Model1* Model2** Sobel

Variables B Se Sig B Se Sig stat sig

Total Sample

7. (Factor) Parent Size 0,065 0,041 0,120 0,051 0,010 0,000 0,927 0,354

2. LN Distance Parent-Venture 0,016 0,014 0,229

International New Ventures

7. (Factor) Parent Size 0,048 0,080 0,558 -0,027 0,057 0,641 0,524 0,600

Traditional Firms

7. (Factor) Parent Size 0,120 0,063 0,056 0,034 0,014 0,013 0,995 0,320

*Model 1: Dependent is ROA venture, predictor is (Factor) Parent Size

**Model 2: Dependent is ROA venture, predictors are (Factor) Parent Size and LN Distance Parent-Venture

profitability to a large extent. Thus in conclusion, aside from the direct effect of distance on the profitability of the international venture was not found to be significant for any of the firm types, the indirect also does not appear to be significant for any of the firm types.

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6. Discussion

Up to now, the results of the various analyses in this paper have solely been mentioned. Therefore, in this section of the study all of these results will be analyzed and discussed in order to come up with solid conclusions about the research questions later in the conclusion section.

The results from testing hypothesis 1, on the relationship between parent firm size and international venture profitability, are quite two-faced. On the one hand, it appears there is a positive relationship for the both the whole and the traditional sample of firms, and a negative insignificant one for the international new venture group of firms, on the other. Interpreting such a result is quite problematic. This being the case, conclusions from all three groups will be discussed separately first instead.

First off, when thinking about the conclusions which can be made from the total group, it is easy to interpret the finding as smaller parent firms in general having smaller profits from their international ventures than larger parents. While this is generally true according to the data in this research, a further deepening of the subject is wanted, since there are two different groups which are being researched. It is interesting to see then that a connection between parent size and venture profitability for small and young firms does not exist. Thus, in this sub-sample of firms, neither a positive nor negative relation could be uncovered for these two variables. This is exactly opposite when it comes to larger firms. Here, the relationship is clearly positive and very strongly present. What then does this abundance of data actually mean then?

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Hypothesis 2 supplies easier to interpret results than hypothesis one however, since similar relationships between parent firm size and international venture size were found in all three

different regression analyses. The results from the analysis showed that statistically significant linear relationships were found between parent firm size and venture firm size for all three size groups. This being the case, the conclusion remains two-fold. In general, there seems to be a tendency for larger parent firms to have larger international ventures. This is indicated by the result from the total group. Thus, the larger the parent, the larger the international venture, on average. The same relationship goes for the sub-samples, thus the relationship also holds among small and young firms and larger firms separately. This is where the conclusion is twofold, since this paper’s research question is of a dichotomous nature itself. The fact that the size groups display a similar pattern leaves one to wonder in what way these groups actually differ. The conclusion here is that in the dimension of parent-venture size relationships they actually do not. Such reasoning is exactly in line with defendants of the resource-based view (Barney 1991). Furthermore, this finding is also in line with the findings of authors like O’Cass & Weerawardena (2008), who find larger firms are more likely to create larger international ventures. Thus it appears that a small parent firm’s resources to some extent do impede its international opportunities. Seeing though that this is also true for larger firms, evidence has been uncovered to argue that international new ventures are not all that different from regular international businesses.