1
International Entrepreneurship
Network tie origins and their effect on the exploitation of international
opportunities
University of Groningen
International Business and Management Faculty of Economics & Business Nettelbosje 2 9747 AE Groningen The Netherlands MSc. Thesis - June 2013 By Benedikt Köttker S2218410 b.kottker@student.rug.nl Noorderstationsstraat 32 a 9717 KP Groningen +31 610122657
2 ABSTRACT
This exploratory case study intends to investigate network tie origins as well as entrepreneurial capabilities and characteristics regarding their effect on knowledge about international opportunities. Eight propositions for future research are developed, that aim to advance international entrepreneurship literature. The results show that no pattern of network tie origins could be identified. Networking capabilities in terms of technological capabilities as well as conversational capabilities are found to be important for the exploitation of international opportunities, especially on a virtual basis. Key words
3 TABLE OF CONTENTS Abstract ... 2 Table of contents ... 3 Introduction ... 4 Literature Review ... 6
INV and network tie categories ... 6
International opportunities and formal versus informal network ties ... 7
Entrepreneurial characteristics and international opportunity recognition ... 9
Model of internationalizaiton ... 12
Research method ... 13
Case Profiles ... 15
Findings ... 17
Origin of network ties ... 17
Perspective 1: The first step abroad ... 17
Perspective 2: Further international activities ... 18
Perspective 3: Opinions of the entrepreneurs’ ... 19
Perspective 4: Alternative aproach ... 21
Perspective 5: Outward, inward, or third party introductIons ... 22
Table 1: Origin of network ties ... 25
Entrepreneurial capabilities and characteristics ... 26
Table 2: Entrepreneurial capabilities and characteristics ... 28
Discussion... 29
Conclusion ... 33
4 INTRODUCTION
The number of new venture firms that internationalize early in their life cycle is increasing (Zahra, Ireland, & Hitt, 2000). In the past, a lot of research focused on how these new ventures are able to compete on the international market, despite their relatively small size, newness, and their scarce resources (Knight & Cavusgil, 2004; Shrader, Oviatt, & Phillips McDougall, 2000). Research conducted in international entrepreneurship (IE) shows that networks are an important determinant of the internationalization process of INVs (Andersson, 2004). Reuber and Fischer (2011) argue that the amount of businesses that are using the internet to pursue international opportunities is increasing whereas IE has paid limited attention to this phenomenon. Investigating further literature gaps, Kiss and Danis (2010) state that more attention should be placed to the extent of which the entrepreneurial knowledge about international opportunities comes from social networks versus other sources. Zhou, Wu, Luo (2007) argue that it would be interesting to investigate the relationship between informal social network ties and formal business network ties in the context of internationalization of INVs. Sigfusson and Chetty (2013) state, that particularly regarding international entrepreneurial firms the importance of social networks has been rarely studied.
Furthermore, it is still unclear how certain new ventures are able to obtain, identify, and exploit information about international opportunities that enable internationalization (Fernhaber, Gilbert, & McDougall, 2008; Peiris, Akoorie, & Sinha, 2012). This seems especially interesting since Oviatt and McDougall (2005: 5) define IE as the “discovery, enactment, evaluation, and exploitation of opportunities - across national borders - to create future goods and services.
Fernhaber and Li (2013) claim that the virtual business environment of new ventures gains interest and call for prospect research, that investigates how new ventures depend on the virtual business environment, to gain knowledge needed to internationalize. Additionally as argued by Mathews, Healy, and Wickramasekera (2012) it remains unclear how the internet influences a firms’ internationalization process. Pauleen and Yoong (2001) claim that the development of personal relationships on a virtual basis is an important factor for effective working relationships, but too little research is conducted in this field.
5 (2008) state that even though it was acknowledged that networking can be improved by using web-based communication technologies, this field remains underexplored.
In response to these calls for future research, the goal of this paper is to analyse how the different categories of network tie origins differ in their effect on the provision of knowledge about international opportunities for INVs. By origin I emphasize on how the network ties are created and by what means they evolve from the very first moment of contact.
According to Coviello (2006), network ties are not easily categorized and no one pattern clarifies the nature of ties in INV networks, even though they are consistently found to facilitate INV evolution. Since the importance of network ties for the internationalization process of INVs seems to be known, the difference regarding its origin or nature and how these differences differently affect entrepreneurs’ intelligence about international opportunities remains unclear.
As emerging from the literature, four different categories of network tie origins are developed for this study. These comprise the virtual as well as real formal business- and informal social network environment of INVs, namely: 1) virtual formal ties, 2) virtual informal ties, 3) non-virtual formal ties, 4) non-virtual informal ties.
Furthermore, a model of internationalization is developed which includes: 1) Time; with a focus on the early stage of the INVs life cycle, 2) the effect of different network tie origins on the provision of knowledge about international opportunities, and 3) characteristics and capabilities of the entrepreneur important for the exploitation of international opportunities.
6 LITERATURE REVIEW
Conformable to the approach of McDougall and Oviatt (2000) and Jones and Coviello (2005), the theoretical foundation of this study is based on literature, which covers the field of INV theory, IE, and network theory. The first paragraph will discuss four categories of network tie origins that emerge from the literature. The paragraph thereafter will review networks and their importance regarding the provision of knowledge about international opportunities. In the third paragraph I argue that entrepreneurs’ characteristics and capabilities in terms of networking play a crucial role in identifying international opportunities. The final paragraph describes the internationalization model, developed for this research.
INV and network tie categories
The international new venture is different in its conception because it has a global focus and committed resources to international activities near or from its establishment (Coviello, 2006). This is why an INV is also known as a born global firm (Acedo & Jones, 2007). Coviello (2006) emphasizes on the importance of networks in this context. Several previous studies did cover the distinction of formal business network ties opposed to informal personal network ties and their significant influence on the internationalization process of new ventures. Nevertheless, which of these two categories are more important remains unclear. INVs are characterized by a high level of strategic aggressiveness, which means that they intensively manage their networks from the beginning (McDougall, 1989). Another distinguishing feature of INVs is its involvement in networks to facilitate rapid internationalization (Oviatt & McDougall, 1994; Coviello & Munro, 1995).
7 where personal relations are bounded in geographical, social, or institutional space. Those ties are normally characterized as connections that are built upon trust and goodwill (Chen, 1994).
Formal business networks are defined as “a set of two or more connected business relationships, in which each exchange relation is between business firms that are conceptualized as collective actors”(Anderson, Hakansson, & Johanson, 1994: 2). Business networks constitute collaboration among two or more firms, where a resource exchange takes place.
Consequently, virtual formal ties can be understood as network ties that evolve from the very first moment via the internet on a formal basis, which is created to connect individuals and businesses for the exchange of information and knowledge. Those are for example but not limited to “LinkedIn” and “Xing.” LinkedIn is a social networking website that connects people in professional occupations to provide a platform for professional formal networking (Nishar, 2013). Virtual informal ties can be described as network ties that originate from a new contact made via the internet on an informal platform, mainly created to connect individuals for social contact with each other. These are for example but not limited to “Facebook” and “Twitter.” Facebook is a social networking website that connects people for informal means on a rather personal base. Non-virtual formal network ties evolve from connections made for the first time with professional intentions on e.g. formal occasions by meeting face to face for example but not limited to business exhibitions and or trade fairs. Non-virtual informal network ties can be described as contacts that originate via social means such as face to face contacts that took place for instance on private, social occasions. After having the four categories of network tie origins clarified, the next paragraph will deal with internationalization and networks in the context of international opportunities.
International opportunities and formal versus informal network ties
8 state that networks do not only facilitate but also constrain the internationalization process and that early internationalization does not equal successful internationalization. Yu, Gilbert, and Oviatt (2011) claim that venture networks, which open new knowledge or constrain it to knowledge already shared among partners, will influence the timing of across boarder activities.
Different influences of formal business network ties opposed to informal social network ties have been covered in IE literature. Empirical findings show that social networks are vibrant for the identification of new international opportunities (Zhou, Wu, & Luo, 2007). Ellis (2000) as well as Harris and Wheeler (2005) settle by arguing that for firms that internationalize, social network ties are essential. Larson and Starr (1993) and Hite and Hesterly (2001) argue that social ties are important in the early phases of firm evolution however, they become less dominant over time.
Ellis (2011) conducted a study in which she identified four different means for recognizing opportunities in foreign markets, namely: (1) formal searches, (2) participation in international trade fairs or exhibitions, (3) social ties, and (4) responses to advertisements. After all, her results indicate that international opportunities that are identified by the use of social ties will lead to exchanges that (a) are rated more importantly and (b) account for greater sales volumes relative to opportunities identified via other means. Sigfusson et al., (2013) found in their research that entrepreneurs’ with the largest networks demonstrate their network strength and identify opportunities to bridge relationships by using online social networks. They agree with the assumption that when developing business relationships the use of online social networks become increasingly important especially because of the low costs and ease associated with developing networks for IE. Burt (2004) argues that information about opportunities evolves via relations of distinct social clusters.
9 McAuley (1999) states in his findings, that information about international opportunities was generated mainly by participating in international exhibitions. According to Coviello (2006) the proportion of prospective network ties is high within the environment of trade exhibitions and similar forums. Burt (2000) states further that regarding important knowledge exchange such an environment facilitates easy access to essential information.
Taken the above centralized findings together it becomes clear that network ties do play a significant role for the provision of knowledge about international opportunities. However, whether the category of informal social ties opposed to formal business ties is more important in this context remains unclear. In the following paragraph, secondary data regarding entrepreneurial capabilities and characteristics in the context of international opportunity recognition will be covered.
Entrepreneurial characteristics and international opportunity recognition
Andersson (2000) argues that the international development of INVs is significantly influenced by personal networks and individuals who are in charge of international expansion. Hence, the entrepreneurs’ individual characteristics and its networks seem to influence a INVs international development.
To date, there is still a knowledge deficit about entrepreneurial methods used for opportunity recognition (Ellis, 2011). Sigfusson et al., (2013) argue, that even though it is clear that online social networking plays an important role, to date there is not much known about how international entrepreneur’# use these tools. Lewis et. al., (2008) state that besides social networks entrepreneurial skills and experience are important factors that support entrepreneurs’ early internationalization. Ellis (2011: 101) defines international opportunity as “the chance to conduct exchange with new partners in new foreign markets’’.
10 Shane and Venkataraman (2000) argue that international opportunities even though they exist they cannot be exploited if an entrepreneur does not recognize this opportunity and understand its value for further business. That leads to one objective discussed in this field of research, namely; why certain entrepreneurs’ recognize international opportunities while others do not.
Although previous research underlines effects that operate at the business network level, Ellis (2011) suggests that recognizing opportunities about foreign exchange is a greatly subjective process, shaped by the entrepreneurs’ existing ties with others. Furthermore, she argues that when identifying how entrepreneurs’ recognize international opportunities the focus should be on their social networks, which is less restrictive than higher level focus on networks which are based on the inter-firm level.
Even though most research confirms that networks are crucial for internationalization Liu, Xiao, and Huang (2008) state that for business managers’ one important implication is that they don’t need to wait until business networks are established to move to foreign markets. For identifying international opportunities it is sufficient to be a highly motivated entrepreneur (Huang, 2008).
Furthermore, it is indicated that although most of the knowledge exchange in the context of international opportunities was discovered rather than sought, it where rather intentional than accidental discoveries (Ellis, 2011).
This contradicts with the findings of Ardichvili, Cardozo, and Ray (2003), Schane (2000) as well as Kirzner (1997) who argue that in many cases, entrepreneurs’ identify important information not intentionally by active searching but by accident. Further studies emphasize on the importance of alertness as a characteristic of entrepreneurs’ which can be understood as a passive search tool. That is, being receptive to opportunities without actively searching for it (Ardichvili, Cardozo, and Ray, 2003; Kirzner, 1997). Alertness of entrepreneurs’ is according to Shane (2000) positively related to their cognitive capacities like high intelligence and creativity. Krueger and Brazeal (1994) state, that optimism is an important factor to increase individuals’ alertness. Nevertheless, even though alertness is important when an entrepreneur is not actively searching for international opportunities, it remains important in active search, which may leads to exploration of opportunities that where unexpected (Hohenthal, Johanson, & Johanson, 2003).
11 According to Kontinen and Ojala (2011) Austrian theories seem to be of relevance, which state that idiosyncratic information enables certain people over others to recognize international opportunities. Information as a factor that plays a central role in opportunity recognition involves patterns of changing conditions (Ozgen and Baron, 2007; Shane, 2000; Shane and Venkataraman, 2000). Those are for example changes in technological, demographic, economic, or political settings of which information confluence arises, which are a source of opportunity recognition according to Baron (2006). On the individual level the development of identifying opportunities is related to the previous life experiences of the entrepreneur (Kontinen and Ojala, 2011).
Furthermore, Baron (2006) argues that individuals differ in their abilities to “connect the dots” hence, he defines opportunity recognition as “the cognitive process (or processes) through which individuals conclude that they have identified an opportunity” (Baron 2006: 107).
As mentioned above, prior knowledge was identified as a cognitive capability that is significant for opportunity recognition (Baron, 2006; Shane, 2000). Here previous life experiences of individuals leading to obtained knowledge in the field of markets and ways to serve these as well as knowledge about customer problems are identified as essential for entrepreneurial discovery (Shane & Venkataraman, 2000; Shane, 2000). Park (2005) argues that technological knowledge is an important capability for opportunity recognition.
12 Model of internationalization
The case research applied is conducted on three INVs in their early-stage. As mentioned before the main argument for conducting this study is that network analysis is essential in the field of IE research (Oviatt & McDougall, 2005). INV network literature is reviewed in combination with IE as they relay to new venture networks (Coviello, 2006).
The model of internationalization developed for this research incorporates:
1) Time, with a focus on the early stage including conception, commercialization, growth, and internationalization.
2) The effect of different network tie origins on the provision of knowledge about international opportunities.
3) Capabilities and characteristics of the entrepreneur important for identifying international opportunities.
Regarding the dimension “time” this research will follow Coviello (2006) focusing on the early stage of the INVs life cycle. This stage can be described as INV conception, commercialization and growth, including internationalization. Furthermore, the focus will lie on the origin of network ties, which comprises how these ties emerged regarding the four categories developed for this research.
Coviello (2006) found that important network ties for internationalization where established significantly earlier in the life cycle, before the first step abroad did occur.
Liu, Xiao and Huang (2008) conducted a study in which they identify the main issues of firm internationalization including the entrepreneurial cognition of international opportunities. Andersson (2004) found that there is a relationship between entrepreneurs’ international attitude, experience, networks and the companies’ international development.
13 RESEARCH METHOD
Secondary data reveals that several studies did cover research on informal and formal network ties and entrepreneurial characteristics that are important for the exploitation of international opportunities. However, contradicting findings, as presented in the literature review, indicate that these fields require extra attention. Furthermore do the calls for future research, as presented in the introduction, emphasize on the necessity for investigating the virtual business environment of INVs, when conducting network research. Since this field is to date not covered by scholars, I adopt an exploratory research approach.
Kontinen and Ojala (2011) argue that an exploratory approach is appropriate when the research concerns situations in real life and the goal of research is to specify the research objects in a holistic way. As described by Blumberg, Cooper, and Schindler (2008) the first step in an exploratory study is to search for secondary data. Consequently, the research strategy is a two stage method. First, secondary data, such as literature in the field of IE, INV and network theory is analysed.
Second, due to the exploratory nature of this research, a qualitative approach is selected. According to
14 The data collection took place using a semi-structured inductive interview technique. Certain interview guidelines set by Wright, Lane, and Beamish (1988), Eisenhardt (1989) as well as Huber and Power (1985) are used to ensure that the data collected is accurate by minimizing general and specific biases. The in depth interviews where iterative and the language of what, who, where, why, when and how’ was used following Pettigrew, Woodman, and Cameron (2001).
In total three open ended interviews with a duration of approximately 60 minutes were conducted. The INVs entrepreneur is chosen to be interviewed to discover how his accessible network ties, which were important for the exploitation of international opportunities, did evolve. The entrepreneurs’ that were directly involved with the internationalization process are considered to give insights into strategies and further sensible information that is needed to obtain the knowledge this research is aiming for. According to Coviello (2006) these informants are appropriate because of their direct hands-on experience with the firms’ evolution. McCartan-Quinn and Carson (2003) state, that informants such as entrepreneurs’ are adequate because of their involvement and knowledge with the different relationships of new ventures.
Three companies are selected, that operate in the internet enabled market and do provide a service based web-site. The companies match the INV definition of Coviello (2006) in the sense that they all have a global focus, representing a global concept, and commit resources to international activities near or from their establishment.
As mentioned above the interview took place in a semi-structured inductive manner. It was important to start the interview with questions that are very broad, open and non-leading. This is done to ensure that the entrepreneur is not constrained to give out information following a certain path that was indicated in the question. After observing the answers and checking which information the entrepreneur covers in these non-leading questions, further more detailed questions were asked. These comprise the `how, when, what and why` of internationalization including driving factors. This technique is supported by Yin (1994).
First, the entrepreneur was asked to describe his business. The following question focused on the internationalization process. No indications were given on network ties, international opportunities or entrepreneurial characteristics. Not surprisingly, considering the findings of previous scholars, every entrepreneur mentioned his network ties as important factor in this matter.
15 determined between the four categories 1) virtual formal ties, 2) virtual informal ties, 3) non-virtual formal ties, 4) non-virtual informal ties. Furthermore, it was determined who initiated this very first contact. The strategy applied by Coviello (2006) will be followed. That is, each tie is analysed on whether it was initiated by the INV or its entrepreneur (noted as ‘outward’), initiated by the external party (noted as ‘inward’), or initiated by introductions of a ‘third party’ (Coviello, 2006). Furthermore, I asked which entrepreneurial capabilities and characteristics are considered to be most important in the context of pursuing international opportunities. Since the study is exploratory I took notes throughout the interview which led to further questions that evolved simply by processing the given information of the entrepreneur.
The interviews were digitally recorded and subsequently verbatim transcribed. To check whether the interviewees agree with the data collected and give room for correcting inaccuracies each case report was sent back after completion. Communication via Email was used as a follow up tool to clarify upcoming issues with regards to the exploratory data collection. The types of secondary data used, vary from periodicals to websites with the aim of improving the validity of the study. Following Liu, Xiao, and Huang (2008), to increase the accuracy of the data collected via the interviews the information was checked against the literature but more importantly questions were asked in alternative ways to check the consistency. To be able to better reveal the phenomena in this study, in many instances direct quotes from the entrepreneurs’ were used, following Coviello and Munro (1997).
On the basis of the collected data, patterns of each case where categorized and compared with each other in the findings section. In the discussion section the case findings are again matched with each other and with the previously observed literature findings. Two checklists, “Table 1” focusing on the origin of network ties and “Table 2” focusing on the entrepreneurial characteristics are developed to summarize of the key findings that are compared.
Case profiles
16 Its operations are located in Buenos Aires in the “NXTP Lap” accelerator. The “NXTP Laps” is a program with the purpose of accelerating Spanish-speaking technology start-ups. It provides early stage or seed funding, consulting services, training and access to a premium network of mentors across Latin America, the US and Europe (NXTP Laps, 2013). Citibuddies is a very young start-up and as an American company until now only active in Buenos Aires. However, at this moment they are preparing their internationalization strategy deciding to go either to Brazil, Mexico, or Chile.
Firm B: The second company, “OutTrippin” was found in October 2012. Kunal Kalro is the original founder and CEO. The company has in total three employees. Indi June is a co-founder, chief marketing officer and resident blogger and João Valente is a co-founder and chief technological officer. OutTrippin is operating in the internet enabled market. The product is a website called “www.Outtrippin.com”, that provides information and recommendations for traveling. These special designed trips are provided by travel bloggers from all over the world who share their information on the website. OutTrippin is registered in Delaware, the US. Its operations are located in Melbourne, Australia. The company follows an international concept currently having their main focus on the US market. Other countries the company is active in are Australia, Chile, Argentina, and Portugal.
Firm C: The third case firm is called “Global Avenue” and was found in 2011. Nick Broekema is the original founder and CEO. The company has three employees in total. Yet Nick Broekema is the only full time employee. Besides him there are two part time employees responsible for e.g. administration and bookkeeping. Global Avenue is likewise a company operating in the internet enabled market. The product is a website called “GlobalAvenue.org.” It is a crowd sourced international network of knowledge that provides different knowledge services to organizations on a global scale. The company started with translation services which cover till today most of its business. The international network consists of a database of 1000 young professionals that fulfil assignments for Global Avenue.
17 FINDINGS
In this section I will present which network tie origins and entrepreneurial capabilities and characteristics were found to be important for the exploitation of international opportunities. At first, the four different categories of network tie origins are processed due to their different effects on international opportunity recognition. This is shown for all three case firms via five perspectives. The first perspective focuses on the very first step abroad. The second perspective focuses on further international activities. The third perspective evaluates the entrepreneurs’ opinion on which network tie origins are considered as most important for international development. The fourth perspective presents findings that are connected to an alternative approach of questioning the case companies following Liu, Xiao, and Huang (2008). The fifth perspective focuses on whether the contacts important for international opportunity recognition have been initiated by inbound, outbound, or third party introductions. Additionally, it is stated to which network categories these initiations belong. After that, the entrepreneurial capabilities and characteristics which seem to be important for pursuing international opportunities are identified. The section will conclude with indications of how international opportunity recognition is influenced by different network tie origins and entrepreneurial characteristics. The findings are presented by grouping the firms together regarding their similarities and differences for international opportunity recognition, following Kontinen and Ojala (2011).
Origin of network ties and their provision of knowledge about international opportunities
The different origins of network ties that are considered for this research are 1) virtual formal ties, 2) virtual informal ties, 3) non-virtual formal ties, and 4) non-virtual informal ties.
Perspective 1: The first step abroad
In this passage the network creation is taken into consideration because it does play a significant role in providing knowledge about international opportunities. That is, because right from the beginning all three companies categorized as INVs follow a global concept and used their networks instantly to pursue international opportunities.
18 B on the other hand did not have a considerable network when they moved to Buenos Aires. A few contacts which could be considered as friends of the entrepreneur did exist. Other than that the entrepreneur clearly stated that he didn’t know anyone. That basically led to the fact that the network was created after company B moved to Argentina. Friends of the entrepreneur of company B categorized as non-virtual informal ties connected him to a couple of people in Buenos Aires. To get introduced the entrepreneur did use Facebook as a virtual informal tool, posting a message like: “I am going to Buenos Aires, does anyone know any start-up people there.”
For the entrepreneurs’ of company A and B one of the most important factors to be able to internationalize was access to financial resources. For company A raising money was done in the first place via non-virtual informal ties, like family and friends, but this was just a starting help. The first real considerable investment was gained from the NXTP Laps in Buenos Aires which can be categorized as a non-virtual formal tie. For company B personal savings did help in the first phase of bootstrapping. Besides that Investments from an incubator called “Angel Cube” did provide the first substantial financial resources. The entrepreneur did use a formal virtual approach to apply for Angel Cube; however, his knowledge about Angel Cube did arise from a non-virtual informal tie, a friend who informed him about this opportunity.
Company C had an existing network even before the launch of the start-up, similar to company A. However, for company C the network was actually crucial in the sense that it led to the idea of founding the company. The entrepreneur built a network with approximately 1000 international and highly educated contacts during his studies. After he realized the size as well as the global coverage of his network he came to the idea of founding the company “Global Avenue.” The first step abroad was taken simultaneously to the countries Finland, Germany and Norway. This happened due to a virtual contact on an informal basis.
Perspective 2: Further international activities
19 founded the XTP Lap in Buenos Aires. That can be categorized as a non-virtual formal network tie that connected the entrepreneur.
For company B the next step abroad was to move to Melbourne, Australia. This was mainly done because the opportunity of an investment was discovered. Interesting is that even though one of the co-founders was situated in Melbourne, the entrepreneur who was situated in Buenos Aires was doing active research on the website “AngelList” and found the opportunity for that investment. The first contact was made online via the website on a virtual formal basis between the investor in Melbourne and the entrepreneur in Buenos Aires. After that the entrepreneur connected his co-founder with the investor. They had a meeting on a real formal basis after which the investor did give his approval for the investment.
Company C´s further internationalization after their first activities in Finland, Germany, and Norway was quiet rapid. Eventually, two years after founding, the companies’ activities and its network covers countries on a global scale. As mentioned above, the client base consists mostly of internationally oriented Dutch companies that operate in the Netherlands, but also companies from other countries in the world. According to the entrepreneur the majority of contact takes place on a virtual basis with both the clients and the network. Besides that some acquisition was done to gain potential clients also in face to face meetings, but this happened quiet rarely.
In total the entrepreneur has met only 15 per cent of his network ties in real life or personally, the rest is covered by communicating via social media and email. His network as well as his client base grew mostly on a virtual informal basis using Facebook and Twitter, but also on a virtual formal basis using LinkedIn. To gain new contacts for the network Facebook is generally used. According to the entrepreneur, these contacts (virtual informal) are connected to the provision of international opportunities because the network ties in foreign countries do provide the services Global Avenue offers to its clients.
Perspective 3: Opinions of the entrepreneurs’
20 Company A did try to accelerate its internationalization by exchanging information with entrepreneurs’ that work on similar projects. The first contact was made via Facebook which than lead to Email contact. However, the experience did show that getting commitment even if it is just for a meeting on a virtual or real basis is very difficult. The entrepreneur clarifies that if she found someone interesting online, she will first try to find other ways to get into contact with this person, not via the use of online tools. With regards to social or personal contacts company A clarifies, that it happened a few times that social contacts turned out to be usable for business. Nevertheless, these were not useful in the long term in terms of really scalable business. The entrepreneur argues: “I think the majority of my contacts that worked for me in business are primary business.”
Regarding the question of which ties the entrepreneur values as most important for the provision of knowledge about international opportunities, she clearly states; ties with a non-virtual formal origin. As mentioned above, for Company B non-virtual informal ties were the most important contacts for creating the network in Buenos Aires as well as gaining the knowledge about the investor in Melbourne. Concerning the question of which ties the entrepreneur beliefs as most important for the provision of knowledge about international opportunities, he states that personal contacts that he has met in real life (non-virtual informal ties) are most important. The entrepreneur argues: “A reason for this is that they are most likely to vouch for you. In my opinion, people should build personal contacts not business contacts and if you get business out of it, that’s awesome. So those are the ones that are most helpful. People help people they like. You need more help than you can offer people. That means contacts must really like you if they help you.”
21 to help me out when I am looking for a certain person in a country. And if I have questions I can always ask them because they know me I know them and we still get along quiet well.”
Worth to mention, the 15 per cent of network ties that have a non-virtual informal origin are now mostly connected on a virtual basis with the entrepreneur. This was the situation even before Global Avenue was found. Hence, since the entrepreneur started the company he didn’t meet those contacts in real life anymore. Therefore, the entrepreneur is hesitant to agree on the fact the most important network ties for his company to grow internationally are of non-virtual informal nature because now he considers most of them as virtual. The entrepreneur states: “They were personal contacts but I don’t know if it would make a difference. I do think that some people that I never met, are also very interested and I can talk to about this stuff but it is maybe a coincidence that I’ve met these people and started working with them in the beginning. I had to start somewhere of course then I was working with the people I met. But I don’t know if you can put the link to the success with them and me meeting them.” On the other hand the entrepreneur states that he started working with them because he already knew them. He argues: “But you can say that there might be a possibility that because of them I kept on growing because they were able to help me and of course if you met someone face to face it always makes it easier to talk about that stuff.” The argumentation of company C is similar to the argumentation of company A, as both state that non-virtual informal contacts are most likely to vouch for you (company A) or to help you (company C).
Perspective 4: Alternative approach
To further analyse the origin of network ties and their provision of international opportunities the following paragraph presents findings that do result from an alternative approach following Liu, Xiao, Huang, 2008. It was asked whether the case firms would do important exchanges such as intelligence about international opportunities only online without any real contact. This question is important because especially company B and C do seem to value virtual network ties even though the previous findings state that the most important contacts for both are of non-virtual nature.
22 The entrepreneur further emphasizes that personal trust building, which is very important for exchanges that concern internationalization, can never be replaced by any reputation that can be built online, via communication or other experiences.
Company B states that important networking in the above mentioned matter can definitely be done just online. As an example, the entrepreneur works with a couple of advisors which he never met in real life. Their communication takes place only via Email. However, the entrepreneur also states that: “You can say that you probably build a stronger relationship if you meet in person at some point or another, because that changes the dynamic. But that doesn’t mean that you cannot have strong relationships even if you never met in real life.”
Company C also states that it is possible to build trusted relationships after a fair amount of communication online, without ever meeting face to face. Hence, network ties, that origin from a virtual informal basis, are important when it comes to gaining knowledge about international opportunities. As can be seen, contradictory to company A, company B and C are consistent in their opinion that for building trusted relationships online, it is possible after a certain relationship is built.
Perspective 5: Outward, inward, or third party introduction
In the following section it will be analysed how most of the network ties, important for pursuing international opportunities, did evolve. At this point Coviello (2006) will be followed determining whether ties are created by the INV or its entrepreneur (noted as ‘outward’), initiated by the external party (noted as ‘inward’), or initiated by introductions of a ‘third party’.
Company A and B state that the most important network ties important for internationalization are almost always established via third party introduction. The entrepreneur of company A argues: “For every relationship that is long-term and internationalization is long-term, you need to establish contacts that can only go over one point. Third party introductions with trusted partners are very important. I was introduced from the XTP Lap to an investor, that basically pointed out some people to me in Brazil and that investor introduced me to them. So I needed to meet her first for 1. 5 hours explain to her what I do, what the project is about and then to get her advice and after that, she was able to present me to people.”
23 you. And I don’t really understand your business exactly and what’s going on.’ Although we are still talking to him and he is very helpful and everything but he is just very careful with introductions, because as I said its one of the most powerful instruments in the network. If you kind of burn your card there people will not introduce you to other people anymore. It’s a very important but very sensitive instrument.”
A third statement of the entrepreneur states: “It is really hard to go international without having second order contacts in all the markets that you are trying to go to. Therefore it is crucial that you find out if your existing network has contacts in the new markets to introduce you.”
For company A, it can be seen that third party introductions are most relevant and these are done only on a non-virtual formal basis.
Before company B went to Buenos Aires contacts from Facebook were used who connected the entrepreneur to people he didn’t know. The entrepreneur argues: “Third party introduction is pretty much everything, really everything.” He further stated that it is possible to try “cold calls” which is basically ‘sending a random Email to someone’, but that usually never works. He argues: “People do not respond without someone they know that is recommending you.” Before company B went to Buenos Aires, most of the networking was done online. The entrepreneur used people he knew in real life who connected him to people he didn’t know and then they were talking online. The entrepreneur argues: “The point I am making is that if you are trying to make a connection online, third party introductions are really everything.”
Regarding the question of whether contacts the entrepreneur never met in real life would recommend him further to other people, he said that this never happened before. Nevertheless he reasons that, he would definitely let himself get connected with someone he never met in real life. The entrepreneur emphasizes: “So it doesn’t really matter if the third party, so the person who is doing the introduction has never met the person they are introducing. It is much more important that you have a relationship online or offline and that’s going to be the case. No one is going to introduce you unless they feel like you have a relationship with them.”
For company B it can be seen that consistent with company A third party introductions are considered as most relevant. However, opposing to company A, the entrepreneur of company B states that third party introductions can definitely just take place on a virtual and informal basis.
24 To sum it up, from perspective 1 that focuses on the first steps abroad of the case companies it was found that networks of company A and C were created before the start-up of the company. For company A, this was done on a non-virtual informal and non-virtual formal basis and for company C on a virtual informal basis. The network of company B was created in the first phase of the start-up. This was done using Facebook as a virtual informal tool but the contacts do actually origin from non-virtual informal network ties. The very first step abroad for company A and B did mostly depend on the access to financial resources. Company a used in the beginning personal real ties to raise money but the first considerable amount came from an investment that was discovered through the use of a non-virtual formal tie. For company B the first investment was obtained via information given by a non-virtual informal tie. For company C the first step abroad did evolve due to foreign demand for his translation services. This demand roots from a virtual informal contact.
From perspective 2 regarding further internationalization steps it was found that network ties responsible for the provision of knowledge about international opportunities did origin for company A from a non-virtual formal tie, for company B from a virtual formal tie, and for company C from a virtual informal tie.
Regarding the opinions of the entrepreneurs’ described in perspective 3, the most important ties for providing knowledge about international opportunities of company A origin from non-virtual formal contacts, for company B and C from non-virtual informal contacts.
25 Table 1 – Origin of network ties
As can be seen in “Table 1” only company A seems to be very consistent regarding which network tie origins are most important for the recognition of international opportunities. Company B on the other hand is quiet inconsistent. It can be seen that from perspective 1 and 3 non-virtual informal ties were most important. Perspective 2 reveals that non-virtual formal ties are most important. And perspective 4 and 5 show that virtual informal ties seem most important. Company C is less consistent than company A, but more than company B. This can be seen due to the fact that all ties important for the provision of knowledge about international opportunities have an informal nature. However, in perspective 1, 2, 4 and 5, this is virtual whereas in perspective 3 it is non-virtual.
Perspective of analysis Case Company Perspective 1 First steps abroad - Network creation Perspective 1.5 First steps abroad - Financial resources Perspective 2 Further internationaliz ation Perspective 3 Opinion of the entrepreneur Perspective 4 Alternative approach Perspective 5 Inward, Outward or Third Party introduction Consiste ncy A – Citibuddies Darja Gutnick Non-virtual formal & Non-virtual informal Non-virtual formal & Non-virtual informal Non-virtual formal Non-virtual formal Non-virtual formal Third Party Introduction Non-virtual formal ++ B – OutTrippin Kunal Kalro Non-virtual informal Non-virtual informal
26 Entrepreneurial capabilities and characteristics
Moving on, the following findings describe entrepreneurial capabilities and characteristics that are considered as important to become internationally successful. The entrepreneur of company A states that international experience is crucial. Furthermore, the entrepreneur should have very little fears or be optimistic. The entrepreneur claims that: “I think the biggest hassle in the beginning and obstacle to grow internationally is being able to move freely. Therefore, low neuroticism and high emotional stability are important.” Another characteristic the entrepreneur emphasizes on is being a fast learner. Market knowledge is important too, but the entrepreneur argues that this can also be built up while becoming active in a new market. Hence, if the entrepreneur is a fast learner and also able to cope with cultural differences then market knowledge doesn’t need to be in place before entering a new market. Idiosyncratic information is another important factor. Entrepreneurs’ need to be able to absorb such information. That is, because not everyone has the same access to information, often because of sympathetic reason by informants who share information rather with preferred contacts. Another important factor is to bring a critical mass of online technological capabilities. Here the entrepreneur reasons that even though you might be a fast learner the majority of people is not able to learn them as fast as they need them.
The entrepreneur of company B states that the first characteristic is to be able to converse which is connected to networking capabilities and being able to sell. The entrepreneur argues; “you have to be able to sell everything, yourself, your team and the company.” Additionally it is important to have online technological skills. The entrepreneur argues further; “Persistence is huge because you are going to get broken apart more times than you do something right. So if you cannot persist, you are not necessarily going to be successful. So yes it’s a tough path so you have to be very persistent.” Due to the entrepreneur, persistence can be connected to optimism since this is an important factor for staying persistent.
Being a quick learner is also significant. Market knowledge is not as important if you are a quick learner according to the entrepreneur.
27 technologies and you have to be able to use them effectively, to be able to start your potentially international big company.”
28 Table 2 – Entrepreneurial capabilities and characteristics
Case Company Entrepreneurial characteristics Secondary Data A – Citibuddies Darja Gutnick B – OutTrippin Kunal Kalro C – Global Avenue Nick Broekema 1 Networking capabilities Networking capabilities Conversational capabilities Being able to sell
Effective communication listening 2 Online technological capabilities Online technological capabilities Online technological capabilities Online technological capabilities 3 Prior entrepreneuri al experience International Experience International experience such as understanding intercultural differences
4 Optimism Little fears
Optimism Low neuroticism High emotional stability Persistence 5 Idiosyncratic information Idiosyncratic information
6 Fast learner Fast learner
29 DISCUSSION
The discussion section starts with comparing the findings regarding which network tie origins are valued as most important for the identification of international opportunities. Additionally, the results are compared to the secondary data. Evolving from this study, I developed eight propositions that can be used to guide future research in this area.
30 international opportunities. That is the complete opposite of what was found for company A, which is in line with Kontinen and Ojala (2011). Their findings reveal that informal relationships reduce the possibility of obtaining valuable information about international opportunities.
Pauleen and Yoong (2001) claim, that the development of personal relationships on a virtual basis is an important factor for effective working relationships. This is consistent with the arguments of company B and C, who both claim that it is not only possible, but necessary to build trusted personal relationships online. Company A is on the other hand certain that trusted relationships can only be built by meeting face to face on a non-virtual basis.
My findings agree in general with the findings of, Aldrich, Rosen, and Woodward (1987), Jarillo (1989), McDougall (1989), Oviatt and McDougall (1994), Coviello and Munro (1995), Coviello (2006), Ellis (2008), Ozgen and Baron (2007) Johanson and Vahlne (2009), Musteen, et al. (2010). That is, for all three case firms networks were crucial when it comes to growing internationally, identifying international opportunities, overcoming obstacles associated with new markets, and gaining access to external resources.
However, findings of Coviello (2006) which state that network ties, that were important for internationalization, were established significantly earlier in the life cycle, before the first step abroad, are only consistent with company A and C. Company B did built his network after the entrepreneur took the first step abroad.
Larson and Starr (1993) and Hite and Hesterly (2001) argue that social ties are important in the early phases of firm evolution however, they become less dominant over time. All three firms started building their network with social ties that existed even before the launch of the start-up. But only company A states that formal ties become dominant over time. Company B and C clearly state that informal social ties still play a significant role in their network. That is mostly due to their close relationship with these ties which drives them to be willing and active in supporting the entrepreneurs’.
Proposition 1: Social informal ties, rather than formal business ties, enable entrepreneurs’ of INVs to start building a network due to their supportive and trusted relationship.
31 The findings of Zhou, Wu, and Luo (2007), Ellis (2000) as well as Harris and Wheeler (2005), which state that informal social ties are vibrant for the identification of new international opportunities, agree significantly with the findings of company B and C, not with company A.
Opposing findings of Greve and Salaff (2003), Chetty and Wilson (2003), Schutjens and Stam (2003), Coviello (2006), Kontinen and Ojala (2011), stating that formal non-social relationships are most important for the identification of international opportunities are only supported by company A.
McAuley’s (1999) results reveal that information about international opportunities was generated mainly by participating in international exhibitions. But since these results are from the year 1999 their relevance can be questioned, especially with the possibility of using the internet as a faster and cheaper way to get connected. Therefore, one question in the interviews was focusing on whether the entrepreneurs’ believe that real life events such as trade exhibitions lose their importance due to the internet. All companies did state that they are still participating in events such as entrepreneurial start- up events and other exhibitions. Company A clearly states that this is not the case which agrees with her statement that contacts that origin from a non-virtual real basis are most important. Company B and C do think that percentage wise these events might decrease however, importance wise they don’t. Both entrepreneurs’ of company B and C consider such events as “old fashioned”. Even though the most important network ties of company C and partially of company B, are of virtual informal nature they still participate in events such as start-up events and consider them as important, also in the future.
Proposition 3: Real life events such as international trade exhibitions and entrepreneurial events do not lose its importance due to the possibility of networking on a virtual basis.
Sigfusson et al., (2013) assume that, when developing business relationships, the use of online social networks become increasingly important especially because of the low costs and ease associated with developing networks for IE. All three companies use mainly Facebook as a social networking tool. But only company A uses this to develop formal business relationships. Company C uses it to develop both informal and formal relationships which the entrepreneur than tries to maintain in an informal way. This can be seen in his statement that; “It is important for me to have contact on an informal base.” Company B takes the opposite position of company A, arguing that not business but social relationships need to be created to pursue international opportunities.
32 Even though this study concludes that networks are crucial for internationalization it can be seen that only company A and C had an existing network before going abroad and only company A considers this a business network. Company B was able to create its network, important for international activities, after moving to Buenos Aires. However, this is considered as social rather than business network. Consequently, the arguments of Liu, Xiao, and Huang, 2008 can only be partially supported.
Regarding entrepreneurial characteristics Ardichvili, Cardozo, and Ray (2003), and Kirzner (1997) emphasise on the importance of alertness to identify international opportunities. This is not supported in my study. Optimism, having little fears, low neuroticism and high emotional stability were the most important characteristics mentioned by company A.
Another factor mentioned by company A is the ability to obtain idiosyncratic information to recognize international opportunities, which is in line with Kontinen and Ojala (2011), Ozgen and Baron (2007), Shane (2000), and Shane and Venkataraman (2000).
Furthermore, company A and C do emphasize on international experience, which the entrepreneurs’ connect to understanding different cultures. This can be connected to the statement of Baron (2006) and Shane (2000) whom argue that prior knowledge was identified as a cognitive capability that is significant for opportunity recognition. However, previous experiences in terms of market knowledge, as found to be important by Shane and Venkataraman (2000) and Shane (2000), is not regarded as important by all three companies. Company A and B mentioned the importance of being a fast learner which would enable the individual entrepreneur to obtain e.g. market knowledge needed while starting the company.
Proposition 4: Prior knowledge in terms of market knowledge is not as important as being a fast learner.
Reuber and Fischer (2011) argue that it is important for firms to provide multiple ways of interacting online, thus research should focus on the online technological capabilities of firms that internationalize earlier via internet enabled markets and whether these capabilities better equip them to pursue international opportunities successfully. All three companies agree that online technological capabilities are important to be able to pursue international activities. This is in line with Park (2005) who argues that technological knowledge is an important capability for opportunity recognition.
33 Proposition 6: Online technological capabilities are positively related to the ability of building trusted relationships on a virtual basis.
An additional characteristic, which is significant for company B and C, is being able to effectively communicate especially online. Due to company C, being able to listen and understand the communication partner is very important, especially when it comes to different cultural backgrounds, which is most probably the case when entering different countries. Regarding the communication capabilities company B emphasizes on conversational capabilities and being able to sell. Due to the entrepreneur it is very important to sell yourself, the team, the product, basically everything.
Proposition 7: Entrepreneurs’ cognitive awareness of obtaining conversational capabilities in an international environment is positively related to the utilization of virtual contacts for the exploitation of international opportunities.
Propositions 8: Entrepreneurs’ cognitive awareness of obtaining conversational capabilities in an international environment is positively related to the involvement in virtual third party introductions that are significant for internationalization.
CONCLUSION
34 (2013),Mathews, Healy, and Wickramasekera (2012). That is, the concerns of how formal business and informal social ties as well as the virtual business environment effect the persuasion of knowledge about international opportunities. My findings show that network analysis is especially crucial in the very early stages of the INV life cycle, since the cases did reveal that the most important network ties for internationalization where created before the start up was launched, or at the very beginning, meaning in the conception stage. This is in line with the findings of Coviello (2006) which state that INV network analysis is crucial in the very early stages of the life cycle. My findings reveal further that entrepreneurs’ differ in their perception on which network tie origins seem to be most important for gaining knowledge about international opportunities. This can especially be seen for company A and C. Both companies were most consistent regarding their network ties that were identified as most important for their internationalization. Nevertheless, both companies reveal the complete opposite findings. For company A the most important ties are non-virtual formal origin and for company C of virtual informal origin. Hence, my findings could not identify patterns that explain the nature of INV network ties that are considered as important for providing knowledge about international opportunities. This is consistent with Coviello (2006) who argued that no one pattern clarifies the nature of ties in INV networks, as mentioned in the introduction.
With regards to entrepreneurial capabilities and characteristics, primary and secondary data identify online technological capabilities as important factor. At this point it should be noted that all three companies operate in the internet enabled market, which belongs to the technology based industry. However, my findings do connect online technological capabilities not just to e.g. website development, but to virtual networking capabilities. In this matter it would be interesting if non-technology based companies do detect online technological capabilities as important for their internationalization process. Two out of the three case firms mentioned that conversational capabilities are important, especially for networking. Interesting is that these two companies do also agree up on the possibility to do important networking, such as networking that is concerned with international opportunities, only on a virtual basis. The one case company that did not take conversational capabilities into consideration is certain that such important networking is never just possible on a virtual basis. Hence, it would be interesting to analyse whether a connection between the entrepreneurial awareness of obtaining conversational capabilities and the utilization of virtual networking tolls for important networking exists.
35 type of firm. Hence, the findings cannot be completely generalized. Nevertheless, regarding this matter Coviello (2006) argues that such a single context is appropriate to examine for industry effects.
The case findings rely completely on the information of the entrepreneurs’ of the case companies. In this matter Coviello (2006) argues that it might be fruitful to include different perspectives to capture alternative views of the network. Therefore, future research might investigate network ties that are identified as important for internationalization also from the perspective of the identified tie. This could reveal further knowledge especially on the objective of determining business and social ties and their effect on internationalization, which seems till today a field that remains unclear.
The network ties identified as important for the entrepreneur are categorized with regards to the opinion of the entrepreneur. Therefore, the perception of when a contact is actually established and how, with regards to its nature, remains to be a subjective interpretation of the individual entrepreneur. There are no definitions on when a new contact can actually be considered as such and due to my findings entrepreneurs’ do have different opinions on that matter. This research did not consider tie strength with regards to the intensity of contact and how this could affect the research objective. The findings of my research do reveal which network ties the case firms consider as most important for the provision of knowledge about international opportunities. However, the actual level of importance, of the international opportunity identified, is not taken into consideration. Therefore, future research could analyse the international opportunity with regards to its actual effect on e.g. sales or other growth ratios of the company.
Looking at one of the research objectives which focus on the influence of the virtual business environment of INVs on their internationalization process it would be interesting to see how older firms and/or firms that do not operated in the internet enabled market utilize the internet with regards to internationalization. But also other types of firms with various sizes and maturities operating in various industries could be compared by testing and refining the propositions developed in this study. In this matter international companies such as 'early starters, lonely internationals and late starters as categorized by Johanson and Mattsson's (1988) could for instance be taken into consideration. According to Coviello (2006) by taking INVs from a single sector, future research should focus on such comparisons to generate further theory development.
Acknowledgements
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