Role of entrepreneurs’ background on firms’ internationalization: the interaction effect with firm type

Role

of

entrepreneurs’

background

on

firms’

internationalization: the interaction effect with firm type

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ABSTRACT

This thesis investigates the role of the entrepreneurs’ background on firms’ internationalization and its contingency on firms being product or service firms. Following an in-depth literature review, hypotheses are developed regarding the relationship between firms’ internationalization and the entrepreneurs’ level of education, industry experience, and previous start-up experience. Next, this study investigates the interaction effects of these dimensions with the firm type, thereby addressing potential differences between service and product firms. The role of the entrepreneurs’ background on firms’ internationalization is tested by performing a binary regression analyses on a sample of 589 start-up firms. Results of this analysis acknowledge that the entrepreneurs’ background plays a role on firms’ internationalization. Findings show that entrepreneurs’ level of education is positive and significant related to firms’ internationalization, whereas entrepreneurs’ industry and start-up experience do not show any significant relations. This study confirms that the role of the entrepreneurs’ background is different between service and product firms’ internationalization. The results show that the entrepreneurs’ level of education is negative related to product firms, and positive to service firms’ internationalization. Interestingly, the role of the entrepreneurs’ industry and start-up experience do not show differences between product and service firms. The outcomes of the analysis show that there are no significant results for both product and service firms. This suggest that entrepreneurs’ experience have no impact on firms’ internationalization. Based on the results, we can conclude that educational background of the entrepreneurs are the only dimension in this study that affects firms’ internationalization. Educated entrepreneurs have a negative effect on product firms’ internationalization, but are positive for service firms’ internationalization.

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INTRODUCTION

Scholars are becoming increasingly interested in the international business field the last two decades. Part of this increasing interest in international business originates from a new evolving type of firm in the international market, the so called “born globals" (Jones, Coviello, & Tang, 2011; Kiss, Danis, & Cavusgil, 2012). Born globals are firms which are often small and start serving international markets soon after their establishment. Born globals are different in that they do not follow the traditional route of internationalization (Knight & Cavusgil, 1996). In the traditional route of internationalization do firms decide to export their products or services when they have established a strong domestic market base (Johanson, & Vahlne, 1977). The traditional route is an incremental process that goes step by step. This process follows the models that are most used in international business literature: the innovation and Uppsala model (Chetty & Hunt, 2004). These models state that traditional firms lack experiential knowledge and consider internationalization as risky (Johanson & Vahlne, 1977). Internationalization is becoming more important in the current global economy. According to Oviatt and McDougall (1997) is the increasing global scope of cultural homogeneity, social change, and firm strategy a reason for firms to internationalize soon after their establishment. Chetty and Hunt (2004) see fast changing industry and the internationalization of industry competition as the main triggers for the growth of born globals. The intense competition from imports in firms’ domestic markets forces the firms to obtain their businesses in global terms from the beginning (Oviatt & McDougall, 1995).

Born globals ability to internationalize soon after their establishment is determined by entrepreneurs’ personal characteristics and attitudes (Oviatt & McDougall, 2005; Westhead, Wright, & Ucbasaran, 2001). According to Andersson (2000) are the entrepreneurs the central factor for firms’ international behavior. The entrepreneurs develop skills over time through education and work experience, which create the vision and proactive competitive behavior which is crucial for early internationalizing firms (Knight & Cavusgil, 2004). Oviatt & McDougall (2005) state that entrepreneurs need to possess great experiential knowledge, education and entrepreneurial orientation to be able to accomplish the rapid internationalization of born globals.

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Service firms deal with a more risky internationalization process because they have more complex characteristics (Buckley, Pass, & Prescott, 1992), and are confronted with more difficult challenges during the process (Bianchi, 2011).

It is likely to believe that the differences in the internationalization process of product and service firms will be affect the role of the entrepreneurs in accomplishing firms’ internationalization. Surprisingly, current literature does not provide evidence if this assumption is correct. This gap in literature makes it interesting to test if the role of entrepreneurs are affected by the differences of product and service firms’ in their process to internationalize.

The goal of this study is therefore to discover if the role of entrepreneurs are just as important for product as service firms in accomplishing internationalization. To investigate this, we have to look at the characteristics of the entrepreneurs that are crucial in achieving internationalization. Several studies show that the entrepreneurs’ education and experience are the most important dimensions of entrepreneurs to accomplish internationalization (Knight & Cavusgil, 2004; Oviatt & McDougal, 2005). The role entrepreneurs’ level of education and experience will therefore have the focus in this study. In order to accomplish this study, we formulate hypotheses and test them by performing a binary regression analysis on a sample of 598 Dutch start-up firms.

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This study highlights the role of the entrepreneurs’ education in stimulating internationalization. The insights of this study are useful for the government in reconsidering their policy in stimulating entrepreneurship. Third, this study contributes to practice by showing what the role of the entrepreneurs’ background on both service and product firms’ internationalization are. This is useful for those that have the desire to start a firm that from the outset needs to internationalize, or useful for those that possess a product or service firm and want to accomplish internationalization. The outcomes of this study will show if the entrepreneurs’ background is a condition in accomplishing that. These findings can be used in determining or evaluate if those should start internationalize. Finally, this study contribute to practice by giving future entrepreneurs information about which dimensions of the entrepreneur are important in accomplishing internationalization. This study shows which level of education the entrepreneurs possess, how experienced they are and if this is useful in accomplishing internationalization. This gives individuals that have the desire to become an entrepreneur good examples of what entrepreneurs commonly possess.

The structure of this study is as follows. First, the literature behind this study will be discussed and followed by the hypotheses that will be tested in this study. Second, the methodology section is justified and explaining. Third, the results conducted from the binary regression analysis are presented. Fourth, the results will be discussed and the implications, limitations and possibilities for future research are explained. Fifth and finally, the conclusion of this study is presented.

THEORETICAL BACKGROUND AND HYPOTHESES

Within this section, the concepts behind this study are elaborated by means of an in-depth literature review. This section begins by explaining the underlying theory behind this study. Then, the dimensions of the entrepreneurs’ background will be discussed. Additionally, the characteristics of product and service firms are described and the difference displayed. Finally, in combination with the literature review are the hypotheses formulated and presented within this section.

Internationalization

Internationalization is the process through which a firm switches from operating only in its domestic market to international markets (Buckley & Casson, 1998; O’Farrel, Wood, & Zheng, 1998). Internationalization has gained much attention in literature the past decades, this led to the development of many definitions of the term internationalization. Johanson and Vahlne (1977) define internationalization as follow: “a process in which the firms gradually increase their international

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Beamish (1990) explains internationalization as follow: “the process by which firms both increase their

awareness of the direct and indirect influences of international transactions on their future, and establish and conduct transactions with other countries.” Welch and Luostarinen (1998) describe

internationalization more as a dynamic concept: “the process increasing involvement in international

operations, both sides of inward and outward should be involved in a broader concept of internationalization.”

To sum the definition of internationalization up, it includes: (1) a process that includes many incremental decisions, (2) it involves outward and inward products, services or resources that are transferred across national borders, and (3) it is influenced by a series of factors that come from the firm’s environment. The term internationalization is generally acknowledged by literature as a process in which firms gradually increase their international involvement, or so to say increases the firms’ business activities outside their national borders.

Traditional perspective of internationalization

The traditional perspective of internationalization is according to international business literature explained by the model of Johanson and Vahlne (1977). The model of Johanson and Vahlne (1977), the Uppsala model, explains that traditional firms internationalize slow and desire to reduce risks and increase growth simultaneous. The traditional process to export occurs in incremental stages and starts when the firm has a strong domestic base (Johanson & Vahlne, 1977).

Born global theory

This study does not follow the traditional theory of internationalization developed by Johanson and Vahlne (1977). Today’s firms seek to internationalize soon after their establishment and do not follow the traditional route (Knight & Cavusgil, 1996). The traditional theory of Johanson and Vahlne (1997) is no longer seen as adequate for explaining the nowadays rapid internationalization of firms (Meyn, 2009). In this study is the theory of born globals followed. The theory of born globals is focused on young firms that from inception, seek to derive significant competitive advantage by using their resources, and trade their outputs in multiple countries (Oviatt & McDougall, 1994).

Although the term born global is less precise than international new ventures, the terminology born globals is most used and known in international business literature (Pereira, 2015). Rennie (1993) was the first that developed the concept of born globals. In the study of Rennie (1993) on early internationalizing firms are born globals defined as: “flexible, close to the customers and able to adapt the changing needs

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The studies that followed about born globals showed a more advanced definition. Oviatt and McDougall (1994) define born globals as: “a business organization that, from inception, seek to derive significant

competitive advantage from the use of resources and the sale of outputs in multiple countries.” Knight

and Cavusgil (1996) explain born globals as: “business organizations that, from or near their founding,

seek superior international business performance from the application of knowledge-based resources to the sale of outputs in multiple countries.” While many authors show different definitions, they agree that

the distinctive characteristics of born globals are their international origins and early internationalizing path (Pereira, 2015). Born globals are believed to internationalize within two or three years after their inception (Rennie, 1993; Coviello & Munro, 1997).

According to Knight and Cavusgil (1996) is the rise of born globals explainable by six factors. 1) The increased role of niche markets, 2) the advancements in process technology, 3) the advancements in communications technology, 4) quicker response time and flexibility, 5) more accessible means of internationalization and, 6) better global networks. Madsen and Servais (1996) agree with Knight and Cavusgil (1996) and explain the rise of born globals by the changing market conditions, the advancements in technology, and the increasing abilities of human resources during the past decades. The increase of niche markets and specialized firms forces firms to sell their product or service worldwide, simply because the domestic demand is too small, even in large countries. Advancements in technology reduce the barriers of internationalization. Transportation becomes more frequent, reliable and cheaper than ever before, which lowers the costs of exporting abroad. Improvements in communication technologies give firms the opportunity to gather more market information and offer services and products on a low cost level. The number of people that have international experience has increased the last decades. This movement across nations, languages and cultures creates a much higher number of potential employees with competences to operate and understand foreign cultures. The development of born globals is according to Madsen and Servais (1997) especially influenced by the past experience and present competences of the founder.

Entrepreneurial characteristics

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Managerial vision and a proactive competitive behavior are features that depend on the entrepreneurs’ education and previous experience, and are crucial for early internationalizing firms, which are young, with limited tangible assets and chase new opportunities in uncertain risky and complex markets (Knight & Cavusgil, 2004). Rapid internationalization of firms largely depend on entrepreneurs’ characteristics and attitudes (Oviatt & McDougall, 2005). Entrepreneurs’ education and previous work experience contribute to the creation of unique and classified knowledge (Colombo & Grilli, 2005; Feeser & Willard, 1990). In this study is specifically chosen for the entrepreneurs’ experience and education because these dimensions are according to literature influential in achieving internationalization (Oviatt & McDougall, 2005).

Industry experience

Industry experience ranges from implicit knowledge of products, processes, and technology to specific human capital investment in relationships with specific customers, suppliers, or stakeholders (Cooper, Gimeno-Gascon, & Woo, 1994). Entrepreneurs’ industry experience allows firms to develop more appropriate market niches because the entrepreneurs are more familiar with the customer base locally, nationally, and internationally (Chandler, 1996). Entrepreneurs with expertise in a certain industry are more likely to have access to relevant and specific information (Brudel, Preisendorfer, & Ziegler, 1992; Landier & Thesmar, 2009). Working in the same industry gives the individuals knowledge related to pricing, cost structures, value chains and profitability’s of various markets and products (Brudel et al., 1992; Dimov, 2010). Industry experience gives the entrepreneurs awareness of trends and provides understanding of current developments in processes of production or service delivery (Delmar & Shane, 2006). The entrepreneurs with industry experience develop social ties with suppliers and distributors over time which are valuable in obtaining commitment and support from suppliers, distributors and customers (Delmar & Shane, 2006). The social ties can be used for gaining credit, develop sales or achieve other forms of cooperation. Colombo and Grilli (2005) show that experience in the same industry is positively associated with growth.

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Industry experience gives the entrepreneur the confidence to start a firm in the same industry because it has gained much knowledge about it (McDougall, Oviatt, & Shrader, 2003). This confidence makes it more likely for the entrepreneur to accept the risks that are associated with internationalization because it is not confronted with entering an unfamiliar market and internationalization simultaneously. We therefore state that an entrepreneur with industry experience is more likely to accept the risks that are associated with internationalization because it does not face the risks of entering an unfamiliar. Thus:

Hypothesis 1: Entrepreneurs with industry experience are more likely to internationalize than entrepreneurs that do not have industry experience.

Start-up experience

Previous start-up experience gives the entrepreneurs knowledge which is mostly tacit and commonly acquired by substantial investments of time in observing, studying, and making business decisions (Cooper et al., 1994). The entrepreneurs with experience in running or starting a business have the ability and knowledge to identify investors, advisors or partners that help the new firm to seize opportunities in domestic and international markets (Davidsson & Honig, 2003). The developed skills, competencies, and networks from previous business ownership influences entrepreneurs’ decision to enter export markets (Westhead et al., 2001). Entrepreneurial experience creates more effective evaluations, selections, and exploitations of future start-up opportunities, including those in an international context (Gruber, MacMillan, & Thompson, 2008). The character, motivation, and behavior of entrepreneurs that started one or multiple firms in the past differs significantly with those entrepreneurs that did not started firms in the past (Westhead & Wright, 1998). Owning multiple firms gives entrepreneurs more awareness of potential market opportunities and are more likely to possess businesses that export abroad (Birley & Westhead, 1993). Previous start-up experience makes entrepreneurs more aware of the possibilities and practices of exporting abroad (Westhead, 1995).

Findings in literature show that previous start-up experience develops capabilities that drive internationalization (Johanson & Vahlne, 1977; Zucchella, Palamara, & Denicolai, 2007). The capabilities that entrepreneurs acquire with previous start-up experience allows them to be more likely to recognizing business opportunities abroad and make better export decisions. Entrepreneurs with no start-up experience are less likely to possess these capabilities and are therefore to be less expected to internationalize. We therefore state:

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Education

Education is related to knowledge, skills, abilities, discipline, drive and confidence (Cooper et al., 1994). It helps individuals to develop the fundamental abilities to learn, which in turn, enhances their knowledge (Kungwansupaphan & Siengthai, 2014). The more educated the entrepreneurs are, the greater the codified and cognitive knowledge will be transferred to the new firm (Wiersema & Bantel, 1992). Firms managed by entrepreneurs with a high level of education (or many years of education) are more likely to last (Gimeno, Folta, Cooper, & Woo, 1997) and grow faster (Cooper et al., 1994; Westhead & Cowling, 1995). Educational background and foreign language skills are antecedes of attitudes towards export (Reid, 1981). Such factors are likely to lead to a decrease in costs of collecting, transmission, and interpretation of important information in which foreign entry decisions are taken (Cavusgil & Naor, 1987).

Better trained entrepreneurs increase legitimacy, favors the use of more advanced technology and enhances professionalism for entrepreneurial initiatives (Peng, 2001). The level of education is considered to be a key factor in internationalization choice (Javalgi & Todd, 2011), especially for start-ups that aim to internationalize soon after their establishment (Madsen & Servais, 1997; Oviatt & McDougall, 1997). It is stated that entrepreneurs with an university degree are usually more aware of the business opportunities in foreign markets (Westhead et al., 2001; McDougall, Shane, & Oviatt, 1994; Madsen & Servais, 1997). Education provides entrepreneurs with the necessary skills to reach out to foreign markets, such as free-thinking, flexibility, know-how in languages, and the capability to collect and analyze foreign market information and understand the expectation of foreign partners (Colovic & Lamotte, 2015). Kundu and Katz (2003) prove in their study that educated entrepreneurs are more “outward looking” and thus more willing to explore foreign markets. Thus, this shows that entrepreneurs with a higher level of education (or more years of education) are more likely to possess capabilities that are positive in achieving internationalization. We therefore state:

Hypothesis 3: Entrepreneurs with a higher level of education (university degree or many years of education) are more likely to internationalize than entrepreneurs with low level of education.

Firm type

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A service is “the production of an essentially intangible advantage, either in its own right or as a

significant element of a tangible product, which through some form of exchange, satisfies and identifies needs (Flodin & Jansson, 2012).” Intangibility refers to the fact that services, unlike products, do not

always contain of physical features which can be judged by consumers view, flavor, smell or touch (Buckley et al., 1992). Services are rather “experiences” that cannot be clearly assessed before consumption. The differences between products and services cannot be viewed as a simple black and white categorization (Buckley et al., 1992). In this section will be explained what the characteristics of both type of firms are.

Service firms

The interest on service firms’ internationalization has accelerated in literature the past decades (Blomstermo, Sharma, & Sallis, 2006). The improvements in technology, joined with the reductions in trade barriers have allowed services to move into global markets (Atuahene-Gima, 1995; Patterson & Cicic, 1995). Globalization created opportunities for services to operate worldwide (Hassan & Kaynak, 1994; Ekeledo & Sivakumar, 1998). International services differ from domestic services in that they cross borders and embrace a foreign culture (Clark & Rajaratnam, 1999). A service is defined by Kotler and Armstrong (1997) as: “any activity or benefit that one party can offer to another that is essentially

intangible and does not result in the ownership of anything.” Grönroos (1998) define services different

and explain it as: “an activity or series of activities with a more intangible nature than normally, but not

necessarily, take place in interactions between the customer and service employees and/or physical resources or goods and/or systems of the service provider, which are provided as solutions to customer problems.” Grönroos (1998) concludes that service firms do not have physical products and can therefore

only offer processes to their customers. These processes lead to outcomes that are important for customers and have an impact on their perceived quality and value (Grönroos, 1998). According to Flodin and Jansson (2012) is a service: “a process that consists of several activities where humans, information, and

tangible attributes are involved in customers’ consumption.” A service is produced and consumed

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Services possess some general characteristics. First, they are intangible in the sense that they cannot be touched, seen or physically transported but offer a performance or experience (Buckley et al., 1992). Second, services are inseparable. Inseparability reflects the simultaneous delivery and consumption of services and is believed to endow consumers to affect or form the performance and quality of the service (Parasuraman, Berry, & Zeithaml, 1985). Third, services are perishable, which means that services cannot be stored and carried forward to a future time period (Bessom & Jackson, 1975; Thomas 1978). Finally, services are heterogeneous which reflects the potential for high changeability in service delivery (Parasuraman et al., 1985).

Product firms

Products can be considered as embodying specialized knowledge in a way that is highly advantageous for promoting the division of labor (Smith, 1776; Demsetz, 1993). The System of National Accounts (1993) defines products as: “physical objects for which demand exists, over which ownership rights can be

established and whose ownership can be transferred from one institutional unit to another by engaging in transactions on markets.” Hill (1999) describes products as: “an entity that exists independently of its owner and preserves its identity through time.” Academics have generally accepted the attributes of

products. Ownership can be established, products are exchangeable, and they exist independently of their owner and are homogeneous (Parry, Newnes, & Huang, 2011).

Table 1 displays an overview of the characteristics found in literature about both product and service firms.

Table 1: Characteristics of product

and service firms

Services Products

Intangible Tangible

Heterogeneous Homogeneous

Inseparable Separable

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Role of entrepreneurs’ background

Entrepreneurs have a big influence on a firms’ process to internationalize (McDougall & Oviatt, 2000). Literature shows that the product and service firms differ in their process to internationalize and therefore needed to be treated differently. In this section will be further elaborated how this affects the relationship between the entrepreneurs’ background and firms’ internationalization.

Experience

The internationalization process for service firms are considered to be more risky in comparison with product firms. This is mainly due to the complex characteristics of services: intangibility, inseparability, heterogeneity, perishability and non-ownership (Buckley et al., 1992). The immaterial character of services makes the analysis of foreign markets more difficult (Lehmann, 2009). Products on the other hand, can be delivered, checked, decomposed, and its characteristics can be analyzed.

Services deal with intangibility, of which their origin is not public in most cases, and most frequently, subject to personal preference. The sale of services is based on trust and relies on experience, recommendations and references to succeed (Lehmann, 2009). Services are in close customers contact, which is labor intense and often even involves customers. Products, contrarily, can be standardized and manufactured from a central point without losing quality. Building relationships and creating trust with customers is seen as the core of the internationalization process (Jansson & Sandberg, 2008). Creating trust and confidence turns out to be more challenging for service firms than for product firms because the product of services cannot be demonstrated, tested or presented as it is possible with products (Lehmann, 2009).

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Hypothesis 4: Entrepreneurs’ industry experience is more important for service firms than for product

firms’ process to internationalize

Hypothesis 5: Entrepreneurs’ start-up experience is more important for service firms than for product

firms’ process to internationalize

Education

Education helps individuals to develop the fundamental abilities to learn, which in turn, enhances their knowledge (Kungwansupaphan & Siengthai, 2014). The role of teaching foreign languages is important for preparing potential entrepreneurs with an international mindset (Zucchella et al., 2007). To be able to communicate and create relationships in the foreign market, it is essential to speak the domestic language (Jansson & Sandberg, 2008). Understanding of foreign languages helps the creation of an international mindset and is a pre-requisite for people who want to develop business contacts abroad (Zucchella et al., 2007).

Developing business contacts and the ability to communicate with customers is especially important for service firms since their core is all about human interaction (Bianchi, 2011). This makes building relationships and communication essential for their success. Services are extracted in close contact with the customer and require high intercultural competences (Lehmann, 2009). Possessing language skills and intercultural competences is seen as a central precondition for the internationalization of service firms (Lehmann, 2009). Entrepreneurs with a more academic and professional education are associated to possess higher language skills (Knowles, Mughan, & Lloyd-Reason, 1994). We therefore state that educated entrepreneurs are expected to be more important for service firms’ internationalization because they possess more language skills and are therefore more likely overcome the challenges that “language-intensive” service firms face in their process to internationalize. Thus:

Hypothesis 6: Education of the entrepreneur is more important for service firms than product firms in their process to internationalize.

CONCEPTUAL MODEL

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Hypothesis four, five and six test the interaction effect of the entrepreneurs’ background with the firm type. All the independent variables are predicted to be positive related with the dependent variable. This study predicts that the role of the entrepreneurs’ background is more important for service firms than for product firms, indicating that the interaction effect with the firm type influences the relationship between the independent and dependent variable.

Figure 1. Conceptual model

METHODOLOGY

In this section will the used methodology discussed. This section starts with the data collection which will be followed by the explanation of the sample. Then the measurements of the variables are discussed and finally the analysis plan will be clarified.

Data collection

The data used for this study is collected among participants of the annual Accenture Innovation Award (AIA). This award is organized since 2007 and is currently seen as the largest innovation awards contest for SMEs in the Netherlands. The award is a platform and contest where Dutch firms can summit their innovation and show their concept to the public. Participants of the award are mainly SMEs, of which most of them are start-ups.

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The data of this study originates from the AIA of 2014 and 2015 which provides a total sample of 952 firms of which we are able to use 589 observations that provides all the required information.

The selected firms are start-ups that provide information about the geographic market (international or national), type of firm (product or service), level of education of the entrepreneur, and the experience of the entrepreneur (up experience and industry experience). This study specifically focuses on start-ups because this provides the best fit with the theoretical arguments derived from literature on born globals. Start-ups are just like born globals not older than three years.

Sample

The total sample of this study consist of 589 firms, the total sample is displayed in table 2 which can be found in the appendix. The sample used for this study shows that of the 589 firms selected, 326 (55,3%) of them operate international. Out of the 589 firms, 252 (42,8%) are service firms and the other 337 (57,2%) are product firms. The highest level of education in this sample is an entrepreneur with a PhD degree. Only 47 (8%) of the entrepreneurs have this degree. The largest group (318) of the entrepreneurs in this sample have a master degree from the university (54%). 49 of the entrepreneurs have a bachelor degree from the university (8,3%), 122 higher vocal education (20,7%), 25 intermediate vocational education (4,2%), 25 primary school (4,2%) and 3 entrepreneurs (0,5%) finished primary school. The data shows that 232 (39,4%) of the entrepreneurs have more than ten years industry experience, 161 (27,3%) more than three years, 118 (20,0%) less than three years and 78 (13,2%) of the entrepreneurs have no industry experience at all. 133 (22,6%) of the entrepreneurs have not started a firm in the past, 173 (29,4%) started one firm before, 120 (20,4%) started two firms in the past, 67 (11,4%) three firms, 25 (4,2%) four firms and 71 (12,1%) of the entrepreneurs started five or more firms in the past.

Measurement of variables

This part describes the used measurements for the dependent variable (internationalization), independent variables (level of education, start-up experience, and industry experience) and the moderator variable (type of firm) in this study.

Dependent variable. The dependent variable in this study is the internationalization of born-globals which is defined as internationalization in the conceptual model. The internationalization of these firms are measured by looking at the geographic market on which these firms sell or offer their product or service.

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In this study is the firm measured as operating international when the firm operates in other countries or in other European countries. Operating in the whole country and operating locally or regionally is measured as operating national. The dependent variable in this study is binary of nature, meaning that it only can have two values. In this case is operating international coded as 1 and operating national as 0.

Independent variable. The independent variables used in this study are: start-up experience, industry experience, and the level of education. These three independent variables will be further explained in this section.

Industry experience. The experience in the industry is measured as the number of years that the

entrepreneur has gained in the industry. An entrepreneur with more experience in the industry is more likely to deal with the challenges that the entrepreneurs face in their process to internationalize (Oviatt & McDougall, 1994; Grichnik et al., 2014). Industry experience is scaled from zero till three. 0 = no industry experience, 1 = entrepreneurs with less than three years of industry experience, 2 = entrepreneurs with more than three years of industry experience, and 3 = entrepreneurs with more than ten years of industry experience.

Start-up experience. The entrepreneur with previous experience in running or starting a business

will have the ability and knowledge to identify investors, advisors or partners that help the new firm to seize opportunities in domestic and international markets (Davidsson and Honig, 2003). This independent variable is measured by the number of firms that the entrepreneur has started in the past. The variable start-up experience is scaled from zero till five. 0 = no firms started in the past, 1 = one firm started in the past, 2 = two firms started in the past, 3 = three firms started in the past, 4 = four firms started in the past, and 5 = five or more firms started in the past.

Level of education. This independent variable is measured based on the level of education of the

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Moderator. The moderator variable in this study is the type of firm. In this study is assumed that the type of firm has a moderating effect on the relationship between the role of the entrepreneurs’ background and firms’ internationalization. The type of firm is in this study divided and measured as 0 = service firms and 1 = product firms.

Analysis plan

In this study is chosen to use a binary regression analysis to test the hypotheses formulated in this study. The binary regression analysis is appropriate to conduct because the dependent variable in this study is binary of nature. The binary logistic regression analysis is used to describe data and explain the relationship between one dependent binary variable and one or more ordinal, nominal or, interval variables (Cox, 1958). The difference between the binary logistic regression and the linear regression is that in linear regression, the dependent variable is continuous and entirely observable, while in binary linear regression, the dependent variable is binary and coded as 0 and 1. The linear regression should not be used for models where the dependent variables is binary, because the expected values may be out of [0,1], which is excluded with the binary variable. As the dependent variable in this study is binary of nature, it fits better to use the binary linear regression analysis than the linear regression.

RESULTS

This section presents the results of the study. First, the descriptive statistics and the correlations are displayed and discussed and secondly the results conducted from the binary regression analysis are presented and clarified.

Descriptive analysis and correlations

Table 3 on the next page shows the descriptive statistics, showing the mean, standard deviation and the correlations of the variables in this study.

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Most firms of this sample operate international (mean = 0.55, ranging from 0 = operating national to 1 = operating international) and more than half of the firms are product firms (mean = 0.57, ranging from 0 = service firms to 1 = product firms).

The correlation matrix shows that three of the ten variables are significant correlated with each other. Education is correlated with industry experience (R = .155, p<.01), the type of firm with education (R = .154, p<.01), and industry experience with start-up experience (R = .127, p<01). When we analyze the correlation, it is important to check whether the results show no signs of multicollinearity. Multicollinearity exists when two or more of the independent variables in the models are highly correlated. This will lead to difficulties in determining effects of explanatory variables of interest on the dependent variable (Carter, Griffith, & Lim, 2008). To state that this study has no sign of multicollinearity, we have to check whether the correlation coefficients is larger than 0.7 or smaller than -0.7 (Dikova, Rao Sahib, & Witteloostuijn, 2010). Table 3 illustrates that all the correlation coefficients are well below 0.7 or above -0.7, which means that we can exclude multicollinearity.

To be completely sure that multicollinearity is no risk in this study, we can also have to check whether the variables do not have unacceptably high Variance Inflation Factors (VIF). Not uncommonly a VIF of 10 or even one as low as 4 have been used as rules of thumb to indicate excessive or serious multi-collinearity (O’Brien, 2007). Table 3 shows that the highest VIF value in this study is education with a VIF of 1,036 which is beneath the limit of 4. We can therefore exclude that this sample has the potential issue for multicollinearity.

Table 3

Descriptive analysis and correlation

Variables Mean S.D. VIF 1 2 3 4 5

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Regression results

Table 4 presents the results of the binary regression analysis performed for hypotheses testing. Model 1 till 3 show results of the relationship between the independent variable and the dependent variable separately. In model 4 are all the three independent variables tested together to test if the results show significantly different results. In model 5 is the moderator added to the test. In model 6, 7 and 8 are all the main effects of the independent variables on the dependent variables included in the test to see whether it affects the results of the interaction effect. In model 9 are all the possible variables included and tested together.

To choose the right model in testing the hypotheses, we have to choose the model that fits best with the data. This is measured by using the log likelihood and the Nagelkerke R square. The log likelihood value is measured in this regression with the value of -2 times the log of the likelihood value, in which the minimum value of 0 relates to a perfect fit. Thus, the lower the value of the likelihood, the better the fit. The Nagelkerke R square reflects the amount of variation in the regression, indicating that a score of 1.0 relates to a perfect model fit. Table 4 shows that model 9 has the best fit concerning the likelihood value and Nagelkerke’s R square. Model 9 has the lowest log likelihood (798,724) and the closest Nagelkerke R square score to 1 (0.025). This shows that model 9 fits best with the data, and will therefore be used in testing the hypotheses.

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22 Standard errors in parentheses

*p<0.10, **p<0.05, *** p<0.01

Table 4

Binary regression results

Model 1 Model 2 Model 3 Model 4 Model 5 Model 6 Model 7 Model 8 Model 9

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DISCUSSION

Hypotheses 1 and 2 tested whether industry and start-up experience of the entrepreneurs are important in achieving firms’ internationalization. Existing literature states that entrepreneurs with industry or start-up experience are more likely to influence firms’ internationalization than entrepreneurs with no experience. Having more years of experience in the industry makes entrepreneurs more likely to have more innovative ideas for new products, services, or processes (Saunders, Gray, & Goregaokar, 2014). It gives the entrepreneurs relevant and specific information in a certain industry (Brudel et al., 1992; Landier & Thesmar, 2009) and knowledge about industry trends (Delmar & Shane, 2006). Similarly, start-up experience is understood as important for creating a successful new venture (Unger, Rauch, & Frese, 2011). Previous start-up experience provides the entrepreneur with abilities of dealing with challenges (Bar-Hillel, 1983; Hayward, Shepherd, & Griffin, 2006), creating a cognitive framework to recognize opportunities (Baron & Ensley, 2006; Gruber et al., 2008) and being more aware of spotting risks (Brown, Kane & Long, 1989). Despite arguments provided in literature that both industry and start-up experience stimulate internationalization, this is not supported by this study.

In combination with earlier studies, these findings suggest that these specific types of experience are beneficial for firms’ success (Colombo & Grilli, 2005; Cooper et al., 1994), but are less effective for firms’ internationalization. However, it might be that other types of experience tend to be more relevant in this context. For example, previous research suggest that international work experience among top managers was strong related with internationalization of new high-potential ventures (Bloodgood, Sapienza, & Almeida, 1996). Firms with entrepreneurs that lived abroad or prior work experience in international markets have exhibit speedier entry and/or commitment to internationalization (Bloodgood et al., 1996; Reuber & Fischer, 1997; Shrader, Oviatt, & McDougall, 2000). Characteristics that have been found to predict propensity for success in exporting are the number of languages spoken by the entrepreneurs, if the top decision maker was born abroad, lived abroad or worked abroad (Miesenbock, 1988; Reid, 1983). This indicates that previous experience can be beneficial for firms’ internationalization, when the entrepreneurs has gained it from abroad.

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We can acknowledge that entrepreneurs with a higher level of education are more able to export to potential markets (Zucchella et al., 2007) and develop necessary cognitive skills that make them able to better evaluate the opportunities that arise abroad (Schultz, 1959).

Hypothesis 4 and hypothesis 5 tested whether the role of the entrepreneurs’ industry experience and start-up experience are more important for service firms than for product firms. Unfortunately, hypotheses 4 and 5 did not show significant results. This is surprising because previous studies argue that the role of entrepreneurs’ experience is more important for service firms because they deal with more complexities than product firms in their process to internationalize (Buckley et al., 1992). Despite that firms differ in nature and characteristics, it does not impact the role of the entrepreneurs’ experience on firms’ internationalization. This can be explained by the same reasons as mentioned at hypothesis 1 and 2. Entrepreneurs’ experience may be beneficial for firms’ success (Colombo & Grilli, 2005; Cooper et al., 1994), but are less effective in achieving firms’ internationalization. Despite that the results did not show any significant results, we can conclude that industry experience and start-up experience of the entrepreneurs play no role in accomplishing internationalization.

The final hypothesis, hypothesis 6 tested if entrepreneurs’ level of education was more important for service firms than for product firms in their process to internationalization. The results show to be significant and negative related to product firms’ internationalization. This finding is in alignment with previous study that argue that educated entrepreneurs have more language skills (Knowles, Mughan, & Lloyd-Reason, 1994) and are more important for service firms because they are “language intensive” and rely more on the language skills of the entrepreneur (Lehmann, 2009).

Theoretical implications

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Practical implications

The findings of this study show that the role of the entrepreneurs’ background is limited in achieving firms’ internationalization. Despite the limited role of entrepreneurs, the results show that entrepreneurs’ level of education are positively related to service firms’ internationalization. This outcome is useful for those that have the desire to start service firms that are focused on a niche or specialized market. This is valuable for them because they are forced to internationalize soon, simply because the domestic demand is too small (Madsen & Servais, 1996). This study contributes to practice by showing that those that have the desire to start service firms and operate international from the outset, will be more likely to accomplish that when they are highly educated.

The findings of this study contribute to practice by showing that being familiar with the market via industry experience does not influence or stimulate accomplishing internationalization. Previous studies argued that when entrepreneurs are not confronted with entering an unfamiliar market and internationalization simultaneous, they will be more likely to internationalize (McDougall et al., 2003). This study shows and contribute to practice by showing that industry experience and start-up experience may be beneficial for becoming familiar with entering the market, but is not a condition for achieving internationalization. This insight is useful for entrepreneurs that have the desire to internationalize but fear the risk of being confronted with entering an unfamiliar market and internationalization simultaneously.

This study contributes to practice by showing that the entrepreneurs’ background has no or a significant negative effect on product firms’ internationalization. This is useful for those that have the ambition to start product firms and want to accomplish internationalization soon after their establishment. The findings show that being educated or having start-up or industry experience as an entrepreneur is not important in accomplishing internationalization with product firms. The insights of this study show that those that want to start a product firm and want to internationalize soon do not have to emphasize on developing a high level of education or experience to achieve that.

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The results of this study are also useful for the Dutch government. The findings of this study show that education is an important condition for firms’ internationalization. The Dutch government has the ambition to stay the most competitive economy of the world, in which the role of entrepreneurship is crucial in accomplishing that (Ministry of Economics, 2016). The government can help and stimulate entrepreneurship by making high level of education more accessible for persons who have the ambition to start a business in the future. The government stopped supporting students financially when they study and introduces a new loan systems in 2015. This change led to a decrease of 6,8% of people that follow a higher level of education (Ministry of Education, Culture, & Science, 2015). Having less educated persons in the country could eventually lead to less entrepreneurs. This can help the government in reconsidering their policy regarding stimulating entrepreneurship.

The results are useful for potential future entrepreneurs. It gives useful insights about which backgrounds are useful in starting a firm or stimulating internationalization. The data and results in this study show that many entrepreneurs have much experience and a high level of education, which indicates that this is important in starting a firm. This can be an useful insights for those that have the ambition to start a firm in the future. The findings also show that the role of the entrepreneurs’ background is only important in achieving internationalization for service firms. This shows what for characteristics or dimensions are useful to possess when starting a product or service firm.

Limitations

As anticipated, this study also has important limitations. The first limitation is that the collected data was obtained from only Dutch firms with a Dutch entrepreneur. The Netherlands is seen as one of the highest educated countries of the world, a third of Dutch 25-64 years olds hold a university degree, which is significantly higher than the OECD average of 24% (Schwab, 2016). This can clarify why the level of education of the entrepreneurs used in this study is between a bachelor and a master degree received from the university. That the data is only conducted from Dutch firms affects generalizability. The level of education of Dutch entrepreneurs is more likely to be higher than the level of education from countries of which the average is beneath the world average. This is therefore a limitation because the data used for this study is not generalizable. Testing this with data from different countries would increase the generalizability of the findings.

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This is a limitation because this information could answer the role of the entrepreneurs’ experience on firms’ internationalization more explicitly and could contribute to the findings in this study.

The third limitation in this study is about the measurements of the data. The sample showed that some firms had more than one entrepreneur which makes it unclear how the entrepreneurs’ level of education, industry experience, and start-up experience is measured. This is a limitation because it can affect the reliability of this study. If the experience of the entrepreneurs are combined, or the highest level of education of one entrepreneur is used, it means that the data concerning some firms are incorrect. This can affect the reliability of the results.

The final limitation of this study is that this study does not emphasizes much attention to the internationalization process of product and service firms. More emphasize on the exact process of internationalization of specifically product and service firms would give the reader more clarification of how these type of firms exactly differ in their process to internationalize. Unfortunately, due to time and lack of evidence in literature did this study not show much elaboration on this section. This is a limitation because it would make it easier to understand and increase the reliability of this study.

Future research

The limitations and results of this study give possibilities for scholars to do future research. First opportunity for future research is to test this study with data from several countries. The results from this study are based on firms from the Netherlands which makes the findings less generalizable. Testing the results with data of start-up firms from several countries would create the possibility to see whether the results differ, which could lead to interesting findings. The results of a study with data from different countries could lead to interesting new findings which can be useful for literature. This is therefore an interesting to investigate in the future.

Second, it is interesting for future research to test whether the experience of the entrepreneur shows to impact firms’ internationalization when the entrepreneurs’ experience is gained from abroad. Literature states that especially experience from abroad is influential for firms’ internationalization (Bloodgood et al., 1996; Reuber & Fischer, 1997; Shrader et al., 2000). Current literature does not provide much empirical evidence if experience from abroad is positive in achieving firms’ internationalization. Investigating this empirically would be therefore valuable for literature.

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The motivation behind the decision of entrepreneurs to internationalization could lead to interesting findings which can be useful for literature.

Fourth possibility for future research is to investigate what influences product firms’ internationalization. This study shows that the entrepreneurs’ education and experience is not influential for product firms’ internationalization which makes it interesting to investigate what has influence on product firms’ internationalization. The focus of literature has been mainly on service firms the past decades which makes it interesting to see how product firms’ internationalization is affected. This lack of literature is an opportunity for future research.

Final opportunity for future research is to elaborate further on the education of the entrepreneur. Some literature imply that higher formal education leads to negative results (Stuart & Abetti, 1990) and that entrepreneurs with less education may be more willing to take risks, or think more practical. A lot of studies show that education, and especially high level of education, is important for firms’ performance and firms’ internationalization, but do not explain it specifically. This can be an interesting study for the future to give more insights in the exact benefits of education.

CONCLUSION

Current literature shows that the role of the entrepreneurs’ background is important in firms process to internationalize (Knight & Cavusgil, 2004; McDougall & Oviatt, 2000), especially for young and rapid changing firms, the so called born globals. In these young and rapid internationalizing firms are the individuals or entrepreneurs vital in firms’ development. Key characteristics of the entrepreneurs in the process of a firm’s internationalization are considered to be the entrepreneurs’ education and previous experience (Knight & Cavusgil, 2004). The process to internationalize is different for product firms and service firms due to their characteristics (Helfat et al., 2007; Buckley et al., 1992). This study shows that education is positively related to firms’ internationalization and that entrepreneurs’ experience, surprisingly does not show a relationship with firms’ internationalization. These findings contradict with literature, which state that both experience and education of the entrepreneurs are positive related to firms’ internationalization (Knight & Cavusgil, 2004). The moderating role of firm type, being a product firm or service firm in the process to internationalization, shows only to have a significant positive effect with entrepreneurs’ level of education. The results of this study display that the level of education is negative related to product firms’ internationalization, suggesting that this dimension of entrepreneurs are more important for service firms.

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