Faculty of Economics and Business
T
T
h
h
e
e
I
I
n
n
t
t
e
e
r
r
n
n
a
a
t
t
i
i
o
o
n
n
a
a
l
l
i
i
z
z
a
a
t
t
i
i
o
o
n
n
P
P
r
r
o
o
c
c
e
e
s
s
s
s
o
o
f
f
N
N
e
e
w
w
V
V
e
e
n
n
t
t
u
u
r
r
e
e
s
s
:
:
T
T
h
h
e
e
C
C
a
a
s
s
e
e
o
o
f
f
B
B
u
u
l
l
g
g
a
a
r
r
i
i
a
a
n
n
F
F
i
i
r
r
m
m
s
s
.
.
Name: Veselina Tombakova Student Number: S2159481
Supervisors: Mr. Drs. Henk A. Ritsema and Dr. Andreea Kiss Referent Supervisor: Dr. Gjalt de Jong
2
Contents
List of Figures………. 4 List of Tables……….. 4 Abstract……….. 5 Introduction………. 6Statement of the Purpose of the Research………... 7
General Research Question………. 8
Specific Research Questions………... 8
Background and Context of the Research……….. 8
Theoretical Background………. 10 Speed of Internationalization……….. 10 Technology………. 12 Competition……… 13 Knowledge………. 15 Network Relationships……… 16 Entrepreneurial Actors……… 17 Institutional Environment………... 18 Method……… 20
Sample and Data Collection………... 21
Case Profiles………... 23
Company 1……… 24
Company 2……… 25
Company 3……… 26
Coding and Analysis………... 28
3 Technology………. 29 Competition……… 30 Knowledge……….. 31 Network Relationships……… 31 International Environment………..…… 32 Experience……….. 34 Discussion……….. 35 Technology………. 35 Competition………... 36 Knowledge………. 36 Network Relationships……… 37 Entrepreneurial Actors……… 37 Institutional Environment………... 38 Experience……….. 38
The New Model……….. 40
Conclusion……….. 41
Implications, Limitations and Future Direction……….. 42
Implications……… 42
Limitations and Future Directions……….. 43
Reference……… 45
Appendix A……… 53
4
List of Figures
Figure 1: The Model of Forces Influencing Internationalization Speed... 1 Figure 2: The Model of Forces Influencing Internationalization Speed of Bulgarian NVs... 2
List of Tables
5
Abstract
6
Introduction
The 21st century has been marked as an era of significant change and unprecedented development. The remarkable phenomenon of globalization has offered boundless opportunities to the World by successfully combining financial liberalization, reduction of barriers for trade and migration, and constantly evolving the process of innovation. Thereupon, an increasing number of companies have been turning their attention towards the international stage.
Throughout the years, a significant amount of business literature and research has been devoted to the study of firm internationalization. The original focus has been placed on the examination of large and mature multinational enterprises (MNEs), which have been said to have undergone specific stages of evolution before expanding into foreign markets (Oviatt & McDougall, 1994). It is not until recently that the “newly emerging research arena” (Oviatt & McDougall, 2005, p. 538) of international entrepreneurship (IE) brought the growing phenomenon of international new ventures (INVs) (Oviatt & McDougall, 1994) to our attention. According to Coviello (2006, p. 713), the latter is considered “`different` from conception because from, or near, founding they have a global focus and commit resources to international activities.” This definition seems to contradict some of the prior theoretical propositions, since these types of organizations do not gradually develop their businesses abroad (Andersson, 2004). Instead, these ventures follow a proactive strategy and despite their smaller size, limited history and lack of resources, they manage to overcome the liability of foreignness and to exploit their competitive advantage (Fernhaber, et al., 2008).
7
in these economies thus providing a relatively natural setting for testing and developing theories (Manev & Manolova, 2012; Meyer & Peng, 2005). Furthermore, transition economies represent an extremely peculiar case due to their vital reliance on local NVs for domestic development and growth, and for competing on the international stage (Kiss & Danis, 2010). As previously noted, this phenomenon has attracted active academic attention in the past few years. However, while some countries such as China, Russia, Poland and Taiwan have been examined well many others have remained highly neglected (Manev & Manolova, 2012; Kiss, et al., 2012). In their paper, Manev and Manolova (2010) criticize this trend by highlighting the considerable heterogeneity that could be observed not only between the entrepreneurial development of transitional and advanced market economies, but also among transitional economies themselves. These differences stem from the country specific “historical experiences, institutional heritage, norms, or cultural values” (Manev & Manolova, 2012, p. 72) and are responsible for the variety of institutional foundations on which entrepreneurial strategies are built (Manev & Manolova, 2012).
The rich entrepreneurial picture sketched before our eyes by transitional economies provides us with a variety of opportunities for further academic research. It allows us to test and explore whether theories established mostly for developed countries would hold under more peculiar circumstances, such as those visible at transitional economies. Moreover, we have recently witnessed the even more compelling cases of countries, such as Bulgaria, which managed to meet the criteria for membership and successfully joined the European Union (EU) in 2007 despite the unstable political and economical environment. The sensible progress of such countries calls for further examination of the evolution of their entrepreneurial track. In particular, it would be interesting to investigate what factors have been determining the speed of internationalization of their NVs in the presence of gradual liberalization of trade.
Statement of the Purpose of the Research
The current paper will try and address the present gap in academic literature by conducting a research on the forces which influence the speed of internationalization of NVs in a transitional economy, namely, Bulgaria. In order to accomplish a deeper and more thorough analysis, this study will focus on SMEs which fit in the profile of INVs.
8
both, a transitional economy and a new member of the EU, which makes its case even more appealing. Second, due to the former economic and political circumstances in the country, the INVs phenomenon is relatively new and there is a lack of deep and comprehensive academic research dedicated to it. Given the significant role of SMEs on Bulgarian economy, this paper also tends to expand literature by examining their internationalization process.
General Research Question
→ What forces determine the speed of internationalization of Bulgarian NVs?
Specific Research Question
→ What motivates Bulgarian entrepreneurs to expand their businesses abroad?
→ What role does technology play on the speed of internationalization of Bulgarian NVs? → What role does competition play on the speed of internationalization of Bulgarian NVs? → What role does knowledge play on the speed of internationalization of Bulgarian NVs? → What roles do network relationships play on the speed of internationalization of Bulgarian
NVs?
→ What role does the institutional environment play on the speed of internationalization of Bulgarian NVs?
Background and Context of the Research
9
In terms of internationalization, the Bulgarian Small and Medium Enterprises Promotion Agency (BSMEPA) (2012) reports that in 2011, most of the Bulgarian enterprises had a low level of internationalization (78 per cent) and only 4 per cent had a high level (expressed through the Internationalization Index). During the last decade, these unsatisfactory figures have led to an active intervention by politicians. Recently, in an interview for the Wall Street Journal`s “Business of Celebrity” show, the president of Bulgaria, Rosen Plevneliev, talked about the 2013 business plan of the country. The main focus of the discussion was placed on the strategies for attracting foreign investors to invest in the country. These strategies (e.g. a 10% corporate income tax rate; a 5% withholding tax on dividends and liquidation quotas; quick amortization for computers and new manufacturing equipment; etc.) in combination with the good location, the political and business stability, the access to markets and the adequate human resources, have built a positive image of the country as a desirable destination, providing good business climate. In turn, in the past few years, this newly created association of Bulgaria as an attractive investment location has brought strong attention towards the country`s inward internationalization. However, this is not the case with its outward orientation. In particular, the topic related to the internationalization process of Bulgarian small and new ventures has been highly underestimated and neglected.
10
have chosen to expand their businesses abroad. Even more striking are the low levels of research dedicated to this matter, considering the increasingly important role of SMEs to the Bulgarian economy. Most of the studies examining these enterprises have been conducted long before the country joined the EU and thus, they are outdated (see for example (Pissarides, et al., 2003; Manoilova, 2006). On the other hand, some of the more recent publications are either revising prior articles or partially upgrading them (see for instance (Manev & Manolova, 2012; Todorov & Kolarov, 2008). In any case, it is worth investigating the internationalization process of Bulgarian SMEs, in order to fully understand why so few of them have chosen to expand their businesses abroad despite the growing number of strategies for promoting this process.
The present thesis is organized as follows: The next section lays down the theoretical foundation of the current study. Section three introduces the reader to the method and research process used in the thesis, and further presents a brief overview of the three investigated cases. Afterwards, sections four and five demonstrate the results of the research and provide relevant discussion. The remaining two sections conclude and indicate the implications, limitations and the future direction.
Theoretical Background
Speed of Internationalization
11
internationalization the latter may include the speed at which ventures extend their geographical scope (Oviatt & McDougall, 2005); the speed of product line diversification (Chang, 2007); the pace with which a company starts engaging into more binding and risky forms of foreign activities (Jones & Coviello, 2005), etc.
As highlighted by Ramos et al. (2011), the rise of this rapid and opportunistic pattern of internationalization has disrupted the widespread notion of gradual foreign expansion, and has provoked an increasing number of scholars to question the factors which affect this specific behaviour. However, in the same manner as with the overall academic literature dedicated to the internationalization process of emerging-market companies, the topic of the forces influencing the speed of internationalization of these ventures has been highly overlooked. One of the few papers dealing with this issue is the work of Kiss et al. (2012), which indicates that the factors associated with accelerated internationalization seem to be similar in both transition and advanced economies. Moreover, ventures situated in countries with lower levels of institutional development are said to imitate the rapid internationalization patterns of more developed countries (Kiss & Danis, 2008). Nonetheless, further insight into the theory raises the question of whether the previous two statements comply with the heterogeneity of countries and in particular, with transitional economies. The last subject-matter represents an intriguing research arena for those who would like to examine IE in different institutional settings.
12
The following sub-sections will introduce the reader to the academic literature devoted to these forces, while the main focus will be placed on the moderating, motivating and enabling forces. Special attention will be paid to the papers examining companies in emerging economies. Moreover, in the recent years, scholars have been emphasizing the significant role of the institutional context for the internationalization process of NVs. Thus, the current paper will further contribute to the development of this topic by expanding Oviatt and McDougall`s model (2005) through examining how the institutional environment in Bulgaria influences the pace of internationalization of NVs in the country.
Technology
The past few decades have been marked as years of rapid change and significant technological progress. Advances in transportation, communication and digital technology have played a tremendous role in the foundation, development and internationalization of NVs (Oviatt & McDougall, 1999; Oviatt & McDougall, 2005). However, despite the widespread contribution of technology to business progress, academic literature has notably overlooked the impact of this factor. While some of the few existing studies have considered the IE phenomenon within high-technology industries, the influence of technology itself on IE has been strongly neglected (Kiss, et al., 2012).
Nevertheless, among scholars, there are some who have chosen to contribute to the development of this topic. A good example is the work of Hessels (2008) which indicates that technological advancements facilitate SMEs in finding and accessing valuable information,
13
regarding foreign markets and clients, and in communicating with foreign partners. Kiss et al. (2012) further point that these developments provided entrance to international markets, which were previously not accessible. Moreover, Reynolds (1997) suggests that technological improvements and institutional harmonization facilitate economic agreements by lowering the costs and risks associated with them.
Two specific sub-topics which are more frequently observed in the academia are related to the influence of the Internet and transportation costs on the internationalization process of companies. In terms of the former, Knight & Cavusgil (2004) indicate that such instruments make internationalization more feasible and cost-effective. Arenius et al. (2006) further propose that Internet is associated with higher international intensity and global diversity of knowledge intensive companies, and that it leads to faster internationalization. Additionally, Reuber & Fischer (2011) point at three internet-related resources which are said to promote the persecution of opportunities abroad, namely online reputation, online technological capabilities and online brand communities. As for transport costs, literature has presented rather conflict viewpoints. For instance, while Oviatt and McDougall (2005) have suggested that the internationalization process of NVs has been strongly facilitated by the insignificant level of transportation costs, Naude & Matthee (2011) have highlighted that these costs continue to exert a considerable obstacle.
In terms of the effect of technology advances in emerging economies, there is surprisingly little research. One of the few more common discussions on this topic is related to the gap which exists between these markets and developed economies. For instance, Hitt et al. (2000) indicate that companies in emerging economies may not possess adequate information hardware and software in order to compete with their developed opponents. On the other hand, Kiss et al. (2012) present to their readers the example of leapfrogging which is increasingly common among some emerging economies.
Competition
14
According to Wiersema & Bowen (2007), the level of foreign competition in the domestic market of a firm could positively influence the degree and scope of its international diversification. The scholars indicate that this impact operates on two levels. First, foreign competition is said to encourage domestic companies to become more competitive in order to respond adequately to the challenges introduced by the newcomers (Wiersema & Bowen, 2007). Second, the higher levels of competitiveness attributed to the clash with foreign rivals at the domestic market may further motivate local firms to expand their businesses abroad (Wiersema & Bowen, 2007). In a similar line of thoughts but focusing particularly on emerging economies, Yamakawa et al. (2008) propose that some NVs in such markets are motivated to internationalize towards developed economies as a result of the high levels of competition in local industries.
15
Knowledge
The importance of knowledge and the efficiency by which it is learned have been well emphasized in academic literature and research (Autio, et al., 2000; Baron & Ensley, 2006). They are considered to have a significant influence on international growth and thus, in order for firms to compete and prosper in unfamiliar international markets, they need to recognize, share and acquire new knowledge (Autio, et al., 2000).
Autio et al. (2000: 2000) define a company`s knowledge as “its capacity to apprehend and use relationships among critical factors in such a way as to achieve intended ends.” In the academia, knowledge has been compared to a rare renewable resource which is a subject to further development due to its exponential innovative potential (Otcenaskova, et al., 2012). With regards to the knowledge block introduced in the model of Oviatt and McDougall (2005), the scholars address both market knowledge and knowledge intensity. The former is said to assist internationalization through reinforcing the abilities to discover opportunities on the foreign stage (Johanson & Vahlne, 1990; Autio, et al., 2000; Oviatt & McDougall, 2005). When considering the latter, it has been noted that more knowledge-intensive companies are better able to develop learning capabilities needed for adaptation in the new environment and also that the level with which they associate costs of foreign opportunities is much lower (Autio, et al., 2000). In summary, both market knowledge and knowledge intensity are associated with higher speed of internationalization.
16
grow. Common in these countries is the acquisition of knowledge through consultants and trainers, business and social ties, the Internet, etc. (Danis & Shipilov, 2012).
Network Relationships
Facing unstable, unpredictable and often hostile institutional environments, entrepreneurs in emerging markets often rely on their personal and business contacts in order to survive and prosper. These networks provide stability during the engagement in business activities and compensate for the lack of adequate resources and infrastructures in the initial stages of NVs` development (De Clercq, et al., 2010). They lead to a higher probability of external financing for entrepreneurs (Manolova, et al., 2006) and provide vision, knowledge and information, which improve ventures’ performance (Manolova, et al., 2007). In their paper, Ahlstrom and Bruton (2006) point that through the interconnection of people in networks and alliances, individuals manage to overcome the inefficiency of information dispersion and the pressure resulting from the high levels of corruption. In transition markets, in particular, entrepreneurs without connections to banks and state bureaucrats are said to face much higher entry barriers and are more likely to fail (Aidis, et al., 2008; Tonoyan, et al., 2010). In order to highlight the strength of informal networks in former socialist countries, Aidis et al. (2008) provide an appropriate example of Russia, where having an ex-communist father increases the probability of becoming an entrepreneur. On the other hand, Puffer and McCarthy (2001) indicate the weakness and paucity of Eastern European business ties, along with the low levels of commitment, trust and network knowledge among their participants (Aidis, et al., 2008).
17
Another attractive viewpoint which could be found in the academic literature is related to the negative effect of such relationships. According to Ellis (2011), entrepreneurs in emerging economies might be disadvantaged in terms of using personal ties for encouraging international activities. The reasoning behind this is that prior political circumstances have limited the exposure of managers to international stages and thus, their social networks have remained mainly domestic (Ellis, 2011). Musteen et al. (2010) also point that companies which are too dependent on their personal ties may become isolated from valuable information sources. The latter scholars do not find the speed of internationalization to be positively associated with greater proportion of strong personal connections, explaining this by highlighting the more beneficial impact of weak ties for the identification of international opportunities. In relation to this, Kiss and Danis (2008, 2010) reveal that in countries with low institutional development, both strong and weak ties assist the speed of internationalization, but the strength of their impacts depends on the stage of institutional development of the country. In other words, as transition progresses, strong national connections, which are considered to be essential during the initial phase of development of ventures, may become less important in comparison with weak international ties (Kiss & Danis, 2008; Kiss & Danis, 2010).
Before moving onward, it is worth pointing that by focusing primarily on the role of social ties for the development and growth of ventures scholars have overlooked the importance of inter-firm networks on the international expansion of NVs in emerging markets. One of the few papers addressing this matter, the study of Manolova et al. (2010), examines solely domestic business networks. Furthermore, they do not find support for the positive influence of these ties on the foreign expansion of Bulgarian companies. As previously discussed, this might be explained by the age of the firm, with younger ventures being much more dependent on domestic ties than are older firms (Manolova, et al., 2010).
Entrepreneurial Actors
18
Collinson & Houlden; 2005), are said to “clarify or cloud the entrepreneur`s decision making” (Oviatt and McDougall, 2005: p. 542). Thus, the interpretations made by entrepreneurs are considered deterministic for the entire course of development of INVs.
Regarding emerging economies, the role of entrepreneurs has been relatively well covered in the academic literature. However, the main focus has not been placed on the perception aspect and its influence on internationalization, but rather on the factors which have shaped these perceptions. For instance, as pointed by Kiss et al. (2012), entrepreneurial characteristics such as self-commitment and efficacy, dynamism, experience and desire for leadership are determinant mechanisms for companies in emerging markets. Moreover, in areas like Central and Eastern Europe, sub-Saharan Africa and Vietnam, individual level characteristics are considered more important than firm and industry level ones (Kiss, et al., 2012). It is further found that personal entrepreneurial traits are crucial during the initial stages of small businesses (Begley & Boyd, 1987; Luthans & Ibrayeva, 2010). This is particularly relevant for transition economies, which are dominated by rather small entrepreneurial ventures, and the new start-ups are mainly run by the entrepreneur (Luthans & Ibrayeva, 2010). Interestingly, some scholars have remained sceptical towards the contribution of the entrepreneurial actors in emerging markets and thus, they have been rather critical toward their specific characteristics and traits. This is due to the fact that manager capabilities, characteristics and traits developed under the former communist system are said to be irrelevant for the current market conditions (Hitt, et al., 2000; Manolova, et al., 2006; Manolova, et al., 2007).
Institutional Environment
19
distance has been defined as the “degree to which country`s residents admire entrepreneurial activity and value creative and innovative thinking” (Busenitz., et al., 2000, p. 995).
The institutional environment in which a company operates plays a major role in its existence and development. Institutions both create limits by coordinating the behaviour of actors and promote opportunities by facilitating the paths on which people operate (Bruton, et al., 2009). They lower the level of uncertainty and introduce a stable structure which promotes interactions, thereby reducing transaction and information costs (Hoskisson, et al., 2000). It has been further pointed in literature that the influential process is bi-directional, in the sense that institutions do not only affect people, but actors are also capable of shaping institutional structures or even creating new ones (Bruton, et al., 2009).
20
the inadequate knowledge, pose a major obstacle for entrepreneurship in such markets. In particular, in terms of internationalization, Cieslik & Kaciak (2009) suggest in their paper that NVs in some emerging economies may be reluctant to initiate export operations because of fear that the conditions abroad would be the same as the domestic ones.
As demonstrated in the prior section of this study, the literature on emerging economies and in particular, the factors influencing the speed of internationalization of NVs in these countries, has been extremely scarce, incomplete and even contradictory. The specificity of the environment in which companies operate and the lack of academic literature examining the forces influencing their decisions and choices to expand their business abroad, call for a comprehensive analysis.
Method
Qualitative studies have been referred to as highly appropriate tools for addressing such gaps in literature. According to Cooper and Schindler (2008), qualitative research aims at obtaining precise in-depth understanding of specific cases. Furthermore, open research questions, such as the one formulated in the current paper, call for qualitative, insightful methods (Thomas, 2004). Nonetheless, despite the widespread recognition of the advantages of these qualitative methodologies, criticism should not be ignored. Some scholars have referred to qualitative data as too subjective and inclined to human error and bias in data collection and analysis (Cooper & Schindler, 2008). However, as pointed by Blumberg et al. (2011), unlike quantitative methods, which guide the researcher more strictly and leave fewer opportunities for exploring additional paths, qualitative investigation allows acquiring unforeseen information which might be crucial for the research.
21
the paper of Shirocova & McDougall (2012). In the latter scholars use the comparative case study methodology to thoroughly examine three Russian entrepreneurial companies by conducting focused personal interviews, which they later on analyze by means of the grounded theory approach. The comparative case study, defined as a “systematic comparison of two or more data points (“cases”) obtained through use of the case study method” (Kaarbo & Beasley, 1999, p. 372), is considered to be highly suitable for the implementation of the present research and therefore, the work of Shirokova and McDougall (2012) has been chosen as a role model. I am aware of the fact that the current paper cannot claim to strictly follow the comprehensive and exhaustive structure of the grounded theory model, since I do not approach this research with an “open mind” ( (Dey, 1993, p. 63), cited after Urquhart, 2013). Furthermore, the main objective of my work is not to build theory, but to compare the results of the present case studies to previously developed theories and to expand the latter (Blumberg et al., 2011). Nevertheless, in her book on grounded theory, Urquhart (2013) acknowledges that this type of method could be used in two ways: for theory building and as a coding technique. Thus, I have chosen to apply its latter function. I do realize that the use of inductive methods has often been criticized in terms of generalization. However, the goal of this research is not to generalize its results to the whole population of a country, but rather to lay down the foundation for future research in a direction which has been highly neglected by the academia. Moreover, it is worth highlighting that although the results of this study may not be “generalizable to a population, they are generalizable to a theoretical disposition” (Blumberg et al., 2011: 256).
Sample and Data Collection
22
behaviour, which in many cases is essential for determining the context that is sealed in a conversation (Cooper & Schindler, 2008).
Participants were chosen by means of the snowball sampling method. The latter is defined as a technique, in which “participants refer researchers to others who have characteristics, experiences, or attitudes similar or different from their own” (Cooper and Schindler, 2008: 170). For the present study, the parents of the researcher were contacted, since due to the essence of their work, it was expected that they would have appropriate contacts. After being redirected to several people, the researcher managed to determine seven potential participants. Firms which were considered suitable for the purposes of the current research, had to meet three main criteria: (1) they must have started their businesses as newly-established Bulgarian SMEs (consistent with the EU definition: staff members bellow 250 people; the annual turnover bellow € 10 million); (2) they must have started their businesses after the year 1989 (the fall of the communist regime); (3) they must have launched their international businesses within 10 years of foundation. Each potential interviewee was sent an email, which included a brief description of the study, the requirements for participation and an official appeal for collaboration. All seven contacts agreed to meet the interviewer in person to further discuss the potential interviews.
The data collection process was implemented in Bulgaria. In order to conduct the interviews, the researcher spent two weeks in the country in April 2013. During the first week, she managed to meet seven of the contacts in person, so as to ensure that they would meet the required profile. These initial meetings led to a reduction of the number of participants to three (“Table 1” provides an overview of the interviewees), whose companies were deemed most appropriate for the purposes of the current research. Since achieving generalizability is not the main aim of this study, the final number of ventures was considered sufficient. Moreover, the number of three cases was in line with the work of Shirokova & McDougall (2012) which, as previously pointed, served as a reference for the present research.
23
questions so as to predispose the interviewees and then continued with more specific questions for obtaining in-depth understanding of the problem. Complying with the wishes and preferences of the participants, the interviews were conducted in Bulgarian. Prior to each interview, the entrepreneurs were asked permission to audio-record their conversations and following the guidelines of Thomas (2004), they were assured of complete confidentiality. After two of the meetings, participants offered the researcher to visit the firms. These informal discussions provided the researcher with the opportunity to obtain additional information, which was captured in the form of notes. The third interviewee who did not engage in an informal conversation after the meeting was sent additional questions via email. The audio recordings were transcribed and translated by the researcher. To comply with confidentiality requests, identifying information has been excluded. Moreover, the sequential notes and email were also transcribed, translated and analyzed for the purposes of the current study. In order to respond to the criticism on the validity and reliability of qualitative data, the researcher employed several accepted analysis techniques. First, the researcher used several academic contributions of experienced scholars in this field as role models for her work. Second, the researcher applied the so called triangulation technique. The latter refers to the usage of several methods for data collection (in particular, observations, audio-recordings, the internet, official documents) which are given equal relevance (Flick, 2006). Third, throughout the whole working process, the researcher was led by the skillful guidance of her supervisor, whose area of interest coincides with the theme of the current study.
Case Profiles
The current section will introduce the three ventures which were thoroughly examined in the present study (see Appendix A for an overview of the conducted interviews). “Table 1” provides general information on each case.
Year of foundin g Year of internationalization Level of global diversification (number of countries) in 2012 Degree of internationalization (share of export in annual total sales) in 2012, %
Number of employees in 2012
Company 1 2009 2009 3 100 60
Company 2 1991 1998/1999 14 A bit bellow 45 Around 200
Company 3 1989 1998/1999 Above 7 (Company 3, including subsidiaries) Company 3 (without subsidiaries): 20 Subsidiary 1: 50 Subsidiary 2: 50 450 (Company 3, including subsidiaries)
24
Company 1: Prior to the foundation of “Company 1”, three of its future founders had been
working in a well-established and successful company which had been dealing with identical activity and had been situated at the same location. Due to personal reasons, their previous employer had been forced to close down the factory, leaving all workers, including the three future founders of “Company 1”, unemployed. The misfortunes that had come upon them after losing their jobs, in combination with the pressures stemming from the on-going crisis, had motivated the three men to look for other opportunities for career realization. In particular, the aforementioned factors have led to the establishment of a new firm, “Company 1”.
“Company 1” was formed in 2009 by a team of four entrepreneurs. The firm has been mainly engaged in machine building and the production of spare parts for metallurgical factories. Since its inception, it has been oriented toward international expansion and for this purpose the owners have been relying heavily on the precedent business connections from their previous job. Two particular prior acquaintances stand out in the course of development and prosperity of the company: (1) the fourth partner in the firm, who is German, and (2) the main counterparty of the company, which is based in Germany.
By 2011, the company had spread across three continents (Europe, South America and Asia). The choice of countries has been mainly guided by the firm`s German counterparty and as pointed by Mr. A.M. (founder and interviewee), “the market could be anywhere in the world.” When asked about the factors which have been facilitating the internationalization process of “Company 1”, the founder stressed two more significant elements. On one hand, Mr. A.M. took notice of the competitive advantage of the venture resulting from the high productivity and lower price of Bulgarian labour force. On the other hand, the interviewee placed a strong emphasis on the enormous role of his partners as a team. The founder indicated that individually neither of them would have been “able to do the job”, as they complemented each other with their knowledge and capabilities.
25
the firm did not have local rivals. Instead, its major competitors were from Poland, Croatia, Slovenia and Turkey.
Company 2: “Company 2” was formed in 1991 and from its onset it has been engaged in the
production of polymer goods. During the first seven years, the founder, who at the time was a single owner of the firm, focused entirely on the internal market. It was not until the end of 1998 when the heirs of Mr. P. (founder), together with the current manager (Mr. T.K.) of the venture, turned their attention toward the foreign stage. This change in the strategic orientation of the company was due to the emerged interest demonstrated by customers visiting from neighbouring countries.
Initially, “Company 2” targeted mainly countries of former Yugoslavia. The choice of markets was guided mostly by the perception of proximity and similarity. In particular, the manager of the venture indicated that they “focused on these countries because they are close to us, shipping costs are negligible, there is no language barrier, no needs of qualified management team that offers production.” The more active export in that direction lasted until the foreign competitors managed to respond to the rivalry. Nevertheless, instead of entirely giving up on those markets, the company`s management team took another approach which consisted of reselling the firm`s old machines to their competitors abroad and in the same time, purchasing new equipment. Thereby, “Company 2” managed to not only retain its market position for a longer period of time, but also to acquire sensible competitive advantage. The latter enabled the venture to further expand its foreign market coverage and while until the global financial crisis 80% of the company`s production was intended for the internal market, after 2006, the firm increased its participation on the international arena to nearly 45%. Currently, “Company 2” exports to fourteen countries, spread across three continents (Europe, Asia and Africa).
26
his stable educational background, which referred to his proficiency in German language and the degree in Economics that he had attained from a prestigious Bulgarian university. Furthermore, the manager pointed at his international experience in countries such as Romania and Germany.
Regarding the difficulties encountered by “Company 2” in the process of its internationalization, Mr. T.K. explicitly denied that culture and institutional policy have played a negative role. Contrariwise, he indicated four factors that have been acting as obstacles for the venture`s foreign expansion: the severe foreign competition; the type of work they are dealing with; the laziness and incompetence of Bulgarian workers; and the lack of local State support. In relation to the latter element, Mr. T.K. highlighted that the EU subsidies have rendered a much greater positive influence.
Company 3: “Company 3” was originally formed in 1989 as a sole proprietorship. At the
time of its inception, the owner, Mr. D.B. (founder and owner), had no higher education and relied mainly on his relevant high school background and professional experience in a related field. The latter, however, has had nothing to do with the management of private business. According to the current Commercial Manager (Ms. D.B.) of the company, after the fall of the Wall, “the doors opened for many people, but not everyone knew how to use them.” Thus, due to the “trial-error” strategy used by the founder, the company passed through diverse stages over the course of its development and growth.
At the very beginning, “Company 3” focused on manufacturing and developing tools, equipment and industrial goods. In response to the market demand, after working with non-ferrous metals for several years, the firm also began trading with non-ferrous metals. The successful operation and considerable expansion of the venture over the years provoked the owner to split all productions in distinct companies, allowing him to monitor their effectiveness more closely. Currently, there are six subsidiaries that operate under “Company 3”. All of them are involved in international activities, but only two (Subsidiary 1 and Subsidiary 2), together with “Company 3”, export their own production.
27
such as Macedonia, Serbia and Kosovo. Ms. D.B. pointed at three main reasons for choosing these particular markets: (1) the absence of language barriers; (2) the quality of the metal there; (3) the normal payment at that time. Over the years, the company changed its strategy and started choosing subsequent markets after comprehensive analyzes that included competitor and customer surveys, and solid verification of the political stabilities in these countries. Thus, some of the Balkan countries were no longer considered appropriate due to the high perception of riskiness associated with them. Nevertheless, other markets which opened after Bulgaria`s accession to the EU (e.g. Romanian, Greek, Hungarian, German, Polish and Czech) have been assessed as relatively reliable due to the guarantees they could provide through “insurance or a financial instrument.”
When asked about the factors which have promoted the international expansion of the venture, the Commercial Manager indicated three more pronounced ones. First, Ms. D.B. highlighted the strategic location of the country. In particular, Bulgaria is one of the entrances of Europe and in the same time, it is close to Ukraine. The latter country is famous for its cheap metal and since the shorter distance has facilitated deliveries, “Company 3” has obtained competitive advantage in terms of pricing. The second factor is related to the business strategy chosen by the owner. According to the Commercial Manager, “Mr. D.B has decided to develop the business not only in trade, but also in the production, and a product always adds value and thus can find faster and better realization”. Ms. D.B. defined the third factor to be the “warm socialist ex-relationships”, which have made it easier to trade in the beginning “because of the very mentality of the people and the habit to do trade based only on some verbal arrangements and the lack of any documents”. As previously pointed, this method of doing business is no longer honoured in the venture. Furthermore, although not explicitly specifying it as a separate factor, the Commercial Manager talked about another element which has been facilitating the internationalization of their company. Specifically, even thought foreign language proficiency has not been considered determinant for the launching of international operations, Ms. D.B. confirmed that both her excellence in English and the owner`s good demand in Russian have promoted the establishment of valuable business contacts abroad.
28
focused on the high level of corruption and indicated that “Bulgaria hinders business to some extent.”
Coding and Analysis
Data analysis was executed by means of the grounded theory approach. Following the example of Urquhart (2013), the coding procedure was performed in three main steps: open coding, selective coding and theoretical coding (see Appendix B for a diagram of the coding procedure). Noteworthy, in order to qualify for the purposes of the current research, the above suggested process was subject to a certain degree of modification and configuration. In particular, a line-by-line approach has been identified in literature as significantly important during the initial coding stage (Glaser, 1978; Charmaz, 2006). In relation to this, Urquhart (2013) indicates that through this technique, the researchers manage to release themselves from the prejudices caused by prior interactions with relevant literature. This holds particularly true for theory-building, since one of the major prerequisites of such studies is open-mindedness. However, as previously stated in the present paper, the aim of this study is not to build theory but to refine and extend existing theories, and the grounded theory approach has been primarily used for its coding technique.
29
of the study, the researcher had already noticed possible relations between the selective codes and thus, she did not want to lose these links through excessive scaling up (Urquhart, 2013). Before moving to the third major phase of the analysis, namely the theoretical coding, the researcher differentiated an intermediate phase in which the selective codes for each of the three interviews were all put forward and were subject to further processing. The need for such intermediate stage was not realized at the very start of the analysis, but arose as the researcher became aware that some of the selective codes in the distinct interviews were generalizing identical open codes but were named in a completely different manner. Furthermore, since the researcher identified other possible connections between the codes, a decision was taken for segregation and realignment of some of them. In order to facilitate the subsequent process of thematic coding, in this intermediate phase, the selective codes which bore similar names and were scaling up open codes of similar nature were combined (see Appendix B). Thereby, the last stage of the grounded theory approach started with 12 selective codes. In order to establish the relationship between the latter and to differentiate separate themes, the researcher relied on the assistance of the theoretical coding procedure. So as to assist this process, academic literature has presented the so called “coding families” (Glaser, 1978; 2005). Following the advice of Urquhart (2013), the present study did not rely entirely on one previously suggested coding paradigm only. Instead, the researcher combined theoretical codes from both, the Dimension family of Glaser (2005) and the semantic relationships of Spradley (1979) (see Appendix B).
Results
Technology
30
would have been impossible without the developments in transportation. Moving on to the Manager of “Company 2”, we notice the same dependence. For example, the interviewee pointed that one of the reasons why the company focused on the former Yugoslav countries in its initial stage was because the “shipping costs are negligible”. Later on in the conversation, the Manager indicated that in the case of exports within the EU, “supplies are almost the same as if we were exporting for Pazardzhik […], the truck could leave on Saturday, on Sunday, etc.” The last statement refers to both, the well-developed transportation system and the significantly lower transportation costs. In the case of “Company 3”, this factor is not as clearly defined as in the other two instances. However, throughout the whole conversation, the Commercial Manager was referring to the fast re-delivery of products, the good transportation system established between its subsidiaries, etc.
Competition
31
Knowledge
In terms of the knowledge factor, the three interviewees talked mainly about one of its dimensions, namely “prior market knowledge”, which has been associated with the level of familiarity with the foreign markets in which the founders/managers had decided to expand their businesses. This dimension stands out as an important factor for the internationalization of the companies, however, in all three cases its effect is sensibly hidden between the lines of the interviews. For instance, the founder of “Company 1” talked about the time spent in Germany. Particularly, he had worked in the country for almost two years prior to the foundation of the venture, which suggests that he had been familiar with the market. Moreover, one of the co-founders of the firm is German, which is associated with thorough knowledge of the market. In relation to this, it is noteworthy that this company has started with its international activities particularly in Germany and that this country has remained a desirable market throughout the years. In terms of “Company 2”, a relation that could be observed in the interview is associated with the order in which they started entering countries. The founder talked about similarities between his home country and countries such as Serbia, Macedonia and Albania which suggested that, to some extent, he was familiar with these markets. The subsequent two countries in which “Company 2” expanded its business were Germany and Romania. This could be related to the fact that the Manager had “exported beer to Romania, cherries to Germany” which could also be associated with some knowledge about the markets. Moving to “Company 3”, the effect of market knowledge is more strongly highlighted. Initially, the firm targeted countries, with which the founder had been familiar. Later on, it is clearly stated by the Commercial Manager that the order in which countries were entered was determined by the preceding thorough study and acquaintance with the foreign markets.
Network Relationships
32
international activities. There are two main points that make stronger impression in this specific case. First, the existence of foreign business partners has determined not only the initiation of foreign activities, but also the international orientation of the company from the very beginning of its establishment. In particular, the founders have started the firm with the clear idea that they have had contacts on which to rely for their internationalization. The second point worth highlighting for this company is the strong network dependence for the development of its foreign activities. In the interview, the founder clearly stated that “the market could be anywhere in the world”, since their orders have been coming from their counterparty in Germany. In the case of “Company 3”, the effect of prior contact is not as strongly emphasized as in the first firm. The founder was said to have developed key business ties in Russia and Ukraine prior to the launch of his own company, but the highlight was placed mainly on their role as providers of raw material, not on their internationalization assistance. The subsequent business contacts of the Commercial Manager, however, were said to have been essential for the foreign expansion beyond the Balkan Peninsula. Regarding “Company 2”, the effect of networks on the internationalization process is the least pronounced. In the initial stage of internationalization of the firm, the Manager indicated that not prior contacts, but new clients have facilitated foreign expansion. At later stages, the ties formed as a result of visited fairs have contributed to the overall internationalization process, but they have certainly not been a leading factor.
Institutional Environment
33
products they export. Regarding “Company 3”, Ms. D.B. went beyond the boundaries of Bulgaria and pointed that the poor economic performance of the European countries has led them to consider exporting to the Near East. The Commercial Manager further explained that the validated political stability in some foreign countries has guided the venture to target those particular markets. Moving on to the demotivating effect of the regulative dimension, all three interviewees were unanimous in that the instability of Bulgaria, resulting from the rotten legal system, has raised many barriers for their ventures throughout the years. For instance, the Commercial Manager of “Company 3” paid particular attention to the high levels of corruption in the country and stated that “Bulgaria hinders business to some extent.” Additionally, the founder of “Company 1” discussed that the unconformity between Bulgarian legal regulations and requirements and those of other foreign countries has been limiting their firm`s potential to offer its services abroad. On the other hand, the managers of companies “2” and “3” highlighted that their ventures have not been receiving any support from the local State. In relation to this, Mr. T.K. spoke about the positive role of the subsidies coming from the EU. However, it is worth pointing that the manager expressed some degree of uncertainty associated with the final outcome of the prospective Union support. That attitude might partly be explained by the negative experience Mr. T.K. has had with Bulgarian irresponsible approach toward the country`s entrepreneurs.
34
has been considered unacceptable in the past few years, which has provoked the company to target other types of foreign markets.
Experience
35
contacts abroad and thus, has initially guided him through his choice of particular foreign markets. At the later stage of development of the venture, the foreign educational background of the Commercial Manager and her good command of English have played a crucial role for the establishment of vital contacts, which have facilitated the international expansion of the venture.
The previous section introduced the reader to the results obtained from the three conducted interviews. In the discussion part of the thesis, the researcher will combine these results with the findings suggested in the relevant academic literature and based on the outcomes, a new model will be proposed. The aim of the latter would be to improve and enhance existing theory by suggesting an adapted version of a well-recognized model representing the forces influencing the speed of internationalization by reconsidering the environment context for which the initial model has been built.
Discussion
After investigating the results from the current study and from prior academic contributions devoted to this topic, seven factors stood out as influential for the internationalization speed of Bulgarian NVs. In the following subsections, each of these forces will be examined separately and the results from the present research will be compared with those of other renowned scholarly papers. Thereafter, a new model will be suggested.
Technology
36
of the Internet and of other contemporary means of communication (Knight & Cavusgil, 2004; Arenius et al., 2006; Reuber & Fischer, 2011). Although none of the interviewees discussed either of these instruments, it became clear from the conversations and the sequential correspondence that all founders and managers have been using these technological advances in order to carry out their international activities and, they should not be neglected.
Competition
As opposed to prior academic literature which has put a strong emphasis on the impact of this factor on the internationalization process of a company, the interviewees in the current study treated it rather depreciatingly. Nevertheless, there are several key points in the present three cases which suggest that competition might have actually played a motivating or demotivating effect on the international expansion of the companies. For instance, both the founder of “Company 1” and the manager of “Company 2” stressed the severity of foreign competition and their business strategies demonstrate respectively an almost entire focus on international activities or an increasing level of export in the past years. As suggested in literature, this could be explained by the motivating force of foreign competitors, however, it should be noted that previous research has focused mainly on the effect of foreign players acting on the domestic stage (Wiersema & Bowen, 2007; Yamakawa, et al., 2008) and in our two cases, the interviewees were discussing competitors abroad. Regarding domestic competition, the scarcity of comments by the participants seems to coincide with the lack of existing research dedicated to this factor. Despite the numerous papers demonstrating the positive role of local opponents for the internationalization of NVs (Luo & Tung, 2007; Khavul, et al., 2010), the interviewees neither stressed it, nor pointed it as a factor which had influenced their expansion abroad.
Knowledge
37
2005), the interviewees of the present study focused almost entirely on its “prior market knowledge” aspect. This tendency did not diminish the importance of the factor in question but rather suggested which of its dimensions might be more valued under the specific conditions in the country. Furthermore, the “prior market knowledge” alone has been pointed in literature to assist significantly the whole process of internationalization (Johanson & Vahlne, 1990; Autio, et al., 2000; Oviatt & McDougall, 2005).
Network Relationships
One of the main things that made stronger impression in the interviews is that all three entrepreneurs talked mostly about their business connections. Contrary to prior academic literature (e.g. Manolova et al., 2010) which highlights the crucial role of social ties for the internationalization process of NVs, the interviewees barely acknowledged their contribution. Only the founder of “Company 1” mentioned during the informal conversation how the other co-founders had made more personal contacts, but he did not perceive this as a factor which had facilitated their international expansion. This might be in line with prior studies which have established that NVs in emerging markets might be disadvantaged in terms of their social networks (e.g. Ellis, 2011). It is also worth pointing that in the three interviews, the participants discussed only foreign business ties and not domestic ones. As pointed by Kiss and Danis (2008; 2010) this might be due to the declining role of national connections over the time.
Entrepreneurial Actors
38
section, in the course of work it was chosen not to focus on it in the analytical and respectively, in the result sections. Nevertheless, the researcher acknowledged the significant role of entrepreneurial actors’ perceptions for the speed of internationalization of NVs and thus, she decided to assume the same relation as the one suggested in the generally recognized model of Oviatt and McDougall (2005).
Institutional Environment
As previously pointed in the paper, the factor “institutional environment” was one of the most widely discussed in all three interviews. In particular, its regulative dimension was brought up several times throughout the conversations while the participants were highlighting its motivating or demotivating effect on the internationalization of their ventures. In line with prior research on emerging economies (De Clercq, et al., 2010; Tonoyan, et al., 2010), the entrepreneurs expressed their overall indignation with the instability and inefficiency of Bulgarian regulative institutions, which could be regarded as either a demotivating or a motivating force. The interviewees further suggested that the Global financial crisis had motivated them to look for opportunities abroad. It is noteworthy, that the scope of their internationalization has been increasing more rapidly after the Bulgarian accession to the EU, which could partly be explained by the gradual harmonization of the regulative component (Manolova, et al., 2008). Regarding the other two components of the institutional environment, namely cognitive and the normative dimensions, only the commercial manager of “Company 3” associated them with the internationalization of the venture. Particularly, Ms. D.B. indicated how the cultural aspect had been deterministic for their foreign expansion of the company and further explained that this effect had weakened throughout the years. Furthermore, contrary to prior scholarly research (Aidis, et al., 2008; Manolova, et al., 2008; Manev & Manolova, 2012), none of the interviewees discussed facing problems with intolerance and mistrust for being an entrepreneur in a transitional country.
Experience
39
subsection will pay a bit more attention by representing a combination of a brief overview of the existing relevant research with a discussion relating prior academic findings to the results stemming from this study.
40
The New Model
As previously mentioned, taking into consideration the findings of the current research which were briefly summarised in the precedent paragraph, a new model will be built. The latter will be based on the Oviatt and McDougall`s model (2005) but will expand it in two major ways: (1) it will include the newly revealed forces and connections; (2) it will demonstrate through thicker and narrower arrows the strength of the influence of each of the examined factors. The new model is as follows:
41
effect of foreign competitors abroad for the internationalization of their companies and barely paid any attention to the influence of competitors on the local stage. Moving onward, the two forces which appeared in the present research and were not considered by Oviatt and McDougall (2005) were determined by the interviewees as the most influential for the internationalization of their companies. The first one, namely “institutional environment”, was identified for its motivating or demotivating effect. The stronger emphasis was placed on its regulative dimension, but cognitive and normative institutions were also pointed for their impact. The second factor, namely “experience”, was not considered as having a direct effect on the speed of internationalization. More precisely, it influenced the speed of foreign expansion through its impact on either the knowledge factor or the network relationships. As previously mentioned, the two dimensions of “experience” which were indicated by the entrepreneurs were respectively “prior work experience” and “educational background”.
Conclusion
42
Implications, Limitations and Future Directions
Implications
The present thesis extends the IE literature by determining the forces which influence the speed of internationalization of Bulgarian NVs. The obtained results appear to have several important theoretical and practical implications.
43
regulative framework of the country, since it strongly demotivates local entrepreneurs from expanding their businesses abroad.
Limitations and Future Directions
Although the current study contributed considerably for the identification and understanding of the forces which have been influencing the speed of internationalization of Bulgarian NVs, there are a few more substantial limitations which should not be disregarded. Furthermore, some of these limitations provide intriguing directions for future research.
First, we could not be entirely confident that the three interviewees were completely sincere and honest in their answers. It has been acknowledged in the literature that entrepreneurs from former communist countries have suffered considerably during the regime from the negative attitude toward private business (Manolova, et al., 2007; Manolova, et al., 2008), and even after the fall of the Wall, many people have remained sceptical and cautious. Although the interviewer sought to reduce the problem by predisposing the participants and assuring them of full confidentiality, complete accuracy could still not be guaranteed.
Second, due to time and financial constraints, the present thesis focused only on three cases in order to achieve a more comprehensive and in-depth analysis. Researchers who are not limited by these two constraints may choose to analyze a bigger sample and thus, acquire more exhaustive and generalizable results.
Third, the current research included companies with activities in similar or somewhat related industries. The chosen sampling method suggests that this was not done on purpose, however, the similarities in the activities of the three ventures allowed the researcher to achieve a better comparison during the analytical part. Nevertheless, it is advisable for future research to test the validity of the current results in a wider range of industries.
44
45
References
Acedo, F. & Jones, M., 2007. Speed of interntionalization and entrepreneurial cognition: Insights and a comparison between international new ventures, exporters and domestic firms.
Journal of World Business, 42: 236-252.
Ahlstrom, D. & Bruton, G., 2006. Venture capital in emerging economies: networks and institutional change. Entrepreneurship Theory and Practice, 30(1), pp. 299-320.
Aidis, R., Estrin, S. & Mickiewicz, T., 2008. Institutions and entrepreneurship development in Russia: A comparative perspective. Journal of Business Venturing, 23(6), pp. 656-672.
Andersson, S., 2004. Internationalization in different industrial contexts. Journal of Business, 19(6), pp. 851-875.
Arenius, P., Sasi, V. & Gabrielsson, M., 2006. Rapid internationalisation enables by the Internet: The case knowledge intensive company. Journal of International Entrepreneurship, Том 3, pp. 279-290.
Autio, E., Sapienza, H. & Almeida, J., 2000. Effects of age at entry, knowledge intensity, and imitability of international growth. Academy of Management Journal, 43(5), pp. 909-924. Baron, R. & Ensley, M., 2006. Opportunity recognition as the detection of meaningful patterns: Evidence from comparison of novice and experienced entrepreneurs. Management
Science, 52(9), pp. 1331-1344.
Begley, T. & Boyd, D., 1987. A comparison of entrepreneurs and managers of small business firms. Journal of Management, 13(1), pp. 99-108.
Birks, M. & Mills, J., 2011. Grounded Theory. A Practical Guide. London: Sage.
Bloodgood, J. M., Sapienza, H. J. & Almeida, J. G., 1996. The internationalization of new high-potential U.S. ventures: Antecedents and outcomes.. Entrepreneurship Theory and Practice, 20(4), pp. 61-76.
Blumberg, B., Cooper, D. & Schindler, P., 2011. Business Research Methods. 3rd ред. Maidenhead: McGraw-Hill .
