Master Thesis IB&M
Business model innovation of international new
ventures: an exploratory study in the biotechnology
industry.
Author: Francesca Bortolotti
Student number: s4008111
Supervisor: Dr. A. Kuiken
Co-assessor: J. de Wit
Word count: 10.381
MSc International Business and Management
Abstract
Acknowledgements
I would like to express my deepest appreciation to all the research participants, who despite their hectic schedules manged to dedicate some time to my questions and contributed with valuable insights to this research study. In particular, I am deeply thankful to the start-up that opened its door and made the realization of these interviews possible. The dedication to their job and their enthusiasm truly motivated and inspired me.
I would also like to dedicate my gratitude to my supervisor, Dr.Andrea Kuiken, for all the continuous support and precious guidance that truly helped me during this long and challenging process. Despite the difficult circumstances due to Covid-19 pandemic, she managed to provide me with her remarkable experience in conducting qualitative research and invaluable advices. I really enjoyed our virtual exchanges of ideas.
Table of contents
1. INTRODUCTION... 6
2. LITERATURE REVIEW ... 9
2.1. Business model innovation literature ... 9
2.2. Business model innovation and internationalization ... 10
2.3. Business model innovation and international new ventures ... 12
2.4. Dynamic capabilities view ... 13
3. METHODOLOGY ... 16
3.1. Case selection... 16
3.2. Data collection ... 18
3.3. Data Analysis ... 20
3.4. Quality of the research criteria ... 21
4. EMPIRICAL RESULTS ... 23
4.1. Value proposition dimension ... 23
4.2. Value creation and value delivery dimension ... 26
4.2.1. Upstream value-creation activities ... 26
4.2.2. Downstream value delivery activities ... 27
4.3. Value capturing dimension ... 30
5. DISCUSSION ... 32
5.1. Market-focused and internally-focused learning capabilities and business model innovation ... 32
5.1.1. International value proposition innovation ... 32
5.1.2. International upstream value-creation activities ... 33
5.2. Networking and marketing capabilities and business model innovation ... 34
5.2.1. International downstream value-delivery activities... 34
5.2.2. International value capture... 35
7. REFERENCES ... 38
8. APPENDIX ... 43
8.1. Appendix 1: ... 43
1. Introduction
Internationalization is an important source of competitive advantage for young and new technology-based companies, which are simultaneously involved in growing a new venture, commercializing a technology for potentially new markets, and developing internationalization capabilities to compete in a domain that is naturally global due to the presence of global networks of researchers, venture capitalists, global customers and suppliers (Onetti, Zucchella, Jones, & McDougall-Covin, 2012). As a result, these firms often labelled under the name of international new ventures (Oviatt and McDougall, 1994) or born globals (Knight and Cavusgil, 2004) conceive their business as international from inception with an early international strategic vision (Oviatt and McDougall, 1984).
For what concerns INVs, these firms are expected to re-configure their business model more often than others, for reasons such as the high rate of change and the environmental dynamism of their industry, which makes the previous relevant business models shift into low growth or decreased profitability (Abrahamsson, Boter & Vanyushyn, 2019). Technology-intensive, hyper-competitive, globalized business environments require firms to promptly sought competitive advantages through product/ service innovation or process innovation, and yet such innovations can result insufficient to compete in the long run. Business model innovation has become key to achieve sustained value creation in the current hyper-competitive and globalized business environments (Achtenhagen, Melin, & Naldi, 2013). More specifically, business model innovation is identified as a reconfiguration of activities in an existing business model (Foss and Saebi, 2018), as the real differentiator in conceiving and delivering novelty to the market (Johnson and Christensen, 2008), and as an approach that drives the strategic design in new ventures (Onetti et al., 2012).
Kyläheiko Kalevi, 2005; Sapienza, Autio, George, & Zahra, 2006; Weerawardena et al., 2007), a step has been overlooked that can be explained with literature on business models. In particular, this stream of research has arguably neglected issues related to how internationalization strategic decisions driven by dynamic capabilities are then translated in actual actions and strategies.
Up-to-date, only a handful of studies have combined the dynamic capabilities view with business model innovation literature to investigate INVs internationalization practices and performance (Achtenhagen et al., 2013; Johansson and Abrahamsson, 2015). As demonstrated by these few studies, on one hand early exposure of INVs to internationalization, which entails exposure to exogenous factors, like host market new business conditions, and to endogenous factors, like emergence of new resource demand, creates dynamic capabilities which allow the firm to continuously adapt to uncertain environments (Sapienza et al., 2006). On the other hand, the business model represents a powerful tool to investigate INVs’ internationalization process and performance. In fact, a central virtue of the business model construct is that it allows for a holistic picture of a firm’s business by combining factors located both inside and outside the firm (Teece, 2010; Onetti et al., 2012).
In the study at hand, I assume that the business model is composed of three value-dimensions, namely value proposition (to the target customer segment), value creation and delivery (upstream and downstream value activities), and value capture (revenue streams), in line with Teece (2010) based perspective. Changes in the business model value-dimensions are explained through Onetti et al. (2012) “focus-locus-modus” decision system. He states that INVs in the high-technology intensive industry do behave differently than other internationalized firms in regard to how they leverage international opportunities by means of their international business models. Thereupon, a value-dimensions approach together with the “focus-locus-modus” decision system allow for a more detailed analysis of which strategic decisions related to organization and management of a firm-specific value-adding activities and its value-chain geographical configuration, INVs take in order to succeed in fast and early internationalization.
“Which business model value-dimensions do INVs in high-technology intensive industry adjust to successfully internationalize?”;
and “How dynamic capabilities enable business model innovation, such that accelerated market entry is possible?”.
Given the explorative nature of my investigation, my research questions warrant for a qualitative research methodology. Specifically, I will use a multiple-cases design (Eisenhardt and Graebner, 2007), based on semi-structured interviews with CEOs and managers from INVs in the biotech industry.
The contributions of the proposed research are twofold. First, studying changes in the three main value dimensions of the business model, and thus the strategic international decisions leading to them, can provide more accurate empirical findings about the relevant strategies and operative management approaches for systemic business model innovation management (Clauss, 2017). Furthermore, as the dynamic capabilities view provides an internal perspective of managerial and organizational capabilities, the paper wants to be of managerial utility by shedding light on which dynamic capabilities contribute to the international growth and sustained value creation through BMI.
2. Literature review
2.1. Business model innovation literature
The notion of business model (BM) is several decades old, yet the interest in the topic has started to emerge predominantly in the past decade with extensive research focusing on what business models are in form of definitions and conceptualizations, resulting in a paucity of theoretical grounding within the BM literature (Teece, 2010). The evolution of the BM literature can be categorized in three streams of research. First, the BM can be used as a basis for enterprise classification, as it was increasingly employed to understand and classify new e-business ventures by the early 21st century (Magretta, 2002). Second, the business model is
seen as an antecedent of heterogeneity in firms’ performance (Zott and Amit, 2008). Specifically, BMs are argued to be an important factor contributing to firm’s performance, as some BM configurations proved to out-perform others. Third, the BM is seen as a potential unit of innovation (Mitchell and Coles, 2004) to create new competitive advantages.
In simple words, a BM can be seen as structural explanation of ‘how’ a firm runs and develops its business. According to Teece (2010:179) a business model denotes ‘the logic, the data and other evidence that support a value proposition for the customers and a viable structure of revenues and costs for the enterprise delivering that value’. He develops a value-based view of business model, according to which business models are composed of three value dimensions: value proposition (to the target customer segment), value creation and delivery (upstream and downstream value activities), and value capture (revenue streams).
Value creation and delivery dimension coincides with the value capture dimension, in the sense that value capture is the expression of the realised value creation (Salum, Coleta, Rodrigues & Lopes, 2019). In other words, this dimension refers to how value propositions are converted into revenues for the firm (Clauss, 2017) through defining an architecture of revenue and costs (Teece, 2010).
2.2. Business model innovation and internationalization
The three value dimensions become particularly important when employing a dynamic view of the BM (Teece, Pisano, & Shuen, 1997). A business model innovation refers to changes occurring in one or each value dimension of the business model. For instance, business model innovation can be based on various changes in the organizational structure, the offering portfolio or the revenue generation of a firm. Although business model innovation requires systemic changes of the organizational structure, many business model innovations rely primarily on changes on one dimension and subsequent adaptation of other dimensions (Clauss, 2017).
From an external-level, business model innovation can occur in response to external factors, such as changes in market demand, in the economic environment, technological advancement and intense competition (Zhang, Zhao & Xu, 2016). When firms internationalize, an additional set of external factors can result in business model innovation. This results from the fact that firms, seeking to benefit from doing business beyond national borders, need to consider a variety of exogenous aspects, such as the host country customer preferences (Landau, Karna, & Sailer, 2016), and the host country different competitive and institutional conditions (Onetti et al., 2012). These exogenous factors together with endogenous factors, like novel resources demand arising from the internationalization process, stimulate shaping of dynamic capabilities that allow the firm to continuously adapt to uncertain environments (Sapienza et al., 2006) through reconfiguration of its business model (Achtenhagen et al., 2013; Brink and Holmen, 2009; Johansson and Abrahamsson, 2015; Teece, 2018).
2011), yet all the examined firms pursue – to different extents – business model innovation to stay competitive and achieve sustained value creation, and hence value capture.
Onetti et al. (2012) are amongst the first to argue that young and new technology-based companies are likely to introduce product and process innovations and new strategic approaches to leverage the opportunities arising from early and fast internationalization. Given the levels of uncertainty and risk faced by these new ventures, the primary business model decisions faced by firms refer to the ‘focus decisions’. Focus decisions include the selection of those value-adding activities source of value creation and the type of internal production structure (intensive capital technology or labour) to create the value proposition. Secondly, ‘locus decisions’ refer to the geographical configuration of the value chain, the geographical dispersion of the firm’s value-adding activities that enables the creation and delivery of the value proposition.
Finally, the ‘modus decisions’ of the business model define the way a company manages its value-adding activities. These decisions include which activities to outsource and which to manage in-house and its external partner network architecture. These business model decisions affect all three value dimensions of value creation, delivery and capture, affecting the survival and success of the new venture.
Building on Onetti et al. (2012) framework, Rask (2014) argues that the configuration of a firm’s value chain, in terms of downstream and upstream activities, differs between domestic and international markets. Domestic and international markets requires different decisions related to the location of activities (i.e. local vs. foreign based activities, inward-outward relationships with space, entry modes, local embeddedness); the relationships with other players and about organizational boundaries (i.e. insourcing and outsourcing of activities along social and inter-organizational ties, inward–outward relationships with other players, strategic alliances); and the selection of value-adding activities source of value creation. He argues that different sets of decisions will result in different business model configurations, in terms of how value is created, delivered and captured.
2.3. Business model innovation and international new ventures
In the previous sections a general model to understand business models and business model innovation of international firms was developed. However, international new ventures possess specific characteristics that need to be taken into account when aiming to understand business model innovation of this particular type of firm. The concept of international new ventures (INVs) (Oviatt & McDougall, 1994) or born globals (BG) (Knight and Cavusgil, 2004) has emerged in academia in the early ‘90s to classify highly entrepreneurial-driven business organizations that tend to pursue internationalization rapidly after inception and often with a large scope. The particular internationalization behaviour of this new breed of firms, which contradicts the previous studied evolutionary internationalization path (Johanson and Vahlne, 1977) has typically been associated with the distinctive international marketing orientation and international entrepreneurial orientation (Knight and Cavusgil, 2004).
The international entrepreneurial orientation is a crucial factor that drives early and successful foreign market entry of these firms. Possession of an entrepreneurial orientation seems to drive innovation in the value offering and creation of strategic initiatives for the value creation and delivering that augment international success of these firms (Knight and Cavusgil, 2005). In order to overcome exogenous barriers like foreign markets competition and endogenous barriers, such as size- and resource- constraints, international new ventures notably exploit their technological expertise to pursue marketing differentiation strategy akin to development of distinctive products targeted to niche markets (Autio, Sapienza and Almeida, 2000).
Moreover, exporting is the preferred entry strategy for delivering of the value offering as it offers high degree of international business flexibility and maximization of performance outcomes. Foreign export intermediaries typically possess strong market knowledge and capabilities that are crucial to perform downstream activities, relationship-building with key contacts and potential new buyer segments (Knight and Cavusgil, 2004, 2005).
In particular, Hennart (2014) has stressed the critical role value offering dimension and value creation and delivery dimension of INVs business model play in fast and successful internationalization. He argues that it is no the knowledge-intensity of the product per se that makes fast internationalization of INVs possible, but rather the distinctive characteristics of their product and target customers. In other words, INVs value offering have relatively few substitutes and are addressed to customers in niche market segments sharing homogeneous tastes and highly knowledgeable about the product. Therefore, niche value offerings sought out by educated and motivated customers, allow for little or none marketing mix adaptation, as well as for less market research, advertising, and sales promotion, as these firms can reach potential customers through low-cost means such as expert endorsement and trade fairs.
On the other hand, Abrahamsson, Boter and Vanyushyn (2019) investigated value delivery and value capture dimensions of business model utilized by international new ventures, showing that these firms tend to innovate these dimensions in the form of new sales channels and logistical methods more frequently through the re-configuration of their value network of suppliers and partner distributors. Therefore, innovation in these aspects is more pronounced in INVs operating within high-technology and knowledge-intense industries, than in other internationalized firms.
By contributing to the general assumption that innovations in the business model are used as tools to achieve competitive advantage and international growth by INVs, Johansson and Abrahamsson (2015) also argue that these firms need inter-related capabilities to identify new opportunities and to manage business model innovation over time to prosper and grow.
2.4. Dynamic capabilities view
exogenous and endogenous stimuli, will also be able to rapidly implement, test, and refine new and existing business models (Teece, 2018). Given the evolutionary nature of dynamic capabilities, this perspective is well-suited to analyse which strategizing actions are needed to pursue business model change over time. Dynamic capabilities and the related strategizing activities and actions resulting from them allow companies to adapt their business models to changes in the market demand and to the competitive environment, while at the same time leveraging and building their internal organizations (Achtenhagen et al., 2013).
As a firm extends the scope of its activities beyond national borders, it needs to generate new routines and to adjust its resources configurations to respond to exogenous stimuli, like host market customers preferences, competition, institutional barriers and technological demands, and endogenous stimuli, like emergence of internal resources demand (Sapienza et al., 2006). Such routine generation and resource reconfiguration have been identified in the distinctive capabilities of internally focused learning, market-focused learning, networking capabilities that enable a firm to develop leading-edge, knowledge-intensive products; as well as, of marketing capabilities that facilitate the positioning of a firm in global-niche markets (Weerwardena et al., 2007).
Internally focused learning capabilities, or disruption capabilities (Prange and Verdier, 2011), capture the technological and non-technological experimental learning that engenders innovation. These internal capabilities lead to internal processes of strategic reconfiguration of existing operational routines and advances in design/ production technologies to respond to the external competitive conditions (Weerwardena et al., 2007).
Whereas, market-focused learning capabilities, networking capabilities and marketing capabilities, also called value-adding capabilities (Prange and Verdier, 2011), define a firm capacity to acquire market information to create value activities, to seek partners to complement the lack of complementary resources and competences in the new market. These set of capabilities engender business model innovation and strategy - development.
earlier a firm internationalizes, the more deeply imprinted its dynamic capability for exploiting opportunities in foreign markets will be.
For the aforementioned reasons, employing a dynamic-capability view, rather than a static ‘recourse based view’, to study international new ventures successful internationalization through business model innovation can shed light on the phenomenon and contribute to understand it.
The concepts of dynamic capabilities, international new venture and business model innovation are deeply intertwined as they drive and nurture each other constantly. Drawing from the previous sections, an overarching framework showing the interrelation among exogenous and endogenous factors resulting from internationalization process, Onetti et al. (2012) “focus-locus-modus” decision system and Teece’s (2010) business model value-based dimensions is proposed in Figure 1:
Figure 1. Business model innovation of international new ventures framework International Decisions system
Focus Decisions What activities are performed? - Value-adding activities, - Production structure
Locus Decisions How are activities linked and structured?
- Value chain structure, - Geographical organization, - Sales channels,
- Logistics methods.
Modus Decisions Who performs the activity? - External network organization, - Company integration – outsourcing or in-house production. International Value-based dimensions International Value proposition - Type of offering - Products or services - Target customers
International value creation and delivery - Value chain within firm (resources, capabilities) - Value chain outside the firm (partners, suppliers,)
- Distribution mechanisms
International value capture - Costs
- Revenues Internationalization
Exogenous factors - Host market customers preferences
- Host market competition - Host country institutional barriers
- Technological new demands
Internationalization Endogenous factors - Internal new resources demand
- Resource-constrained - Smallness and Newness
3. Methodology
This section describes the methodology that has been chosen for the research at hand. Since the aim of this research is to investigate which business model value-dimensions INVs adjust to internationalize, as well as how dynamic capabilities facilitate business model innovation, such that accelerated market entry is possible. The choice of the research design is justified by the novelty of the topic under research, and the interest to extend an emergent theory by pursuing a research question asking ‘how’ and ‘why’, which is best answered through a case-study research (Yin, 2014).
Moreover, given the social nature of the phenomenon, a multiple-cases design is deemed as an appropriate strategy to explore the same phenomenon in different realities, hence to draw robust and compelling conclusions about the phenomenon under study (Herriott and Firestone, 1983). A theoretical framework and findings are derived from constantly compare data collection observations with existing theories in a iterative process (Eisenhardt, 1989).
3.1. Case selection
The case selection occurred in the form of theoretical sampling (Eisenhardt, 1989) in order to choose cases that could contribute to the extension of the emerging theory about internationalization of international new ventures through the lenses of business model innovation. The case selection was based on literal replication in order to gain and validate relevant insights into the phenomenon under study (Yin, 2014). Therefore, cases were selected upon the notion of international new ventures in the biotechnology sector that started to internationalize soon after inception.
through the development and commercialization of either products or services; (2) have all started to internationalize between 5 to 10 years after their inception (Gassmann and Keupp, 2007); (3) commercialize or provide their core value offering outside their home country.
This conceptual sampling design allowed me to introduce some degree of variance in the case selection criteria by including companies belonging to different biotechnology categories (R&D services, Therapeutics and Diagnostics, Medical technology) and of relatively different size (SME and MNE). Although variance in the research sample presents some limitations that are addressed in the conclusions section, it also further enhances the generalizability of results; moreover, it replicates a case selection method successfully tested by Rialp, Rialp, Urbano, and Vaillant (2005). Accessibility to the companies data and availability of key managers willing to collaborate in the study were also criteria adopted to select the firm cases.
The final sample of five study cases meets the suggested range of 4 - 10 cases for theory development studies (Eisenhardt, 1989), it also provides sufficient exposure to the topic without generating an excessive amount of data that would be difficult to manage.
For confidential reasons the companies’ names and interviewees’ identities won’t be disclosed, and the firms will be referred to with alphabet letters. Descriptive sample data can be obtained from Table 1 and Appendix 1.
Table 1. Detailed list of cases.
Case Industry Type of
company
D Biotechnology R&D services 11-50 Netherla nds 2004 2006 Services provision in 3 continents CEO E Biotechnology R&D services – CRO 10,001+ USA 1976 1991 75 global locations in 6 continents Vice President bioanalytic al services 3.2. Data collection
Primary-data collection was performed through semi-structured interviews, to ensure maximization of extractable information from interviewed participants on the basis of a predetermined interview guide. Specifically, semi-structured interviews were run with companies’ CEO and/or managers who were actively involved from the beginning in the internationalization process of their respective companies. Their direct and active involvement in the international operations allowed for interesting perspectives on the reasons why they internationalized, on how they managed to establish their presence outside the home-country and how they structured their business operations to compete in host-countries.
The interview guide consisted of five sections resulting from the theoretical model, which was developed on the basis of the state-of-art research on business model innovation and internationalization of international new ventures, as well as dynamic capabilities theory. The first section covered the profile of the respondent and the description of the working business model of the company. The second part of the interview focused on the internationalization process, while the third one on the business model changes triggered by internationalization process. Throughout the interviews, topics regarding the fifth section about dynamic capabilities were discussed. The interview guide complete of main- and sub- questions can be found in Table 2 below.
The interviews were conducted via skype call or face-to-face meetings and typically lasted 50-60 minutes. All the interviews were recorded with the permission of the interviewees and transcribed.
Table 2. Interview guide.
Section Question Literature Expectation
Introduction
General information 1.What is your current position and how does
your experience relate to the company international operations?
n.a Position covered by the interviewed
participant, Role in the internationalisation process. Working version of the
business model
2.What is the company core product/ service/ main business lines?
- Does the company serve both local and non-local customers?
- What are the value-adding characteristics of your product for your customers?
Teece, 2010; Cavallo et al, 2019; Clauss, 2017; Abrahamsson et al., 2019;
Landau, Karna, & Sailer, 2016.
International Value proposition dimension - services/ products - attributes - target customers - technology (value-adding characteristics)
3.How is the revenue generated?
(Export, leasing modes, contract-fee model)
Teece, 2010; Clauss, 2017
Value capturing - pricing strategy 4.What are the key activities performed by the
company to create the value offering?
Onetti et al., 2012.
Content of the activities to create the value proposition.
Value-creation dimension 5.Where is the manufacturing/ production of
the product located?
6.How does the company provide its services? How does the company commercialize its products?
Onetti et al., 2012.
Structure of upstream and downstream activities.
Value-creation and Value-delivery dimensions
7.Who performs market activities? Onetti et al., 2012. Management of activities.
Internationalization process
8.When did your company first internationalize?
- What are the company typical entry modes? (exporting, licensing, opening new plants) 9.Why did the company internationalize? (Local market saturation, international demand for the key product, networking, growth potential opportunities) Oviatt and McDougall, 1994; Knight and Cavusgil, 2004; Autio, Sapienza and Almeida, 2000; Hennart, 2014.
Defining the internationalization process: speed of internationalization, expansion strategies and modes of entry, reasons for the international expansion.
Business model innovation
10.Which kind of changes did the internationalization process triggered?
Onetti et al., 2012; Clauss, 2017.
Changes in the main sub-constructs of the business model.
11.Did you have to adapt/change certain key activities to the new market of entry? - Did you have to adapt/change certain key activities to the new market of entry?
- Did you acquire new technologies and know-how?
- Did you have to reconfigure tangible and/or intangible assets?
-Did you enter in new market segments? - Is the value offering modified according to the market of commercialization?
Landau, Karna, & Sailer, 2016; Child et al., 2017; Nunes &
Steinbruch, 2019.
Changes in the content, structure, management of certain key activities.
Dynamic capabilities 12.Did the internationalization process
required the development of new capabilities? - Did you change your marketing strategy?
Weerawardena, Mort, Liesch, Knight, 2007; Prange and Verdier, 2011.
New managerial and organizational capabilities to internationalize and reconfigure internal capabilities, structures and resources.
3.3. Data Analysis
content analysis (Hsieh and Shannon, 2005), the results were grouped along Teece’s business model value-dimensions and related sub value-dimension activities. For each dimensions, findings were presented in a narrative which allowed for comparisons of study cases among each other, and between cases and concepts within the literature of INVs, business models and firms’ dynamic capabilities to manage business model innovation.
The aim of this study is to contribute with new empirical findings to the emerging topic of business model innovation and internationalization process of INVs. Therefore, the analytic work occurred through an iterative process between conceptual development and empirical evidence, a way recommended by Eisenhardt to develop a sound and meaningful framework (Eisenhardt, 1989). For instance the initial theorization of the Business model innovation of international new ventures framework was developed on Zott and Amit ‘s (2010) activity-system structure instead of Onetti et al. (2012) “focus-locus-modus” decisions framework. However, while collecting and analysing empirical data, Onetti et al. (2012) “focus-locus-modus” framework confirmed to be more suitable when investigating INVs internationalization through business model innovation, and thus, an updated version of the framework was developed.
3.4. Quality of the research criteria
In order to guarantee validity and reliability of the research, main aspects affecting the quality of a qualitative design (Yin, 2014), data triangulation was performed by including secondary sources documents (company websites and news retrieved from NexisUni) in the data collection stage. Application of the triangulation process allowed for a more detailed description of the companies’ profile and accurate case selection criteria, as well as it was also aimed to obtain highly robust conclusions. To achieve construct validity and accountability of the research, I made use of the following multiple information sources to establish a closed chain of evidence (Yin, 2014): in-depth, semi-structured interviews with firms’ CEOs and/or managers involved in key decision-making processes related to the international operations of their respective firms; together with company websites, LinkedIn profiles and news retrieved from sector related online publications like BioPharma International. Com and Deloitte.com.
4. Empirical results
The following section presents the research findings, which are synthetized in the three value dimensions – value offering, value creation and delivery, value capturing – of each firm business model.
The interviewed companies belong to three main businesses of the biotechnology industry. Namely, R&D services (CRO), Therapeutics and Diagnostics, and Medical Technology. As a result, the sample of five cases presents commonalities and differences in their value dimension configurations and internationalization strategies, which are addressed in the following paragraphs. A brief description of the five study cases is provided in the Appendix 1.
4.1. Value proposition dimension
Theoretically the value proposition defines the type of value offering, the product or service and the target customers (Marko et al., 2017), which could be re-configured in a “new logic” as result of the internationalization process (Bjrkdahl and Holmn, 2013; Zott and Amit, 2010).
In general, all the international new venture interviewees emphasised the importance of having a relatively unique value offering from those of rival firms and of focusing on the needs of a specific target markets. Typically the value proposition of these companies benefit from high specialization and homogeneity, as well as niche groups of customers, which allows for product standardization in global markets.
the company soon decided to pursue a differentiation strategy adding clinical services to the original value offering. The clinical business was, indeed, found to be profitable and with different business cycles than the lab business. In order to extend its business in the clinical trial market, the company acquired a small drug development company in the Netherlands presenting the right facilities and human resources. Similarly, when Company E started to internationalize in 1991, the aim was to extend the original pharmaceutical services to clinical trial management and drug safety, as well as becoming an international corporation through acquisition of small biotech companies all over the world. This was the case of a small clinical development and bioanalytical laboratory company based in the Netherlands whose integration in the group was the result of a “synergy” between its unique expertise and Company E desire to respond to new market demands. The acquisition provided, indeed, an extension of Company E portfolio of services and further penetration in the European market.
For both Company A and Company E the aim of the acquisition strategy was to gain and maintain attractiveness in the marketplace through constant innovation in their value offering in order to respond to the new market demands promptly (Table 3).
Contrary to them, Company D provides biopharmaceutical R&D services to medium- big- pharmaceutical companies by means of its proprietary technology. Given the uniqueness of its technological specialty and the small growth opportunities provided by the local market, the company sought international clients from inception, especially through the network of connection provided by the business development manager. Further developments in the original value offering were the result of collaborations with international customers with specific requests (Table 3). The introduction of new business line was perceived as an opportunity to respond to an additional market demand and to expand the company’s pipeline on the basis of the core technology.
are produced and commercialized differently, which means different delivery and value-capture configurations (Table 3).
Early and fast internationalization was also pursued by Company B by means of its unique technology applied as intermediary step in the analysis of DNA and RNA. Similarly to the other cases, company B also pursued a differentiation strategy introducing two distinct business lines both based on the core technology, but addressed to different target customers. The first one entails the commercialization of house-brand kits to hospitals, universities and pharma companies, while the second one involves costumed OEM services for in-vitro diagnostics companies. However, in this case the diversification of the portfolio was not a result of the internationalization strategy, but rather a response to the customers’ needs (Table 3).
Table n.3
Quotes about value proposition innovation and Internationalization process
Market demands response - “Our company continued to acquire new sites based on the particular
needs that were gradually discovered while running the business”.
(Company A, Global head of clinical trials)
- “Our company does not acquire to grow in size, yet to add new services
to the portfolio, especially innovative services, to be innovative and maintain attractiveness for the customers and try to reach the status of most innovative CRO” (Company E, Vice President bioanalytical services)
International collaborations - “The new technology itself originated from an in-license project we
provided for a US customer, around which we developed our own in-patent protection”. (Company D, CEO)
- “We initially developed the first line for medical use and later on the
opportunity for the second line rose and we decided to exploit it. It was a customer form the US”; “We don’t need distributors for the non-medical product since we only sell to the dietary supplement company in US […]. This I would say it is the main difference in the business model of two lines” (Company C, Commercial manager)
Customers request - “We then developed a second business stream […] for in vitro diagnostic
4.2. Value creation and value delivery dimension
Theoretically, this dimension define the value-chain configurations for the creation and delivery of the value proposition, including geographical location of manufacturing activities, distribution mechanisms and delivery channels that are typically re-configured when the company internationalize (Abrahamsson et al., 2019). The uniqueness and homogeneity of the value proposition have been found to affect the way upstream and downstream value activities are re-configured for international markets.
Generally, findings show that most of the upstream value creation activities, like manufacturing, are performed domestically by biotech INVs. Besides Company A and Company E, most of the cases did not necessitate to establish production subsidiaries abroad. On the other hand, most of the cases re-configured their downstream value delivery activities, namely marketing and sales, to operate in foreign countries.
4.2.1. Upstream value-creation activities
Manufacturing activities
For the manufacturing and development of the proprietary technology, Company D relies on two strategic international partnerships with a contract development and manufacturing organization (CMDO) in US and a contract manufacturing organization (CMO) in the Netherlands, who provide specific knowledge and expertise at the core of the technological solution (Table 4). Nonetheless, the final customization of the solution for the customers is done in the firm’s home country. Similarly, components of Company C medical device are supplied from all over the world, while the assembling and production activities are performed by an OEM in the Netherlands and present the official stamp of the home country. Company B, instead, has all its business sites – R&D, manufacturing, quality assurance, sales & marketing – located in Germany, where the mother company R&D and production sites were initially established.
Geographical location of activities
already compliant with industry-related regulations, present the right facilities and human resources” as reported by the Global head of the Netherland’s site. The system of activities for the creation and delivery of the value offer is extended to all the companies part of the group, such as they all make use of the same technological equipment to meet global requirements good laboratory practice (GLP) and good clinical practice (GCP), to optimize the operation procedures and to serve worldwide customers. Despite the technological equipment standardization, geographical location is crucial, in fact each site provides services on the basis of its core specialty and human resource’s expertise (Table 4). Site-specific value creation allows to meet international customers’ requests to run trials in a specific location or to provide them with specific technologies or expertise supplied by the company’s site in a certain geographical area.
Similarly, Company E also relies on a network of biotechnology companies to meet customers request to run clinical trials in different locations. As the Vice president of bioanalytical services explained “The reasoning is that the clinical trials is a global activity, people wish to do trials anywhere in the world. We received requests from our customers to run trials in Asia, which eventually drove the company expansions of operations also in Asian countries”. Following the globalization of the pharmaceutical industry, also the CRO has increasingly become global through the acquisition of established companies with highly trained and specialized human resources able to manage all aspects of the R&D programme insourced from the pharma client. As noted by the head of business development “Customers look for a partner who is capable of managing the project in a cost-effective, efficient way, high quality service. Smart execution of clinical trials is key.”, which makes experience in executing projects and specific know-how critical resources to compete in the market.
4.2.2. Downstream value delivery activities
Marketing and sales activities
On the other hand, value-delivery activities, such as marketing and sales, have been found to represent resources “on demand” for most of the study cases. In other words, most of the biotech companies have re-configured their “value network” of relationships to commercialize their value proposition abroad.
CEO “The presence of a sales person from our German partner in Japan makes the difference, otherwise we would hardly have a contact with those customers”. Given the conservativeness of pharmaceutical R&D sector, the company sometimes struggles in acquiring new customers because of its constrained size and lack of an established reputation in the field. The strategic partnership with a big player helps in overcoming smallness and newness issues and enhance the overall company’s reputation to the eyes of potential clients (Table 4).
Company B and Company C value-delivery activities have been re-configured for either entering in foreign countries or commercializing a new value proposition.
Company C medical device is sold through an in-house sales team to local customers, while commercialization in foreign countries is performed through a network of local distributors who give the company access to key clients and new customers segments, as explained by Company C commercial manager: “we noticed a couple of new opportunities especially in Southern Europe […], in these countries where different market segments opened up, we collaborated with local distributors to address them, we also developed tools to support the commercialization of our product to pharmacies”.
On the other hand, Company B has developed two sales strategies for each business line. On one hand, the end-user business of house-branded kits is exported through a network of distributors worldwide. The indirect-sales strategy is deemed necessary to overcome the company’s constrained sales and marketing resources and face competition against leading companies with extensive financial resources (Table 4). Moreover, local partners are key to undergo the regulatory process required to commercialize in vitro diagnostics products outside Europe. For example, the CEO stressed the strategic importance of a local distributor in Columbia to undergo the regulatory procedure “The local partner definitely helps in going through the regulative process because they are more knowledgeable about the country-specific requirements and have prior experience with other products they sell”. On the other hand, the contract manufacturing services are delivered through direct-consulting to customers for whom the company provides R&D expertise to develop their projects.
Table n.4
Quotes about value creation & delivery innovation and Internationalization process
Site-specificity - “The Indian site provides bioanalytical and clinical services. The Taiwan
provides data services, clinical studies and toxicology studies […] The Austrian site focuses on pre-clinical pharmacology models in neuropharmacology”; “We count customers from all part of the world with different requests to run trials overseas, in specific locations where we have sites” (Company A, Global head of
clinical trials) Suppliers manufacturing
capabilities - “For the manufacturing and development side of the technology we rely on two
partnerships […] a contract development and manufacturing organization (CMDO) in the US, which is an expert in manufacturing of clinical trial material with the technology that we produce […] a CMO company in Groningen who has manufacturing capabilities to produce polymers in large scale” (Company D,
CEO)
Co-promotion/marketing partnership
Liability of newness - “Our is a very conservative playing-field, in the sense that credibility of the and smallness company and its reputation are major aspects our customers take into
consideration. They definitely don’t want to collaborate with small, unknown
companies because this would entail a high risk”. “The partnership with such a
big player presents us like a joint force […] their reputation acts indirectly on our image and reinforce our company credibility.” (Company D, CEO)
Commercial power - “We cannot compete against other leading companies in terms of size of sales
force and commercial power. Therefore, we rely on a network of partners who have much stronger commercial power in the market of interest” (Company B,
CEO) Access to key
customers - “For us the main added-value is that they were already visiting our clients
4.3. Value capturing dimension
Value capturing dimension refers to the revenue model adopted by the firm to capture value from commercialization of its value propositions (Teece, 2010). Theoretically, decisions related to the governance of value creation and delivery activities is likely to influence the revenue model (Onetti et al., 2012).
Company A and Company E revenue model is “milestones-driven” meaning that the CRO’s has chances to generate revenues in the event the customer’s program is successful. Both CROs revenue model has not changed throughout the internationalization of their respective operations, but rather applied to the acquired companies, as described by Company E Vice president of bioanalytical services: “This is the typical CRO revenue model and it is homogeneous throughput the group”.
Company D value capturing results from in-licensing agreements with customers, as well as it is based on milestones payments and royalties on future sales of the product using their specific technology. Like in cases A and E, also company D did not change is revenue model (Table 5). Given the niche market positioning of Company D, the company does not experience strong competition and, thus, price pressure; as a result their pricing model did not change with the acquisition of foreign customers.
Whereas, since Company B and Company C commercialize their products through a network of distributors worldwide, their revenue model is diversified for local and non-local markets.
Table n.5
Quotes about value capturing innovation and Internationalization process Standardization of
revenue model - “Typically CROs generate revenue through milestone payments, it’s a
standardized model, it doesn’t change with international expansion” (Company
A, Global head of clinical trial)
- “We are being payed based on contract fees based on the in-licensing
agreement, milestones […]. This is the big value driver for our business model, we did not really change it throughout the internationalization process”
(Company D, CEO)
- “This is the typical CRO revenue model and it is homogeneous throughput the
group”. (Company E, Vice President bioanalytical services)
Market-specificity - “Japanese customers tend to spend more money on these kind of medical
solutions, as well as they want the product to be perceived as a high quality, high level innovative product […] the price of the product is increased making it more expensive, hence more appealing for the Japanese audience” (Company C,
5. Discussion
In line with previous research, the study at hand demonstrates how firms acted upon international opportunities to create and capture value with the use of business model innovation, in terms of reconfiguration of the firm’s value-based logic and system of activities (Child et al., 2017; Landau et al., 2016; Nunes & Steinbruch, 2019).
In this research I employed an holistic view of the business model in order to grasp how INVs bring innovation to the value proposition they offer to their international customers, to the way the configure their internal processes and external international relationships to deliver value to them; as well as, to the way they profit from the commercialization of their value proposition. An analysis of my results suggests that the five study cases already conceived their business as international from inception and all adjusted parts of their business model to leverage opportunities arising from early and fast internationalization.
5.1. Market-focused and internally-focused learning capabilities and business model innovation
5.1.1. International value proposition innovation
On the other hand, the high level of technological intensity that characterise the biotech sector proved to be a crucial exogenous factor driving business model innovation through firms’ dynamic capabilities. All the INVs interviewees emphasized the importance of having strong market-focused learning capabilities, in terms of promptly recognising new technological opportunities arising in the market, and leverage their potential through product innovation. In fact, almost all firm cases (apart from company B) developed new value offerings in response to the potential market opportunities disclosed while collaborating with international partners or while running the business at an international level (Company A). Specifically, INVs strong internally-focused learning capabilities, in terms of technological experimental learning, allow them to continuously respond to evolving conditions in their external environment by innovating value offering on the basis of their core technology and know-how.
In relation to the business model innovation of international new ventures framework, in order to reach international growth in a technology-intense environment, INVs develop market-focused and internally-focused learning capabilities leading to innovation in their value proposition.
5.1.2. International upstream value-creation activities
Contrary to Landau et al. (2016) who suggested that firms adapt their value proposition by further localizing activities in the host-country, INVs in the biotech industry seldom localize upstream activities in host countries, unless it is to access highly-specialized resources needed for product innovation. As demonstrated by Company A and Company E, the development of new value offerings required taking “focus” and “locus” decisions related to what value-adding activities perform in specific geographical locations, on the basis of technological specialty and human resource’s expertise provided by the foreign site. As a result “focus” and “locus” decisions related to value creation activities were mainly driven by endogenous factors, like internal demand for specialized resources, and by exogenous factors, like new technological demand.
drive strategic international “focus” and “locus” decisions, which in turn result in value offering innovation and re-configuration of upstream activities in the business model value creation and delivery dimension.
5.2. Networking and marketing capabilities and business model innovation
5.2.1. International downstream value-delivery activities
In order to respond exogenous factors, like new technological demands and endogenous factors, like emergence of new resource demand, INVs sought strategic collaborations with international experienced partners in the field to access innovative technological processes and resources, demonstrating strong networking capabilities.
In particular, the empirical findings show that INVs tend to rely on external partnerships for downstream value delivery activities, including operations such as sales in foreign markets, delivery and logistics, which is broadly consistent with the argument by Onetti et al. (2012) on the business model “modus” focus on external relationships for INVs in high-tech industries. Smallness and newness of INVs were identified as barriers that limited their ability to carry out marketing and commercialization activities in international markets. As confirmed by previous studies (Abrahamsson et al., 2019; Oviatt and McDougall, 1994; Knight and Cavusgil, 2004, 2005), marketing and sales activities represent resources “on demand” when operating abroad, in the sense that value delivery activities, such as sales and marketing services are externalized to foreign agents, importers or distributors because of the high investments and high risk they entail. These internal barriers were amplified by external factors, such as the highly-conservative biopharmaceutical playing field that imposes long time-to-market and regulatory approval for new drugs and technologies, as well as the governmentally instituted barriers to trade.
markets information from both parties, which eventually lead to development of marketing strategies to address new market segments (Company C).
Therefore, in relation to the business model innovation of international new ventures framework, endogenous factors, resource-constraint and newness in the market, and exogenous factors, like host country regulatory barriers, leverage INVs’ networking and marketing capabilities driving international “focus-locus-modus” decisions for their downstream value delivery activities.
5.2.2. International value capture
As argued by Clauss (2017), in most of the study cases business model innovation primarily occurred in one dimension and was followed by subsequent adaptation of other dimensions. In fact, the empirical findings show that INVs that outsource their value creation and delivery activities, subsequently adjust their value capturing model in accordance with the commercialization strategy. Re-configurations in the value capturing dimensions were expression of INVs’ strong marketing capabilities. In other words, those firms that re-configured their “value network” of relationships demonstrated superior capabilities in formulating effective pricing strategies to communicate credibility about the product and address niche markets in foreign countries, thanks to the continuous exchange of market-knowledge with their partners.
6. Conclusion
This paper contributes to literature of business model innovation and internationalization (Cao et al., 2018; Casadesus-Masanell and Ricart, 2011; Dunford et al. 2010; Landau et al., 2016; Nunes & Steinbruch, 2019) in different ways. First, this study answer to the call for further use the concept of business model innovation in international new ventures research (Abrahamsson et al., 2019; Dunford et al. 2010; Johansson and Abrahamsson, 2015) by investigating the internationalization process of five biotech firms that have managed to sustain international growth and value creation since inception. Second, this study extends literature on dynamic capabilities and business model innovation (Björkdahl and Holmén, 2013; Jantunen et al., 2005; Sapienza et al., 2006; Weerawardena et al., 2007) by providing empirical evidence on how dynamic capabilities, developed in response to internationalization exogenous and endogenous factors, are practically translated into business model re-configurations.
In regard to the first point, this study has established that INVs already conceive their business as international from inception by means of their international marketing orientation and international entrepreneurial orientation (Oviatt and McDougall, 1994; Knight and Cavusgil, 2004) that drive development of unique value propositions addressed to niche global markets (Hennart, 2014) and the development of alternative strategies to compete in international markets.
While the distinctive nature of INVs can explain their internationalization from inception, the way they manage business model innovation better explains their international growth and sustained value creation. The business model construct has proven to be a powerful tool to investigate INVs strategies from a novel holistic view, contributing to the research stream of business model and internationalization (Cavallo, 2019). In particular, a combined use of Teece (2010) value-dimensions and Onetti et al. (2012) “focus-locus-modus” framework perspectives provided for a complete picture of a firm’s business by combining factors located both inside and outside the firm itself, as well as to explain a firm’s business model innovation choices to successfully internationalize.
expanding their operations and “value network” of external relationships abroad. In regards to changes in the value proposition dimension, market-focused and internally-focused learning capabilities were deemed crucial; while, networking and marketing capabilities were exploited to re-organize INVs upstream value-creation activities and downstream value-delivery activities. These findings are largely consistent with Abrahamsson et al. (2019) argument that INVs are more likely to seek new sales channels and logistics modes to reach niche market segments, and to compensate for their resource constraints and lack of reputation in the market.
From a managerial perspective, the study highlights the importance of building a solid network and managing relationships dynamically (Johansson and Abrahamsson, 2015) for INVs operating in technology-intense markets. As the once early-stage INV emerges and grows on international markets, exogenous and endogenous factors arise calling for dynamic capabilities. Namely market-focused and internally-focused learning capabilities that engender value proposition innovation in response to new technological demands; as well as networking and marketing capabilities that give rise to new external partnerships crucial to compete in foreign countries.
Based on these findings, future research could provide more insights into the way INVs operating in technology-intense sectors conceive their value offering, and whether other factors, besides new technological demands, drive innovation in this business model value-dimension. Moreover, cross-industry studies could provide insights on similarities and differences in the strategic internationalization decisions, and related business model reconfigurations adopted by INVs operating in different industries.
7. References
Abrahamsson J, Boter H, Vanyushyn V (2015) Continuing corporate growth and inter organizational collaboration of international new ventures in Sweden. In: Karlsson C, Gråsjö U, Wixe S (eds) Innovation and entrepreneurship in the blobal economy: knowledge, technology and internationalization Edward Elgar, 89–116.
Abrahamsson, J., Boter, H., & Vanyushyn, V. (2019). Business model innovation of international new ventures: An empirical study in a Swedish context. Journal of International Entrepreneurship, 17(1), 75–102. https://doi.org/10.1007/s10843-018-0238-3
Achtenhagen, L., Melin, L., & Naldi, L. (2013). Dynamics of business models - strategizing, critical capabilities and activities for sustained value creation. Long Range Planning, 46(6), 427–442. https://doi.org/10.1016/j.lrp.2013.04.002
Autio, E., Sapienza, H. J., & Almeida, J. G. (2000). Effects of age at entry, knowledge intensity, and imitability on international growth. The Academy of Management Journal, 43(5), 909–924.
Björkdahl, J., & Holmén, M., (2013). Business model innovation – the challenges ahead. International Journal of Product Development, 18 (3/4), 213-225.
Brink, J., & Holmén Magnus. (2009). Capabilities and radical changes of the business models of new bioscience firms. Creativity and Innovation Management, 18(2), 109–120. Cao, L., Navare, J., & Jin, Z. (2018). Business model innovation: How the international
retailers rebuild their core business logic in a new host country. International Business Review, 27(3), 543–562. https://doi.org/10.1016/j.ibusrev.2017.10.005
Casadesus-Masanell, R., & Ricart, J. E. (2011). Company Strategy: Business Model Reconfiguration for Innovation and Internationalization. SSRN Electronic Journal, 3. https://doi.org/10.2139/ssrn.1550782
Cavallo, A., Ghezzi, A., & Ruales Guzmán, B. V. (2019). Driving internationalization through business model innovation: Evidences from an AgTech company. Multinational Business Review, 28(2), 201–220. https://doi.org/10.1108/MBR-11-2018-0087
of World Business, 52(5), 664–679. https://doi.org/10.1016/j.jwb.2017.05.004
Clauss, T. (2017). Measuring business model innovation: conceptualization, scale development, and proof of performance. R&d Management, 47(3), 385–403. https://doi.org/10.1111/radm.12186
Dunford, R., Palmer, I., & Benveniste, J. (2010). Business model replication for early and rapid internationalisation. The ING direct experience. Long Range Planning, 43(5–6), 655–674. https://doi.org/10.1016/j.lrp.2010.06.004
Eisenhardt, K. M. (1989). Building theories from case study research. The Academy of Management Review, 14(4), 532–550.
Eisenhardt, K. M., & Graebner, M. E. (2007). Theory Building from Cases : Opportunities and Challenges Linked references are available on JSTOR for this article : THEORY BUILDING FROM CASES : OPPORTUNITIES AND CHALLENGES. Organizational Research Methods, 50(1), 25–32. https://doi.org/10.1177/0170840613495019
European Commission. (2003, March 20). Commission recommendation of 6 May 2003 concerning the definition of micro, small and medium-sized enterprises. Official Journal of the European Union, 124, 39.
Foss, N. J., & Saebi, T. (2018). Business models and business model innovation: Between wicked and paradigmatic problems. Long Range Planning, 51(1), 9–21. https://doi.org/10.1016/j.lrp.2017.07.006
Gassmann, O., & Keupp, M. M. (2007). The competitive advantage of early and rapidly internationalising SMEs in the biotechnology industry: A knowledge-based view. Journal of World Business, 42(3), 350–366. https://doi.org/10.1016/j.jwb.2007.04.006
Hennart Jean-François. (2014). The accidental internationalists: a theory of born globals. Entrepreneurship Theory and Practice, 38(1), 117–135.
Herriott, R. E., & Firestone, W. A. (1983). Multisite qualitative policy research: optimizing description and generalizability. Educational Researcher, 12(2), 14–19.
Entrepreneurship, 3(3), 223–243.
Johanson, J., & Vahlne, J.-E. (1977). The internationalization process of the firm-a model of knowledge development and increasing foreign market commitments. Journal of International Business Studies, 8(1), 23–32.
Johansson, M., & Abrahamsson, J. (2015). Competing with the Use of Business Model Innovation -- An Exploratory Case Study of the Journey of Born Global Firms. SSRN Electronic Journal, (August 2014). https://doi.org/10.2139/ssrn.2567643
Johnson, M. W., Christensen, C. M., & Kagermann, H. (2008). Reinventing your business model. Harvard Business Review, 86(12), 50–59.
Knight, G. A., & Cavusgil, S. T. (2004). Innovation, organizational capabilities, and the born-global firm. Journal of International Business Studies, 35(2), 124–141.
Knight, G. A., & Cavusgil, S. T. (2005). A taxonomy of born-global firms. Mir: Management International Review, 45(3), 15–35.
Landau, C., Karna, A., & Sailer, M. (2016). Business model adaptation for emerging markets: a case study of a German automobile manufacturer in India. R&D Management, 46(3), 480–503.
Magretta, J. (2002). Why business models matter. Harvard Business Review, 80(5), 86–92. Marko, P., Jelena, D., & Vanja, V. (2017). The constructs of a business model redefined: a
half-century journey. Sage Open, (2017).
Mitchell, D. W., & Bruckner Coles, C. (2004). Establishing a continuing business model innovation process. Journal of Business Strategy, 25(3), 39–49. https://doi.org/10.1108/02756660410536991
Nunes, M. P., & Steinbruch, F. K. (2019). Internationalization and the need of business model innovation – A theoretical approach. Brazilian Business Review, 16(3), 207–221. https://doi.org/10.15728/bbr.2019.16.3.1
Onetti, A., Zucchella, A., Jones, M. V., & McDougall-Covin, P. P. (2012). Internationalization, innovation and entrepreneurship: Business models for new technology-based firms.
Journal of Management and Governance, 16(3), 337–368.
