International Entrepreneurship

Small business

The term “International Entrepreneurship” is described in the literature as a process by which a newly founded company expands its business activities beyond their home nation from their inception (McDougall, 1989; Hisrich, 2013). For a long time the Uppsala model of Johanson and Vahlne was the basis for the presentation of global business activities. However, a large number of scientific literatures have shown that the Uppsala model cannot explain all the ways companies, especially small and newly founded firms, expand abroad. Newer approaches such as the network perspective and \”Born Global\” therefore try to present the growth and internationalisation process from a different perspective. It becomes clear that in all models the increase in knowledge and network relationships plays a decisive role. The relevant academic literature in which the topic is embedded is examined below in order to evaluate the three approaches – Uppsala model, network perspective and born global – for the internationalization of small businesses. For a better understanding, the theoretical findings are combined with practical examples of small firms such as the internationalization of SENZ Umbrella and Kiva.

Gradual incremental internationalising – Uppsala Model

The Uppsala model is one of the best-known theoretical models for describing the internationalisation process of companies (Johanson & Vahlne, 1977; Madsen & Servais, 1997). The model represents a stepwise process of the internationalisation of companies in the course of which market knowledge is gained (Arenius, 2005). In doing so, the founders see an “established chain” as requirement. Additionally Johanson and Vahlne (1977) assume that the knowledge of a company is a central aspect for a successful market entry, as it is the most important basis for the intensity and willingness to take risks in international activities. The acquisition of knowledge is seen as a continuous learning process, which grows with the increase in foreign markets (Vahlne & Nordström, 1993). The differences between the markets are called psychic distance (Håkanson & Ambos, 2010). Accordingly, the psychic distance initially inhibits the internationalisation of companies (Hodicová, 2007). Means that companies firstly concentrated on markets that are very similar in cultural, political or linguistic terms in regards to their home country (Hodicová, 2007). Due to the minimisation of risk, the Uppsala model envisages exports to psychic similar countries as preferred activities in the beginning. In the next step, with a larger knowledge base, sales agents are deployed before companies gradually establish sales subsidiaries and manufacturers abroad (Johanson & Vahlne, 2006).

Axinn (2002) and Ninan and Puck (2010) expound that psychic distance has become less important as markets become more and more homogeneous due to globalisation and technological development. Andersen (1993) also criticizes the Uppsala model, pointing out that phase models do not sufficiently consider the influence of the market situation and competition. It is clear from the literature that early adaptation of companies to the global market is a decisive advantage, particularly due to increasing competitive pressure (Nummela et al., 2004). The model of Johanson and Vahlne, on the other hand, follows a deterministic understanding so that the internationalisation process is difficult to adapt (Autio et al. (2000).

Johanson and Vahlne already indicate in their original works that the Uppsala model is a partial model that primarily deals with the development of knowledge (Johanson & Vahlne, 1997). In their revised model they also show a deterministic view as they developed their original model from a pure internationalization process model to a model for describing integration processes in networks (Johanson and Vahlne, 2009). According to the revised model of Johanson & Vahlne (2006), companies initially operate in their domestic market before orienting their strategy internationally by establishing relationships and networks abroad (Johanson & Vahlne, 1990). Accordingly, the decision for internationalization is based on previously perceived risks and identified opportunities depending on the existing network relationships in other markets.

A study by Bell in 1995, about the internationalization of small software companies already shows the influence of networks. The results of the study identify, that other factors were more decisive for the companies examined than the concept of the establishment chain. In particular, contact/network with foreign suppliers was described as one of the main criteria for the start of internationalisation (Bell, 1995).

Despite the extension of the model, there are still critical voices in the literature, especially with regard to small firms. The weakness of the model lies in the fact that it assumes a universal learning process that always runs at the same speed in all companies (Blomstermo & Sharma, 2003). According to Oviatt & McDougall (2005), for example, the Uppsala model is still not geared towards accelerated internationalization and therefore also not towards entrepreneurial action. Nummela et al. (2004) also believes that small firms face particular challenges in terms of global growth due to their size and limited resources and capabilities. Accordingly, a gradual and incremental internationalization process is rather unsuitable for entrepreneurs (Madsen & Servais, 1997, Cannon & Willis 1981). Instead, according to Nummela et al. (2004) small firms should try to build up a global presence at high speed and skip individual stages. Due to technological progress and increased competition, so-called \”windows of opportunity\” as described by Nummela et al. (2004) must be used as quickly as possible.

However the Uppsala model shows the special importance of knowledge for the internationalisation process. Especially for entrepreneurs, knowledge of foreign markets is essential to identify entrepreneurial opportunities (Arentz et al., 2013). A lack of knowledge would lead to a slower internationalization process, which according to Spence and Crick (2009) increase the cost for the implementation for the company. Furthermore the Uppsala model continues to reflect the particular importance of learning processes, which are of great value for the internationalisation of companies (Wolf, 2009). Particularly for entrepreneurs a rapid learning process for subsequent international growth is seen as an advantage (Autio et al., 2000).

Internationalization through network relations – Network Perspective

The network perspective focuses on international market entry through network relations (Lu & Beamish, 2001). As seen in the previous section, the revised Uppsala model also shows the importance of networks for the internationalisation. Johanson and Vahlne (1990) are of the opinion that new ventures without sufficient networks have extreme disadvantages on the way to enter a market abroad. According to Dunning (1995), the extreme focus on networks is due to the increasing independence of companies, countries and markets. In comparison to the Uppsala model, the reason for the internationalization of companies lies in the multitude of network relationships instead of in an incremental internationalization (Coviello & Munro, 1997). According to Coviello (2006), a larger network helps the company to internationalize more quickly and derive more benefits from it.

According to Johanson and Mattsson (1988) the network relations can be with customers, suppliers, distributors, government as well as with competitors. Granovertter (1985) describes this type of relationship as business networks, but notes that they are weak ties because due to the fact that they are less personal and more functional. On the other hand, however and especially extremely important for entrepreneurs in the initial phase, are the strong informal networks, such as family and friends (Hayer & Ibeh, 2006). This is also evident in the internationalization of Kiva, in which the founder initially relied on financial support from the family and friends which acted as the first donor for the occasional small global aid projects. Nevertheless, the weak ties are the more useful ones as they provide access to new knowledge, information and possibilities (Granovetter, 1985). The various possibilities and types of weak ties range from strategic alliances, exporting and joint ventures to licensing. Senz Umbrella also considered licensing SENZ Original and SENZ Mini to take advantage of the low development costs and risks.

Similar to the Uppsala model, knowledge plays an important role in the network perspective. In the context of market development, networks can provide newly founded small firms with important information about international markets (Blomstermo & Sharma 2003; Hite, 2005). The advantage of the network perspective is easier access to market knowledge, information and resources (Bell et al. 2003). Furthermore, important exchange relationships can develop within the network, which facilitates internationalisation for small firms and can represent competitive advantages (Oviatt & McDougall, 1994).

In addition to the advantages of the network perspective, the internationalization through network relations has also some limitations (Lu & Beamish, 2001; Chetty & Campell-Hunt, 2003). Thus, for example, the dependency of small firms on dominant network partners and the associated lack of opportunities for the further development of foreign activities outside the network relationship is one of the risk (Chetty & Campell-Hunt, 2003). Moreover, small firms usually have few resources available, which limit the number of potential network engagements (Chetty & Campell-Hunt 2003). According to Fink and Kraus (2007), mutual trust between the network partners is therefore an essential prerequisite for realizing network benefits. Ideally, companies test the weak ties in advance to minimize risks and find the right people (Johanson & Vahlne, 2009). Kiva\’s internationalization also shows how important trust in its network partners is and how easily trust can be abused. For example, a partner of the company (co-founder and pastor in Uganda) used the trust to his financial advantage. According to Tenzer et al. (2014) proximity and similarities between network partners promote trust. Which is why Child et al. (2009) see psychic distance as a disruptive factor in international cooperation. Language barriers and cultural misunderstandings are examples that can affect the building and development of trust (Tenzer et al. 2014).

As mentioned above the network perspective assumes that access to an international network can accelerate internationalization and helps to overcome market entry barriers faster (Chetty & Campbell-Hunt, 2004; Freeman & Reid, 2006). This contradicts the model of Johanson and Vahlne (Morschett, 2010). It also shows that especially the newer approaches in the literature see the speed of internationalisation as a central aspect (Chetty & Campbell-Hunt 2004; Zhou et al. 2007). Oviatt and McDougall (2005) have summarized the main forces that influence the speed of internationalization in their model \”A Model of Forces Influencing Internationalisation Speed\”. In addition to “technology” and “competitors”, the forces already discussed, such as \”knowledge\” and \”network relations\”, play an important role (Oviatt & McDougall, 2005). Freeman et al. (2006) indirectly complement the model by arguing that owning a unique technology which offers a competitive advantage also accelerates the internationalization of small firms. Due to the unique technology of SENZ umbrella, international attention could be created within a short time. With a resulting increase in sales, the entrepreneurs started to consider shortly how they could enter the US market.

The born global theory approach which will be described in the following paragraph also sees international networks as a major success factor for internationalisation (Bell et al, 2001; Chetty/Campbell-Hunt, 2004). In addition, the new theoretical approach takes up another force of Oviatt and McDougall´s model (2005), “the entrepreneurial actor”, which is also described as an important factor for the dynamics of international orientation (Oviatt et al. 2004).

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