INTERNATIONAL VERSUS
DOMESTIC
ENTREPRENEURSHIP:
NEW VENTURE STRATEGIC
BEHAVIOR AND INDUSTRY
STRUCTURE
PATRICIA P. MCDOUGALL
Georgia State University
International entrepreneurship is dejned in this study as the development
of international new ventures or start-ups that, from their inception, engage
in international business, thus viewing their operating domain as international from the initial stages of the firm’s operation.
One hundred and eighty-eight new venture firms in the computer
and communications equipment manufacturing industries are classified
according to the percentage of their sales in the international market. Ventures with no sales derived
from international activities are considered “domestic” new ventures, and ventures with sales from
international activities comprising greater than 5% of total sales are considered “international” new
ventures.
The strategy and industry structure profiles of international new ventures are significantly
difSerentfrom domestic new ventures. The internationals pursue much broader market-based strategies,
seeking a strategy of broad market coverage through developing and controlling numerous distribution
channels, serving numerous customers in diverse market segments, and developing high market or
product visibility. The internationals also emphasize a more aggressive entry strategy, building on
outside financial and production resources to enter numerous geographical markets on a large scale.
Securing patent technology is also an important component of their strategy. This suggests that the
internationals compete by entering the industry on a large scale, seeking to penetrate multiple markets,
with the recognition that external resources are necessary to support such an entry.
Whereas both the domestics and the internationals characterize domestic competition as being
EXECUTIVE
SUMMARY
Atlanta,
Address correspondence
GA 30303.
to Patricia P. McDougall,
Department
of Management,
Journal of Business Venturing 4, 387-400
“1989 Elsevier Science Publishing Co., Inc., 655 Avenue of the Americas. New York, NY 10010.
Georgia State University,
0883~9026/89/$3.50
387
388
P.P.MCDOUGALL
relatively intense, the international new ventures compete in industries with higher levels of international competition. It is not clear from this research whether the new venture selects an industry
with a high degree of international competition and therefore responds with an international orientation
or, because the new venture has an international orientation, it perceives or recognizes a higher
degree of international competition. Another industry structure difference is the internationals’ perceived higher degree of restrictiveness due to government regulation. It is unclear whether this
restrictiveness motivates new ventures to seek less-regulated international environments or tfit indicates
that when competing internationally, the new venture is confronted with increased regulatory requirements.
Domestic new ventures are distinguished by their emphasis on a production expansion strategy
and customer specialization strategy. The production specialization strategy consists of focusing on
limited geographical markets, maintaining excess capacity, and pursuing forward integration. The
customer specialization strategy incorporates the production of a specialty product that is purchased
infrequently. Thus, for both of the domestic strategies, a consistent “closeness” between the producer
and consumer is implied. This may be an important basis underlining the new venture’s decision to
compete in an exclusive domestic context.
This study offers initial support for the notion of international entrepreneurship by its findings
that there are signt&ant differences between new venture firms competing domestically and new
ventures choosing to also enter international markets.
0
VER THE PAST FEW YEARS
THE TOPICS OF ENTREPRENEURSHIP
and the intemationalization of business have captured the attention of the business community. Even
in the relatively slow-moving world of academe, entrepreneurship and international business
have emerged as new bandwagons,
as manifest in the large numbers of entrepreneurship
and international business papers presented at recent meetings of such organizations as the
Academy of Management, the upsurge of articles in management-related
academic journals,
and the increased number of the university course offerings in these areas. Not surprisingly,
a linkage of the two fields has given rise to international entrepreneurship.
In this study, international entrepreneurship
is defined as the development of international new ventures or start-ups that, from their inception, engage in international business.
International new ventures see their operating domain as international from the inception of
the firm’s operation.
The question of what determines or distinguishes this new venture orientation-international versus domestic-has
not been the subject of theoretical or empirical investigation.
Although neither the entrepreneurship nor the international business fields directly addresses
international entrepreneurship,
a review of the theory and research of both fields suggests
that firm-specific and industry-specific
factors represent critical dimensions to explain and
differentiate firm behavior. This research extends these factors to the study of international
new ventures in an attempt to differentiate international new ventures and domestic new
ventures.
THEORY AND ASSUMPTIONS
UNDERLYING
THE METHOD
Entrepreneurship
Entrepreneurship
research has explicitly attempted to explain the creation and development
of start-up firms. Specifically, domestic-based researchers have focused on normative considerations regarding the description of the manager of the new venture (Brockhaus 1980;
Cooper 1971), the new venture strategy (McDougall 1987; Sandberg 1984), the creation
INTERNATIONAL VS. DOMESTIC ENTREPRENEURSHIP
389
and organization of the new firm (Allen 1968; Burgelman 1983; Van de Ven et al. 1984),
the “aggressiveness” of entrant strategy (Biggadike 1979; Hobson and Morrison 1983; MacMillan
and Day 1987) the selection of the marketing mix (MacMillan and Day 1987), and the
industry structure (McDougall 1987; Sandberg 1984).
Paralleling domestic-based research, international entrepreneurship
has primarily focused on entrepreneurs
and entrepreneurial
activities within a given country. This is in
contrast to studying U.S. entrepreneurs and entrepreneurial firms as they attempt to compete
in an international environment.
Typical are the examples of research reviews on entrepreneurship in specific countries (e.g., Federal Republic of Germany: Szyperski and Klandt
1981; Canada: Loucks 1981). Other researchers have focused on how to promote entrepreneurship and/or develop entrepreneurial programs within a foreign country (e.g., Honduras:
Yu-Way and Zuniga 1987; Puerto Rico: Jansson and Hisrich 1981). Most popular has been
the mimicking of much of the domestic-based entrepreneurship research in which researchers
focused on the profiles and psychological
characteristics of foreign entrepreneurs
(e.g.,
Australia: Perry, Meredith, and Cunnington 1988; Northern Ireland: Hisrich, 1988).
However, only a limited number of studies have focused on U.S. entrepreneurs competing in an international context. Citing the need for companies to look to foreign markets
because of intensified competition at home, Namiki (1988) identified four patterns of competitive strategy of entrepreneurial
firms competing in foreign markets. However, this study
made no attempt to compare these strategies with firms competing exclusively domestically.
Despite the clear and startling trend to competing in the international arena, there does
not exist a substantive understanding about what is different about international competition
relative to domestic competition (Kogut 1984). To date, entrepreneurship research has made
no attempt to distinguish differences in new venture firms competing exclusively domestically
with new ventures choosing to also enter international markets.
International Business
International business research and theory have implicitly assumed that the firm preexists,
thereby ignoring international entrepreneurship.
International business theory posits that the
internationalization
of a firm is a phenomenon occurring subsequent to the creation of the
firm. Specifically, a firm with operations existing domestically is posited to consider business
in an international context for reasons such as the recognition of market imperfections (Hymer
1960; Kindleberger
1969), to follow or meet the actions of competitors (Graham 1974;
Knickerbocker
1973), to exploit informational
advantages (Magee 1976), to control or
internalize intermediate markets (Buckley and Casson 1976), to mitigate financial risks
(Lessard 1979; Rugman 1979), or in response to internal and external change agents (Aharoni
1966; Bilkey 1978).
Given that the competitive and customer structure of the international start-up has not
been fully established, the hypothesized motives of serving an existing international customer
base or following competitor’s moves provides little insight into the international new venture. Furthermore,
in the absence of existing operations, a choice between external and
internal markets does not appear to be a particularly descriptive motive, nor does diversifying
financial or political risks. Thus, while explanations cited above have enhanced our understanding as to why or how existing firms engage in international business activities, with
the possible exception of the market imperfections paradigm, they offer little direct explanation regarding the existence or development of international start-ups.
It is plausible that while the structure and sources of competitive advantages are not
390
P.P. MCDOUGALL
fully developed, market imperfections are recognized by entrepreneurs and serve as the basis
for the international new venture. International new ventures may be a result of the identification and development of competitive advantages that allow the venture to immediately
begin existence as an international firm. Sources of international competitive advantages,
referred to as firm-specific factors, include advantages based on special marketing skills,
patented technology, product differentiation,
and superior organizational know-how, management techniques, and production processes (Robock and Simmonds 1983). Competitive
advantages may also be derived from the industry structure, based on factors such as the
capital requirements, economies of scale, industry concentration, and the internationalization
of the market (Robock and Simmonds 1983). Although the market imperfections paradigm
was expressively developed for explaining the multinational
firm, conceptually the international new venture may also be based on securing or developing such advantages.
Both international business and entrepreneurship
research suggest that firm-specific
and industry-specific
factors represent critical dimensions to explain and differentiate firm
behavior. Consequently, in this study firm-specific and industry-specific factors are examined
in an effort to empirically determine the combination of variables that discriminate between
international and domestic new ventures.
HYPOTHESES
Two premises form the foundation for the hypotheses of this research. The first premise is
that a distinction exists between the strategy content of domestic and international
new
ventures. Examining 225 domestic firms and 75 international firms, Roth and McDougall
(1986) found that the content of an organization’s strategy was contingent on the intemationalization
of the business unit, with no significant congruence between strategies of
international firms and domestic firms. Thus, given that (1) new ventures can be empirically
differentiated based on their strategy (Biggadike 1979; Sandberg 1984; McDougall 1987),
(2) strategic competitive advantages based on market imperfections exist and are exploitable
in an international context (Hymer 1960; Kindleberger 1969), and (3) there appears to be a
distinction between the strategy content of international versus domestic firms (Roth and
McDougall 1986), it is argued that international new ventures can be distinguished from
domestic new ventures based on their strategic orientation.
The second premise is that a distinction exists between the structural characteristics
of the industry in which an international new venture competes, vis-a-vis the domestic new
venture. Industrial organization research has argued and provided evidence supporting the
notion that the strategic Flexibility of a firm is not unconstrained (e.g., Galbraith and Stiles
1983; Harrigan 1982). The firm, having made the choice to compete in a specific industry,
is then constrained by certain structural characteristics of the industry. These structural
characteristics are considered the relatively stable dimensions of an industry that serve to
create the competitive context of the industry (Bain 1972). Rather than viewing the industry
structure and strategy content as independent choices, an interaction, or matching of strategies
to specific industry contextual conditions, appears to distinguish performance differentials
among firms (Christensen and Montgomery 1981; Harrigan 1981), as well as new ventures
(McDougall 1987; Sandberg 1984).
Although this research project is not concerned with performance implications of the
international versus domestic distinction, the industrial organization perspective does suggest
that structural characteristics of different industries vary and that firms respond to these
differences. For example, Cvar (1984) found that global competition varies by industry and
INTERNATIONAL VS. DOMESTIC ENTREPRENEURSHIP
391
therefore firms utilize distinguishable
competitive strategies in each context. Consequently,
the industry structure appears to be a potentially important discriminating
variable.
Therefore, it is argued that international
new ventures can be distinguished
from
domestic new ventures based on the industry structure they compete in and how they choose
to compete in that industry. Specifically, it is hypothesized that:
Hypothesis
1 International
tures .
new ventures are significantly
different than domestic new ven-
Furthermore:
Hypothesis
2 The industry structure and strategy content of international new ventures are
significantly different than the industry structure and strategy content of domestic new ventures.
The industry structure defines the overall strategic response of the firm, particularly
given the international versus domestic distinction. For example, given a global industry,
the firm conduct would, by definition, have to incorporate a greater international orientation
than would the firm competing in an exclusively domestic industry. Therefore, it is further
hypothesized that:
Hypothesis
3 The industry structure will contribute significantly more to explaining the
difference between international
new ventures and domestic new ventures
than will the strategy content.
METHODOLOGY
Sample and Procedure
Ventures in the sample were identified through a listing of new business ventures obtained
from Dun and Bradstreet. Paralleling prior research (Biggadike 1979; Miller and Camp
1985), a firm was considered a “new venture” if it was eight years old or less. Following
a pilot study, surveys were mailed to the owner, president, CEO, or chairman of the board
of 2,552 potential new venture businesses, from which 269 responses were returned.
The high failure rate of new ventures and the manner in which Dun and Bradstreet
lists the age of the firm undoubtedly contributed to the low response rate. An interview with
a D&B representative revealed that in many instances company files are updated only every
18 months. Given the high failure rates of new ventures, it is probable that many of the
surveys were sent to firms either out of business or in the process of going out of business.
A second factor depressing response rate was that many older businesses were included
on the D&B mailing list because D&B uses any change in ownership of the firm as the date
of origination, rather than the date the firm necesarily began operations. Thus, even a centryold firm, if it had recently changed ownership, would have been included on the D&B new
venture list. Of the 269 surveys returned, 19 failed to meet the age criteria when their
response to the first question, “Year your business came into existence,” was examined.
Two of the firms were over 50 years old. These 19 firms were excluded from further analysis.
Since the cover letter of the questionnaire indicated that the survey was part of a study of
new ventures and stated that the recipient’s business had been identified as a firm that entered
the marketplace within the past eight years, most firms that were not new ventures would
doubtfully have competed and returned the questionnaire.
Nonrespondent bias was examined by two means. Using D&B data for the population
392
P.P. MCDOUGALL
of new ventures in the same SIC codes, chi-square analysis confirmed that survey respondents
did not significantly differ (p = .05 level) by employee size or geographical location. In
addition, a follow-up telephone survey of 23 nonrespondents
was conducted. Five nonrespondents indicated that with the demands of a new business they were much too busy to
fill out a questionnaire;
five didn’t remember personally receiving the questionnaire;
three
indicated that they never respond to “any” type of survey; one indicated his business was
in the midst of a move at the time of the mailing; three of the executives to whom the
questionnaire was addressed had left the company; and six didn’t regard themselves as a
new venture (one was established in 1907, one in 1946, two in 1970, one in 1972, and one
in 1973). When asked, none of the nonrespondents
reported difficulty in completing the
instrument-they
simply lacked time and interest or didn’t regard themselves as new ventures.
Thirty-eight percent of the sample were new ventures from the Computer Manufacturing Industry Sector (SIC codes 355.5, 3573, and 3579) and 62% were from the Communications Manufacturing Industry Sector (SIC codes 3613, 3652, 3661, and 3662). The
average sales figure of the new ventures was $2,518,700 and the average market share was
19.5%.
Group Variable: Type of New Venture
New ventures were classified according to the percentage of their sales in the international
market. An international group and a domestic group were defined using the polar extreme
approach (Hair et al. 1979). Specifically, ventures with no sales derived from international
activities were considered “domestic” new ventures and ventures with sales from international
activities comprising greater than 5% of total sales were considered “international”
new
ventures. This procedure resulted in 90 firms being classified as domestic and 98 firms being
classified as international. The remaining firms were excluded from further analysis.
“Strutegy” Vuriables
Selected for use in the analysis were 26 competitive methods or strategy variables. Respondents indicated the relative emphasis their business unit placed on each competitive
method. This method of operationalizing
strategy has been used extensively in strategic
management research (Bourgeois 1980; Dess and Davis 1984; Hemmasi 1985; Robinson
and Pearce 1988; Gupta and Govindarajan
1986) and has the advantage of allowing respondents to convey firm-specific strategic emphasis with respect to each variable, while
subsequently allowing independent ascertainment of firm strategies. This is accomplished
through the identification of the “patterns of strategic behavior” across the strategic variables
revealed through multivariate data analysis.
A factor analysis was applied to the firms’ descriptions of their 26 strategy variables.
Factor analysis was considered appropriate, based on an analysis of the Pearson product
moment correlations and given a ratio of observations to measures of 6.2 (160 observations
to 26 measures), which exceeded the suggested ratio of 4 or 5 (Hair et al. 1979). An
orthogonal rotation (varimax) was performed and all factors with an eigenvalue greater than
one were retained for further analysis. This procedure resulted in extraction of 10 factors.
Each factor and the variable loading for each factor are listed in Table I. A conservative
factor loading criterion of 0.40 was used (Nunnally 1967 suggests a minimum loading of
0.30).
INTERNATIONAL
1
TABLE
Factor
Discriminating
Strategy
1
Factor 2
Factor 3
Factor 4
Factor 5
Factor 6
Factor 7
Factor 8
Factor 9
Factor 10
VS. DOMESTIC
ENTREPRENEURSHIP
393
Variables
Distribution and marketing strategy
High advertising and promotion (57858)
High brand identification and name recognition (58926)
New channels of distribution (.67005)
Large number of customers (.50487)
Numerous market segments (.48104)
Many channels of distribution (.72929)
Grand entry strategy
Broad geographical markets (.444 13)
Patent ownership of technology (.43837)
Outside sourcing of investment capital (.74947)
Use of subcontracting (.49697)
Large-scale entry (.59892)
Market coverage strategy
Broad product range (.72121)
Numerous market segments (.47220)
Low cost and pricing strategy
Premium product pricing (- .77258)
High concern for lowest cost per unit (.78234)
Service strategy
High customer service (.68877)
Superior product quality (.77768)
Backward integration strategy
Expensive backward integration (.71246)
Integrated production (.41255)
Long-term buyer contracts (.75873)
Production expansion strategy
Broad geographical markets ( - .4995 1)
Extensive forward integration (.64940)
Low capacity utilization (.69355)
Customer specialization strategy
Commodity products (- .48710)
Infrequent purchases (.77536)
Volumes specialization
Large customer order (.78360)
Manufacturing and control strategy
Innovative manufacturing processes (.54264)
Low general and administrative expenses (.79043)
Factor loadings are in parentheses
“Industry Structure” Variables
Respondents
were asked to indicate the nature of the industry in which their firm competes
based on 18 industry structural factors (see Table 2). The structural factors included industry
technological factors and industry competitive variables that have been suggested as being
indicative of the state of competition in an industry and the overall attractiveness of the
industry (Harrigan 198 1, 1982; Porter 1979, 1980). Given the difficulty in defining industry
boundaries for new ventures, the dynamic nature of the particular industries being studied,
and the lack of data availability at a sufficiently narrow SIC code level, measures of industry
structure characteristics in this research were assessed through each respondent’s perception
of their firm’s industry.
394
P.P. MCDOUGALL
TABLE 2
Discriminating Industry Structure Variables
Advertising expenditures
R&D expenditures
Industry concentration
Capacity utilization
Industry growth rate
Manufacturing plant efficiency size
Domestic competition intensity
International competition intensity
Industry profit margin
Economies of scale
Customer switching costs
Distribution channel availability
Government policies
Price competition
Retaliation by industry incumbents
Proprietary methods of production
Access to raw materials
Customer loyalty
Analysis
The objective of this research was to differentiate two groups-international
new ventures
and domestic new ventures-based
on a set of independent variables. An appropriate statistical technique for classifying units into a priori defined groups is discriminant analysis,
achieved though “maximizing
the between group variance relative to the within group
variance” (Dillion and Goldstein 1984, p. 360). A holdout sample consisting of 28 randomly
selected observations was withheld from the initial analysis to allow subsequent testing of
the validity of the discriminant function. This procedure adjusts for the upward bias that
occurs if observations used in computing the discriminant function are also used for developing the classification matrix. Unfortunately,
no definitive criteria have been suggested for
dividing the total sample into the holdout group and the analysis group. However, the holdout
group becomes relatively more important depending on the desired external validity. Given
the limited sample size and the exploratory nature of this research, the decision was made
to use a larger sample for deriving the function to ensure stability of the coefficients,
recognizing that a trade-off in generalizability
results from the small holdout sample.
The individual strategy factor scores for each firm were calculated using the following
formula:
fi
=
UliZl
+
U*jZ*+
’
.
’
+UjiZj,
where uji is the factor score coefficient for strategic variable j on factor i and z is the firm’s
standardized value on the strategic variable j.
The strategy factor scores and industry variables were then entered into the discriminant
function based on Wilks’ lambda, the likelihood ratio criterion (Klecka 1980). A stepwise
procedure was used because the discriminating
variables were not known from previous
research or suggested by theory.
RJCWLTS
The analysis resulted in the discriminant function reported in Table 3. The centroids or mean
values of the discriminant function were -0.6464
for the domestic group and 0.5848 for
the international
group. The difference in the centroids, D* (Mahalanobis’s
generalized
distance), can be transformed into an F statistic, which may then be used to determine if
the two groups are statistically different (Morrison 1969). Mahalanobis’s generalized distance
between the two groups was 1.2312, statistically significant at the 0.001 level (F 0.001; 9,
150).
Given the statistical significance between the two groups, it is meaningful to examine
INTERNATIONALVS. DOMESTICENTREPRENEURSHIP 395
TABLE 3
Results of Discriminant Analysis (N = 160)
Canonical discriminant functions evaluated at group means
(centroids)
Group variable
0.5848
International new ventures
-0.6464
Domestic new ventures
Standardized discriminant function coefficients
Discriminating variables
0.6069
Distribution and marketing strategy
0.5158
Grand entry strategy
- 0.4267
Market and production expansion strategy
-0.3867
Customer specialization strategy
- 0.3048
Domestic competition intensity
0.5328
International competition intensity
-0.2632
Economies of scale
0.4109
Restrictive government policies
-0.2410
Retaliation by industry incumbents
the individual contribution of variables to the overall discrimination.
Four strategy variables
and five industry structure variables entered the discriminant function. An analysis of the
standardized discriminant function coefficients listed in Table 3 suggests the variables that
discriminate between international new ventures and domestic new ventures. Based on the
standardized coefficients, the following variables were the “relatively more important” variables: distribution and marketing strategy, intensity of international competition, grand entry
strategy, production expansion strategy, restrictiveness of governmental policies, and customer specialization strategy. Further differentiation of international and domestic new ventures can be made by testing the differences between the group means on each discriminating
variable. These are reported in Table 4. Using a one-way analysis of variance (ANOVA),
six of the discriminating variables were found to differ significantly between the two groups.
A further step in examining the validity of the discriminant function is through the
construction of classification matrices. Classification matrices provide an assessment of the
discriminating
power of the function by revealing how well the function classifies the units
(Klecka 1980). The classification analysis (see Table 5) indicates that approximately 65%
of the domestic cases and 85% of the international cases could be correctly classified by the
discriminant function for both the calibration data and the holdout sample, for an overall
hit ratio of 75%.
It is generally suggested that classification accuracy should be at least 25% greater
than would be expected by chance alone (Hair et al. 1979). Thus considering a 50% classification by chance, classification accuracy for the holdout sample should be at least 62.5%.
The classification accuracy for both domestic and international new ventures exceeded this
criterion, therefore the model appears to have a high degree of explanatory power.
Testing the Hypotheses
Hypothesis 1, that international new ventures are significantly different than domestic new
ventures, was supported. As previously reported, the centroids or mean values of the discriminant function were -0.6464
for the domestic group and 0.5848 for the international
group. The Mahalanobis’s generalized distance (1.2312) was statistically significant (F 0.001;
9, 150). Thus, an apparent difference between international and domestic new ventures was
found.
Hypothesis 2, that the industry structure and strategy content of international
new
396
P.P. MCDOUGALL
TABLE 4
Characteristics
Standard
Differentiating
Deviations,
International
and Results
Variable
of One-Way
Intemationar
Distribution
and marketing
strategy
Grand entry strategy
Production
Customer
versus Domestic
ANOVAs
expansion
specialization
Domestic competition
International
strategy
intensity
Economies
of scale
Restrictive
government
Retaliation
by industry incumbents
(1.04)
-0.163
(1.03)
0.188
(1.03)
0.214
(1.03)
5.263
(1.65)
3.026
(2.15)
3.855
(1.87)
2.539
(1.93)
3.882
(1.95)
(.98)
5.071
(1.73)
3.952
(1.89)
3.774
(1.76)
3.107
(1.96)
3.929
(1.71)
intensity
competition
- 0.257
(.87)
0.275
(.98)
-0.091
policies
Means,
Domestic&
0.285
(.98)
-0.204
strategy
New Ventures:
F
12.859***
7.578***
6.089**
3.691*
0.510
8.372**
0.080
3.403*
0.026
Standard deviations are in parentheses.
“N = 16.
bN = 84.
*p < .lO.
**p < .05.
***p < ,001.
TABLE 5
Results of Classification
Matrix
Predicted group membership
of new ventures
Actual group
Classification matrix for calibration
Domestic new venture
International
new venture
new venture
Domestic
International
76
51
67.1%
14
16.7%
25
32.9%
70
83.3%
9
64.3%
2
14.3%
5
35.7%
12
85.7%
data
Classification matrix for holdout data
Domestic new venture
International
No. of cases
84
14
14
INTERNATIONAL
VS. DOMESTIC
ENTREPRENEURSHIP
397
ventures are significantly different than the industry structure and strategy content of domestic
new ventures, was supported for six of the discriminating
variables that entered the discriminant function. Specifically,
international
new ventures and domestic new ventures
differed on the degree to which they pursued a distribution and marketing strategy, a grand
entry strategy, a production expansion strategy, and a customer specialization
strategy.
Considering the industry structure variables, international new ventures and domestic new
ventures differed on the intensity of international competition within the industry and on the
perceived restrictiveness of governmental policies.
To examine hypothesis 3, that the industry structure will contribute significantly more
to explaining the difference between international new ventures and domestic new ventures
than will the strategy content, the relative contribution of the subset of strategy variables
versus the subset of industry variables discriminating
between international and domestic
new ventures was examined. The test of the contribution of a subset of predictor variables
is in the form of (Dillion and Goldstein 1984):
Q=
n-p
P-9
- 1 c (0; - 0;)
1 + CD;
where C = nlnzln(n - 2), n = nl + n 2, and 0: and 03 are the Mahalanobis distances
based on the p full model and the q restricted model.
Considering the full model comprised of both the industry and strategy variables, and
the restricted model consisting of only the industry variables, Q = 4.6146, the statistic F
(4, 150) is significant at the 0.01 level. Thus, the strategy variables contribute more to the
distinction between international new ventures and domestic new ventures than the subset
of industry variables. Consequently,
hypothesis 3 was not supported.
DISCUSSION
The findings suggest that in the computer and communications
manufacturing
industries,
international
new ventures are distinguishable
from domestic new ventures. International
new ventures varied from domestic new ventures based on their strategy and industry structure
characteristics, with the strategy variables accounting for more of the group discrimination
than the industry variables. This research also provides an initial opportunity to empirically
investigate the relationships between specific strategy and industry structure variables and
international and domestic new ventures. The findings suggest the profiles of international
and domestic new ventures, based on the weights of the standardized coefficients and group
means, reported in Tables 3 and 4.
The variable that contributed the most to the discriminant function was the distribution
and marketing strategy. This is a rather comprehensive strategy, with the international new
venture pursuing a strategy of broad market coverage through developing and controlling
numerous distribution channels, serving numerous customers in diverse market segments,
and developing high market or product visibility. Thus the emphasis is on high market
awareness, market channel control, and overall market penetration.
The intensity of international
competition was the second most important variable
distinguishing
international and domestic new ventures. Whereas both groups characterized
domestic competition as being relatively intense, the international new ventures compete in
industries with higher levels of international competition. This is an interesting finding that
warrants additional research. It is not clear from this research whether the new venture
selects an industry with a high degree of international competition and therefore responds
398
P.P. MCDOUGALL
with an international orientation or, because the new venture has an international orientation,
it perceives or recognizes a higher degree of international competition. However, there is
certainly a logical consistency for industries with a high degree of international competition
being properly matched with new ventures attempting to compete internationally.
The third most discriminating
variable was the grand entry strategy. This strategy,
emphasized by international new ventures, builds on outside financial and production resources to enter numerous geographical markets on a large scale. Securing patent technology
is also an important component of this strategy. Research has indicated that patent technology
is important to the success of new ventures (Miller and Camp 1985). Likewise, more
aggressive or large-scale entry has been associated with superior new venture performance
(Biggadike 1979; Hobson and Morrison 1983; MacMillan and Day 1987). It suggests that
a response to competing in an industry with a high degree of international competition is to
enter the industry on a large scale, penetrating multiple markets, recognizing that external
resources are necessary to support such an entry.
Whereas the international group can be distinguished by an emphasis on the distribution
and marketing strategy and grand entry strategy, domestic new ventures appear to be differentiated by their emphasis on a production expansion strategy and customer specialization
strategy. The production specialization strategy consists of focusing on limited geographical
markets, maintaining excess capacity, and pursuing forward integration. Harrigan (1983)
has posited that in young industries, firms may need to integrate forward to create an
infrastructure, and explain their products. Excess capacity may be essential to this building
process, particularly given that efforts are being made to directly serve the customer. The
customer specialization strategy incorporates the production of a specialty product that is
purchased infrequently. Thus, for both strategies distinguishing
domestic new ventures, a
consistent “closeness” between the producer and consumer is implied. This may be an
important basis allowing the new venture to compete in an exclusive domestic context.
The final difference between international
and domestic new ventures was in the
perceived restrictiveness of governmental policies. The international new ventures perceived
a statistically significant higher degree of restrictiveness due to government regulation. It is
unclear whether this restrictiveness is a causal agent that motivates a set of new ventures to
seek less-regulated environments and therefore compete internationally,
or if it indicates that
when competing internationally,
the new venture is confronted with increased regulatory
requirements.
CONCLUSIONS
This research provides strong support that the strategy and industry structure profiles of
international new ventures can be distinguished from domestic new ventures. International
new ventures apparently compete in industries distinguished by a higher degree of international competition and restrictiveness of governmental policies vis-a-vis domestic new
ventures and pursue much broader market-based strategies. Additional research and theory
is needed to further refine and analyze these relationships, as well as examine other contingencies. Future research should also incorporate a normative perspective, thereby allowing
prescriptive recommendations
to be forwarded. For example, although this research makes
a distinction between international new ventures and domestic new ventures, it leaves unanswered the question of whether this distinction is important with respect to new venture
success.
In a broader sense, this research provides initial support for the notion of international
INTERNATIONAL
VS. DOMESTIC
ENTREPRENEURSHIP
399
entrepreneurship,
as evidenced by the difference of international new ventures from domestic
new ventures. Other aspects of international entrepreneurship,
such as the process of creating
and managing the international new venture, the characteristics of the international entrepreneur, and international new venture funding, certainly warrant research attention.
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