The network approach to
rapid internationalization
among Born-Global and
Born-again Global firms:
The case of the “Global
Innovation Network”
MarineFalize,
Regis Coeurderoy,
Louvain School of Management
ESCP Europe Paris
L O U V A I N S C H O O L O F M A N A G E M E N T R E S E AR C H I N S T I T U T E
Louvain School of Management
Working Paper Series
THE NETWORK APPROACH TO RAPID INTERNATIONALIZATION
AMONG BORN-GLOBAL AND BORN-AGAIN GLOBAL FIRMS: THE CASE OF
THE GLOBAL INNOVATION NETWORK
MARINE FALIZE
Louvain School of Management, Université catholique de Louvain, 1 place des doyens,
B-1348 Louvain-la-Neuve, BELGIUM
[email protected]
REGIS COEURDEROY
ESCP Europe Paris et Université catholique de Louvain
Accepted by a double blind review process for the 26th RENT conference (30 July 2012)
International activities are increasing and the modes of internationalization are becoming more diverse.
Numerous SMEs, especially in high technology environments such as “born global” or “born-again global”
internationalize faster and faster. However a general constraint that many of these small innovative firms face is
relatively restricted resources. In our study we focus on explaining how international network acts to reduce
fundamentally internationalization liabilities and perceived risk and how rapid internationalization of SMEs is
possible through this formal network. Common over the literature is the focus on patterns of internationalization
of SMEs rather than on the network itself. The need for in-depth case study on network specific to rapid
internationalization among Born-Global and Born-again Global firms has been recognized by Arenius (2002),
Andersson and Wictor (2003), Sharma and Blomstermo (2003), Autio (2005) and Coviello (2006). In the paper,
we describe the beneficial aspects and also potential negative effects (called by Elango and Pattnaik, 2007) of a
specific international network developed in Belgium.
Given the current limited understanding of international network activities, it appeared that a qualitative
research method would be the most appropriate. The extended case study for this paper consisted of the Global
Innovation Network. The objectives of the network representatives are to provide information and advice
regarding the opportunities offered by foreign markets and to build global companies through the simultaneous
commercialization of new worldwide technologies. The main form of data collection of this study was official
papers and in-depth interviews during 2 years (2010-2012).This network offers a fascinating context in which to
explore the potential contribution of international networks to rapid internationalization process in terms of
information, resource and control benefits. This sharing of technology, capital, between firms, universities,
incubators, and partners within the Global Innovation Network open up an array of opportunities that would
otherwise not be available to internationalizing SMEs. International networks for innovative SMEs may then
provide an answer to the challenge of globalization for smaller companies.
Keywords: International Entrepreneurship, Network of collaboration, Innovation.
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Marine Falize & Régis Coeurderoy
1. Introduction
The current economic environment reflects the complex integration of global
economies. Rapidly changing international markets create a lot of challenges and
uncertainty for internationalizing companies. International activities are increasing and
the modes of internationalization are becoming increasingly diverse. Firms often start
their internationalization via import or export and then gradually increase their
international commitment. However, an increasing number of enterprises, especially in
high technology environments such as “Born Global” or “Born-again Global”
internationalize faster and faster. The global restructuring process is accompanied by
increasing scarcity of resources, forcing firms and governments to think about
opportunities for sustainable growth. This is particularly evident in Belgium, a country
that has developed into one of the most globalized countries in the world. This openness
has an important impact on the behavior and the performance of firms located in
Belgium. Rapid changes in the global economy confront firms with a myriad of strategic
challenges for successful growth. Belgium is an interesting country to analyse due to its
small and open economy with a very limited domestic market. With respect to
environmental factors, an important driver for internationalization relate to the size of the
domestic market of the focal firm vis-à-vis the potential of the international market
(Knight and Cavusgil, 1996), and the relative ease of access to the latter markets. In a
country where the domestic market size is small, internationalization is an important
growth strategy (Sapienza, Autio, George, & Zahra, 2006).
International innovative Small and Medium-size Enterprises (SME) play a major
role in the Belgian economic growth*. However a general constraint that many of these
small innovative firms face is relatively restricted resource as compared to what is
available to larger firms. The internationalization process requires a level of investments
and resources that smaller companies typically do not possess. SME may be constrained
by the high and increasing costs of search partners and contract negotiation. One solution
for these entrepreneurial firms to overcome this constraint is by cooperating. Companies
more and more internationalize and simultaneously open up their innovation process to
*
Handbook on community state aid rules for SMEs, February 2009.
The network approach to rapid internationalization 3
collaborate with external partners (suppliers, customers, universities)†. This clearly has
important implications for policy making, given the contribution of innovation to
economic growth. The concept of network for SMEs is not totally new but the
organization of innovative activities across firm boundaries is clearly on the increase,
with more balance between internal and external sources of innovation. Even so, the
entire system of collaborative innovation activities stimulates innovation of a country.The
increasing worldwide economic integration leads to the creation of new world-wide
networks. New communication technologies simplify interaction within SMEs and create
new opportunities for collaboration between them, including the intensive use of
international sourcing. International sourcing from external parts is often used to increase
competitiveness (Coucke and Sleuwaegen, 2007). International networks for innovative
SMEs may then provide an answer to the challenge of globalisation for smaller
companies. It may offer a less costly alternative for obtaining access to local centres of
knowledge around the world. International network may speed up the internationalisation
of innovation in smaller high-technology companies.
The paper proceeds by reviewing important features of the internationalization
pattern. Next, drawing on this selective literature review, we describe four barriers to
internationalization for SMEs and suggest the network approach as a way to overcome
these liabilities. In the section following that, because our interest was in model
development, we chose the single-case method as our research strategy. Our approach
responds to the recent calls for more in depth case study in internationalization and
network theory (Oviatt and McDougall, 2003; Arenius, 2002; Andersson and Wictor,
2003; Sharma and Blomstermo, 2003; Autio, 2005; Coviello, 2006). Common over the
litterature is the focus on patterns of internationalization rather than on the network itself.
Our study emphasize on a specific international network developed in Belgium (The
“Global Innovation network”). After, we describe the beneficial aspects of network for
internationalization and also the risks it may cause. In their review of the literature,
Elango and Pattnaik (2007) called for work indicating potential negative effects of such
an approach. Finally, the model we develop in this paper proposes that the international
network decrease the four types of liabilities for internationalization and affects the speed
†
Open innovation in global networks, OECD publications, 2008, Paris, France.
4
Marine Falize & Régis Coeurderoy
at which SMEs penetrate foreign market. In the concluding section we discuss
implications of the framework for SME and public policy, as well as limitations and
opportunities for future research.
2. Theoretical Framework
2.1. Features of the internationalization pattern
Internationalization can be defined as “the process of adapting firms’ operations
(strategy, structure, resource, etc.) to international environments” (Calof and Beamish,
1995, P. 116). The main theoretical frameworks on the internationalization process are
those of Johanson and Vahlne (1977) and Oviatt and Mc Dougall (1994). Oviatt and Mc
Dougall have positioned their work as a challenge to the received Uppsala model but the
two frameworks appear complementary. The purpose of Johanson and Vahlne was to
explain the gradual, constrained pattern of internationalization whereas Oviatt and
McDougall’s model emphasizes enabling factors (Autio, 2005).
The stage models, which started in the ’70 in the Nordic countries, assume that
internationalization process starts with sporadic overseas sales and continues with bigger
and bigger commitments in the foreign markets through sales (Kalinic, 2009). The
traditional pattern is a process in which a firm gradually increases the number and
diversity of markets it serves (Johansson and Vahlne, 1977). Several studies have
critiqued this traditional, incremental internationalization models which have mostly
focus on large firms (Coviello and Munro, 1995; Knight, 1997; Knight and Cavusgil,
2004; McDougall, Shane, and Oviatt, 1994; Moen and Servais, 2002).
The main models challenging the ‘traditional’ process we can identify in the literature at
the beginning of the ‘90 are the ‘born-global’ (Knight and Cavusgil, 2004; Rennie, 1993)
and ‘born-again global’ internationalization patterns (Bell, McNaughton and Young,
2001; Bell, McNaughton, Yougn and Crick, 2003), which differ in terms of pace and
degree of internationalization. These authors found that some SMEs are able to
internationalize more rapidly than the stage models predict, jumping over some stages
(Oviatt and McDougall 1994, 2005). A new subfield in International Business emerged:
The network approach to rapid internationalization 5
“International Entrepreneurship”. International entrepreneurship is “the discovery,
enactment, evaluation, and exploitation of opportunities, across national borders, to create
future goods and services” (McDougall and Oviatt, 2000).
Born-Global firms (BGs) are firms that are internationally oriented since their inception,
or soon after it, and manage to reach a certain degree of internationalization within a
relatively small number of years (Kalinic, 2009). Born-again Global firms (BaGs) are
firms that are well established in their home markets, and have suddenly embraced rapid
internationalization (Bell et al., 2001, 2003). BGs are then early and rapidly adopters of
internationalization
whereas
BaGs
are
rapidly
but
not
early
adopters
of
internationalization. This type of behaviour is often a response to a ‘critical’ incident
which is either internal or external (Bell et al., 2003). SME can speed up their
internationalization process if there is a critical event that increases their knowledge
intensity such as the access to new global networks. BG and BaG are internationalization
process with strong innovative characteristics. Similar to innovation BGs and BaGs are
required to be able to adapt a changing environment and demonstrate new ways of
thinking in order to succeed in addressing the challenges posed by the process (Uri and
Shoham, 2011). Firms with highly sophisticated knowledge bases are likely to
internationalize much more rapidly than those with more basic capabilities (Bell et al.,
2003).
Surprisingly the extant literature does not give detailed information about BG or BaG
internationalization patterns (Kuivalainen et al., 2012). There are several definitions of
rapidly internationalizing firms (Bacq and Coeurderoy, 2011) but the results are hard to
compare. Following Kuivalainen (2012), there have been only a few attempts to establish
a rigid typology of internationalizing SMEs (see e.g., Apselund and Moen, 2005).
Although authors do not give detailed classification criteria for BG or BaGs, there is
sufficient evidence of the phenomenon to justify further investigation of these specific
firms. In the literature, there are three dimensions that make a distinction between
traditionally internationalizing firms and internationalization of BGs and BaGs: Time,
Scale and Scope.
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Marine Falize & Régis Coeurderoy
TIME is defined through two criteria: the time lag between the founding of a firm and the
commencement of its international operations (PRECOCITY) and the speed of a firm’s
subsequent international
growth and development (SPEED) (Autio, Sapienza and
Almeida, 2000; Jones and Coviello, 2005, Zuchella et al., 2007). According to the first
criteria, Traditional Firms and BaG are firms that first established themselves
domestically. They operate for a long time in their home markets before entering
international markets. BGs in the other hand aim for international markets from
inception. According the second criteria of time, the speed of internationalization,
traditional firms gradually increases the number of the markets they serve. BGs and BaGs
internationalize rapidly, they jump over some stages and reach a certain degree of
internationalization within a relatively small number of years.
Traditional Firms
Born-Global firms
Born-Again Global firms
TIME
(precocity)
Operate for a long time
in their home markets
Aim for international
markets from inception
Operate for a long time in
their home markets
TIME
(speed)
Gradually increase the
number of markets
SCOPE
Market concentration
(narrow geographic
scope at the beginning
of international
operations)
Reach a certain degree of
internationalization within
a small number of years
Market diversification
(broad geographic scope
almost from inception)
Reach a certain degree of
internationalization within
a small number of years
Market diversification
(broad geographic scope
almost from the first
international involvement)
SCALE
Slow, evolutionary
path of development
Internationalize rapidly
with a high share of
foreign sales
Internationalize rapidly
with a high share of
foreign sales
Figure1. Exploratory typology of internationalizing SMEs
The SCOPE dimension refers to the number of countries or markets where the firm
internationalize. The traditional process of internationalization is characterized by a
market concentration. Firms should have a narrow market scope at the beginning of its
international expansion (Johansson and Vahlne, 1977). The BGs and BaGs process is
characterized by a market diversification. SMEs begin to operate in multiple countries on
international markets almost from inception (BGs) or almost from the first international
involvement (BaGs).
The network approach to rapid internationalization 7
The SCALE dimension relates to the extent of a firm’s international operations. The most
common indicators seem to be the export ratio. Whereas traditional firms tend to follow a
slow, evolutionary path of development, BGs and BaGs internationalize rapidly with a
high share of foreign sales.
2.2. Liabilities of expansion, newness, foreignness and perceived risk
Traditional internationalization of SME is a process characterized by many
uncertainties due to the limited knowledge of the foreign country and limited resources
(Kalinic, 2009). Internationalizing SMEs face constraints arising from their intrinsic
deficiencies in resources and capabilities. Such constraints make internationalization a
challenge to most of these firms (Oviatt and McDougall, 1994). In internationalization
process, additional resources may be necessary in the new countries that are not
necessary in the home country. Since the internationalizing firm will need to incur
expenses that local competitors do not, the lack of such resources can negatively affect
the operations in the new country vis-à-vis the local competitors. In the literature, the
liability has been broadly defined as all the additional costs a firm operating in a market
overseas incurs and that a local firm would not incur (Hymer, 1976). The literature is
extensive with studies on how international business can incur different sets of costs
compared with those taking place domestically (Eden and Miller, 2004). While some of
those costs may stem from the different economic structure of the foreign countries
involved, many of them can be traced at the efforts expanded to adapt the local business
to the cultural norms and systems that prevail in the foreign country. Psychic distance,
defined as the factors that make it difficult to understand foreign environment, is a key
explanatory variable regarding the firm’s expansion into foreign markets (Johanson and
Vahlne, 1990). Markets differ in terms of factors such as language, culture, business
practices, education, industrial development and political systems. Firms must then adjust
to a foreign national culture and be prepared for challenges, such as differences in
lifestyles, cultural standards, consumers preferences, and purchasing power (Sousa and
Bradley, 2005).
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Marine Falize & Régis Coeurderoy
A basic assumption of the internationalization model is that the lack of knowledge about
foreign markets is a major obstacle to international operations as it is difficult to manage
a firm spanning more than a single region. In this paper, we used the three types of
difficulties in internationalization, suggested by Cuervo-Cazurra et al. (2007), based on
the nature of the complementary resources and we add a fourth dimension which is the
perceived risk:
Liability of expansion. The SME may lack of complementary resources needed to
operate at a larger scale. More specifically, SMEs which intend to go abroad can suffer
from lack of knowledge about how to conduct a business in a foreign country.
Internationalization is often accompanied by adding new operations. It requires the firm
to deal with additional transportation, communication and complexity costs (Tallman and
Li, 1996). These managerial costs involved with internationalization are usually higher
than in a domestic context (Vernon, 1977). The liability of expansion represents then the
additional costs of doing a business abroad. These costs are directly associated with
spatial distance, such as cost of travel and coordination over distance and across time
zones (Zaheer, 1995). A firm as a reduced threat of facing the liability of expansion when
it has already developed experience and resources from operating across several
geographic locations. We hypothesise that SMEs could overcome this liability of
expansion through international business knowledge and services.
Liability of newness. The SME may lack of complementary resources needed to operate
in a new competitive environment. When the firm moves to another country, the
competitive environment often differs, requiring some additional resources that the firm
does not have. Difficulties in establishing international partnerships have been recognized
as one of the major factors slowing down internationalization (Karagozoglu and Lindell,
1988). The pace at which an international venture penetrates a new market is affected by
speed at which it is able to locate customers, suitable partners, and close deals. For
entering a new country market, the inexperienced firm will experience several transaction
costs (Teece, 1986) such as search costs to find reliable local sales agents; negotiation
cost to negotiate favorable contractual arrangements; compliance and enforcement costs
to monitor the conduced deal effectively.
The network approach to rapid internationalization 9
In her study, Arenius (2005) shows that another important barrier for internationalization
was caused by the lack of legitimacy and influence in the new environment.
Internationalizing ventures lack attractiveness in the eyes of potential customers and
partners because they lack information about the venture’s competence and reliability.
We hypothesise that SMEs could overcome the liability of newness by actively acquiring
information about foreign potential partners and developing the complementary resource
needed to compete in the new environment.
Liability of foreignness. The SME may lack of complementary resources needed to
operate in a new institutional environment. Internationalizing firms suffer from liability
of foreignness because they are new to foreign country; they have no active presence on
the market and are missing a shared history and a shared context. International commerce
is considered risky because it may involve loss of assets as a result of changes in
political, economic, social and legal factors in foreign markets where local firms
compete. When the SME moves into a new country with a different institutional
environment, it may need complementary resources for dealing with other entities and
prevailing rules of behavior (Zaheer, 2002). The institutional environment, the set of
norms and rules that constrain human behavior, such as culture, language, religion, and
the political, legal and economic systems (North, 1990), affects all firms operating in the
country. This lack of complementary resources needed for understanding the new
institutions create difficulties. In order to enhance the success of their operations abroad,
SMEs need to learn about the institutions that define how people act and interact in the
new environment. It include laws and written conventions but also codes of conduct,
norms, values and behavioural conventions (North, 1990). The liability of foreignness
implies that a lack of knowledge of local cultures and institutions increases the failure
rate of foreign expansions (Barkema and Drogendijk, 2007). We hypothesise that SMEs
can overcome the liability of foreignness by developing the complementary resources
internally, the development of tacit knowledge of how to operate in the new institutional
environment (Eriksson et al., 1997), and the creation of new informational sources
(Zaheer, 2002).
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Marine Falize & Régis Coeurderoy
Perceived risk. The success or the failure of the firm when entering a new foreign
market will also be closely linked with the additional level of threat to its proprietary
intellectual assets, especially in high-technology industry. The inability to define
complete contracts and the lack of resources to defend their legal rights are likely to
encourage opportunistic behaviour by local competitors. The risk could be exacerbated
because the local competitors have better knowledge of domestic regulatory frameworks
and business rules. The SME have to accept the imminent prospect of additional
technology transfer risks when entering into the foreign market. These potentials
intellectual proprietary threats include: the “hold-up” of specific assets; the appropriation
or technological leakage and the spill over of key information to competitors in
international alliances (Williamson, 1991; Ahuja, 2000). We hypothesise that social
embeddedness within network partners may decrease opportunistic behaviors and
perceived risk.
2.3. Network theory and International Entrepreneurship
These three types of liabilities and perceived risk negatively affect the speed at
which SMEs penetrate foreign market. Because learning cultural and institutional
differences take time, the internationalization process tends to be gradual and
incremental. Research shows that network ties are an important resource facilitating
internationalization,
internationalization
especially
(Kontinen
among
and
SMEs
Ojala,
with
2011).
limited
In
the
resources
network
for
theory,
internationalization is seen as an entrepreneurial process that is embedded in an
institutional and social web which supports the firm in terms of access to information,
human capital, finance, and so on (Bell et al., 2003). The companies develop their
capabilities
throughout
the
entire
network
and
improve
their
international
competitiveness. In organizational settings, networks may involve social relationships
among individuals embedded in a formal structure of business connections or an informal
structure of personal relations bounded in geographical, social, or institutional spaces
(Hitt et al., 2002). The focus of our study is the formal network of international
collaboration relationships. Internationally oriented firms are engaged in a diverse range
of cross-border relations and exchanges (Ellis, 2000).
The network approach to rapid internationalization 11
Liesch et al. (2002) indicate that building and maintaining network relationships are
considered an integral part of the internationalization process. By accessing international
knowledge base through network, internationalizing SMEs can expedite its learning
process (Eriksson et al., 1997). Networks help sharpen international vision and
managerial openness (Oviatt and McDougall, 2005), they represent an important source
of valuable information (Ellis, 2000) and knowledge for developing new organizational
capabilities (Park and Luo, 2001). The network can also be extended to identifying
foreign market opportunities (Ellis, 2000; Ellis and Precotich, 2001; Harris and Wheeler,
2005) and are useful for screening and evaluating potential exchange partners (Ellis,
2000). In international network, the knowledge gained about the markets, competitors,
suppliers and customers offers important clues about new market to enter (Arenius,
2002). Besides, social ties appear to have enhanced legitimacy and the reputation of the
internationalizing SMEs (Chetty and Wilson, 2003; Coviello, 2006). Network can then
act as a bridge to foreign markets and represents critical avenues for the acquisition of
resources necessary for firm international survival and growth (Gulati, 1998).
In the literature we have identified twenty-one articles (see figure 2) focused on
Network Theory and International Entrepreneurship. International Entrepreneurship’s
general interest in networks and relationships is first highlighted by Coviello and Munro
(1995, 1997). They introduce the influence of network ties on the internationalization
process of small firms. Network relationships were recognized to be indispensable for
SMEs to achieve international growth (Coviello and Munro, 1997). At the same period,
Zacharakis (1997) applies the transaction cost theory to discuss the entrepreneurial entry
strategies into foreign markets. It seems that the network thematic area ‘re-born’ in 2005
with an article that show how entrepreneurial corporate new ventures use partners in their
internationalization (Varis et al., 2005). In 2006, a plethora of network-focused research
began to appear with Coviello’s famous article “The network dynamic of international
new venture” (Coviello, 2006). The period 2006-2008 comprise the bulk of the studies in
the network thematic area.This stream of research stresses the importance of social
relationships, which may often replace the ownership of physical resources by the access
to resources. International network can then help SMEs learn new capabilities and
provide access to resources and knowledge.
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Marine Falize & Régis Coeurderoy
What is interesting in this table is that all these studies focused on the SMEs and
its social relationships but not on the network itself. Our approach responds to the calls
for more in depth case study in internationalization and network theory (Oviatt and
McDougall, 2003; Arenius, 2002; Andersson and Wictor, 2003; Sharma and Blomstermo,
2003; Autio, 2005; Coviello, 2006). Common over the above literature is the focus on
patterns of internationalization of SMEs rather than on the network itself. Our study
sheds light on a specific international network developed in Belgium (the “Global
Innovation Network”). In our empirical research we then focus on explaining how this
network acts to reduce fundamentally the three types of liabilities and perceived risk and
how rapid internationalization of Born Global firm or Born-again Global firm is possible
through this type of formal network.
Louvain School of Management
Working Paper Series
1
Louvain School of Management
Working Paper Series
3. Research strategy
Because our interest was in model development, we chose the case method as
our research strategy. Our approach responds to the recent calls for more in depth case
study in International Entrepreneurship and Network Theory. Common over the literature
is the focus on patterns of internationalization of SMEs rather than on the formal network
itself. Our study emphasize on a specific international network for innovative SMEs
developed in Belgium. Given the current limited understanding of international networks
activities, it appeared that a qualitative research method would be the most appropriate
for the study reported here. This stream of research draws our attention to the
international network as a preemptive strategy to access knowledge and deploys the
relevant resources for a rapid internationalization.
3.1. Methodology
We utilized a single-case study approach similar to the methodology introduced
by Eisenhardt (1989) and Yin (1989). The case study method makes possible an in-depth
investigation and is relevant when the study covers a real-life environment in which a
particular action take place (Yin, 1989). The main form of data collection of this
longitudinal study was official papers and in-depth interviews during 2 years (20102012). The primary data-collection method consisted of formal interviews with a semistructured questionnaire in the case network. The interviews were conducted each
three/four month with the director of business development and partnerships for AWEX
or other persons in charge of the coordination of the network. In addition, in order to
enhance the reliability of the study, multiple secondary data sources were also used
including formal documents, agreements and collaboration forms. The interviews lasted
10 hours in total, covering the network basics, and particularly the partner SMEs
evaluation and selection process. Most of the interviews were recorded and all were
transcribed. The final version was checked with the interviewees.
13
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Marine Falize & Régis Coeurderoy
3.2. National context of the research
With a foreign trade to GDP ratio of 90%, Belgium is one of the most open
economies in the world (ING, 2012). Ernst & Young’s Globalization Index ranks
Belgium as the fourth most globalized economy in 2011, after Hong Kong, Ireland and
Singapore. Since economic growth in Belgium is to a large extent determined by its
international performance, it is imperative that Belgian firms maintain or improve their
position in world markets. However, Belgium is losing market share in world markets.
Export from Belgium is growing slower than the import of our trade partners. The
relative decline in export share is due to structural and competitive factors. These
structural factors include the limited focus on high growth countries and knowledge
intensive activities. Belgium’s export of goods and services are less oriented toward
countries outside the European Union (EU). This unfavourable trade structure limits the
growth potential of exporting Belgian SMEs. Belgium has not yet been able to reduce
this gap and to increase its orientation towards high growth markets. Exports are not only
focused on the European market, but those exports outside the EU-27 are less technology
intensive products when compared to other EU countries’ exports (source: UNCTAD).
Whereas many developed economies specialize in high technology and knowledge
intensive goods and services, which are expected to contribute most to growth
(Haussmann et al., 2007). Belgium does not appear to be strongly focused on these
industries and is not characterized by a high R&D intensity. Although the share of high
technology products in total exports has increased over the past decade, Belgium is still
ranked 11th out of EU-15 countries in terms of its share of high technology exports.
We know from a substantial literature that technology-based firms are particularly likely
to internationalize quickly (Brugel and Murray, 2000; Rialp et al., 2005). Madsen and
Servais (1997) has suggested that this phenomenon may be the result of insufficient,
aggregate home demand for highly specialized, that is, niche, products and services.
Another argument that has been suggested is that overseas sales are the individuals firm’s
response to excessive domestic competition (Shrader, 2001). These arguments are
essentially a description of defensive actions by firms pushed out or beyond their home
small markets, such as Belgium (Coeurderoy and Murray, 2008).
The network approach to rapid internationalization 15
3.3. Single-case study
The extended case study for this paper consisted of the Global Innovation
Network. In order to match the growing demand for innovation, with the worldwide
supply of science and technology, the Wallonia Export and Investment Agency (AWEX)
is developing a Global Innovation Network to provide information and advice regarding
the opportunities offered by foreign Market. The AWEX is a government agency
responsible for stimulating economic activity in the Wallonia region. The AWEX has
signed since 2006 a cooperation agreement with the Texas A&M University System, one
of the largest systems of higher education in the United States, in order to help
technological development of Wallonia innovative SMEs and foster their access to the
American market. Technological industry is a key area of focus for cooperation and the
Global Innovation Network has started to identify synergies around cross-boundary
projects. Innovative SMEs increasingly adopt “ecosystems of innovation” across
countries. They link into these international networks with people, institutions
(universities, government, and agencies) and other companies from different countries.
The Global Innovation Network include own Research & Development facilities abroad
as well as collaborative arrangements with external partners such as incubators and
clusters.
Exploring the development of this network may help understand the potential
contribution of international networks to rapid internationalization process of BornGlobals and Born-again Globals.
4. Findings
In our empirical research we focus on explaining how the Global Innovation
Network acts to reduce fundamentally the three types of liabilities and perceived risk and
how rapid internationalization of Born Global firm or Born-again Global firm is possible
through this formal network.
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Marine Falize & Régis Coeurderoy
4.1. The role of network in facilitating and speeding internationalization process
In our case study, the ‘distance’ separating North America, India and Europe
remains substantial. This distance is a mix of cultural, administrative, geographic and
economic roots with important implications for the internal functioning of the
internationalizing SME. We hypothesize that international networks offer a potentially
efficient way to overcome resource and capability deficiencies for internationalizing
Born-Globals and Born-again Globals. We argue that the Global Innovation Network
play a key role in facilitating and speeding the internationalization process of SMEs.
In the following, examples of these are presented from the case material.
Co-invest and co-locate to overcome the liability of expansion. The Global Innovation
Network
representatives
work
cooperatively
to
identify
technology
and
commercialization opportunities. As a foreign trade agency, The Wallonia Export and
Investment Agency (AWEX) carry out a mission of information and promotion,
benefiting Wallonia innovative SMEs. The network representatives select the member
innovative SMEs through a collaboration form. The SME owner has to fill in a three page
form with descriptive information in order to create their technology offer. The Global
Innovation Network focus on six promising sectors: Agriculture and Food Science, Life
Science,
Aerospace,
Environment
and
Sustainability,
Mechanical
Engineering
Transportation and Logistics. And the criteria of selection are the following: the
uniqueness of the technology, the global market potential, the commercialization stage,
the level of intellectual property protection and the objectives of their participation in the
program.
Figure 3. The roles of the Global Innovation Network
The network approach to rapid internationalization 17
Besides, the AWEX offers a wide range of export-oriented services and activities such as
training in international careers, and financial support (investments supports, technology
fund and subsidies). The SOFINEX (Société de Financement de l’Exportation et de
l’Internationalisation des Entreprises Wallonnes) support investment of Walloon SMEs
abroad by providing bank guarantees, financing, equity participations. In the context of
the Marshall Plan 2.Vert, the Government of Wallonia has recently approved the setup of
a 2 million euro investment fund. This fund will contribute towards the creation of
companies and joint ventures, established under the agreement concluded between the
AWEX and Texas A&M. Any SME possessing offices in Wallonia can also benefit from
financial aids when prospecting international partnerships projects that have the potential
of bringing positive returns to the region. They consist of up to 50% subsidies in costs
related to the preparation and the starting up of the partnership; such as travel expenses,
hiring of experts and translation costs.
The Global Innovation Network appears to create international knowledge advantages to
the SMEs and facilitate learning internationalization process. Experimentation in the
Global Innovation Network is essential for the BGs and BaGs to discover the winning
business model and market recipe. These informational and financial benefits can then
help internationalizing firms overcome the liability of expansion that frequently constrain
innovative SMEs expansion.
Co-identify to overcome the liability of newness. The second role of the Global
Innovation Network is to connect companies in Wallonia and the United States for the
creation of technological or commercial partnerships. Their objective is to build global
companies through the simultaneous commercialization of new technologies in Europe
and the United States, developed within the Texas A&M System and Universities
or companies in Wallonia. SMEs may then obtain valuable contact from the Global
Innovation Network. The search for international exchange partners is generally
characterized by greater uncertainty and complexity which combine to increase search
costs. The Global Innovation Network is also a means of economizing on these higher
18
Marine Falize & Régis Coeurderoy
search costs. As firms gain more experience and acquire more knowledge from
relationships, uncertainty about competitive foreign markets can be reduced.
SMEs may then rely on the network to identify potential partners and economize on these
costs. For example, the Global Innovation Network prospects multinationals in the field
of R&D in order to present them research capabilities available in Walloon universities
and within the Texas A&M System.
The Global Innovation Network also provide credibility and market power by offering a
wide range of foreign market knowledge, including: establishing contacts with
international organizations
and promoting Wallonia's export potential abroad. The
Global Innovation Network is then a very attractive proposition for innovative SMEs to
connect with foreign partners as it has scale and credibility in Texas. For internationally
oriented SMEs, the Global Innovation network is an efficient means of developing
competitive foreign market knowledge and business connections not otherwise available.
Co-market to overcome the liability of foreignness. A third role of the Global
Innovation Network is to facilitate the penetration of Walloon start-ups in the US market
by providing them the right to use services provided by Texas A&M System Office of
Technology Commercialisation, its Research Parks and Incubator; together with a
privileged access to the university network. The AWEX also helps by providing access to
regional
Research
&
Development
assistance
program
and
grants
and
offering connections to a network of experts in social and tax matters who can provide
assistance during every step of the internationalization process.
The network representatives also organize international technological missions. During
these missions, trade delegations representatives from the AWEX and entrepreneurs from
selected Belgian SMEs met representatives from the Texas A&M and activities are
organized such as institutions presentations, press conference, fair trade and B2B
meetings in order to ‘match’ Belgian and American companies.
The network approach to rapid internationalization 19
Some examples:
•
April 2011. Visit in Wallonia of Texas A&M System Office of Technology
Commercialization Director
•
May 2011. Workshop Wallonia Tech in India
•
August 2011. First technological mission of 8 Indian enterprises in Wallonia
•
September 2011. Visit in Wallonia of Texas A&M System Office of Technology
Commercialization and AWEX Trade commissioner in Houston
•
October 2011. First technological mission of 10 Belgian enterprises at Texas A&M
in the US
•
April 2012: First Technological mission of 6 US enterprises in Wallonia
•
November 2012: Technological mission of 6 Indian enterprises in Wallonia
The Global Innovation Network is then a way of gaining access to these tacit knowledge
about cultural, social, legal norms, contributing to SMEs’ ability to internationalize
rapidly. This institutional knowledge may instills in them greater confidence in their
ability to cope with psychic distance. The Global Innovation Network then facilitates
exchanges and market transactions with foreign partners and enables successful crossborder business operations.
Co-protect to overcome the perceived risk. This conflict stems from the fact that
conditions necessary to facilitate the sharing and learning process simultaneously
magnify the danger of losing core and proprietary knowledge. This conflict is specifically
relevant in our case study because the transfer of novel technologies raises the potential
threat of appropriation. The intangibility of the technological component of the product
or service increases the opportunity cost for BGs or BaGs. Concerning these opportunity
cost concerns, the referral benefit of the Global Innovation Network relies to a high level
of trust among value network partners. The agreement between the AWEX and the Texas
A&M University signifies a real commitment to work together. This social engagement
which can alleviate appropriation concerns is often necessary to establish reliability in
advance of commencing negotiations. According to Adler and Know (2002), strong
social norms and beliefs within the network encourage compliance with business rules
and solidarity.
20
Marine Falize & Régis Coeurderoy
Belgium's intellectual property laws differ somewhat from those of the US but the
AWEX provides internationalizing SMEs with experts in legal matters that can be of
great help when expanding outside Wallonia.
Besides, each year, the Global Innovation Network organized visits for Belgian
entrepreneurs at Texas A&M University. These visits are a great opportunity for
entrepreneurs to solidify the relations and further get to know the people they will maybe
working with.
4.2. The potential negative effects of international network
The field of international entrepreneurship has mostly highlighted the benefits of
networks, paying less attention to the conditions under which knowledge network ties
becomes conducive to rapid internationalization. The paradox is that, although the
knowledge and information available through international network is necessary to
internationalize, it simultaneously raises difficulties. In their review of the literature,
Elango and Pattnaik (2007) did not indicate any published work indicating potential
negative effects of such an approach. However, in the Global Innovation Network,
establishing new relationships consumes time and energy. We highlight that the
willingness to devote time and effort to meet network members or potential foreign
partners and sharing knowledge should not be taken for granted. They are still costs or
difficulties associated with the decisions to integrate an international network. Another
factor that could potentially dampen the effect of an international network would be the
differences in languages and perspectives. Following Burt (2000) and Mors (2010), as the
knowledge available across national boundaries tends to be diverse and heterogeneous,
the difficulties could be the lack of common understandings, shared meanings and also
coordination problems within the international network. In our case material, the network
representatives paid attention to these potential communication problems and tried to
promote the formation of a common language (English) and shared understandings of the
network objectives among the partners involved. This common view or social
embededdness is critical to overcoming interpretative barriers and achieving the
successful integration of international collaborations.
The network approach to rapid internationalization 21
Finally, the Global Innovation Network offers an efficient way to overcome
resource and capability deficiencies for internationalizing BGs and BaGs. International
network can alleviate the liabilities of expansion, newness, and foreignness and perceived
risk and then accelerate the internationalization process.
The AWEX has now developed the same partnership in India and is discussing to extend
it in China, New Zealand, South Africa and in the Middle East. Their goal is to build
global companies through the simultaneous commercialization of new technologies
around the world. Today, 30 SMEs are members of the Global Innovation Network and
seven of them are now creating their American/Indian branch or joint-venture. The
Global Innovation Network has invested in these companies and has played a key role in
identifying technologies and foreign partners.
Exploring the development of this network help us understand the potential contribution
of international networks to rapid internationalization process of Born-Globals and Bornagain Globals. This sharing of technology, capital, between entrepreneurs, universities,
incubators, and partners within the Global Innovation Network open up an array of
opportunities that would otherwise not be available to internationalizing SMEs.
5. Synthetic framework
A cornerstone of the Uppslala Model was that the three types of liabilities and
the perceived risk will decrease concurrently with the firm’s knowledge of the market,
and so will its perceived need for incremental behaviour. In order to develop international
operations quickly, firms need to have access to prior knowledge in dealing with differing
institutions, as well as differing managerial approaches (Cohen and Levinthal, 1990). The
more market knowledge the firm acquire through international network, the less are the
liabilities and the perceived risk and the higher is the propensity to go rapidly abroad. In
order to speed up the internationalization process of Born-Globals or Born-again Globals
we argued that SMEs need to overcome these liabilities and perceived risk through
formal network.
22
Marine Falize & Régis Coeurderoy
As we have seen in our research study, international network provides firms with these
important knowledge and connections facilitating internationalization of operations. The
roles of international network accruing internationalizing SMEs fall into two categories:
information and resource benefits (knowledge about foreign partners and new
competitive market) and control benefits (trust, embededdness among network partners).
Figure 3 provides a graphical overview of our proposed model. Liabilities of expansion,
newness and foreignness and perceived risk increases the time needed to penetrate the
foreign market. The three types of liabilities and perceived risk cause information,
resource and control problems that international network can partially solve. International
network may then help the BGs or BaGs to overcome the liabilities and the perceived
risks and thus enable them to penetrate the foreign markets at an increased speed. The
model proposes international network as a mean to speed up the internationalization
process. BGs or BaGs within an international network can then expand at a higher speed
at distant markets.
Figure 4. Proposed model of international network and the speed of internationalization
The network approach to rapid internationalization 23
6. Conclusion
The Uppsala model suggests that companies internationalize in small,
incremental steps, as risk-averse managers seize expansion opportunities in its local
foreign environment. However, the improvements in global communications and
transport combined with the increasingly liberalized global trading regimes have enabled
the rise of a new class of small firms that span international borders. As observed in our
case study, innovative SMEs are capable of exploiting global market opportunities more
rapidly and efficiently. According to these new realities, our original features of the
internationalization pattern have changed in many ways. This type of behaviour is often a
response to a ‘critical’ incident which could be the access to new international networks.
Networking activities is an essential strategy pursued by BGs and BaGs in order to gain
access to resources, and cope with environmental uncertainty and weaknesses in their
operations.
Recognizing international networks as an efficient means of helping internationally
oriented SMEs to go international more rapidly contributes to the Network Theory and to
the study of International Entrepreneurship. Common over the literature is the focus on
patterns of internationalization of SMEs rather than on the formal network itself. The
need for research on network specific to rapid internationalization has been recognized by
Arenius (2002), Andersson and Wictor (2003), Sharma and Blomstermo (2003), Autio
(2005) and Coviello (2006). In this paper we examine the extent to which international
networks accelerate the process of internationalization and highlighted some potential
negative effects of such an approach (called by Elango and Pattnaik, 2007).
The literature and our case material have confirmed the importance of international
network in: providing information about international business practices and institutional
knowledge; helping stimulate awareness of foreign market opportunities and identify
foreign
exchange
partners;
providing
legitimacy
and
attractiveness
of
the
internationalizing firm and promoting moral obligation within the network of partners.
International network ease and accelerate the development of the innovative SME and
lead to increased resource commitments in foreign markets.
24
Marine Falize & Régis Coeurderoy
The Global Innovation Network developed by the Wallonia Export and
Investment Agency (AWEX) offered a fascinating context in which to explore the
potential contribution of international networks to rapid internationalization. This
network represents a new generation of innovative collaborations as they are connecting
technologies and expertise across countries. The AWEX help technologies developed in
Wallonia access faster new markets in our global economy. This sharing of technology,
capital, between entrepreneurs, universities, incubators, and partners within the Global
Innovation Network open up an array of opportunities that would otherwise not be
available to internationalizing SMEs. As the Global Innovation Network is quite young
and is in the developing period, this study need to be further explored. The AWEX and
Texas A&M are now working together on the development of similar relationships with
institutions in China, New Zealand, South Africa and in the Middle East. Future research
could also aim to look into how learning is transferred to members within the
international network or how do firms in international network capitalize on these foreign
business knowledge and institutional knowledge.
From a perspective of firm strategy, evidence of the role of networks in
providing useful knowledge on international markets suggests that firms must prioritise
the participation in networks and pursue such opportunities in an assiduous and strategic
manner. We also encourage firms to recognise government support as an integral part of
their knowledge development and international expansion. The financial crisis has
changed public opinion, and governments are pushed to change regulations and stimulate
growth. Proactive regulations and well-functioning government are crucial for countries’
competitiveness. There is a clear need for a better climate for SMEs and to stimulate
internationalization, leading to increased productivity (Flemish Foreign Affairs Council,
2010). The European commission (2011) pushes governments to play a more active role
in helping firms overcome the barriers of internationalization. SMEs in particular benefit
from public policy support, given their limited resources. However, only 7% of
internationalized SMEs use available support mechanisms, calling for a greater
awareness of support initiatives. This clearly has important implications for policy
making, given the contribution of innovative SMEs to economic growth.
The network approach to rapid internationalization 25
7. Acknowledgement
The authors would like to thank Philippe LaChapelle, director of business
development and partnerships for AWEX and Ines Jurisic, project coordinator for AWEX
for their valuable information about the Global Innovation Network.
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