Explaining Rapid Internationalisation

Introduction

The concept of rapid internationalisation was established by Hedlund and Kverneland (1985) after noting that some firms do not follow the internalisation process described by Johanson and Vahlne in the Uppsala model (Lin et al. 2016). After that, literature on the nature of early and rapid internationalisation of born globals has substantially increased particularly in the last two decades given the growing need for time-based completion in international markets (Tsukanova and Zhang 2019). According to Oviatt and McDougall (1994), born globals are firms that at inception establish competitive advantage through using resources and selling their products in multiple countries. Business dissertation help is available for students who are exploring different facets of rapid internationalisation and its implications for born global firms. On the other hand, knight and Cavusgil (2004) define born globals as small and technology-oriented firms that right from the earliest days of the establishment operate in international markets. Lin et al. (2016) state that two main criteria can be used to identify born globals: first, they internationalise within three years from inception and second, they generate at least 25% of sales from export. Contrary to the models based on stages which posit that firms start exporting after generating enough sales in internal markets, Cavusgil and Knight (2015) write that born globals internationalise shortly after their inception and may not even generate sales in internal markets as they focus is majorly on international markets. This paper reviews literature of rapid internationalise to identify main themes and analyse the generated information in the identified themes.

Theories of internationalisation

The Uppsala model also known as the incremental stages theory describes internationalisation is a gradual and evolutionary process through which firms enhance their international activities over time and in single phases Al-Kwifi et al. (2019). According to this model, firms must first gain market commitment and market knowledge prior to extending operations in international markets (Tsukanova and Zhang 2019). As a result, a firm focuses on domestic market for many years before it gradually internationalises its operations. The length of time a firm operates in the domestic market is intended to ensure it has built up experience and commitment required to succeed in international markets (García-García et al. 2017). The Uppsala model identifies four stages through which firms must internationalise namely non-regular export activities, exporting through independent agents, launching overseas commercial offices, and launching production units in international markets. The firm must gradually undergo these stages as it adds knowledge and experience in enhance its competitiveness while decreasing the perceived risk of operating in international markets.

Following the emergence of born globals, the Uppsala model is no longer sufficient given that born globals do not follow a regular path detailed in the Uppsala model (Bouncken et al. 2015). As a result, different views to explain rapid internationalisation by born globals have emerged and the most common are discussed below.

The proponents of the knowledge-based view of rapid internationalisation assert that knowledge is the core strategic resources that born globals possess thus facilitating their early internationalisation (Baier-Fuentes et al. 2018). According to García-García et al. (2017), the knowledge level and skills of an entrepreneur or a manager influences rapid internationalisation of born globals; such a leader should have internal network of firms and individuals as well as international business experience. The knowledge-based view also holds that a manager in born global firms has specific learning strategies that helps him/her to acquire knowledge very first unlike other managers and entrepreneurs (Al-Kwifi et al. 2019). The knowledge-based view of rapid internationalisation places an individual at the centre of the learning process (Cancino 2014).

Lin et al. (2016) hold that organisational learning theory perfectly complements the knowledge-based view helping born globals quickly integrate new knowledge in the already existing knowledge base. From this perspective, born globals have greater knowledge and learning abilities which differentiates them from other firms that take years to internationalise their operations. Born globals understand the essence of upgrading their knowledge and adapting when they expand to international markets (Tsukanova and Zhang 2019).

The proponents of the resource-based view believe that born globals have valuable resources and capabilities that enable them to internationalise their operations (Baier-Fuentes et al. 2018). According to Cancino (2014), born globals have heterogeneous, rare and inimitable resources that they apply in international markets or have networks that help them use foreign markets as a source for acquiring these resources. In agreement, Cavusgil and Knight (2015) write that born globals have unique firm-specific resources which give then resource-based advantage helping them to successfully compete in international markets. Recent literature on resource-based view of rapid internationalisation define the unique and inimitable resources as organisational, technological, human, and relational resources (Al-Kwifi et al. 2019). However, García-García et al. (2017) note that dynamic capabilities have a unique role implying that born globals must continually integrate external knowledge to better serve the international market. From a different perspective, Bouncken et al. (2015) write that given their liability of smallness, born globals are limited by the available resources and as a way to overcome this limitation, the use networks and alliances to accelerate their speed in entering international markets. In the same vein, Lin et al. (2016) posit that network relationships are essentially important for born globals internationalising their operations.

Factors that lead to emergence of born globals

Human Capital

Bouncken et al. (2015) write that characteristics of managers and leaders including psychological factors (attitude, traits, personality, needs etc.) as well as demographic factors (sex, age, prior experience, education etc.) significantly affect the internationalisation of a firm. In the same vein, Cavusgil and Knight (2015) state that an entrepreneur’s skills and knowledge acquired through work experience and education positively influence rapid internationalisation by a firm. In particular, Al-Kwifi et al. (2019) write that the level of education an entrepreneur attains contributes to the leader’s ability to quickly spot opportunities in international markets and develop ways of exploiting them. On the other hand, García-García et al. (2017) state that a leader’s commercial and industrial experience enhances his/her ability to internationalise the operations of a firm. The decision, attitudes, perspectives and values of entrepreneurs are also known to influence the ability to internationalise the operations of a firm (Tsukanova and Zhang 2019). Further, managerial attitude, a leader’s international orientation, and strategic vision are key factors in rapid internationalisation by born globals (Baier-Fuentes et al. 2018).

Al-Kwifi et al. (2019) identify three elements of human capital that positively influences a firm’s rapid internationalisation namely formal education, risk perception, and experience. In relation to formal education, the authors note that the attained level of education reflects the skills, knowledge and capacity of a leader to solve problems as well as his/her confidence in solving these problems (Cancino 2014). Similarly, García-García et al. (2017)note that entrepreneurs that have attained higher education have higher growth expectations and are more likely to be aware of business opportunities in international markets as compared to those that have low school attainment. Likewise Tsukanova and Zhang (2019) state that entrepreneurs with high levels of business education are more likely to be market-oriented thus more committed to developing export markets. Therefore, it is expected that entrepreneurs with higher educational attainments to play relevant role in creation of born globals.

Entrepreneurial experience is positively correlated to emergence of born globals. According to Lin et al. (2016), prior experience helps an entrepreneur to assimilate new knowledge relevant in the internationalisation process. On the same line, Bouncken et al. (2015) note that knowledge accumulated from past entrepreneurial experience enables an entrepreneur to positively perceive business opportunities in foreign markets resulting in higher likelihood to develop new ways of exploiting these opportunities. Still, Baier-Fuentes et al. (2018) state that management experience is a distinctive feature of born globals.

All firms are exposed to similar factors that prompt them to internationalise their operations but not all firm do internationalise due to the perceive risk of operating in foreign markets. According to Al-Kwifi et al. (2019), international operations are perceived to be more risky than local operations thus risk perception is a major factor in rapid internationalisation. According to McDougall and Oviatt (2000), risk-seeking is a distinctive characteristic of born globals which means that these firms accept markets with considerable levels of uncertainty and internationalise in them without first establishing maturity in domestic markets. In agreement, García-García et al. (2017) write that born globals have high risk tolerance, which leads to rapid internationalisation.

Relational Capital

Firms enter markets in which they have contacts with other firms (Cancino 2014). As such networking is a key factors in the internationalisation of businesses. According to Lin et al. (2016), higher levels of competence in networking is positively related to a firm’s ability to internationalise. Born globals build collaborative relations with external organisations and networks which provide them with additional information resulting in stronger ability to assess and select foreign markets to extend their operations (Al-Kwifi et al. 2019). Similarly, Cavusgil and Knight (2015) note that networking helps born globals to enter markets that ate geographically and psychologically very far from their domestic locations. Likewise, García-García et al. (2017) state that intermediaries are a key factor that could help firms to internationalise their operations.

An entrepreneur’s network provides important links that lead to strategic development of born globals. Bouncken et al. (2015) write that an individual’s interpersonal networks offer resources that significantly contribute to an organisations’ knowledge base thus helping the firm to recognise, assess, and exploit opportunities in foreign markets. In the same vein, Cavusgil and Knight (2015) note that interpersonal relations provides an entrepreneur essential information on how to compete in international markets. Further, Tsukanova and Zhang (2019) state that interpersonal relations can help an entrepreneur gain legitimacy and credibility in foreign markets. From this information, inference can be made that entrepreneurs with interpersonal networks are more likely to rapidly internationalise their firms. On the other hand, Baier-Fuentes et al. (2018) note that entrepreneurs who start their firms as partners have more networks which increases their propensity to rapid internationalisation.

Rapid internationalisation and long-term performance

Cavusgil and Knight (2015) state that the relationship between rapid internationalisation and long-term performance follows a U-shaped pattern. In the same vein, Al-Kwifi et al. (2019) note that born globals obtain certain knowledge-related benefits following rapid internationalisation but given that knowledge depreciates with time, born globals are more likely to suffer the liability of foreignness. Similarly, García-García et al. (2017) write that born globals have a higher likelihood of buffering the adverse effects in performance they face when entering international markets but they need to procure and absorb knowledge in the foreign market very quickly so as to maintain and improve their performance. In light of this information, born globals require human resources that are able to examine the available knowledge and quickly select the one suitable for the growth of the organisation.

Internationalising operations helps born globals to curb the negative effects of knowledge depreciation and allows them to search for new knowledge to upgrade and complement their current knowledge gap, which is said to have a positive effect of long-term performance (Tsukanova and Zhang 2019). In agreement, Bouncken et al. (2015) note that among the objectives of born globals when expanding to international markets is to gain access to new knowledge to help them better manage their performance. From the perspective of organisational learning theory, García-García et al. (2017) state that born globals are limited in their ability to reap full benefits of rapid internationalisation which is determined by time-compression diseconomies and a limited absorptive capacity. Similarly, Lin et al. (2016) write that limited absorptive capacity and time-compression diseconomies intertwine to hinder long-term performance of firms that internationalise rapidly. In the same vein, Baier-Fuentes et al. (2018) note that decision-making is time-consuming and learning in international markets is attained in several cycles which means that rapid internationalisation results in lower returns given the emergence of time-compression diseconomies. Still, García-García et al. (2017) write that rapid internationalisation conditions the absorptive capacity of born globals resulting in lower likelihood of acquiring and assimilating new knowledge correctly. In light of this information, it can be concluded that rapid internationalisation positively affects long-term performance in that it gives born globals a chance to deploy and upgrade their knowledge base. However, beyond a certain speed long-term performance will be negatively affects given the existence of time-compression diseconomies and limited absorptive capacity.

Conclusion

Summarily, the Uppsala model of internationalisation is no longer sufficient given the emergence of born globals which do not follow the internationalisation process provided by the Uppsala model. As a result, researchers use the knowledge-based view and research-based view to explain the emergence of rapid internationalisation. Human capital and relational capital are key factors in the emergence of born globals. Human capital relates to the experience and knowledge of highly educated entrepreneurs to internationalise rapidly while relational capital relates to networking through which entrepreneurs gain the required information to operate in international markets. The paper establishes that rapid internationalisation have a U-sharped relationship with performance. Internationalising rapidly helps firms to upgrade their knowledge base which promotes performance. However, if the internationalisation is so speedy, performance is impeded by existence of time-compression diseconomies and limited absorptive capacity.

References

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