Internationalisation in the Born Global Pathway - Case Study Example

Internationalisation in the Born Global Pathway Table of Contents 1.Critical Assessment of the Born Global Pathway 2 2.Uppsala Model and Born Global Pathway: Comparison and Contrast 6 3.Conclusion 8 References 9 Introduction As the concept of international corporate entrepreneurship (ICE) is gaining importance in the backdrop of a globalised business environment, it has been observed that four major research-avenues buttress the increasing significance of recognising the areas of organisational learning (OL) as well as knowledge creation-exploitation. These avenues (or models/pathways) are the born global model, the eclectic model, the transnational model and the Uppsala model. It is interesting to note that despite having dissimilarities in terms of their postulations about the role and nature of OL, these models unanimously agree that this concept plays a pivotal role in elucidating as well as comprehending an organisation’s gains in global markets. The current report will aim at critically assessing the Uppsala model (organic pathway) and the born global pathway. Subsequently, the two pathways will be compared in order to identify the contrast between them. Review of various literature sources will be undertaken in order to augment the fundamental premise of this research. 1. Critical Assessment of the Born Global Pathway According to Ahlstrom and Bruton (2009) “entrepreneurial firms that are global from their inception” (Ahlstrom & Bruton, 2009, pp.183) are said to be born global. Unlike conventional organisations that take small steps towards internationalisation, these firms do not prefer a gradual learning process; rather they establish different activities to be performed in different nations. Although numerous organisations are embracing this model, it has been observed that “often these are technology-focussed firms; where global demand for the firm’s products is so small that if it relies on any single national market, there is insufficient demand for the firm to survive” (Ahlstrom & Bruton, 2009, pp.183). As has already been told, the born global organisations “are companies that internationalise at or near their founding”, and Knight, et al. (2004) have observed that “in the current global economy the more recent model of ‘born global’ internationalisation is becoming increasingly common” (Segal-Horn & Faulkner, 2010, pp.137). Oviatt and McDougall (1994) have opined that a born global firm is “a business organisation that, from inception, seeks to derive significant competitive advantage from the use of resources and the sale of outputs in multiple countries” (Zacharakis, Minniti, Spinelli, Rice & Habbershon, 2007, pp.158). Furthermore, in concurrence with Shane (n.d.), they have also propounded that “the traditional stage models of internationalisation fail to provide an explanation as to why and how born global firms can internationalise without first going through the incremental processes predicted by the stage models” (Zacharakis, Minniti, Spinelli, Rice & Habbershon, 2007, pp.158). The central philosophy that defines born global firms is that “size does not necessarily limit a firm’s international activity – small companies can build upon their unique resources to become global competitors” (Longenecker, Petty, Palich & Moore, 2009, pp.466), one of the companies that represents this category is Skype that was founded in Luxembourg by Niklas Zennstrom and Janus Friis. Though the company had its sales offices located in London, its product development process used to be carried out in Estonia. Cavusgil and Knight (2009) have observed that “born global firms can be found in advanced economies – such as Australia, Denmark, Japan, and the United States – and in emerging markets – such as China and India” (Cavusgil & Knight, 2009, pp.8), and such a trend has started approximately two decades back. In should be realised in this context that during the same period, the world had started witnessing the phenomenon of globalisation with many nations incorporating the concepts of liberalisation and privatisation in their economic policies. Owing to the fact that new markets were opening up fast across the globe, numerous entrepreneurs as well as small and medium sized enterprises (SMEs) started taking the opportunity to make forays into such markets without caring to follow the conventional guidelines that had been proposed by internationalisation models such as the Uppsala model. Among the various intrinsic factors that facilitate the growth of born global firms globalisation has played a vital role in turning the world into a ‘boundary less’ global village wherein geographic borders can hardly limit the scope of any business. Among the various elements that have added fillip to the process of globalisation, developments in the fields of IT and ICTs (information and communication technologies) top the list. Production technology has also undergone substantial advancements thereby making it much easier for born global organisations to set up their production facilities and product development units in different locations. Various organisational processes can be efficiently coordinated through numerous IT tools and techniques. It has been observed that born global organisations possess certain distinctive features that play a pivotal role in the manifestation of their success. These firms are very much active in global markets – mostly from the time of their inception and are characterised by restricted levels of tangible as well as financial resources. They are found across a majority of industrial sectors and it is a noteworthy fact that managers in these organisations “have a strong international outlook and international entrepreneurial orientation” (Cavusgil & Knight, 2009, pp.10). These firms often put emphasis on differentiation strategy as well as advanced product quality and augment their operations by leveraging sophisticated IT and ICT tools. Born global organisations characteristically use external, autonomous intermediaries to distribute their products and/or services in international markets. Cavusgil and Knight (2009) have also identified the following internationalisation triggers that the born global organisations extensively use in the course of their worldwide operations: 1) “Export pull; 2) Export push; 3) Worldwide monopoly position; 4) Product-market conditions necessitating international involvement; 5) Superior product offerings; 6) Global network relationships; 7) Global niche markets” (Cavusgil and Knight, 2009, pp.10). The various factors that motivate enterprises to pursue internationalised operation right from inception are as the following: 1) “Profits; 2) Competitive pressures; 3) Unique product(s) or service(s); 4) Excess production capacity; 5) Declining home country sales; 6) Unique market opportunity; 7) Economies of scale; 8) Technological advantage; 9) Tax benefits” (Hisrich, 2009, pp.15). Much of the success that the born global organisations enjoy is due the fact that they “seek to gain ‘first mover’ advantage and achieve rapid penetration of global ‘niches’ or segments”, and moreover “they attempt to protect and exploit proprietary knowledge and ‘lock-in’ clients” (Paliwoda & Ryans, 2008, pp.304). Therefore, it is quite easy to understand why modern business enterprises identify the born global pathway increasingly lucrative in order to go global. This pathway not only provides them with unique competitive advantage(s), but also helps them in garnering valuable knowledge from diverse markets – that in turn may be assimilated to develop efficient strategies and outperform competitors. 2. Uppsala Model and Born Global Pathway: Comparison and Contrast To start with, it may be mentioned that according to many critics, “the Uppsala framework of incrementalism was too rigidly historical and path dependent to explain the apparent ‘leapfrogging’ activities of born global firms in which internationalisation occurs in quantum leaps” (Butler, 2001, pp.4). According to Melin (1992) the accumulation of experiential knowledge contributes to an increasing loyalty towards internationalisation, and the Uppsala model (also known as the organic pathway) brings to light the role played by experiential learning while stimulating international expansion of organisations (Katz & Shepherd, 2004, pp.150). He has further propounded that “over time, accumulating experiential knowledge enables the firm to enter markets that are culturally dissimilar to their home base markets”, in concurrence with Barkema et al. (1996) who have opined that OL “amounts to reducing the psychic distance between home and host country by expanding knowledge of local conditions” (Katz & Shepherd, 2004, pp.150). These transfers constitute a vital channel through which OL stimulates future innovation as well as venturing and helps organisations to set foot in the global markets. This model primarily focuses on the preliminary endeavours of an organisation to internationalise its operations and it is most likely that in doing so it completely ignores those organisations that have built up substantial experience in terms of the same. It has been observed that the view held by the Uppsala model towards internationalisation is largely deterministic and hence it proposes a predictable as well as sequential guide line for evolution, thereby ignoring the likelihood that some organisations may omit certain steps and jump ahead of their rivals. Furthermore, this model underlines the exploitative aspect of learning – focussing more on the genre of internationalisation that makes use of existing knowledge. This is sharp contrast to the fact that organisations go international with the aim of acquiring new knowledge as well as developing new skills. Another limitation of this model arises from the fact that it provides little information about the methods that multinational enterprises (MNEs) should adopt in order to develop their competence. Literature review has revealed that “the Uppsala model does not really address the issue of why small firms (from small countries) are able to become international”, and quite surprisingly, “a firm’s unique capability (rooted in products and processes) is not a part of the model” (Andersson, 2010, pp.286). While internationalisation patterns vary from one nation to another, the Uppsala model is peculiarly a Scandinavian model that “represents a description of a particular period in the development of Swedish, or more generally, Scandinavian, industry overseas” (Buckley & Ghauri, 1999, pp.175). These factors, taken together, have contributed to the unpopularity as well as failure of this internationalisation pathway. Unlike the common notion – theorised through the Uppsala model – that an organisation has to be quite large as well as mature in order to step into global markets, the born global model supports the fact that even nascent enterprises can internationalise themselves with sufficient easy right from the moment they are incorporated and can actually have different processes located in different regions. The significance of the born global pathway is further highlighted by the observation of Bora (2002) that “the uncertainty which the Uppsala model asserts determines that slow evolution of internationalisation is therefore less significant than in the past” (Bora, 2002, pp.32). Perhaps the most striking difference between these two internationalisations models is that “while the Uppsala model’s establishment chain assumes that internationalisation evolves systematically – from no international involvement, to exporting, to local manufacturing – in reality, born globals may employ a range of entry options, often simultaneously”, and as Cavusgil and Knight (2009) have suggested, “internationalisation modes may include outsourcing, direct sales via the Internet, and complex international joint ventures” (Cavusgil & Knight, 2009, pp.65). 3. Conclusion During the course of this research it has been found in more instances than one that in spite of having prominent dissimilarities in terms of their postulations about the role and nature of organisational learning in the internationalisation of business enterprises, the Uppsala model as well as the born global model unanimously agree that this concept plays a pivotal role in elucidating as well as comprehending an organisation’s gains in the highly diversified and competitive global markets. While conducting literature review, it has been found that the Uppsala model – being a predecessor of the born global model – failed considerably to incorporate the importance of various modern concepts – related to both business as well as technology – in its framework, and has put forward a Scandinavian model of internationalisation that has not been able to describe why SMEs belonging to small nations are successful in becoming international organisations. This is where the born global model has proved to be much more effective as it has defied the concept of systematic evolution and has rather flexibly explained the apparent ‘leapfrogging’ activities that most of the modern business organisations exhibit. In the course of this research it has been repeatedly observed that presently organisations identify more easily with the born global pathway and often simultaneously employ a wide range of entry routes during the process of internationalisation. References 1. Ahlstrom, D. & Bruton, D. G. 2009. INTERNATIONAL MANAGEMENT: STRATEGY AND CULTURE IN THE EMERGING WORLD. Cengage Learning. 2. Andersson, U. 2010. MANAGING THE CONTEMPORARY MULTINATIONAL: THE ROLE OF HEADQUARTERS. Edward Elgar Publishing. 3. Bora, B. 2002. FOREIGN DIRECT INVESTMENT: RESEARCH ISSUES. Routledge. 4. Buckley, J. P. & Ghauri, N. P. 1999. THE INTERNATIONALIZATION OF THE FIRM. 2nd ed. Cengage Learning EMEA. 5. Butler, J. 2001. E-COMMERCE AND ENTREPRENEURSHIP. Information Age Publishing, Inc. 6. Cavusgil, T. S. & Knight, G. 2009. BORN GLOBAL FIRMS: A NEW INTERNATIONAL ENTERPRISE. Business Expert Press. 7. Hisrich, D. R. 2009. INTERNATIONAL ENTREPRENEURSHIP: STARTING, DEVELOPING, AND MANAGING A GLOBAL VENTURE. SAGE Publications, Inc. 8. Katz, A. J. & Shepherd, A. D. 2004. CORPORATE ENTREPRENEURSHIP. Emerald Group Publishing. 9. Longenecker, G. J., Petty, W. J., Palich, E. L. & Moore, W. C. 2009. SMALL BUSINESS MANAGEMENT: LAUNCHING AND GROWING ENTREPRENEURIAL VENTURES. 15th ed. Cengage Learning. 10. Paliwoda, J. S. & Ryans, K. J. 2008. INTERNATIONAL MARKETING. Edward Elgar Publishing. 11. Segal-Horn, S. & Faulkner, D. 2010. UNDERSTANDING GLOBAL STRATEGY. Cengage Learning EMEA. 12. Zacharakis, A., Minniti, M., Spinelli, S., Rice, P. M. & Habbershon, G. T. 2007. ENTREPRENEURSHIP: THE ENGINE OF GROWTH. Vol. 1. Greenwood Publishing Group. Read More