The Born Global Phenomenon

With the globalization phenomenon experienced in the past thirty years, the IB literature has shifted its attention to another subject of analysis when scholars started to analyze the phenomenon of small and young firms experiencing faster internationalization process from the venture’s birth or near founding (Hedlund &

Kverneland, 1985; Gupta, 1989; Jarillo, 1989; McDougall, 1989). The term Born Global has first appeared in a study conducted by Rennie (1993) were the author stressed the appearance of Australian early internationalized new ventures. The study covered 310 SMEs manufacture exporters, which were divided into two groups; the first group was the domestic-based firms and the second group was the ones called BGs in which started exporting within two years after its establishment with more than 75% of its revenues coming from international markets.

Defined as “Entrepreneurial start-ups that, from or near their founding, seek to derive a substantial proportion of their revenue from the sale of products in international markets” (Knight & Cavusgil, 2004, p. 124), this anomaly became also known through

21 different concepts such as ‘International New Venture’s’ (McDougall, Shane, & Oviatt, 1994), ‘Instant Exporters’ (McAuley, 1999), ‘Rapidly Internationalizing Venture (RIV)’

(Cesinger, Fink, Madsen, & Kraus, 2012; Madsen, 2013), and ‘Born Internationals’

(Majkgard & Sharma, 1999). Even though there are different denominations and the term BG is more frequently common, Cavusgil and Knight (2015) and Terjesen, Hessels, and Li (2016) concludes that all these terminologies are more similar than distinct and some authors (Evangelista, 2005; Rialp, Rialp, & Knight, 2005) even refer INV’s and BGs as exchangeable. However, a study of Crick (2009) concluded that the difference between both terms relies on the fact that BGs are more globally-focused while INV’s are more regionally-focused.

Despite the fact that Rennie (1993) manage to give the primary directions of what is a BG, a lot of debate has occurred bringing new outcomes and controversies about its nature. For instance, some scholars have different perceptions regarding the year of the firm’s establishment, as an example, Knight (1996), Rasmussen and Madsen (2002) consider firm’ established after 1976, Autio, Sapienza, and Almeida (2000) consider after 1986, and Moen and Servais (2002) and Rasmussen and Madsen (2002) consider firms that are less than twenty years old. The start of the international activities is likewise a topic of discussion, Moen (2002), Moen and Servais (2002) agrees that foreign expansion start less than two years after the establishment and Rasmussen and Madsen (2002) support the idea that it is less than three years of its establishment. Other scholars go forward arguing that it could start within three or five years (Zucchella, 2002) or perhaps within eight years (McDougall et al., 1994) after its inception. And last but not least, the percentage of foreign sales in which Cavusgil and Knight (1997), Rasmussen et al.

(2001), Moen (2002) and Moen and Servais (2002) says that the total international sales should be more than 25% and Chetty and Campbell-Hunt (2004) says that it has to be more than 75% of total foreign sales. In summary, scholars agree that the distinctive characteristics of these firms are their international origins and early internationalizing path.

As highlighted previously, the Uppsala Model (Johanson & Vahlne, 1977; 1990) has argued that companies expanding internationally have been expected to follow an incremental internationalization process with an ongoing increase of commitment to foreign markets after being well established inside their national borders. In this sense, the process of internationalization is based on the amount of experiential knowledge gained through small steps in the foreign market, which in turn reduces the foreign

22 expansion risks allowing the company to make great commitments towards the new market. However, despite the fact that some studies have highlighted that BGs could also follow an incremental internationalization path (Wickramasekera and Bamberry, 2003), what mainly contradicts them from being analyzed through the lenses of traditional stage models is the speed in which they achieve international markets (Oviatt & McDougall, 1994; Hagen & Zucchella, 2014), perceived as being much faster than the one proposed by the Uppsala Model. This internationalization precocity is stressed by Freeman, Hutchings, and Chetty (2012) as being associated with their proactive behavior, knowledge, their highly niche oriented products and/or services, and networks.

As a start, scholars acknowledge the fact that BGs are driven by entrepreneurs who are individuals that has the ability to perceive market opportunities and is willing to act on what is perceived regardless the psychic distance. In line with BGs, entrepreneurs are characterized by having a global-oriented mindset and rapid internationalization action (Andersson & Wictor, 2003). They look at the world as one market (Rennie, 1993) and are alert to perceive and recognize specific business opportunities to fulfil market gaps. According to Rasmussen (2002), entrepreneurs have a strong international experienced background. They are usually individuals that rely on their knowledge from previous employment, experiences and linkages that are useful to conduct the business and reach its strategic internationalization goal. Entrepreneurs are an important protagonist in the development of wealthy BGs, as its success is highly dependent on the pattern that has been discovered by Zahra and Garvis (2000) between rewarding internationalization and the innovative activities performed by these individuals.

Another characteristic associated with the rapid expansion of BG is about their products and/or services. According to Knight and Cavusgil (2004), Oviatt and McDougall (1994), and Zucchella, Hagen, Denicolai and Masucci (2016) these new ventures commonly develop unique products that are also attributed as a key driver for their rapid internationalization. Knight (1996) and Madsen and Servais (1997) highlights that BGs are more niche-oriented, focusing on standardized products or custom made offers. Their outputs are known for being differentiated, innovative with high quality (McDougall, Oviatt, & Shrader, 2003), some scholars connect them as being part of the highly-technological-based sectors (Crick & Jones, 2000) such as the software industries.

On the other hand, Madsen and Servais (1997), Andersson and Wictor (2003), and Wickramasekera and Bamberry (2003) highlighted that BGs could come from all kinds

23 of market segments (i.e. trading companies and mature industries) and are not limited to a high or low tech industry (Rennie, 1993; Mort & Weerawardena, 2006).

Networks also play an important role in the internationalization process of BGs.

The literature shows that these types of companies are highly dependable on their networks to expand their business. Partly because they possess lack of financial resources (Weerawardena et al., 2007), human resources (Knight & Cavusgil, 2004), legitimacy (Sapienza, Autio, & Geroge, 2006), and also because they suffer from liability of foreignness and newness (Oviatt & McDougall, 1994). Since in most of the cases they mainly depend on international markets to commercialize their products or services, networks go beyond in just providing knowledge, they help firms to overcome strangeness, discover opportunities, be exposed to a new formation of networks or business structure (Aldrich, 1999; Zain & Ng, 2006), develop R&D capabilities (Nerkar

& Paruchuri, 2005), and provide financial capital (Coviello & Cox, 2006). Table 1 highlights the main contributions found in literature regarding the role of networks and their influences on the internationalization process of these types of ventures contributing to a faster internationalization process.

Table 1 – Networks Influence on the BG Internationalization Process

Influences Author(s) and Year

Access to Resources Andersson and Sundermeier (2019) Distribution Channels and Customers Coviello and Munro (1995; 1997)

Zain and Ng (2006)

Direct Operations Johanson and Vahlne (2009)

Musteen, Francis, and Datta. (2010) Experience and Knowledge in Foreign Markets Yli-Renko, Autio, and Sapienza (2001)

Möller and Svahn (2004) Harris and Wheeler (2005) Johanson and Vahlne (2009)

Ryan, et al. (2019) Knowledge and Resource Information Kiss and Danis (2008)

Vissak, et al. (2020)

Export Performance Zhou, Wu, and Luo (2007)

Brache and Felzensztein (2019)

Finance Covielo and Cox (2006)

24

Innovation/Technology Mais et al. (2010)

Yu et al. (2011)

Internal Capability Yli-Renko et al. (2001)

Cope with Institutional Voids Laine and Galkina (2017) International Market Advantage Coviello & Munro (1995; 1997)

Yli-Renko et al. (2001) International Opportunities Guercini and Runfola (2010)

Kontinen and Ojala (2011) Legitimacy/Credibility Oviatt and McDougall (1994)

Zain and Ng (2006) Pettersen and Tobiassen (2012) Lower Internationalization Costs Zain and Ng (2006)

Market Entry Oviatt and McDougall (1994)

Coviello and Munro (1995; 1997) Zain and Ng (2006) Amal and Freitag Filho (2010)

Mais et al. (2010)

Market Information Sharma and Blomstermo (2003)

Mais et al. (2010) Marketing Capability Jeong, Jin, and Jung (2019)

Motivation to Internationalize Zain and Ng (2006)

Overcome Constraints Freeman, et al. (2006)

Reduce Risks and Uncertainties Zain and Ng (2006)

Source: Developed by the Author (2019)

Moreover, the habitat where these firms are established can also be a differentiation for their development and rapid internationalization. According to scholars, BGs are associated as being mainly created or developed in incubators, accelerators as well as business locations such as ecosystems and technological clusters (Ribeiro & Pimentel, 2009; Engelman, Zen, & Fracasso, 2015).

Incubators are workspaces created to support new business development. They provide business assistance, mentoring, office spaces, among other business support for entrepreneurs willing to undertake, whereas accelerators are usually programs focused on existing companies to “accelerate” businesses by helping them access angel investors, industry experts, as well as giving mentoring to better commercialize products (Amprotec, 2019). Ecosystems are business communities that consist of a set of different actors that help to foster business creation, exposing them to qualified human resources,

25 institutions, and R&D (Moore, 1993; 1996; Yu, Li, & Zhao, 2011; de Miranda, Oliveira, Fernandes, Sbragia, & Borini, 2019). Differently, technological clusters are high- technology districts composed by firms in the same or related industry where they can exchange information, collaborate with each other and have easy access to outputs and suppliers (Ibrahim & Fallah, 2005). Rosenfeld (1998) defines clusters as ‘geographically bounded concentration of interdependent businesses with active channels for business transactions, dialogue, and communications, and that collectively shares common opportunities and threats (p. 4)’. By being concentrated in innovation habitats (Zucchela, 2002; Dib et al., 2010) these firms are exposed to networks, knowledge and social capital that allow their business expansion and internationalization in an early stage (Engelman

& Fracasso, 2012; Sánchez & Gras, 2015).

Aditionally, Zahra (2005), Oviatt and McDougall (2005), and Masili and Curina (2018) points out that BGs can be either company or academic spin-offs. According to Pirnay and Surlemont (2003), ventures spin-offs are usually small endeavors that separate form large well established companies. The reasons could be either by individuals from inside of an organization that is driven by an impulse to undertake. They are known for having enough expertise and knowledge to stimulate the commercialization of products apart from the ‘parent’ company. Furthermore, ventures spin-offs can also be generated by the parent company customers’ needs who express the intention to support a technological product to be developed individually (Ahlström Söderling, 1999). As for university spin-offs, they are ventures generated from knowledge assets developed in a university with the goal of transforming that knowledge into products or services to be commercialized, bringing university know-how to market (Pirnay & Surlemont, 2003).

Apart from the internal and organizational characteristics of BGs that enable a precocity internationalization process, Farnhaber, Gilbert, and McDougal (2008) and Fernhaber (2013) strongly highlight the importance of comprehending the external ambiance where these firms are originated. Institutional factors and environmental context, such as the location in which they are inserted, can also influence positively or negatively on their development, as well as their internationalization and rapid growth in international markets.

Institutional context covers governmental related aspects, in the political, economic, and legal spheres. Mainly addressed by the Institutional Theory (North, 1983;

1996), the institutional settings where these firms are born affect their growth, survival, and eventually their foreign expansion. The government as an institutional agent can

26 enhance the firm’s activities by sharing technological know-how and offering economic incentives and assistance through public agencies and banks, by public policies that stimulate innovation, competitiveness, and exportation (Bell & McNoughton, 2000), and regulatory and normative support that facilitates and encourages the establishment of new business (Busenitz, Gomez, & Spencer, 2000). On the other hand, institutional constraints can come through bureaucracy, foreign trade legal barriers, high taxes, favoritism (Monticelli, Calixto, Vasconcellos, & Garrido, 2017), as well as a negative institutional country image (Montanari, Giraldi, & Galina, 2019) derived from corruption, as an example.

As highlighted by Yamakawa, Peng, and Deeds (2008), Zander, McDougall- Covin, and Rose (2015), and Zonta and Amal (2018), studies on BGs have been predominantly derived from developed economies bringing evidences that can be easily applied to BGs that share similar well developed institutional conditions as where these studies are originated (Milanzi, 2012). Different from developed countries which enjoy strong institutions, emerging economies constitute different scenery. Despite the fact that emerging economies are known for being very entrepreneurial, they are also known for having institutional barriers that inhibit firms’ business expansion and internationalization (Ribeiro, Scholar, Junior, and Borini, 2012), Volchek, Jantunen &

Saarenketo, 2013; Stoian & Mohr, 2016). For example, Cahen, Lahiri, and Borini (2015) on their study conducted with Brazilian technology-based firms have shown that high cost of capital to initiate international activities, absence of governmental incentives (credit lines and tax incentives) and the high taxation systems are the main obstacles for these firms to internationalize.

Even though institutional aspects influence in somehow on the internationalization process of firms, Sekliuckiene (2016) argues that institutional factors do not appear to have a substantial impact on the foreign expansion of BGs. According to the scholar, firms’ domestic market has more effect on this matter since they can play as a push or pull factor that influences internationalization.

In a study conducted by Luostarinen and Gabrielsson (2004) in small and open markets (SMOPECs) the authors concluded that even though they possess sophisticated markets that can absorb BGs niche-oriented and highly technological products, their market size is limited, causing a pull force towards internationalization due to the absence of demand as well as a fear of possible external competitors (Rainey, 2005). Luostarinen and Gabrielsson (2004) also conclude that BGs from countries with large markets have

27 less pressure to internationalize quickly due to large client bases and growth opportunities.

However, continental countries such as BRICS that possesses large domestic markets but weaker institutions, the institutional environment is viewed as a pull factor since they seek for well-organized institutional structure (Luo, Xue, & Han, 2010) to better develop their innovation, competitiveness (Wu, Wang, Hong, Piperopoulos, &

Zhuo, 2016), or low cost product development (Laurell, at al., 2013). In parallel, since BGs tend to favor internationalization due to their limited resources and entrepreneur actions, their home-market vulnerability is less important in comparison with domestic ventures (Sarasvathy, 2001; Mathews, 2006) that show fewer propensities to go abroad.

Also, Majkgard and Sharma (1998) have marked that BGs are usually client followers which could be a pull determinant for internationalization despite home-market barriers or psychic distance (Johanson & Vahlne, 1977). With the purpose to clarify the differences between both approaches, table 2 brings the main arguments that explain the differences of traditional internationalization theories and the BG phenomenon.

Table 2 – Salient Differences Between Traditional and Born Global Views of Internationalization

Internationalization Attributes Traditional Internationalization Born Global Internationalization Home Market Domestic Market developed first Domestic market largely irrelevant Prior Internationalization

Experience

None expected Founder has extensive experience in relevant international markets Extent of Internationalization International markets developed

serially

Many international markets developed at the same time

Pace of Internationalization Gradual Rapid

Psychic distance In order of psychic distance Psychic distance irrelevant Learning to internationalize At a pace governed by the ability

to learn from (slowly) accumulated experience

Learning occurs more rapidly

because of superior

internationalization knowledge Firm Strategy Not central to the firm’s

motivation to internationalize

Realization of competitive advantage requires rapid, full internationalization; product market scope is focused niche

Use of Technology Not central to

internationalization

Key role as enabler of global market reach and learning

Networks Used in early stages of

internationalization and gradually replaced with the firm’s own resource

Rapid development of global reach requires rapid, comprehensive network of partners

Time to Internationalize Not crucial to firm success; slow Crucial to firm success with a few years of inception

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Source: Chetty and Campbell-Hunt (2004, p. 66)