Internationalization of Smaller Firms: Opportunity Development ...

FEATURE ARTICLE

1

Internationalization of Smaller Firms: Opportunity Development through Networks By Sara Melén Hånell Pervez N. Ghauri This article aims to contribute toward a better understanding of the opportunity development process that rapidly internationalizing small and medium-sized enterprises (SMEs) undergo. Little is known about how SMEs overcome challenges in the process of recognizing and exploiting market opportunities during their rapid expansion abroad. This article presents a longitudinal case study that illustrates how a firm’s relationships with business, social, and political actors enhance its opportunity development during the internationalization process. The findings highlight that conducting matching activities at different levels helps the firm overcome challenges and succeed in developing new opportunities for continued expansion abroad. This study contributes to research on rapidly internationalizing firms by broadening the empirical and theoretical understanding of the opportunity development process for smaller firms. © 2015 Wiley Periodicals, Inc.

Correspondence to: Sara Melén Hånell, Department of Marketing and Strategy, Stockholm School of Economics, P.O. Box 6501, S-113 83 Stockholm, Sweden, +46-8-736 9536 (phone), +46-8-31 99 27 (fax), [email protected]

Published online in Wiley Online Library (wileyonlinelibrary.com) © 2015 Wiley Periodicals, Inc. • DOI: 10.1002/tie.21763

2 FEATURE ARTICLE

Introduction

T

he past two decades have witnessed an increased interest in rapidly internationalizing small and medium-sized enterprises (SMEs)1 and their ability to develop market opportunities abroad already from their inception (e.g., Czinkota & Pinkwart, 2014; Rialp, Rialp, & Knight, 2005). In many economies, rapidly internationalizing SMEs represent important contributions in terms of job creation and the development of new global industries (Cavusgil & Knight, 2015; Eurofound, 2012). Scholars as well as policymakers have therefore highlighted the need to further understand how such firms overcome challenges and develop market opportunities for continued expansion abroad (Czinkota & Pinkwart, 2014; Eurofound, 2012; Zander, McDougall-Covin, & Rose, 2015). Because rapidly internationalizing firms are usually small and young, they typically have limited resources and experience. These firms, moreover, often operate in increasingly competitive markets that are characterized as rather volatile (Dimitratos & Jones, 2005). These conditions imply that these SMEs must overcome major challenges in the process of recognizing and exploiting market opportunities during their rapid expansion abroad. According to previous research, the network actors to which rapidly internationalizing firms are connected help the firms overcome challenges and develop market opportunities (Rialp et al., 2005; Sharma & Blomstermo, 2003; Zhang, Ma, & Wang, 2012). These studies suggest that through the firm’s interaction with business actors, it gains access to resources and knowledge that in turn support the firm’s opportunity development. Although many studies on rapidly internationalizing SMEs have focused on the importance of firms’ interaction with customers, distributors, and suppliers (Knight, Madsen, & Servais, 2004; Sharma & Blomstermo, 2003; Zhang et al., 2012), few studies have investigated SMEs’ interaction with political and social actors, such as government agencies and interest groups. This gap in the literature is noteworthy given that political organizations and interest groups have paid increased attention to support internationalization of SMEs (e.g., Eurofound, 2012; European Consortium for Sustainable Industrial Policy [ECSIP], 2013). In addition, the need for support from nonbusiness actors, such as government organizations, is often much greater for these SMEs, owing to the need for speed of their internationalization and limited resources (Luostarinen & Gabrielsson, 2006). Moreover, based on research on large firms, it is known that a firm’s interaction with nonbusiness actors can be critical for the firm’s

Thunderbird International Business Review

international expansion (Elg, Ghauri, & Tarnovskaya, 2008; Welch & Wilkinson, 2004). Hence, to close this gap in the literature, further theory-building research on the opportunity development process of rapidly internationalizing SMEs is needed. This gap suggests that little is still known about how the network actors to which SMEs are connected can enhance opportunity development during their rapid expansion abroad. This article aims to contribute to a better understanding of the opportunity development process by addressing the following research question: How can a firm’s relationships with different network actors enhance the opportunity development process in the firm’s international entry and expansion? In an attempt to answer this question, we report the findings of a longitudinal case study that describes an SME’s recognition and exploitation of foreign-market opportunities. Drawing on behavioral internationalization process (IP) theory (Johanson & Vahlne, 1977, 2009), we consider opportunity development to be the process by which an opportunity is recognized and exploited. This study is, moreover, concerned with foreign-market opportunities, which are viewed as opportunities related to establishing new business operations in foreign markets (Johanson & Vahlne, 2009). The contributions of this study are twofold. First, the longitudinal case study presented in this article has the potential to advance empirical knowledge about rapidly internationalizing SMEs. Second, by drawing on IP theory, we can contribute to developing the understanding of how relationships and activities at different levels can improve the opportunity development process for smaller firms.

Theoretical Background Opportunity Development and the IP of SMEs In the literature, terms such as born globals and international new ventures have been used to denote small, and often young, firms that are able to recognize and exploit business opportunities in multiple markets from inception. Despite their ability to start their internationalization early, these SMEs are often challenged by their lack of resources, knowledge about foreign markets, and experience in conducting business abroad. Because these SMEs often operate in new high-tech markets located around the world, they must have the ability to adapt swiftly to rapidly changing conditions within these volatile markets (Almor, 2011; Crick & Spence, 2005; Pinkwart & Proksch, 2014; Rialp et al., 2005). Scholars have thus argued that a rapid internationalization requires a proactive approach toward knowledge development (Sallis &

DOI: 10.1002/tie

Internationalization of Smaller Firms

Sharma, 2009) and opportunity exploitation (Knight & Cavusgil, 1996; Rialp et al., 2005). Moreover, nimbleness and speed in relation to the exploitation of opportunities worldwide have been highlighted as key factors to success (Crick & Spence, 2005; Dimitratos & Jones, 2005). Studies have emphasized that the network actors to which these SMEs are connected facilitate the firms’ access to knowledge and resources (Crick & Spence, 2005; Zhang et al., 2012), thereby enhancing the firms’ opportunity development abroad (Sharma & Blomstermo, 2003). Several studies have emphasized the importance of SMEs’ relationships with business actors, for example, customers, distributors, and suppliers (Knight et al., 2004; Sharma & Blomstermo, 2003; Zhang et al., 2012). A study by Sharma and Blomstermo (2003) showed that knowledge about institutional factors and government rules and regulations was not collected by rapidly internationalizing firms prior to their foreign-market entry; instead, it was developed in the business relationships once the firms had entered the market. Studies have also shown that the high-tech and complex nature of the product offerings of several rapidly internationalizing firms influences the interaction and knowledge development within foreign customer relationships (Almor, 2011; Sharma & Blomstermo, 2003). Knowing how to market these high-tech products to potential customers often requires in-depth foreign-market knowledge (Pinkwart & Proksch, 2014; Sharma & Blomstermo, 2003). Sharma and Blomstermo, for example, described that because the product of a firm was high-tech and new, the buyer needed to know about the product, its uses, and its reliability. Consequently, a two-way flow of firm-specific information was required within the customer relationship. Although many studies have emphasized the importance of firms’ relationships with business actors, few studies have focused on these SMEs’ interactions and collaborations with social and political network actors, such as government agencies and interest groups. Of those studies that can be identified, their investigations have come to different conclusions with regard to nonbusiness actors’ support in firms’ internationalization (e.g., Kontinen & Ojala, 2011; Ojala, 2009; Zhang et al., 2012). Zhang et al. (2012) showed that political relationships with officials in industrial bureaus and regulatory and supporting organizations were less important to the international expansion of SMEs. A study by Ojala (2009) highlighted the importance of noncommercial organizations in the market entry of SMEs. The findings emphasized that the relationships with such organizations were particularly important for those SMEs without existing

DOI: 10.1002/tie

3

network relationships that they could use in their market entry. Contrasting findings, however, were highlighted in a study by Kontinen and Ojala (2011), where it was shown that even though export promotion organizations could mediate relationships between SMEs and potential foreign customers or distributors, none of the case firms used the services of such organizations. Hence, the major challenge facing those organizations responsible for supporting the foreign-market activities of firms is that the behavior of rapidly internationalizing firms is relatively unknown (Luostarinen & Gabrielsson, 2006). A recent report on these firms in Europe highlighted that national policymakers are not aware of the specific needs of these firms and that these firms in general experience a lack of information about public support and those support activities provided (Eurofound, 2012). Another report concluded that support services provided by European Union (EU) member states are too broadly oriented. Support activities should have a more targeted coverage and an in-depth approach (ECSIP, 2013). Of those studies analyzing the role of network actors for these SMEs, many have primarily captured the firms’ foreign-market entry stage. Relatively few studies have analyzed how the firms’ network relationships support opportunity development during the continued expansion abroad. Of those studies that can be identified, their conclusions suggest that the networks for SMEs change over time (Crick & Spence, 2005; Sharma & Blomstermo, 2003). A study by Coviello (2006) concluded that the range of rapidly internationalizing firms’ networks increased over time. Sharma and Blomstermo (2003) demonstrated that each customer relationship was a source of new knowledge and new relationships. The addition of new knowledge in turn allowed the firm to commit resources to its expansion and engage in further internationalization. Hence, the international operations of rapidly internationalizing firms and their network relationships coevolve (Coviello, 2006; Sharma & Blomstermo, 2003).

IP Theory and Opportunity Development According to IP theory, internationalization is the process of increasing the accumulation of knowledge in markets abroad (Johanson & Vahlne, 1977). A critical resource in the IP of firms is their experiential knowledge of foreign markets and institutions. This foreign-market knowledge enables firms to perceive and formulate concrete opportunities in foreign markets, thus reducing the uncertainty involved in the internationalization of firms. The link between firms’ experiential knowledge and opportunity development has attracted some interest


4 FEATURE ARTICLE

(Johanson & Vahlne, 2006, 2009). Building on the business network approach (Johanson & Mattsson, 1988), Ghauri, Hadjikhani, and Johanson (2005) suggested that opportunities emerge as a consequence of the privileged knowledge that business partners develop during their interaction with each other. Thus, IP theory suggests that opportunity development during internationalization should be viewed as a process in which different actors in interaction combine a variety of resources and knowledge in different phases. This view on opportunity development focuses on firms’ business relationships with various network actors, such as suppliers, customers, distributors, and competitors. However, firms’ relationships with nonbusiness actors have attracted much less attention. Similar to Hadjikhani and Thilenius (2005), Welch and Wilkinson (2004) pointed to the lack of studies in the existing business network literature on relationships with political actors and other nonbusiness actors. Welch and Wilkinson noted that relationships with political actors, such as governments, can be critical to firms’ foreignmarket activity. One theoretical perspective that can be shown to broaden the perspective of the business network approach is the matching perspective, developed by international marketing scholars (Elg et al., 2008; Ghauri & Holstius, 1996). The matching perspective has been used to understand how large multinational firms overcome problems arising from the environment as they undergo their foreign-market entry process (Ghauri & Holstius, 1996). Whereas business network theory has been mainly concerned with those adaptations at the company level, matching comprises everything from facilitating systems provided by governments and international institutions to company-specific matters (Ghauri & Holstius, 1996). Matching has been defined as comprising all the steps taken at the global, macro, and micro levels to facilitate the development of business relationships between companies in dissimilar countries. Combining the business network approach with the matching perspective makes it possible to identify actors and activities as well as resource exchanges occurring at three different levels (Ghauri & Holstius, 1996). Because matching occurs at three levels, three levels of matching actors also exist. At the global level, matching includes international and multilateral agreements, communications, and relationships. Matching at the macro level includes contacts with national governments and relationship building with other social actors, such as interest groups. Matching at the micro level refers to the establishment of relationships with business partners at the firm level and to the adaptation of products and technology (Elg et al., 2008).


An Analytical Framework As shown in Figure 1, we suggest that a firm’s foreignmarket knowledge and matching activities are important antecedents to opportunity development in foreign markets. A firm’s foreign-market knowledge enables the development of opportunities abroad, and matching activities at the global, macro, and micro levels facilitate the firm’s access to this knowledge. We focus on the development of foreign-market opportunities, which are defined as opportunities related to a firm’s establishment of new business operations in foreign markets. By drawing on the matching concept, we are able to analyze whether actors and activities at one particular level are important during one specific phase of the opportunity development process. The analytical framework, therefore, includes business, social, and political network actors, and matching activities are studied at the micro, macro, and global levels. To capture how a firm’s relationships with various actors can enhance opportunity development over time, we distinguish between the firm’s international entry and its continued international expansion. The international entry phase includes actors and matching activities related to a firm’s recognition and exploitation of its initial business opportunity in a foreign market. The continued international expansion involves those actors and matching activities that relate to the firm’s recognition and exploitation of new business opportunities following its initial entry into a foreign market. Drawing on these theoretical concepts, we view opportunity development as an ongoing process in foreign markets. It is a dynamic process in which interacting parties gradually and sequentially increase their recognition and exploitation of opportunities (Johanson & Vahlne, 2009). The opportunity development process can be initiated by a firm. It proceeds through cooperation with other network actors to exchange knowledge

1 Analytical Framework for Opportunity Development and IP

FIGURE

Opportunity development

Internationalization process

Matching -Global level -Macro level -Micro level

Opportunity recognition

International entry

Foreign market knowledge

Opportunity exploitation

Continued international expansion

Antecedents

DOI: 10.1002/tie


and resources (Ghauri et al., 2005). The process is driven by the interacting parties’ ability to combine their knowledge and experiences.

Method To fulfill the purpose of this study, we had to choose a research method that allowed us to follow a firm’s behavior over time. We also had to take into consideration that few longitudinal studies exist in the field and that the opportunity development process involved in SMEs’ expansion abroad is relatively unexplored. Hence, we used an exploratory research method to conduct a longitudinal case study. A qualitative exploratory case study approach provides a solid opportunity to develop existing theory (Eisenhardt & Graebner, 2007). Even though a single case study cannot provide grounds for grand generalizations, it is still of value in suggesting areas for further investigation and theory development. A single case study, moreover, has an advantage over multiple case studies in that it enables rich descriptions of a phenomenon (Siggelkow, 2007). The focus of this case study is therefore to explore and describe an SME’s recognition and exploitation of foreign-market opportunities during the IP. According to Yin (2003), single-case analysis is also appropriate for a longitudinal research design because it gives researchers the opportunity to see how certain conditions change over time. Creating a longitudinal research design was important because it provides details as to how dynamic processes actually play out (Siggelkow, 2007) and, thus, allows insight into the process of opportunity development during the firm’s expansion abroad. With a longitudinal case study, we could also build on and develop existing theory about rapidly internationalizing SMEs (Eisenhardt & Graebner, 2007). Choosing this method allowed us to develop deep insights into an emerging and evolving phenomenon (Birkinshaw, Brannen, & Tung, 2011)—that is, a rapidly internationalizing SME’s opportunity development over time. We focused our study on the life sciences industry because it is a global industry marked by rapid change and growth. In Sweden, the industry represents over 20% of Swedish net exports and includes over 800 companies, of which 90% have fewer than 100 employees (SwedenBIO, 2011). By focusing on the Swedish life sciences industry, we increased the possibility of following an internationalizing SME during its operations over time. Drawing on previous research, we established the following selection criteria: The company must fulfill the definition of an SME (be an independent nonsubsidiary firm that employs fewer than

DOI: 10.1002/tie

5

250 individuals; Organisation for Economic Co-operation and Development, 2002), continue to employ its founders, conduct its own research and development (R&D), and have sold at least one product in a foreign (i.e., nonSwedish) market. The case company chosen for this study was selected from the Swedish Biotech Industry Guide, an exhaustive database of companies in the biotechnology industry. The information provided in Table 1 shows that the case firm is a small company that started its internationalization not long after its foundation. The data in Table 1 also demonstrate that the case company matches the criteria often used in defining rapidly internationalizing SMEs (e.g., Knight et al., 2004); that is, the company started its internationalization within three years from establishment, and at least 25% of its total sales come from sales in foreign markets. Between the years 2003 and 2011, the firm’s export share of turnover, the number of employees, and its profit increased (see Table 2). The firm was by 2003 selling its products all over the world (see Table 3). Hence, the firm has been able to overcome the challenges related to rapid foreign-market expansion. To maintain the company’s anonymity, we refer to this company as “Beta” in this study.

Data Collection and Data Analysis This study is based on both primary and secondary data. Data collection spanned nine years, from early 2003 to

1 Background Information on “Beta,” the Case Company

TABLE

Case Company “Beta”

Description

Founded

1995

Year of first foreign sale

1995/1996

Export percentage (compared with total sales) three years after foundation

28%

2 The Development of the Case Company “Beta” between 2003 and 2011

TABLE

Number of employees Turnover (KSEK) Export share of turnover (KSEK) Net profit/loss (KSEK)

2003

2011

10

18

7,781

20,758

1,000–1,999

5,000–9,999

896

1,456

Note: In accordance with the method applied by Statistics Sweden, export share of turnover is reported in export intervals of thousands of Swedish krona (KSEK).


6 FEATURE ARTICLE

TABLE

3 Foreign-Market Entries since Foundation

Year of Initial Regions in the World Foreign Market Entry 1995

North and Central America

1999

Nordic countries, Europe, the Far East, Oceania

2000

Africa

2002

European Union (excluding Denmark and Finland)

2003

Asia, South America

Note: In accordance with the method applied by Statistics Sweden, the firm’s direction of export is presented in terms of regions in the world.

late 2011. The main data collection method involved conducting six in-depth interviews with founders and managers who have participated in activities related to identifying and exploiting opportunities in foreign markets. Conducting in-depth interviews is considered highly suitable for exploratory research because respondents are given a better opportunity to answer in accordance with their own way of thinking when their answers are not constrained to only a few alternatives (Ghauri & Grønhaug, 2010). An interview guide was developed based on our research question and analytical framework. The first interview was conducted in 2003, and an additional five interviews were conducted between the years 2003 and 2010. During this period, the founder of the firm, an employee involved in marketing and sales, and the chief executive officer (CEO) were interviewed. Each in-depth interview was about 120 minutes in duration. Hence, we included several highly knowledgeable informants in our data collection as a way to mitigate bias (Eisenhardt & Graebner, 2007). Data were also collected with multiple methods so as to help validate the information and produce a more complete and holistic understanding (Ghauri & Grønhaug, 2010). First, observational data were gathered from the company visits. Second, follow-up interviews were conducted via e-mail and by telephone with informants. Third, we used secondary data sources, such as business articles collected from databases, annual reports, and data from Statistics Sweden. Following the procedure suggested by Ghauri (2004), we reduced data and wrote chronologies of the company’s expansion abroad, focusing specifically on its development of foreign-market opportunities. Doing so enabled us to focus and organize the data (Miles & Huberman, 1994) and to track the events over time during the firm’s internationalization. The data were then coded and classified into our model dimensions, which


enabled interpretation of and comparison between the different phases of opportunity development and the IP.

Case Study: The IP of Beta Beta is a small biotechnology company that is specialized in producing biochemical products. The firm possesses a product portfolio that includes different enzymes, proteins, and user-friendly analytical kits. The firm’s products have been developed based on relatively unique knowledge; thus, the number of competitors is limited. The firm’s customers are both small and large companies. The firm manages its sales from the company’s headquarters in Sweden and via international distributors located in different regions of the world. Table 3 shows the years in which the firm made entry into a new region of the world. Between the years 1995 and 2003, the firm entered multiple regions of the world. By 2003, Beta was selling its products all over the world, with its largest export markets centered in Germany, the United Kingdom, and the United States. Based on the information in Table 3, the international entry phase of Beta started in 1995, when the firm made its initial foreignmarket entry, and continued to 2003. The continued international expansion phase focuses on the years from 2004 through 2011.

International Entry and Opportunity Recognition When Beta was established, it did not have a formulated strategy regarding internationalization. Most of the firm’s employees had a research background but limited experience doing business with foreign customers. Despite having conducted limited marketing activities in foreign markets, it had, from its establishment, developed a web page with information about the company’s products. Special effort had also been made to make it easy for customers to find information about the firm’s products via the Internet. It was also via the company’s web page that one of the first customers in the United States and Japan came in contact with Beta. Reflecting on the firm’s international entry, the CEO acknowledged, “It is difficult to talk about strategy within a small company because a strategy is seldom specifically defined. It was probably more tentative in the beginning, and it was based much less on active outreach and active work.” Typically, a foreign customer company would contact Beta and inquire about the price and whether the firm could deliver the products. Questions were focused on more specific matters as opposed to the technology in general. The staff at Beta could easily understand the customers’ questions and would quickly respond to them.

DOI: 10.1002/tie


In Beta’s experience, the Japanese distributors had the basic knowledge necessary for understanding how to use the products, and the relationship developed mainly via communication through e-mail. By contrast, the firm’s relationships with its distributor companies in the United States were characterized by more frequent contact. Questions from these distributors often concerned the price of the products. There were generally no questions about the technology, as these distributors had a basic understanding of the products. The initial interaction between Beta and its customers in the American and Japanese markets illustrates that the parties’ shared knowledge regarding the technology and products facilitated the initial matching activities within the business relationships. Even though the foreign customer companies were the ones that initiated the opportunity development process in the United States and Japan, the initial matching activities with business actors within these markets increased Beta’s knowledge about the potential in these opportunities. This is further exemplified in Beta’s entry in the German market, which was also initiated by potential customer companies that started contacting the firm. In summary, micro-level matching enhanced the initial opportunity recognition phase for Beta.

International Entry and Opportunity Exploitation The firm experienced that the price discussions within the customer relationships were sometimes a difficult aspect to manage. The founder stated, “If the price is set too low on a product, it can cause the customer to lose interest in the company’s products.” To manage the price discussions, the firm required in-depth knowledge about the market, its customers, and its competitors. This also implied that actors not involved in this specific business were not able to help Beta with gathering knowledge on these matters. The firm believed it had a good understanding of its competitors within this business. In some situations, the firm could therefore turn to its foreign competitors for knowledge about prices on similar products. Another challenge of the opportunity exploitation phase was related to existing bureaucracy within the foreign markets. The founder of Beta acknowledged that it was relatively easy to understand the bureaucracy within Europe, mainly because the firm’s home country (Sweden) is a member of the EU. However, Beta initially encountered some problems when managing its relationships with customers in the United States because of the firm’s lack of knowledge about the specific regulations to which the firm had to adapt so that it could deliver

DOI: 10.1002/tie

7

its products to customers in that market. Together with its customers in the market, Beta was able to acquire the necessary knowledge about these rules and how to handle them. The founder described the situation as follows: “The firm has now, together with the American customers, learned about the regulations and can therefore better manage these set of rules.” Hence, micro-level matching (i.e., interaction and adaptations with business actors) once again gave access to knowledge that enabled Beta to overcome challenges in developing opportunities. Beta’s customer relationships in the German market differed from the firm’s business relationships in other foreign markets. Apart from some larger distributors to which the firm sold its products, one group of customers within this market comprised small companies with limited experience in conducting business with foreign counterparts. The relationships between Beta and these small customer firms were characterized by frequent interaction and adaptations made in terms of product offering and administrative issues. Interaction with these customers was, however, challenging, partly owing to these smaller firms’ limited understanding of the products and their need for help in using the products, and partly owing to language problems. Beta was able to overcome most of these problems; however, some potential customers ultimately did not buy Beta’s products. Hence, in this situation, the firm’s limited resources and knowledge hindered its opportunity exploitation. During this phase, Beta was contacted by a representative from a global student organization who was interested in the company. Although the founder was not initially interested in the organization, discussions were carried out with this representative about the possibility of hiring a German student to market and sell Beta’s products in German-speaking countries. These discussions led to the hiring of a German student who started working with marketing activities aimed at the German market. The student, for example, produced presentation materials in German to help Beta’s German-speaking customers understand its products. These types of adaptations improved communication and generated positive feedback from existing customers. The direct contact that the firm initiated with its customers also led to improved customer relationships. The founder pointed this out, stating, “We hope to develop a better relationship with the customers in Germany now when we are able to offer instructions in German.” Hence, in the opportunity exploitation phase, macrolevel matching with a social network actor (i.e., the firm’s collaboration with the global student organization) enabled Beta to access new knowledge about the German


8 FEATURE ARTICLE

market. This knowledge helped the firm overcome some of the existing problems in the market. The firm also planned to commit further resources in Germany so as to exploit those business opportunities that the student had identified. In addition to these resource commitments, the firm felt that it needed to commit further resources to the American market so as to exploit all the identified market opportunities. Owing to resource constraints, the firm has not been able to help all potential customers who have made inquiries. The founder pointed out that to exploit more customers in the United States would require hiring another individual. The founder also acknowledged that collaborating with the global student organization had helped the firm; however, this organization lacked representation in English-speaking countries and, therefore, would not be much help in developing the firm’s commitments in the American market. Beta had therefore decided to put more resources into exploiting the German market because doing so seemed more feasible to the firm.

Continued Expansion and Opportunity Recognition Even though Beta’s knowledge about the potential of the German market increased, the firm started to experience great difficulties in making contact with new companies and in marketing the company’s products to them. The German student remarked, “In the German market, if you do not have someone you know already, it is quite hard to come in contact with a company.” Compared with the US market, Beta found gaining entry to and expanding in the German market to be more difficult. During this phase of development, Beta started collaborating with the Swedish Trade Council as a way to receive support in finding and making contact with potential customers and distributors in the German market. The collaboration started out when the Swedish Trade Council visited the firm to talk about business opportunities in the Hungarian market. Because Beta was focused on developing opportunities in the German market, the firm instead contacted the Swedish Trade Council again to ask for help in identifying new potential customers in this market. The projects developed together with the Swedish Trade Council in the German market worked very well. The Swedish Trade Council, for example, helped Beta identify specific potential distributors and foreign customers in this market. During the firm’s continued expansion, matching activities with this social network actor, however, generated both positive and negative results. The company found that the local offices in various countries differed in their levels of competence, commitment, and knowledge. Based on the


firm’s experiences of collaborating with social network actors, the CEO pointed out the following: It is important that they understand the products that the company works with. Another important aspect is that they offer support during the entire process, until an agreement is made and maybe even after that. We have had some contacts at the [Swedish] Trade Council that, for example, have followed up on the process and continued to contact us. It is, of course, not only to meet once and agree about the guidelines for an agreement, but a contract must be written, and then the sales must start, and after that, the agreement shall continue to give results.

In addition to collaborating with the Swedish Trade Council, the firm used its existing network of business relationships to find new opportunities. Beta became more proactive in its search for new business opportunities and viewed its existing relationships with foreign distributors as an important source of knowledge about new potential distributors.

Continued Expansion and Opportunity Exploitation Even though Beta often did not perceive regulations within foreign markets to be a problem, the firm experienced some problems related to regulations when selling to smaller foreign markets, such as some African countries. The firm tried to keep informed about current regulations that influenced the firm’s expansion in foreign markets. Questions concerning this issue were frequently discussed during the firm’s management meetings. During its continued expansion abroad, it was apparent that Beta had acquired more knowledge about how to interact within its relationships to existing distributors so as to succeed in its exploitation of these opportunities. The CEO explained, “We have learned that we have to help the distributors a lot with how to sell the company’s products, what the selling points should be, and, in this way, be more active in the relationship with distributors.” In addition, Beta continued to collaborate with the Swedish Trade Council in exploiting market opportunities. This collaboration helped the firm develop its inquiries of foreign companies into more official requests, which could also be linked to the Swedish Embassy. The connection to the embassy made it easier for Beta to contact those foreign companies with which the firm wanted to initiate relationships. Hence, the continued expansion marks the importance of macro-level matching in exploiting opportunities that otherwise would have been difficult to do so. Table 4 summarizes the internationalization of Beta over time.

DOI: 10.1002/tie


TABLE

9

4 Summary of Case Findings International Entry Opportunity Recognition

Continued Expansion

Opportunity Exploitation

Opportunity Recognition Business and social actors

Opportunity Exploitation

Actors involved

Business actors

Business and social actors

Business, social, and political actors

Micro matching

Interaction with foreign customers increases the firm’s knowledge about potential opportunities abroad.

Interaction and adaptations Interaction with existing dismade in the relationship with for- tributors gives knowledge about eign customers and competitors potential distributors. give knowledge about marketspecific matters.

Interaction with distributors gives access to market knowledge.

Macro matching

Not emphasized

Interaction and collaboration with a global student organization give knowledge about the German market.

Collaboration with a trade council enables the firm to come in contact with new customers and political actors (i.e., Swedish embassies).

Global matching

Not emphasized

The EU makes it easier to Not emphasized understand existing bureaucracy within Europe.

Interaction and collaboration with a global student organization and a trade council give access to knowledge about potential customers and distributors.

Not emphasized

Note: EU, European Union.

Discussion Beta represents a case of a small firm that has overcome the challenges related to rapid foreign-market expansion and, in so doing, learned how to develop new market opportunities for continued expansion abroad. Given the lack of knowledge on how relationships with both business and nonbusiness actors can support SMEs’ opportunity development process during their international expansion, it is important to discuss thoroughly the empirical and theoretical insights that can be drawn from this longitudinal study.

Matching Activities and Foreign-Market Knowledge The findings illustrate that the firm’s limited resources and foreign-market knowledge influenced its opportunity development during the IP. The limited knowledge, for example, hindered its exploitation of opportunities in the German market. At the same time, the findings illustrate that matching activities at different levels enabled Beta to access the needed knowledge, which in turn helped the firm overcome problems experienced during its opportunity development.

Micro-Level Matching During its international entry, the case firm’s interactions and adaptations in its relationships with foreign customers and competitors not only increased its knowledge but also helped the firm overcome the challenges

DOI: 10.1002/tie

experienced in the exploitation phase. One such interaction occurred when the firm contacted its competitors for advice on prices of similar products. These actors had in-depth knowledge about the market and the products, which actors not involved in the business lacked. These findings thus illustrate that micro-level matching with business network actors was crucial for opportunity development to occur. On a general level, our findings are in line with those studies highlighting that relationships with business actors can give SMEs access to knowledge and support (Sharma & Blomstermo, 2003; Zhang et al., 2012). Our findings further illustrate that Beta and its customers in the United States and Japan had a shared knowledge about the technology, which facilitated the interaction and knowledge development within these relationships. By contrast, in the firm’s interaction with the small German customers, the parties’ lack of shared understanding made matching activities much more challenging and knowledge development more difficult. Our findings suggest that the unique nature of the high-tech products made interaction and knowledge development more difficult in the firm’s relationships with some of its business actors, which in turn also hindered the opportunity development process. These findings expand on the arguments of earlier studies (Almor, 2011; Pinkwart & Proksch, 2014), by highlighting that a rapidly internationalizing firm operating in new high-tech markets is confronted with additional challenges in developing knowledge and market opportunities abroad.


10 FEATURE ARTICLE

Contrary to earlier studies (Knight & Cavusgil, 1996; Rialp et al., 2005; Sallis & Sharma, 2009), our longitudinal study shows limited evidence of proactive behavior in the firm’s initial interaction with foreign business actors. It was, for example, the foreign customers who initiated the opportunity development process, which in turn helped Beta gain access to knowledge on the potential of such opportunities. Hence, a proactive approach toward knowledge development does not seem to be a prerequisite for opportunity development. The findings instead illustrate that as the firm gains more experience from matching activities, the firm becomes more proactive toward knowledge and opportunity development in its continued expansion.

Macro-Level Matching For Beta to overcome some of the challenges experienced in exploiting opportunities in the German market, macro-level matching with a social actor (i.e., the global student organization) was crucial. The case also illustrates that the firm’s inability to come in contact with a social actor involved in the United States hindered its opportunity development within this market. During the firm’s continued international expansion, matching activities at the macro level appear to be even more crucial. In this phase, Beta’s interaction with the Swedish Trade Council helped the firm develop business opportunities in several markets. The Swedish Trade Council also helped the firm come in contact with Swedish embassies, which in turn helped the firm exploit opportunities that otherwise would have been difficult to do so. Our findings differ from those presented by Kontinen and Ojala (2011) and Zhang et al. (2012), where SMEs did not use the support from social and political actors. Our study instead illustrates the importance of establishing relationships with social actors for knowledge and opportunities to develop. However, the findings also reveal various challenges related to collaborating with these network actors. One such challenge is that the support of the social actors is often general in nature and is not specific to the firm’s resources and needs. The case indicates that those actors who were going to support the firm’s internationalization did not always understand the firm’s products. The case also emphasizes that the social actors should have a long-term view of their collaboration with Beta. The findings can be interpreted as reflecting the results of previous studies as well as policy reports, showing that a general problem for national policymakers is that they are not aware of the specific needs and behavior of these SMEs (Eurofound, 2012; Luostarinen & Gabrielsson, 2006). Our study suggests that when the


support activities from social actors lack an in-depth perspective and design, it becomes more difficult for the rapidly internationalizing firm to access knowledge from these actors. It is evident that Beta did not adopt a proactive approach in its initial collaboration with the social actors. Later, Beta became more proactive in these relationships and started to value the support received from the collaborations. These findings can indicate a lack of interest or lack of information on support activities provided by social actors, thus reflecting prior results showing that SMEs often experience a lack of information about public support (Eurofound, 2012).

Global-Level Matching This study provides limited evidence of global-level matching. However, the case evidence shows that within Europe, the firm did not experience difficulties in understanding bureaucracy because the firm’s home country is a member of the EU. The firm, however, encountered problems related to regulations when expanding within smaller markets in Africa. When problems related to regulations arose in the United States, those were solved in the firm’s interaction with customers in that market. Similar to the findings of Sharma and Blomstermo (2003), our findings reveal that knowledge on regulations is accessed from foreign business partners. The limited evidence of matching activities at the global level differs, however, from those of other studies in which matching activities have been discussed (Elg et al., 2008; Ghauri & Holstius, 1996). Whereas the study by Elg et al. (2008) focused on large, established multinational corporations, it is reasonable to assume that the conditions for smaller firms are different. It might be more difficult for a smaller firm to use the support provided by political institutions.

Opportunity Development Our findings illustrate that in its interaction with foreign customers, Beta gained more knowledge about the potential of the foreign-market opportunities. As a consequence, the firm committed more resources to exploit these opportunities. These findings suggest that it was not until the firm began interacting with the potential customers that the firm actually recognized these opportunities. The opportunities thus emerged as a consequence of the knowledge that these business actors developed during interaction (Ghauri et al., 2005). The findings also show that even though foreign customers are often the actors that initiate the opportunity development process, it is the collaboration with social and political network actors that gives access to foreign-market

DOI: 10.1002/tie


knowledge needed for exploiting opportunities. Hence, the opportunity development process for Beta is initiated by foreign customers and proceeds through cooperation with other network actors, which results in an exchange of knowledge (Ghauri et al., 2005). Different network actors are thus involved in and support different phases of the opportunity development process. This is specifically illustrated in the firm’s entry to and expansion within the German market. During the firm’s entry phase, opportunities emerged when potential customers and Beta started to interact. The exploitation of those opportunities, however, appeared to be more challenging compared with opportunities in other markets. Beta then started collaborating with social network actors, thereby giving the firm access to important knowledge for exploiting the opportunities. The firm’s development of opportunities in the German market is an example of a dynamic process in which the firm in interaction with business and social actors gradually and sequentially increases its recognition and exploitation of foreign-market opportunities. Our study, therefore, does not support arguments stating that nimbleness and speed in relation to the exploitation of opportunities are key factors to success (Crick & Spence, 2005; Dimitratos & Jones, 2005; Rialp et al., 2005). The findings instead suggest that a gradual and sequential opportunity development process helped the firm to succeed in developing opportunities for continued expansion abroad.

IP Our study highlights that the firm broadens and develops its network over time. The case findings show that during the continued expansion, new challenges emerge, and collaborations with both social and political actors give the firm access to knowledge to overcome these challenges. Our findings support previous studies showing that the operations of rapidly internationalizing firms and their network relationships coevolve (Coviello, 2006; Sharma & Blomstermo, 2003). However, our findings suggest that this type of research requires an analysis that includes actors and activities at different levels. Whereas IP theory has helped provide an advanced understanding of small firms’ internationalization (e.g., Sharma & Blomstermo, 2003), this study points out the need to broaden the theoretical perspective so that it includes not only business actors but also nonbusiness actors. Other scholars (Hadjikhani & Thilenius, 2005; Welch & Wilkinson, 2004) have made similar arguments, noting the omission of nonbusiness actors in relationships as a limitation in existing business network literature.

DOI: 10.1002/tie

11

Conclusions The findings of this study illustrate that the firm’s relationships with business, social, and political actors enhance opportunity development during the IP through the provision of knowledge to the SME. The findings illustrate an opportunity development process, in which the firm in interaction with business and nonbusiness actors gradually and sequentially increases its recognition and exploitation of foreign-market opportunities. Our study demonstrates that micro-level matching with business actors gives the firm access to knowledge about potential business opportunities. In the exploitation of opportunities, the findings highlight the importance of social and political actors and of the support gained from matching activities at the micro and macro levels. Theoretically, the findings imply that studies on rapidly internationalizing SMEs should include not only the role of business actors but also the role of nonbusiness actors in their analyses. Doing so would help generate a more holistic understanding of the opportunity development process of these firms. More specifically, by highlighting the roles of different network actors and matching activities at different levels, our findings suggests that the matching perspective may be useful in achieving a better understanding of the international expansion of small firms. Empirically, our findings highlight the need for smaller firms to recognize the importance of interacting with social and political actors in addition to business actors. Our findings also suggest that policymakers and interest groups responsible for supporting the foreign-market activities of firms should further their understanding about the behavior and the specific needs of rapidly internationalizing firms. To generalize the findings presented in this study, more longitudinal case studies on the internationalization of smaller firms are needed. Such research should, in particular, continue to explore the role of social and political network actors in the rapid internationalization of SMEs. This study shows that the role of global-level matching in these firms’ internationalization is still unclear. Future research that focuses on these areas may further the understanding of rapidly internationalizing SMEs and their expansion abroad.

Note 1. Taking into consideration the definitions put forward by other scholars (Knight et al., 2004; Rialp et al., 2005), we define a rapidly internationalizing SME as a firm that, from inception, recognizes and exploits opportunities in multiple countries.


12 FEATURE ARTICLE

Sara Melén Hånell received her PhD in international marketing at the Stockholm School of Economics in Sweden. She conducts research on the international expansion of small and medium-sized enterprises (SMEs) and is currently a research fellow at the Department of Marketing and Strategy at the Stockholm School of Economics. Sara has published her research in, among others, the Journal of World Business, International Business Review, and European Management Journal. Pervez N. Ghauri completed his PhD at Uppsala University in Sweden, where he also taught for several years. At present, he is professor of international business at Birmingham Business School, University of Birmingham, United Kingdom. He has published over 30 books and numerous papers on international marketing and international business topics in journals such as Journal of International Business Studies, Journal of World Business, British Journal of Management, International Marketing Review, and Management International Review. Dr. Ghauri also consults to many international companies.

References Almor, T. (2011). Dancing as fast as they can: Israeli high-tech firms and the great recession of 2008. Thunderbird International Business Review, 53, 195–208. Birkinshaw, J., Brannen, M. Y., & Tung, R. L. (2011). From a distance and generalizable to up close and grounded: Reclaiming a place for qualitative methods in international business research. Journal of International Business Studies, 42, 573–581. Cavusgil, S. T., & Knight, G. (2015). The born global firm: An entrepreneurial and capabilities perspective on early and rapid internationalization. Journal of International Business Studies, 46(1), 3–16. Coviello, N. E. (2006). The network dynamics of international new ventures. Journal of International Business Studies, 37, 713–731. Crick, D., & Spence, M. (2005). The internationalisation of “high performing” UK high-tech SMEs: A study of planned and unplanned strategies. International Business Review, 14, 167–185. Czinkota, M. R., & Pinkwart, A. (2014). Internationalization in marketing—from theory to practice by means of a Delphi study. Thunderbird International Business Review, 56(1), 5–10. Dimitratos, P., & Jones, M. V. (2005). Future directions for international entrepreneurship research. International Business Review, 14(2), 119–128. Eisenhardt, K. M., & Graebner, M. E. (2007). Theory building from cases: Opportunities and challenges. Academy of Management Journal, 50(1), 25–32. Elg, U., Ghauri, P. N., & Tarnovskaya, V. (2008). The role of networks and matching in market entry to emerging retail markets. International Marketing Review, 25, 674–699. Eurofound. (2012). Born global: The potential of job creation in new international businesses. Luxembourg: Publications Office of the European Union. European Consortium for Sustainable Industrial Policy. (2013). Study on support services for SMEs in international business. Rotterdam, Netherlands: Author. Ghauri, P., & Grønhaug, K. (2010). Research methods in business studies (4th ed.). London, England: Financial Times Prentice Hall. Ghauri, P. N. (2004). Designing and conducting case studies in international business research. In R. Marschan-Piekkari & C. Welch (Eds.), Handbook of qualitative research methods for international business (pp. 109–124). Cheltenham, England: Edward Elgar.


Ghauri, P. N., Hadjikhani, A., & Johanson, J. (Eds). (2005). Managing opportunity development in business networks. Basingstoke, England: Palgrave Macmillan. Ghauri, P. N., & Holstius, K. (1996). The role of matching in the foreign market entry process in the Baltic States. European Journal of Marketing, 30(2), 75–88. Hadjikhani, A., & Thilenius, P. (2005). The impact of horizontal and vertical connections on relationships’ commitment and trust. Journal of Business & Industrial Marketing, 20(3), 136–147. Johanson, J., & Mattsson, L.-G. (1988). Internationalisation in industrial systems—a network approach. In N. Hood & J.-E. Vahlne (Eds.), Strategies in global competition (pp. 287–314). New York, NY: Croom Helm. Johanson, J., & Vahlne, J.-E. (1977). The internationalization process of the firm—a model of knowledge development and increasing foreign market commitments. Journal of International Business Studies, 8(1), 23–32. Johanson, J., & Vahlne, J.-E. (2006). Commitment and opportunity development in the internationalization process: A note on the Uppsala internationalization process model. Management International Review, 46(2), 165–178. Johanson, J., & Vahlne, J.-E. (2009). The Uppsala internationalization process model revisited: From liability of foreignness to liability of outsidership. Journal of International Business Studies, 40, 1411–1431. Knight, G., Madsen, T. K., & Servais, P. (2004). An inquiry into bornglobal firms in Europe and the USA. International Marketing Review, 21, 645–665. Knight, G. A., & Cavusgil, S. T. (1996). The born global firm: A challenge to traditional internationalization theory. Advances in International Marketing, 8, 11–26. Kontinen, T., & Ojala, A. (2011). Network ties in the international opportunity recognition of family SMEs. International Business Review, 20, 440–453. Luostarinen, R., & Gabrielsson, M. (2006). Globalization and marketing strategies of Born Globals in SMOPECs. Thunderbird International Business Review, 48, 773–801. Miles, M. B., & Huberman, A. M. (1994). Qualitative data analysis: An expanded sourcebook (2nd ed.). Thousand Oaks, CA: Sage. Ojala, A. (2009). Internationalization of knowledge-intensive SMEs: The role of network relationships in the entry to a psychically distant market. International Business Review, 18(1), 50–59. Organisation for Economic Co-operation and Development. (2002). OECD small and medium enterprise outlook. Paris, France: Author.

DOI: 10.1002/tie


Pinkwart, A., & Proksch, D. (2014). The internationalization behavior of German high-tech start-ups: An empirical analysis of key resources. Thunderbird International Business Review, 56(1), 43–53. Rialp, A., Rialp, J., & Knight, G. A. (2005). The phenomenon of early internationalizing firms: What do we know after a decade (1993–2003) of scientific inquiry? International Business Review, 14(2), 147–166. Sallis, J. E., & Sharma, D. D. (2009). Knowledge seeking in going abroad. Thunderbird International Business Review, 51(5), 441–456. Sharma, D. D., & Blomstermo, A. (2003). The internationalization process of born globals: A network view. International Business Review, 12, 739–753. Siggelkow, N. (2007). Persuasion with case studies. Academy of Management Journal, 50(1), 20–24.

DOI: 10.1002/tie

13

SwedenBIO. (2011). Swedish life science—yesterday and today. Retrieved from http://www.swedenbio.se/ Welch, C., & Wilkinson, I. (2004). The political embeddedness of international business networks. International Marketing Review, 21, 216–231. Yin, R. K. (2003). Case study research: Design and methods (3rd ed.). Thousand Oaks, CA: Sage. Zander, I., McDougall-Covin, P., & Rose, E. L. (2015). Born globals and international business: Evolution of a field of research. Journal of International Business Studies, 46(1), 27–35. Zhang, X., Ma, X., & Wang, Y. (2012). Entrepreneurial orientation, social capital, and the internationalization of SMEs: Evidence from China. Thunderbird International Business Review, 54, 195–210.
