Internet-based sales channel strategies of born global firms

Mika Gabrielsson a,*, Peter Gabrielsson b,a

a International Business, Aalto University School of Economics, Finlandb International Marketing, University of Vaasa, Finland

1. Introduction

The existence and importance of born global firms has proved to be significant in many markets (Knight & Cavusgil, 1996;Madsen & Servais, 1997; Oviatt & McDougall, 1994; Rennie, 1993; Zahra, 2005). Born globals have been researched in over 20countries, including many small and open economies such as Ireland, New Zealand, Greece, Israel, Finland, Norway,Denmark, Sweden, and Australia. However, they have also originated in larger economies such as the US, Japan, Germany,France, the UK and Canada (e.g., Dana, 2004). The research has also identified the characteristics of born globals (Madsen,Rasmussen, & Servais, 2000) and the factors facilitating early and rapid globalization of these firms (Rialp, Rialp, & Knight,2005). Nevertheless, more emphasis on development of theory and conceptual frameworks has been called for in research onborn globals (Jones & Coviello, 2005; Rialp et al., 2005). Although the international and global marketing literature hascontributed much to our understanding of the marketing strategies of large global firms (e.g., Levitt, 1983; Yip, 1989), littlehas been written specifically on the marketing strategies of born globals with the exception of a few studies (e.g., Knight,1997). Moreover, few of these studies are related to the challenges facing born globals in their strategic marketing channelselection (Gabrielsson & Kirpalani, 2004).

This is striking, given the great changes that have taken place in the marketing environment due to introduction of theInternet and other modern technologies that enable bypassing of conventional channels (Frazier, 1999). It therefore seemsjustifiable to study the Internet-based channel strategies of born globals (Moen, 2002). It is particularly interesting to

International Business Review 20 (2011) 88–99

A R T I C L E I N F O

Article history:

Received 6 July 2008

Received in revised form 30 April 2010

Accepted 3 May 2010

Keywords:

Born globals

Channel strategies

Internet

A B S T R A C T

Recent changes in the technological environment have had a significant impact on the

available sales channel alternatives. At the forefront of this development are the born

global firms, which have been relatively quick to adopt Internet-based channels.

Interestingly, many of these firms have relied not only on Internet-based channels, but

also used combinations of conventional channels and the Internet. This study describes

and analyzes the structure and development from single towards multiple sales channels.

It develops a framework consisting of three independent factors: (1) the globalization

process, (2) market structure and Internet suitability, and (3) long-term channel relations.

These are examined in a multiple case study consisting of 35 cases. The Internet-based

multiple sales channels proved to be more common in born globals that had reached a

higher globalization degree than in those which were still at a preliminary stage. A novel

finding was that relationship development with small local channels and MNCs also

remains important when Internet sales channels are used. These results contribute to a

relatively under-researched area focusing on international Internet-based sales channels

and use of multiple channels.

� 2010 Elsevier Ltd. All rights reserved.

* Corresponding author. Tel.: +358 9 431 38670; fax: +358 9 470 38880.

E-mail address: mika.gabrielsson@hse.fi (M. Gabrielsson).

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doi:10.1016/j.ibusrev.2010.05.001

examine the global expansion of the born globals and their use of the Internet as a sales channel (Servais, Madsen, &Rasmussen, 2007). Furthermore, earlier literature has examined single channel strategy alternatives (direct/indirect), buthas focused limited attention on multiple channel strategy alternatives (Anderson, Day, & Rangan, 1997). The multiplechannel alternatives are of considerable importance for the investigation of Internet-based sales channel strategies. Hence,Internet-based channel strategies as a means of international expansion have been under-researched and clearly form aresearch gap (Gabrielsson, Kirpalani, & Luostarinen, 2002, p. 93). This leads to the following research questions:

(1) What kind of Internet-based sales channel strategy alternatives are available for born global companies?(2) What factors impact the selection of the Internet-based sales channel strategies of born globals?

This research examines the Internet-based sales channels from the perspective of born global firms. In this research, aborn global firm is defined as one that ‘‘from inception, seeks to derive significant competitive advantage from the use ofresources and the sales of outputs in multiple countries’’ (Oviatt & McDougall, 1994, p. 49).

2. Multiple sales channel strategies and the Internet

The internationalization process literature recognizes two main groups of marketing operations that form the base forchannel strategies; these are export operations and sales subsidiary operations (Johanson & Vahlne, 1977; Luostarinen, 1979,p. 110). The marketing literature becomes useful in a further examination of the sales channel structures in countries.Accordingly, the conventional sales channel can be one of the two main alternatives, a direct sales channel in which theproducer sells directly to industrial or consumer end-customers or an indirect sales channel in which independent channelmembers located in the target market are used (Frazier, 1999). A producer may also use a combination of both direct andindirect sales channels.

However, the potential role of the Internet and information technology in international marketing should be taken intoaccount (Samiee, 1998). This becomes particularly important for born global firms that have been found to use the Internetintensively in support of their export activities (Moen, 2002). Research has argued that the Internet is one of the ways forborn globals to obtain substantial revenues and cash flow rapidly (Gabrielsson & Kirpalani, 2004). As a matter of fact, someevidence shows that when properly applied, the Internet can reduce the liability of foreignness and newness (cf., Kotha,Rindova, & Rothaermel, 2001, p. 771) and resource scarcity, and thus contribute to faster globalization (Arenius, Sasi, &Gabrielsson, 2005). Within this study, Internet usage is investigated with respect to both export and sales subsidiaryoperations. Special attention was placed on the extent to which Internet-based sales channel strategies were used by theborn global firm itself. Use of the Internet by middlemen in the next layer was not examined in this paper since it would merita separate study.

Previous research has placed Internet usage in different categories. For instance, Angehrn (1997) classifies use of theInternet for virtual information space, virtual communication space, virtual transaction space, and virtual distribution space.This has been further developed by Servais et al. (2007), who divide the categories into information sharing, interaction,transaction, and integration. In the context of international sales channel strategies, the important functions that can bepartly covered by the Internet include promotion, customer generation, and product fulfillment (stockholding, distribution,etc.) (cf., Buckley, Pass, & Prescott, 1994). Internet promotion based on information sharing is already common in most of thecompanies and therefore this usage alone does not qualify as an Internet-based sales channel strategy. Hence, in this studyan Internet-based sales channel strategy should consist of either customer generation based on two-way interactionbetween born globals and their customers or channel members in order to process sales orders, or then product fulfillmentbased on exchange of products or services over the Internet.

The four major channel strategies offered by the Internet are illustrated in Figs. 1 and 2. They can be divided on the basisof two major dimensions: directness and number of channels. The Internet can be used as a direct sales channel[(Fig._1)TD$FIG]

Fig. 1. Direct and indirect Internet-based sales channel strategies. (Note: Use of Internet shown with dotted line.)

M. Gabrielsson, P. Gabrielsson / International Business Review 20 (2011) 88–99 89

(1st alternative) in which the born global producer carries out all the channel functions by itself and applies the Internet forboth promotion and to generate customers and/or handle product fulfillment. The Internet may be used in a similar way bythe born global firm in selling to indirect channel partners (2nd alternative). These two single channel strategy alternativesavailable for born global firms are illustrated in Fig. 1 (use of the Internet is shown with a dotted line in the figure). Althoughthe focus of this study is on the producer’s Internet-based sales channel strategy, the figure also shows that a distributor orreseller may apply either a traditional or an Internet-based sales channel when reselling to the end customer.

Moreover, research has indicated that in born global firms the direct Internet sales channel can be used in combinationwith indirect channels to create multiple sales channels (Moen, 2002). This results in two additional multiple channelalternatives. In a dual sales channel the intermediaries are used in parallel with the direct Internet channel (3rd alternative).This means that local distributors become part of a mixed system in which the producer manages numerous customersdirectly with the Internet, while the local distributors focus on discrete segments of national markets (Arnold, 2000, p. 133).In the case of a hybrid sales channel (4th alternative), the channel functions are shared between the producer and themiddleman (Anderson et al., 1997, p. 66), using the new opportunities offered by the Internet to integrate the activities (cf.,Servais et al., 2007). The sales leads are usually generated by the Internet-based promotion and customer generationmethods of the producers, while the actual product fulfillment takes place via handling of stocks, distribution control andother reselling/retailing functions by intermediaries. Alternatively, although intermediaries market the products, customersultimately purchase them from the manufacturer via the Internet (Tsay & Agrawal, 2004). The dual and hybrid alternativesare illustrated in Fig. 2.

As we have now described the Internet-based sales channel strategy alternatives for born globals the theoreticalapproaches explaining the channel choice and development will be reviewed next.

3. Theoretical framework and proposition development

This research briefly presents three theoretical approaches for explaining the sales channel strategy choice anddevelopment. These approaches are namely (A) the globalization process (Luostarinen & Gabrielsson, 2004; see alsoJohanson & Vahlne, 1977), (B) the sales channel economic structure, namely transaction cost analysis (Williamson, 1975),and (C) long-term relations (Dwyer, Schurr, & Oh, 1987).

The internationalization process literature focuses on explaining the pattern of stages that the companies proceedthrough as they gradually advance toward more demanding products (P), operations (O) and markets (M) (Luostarinen,1979). Recently, it has been suggested that the time-based process of born globals should also be understood morethoroughly (Jones & Coviello, 2005). Examination of the globalization process of born globals has shown that they have alsofollowed a pattern similar to that of internationalization, deviating, however, by passing more rapidly through the stages,jumping over some, or even in some cases proceeding in reverse order (Luostarinen & Gabrielsson, 2004). Hence, each bornglobal company has an individual POM-posture that affects sales channel selection. The underlying rationale for theglobalization pattern is in the lateral rigid behavior of the decision makers in the firms, which can be overcome through thelearning process (Luostarinen, 1979). The conventional firm is therefore first expected to conduct exporting through anindirect sales channel and only later, as experience is gained, to adopt a direct channel. However, to successfully globalizetheir activities the double liability of newness (Mudambi & Zahra, 2007; Stinchcombe, 1965) and foreignness (Hymer, 1976;Mudambi & Zahra, 2007; Zaheer, 1995) must be overcome by the born global. Research has argued that the Internet has thepotential to moderate the liability of newness and foreignness so that the globalization process may be speeded up and leadto a higher degree of directness and often a multiple channel structure (Arenius et al., 2005).

The objective of the sales channel economic structure literature is to explain channel selection on the basis of cost andefficiency considerations. One of the most frequent approaches is the transaction cost approach (TCA), which is based on the

[(Fig._2)TD$FIG]

Fig. 2. Dual and hybrid Internet-based sales channel strategies. (Note: Use of Internet shown with dotted line.)

M. Gabrielsson, P. Gabrielsson / International Business Review 20 (2011) 88–9990

early work of Coase (1937) and later Williamson (1975, 1985). TCA suggests a level of vertical integration (market orhierarchical control) based on the efficiency of transactions. One of the main conclusions that can be drawn is that directsales channels, especially when the asset specificity is high, make the most sense when the transaction size is large (Klein,Frazier, & Roth, 1990). Recent developments in modern technologies such as the Internet have, however, decreased theminimum transaction size at which direct sales are efficient because the cost of a single transaction has become minimal(Javalgi & Ramsey, 2001). However, the suitability of various products for Internet sales varies on the basis of the actualproduct characteristics, for example whether they are virtual or physical and on the customer segments and their familiaritywith the brand (De Kare-Silver, 2000, pp. 71–88). TCA further suggests that due to the economies of scale and scope thataccrue from handling a large number of transactions and also from managing the external uncertainty created by suchdiversity, multiple (dual or hybrid) sales channels are optimal for increasing the sales volume in the case of highly diversifiedmarkets (Gabrielsson et al., 2002; Mols, 2000).

The primary objective of long-term channel relationship literature is to explain the development of the relationship overtime (Dwyer et al., 1987). It is argued that a channel relationship can lead to either partnership advantages (Sethuraman,Anderson, & Narus, 1988) or channel conflicts (Frazier, 1999; Moriarty & Moran, 1990). This is moderated by severalrelationship variables, namely power (e.g., Emerson, 1962, p. 32), trust (e.g., Dwyer et al., 1987, p. 18) and commitment (e.g.,Dwyer et al., 1987, p. 19). This study focuses on the possible influence of channel relationships on channel selection (e.g.,Thibaut & Kelley, 1959). When the Internet is used as a sales channel it has the potential to enable a distant connection that inmany cases would not otherwise be possible. However, over-reliance on Internet connections may also misleadinglypersuade the firm that it is not necessary to gather market knowledge (Yamin & Sinkovics, 2006). Hence, it can also have anadverse effect on the relationship when compared with personal communication, which usually has more potential fordeveloping into a trustworthy and committed relationship. It is argued that long-term channel relations are especially usefulin explaining the selection between multiple channels (dual, hybrid). Hybrid channels are selected when the partnershipadvantages achieved through trustworthy and committed relationships are important, whereas a dual channel is preferredwhen the relative power of the born global company has become strong and channel conflicts can thereby be overcome.

Based on the above review of these three theoretical approaches, a simple framework for guiding the empirical study wasformed. See Fig. 3.

The framework consists of three major constructs that contribute to selection of an Internet-based sales channel strategyalternative. The alternatives are direct, indirect, dual and hybrid. The framework will next be examined in more detail withrespect to the influence of the independent factors on the four Internet-based sales channel strategies. First, globalization hasan impact. In the early phase, the liability of newness and foreignness on the market has to be overcome (cf., Mudambi &Zahra, 2007; Zaheer, 1995). Moreover, resource limitations may hinder the use of conventional direct channels. Hence, firmsoften rely on conventional indirect channels such as distributors or resellers (Madsen et al., 2000), which may not provide afast enough growth rate. They may also experiment with Internet-based direct sales channels, which are said to have limitedapplicability (Moen, Endresen, & Gavlen, 2003). Due to possible previous experience of the founders, rapidly accumulatingexperience during globalization, low rigidity towards using modern technologies and innovative channel alternatives(Madsen & Servais, 1997), the born global companies are expected to move fairly quickly to multiple Internet-based saleschannels (cf., McNaugton, 2002). A combination of both conventional and Internet-based channels is required to overcomethe above-mentioned liabilities due to the Internet’s limited capability as a substitute for conventional sales methods (Moenet al., 2003). This is because although the Internet facilitates rapid globalization, it does not fully replace the cultural andbusiness learning associated with physical presence in foreign markets (Yamin & Sinkovics, 2006). Rapid learning duringglobalization (Autio, Sapienza, & Almeida, 2000) and low rigidity in decision-making distinguish born globals fromconventionally internationalizing firms (Johanson & Vahlne, 1977; Luostarinen, 1979). Hence, it is expected that as[(Fig._3)TD$FIG]

Fig. 3. A dynamic framework for selection of an Internet-based sales channel strategy.

M. Gabrielsson, P. Gabrielsson / International Business Review 20 (2011) 88–99 91

globalization advances, born global companies will increasingly use Internet-based multiple sales channels (dual, hybrid).Thus, Proposition 1 is postulated as follows:

Proposition 1. The use of Internet-based multiple sales channels (dual, hybrid) increases during globalization of the born global

firm.

Second, the market structure and Internet suitability of products influence the channel selection. Direct sales make moresense when the transaction size is large. However, if the product is digital or otherwise easily sellable through the Internet,smaller volumes can also be sold efficiently by these modern channels (Moen, 2002), which do not require directinvestments such as sales offices (Zaheer & Manrakhan, 2001). Business-to-business born globals differ considerably fromthe business-to-consumer types with respect to the structure of the market and the nature of transactions. The products ofthe former have usually been sold personally (Knight, 1997, p. 31). The product offerings of business-to-business bornglobals tend to be more complex with higher asset specificity and thus less suitable for Internet-based trade. Also, thenumber of industrial customers is smaller than when consumers are targeted, and the size of the transaction is usually larger,thus favoring the use of sales person involvement (Loane, 2006). Furthermore, cultural dissimilarities may reduce theusefulness of the Internet for business-to-business born globals operating across the world markets and relying heavily onbusiness relationships involving partners from collective cultures (Jean, Sinkovics, & Kim, 2008). In contrast, for business-to-consumer born globals the smaller size and higher frequency of transactions and the lower level of asset specificity(Williamson, 1975, 1985) may enhance use of the Internet as a sales channel, given that the product and markets are suitablefor Internet-based sales (cf., De Kare-Silver, 2000). Hence, Proposition 2 is the following:

Proposition 2. The use of Internet-based sales channels (indirect, direct, dual, hybrid) is more common among business-to-

consumer than business-to-business born global firms.

Third, direct Internet-based channels and the development of long-term relationships with indirect channel membershave usually been seen as optional alternatives. However, contemporary international business theory recognizes thatmultiple channel arrangements consisting of both direct and indirect channels may result in partnership advantages thatcannot be achieved separately (Anderson et al., 1997; Sethuraman et al., 1988). Born globals have been found to userelationships with local actors in overcoming country market barriers and entering new country markets (Johanson &Vahlne, 2003). It has been found that reputation and co-operation are important for the international expansion of USInternet-based firms (Kotha et al., 2001). In addition, born globals may use the channels and networks of large MNCs, whichoffer rapid global expansion (Coviello & Munro, 1997; Gabrielsson, Kirpalani, Dimitratos, Solberg, & Zucchella, 2008). Firmsthereby leverage the resources of other actors by establishing activity links with them (Ford et al., 1998; Hakansson &Snehota, 1995). It is important to note that when using Internet-based sales channel strategies, relationships with channelpartners often remain an important issue. The more dependent born global firms are on channel partners the more alert theyare expected to be with respect to potential channel conflicts (cf., Cadotte & Stern, 1979) when introducing Internet-basedchannels. The nature of born global relationships differs according to whether local or MNC channels are used. In the former,the number of relationships is high, thus requiring attention to the management of this complex network, whereas in thelatter case the number of relationships is usually quite low but their relative importance is high. Hence, it can be concludedthat born globals are expected not only to establish Internet-based channels, but also to engage in relationship building withlocal channels or MNCs for increased commitment. This is equally important for born globals targeting business- orconsumer-end customers, since in both cases partnerships with channel members become important due to the Internet’slimited capability as a substitute for conventional sales methods (Moen et al., 2003; Yamin & Sinkovics, 2006). Channelcommitment can be achieved through development of trustworthy relations and effective communication (Nes, Solberg, &Silkoset, 2007). The importance of channel relations for born globals inevitably means that direct Internet-based channelsare not expected to be prevalent among born global firms. Hence, Proposition 3 is the following:

Proposition 3. Relationship building with local channels or MNCs is important for born globals using Internet-based channels,

thus favoring partner-based Internet sales channels (indirect, dual, hybrid) over non-partner-based Internet sales channels (direct).

4. Research design, data gathering and analysis

Multiple case study research was selected as the methodological approach for investigating Internet-based sales channelstrategies of Finnish small and medium-sized born globals. The method is especially appropriate for answering ‘‘how’’ and‘‘why’’ questions (Yin, 2009, p. 9) and permits a more thorough understanding of the behavior of the born globals examinedthan a survey or other more deductive research methods. The Internet-based sales channel strategies are complex andtherefore a thorough understanding is required to understand these strategies and why they were selected. Furthermore, theInternet-based sales channel strategies of born globals have been researched scarcely (Gabrielsson et al., 2002). The strengthof the case method is the likelihood that it will result in theory development (Eisenhardt, 1989, p. 17). The multiple casestudy method is particularly appropriate for this research as it allows the use of theoretical sampling and use of replicationlogic that is required for examining the framework and propositions. Furthermore, the evidence of a multiple case study isoften considered more compelling and the study is altogether more robust than a single case study (Yin, 2009, p. 54).

M. Gabrielsson, P. Gabrielsson / International Business Review 20 (2011) 88–9992

The cases were selected from a database on Finnish born globals developed at the university with which the authors areaffiliated. The names and contact information for these born globals were gathered from prominent venture capitalists, theNational Fund for Research and Development (Sitra), and the National Technology Agency (TEKES). This database comprisesaltogether 93 born globals. The list of born globals shows that they are found not only in the high-tech sector but also in thefollowing three business areas: (1) high-tech, (2) high-services, and (3) high-know-how/systems businesses. High-techcompanies use advanced innovative technologies in their products. The R&D expenditure of such companies is often morethan 5 per cent of total sales. Moreover, these companies often use unique design in their products. High-service companiesprovide exceptionally high-quality services. High-know-how/systems companies sell unique know-how as their product.This know-how is specific, it is protected with a trademark or patent, and it is usually licensable or consists of sophisticatedsystems that solve customer-specific-problems or needs.

The case studies were conducted by selecting 10–15 case companies from each business area following theoreticalsampling logic; there were 35 case companies in all. Earlier studies have recommended that attention should be paid to thedifferences among born globals as to vision, international/global market expansion, and age (e.g., Luostarinen & Gabrielsson,2004; Oviatt & McDougall, 1994). Hence, the following criteria were used for case selection: they were born globals (from 1to 15 years old) in different development phases, they had formulated a global mission/vision from inception, and thedomestic stage (focusing on R&D) had been extremely short or non-existing (Luostarinen & Gabrielsson, 2004). The averageage of the 35 firms was 7.6 years and the median 8 years. The average time between the founding of the firm and their firstinternational sales was 1.7 years and the median 1 year. The average number of employees was 94.5 and the median 40.Furthermore, the average number of foreign markets was 25.2 and the median 20. The main characteristics of the case firmscan be found in Table 1. The total number of case studies was guided by the objective of reaching a thorough understandingof the channel behavior of Finnish born globals. Also, information saturation was noticed during the study; an additional casewould therefore not have brought any new information. This led to some variation in the number of cases for each of thebusiness areas. However, according to Yin (2009, p. 38) the purpose in case study research is not to gather a representativesample.

Out of the 35 cases, 10 were high-tech, 10 high-services, and 15 high-know-how/systems firms. See Table 2. The casefirms were further categorized according to the degree of globalization. This is one of the factors that was emphasized in theframework and it was expected to explain the use of Internet-based sales channel strategies. Furthermore, earlier researchfrom small and open economies such as Denmark (Servais et al., 2007) and New Zealand (Chetty & Campbell-Hunt, 2003) hassuggested the importance of distinguishing between internationalization within the region and globalization outside theregion, using various measurements. In this study, achievement of international status requires that the company’s foreignsales outside the domestic market (Finland in this case) exceed 50% of total sales. In contrast, the global phase is achievedwhen sales outside the domestic continent of Europe exceed 50% of the total (Luostarinen & Gabrielsson, 2004, p. 386). Anadditional requirement was that foreign sales were derived from several countries. This resulted in the following groups: (I)International phase begun. This group of cases consists of those that have been unable to raise their international sales above50% of total sales despite their international/global vision. (II) International phase achieved. This group of cases consists ofthose companies that have succeeded in raising their international sales above 50% of total sales. (III) Global phase achieved.These companies have successfully globalized their business to the extent that they derive over 50% of their sales outside thedomestic continent of Europe. The 35 Finnish small and medium-sized case companies examined were distributed so that 7were in phase I, 17 in phase II and 11 in Phase III.

Table 2

The globalization phase and business area of the case firms.

Global expansion phase Business area

High-tech High-service High-know-how/systems Total

Phase I

International phase begun (<50% sales outside domestic market)

2 3 2 7

Phase II

International phase achieved (>50% sales outside domestic market)

7 7 3 17

Phase III

Global phase achieved (>50% sales outside domestic continent)

1 0 10 11

Total 10 10 15 35

Table 1

Characteristics of the case firms.

Characteristics of firms Average Median

Age 7.6 8

Number of years since foundation to start of foreign sales 1.7 1

Number of personnel 94.5 40

Number of foreign markets 25.2 20

M. Gabrielsson, P. Gabrielsson / International Business Review 20 (2011) 88–99 93

The 35 Finnish case companies were all small and medium-sized born globals. They were selected from three business areasso that they fulfilled the selection criteria discussed above. They were producers of entire products or components. The high-tech products included electronic components and devices and medical instruments. Often design was also an importantelement in their products. High-services products included IT consulting, digital services, and information services. High-know-how products were typically software, games and other applications, whereas systems were related to production, qualitycontrol and security. The high-know-how and systems companies in particular had advanced to the global phase. With respectto age, year of establishment and first year of exporting, no significant differences were found in firms belonging to differentglobal expansion phases. However, the number of personnel and foreign countries was significantly smaller among the group offirms that had just begun internationalization than among those that had achieved an international/global phase.

The data gathering and analysis process was based upon many of the suggestions made by Eisenhardt (1989, p. 533), Yin(2009) and other methodology experts. The first step includes a priori specification of the constructs in the framework(Eisenhardt, 1989). A theoretical framework including the constructs was developed in the study. Yin (2009, 130) proposesfurther that propositions should be developed. The purpose of the propositions was to direct attention to the right issues in thecollection and analysis of the data. This approach has been widely applied in earlier research (see e.g., Gabrielsson, Gabrielsson.& Gabrielsson, 2008; Liu, Xiao, & Huang, 2008; Sethi & Judge, 2009). The research was part of a large project that enabledemployment of researchers to conduct personal interviews with the participating firms. Altogether, 35 companies wereinvolved in the interviews. In each company, 1–2 interviews were conducted. The CEO or marketing director was contacted bysending a letter describing the research project. The project developed a semi-structured questionnaire that was used in theinterviews. It included themes derived from the framework and propositions (see Miles & Huberman, 1994, p. 37). The researchinterviews focused on themes such as how the companies grew globally and how channel strategies were used during thegrowth phase. The themes also included product and market characteristics, basic company characteristics, and otherimpacting factors. Also, the interviewer took the opportunity to explore some interesting new findings or issues that requiredin-depth understanding in an informal conversation at the end of the interview. Moreover, during several interviewsrespondents were asked a question at the end: ‘‘What essential issues have I missed or have not been covered in the discussionof this subject area?’’ Also, emphasis was placed on asking truly open questions (see Patton, 2002, pp. 353 and 363). In gatheringempirical data the triangulation method was applied by using multiple sources of evidence in all cases (Yin, 2009, p. 114; Ghauri& Gronhaug, 2005). The interview data were complemented with archival material such as newspaper articles, press releasesand other company material. Updates were also made with the interviewees by telephone or e-mail. Furthermore, the salesmethods were verified on the Internet by exploring the websites and order systems that firms had in place.

The analysis relied on priori developed theoretical constructs and propositions, pattern-matching logic, and cross casecomparison (Yin, 2009, pp. 130–160; Ghauri, 2004). These techniques are expected to enhance both the internal and externalvalidity of the study (Yin, 2009, p. 41). The purpose of the pattern matching was to analyze the actual outcomes with theexpected pattern. If these were alike it could be concluded that replication had occurred. Any deviations had to be justified byother constructs and propositions of our theoretical frame (Yin, 2009, p. 138). When a pattern is found that is sufficientlysystematic the proposition can be accepted (Ghauri & Firth, 2009). Data displays and matrixes proposed by Miles andHuberman (1994) were used in the analysis. After analyzing each case a meta-matrix was developed permitting systematiccomparison of findings across cases (Ghauri, 2004; Ghauri & Firth, 2009). This allowed examination of the influence of theexplanatory variables on the Internet-based sales channels strategies. The analysis was facilitated by use of a softwareprogram. Nvivo was considered (see e.g., Ghauri & Firth, 2009; Sincovics, Penz, & Ghauri, 2008), but Excel was found mostappropriate for our purposes when categorizing and organizing the research data.

Quality in terms of the validity and reliability of the research was assured by following the suggestions of casemethodology experts such as Yin (2009), Patton (2002) and Ghauri and Gronhaug (2005). The validity of the data wasenhanced by using multiple sources of evidence, having several people analyze the results, building a chain of evidence, andfollowing pattern-matching logic in case analysis. Reliability was safeguarded through careful data collection, forming a casedatabase, and having key informants review the draft case reports.

5. Empirical results

5.1. Internet-based channel strategies

It was of considerable interest to identify the Internet-based sales channel strategies adopted by the 35 Finnish small andmedium-sized born globals in their global expansion endeavor. In order to achieve this, the companies were asked abouttheir type of channel structure and the role of the Internet in their sales channel (see Table 3). The channel strategies of thecase companies were then examined more thoroughly with case methodology techniques. The table below shows theInternet-based sales channel strategies. Almost half of the 35 born global case companies (16 out of 35 case companies) hadadopted Internet-based sales channels strategies.

5.2. Impact of globalization phase

The impact of the global expansion stage, the liability of newness and foreignness, and decision-making factors(experience, rigidity and learning) are examined next. The analysis of the Internet-based sales channel strategies reveals that

M. Gabrielsson, P. Gabrielsson / International Business Review 20 (2011) 88–9994

the frequency of using Internet-based channels increases during globalization. When the born globals that had achieved aglobal status in phase III are examined we notice that only 4 out of 11 had not adopted Internet-based sales channelstrategies, and this was mainly due to the nature of their products (systems) or because they relied in distribution of theirproducts on large channel partners to which they had outsourced all foreign sales and marketing activities. In the previoustwo phases in which the firms have only begun or achieved international status, there is much less use of Internet saleschannels.

The notion that Internet usage increases during globalization seems to support the assumption that rigidity with regardto applying modern technologies in sales channels decreases during globalization due to learning. A case firm explained thatalthough the Internet offers a global sales channel, ‘‘marketing through the Internet is difficult when the target group is notknown.’’ In the early phase of globalization the liability of foreignness and newness can thus only partly be overcome by useof the Internet. Internet usage may increase at later stages when the products and brand are known to the clientele. Anotherexplanation can be found in the level of earlier business experience of the founders or management teams prior toestablishing the born global company. An increase in the business experience of the firms that have reached a more globalstatus was noted. This could also have a positive effect on the attitude toward use of Internet-based sales channel strategies.

Table 3 further reveals an interesting finding when the channel structures among those firms that have adopted theInternet-based channel strategies are examined. Most of the firms use an Internet-based strategy that is based on a multiplechannel approach, either a dual or a hybrid channel approach, and their use seems to increase during globalization. A bornglobal firm had this explanation. ‘‘We increasingly distribute our software via all possible channels. We seek partners thatwant to distribute our software, and in addition to this we sell commercially through our own Internet domain. In otherwords we use both indirect and direct sales channels.’’ Only three of the total of born global case companies using Internet-based channel strategies apply a single channel approach. Out of these three cases, one uses a single indirect or directInternet-based channel, depending on the country. The other two use the Internet with large partners to sell and market theirproducts. However, they have not introduced competing direct Internet channels since they do not want to upset theirpartner.

To conclude, the global expansion stage, liability of newness and foreignness, and decision-making related factors werefound important in explaining Internet-based sales channel strategies. Proposition 1 seems to receive partial support sincethe use of Internet-based multiple channels increases during globalization. These Internet-based sales channel strategies aremainly of the dual or hybrid type. Interestingly, the contrary cases were explainable through factors identified in theframework. The product was not found suitable for Internet-based sales or then their large MNC channel partners preferrednot to use the Internet. These aspects will be examined more in the next sections. However, since these findings are based onqualitative case studies they should be interpreted cautiously and only as indicative results.

5.3. Market structure and Internet suitability

Analyses of the market structure and Internet suitability of products will follow. In respect to the structure of market, theFinnish SMEs examined consisted of three types of born globals based on their target customer group: (1) business-to-business born globals, which often targeted large business customers such as industrial, service or governmentalorganizations often of a multinational nature and ranging from banking to telecommunications equipment manufacturersand operators, and further including universities, research institutes, and defense forces as target groups; (2) business-to-consumer born globals, which targeted private customers and often had global needs related to housing, leisure, or otherdesires; (3) born globals targeting both business and consumer markets, with interior products, mobile telecom services orvarious software applications, which had broad appeal in both groups of customers. The empirical data included 20 business-to-business, 9 business-to-consumer and 6 business-to-business and consumer born globals.

Table 4 shows how Internet usage was divided on the basis of the customer group served. A sizable proportion of the firmsthat sold to industrial businesses did not use Internet-based sales channel strategies (14 out of 20 cases). Many of themreasoned that the Internet was not appropriate for their product characteristics, production process, or customer

Table 3

Channel strategies of Finnish SME Born Globals based on the globalization phase.

Global expansion phase Channel strategy

Indirect

Internet-based

Direct

Internet-based

Dual

Internet-based

Hybrid

Internet-based

Non-Internet-based Total

Phase I

International phase begun

– – 3 – 4 7

Phase II

International phase achieved

1 1 5 – 11 18

Phase III

Global phase achieved

2 – 4 4 4 14

Total 3 1 12 4 19 39

Note: The total number of sales channel strategies is higher than 35 because 4 of the case firms had used different strategies depending on the market.

M. Gabrielsson, P. Gabrielsson / International Business Review 20 (2011) 88–99 95

preferences. For instance, one of those business-to-business firms explained that ‘‘greater usage of the Internet beyondpromotion has been hindered by the uniqueness of the company’s products – co-operation with the customer is needed inthe design and manufacturing process in which the Internet cannot be used for all of the stages.’’

Business-to-business firms usually sold large systems or complete solutions. These were sizable deals, concludedinfrequently, and also complex by nature. As a result, they were handled by the case firms through conventional channels.However, in the case of software, where the deals are small, concluded frequently and standard by nature, the benefitsoffered by Internet-based sales were undeniable and in most cases the Internet was taken for granted. One business-to-business firm commented as follows: ‘‘It has a leading role since the product is an intangible market application, and theInternet is the most effective and quickest way to get the products to multiple markets.’’

The business-to-consumer firms used the Internet more frequently (10 out of 15 firms targeting either only consumers orboth consumers and business) and they always used Internet channels when the products could be sold through the Internet.This was logical, since in business-to-consumer sales the transaction size was small, the frequency high and the productswere of a standard nature. Those business-to-consumer firms that did not use the Internet were mainly of two types: eitherthey used large channel partners to handle their product sales and marketing or they sold products in which design wasimportant, and regarded their characteristics as unsuitable for presentation via the Internet. Also, in the case of business-to-consumer firms, the most frequent users of the Internet were those whose product was based in one way or another on asoftware solution or Internet-based service such as a game or application, which are particularly suitable for Internet-baseddistribution due to their digital nature. Furthermore, frequent use of the Internet by firms selling to both industrial firms andconsumers can be understood because they often used dual sales channel strategies in which the industrial customer wasserved through conventional means and the consumers via the Internet.

Turning to the impact of various products, out of the examined case firms, 10 produced high-tech physical products, 10high-service products and 15 high-know-how/systems products. Analysis within these groups revealed that there were afew notable differences among these categories with respect to use of Internet-based sales channel strategies. With respectto systems products, it was found that Internet-based sales channels were not used at all, while in the other groups of firmsthe Internet was used. This is understandable, since systems products were difficult to sell via the Internet due to theircomplex nature; they consisted of a mixture of product elements, including for instance, physical components, services andknow-how. With respect to the high-services and high-know-how firms that used Internet-based sales channels this couldbe explained by the digital nature of their products, which clearly facilitated usage of Internet channels. The high-techproducts which were offered through Internet channels were standard products, either components (sub-supplies) or stand-alone products, but did not include design or conventional service elements, in which cases conventional channels wererequired.

To conclude, market structure, transaction type and the Internet suitability of products were found important inexplaining whether the Internet was used in the sales channels. Evidence was found to support Proposition 2, whichproposes that the use of Internet-based sales channels is more common among business-to consumer than business-tobusiness born global firms. This seems to hold with respect to all the four types of Internet-based sales channel strategies.Furthermore, it was found that systems products were the least appropriate product group for Internet-based sales.

5.4. Long-term channel relations

The nature of the relationship, partnership advantages and the potential for conflicts in respective Internet-based saleschannel strategies are examined next. Basically, two channel intermediaries existed: (1) small local channels or (2)multinational companies and other large channels. See Table 5.

Among those 21 firms that used small local channel intermediaries, 10 used Internet-based sales channels and 11 reliedsolely on conventional channels. A particularly common approach among born globals using Internet-based sales channelstrategies relying on small local channels was the dual channel approach, though indirect and hybrid sales channel strategieswere also used. The intermediaries were frequently used to gain market access and credibility in the eyes of the end-customers, which would not have been possible by using only a direct Internet-based sales channel.

The large multinationals were used as channels by 16 born global firms, out of which Internet-based sales channelstrategies were applied in 9 case companies. Often born globals acted as Original Equipment Manufacturers (OEM) for brandowners such as Nokia, ABB, Siemens or supplied to large private label channels such as 3 M and Johnson and Johnson. Such an

Table 4

Channel strategies of Finnish SME Born Globals based on the main customer group.

Customer Channel strategy

Used Internet-based sales channels Did not use Internet-based sales channels Total

Business-to-business 6 14 20

Business-to-consumer 5 4 9

Business-to-business and consumer 5 1 6

Total 16 19 35

M. Gabrielsson, P. Gabrielsson / International Business Review 20 (2011) 88–9996

OEM branding or private labeling channel strategy was also often combined with early attempts to introduce the Internet asa parallel channel to decrease dependence on channel partners. That is why multiple channel strategies were particularlycommon. According to the interviewees, such multiple channel strategies were effective in reaching a wide range ofsegments, but involved the risk of channel conflicts.

Turning to an examination of the born globals that used Internet-based sales channel strategies, we find that as many as10 used small local channels as intermediaries to reach the market while 9 used multinationals or other large channels. Theonly company that sold via a direct Internet-based sales channel on some markets used indirect Internet-based sales channelstrategies relying on intermediaries selectively on other markets. Thus, we may conclude that for all of the case companiesusing the Internet-based sales channel strategy the relationship with intermediaries was found to be extremely importantand this had led to the selection of a dual, hybrid or indirect Internet-based sales channel strategy.

To conclude, Proposition 3 received support, as in all firms using Internet-based sales channels the relationships withlocal channels or MNCs were found to be important. Hence, strategies that utilize partners (indirect, dual and hybridInternet-based sales channel strategies) are favored. They enabled partnership advantages providing market access and endcustomer credibility. Particularly with regard to use of the MNC channel, the introduction of Internet-based sales channelswas to be implemented cautiously in order to avoid channel conflicts.

6. Discussion and conclusions

This article has examined the Internet-based sales channel strategies of born global firms, which has been covered to alimited extent in earlier research (e.g., Moen, 2002; Servais et al., 2007). An interesting result was that almost half of the bornglobal firms examined had adopted Internet-based sales channel strategies that went beyond providing information andconsisted of two-way interaction between born globals and their customers or channel members via the Internet in order toprocess sales orders or exchange products or services between each other over the Internet. Most of these firms use anInternet-based strategy that is based on a multiple channel approach, either a dual or a hybrid one. This is a surprising resultas it was expected that the Internet would make intermediaries redundant (Hamill, 1997). Based on our findings, however,they are used instead as part of this multiple channel structure.

Earlier born global research has stressed the importance of developing the theory and conceptual frameworks (Jones& Coviello, 2005; Rialp et al., 2005). Hence, this research is guided by a developed theoretical framework andpropositions that deal with the impact of the globalization stage, market structure and Internet suitability, and long-term channel relations on the selection of Internet-based sales channel strategies. To cover some of the importantresults, firstly, the research found partial support for the proposition that the use of Internet-based multiple saleschannels (dual, hybrid) increases during globalization of the born global firm. This corroborates earlier research findingsthat suggest a link between export intensity and successful use of the Internet (Morgan-Thomas & Bridgewater, 2004;Samiee, 1998). However, it was found that this factor alone did not explain all of the cases; in some of the contrary casesthe Internet suitability of the product or the importance of a close relationship with an MNC affected channel selection.Furthermore, the innovative channel selections were found to be related to the fact that the managers of these firmseither already had international business experience when establishing the firms or gained it during globalization. Thissupports earlier research emphasizing the importance of the experience of the founder and his team (Madsen & Servais,1997). This enabled the born globals to be less rigid in decision-making (cf., Korhonen, Luostarinen, & Welch, 1996). As aresult of the selected Internet-based multiple channels the born globals were able to overcome the challenges related tothe liability of foreignness (Hymer, 1976) and newness (Stinchcombe, 1965). In addition to these liabilities our researchhighlights the importance of considering channel strategies, thus supporting earlier research findings (e.g., Mudambi &Zahra, 2007).

Secondly, support was found for the proposition that the use of Internet-based sales channels is more common among thebusiness-to-consumer than business-to-business born global firms. This corroborates earlier findings (Loane, 2006) and canbe explained by transaction cost logic (Williamson, 1975, 1985). In business-to-business firms, the large transaction size,infrequency of purchases, and high level of asset specificity often speaks for conventional sales channels, whereas in the caseof consumer sales the benefits of low transaction costs often become more important. The Internet was frequently used in allproduct categories except systems. Greater usage of Internet-based sales channels could often be explained by the digital

Table 5

Channel strategies of Finnish SME born globals based on main channel relation type.

Channel strategy

Channel relations Indirect

Internet-based

Direct

Internet-based

Dual

Internet-based

Hybrid

Internet-based

Non-Internet-based Total

Small local channels 1 – 8 1 11 21

Multinationals or other large channels 2 – 4 3 7 16

No intermediaries – 1 – – 1 2

Total 3 1 12 4 19 39

Note: The total number of sales channel strategies is higher than 35 because 4 of the case firms had used different strategies depending on the market.

M. Gabrielsson, P. Gabrielsson / International Business Review 20 (2011) 88–99 97

nature of the products, such as software and digital services, which provided support for the assertion that the Internetsuitability of the product is essential.

Thirdly, support was found for the proposition that relationship building with local channels or MNCs is important for bornglobals using Internet-based channels, thus favoring partner-based Internet sales channels (indirect, dual, hybrid). Earlierresearch has found that relationship building and networking are important when examining conventional channels (Coviello& Munro, 1997; Gabrielsson & Kirpalani, 2004; Johanson & Vahlne, 2003). However, a novel finding of this study was thatrelationships are also of high relevance when Internet-based sales channels are used that have previously been expected toallow for bypassing the intermediaries. This is consistent with the earlier finding that reputation and co-operation areimportant for Internet-based firms (Kotha et al., 2001). Gaining partnership advantages (Anderson et al., 1997) such as marketaccess and credibility in the eyes of the end-customers were found to be important, as was avoidance of channel conflicts.

Fourthly, this research found interesting results from the empirical investigation that were not included in thepropositions. With regard to product categories it seems that system products were least suitable for the Internet-basedsales channels of born globals. Furthermore, the empirical research revealed that there were differences with regard toattitudes toward channel conflict between different channel groups. Particularly with regard to use of the MNC channel, theintroduction of Internet-based sales channels was to be implemented cautiously in order to avoid channel conflicts. Bornglobals following this sales channel approach used hybrid more often than dual Internet-based sales channels comparedwith those that sold via small or local channels.

The research has important implications for the founders and managers of born global firms. It has depicted the variousInternet-based sales channel strategies available. In particular the multiple Internet-based sales channels should beconsidered as these were commonly used among the case companies. However, managers must still remember theimportance of fostering relationships with small local channels and MNCs.

The study results must be interpreted with caution. The qualitative nature of the study limits the generalizability of theresults beyond the Finnish born global firms. To the extent that the conditions are similar to those in other countries andindustries, these results may prove to be valuable in other contexts as well. These preliminary results and propositionsshould be verified empirically in a large comparative survey. Furthermore, a particularly interesting research avenue wouldbe to examine the challenges related to relationship management with respect to use of the Internet in a multiple channelstructure and the different Internet-based tools and opportunities created by these. Also, the influence of operation modes onInternet-based sales channel strategies warrants further research. Moreover, it would be interesting to investigate theperformance implications that the use of Internet brings to born global firms (cf., Jean et al., 2008). The authors encourage acareful review and analysis of this study, and welcome the comments of other scholars regarding the concepts, results, andresearch conclusions contained herein.

Acknowledgements

We would like to thank the Finnish Funding Agency for Technology and Innovation (Tekes) for financial support, and alsoextend our gratitude to the entire research group and participating firms.

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