The network approach to rapid internationalization among ... reddot/ssh-ilsm/images/LSM... · Louvain School of Management Working Paper Series 1 THE NETWORK APPROACH TO RAPID INTERNATIONALIZATION

MarineFalize, Regis Coeurderoy, Louvain School of Management ESCP Europe Paris

The network approach to

rapid internationalization

among Born-Global and

Born-again Global firms: The case of the “Global

Innovation Network”

LOUVAIN SC HOOL OF M ANAGEMENT RESEARC H IN ST ITUTE

Louvain School of Management Working Paper Series

1

THE NETWORK APPROACH TO RAPID INTERNATIONALIZATION AMONG BORN-GLOBAL AND BORN-AGAIN GLOBAL FIRMS: THE CASE OF

THE GLOBAL INNOVATION NETWORK

MARINE FALIZE

Louvain School of Management, Université catholique de Louvain, 1 place des doyens, B-1348 Louvain-la-Neuve, BELGIUM

[email protected]

REGIS COEURDEROY

ESCP Europe Paris et Université catholique de Louvain

Accepted by a double blind review process for the 26th RENT conference (30 July 2012)

International activities are increasing and the modes of internationalization are becoming more diverse.

Numerous SMEs, especially in high technology environments such as “born global” or “born-again global”

internationalize faster and faster. However a general constraint that many of these small innovative firms face is

relatively restricted resources. In our study we focus on explaining how international network acts to reduce

fundamentally internationalization liabilities and perceived risk and how rapid internationalization of SMEs is

possible through this formal network. Common over the literature is the focus on patterns of internationalization

of SMEs rather than on the network itself. The need for in-depth case study on network specific to rapid

internationalization among Born-Global and Born-again Global firms has been recognized by Arenius (2002),

Andersson and Wictor (2003), Sharma and Blomstermo (2003), Autio (2005) and Coviello (2006). In the paper,

we describe the beneficial aspects and also potential negative effects (called by Elango and Pattnaik, 2007) of a

specific international network developed in Belgium.

Given the current limited understanding of international network activities, it appeared that a qualitative

research method would be the most appropriate. The extended case study for this paper consisted of the Global

Innovation Network. The objectives of the network representatives are to provide information and advice

regarding the opportunities offered by foreign markets and to build global companies through the simultaneous

commercialization of new worldwide technologies. The main form of data collection of this study was official

papers and in-depth interviews during 2 years (2010-2012).This network offers a fascinating context in which to

explore the potential contribution of international networks to rapid internationalization process in terms of

information, resource and control benefits. This sharing of technology, capital, between firms, universities,

incubators, and partners within the Global Innovation Network open up an array of opportunities that would

otherwise not be available to internationalizing SMEs. International networks for innovative SMEs may then

provide an answer to the challenge of globalization for smaller companies.

Keywords: International Entrepreneurship, Network of collaboration, Innovation.

2 Marine Falize & Régis Coeurderoy

1. Introduction

The current economic environment reflects the complex integration of global

economies. Rapidly changing international markets create a lot of challenges and

uncertainty for internationalizing companies. International activities are increasing and

the modes of internationalization are becoming increasingly diverse. Firms often start

their internationalization via import or export and then gradually increase their

international commitment. However, an increasing number of enterprises, especially in

high technology environments such as “Born Global” or “Born-again Global”

internationalize faster and faster. The global restructuring process is accompanied by

increasing scarcity of resources, forcing firms and governments to think about

opportunities for sustainable growth. This is particularly evident in Belgium, a country

that has developed into one of the most globalized countries in the world. This openness

has an important impact on the behavior and the performance of firms located in

Belgium. Rapid changes in the global economy confront firms with a myriad of strategic

challenges for successful growth. Belgium is an interesting country to analyse due to its

small and open economy with a very limited domestic market. With respect to

environmental factors, an important driver for internationalization relate to the size of the

domestic market of the focal firm vis-à-vis the potential of the international market

(Knight and Cavusgil, 1996), and the relative ease of access to the latter markets. In a

country where the domestic market size is small, internationalization is an important

growth strategy (Sapienza, Autio, George, & Zahra, 2006).

International innovative Small and Medium-size Enterprises (SME) play a major

role in the Belgian economic growth*. However a general constraint that many of these

small innovative firms face is relatively restricted resource as compared to what is

available to larger firms. The internationalization process requires a level of investments

and resources that smaller companies typically do not possess. SME may be constrained

by the high and increasing costs of search partners and contract negotiation. One solution

for these entrepreneurial firms to overcome this constraint is by cooperating. Companies

more and more internationalize and simultaneously open up their innovation process to

* Handbook on community state aid rules for SMEs, February 2009.

The network approach to rapid internationalization 3 collaborate with external partners (suppliers, customers, universities)†. This clearly has

important implications for policy making, given the contribution of innovation to

economic growth. The concept of network for SMEs is not totally new but the

organization of innovative activities across firm boundaries is clearly on the increase,

with more balance between internal and external sources of innovation. Even so, the

entire system of collaborative innovation activities stimulates innovation of a country.The

increasing worldwide economic integration leads to the creation of new world-wide

networks. New communication technologies simplify interaction within SMEs and create

new opportunities for collaboration between them, including the intensive use of

international sourcing. International sourcing from external parts is often used to increase

competitiveness (Coucke and Sleuwaegen, 2007). International networks for innovative

SMEs may then provide an answer to the challenge of globalisation for smaller

companies. It may offer a less costly alternative for obtaining access to local centres of

knowledge around the world. International network may speed up the internationalisation

of innovation in smaller high-technology companies.

The paper proceeds by reviewing important features of the internationalization

pattern. Next, drawing on this selective literature review, we describe four barriers to

internationalization for SMEs and suggest the network approach as a way to overcome

these liabilities. In the section following that, because our interest was in model

development, we chose the single-case method as our research strategy. Our approach

responds to the recent calls for more in depth case study in internationalization and

network theory (Oviatt and McDougall, 2003; Arenius, 2002; Andersson and Wictor,

2003; Sharma and Blomstermo, 2003; Autio, 2005; Coviello, 2006). Common over the

litterature is the focus on patterns of internationalization rather than on the network itself.

Our study emphasize on a specific international network developed in Belgium (The

“Global Innovation network”). After, we describe the beneficial aspects of network for

internationalization and also the risks it may cause. In their review of the literature,

Elango and Pattnaik (2007) called for work indicating potential negative effects of such

an approach. Finally, the model we develop in this paper proposes that the international

network decrease the four types of liabilities for internationalization and affects the speed

† Open innovation in global networks, OECD publications, 2008, Paris, France.


at which SMEs penetrate foreign market. In the concluding section we discuss

implications of the framework for SME and public policy, as well as limitations and

opportunities for future research.

2. Theoretical Framework

2.1. Features of the internationalization pattern

Internationalization can be defined as “the process of adapting firms’ operations

(strategy, structure, resource, etc.) to international environments” (Calof and Beamish,

1995, P. 116). The main theoretical frameworks on the internationalization process are

those of Johanson and Vahlne (1977) and Oviatt and Mc Dougall (1994). Oviatt and Mc

Dougall have positioned their work as a challenge to the received Uppsala model but the

two frameworks appear complementary. The purpose of Johanson and Vahlne was to

explain the gradual, constrained pattern of internationalization whereas Oviatt and

McDougall’s model emphasizes enabling factors (Autio, 2005).

The stage models, which started in the ’70 in the Nordic countries, assume that

internationalization process starts with sporadic overseas sales and continues with bigger

and bigger commitments in the foreign markets through sales (Kalinic, 2009). The

traditional pattern is a process in which a firm gradually increases the number and

diversity of markets it serves (Johansson and Vahlne, 1977). Several studies have

critiqued this traditional, incremental internationalization models which have mostly

focus on large firms (Coviello and Munro, 1995; Knight, 1997; Knight and Cavusgil,

2004; McDougall, Shane, and Oviatt, 1994; Moen and Servais, 2002).

The main models challenging the ‘traditional’ process we can identify in the literature at

the beginning of the ‘90 are the ‘born-global’ (Knight and Cavusgil, 2004; Rennie, 1993)

and ‘born-again global’ internationalization patterns (Bell, McNaughton and Young,

2001; Bell, McNaughton, Yougn and Crick, 2003), which differ in terms of pace and

degree of internationalization. These authors found that some SMEs are able to

internationalize more rapidly than the stage models predict, jumping over some stages

(Oviatt and McDougall 1994, 2005). A new subfield in International Business emerged:

The network approach to rapid internationalization 5 “International Entrepreneurship”. International entrepreneurship is “the discovery,

enactment, evaluation, and exploitation of opportunities, across national borders, to create

future goods and services” (McDougall and Oviatt, 2000).

Born-Global firms (BGs) are firms that are internationally oriented since their inception,

or soon after it, and manage to reach a certain degree of internationalization within a

relatively small number of years (Kalinic, 2009). Born-again Global firms (BaGs) are

firms that are well established in their home markets, and have suddenly embraced rapid

internationalization (Bell et al., 2001, 2003). BGs are then early and rapidly adopters of

internationalization whereas BaGs are rapidly but not early adopters of

internationalization. This type of behaviour is often a response to a ‘critical’ incident

which is either internal or external (Bell et al., 2003). SME can speed up their

internationalization process if there is a critical event that increases their knowledge

intensity such as the access to new global networks. BG and BaG are internationalization

process with strong innovative characteristics. Similar to innovation BGs and BaGs are

required to be able to adapt a changing environment and demonstrate new ways of

thinking in order to succeed in addressing the challenges posed by the process (Uri and

Shoham, 2011). Firms with highly sophisticated knowledge bases are likely to

internationalize much more rapidly than those with more basic capabilities (Bell et al.,

2003).

Surprisingly the extant literature does not give detailed information about BG or BaG

internationalization patterns (Kuivalainen et al., 2012). There are several definitions of

rapidly internationalizing firms (Bacq and Coeurderoy, 2011) but the results are hard to

compare. Following Kuivalainen (2012), there have been only a few attempts to establish

a rigid typology of internationalizing SMEs (see e.g., Apselund and Moen, 2005).

Although authors do not give detailed classification criteria for BG or BaGs, there is

sufficient evidence of the phenomenon to justify further investigation of these specific

firms. In the literature, there are three dimensions that make a distinction between

traditionally internationalizing firms and internationalization of BGs and BaGs: Time,

Scale and Scope.


TIME is defined through two criteria: the time lag between the founding of a firm and the

commencement of its international operations (PRECOCITY) and the speed of a firm’s

subsequent international growth and development (SPEED) (Autio, Sapienza and

Almeida, 2000; Jones and Coviello, 2005, Zuchella et al., 2007). According to the first

criteria, Traditional Firms and BaG are firms that first established themselves

domestically. They operate for a long time in their home markets before entering

international markets. BGs in the other hand aim for international markets from

inception. According the second criteria of time, the speed of internationalization,

traditional firms gradually increases the number of the markets they serve. BGs and BaGs

internationalize rapidly, they jump over some stages and reach a certain degree of

internationalization within a relatively small number of years.

Traditional Firms

Born-Global firms Born-Again Global firms

TIME (precocity)

Operate for a long time

in their home markets

Aim for international

markets from inception

Operate for a long time in

their home markets

TIME (speed)

Gradually increase the

number of markets

Reach a certain degree of

internationalization within

a small number of years

Reach a certain degree of

internationalization within

a small number of years

SCOPE Market concentration

(narrow geographic

scope at the beginning

of international

operations)

Market diversification

(broad geographic scope

almost from inception)

Market diversification

(broad geographic scope

almost from the first

international involvement)

SCALE Slow, evolutionary

path of development

Internationalize rapidly

with a high share of

foreign sales

Internationalize rapidly

with a high share of

foreign sales

Figure1. Exploratory typology of internationalizing SMEs

The SCOPE dimension refers to the number of countries or markets where the firm

internationalize. The traditional process of internationalization is characterized by a

market concentration. Firms should have a narrow market scope at the beginning of its

international expansion (Johansson and Vahlne, 1977). The BGs and BaGs process is

characterized by a market diversification. SMEs begin to operate in multiple countries on

international markets almost from inception (BGs) or almost from the first international

involvement (BaGs).

The network approach to rapid internationalization 7 The SCALE dimension relates to the extent of a firm’s international operations. The most

common indicators seem to be the export ratio. Whereas traditional firms tend to follow a

slow, evolutionary path of development, BGs and BaGs internationalize rapidly with a

high share of foreign sales.

2.2. Liabilities of expansion, newness, foreignness and perceived risk

Traditional internationalization of SME is a process characterized by many

uncertainties due to the limited knowledge of the foreign country and limited resources

(Kalinic, 2009). Internationalizing SMEs face constraints arising from their intrinsic

deficiencies in resources and capabilities. Such constraints make internationalization a

challenge to most of these firms (Oviatt and McDougall, 1994). In internationalization

process, additional resources may be necessary in the new countries that are not

necessary in the home country. Since the internationalizing firm will need to incur

expenses that local competitors do not, the lack of such resources can negatively affect

the operations in the new country vis-à-vis the local competitors. In the literature, the

liability has been broadly defined as all the additional costs a firm operating in a market

overseas incurs and that a local firm would not incur (Hymer, 1976). The literature is

extensive with studies on how international business can incur different sets of costs

compared with those taking place domestically (Eden and Miller, 2004). While some of

those costs may stem from the different economic structure of the foreign countries

involved, many of them can be traced at the efforts expanded to adapt the local business

to the cultural norms and systems that prevail in the foreign country. Psychic distance,

defined as the factors that make it difficult to understand foreign environment, is a key

explanatory variable regarding the firm’s expansion into foreign markets (Johanson and

Vahlne, 1990). Markets differ in terms of factors such as language, culture, business

practices, education, industrial development and political systems. Firms must then adjust

to a foreign national culture and be prepared for challenges, such as differences in

lifestyles, cultural standards, consumers preferences, and purchasing power (Sousa and

Bradley, 2005).


A basic assumption of the internationalization model is that the lack of knowledge about

foreign markets is a major obstacle to international operations as it is difficult to manage

a firm spanning more than a single region. In this paper, we used the three types of

difficulties in internationalization, suggested by Cuervo-Cazurra et al. (2007), based on

the nature of the complementary resources and we add a fourth dimension which is the

perceived risk:

Liability of expansion. The SME may lack of complementary resources needed to

operate at a larger scale. More specifically, SMEs which intend to go abroad can suffer

from lack of knowledge about how to conduct a business in a foreign country.

Internationalization is often accompanied by adding new operations. It requires the firm

to deal with additional transportation, communication and complexity costs (Tallman and

Li, 1996). These managerial costs involved with internationalization are usually higher

than in a domestic context (Vernon, 1977). The liability of expansion represents then the

additional costs of doing a business abroad. These costs are directly associated with

spatial distance, such as cost of travel and coordination over distance and across time

zones (Zaheer, 1995). A firm as a reduced threat of facing the liability of expansion when

it has already developed experience and resources from operating across several

geographic locations. We hypothesise that SMEs could overcome this liability of

expansion through international business knowledge and services.

Liability of newness. The SME may lack of complementary resources needed to operate

in a new competitive environment. When the firm moves to another country, the

competitive environment often differs, requiring some additional resources that the firm

does not have. Difficulties in establishing international partnerships have been recognized

as one of the major factors slowing down internationalization (Karagozoglu and Lindell,

1988). The pace at which an international venture penetrates a new market is affected by

speed at which it is able to locate customers, suitable partners, and close deals. For

entering a new country market, the inexperienced firm will experience several transaction

costs (Teece, 1986) such as search costs to find reliable local sales agents; negotiation

cost to negotiate favorable contractual arrangements; compliance and enforcement costs

to monitor the conduced deal effectively.

The network approach to rapid internationalization 9 In her study, Arenius (2005) shows that another important barrier for internationalization

was caused by the lack of legitimacy and influence in the new environment.

Internationalizing ventures lack attractiveness in the eyes of potential customers and

partners because they lack information about the venture’s competence and reliability.

We hypothesise that SMEs could overcome the liability of newness by actively acquiring

information about foreign potential partners and developing the complementary resource

needed to compete in the new environment.

Liability of foreignness. The SME may lack of complementary resources needed to

operate in a new institutional environment. Internationalizing firms suffer from liability

of foreignness because they are new to foreign country; they have no active presence on

the market and are missing a shared history and a shared context. International commerce

is considered risky because it may involve loss of assets as a result of changes in

political, economic, social and legal factors in foreign markets where local firms

compete. When the SME moves into a new country with a different institutional

environment, it may need complementary resources for dealing with other entities and

prevailing rules of behavior (Zaheer, 2002). The institutional environment, the set of

norms and rules that constrain human behavior, such as culture, language, religion, and

the political, legal and economic systems (North, 1990), affects all firms operating in the

country. This lack of complementary resources needed for understanding the new

institutions create difficulties. In order to enhance the success of their operations abroad,

SMEs need to learn about the institutions that define how people act and interact in the

new environment. It include laws and written conventions but also codes of conduct,

norms, values and behavioural conventions (North, 1990). The liability of foreignness

implies that a lack of knowledge of local cultures and institutions increases the failure

rate of foreign expansions (Barkema and Drogendijk, 2007). We hypothesise that SMEs

can overcome the liability of foreignness by developing the complementary resources

internally, the development of tacit knowledge of how to operate in the new institutional

environment (Eriksson et al., 1997), and the creation of new informational sources

(Zaheer, 2002).


Perceived risk. The success or the failure of the firm when entering a new foreign

market will also be closely linked with the additional level of threat to its proprietary

intellectual assets, especially in high-technology industry. The inability to define

complete contracts and the lack of resources to defend their legal rights are likely to

encourage opportunistic behaviour by local competitors. The risk could be exacerbated

because the local competitors have better knowledge of domestic regulatory frameworks

and business rules. The SME have to accept the imminent prospect of additional

technology transfer risks when entering into the foreign market. These potentials

intellectual proprietary threats include: the “hold-up” of specific assets; the appropriation

or technological leakage and the spill over of key information to competitors in

international alliances (Williamson, 1991; Ahuja, 2000). We hypothesise that social

embeddedness within network partners may decrease opportunistic behaviors and

perceived risk.

2.3. Network theory and International Entrepreneurship

These three types of liabilities and perceived risk negatively affect the speed at

which SMEs penetrate foreign market. Because learning cultural and institutional

differences take time, the internationalization process tends to be gradual and

incremental. Research shows that network ties are an important resource facilitating

internationalization, especially among SMEs with limited resources for

internationalization (Kontinen and Ojala, 2011). In the network theory,

internationalization is seen as an entrepreneurial process that is embedded in an

institutional and social web which supports the firm in terms of access to information,

human capital, finance, and so on (Bell et al., 2003). The companies develop their

capabilities throughout the entire network and improve their international

competitiveness. In organizational settings, networks may involve social relationships

among individuals embedded in a formal structure of business connections or an informal

structure of personal relations bounded in geographical, social, or institutional spaces

(Hitt et al., 2002). The focus of our study is the formal network of international

collaboration relationships. Internationally oriented firms are engaged in a diverse range

of cross-border relations and exchanges (Ellis, 2000).

The network approach to rapid internationalization 11 Liesch et al. (2002) indicate that building and maintaining network relationships are

considered an integral part of the internationalization process. By accessing international

knowledge base through network, internationalizing SMEs can expedite its learning

process (Eriksson et al., 1997). Networks help sharpen international vision and

managerial openness (Oviatt and McDougall, 2005), they represent an important source

of valuable information (Ellis, 2000) and knowledge for developing new organizational

capabilities (Park and Luo, 2001). The network can also be extended to identifying

foreign market opportunities (Ellis, 2000; Ellis and Precotich, 2001; Harris and Wheeler,

2005) and are useful for screening and evaluating potential exchange partners (Ellis,

2000). In international network, the knowledge gained about the markets, competitors,

suppliers and customers offers important clues about new market to enter (Arenius,

2002). Besides, social ties appear to have enhanced legitimacy and the reputation of the

internationalizing SMEs (Chetty and Wilson, 2003; Coviello, 2006). Network can then

act as a bridge to foreign markets and represents critical avenues for the acquisition of

resources necessary for firm international survival and growth (Gulati, 1998).

In the literature we have identified twenty-one articles (see figure 2) focused on

Network Theory and International Entrepreneurship. International Entrepreneurship’s

general interest in networks and relationships is first highlighted by Coviello and Munro

(1995, 1997). They introduce the influence of network ties on the internationalization

process of small firms. Network relationships were recognized to be indispensable for

SMEs to achieve international growth (Coviello and Munro, 1997). At the same period,

Zacharakis (1997) applies the transaction cost theory to discuss the entrepreneurial entry

strategies into foreign markets. It seems that the network thematic area ‘re-born’ in 2005

with an article that show how entrepreneurial corporate new ventures use partners in their

internationalization (Varis et al., 2005). In 2006, a plethora of network-focused research

began to appear with Coviello’s famous article “The network dynamic of international

new venture” (Coviello, 2006). The period 2006-2008 comprise the bulk of the studies in

the network thematic area.This stream of research stresses the importance of social

relationships, which may often replace the ownership of physical resources by the access

to resources. International network can then help SMEs learn new capabilities and

provide access to resources and knowledge.


What is interesting in this table is that all these studies focused on the SMEs and

its social relationships but not on the network itself. Our approach responds to the calls

for more in depth case study in internationalization and network theory (Oviatt and

McDougall, 2003; Arenius, 2002; Andersson and Wictor, 2003; Sharma and Blomstermo,

2003; Autio, 2005; Coviello, 2006). Common over the above literature is the focus on

patterns of internationalization of SMEs rather than on the network itself. Our study

sheds light on a specific international network developed in Belgium (the “Global

Innovation Network”). In our empirical research we then focus on explaining how this

network acts to reduce fundamentally the three types of liabilities and perceived risk and

how rapid internationalization of Born Global firm or Born-again Global firm is possible

through this type of formal network.


1


13

3. Research strategy

Because our interest was in model development, we chose the case method as

our research strategy. Our approach responds to the recent calls for more in depth case

study in International Entrepreneurship and Network Theory. Common over the literature

is the focus on patterns of internationalization of SMEs rather than on the formal network

itself. Our study emphasize on a specific international network for innovative SMEs

developed in Belgium. Given the current limited understanding of international networks

activities, it appeared that a qualitative research method would be the most appropriate

for the study reported here. This stream of research draws our attention to the

international network as a preemptive strategy to access knowledge and deploys the

relevant resources for a rapid internationalization.

3.1. Methodology

We utilized a single-case study approach similar to the methodology introduced

by Eisenhardt (1989) and Yin (1989). The case study method makes possible an in-depth

investigation and is relevant when the study covers a real-life environment in which a

particular action take place (Yin, 1989). The main form of data collection of this

longitudinal study was official papers and in-depth interviews during 2 years (2010-

2012). The primary data-collection method consisted of formal interviews with a semi-

structured questionnaire in the case network. The interviews were conducted each

three/four month with the director of business development and partnerships for AWEX

or other persons in charge of the coordination of the network. In addition, in order to

enhance the reliability of the study, multiple secondary data sources were also used

including formal documents, agreements and collaboration forms. The interviews lasted

10 hours in total, covering the network basics, and particularly the partner SMEs

evaluation and selection process. Most of the interviews were recorded and all were

transcribed. The final version was checked with the interviewees.


3.2. National context of the research

With a foreign trade to GDP ratio of 90%, Belgium is one of the most open

economies in the world (ING, 2012). Ernst & Young’s Globalization Index ranks

Belgium as the fourth most globalized economy in 2011, after Hong Kong, Ireland and

Singapore. Since economic growth in Belgium is to a large extent determined by its

international performance, it is imperative that Belgian firms maintain or improve their

position in world markets. However, Belgium is losing market share in world markets.

Export from Belgium is growing slower than the import of our trade partners. The

relative decline in export share is due to structural and competitive factors. These

structural factors include the limited focus on high growth countries and knowledge

intensive activities. Belgium’s export of goods and services are less oriented toward

countries outside the European Union (EU). This unfavourable trade structure limits the

growth potential of exporting Belgian SMEs. Belgium has not yet been able to reduce

this gap and to increase its orientation towards high growth markets. Exports are not only

focused on the European market, but those exports outside the EU-27 are less technology

intensive products when compared to other EU countries’ exports (source: UNCTAD).

Whereas many developed economies specialize in high technology and knowledge

intensive goods and services, which are expected to contribute most to growth

(Haussmann et al., 2007). Belgium does not appear to be strongly focused on these

industries and is not characterized by a high R&D intensity. Although the share of high

technology products in total exports has increased over the past decade, Belgium is still

ranked 11th out of EU-15 countries in terms of its share of high technology exports.

We know from a substantial literature that technology-based firms are particularly likely

to internationalize quickly (Brugel and Murray, 2000; Rialp et al., 2005). Madsen and

Servais (1997) has suggested that this phenomenon may be the result of insufficient,

aggregate home demand for highly specialized, that is, niche, products and services.

Another argument that has been suggested is that overseas sales are the individuals firm’s

response to excessive domestic competition (Shrader, 2001). These arguments are

essentially a description of defensive actions by firms pushed out or beyond their home

small markets, such as Belgium (Coeurderoy and Murray, 2008).

The network approach to rapid internationalization 15

3.3. Single-case study

The extended case study for this paper consisted of the Global Innovation

Network. In order to match the growing demand for innovation, with the worldwide

supply of science and technology, the Wallonia Export and Investment Agency (AWEX)

is developing a Global Innovation Network to provide information and advice regarding

the opportunities offered by foreign Market. The AWEX is a government agency

responsible for stimulating economic activity in the Wallonia region. The AWEX has

signed since 2006 a cooperation agreement with the Texas A&M University System, one

of the largest systems of higher education in the United States, in order to help

technological development of Wallonia innovative SMEs and foster their access to the

American market. Technological industry is a key area of focus for cooperation and the

Global Innovation Network has started to identify synergies around cross-boundary

projects. Innovative SMEs increasingly adopt “ecosystems of innovation” across

countries. They link into these international networks with people, institutions

(universities, government, and agencies) and other companies from different countries.

The Global Innovation Network include own Research & Development facilities abroad

as well as collaborative arrangements with external partners such as incubators and

clusters.

Exploring the development of this network may help understand the potential

contribution of international networks to rapid internationalization process of Born-

Globals and Born-again Globals.

4. Findings

In our empirical research we focus on explaining how the Global Innovation

Network acts to reduce fundamentally the three types of liabilities and perceived risk and

how rapid internationalization of Born Global firm or Born-again Global firm is possible

through this formal network.


4.1. The role of network in facilitating and speeding internationalization process

In our case study, the ‘distance’ separating North America, India and Europe

remains substantial. This distance is a mix of cultural, administrative, geographic and

economic roots with important implications for the internal functioning of the

internationalizing SME. We hypothesize that international networks offer a potentially

efficient way to overcome resource and capability deficiencies for internationalizing

Born-Globals and Born-again Globals. We argue that the Global Innovation Network

play a key role in facilitating and speeding the internationalization process of SMEs.

In the following, examples of these are presented from the case material.

Co-invest and co-locate to overcome the liability of expansion. The Global Innovation

Network representatives work cooperatively to identify technology and

commercialization opportunities. As a foreign trade agency, The Wallonia Export and

Investment Agency (AWEX) carry out a mission of information and promotion,

benefiting Wallonia innovative SMEs. The network representatives select the member

innovative SMEs through a collaboration form. The SME owner has to fill in a three page

form with descriptive information in order to create their technology offer. The Global

Innovation Network focus on six promising sectors: Agriculture and Food Science, Life

Science, Aerospace, Environment and Sustainability, Mechanical Engineering

Transportation and Logistics. And the criteria of selection are the following: the

uniqueness of the technology, the global market potential, the commercialization stage,

the level of intellectual property protection and the objectives of their participation in the

program.

Figure 3. The roles of the Global Innovation Network

The network approach to rapid internationalization 17 Besides, the AWEX offers a wide range of export-oriented services and activities such as

training in international careers, and financial support (investments supports, technology

fund and subsidies). The SOFINEX (Société de Financement de l’Exportation et de

l’Internationalisation des Entreprises Wallonnes) support investment of Walloon SMEs

abroad by providing bank guarantees, financing, equity participations. In the context of

the Marshall Plan 2.Vert, the Government of Wallonia has recently approved the setup of

a 2 million euro investment fund. This fund will contribute towards the creation of

companies and joint ventures, established under the agreement concluded between the

AWEX and Texas A&M. Any SME possessing offices in Wallonia can also benefit from

financial aids when prospecting international partnerships projects that have the potential

of bringing positive returns to the region. They consist of up to 50% subsidies in costs

related to the preparation and the starting up of the partnership; such as travel expenses,

hiring of experts and translation costs.

The Global Innovation Network appears to create international knowledge advantages to

the SMEs and facilitate learning internationalization process. Experimentation in the

Global Innovation Network is essential for the BGs and BaGs to discover the winning

business model and market recipe. These informational and financial benefits can then

help internationalizing firms overcome the liability of expansion that frequently constrain

innovative SMEs expansion.

Co-identify to overcome the liability of newness. The second role of the Global

Innovation Network is to connect companies in Wallonia and the United States for the

creation of technological or commercial partnerships. Their objective is to build global

companies through the simultaneous commercialization of new technologies in Europe

and the United States, developed within the Texas A&M System and Universities

or companies in Wallonia. SMEs may then obtain valuable contact from the Global

Innovation Network. The search for international exchange partners is generally

characterized by greater uncertainty and complexity which combine to increase search

costs. The Global Innovation Network is also a means of economizing on these higher


search costs. As firms gain more experience and acquire more knowledge from

relationships, uncertainty about competitive foreign markets can be reduced.

SMEs may then rely on the network to identify potential partners and economize on these

costs. For example, the Global Innovation Network prospects multinationals in the field

of R&D in order to present them research capabilities available in Walloon universities

and within the Texas A&M System.

The Global Innovation Network also provide credibility and market power by offering a

wide range of foreign market knowledge, including: establishing contacts with

international organizations and promoting Wallonia's export potential abroad. The

Global Innovation Network is then a very attractive proposition for innovative SMEs to

connect with foreign partners as it has scale and credibility in Texas. For internationally

oriented SMEs, the Global Innovation network is an efficient means of developing

competitive foreign market knowledge and business connections not otherwise available.

Co-market to overcome the liability of foreignness. A third role of the Global

Innovation Network is to facilitate the penetration of Walloon start-ups in the US market

by providing them the right to use services provided by Texas A&M System Office of

Technology Commercialisation, its Research Parks and Incubator; together with a

privileged access to the university network. The AWEX also helps by providing access to

regional Research & Development assistance program and grants and

offering connections to a network of experts in social and tax matters who can provide

assistance during every step of the internationalization process.

The network representatives also organize international technological missions. During

these missions, trade delegations representatives from the AWEX and entrepreneurs from

selected Belgian SMEs met representatives from the Texas A&M and activities are

organized such as institutions presentations, press conference, fair trade and B2B

meetings in order to ‘match’ Belgian and American companies.

The network approach to rapid internationalization 19 Some examples:

• April 2011. Visit in Wallonia of Texas A&M System Office of Technology

Commercialization Director

• May 2011. Workshop Wallonia Tech in India

• August 2011. First technological mission of 8 Indian enterprises in Wallonia

• September 2011. Visit in Wallonia of Texas A&M System Office of Technology

Commercialization and AWEX Trade commissioner in Houston

• October 2011. First technological mission of 10 Belgian enterprises at Texas A&M

in the US

• April 2012: First Technological mission of 6 US enterprises in Wallonia

• November 2012: Technological mission of 6 Indian enterprises in Wallonia

The Global Innovation Network is then a way of gaining access to these tacit knowledge

about cultural, social, legal norms, contributing to SMEs’ ability to internationalize

rapidly. This institutional knowledge may instills in them greater confidence in their

ability to cope with psychic distance. The Global Innovation Network then facilitates

exchanges and market transactions with foreign partners and enables successful cross-

border business operations.

Co-protect to overcome the perceived risk. This conflict stems from the fact that

conditions necessary to facilitate the sharing and learning process simultaneously

magnify the danger of losing core and proprietary knowledge. This conflict is specifically

relevant in our case study because the transfer of novel technologies raises the potential

threat of appropriation. The intangibility of the technological component of the product

or service increases the opportunity cost for BGs or BaGs. Concerning these opportunity

cost concerns, the referral benefit of the Global Innovation Network relies to a high level

of trust among value network partners. The agreement between the AWEX and the Texas

A&M University signifies a real commitment to work together. This social engagement

which can alleviate appropriation concerns is often necessary to establish reliability in

advance of commencing negotiations. According to Adler and Know (2002), strong

social norms and beliefs within the network encourage compliance with business rules

and solidarity.


Belgium's intellectual property laws differ somewhat from those of the US but the

AWEX provides internationalizing SMEs with experts in legal matters that can be of

great help when expanding outside Wallonia.

Besides, each year, the Global Innovation Network organized visits for Belgian

entrepreneurs at Texas A&M University. These visits are a great opportunity for

entrepreneurs to solidify the relations and further get to know the people they will maybe

working with.

4.2. The potential negative effects of international network

The field of international entrepreneurship has mostly highlighted the benefits of

networks, paying less attention to the conditions under which knowledge network ties

becomes conducive to rapid internationalization. The paradox is that, although the

knowledge and information available through international network is necessary to

internationalize, it simultaneously raises difficulties. In their review of the literature,

Elango and Pattnaik (2007) did not indicate any published work indicating potential

negative effects of such an approach. However, in the Global Innovation Network,

establishing new relationships consumes time and energy. We highlight that the

willingness to devote time and effort to meet network members or potential foreign

partners and sharing knowledge should not be taken for granted. They are still costs or

difficulties associated with the decisions to integrate an international network. Another

factor that could potentially dampen the effect of an international network would be the

differences in languages and perspectives. Following Burt (2000) and Mors (2010), as the

knowledge available across national boundaries tends to be diverse and heterogeneous,

the difficulties could be the lack of common understandings, shared meanings and also

coordination problems within the international network. In our case material, the network

representatives paid attention to these potential communication problems and tried to

promote the formation of a common language (English) and shared understandings of the

network objectives among the partners involved. This common view or social

embededdness is critical to overcoming interpretative barriers and achieving the

successful integration of international collaborations.


Finally, the Global Innovation Network offers an efficient way to overcome

resource and capability deficiencies for internationalizing BGs and BaGs. International

network can alleviate the liabilities of expansion, newness, and foreignness and perceived

risk and then accelerate the internationalization process.

The AWEX has now developed the same partnership in India and is discussing to extend

it in China, New Zealand, South Africa and in the Middle East. Their goal is to build

global companies through the simultaneous commercialization of new technologies

around the world. Today, 30 SMEs are members of the Global Innovation Network and

seven of them are now creating their American/Indian branch or joint-venture. The

Global Innovation Network has invested in these companies and has played a key role in

identifying technologies and foreign partners.

Exploring the development of this network help us understand the potential contribution

of international networks to rapid internationalization process of Born-Globals and Born-

again Globals. This sharing of technology, capital, between entrepreneurs, universities,

incubators, and partners within the Global Innovation Network open up an array of

opportunities that would otherwise not be available to internationalizing SMEs.

5. Synthetic framework

A cornerstone of the Uppslala Model was that the three types of liabilities and

the perceived risk will decrease concurrently with the firm’s knowledge of the market,

and so will its perceived need for incremental behaviour. In order to develop international

operations quickly, firms need to have access to prior knowledge in dealing with differing

institutions, as well as differing managerial approaches (Cohen and Levinthal, 1990). The

more market knowledge the firm acquire through international network, the less are the

liabilities and the perceived risk and the higher is the propensity to go rapidly abroad. In

order to speed up the internationalization process of Born-Globals or Born-again Globals

we argued that SMEs need to overcome these liabilities and perceived risk through

formal network.


As we have seen in our research study, international network provides firms with these

important knowledge and connections facilitating internationalization of operations. The

roles of international network accruing internationalizing SMEs fall into two categories:

information and resource benefits (knowledge about foreign partners and new

competitive market) and control benefits (trust, embededdness among network partners).

Figure 3 provides a graphical overview of our proposed model. Liabilities of expansion,

newness and foreignness and perceived risk increases the time needed to penetrate the

foreign market. The three types of liabilities and perceived risk cause information,

resource and control problems that international network can partially solve. International

network may then help the BGs or BaGs to overcome the liabilities and the perceived

risks and thus enable them to penetrate the foreign markets at an increased speed. The

model proposes international network as a mean to speed up the internationalization

process. BGs or BaGs within an international network can then expand at a higher speed

at distant markets.

Figure 4. Proposed model of international network and the speed of internationalization


6. Conclusion

The Uppsala model suggests that companies internationalize in small,

incremental steps, as risk-averse managers seize expansion opportunities in its local

foreign environment. However, the improvements in global communications and

transport combined with the increasingly liberalized global trading regimes have enabled

the rise of a new class of small firms that span international borders. As observed in our

case study, innovative SMEs are capable of exploiting global market opportunities more

rapidly and efficiently. According to these new realities, our original features of the

internationalization pattern have changed in many ways. This type of behaviour is often a

response to a ‘critical’ incident which could be the access to new international networks.

Networking activities is an essential strategy pursued by BGs and BaGs in order to gain

access to resources, and cope with environmental uncertainty and weaknesses in their

operations.

Recognizing international networks as an efficient means of helping internationally

oriented SMEs to go international more rapidly contributes to the Network Theory and to

the study of International Entrepreneurship. Common over the literature is the focus on

patterns of internationalization of SMEs rather than on the formal network itself. The

need for research on network specific to rapid internationalization has been recognized by

Arenius (2002), Andersson and Wictor (2003), Sharma and Blomstermo (2003), Autio

(2005) and Coviello (2006). In this paper we examine the extent to which international

networks accelerate the process of internationalization and highlighted some potential

negative effects of such an approach (called by Elango and Pattnaik, 2007).

The literature and our case material have confirmed the importance of international

network in: providing information about international business practices and institutional

knowledge; helping stimulate awareness of foreign market opportunities and identify

foreign exchange partners; providing legitimacy and attractiveness of the

internationalizing firm and promoting moral obligation within the network of partners.

International network ease and accelerate the development of the innovative SME and

lead to increased resource commitments in foreign markets.


The Global Innovation Network developed by the Wallonia Export and

Investment Agency (AWEX) offered a fascinating context in which to explore the

potential contribution of international networks to rapid internationalization. This

network represents a new generation of innovative collaborations as they are connecting

technologies and expertise across countries. The AWEX help technologies developed in

Wallonia access faster new markets in our global economy. This sharing of technology,

capital, between entrepreneurs, universities, incubators, and partners within the Global

Innovation Network open up an array of opportunities that would otherwise not be

available to internationalizing SMEs. As the Global Innovation Network is quite young

and is in the developing period, this study need to be further explored. The AWEX and

Texas A&M are now working together on the development of similar relationships with

institutions in China, New Zealand, South Africa and in the Middle East. Future research

could also aim to look into how learning is transferred to members within the

international network or how do firms in international network capitalize on these foreign

business knowledge and institutional knowledge.

From a perspective of firm strategy, evidence of the role of networks in

providing useful knowledge on international markets suggests that firms must prioritise

the participation in networks and pursue such opportunities in an assiduous and strategic

manner. We also encourage firms to recognise government support as an integral part of

their knowledge development and international expansion. The financial crisis has

changed public opinion, and governments are pushed to change regulations and stimulate

growth. Proactive regulations and well-functioning government are crucial for countries’

competitiveness. There is a clear need for a better climate for SMEs and to stimulate

internationalization, leading to increased productivity (Flemish Foreign Affairs Council,

2010). The European commission (2011) pushes governments to play a more active role

in helping firms overcome the barriers of internationalization. SMEs in particular benefit

from public policy support, given their limited resources. However, only 7% of

internationalized SMEs use available support mechanisms, calling for a greater

awareness of support initiatives. This clearly has important implications for policy

making, given the contribution of innovative SMEs to economic growth.


7. Acknowledgement

The authors would like to thank Philippe LaChapelle, director of business

development and partnerships for AWEX and Ines Jurisic, project coordinator for AWEX

for their valuable information about the Global Innovation Network.

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The network approach to rapid internationalization among ... reddot/ssh-ilsm/images/LSM... · Louvain School of Management Working Paper Series 1 THE NETWORK APPROACH TO RAPID INTERNATIONALIZATION