Needs of Global Start-up companies (Deliverable 2) GlobalStart wp1 Studies Deliverable 2 Needs of Global Start-up Companies Table of contents p
In search of a multidimensional identification method for born global firms
Download 1.73 Mb.
|
- Navigate this page:
- Annex 1.1: IN SEARCH OF A MULTIDIMENSIONAL IDENTIFICATION METHOD
- FIGURE 1 Mutually exclusive Relationship between Methods of Identifying Born Global Firms
In search of a multidimensional identification method for born global firms.An Empirical Exploration of the Global Startup Concept in an Entrepreneurship Context. Assessing the needs of early stage high tech companies: An investigation among spin-off companies from 6 European Universities. Network Development of Global Startup Companies: A Pan-European Investigation. Annex 1.1: IN SEARCH OF A MULTIDIMENSIONAL IDENTIFICATION METHODFOR BORN GLOBAL FIRMSIngrid Wakkee NIKOS, Dutch Institute for Knowledge Intensive Entrepreneurship University of Twente 7500 AE Enschede, The Netherlands
Campbell School of Business Berry College, Mt. Berry, GA 30149-5024
This paper consists of four sections. First, we review and discuss the definitions and measures of born globals adopted in earlier empirical research. Many of these studies have failed to fully capture the complex reality of born global firms resulting in 4 major problems: 1. Inclusion of firms that are not really global, but that limit their international activities to a specific region or small number of countries, 2. inclusion of firms that are not really startups as they were already well established at the time of investigation, and possibly at the time of internationalisation, and 3. omission of firms that are involved in other international activities than international sales (i.e., joint R&D project or buying foreign resources). 4. the born global concept has typically been treated as a dichotomous variable. Firms are either born global or not. We argue that it is better to regard the variable as a scale instead since it is expected that considerable differences in global behaviour exist among born global firms. Second, we discuss two identification methods that have been used most commonly so far and present a third identification method that was developed to deal with the problems presented above. . Next, we discuss a set of four possible relationships between the three identification methods and formulate propositions. The paper closes with a discussion and some conclusions with implications and the need for further research. METHOD In our research we took the following approach. Using the following key words: ‘born global’, ‘global startup’, ‘international new venture’ or combinations of international (-isation) or global (-isation) and startups or new venture in the title or abstract, we conducted a search in academic search engines (Science Direct, PiCarta, ABI-Inform) and in internet search engines (Google, Altavista) In this manner we identified 104 publications (NIKOS, 2002). These publications included articles, conference papers, book (chapters) and dissertations. Because some publications appeared twice on our list (e.g. once in the form as a working or conference paper and once as a journal article) and others could not be obtained, we ended up with a total of 49 publications. Of these, 1 was anecdotal, 3 were literature reviews, 14 conceptual papers, 22 empirical surveys, and 9 empirical cases. Next, all publications were examined on the basis the label or name used to describe the concept, the definition used to describe the concept, and the method used to identify the sample or cases. LITERATURE REVIEW Due to space restraints the full findings of our review are summarised in Table 1. From this review three basic issues arise in relation to the existing operationalisation methods of born globals: 1. Many studies might accidentally include companies that are not really global because they leave out a measure of global diversity, 2. many studies include companies that are not really startups at the time of their globalisation, because they measure the level of globalisation at the time of investigation (at the time of investigation, the company might have already passed the startup phase), and 3. many studies might accidentally leave out born globals from their sample if these are involved in other border crossing activities than international sales. As shown in Table 1, the number of definitions used in the literature is considerable and many studies use the variety of names (mainly born global) but do not define it nor translate it into operational terms. These concern mainly conceptual studies (e.g., Blomstermo and Sharma Deo, 2002, Madsen & Servais, 1997). Similarly, many empirical studies do not operationalise the definition (i.e., Loustarinen and Gabrielson, 2002, Ray, 2003) making it difficult to compare findings across studies. Yet, an even larger number of operationalisation methods used. Some researchers refer to the definition and operationalisation of Knight (e.g. Knight, 1997) but change the operationalisation method to a more or lesser extent, without stating explicitly or explaining why this was deemed necessary. For example, Kandasaami and Huang (2000) increased the number of countries to five and the percentage of international sales to 40%, and decreased the number of years to two. In several cases, the relationship between the definition and the adopted operationalisation method of this definition was not clear to us. For example, Oviatt and McDougall (1994) define International New Ventures as firms that from inception seek to derive a significant competitive advantage from combination of resources and the sale of outputs in multiple countries. For their empirical study, they identify cases on the basis of two dimensions: time to entry is less than 3 years and international sales levels should be over 25%. This operationalisation method completely leaves out the notion that this should be done to seek a competitive advantage. Also this method forgoes the idea that the firm might also combine resources from around the world. Finally, it disregards the idea that international activities are performed around the world, as their definition says. Even studies that do refer to these issues in their method section, for instance Lunmaa (2002) do not explain how they determine if a firm seeks to derive a significant competitive advantage from the combination of resources and sales outputs in multiple countries. A large number of authors do not include any measure of globalisation (e.g. global diversity) in their definition or operationalisation method, and still they speak of born globals or global startups. One exception is the work of Harveston (2000) that states that a firm should be active in at least three countries before it classifies as a born global. Another exception are Preece, Miles and Beatz (1998) who suggest that while many firms may be international, only few startups have what it takes to be truly global during its early development. Some of the studies that do include some measure of global diversity focus on the number of countries in which the activities are performed. We believe that although a first step, this is not enough. This criterion might result in including a firm that is active in a very limited international region. For instance, if a company from Switzerland is active in all its neighbouring countries, but not beyond it can hardly be called a global firm, even though it operates in five foreign markets. TABLE 1 Review of Conceptual and Empirical Literature on Born Global Firms 1993-2003
Another observation is that many definitions and operationalisation methods include companies that can no longer be considered startup. For instance the definition and operationalisation method used by Knight is a very good example in this respect. According to this definition, a firm can be considered born global, if it is founded after 1976, begins international activities within three years and has an export sales level of more than 25% at the time of investigation (Knight, 1997). This definition would include companies that began to internationalise very early, but only expanded these activities globally much later. These firms might have been international startups but they only became global once firmly established. In our perspective such firms are not really born global. Such firms did not necessarily face the same circumstances as firms that are already global during the actual startup period. Most definitions and operationalisation methods have a strong focus on international sales; very few include other forms of cross-border activities. Especially, inward oriented activities such as the attracting of resources from foreign suppliers are underrepresented and often, neglected. In relation to international business a considerable body of literature in the field is devoted to, for instance international strategic alliances. Also, as several authors (e.g. Fletcher, 2001) have noticed many companies begin international activities by inward activities like buying resources from foreign suppliers or manufacturing. We feel that especially, when conducting research among new ventures leaving out other types of international activities, might result in not including firms into the analysis, that are actually highly international, but not selling abroad. Indeed as Gibbons et al. state, “for too long commercialisation has been understood largely in terms of the application and exploitation of existing knowledge. In knowledge-intensive sectors of industry, commercial success requires the ability to generate knowledge using resources, which are not stored in-house but distributed throughout a vast, and increasingly global network” (1994, p.50). In relation to technology intensive firms, which many born globals are, this is particularly important as research and development time can span very long time periods in which the firm does not yet sell its products. These companies might be heavily involved in joint research projects that span the globe, and might be funded by international venture capitalists. Leaving out such companies could hinder the development of our understanding of the born global phenomenon. Considering the above, we believe that a need exists for a more detailed method to identify born globals than is currently available in the literature. In the following section we review the two most prevalent methods for identifying born global firms and introduce a new method, that we believe deals with the above-mentioned problems in an adequate manner. A theoretical model of the possible relationship among the approaches to measuring born global firms is also introduced. Identification OF BORN GLOBAL FIRMS Based on our review of the existing literature, a total of 14 different methods were used to operationalise born global firms. After removing idiosyncratic differences among studies, the underlying main methods for identifying born global firms reduced from 14 to two. The first method is based solely on time to entry and export sales levels at the time of investigation (Knight, 1997). On the basis of this measure, firms that began international activities within three years after their founding and reached international sales of at least 25% are considered born global. This measure has been used most frequently in the empirical research of the born global phenomenon (e.g. Rasmussen et. al., 2000). The second method extends the first by adding a three-country minimum for international activities (Harveston, 2000).Also firms must begin international activities within three years and have international sales that reach at least 25% with business activities in at least three countries. The new method of identifying born global firms is based on an extension of previous empirical research Oviatt and McDougall’s (1994) define ion international new ventures and born global firms, as firms that seek to derive a significant competitive advantage from the combination of resources from and the sale of outputs in multiple countries. Born global firms are a particular type of international new ventures that are simultaneously involved in the coordination of many different activities along the value chain, in an unlimited number of countries around the world. The entrepreneurship perspective suggests a focus on opportunities (Van Der Veen and Wakkee, 2003). and research suggests that born global firms cannot survive missed opportunities (Blomstermo and Deo Sharma, 2002). Based on these considerations, we define born global firms as those that from inception seek to recognise and exploit opportunities by combining resources from and selling outputs in multiple regions around the world. In order to operationalise this definition we identified the four main elements from this definition. A born global is a firm that: 1. From inception (GI), 2. seeks to recognise and exploit opportunities (GO), 3. from the combination of resources and the sale of outputs (GRSC), and 4. in multiple regions around the world (GD). Each of these elements should be measured and combined to identify born global firms. Global Inception (GI). Global inception is defined as “from the first day on which the firm begins operations .” For many firms, a considerable time span passes before the company is fully operational. This time span is an area of debate. Some researchers advocate a six-year period as the eligible standard in measuring delays in initiating international activities (Moen, 2001). While others argue that international activities should begin within only two years (Kandasaami, 1998). However, the most commonly used period is the first three years (Knight, 1997). We decided to adopt this most commonly used timeframe and add the constraint that international activities should have reached a global level at the end of the third year (Harveston, 2000). This perspective differs from some authors who state that international activities should only be initiated within three years from inception (e.g. Rennie, 1993, Knight, 1997, Rasmussen et. al. 2000). Global Opportunity (GO). To assess the extent to which an opportunity is global in nature, a scale was developed composed of five statements. The responses are rated on a five point Likert scale where ‘1’ indicates total disagreement and ‘5’ indicates total agreement and include: 1. International competition is intense, 2. the number of potential customers is limited and they are scattered around the world, 3. the number of potential resource providers is limited and they are scattered around the world, 4. the number of potential partners for co-operation is limited and they are scattered around the world, and 5. in order to build a sustainable market position our firm has to develop global activities. The scores of the five statements are averaged. For this study it was decided that to be identified as a born global firm it needs to have a score > three. This indicates that the opportunity is at least to certain extent global in nature. Global Resource and Sales Combination (GRSC). Although Oviatt and McDougall (1994) do not include this element in identification of born globals, they discuss the impact of the value chain. GRSC reflects how firms identify and attract resources, then merge them into new combinations through R&D, production, and marketing activities before the final goods and services can be sold. In the context of international business, these activities can be performed either in a foreign country or together with counterparts (partners) from foreign countries (with the activities either being performed abroad or in the companies domestic country). Following Oviatt and McDougall’s (1994) suggestion that born globals should be involved in multiple types of value chain activities, born global firms should be involved in at least two of the following types of cross-border activities: 1. Attracting resources from foreign suppliers, 2. selling or licensing technology, products or services to foreign customers. 3. establishing or managing foreign subsidiaries or involvement in strategic cooperation with foreign partners for a. R&D, b. production, c. marketing, and, d. sales after sales service. Global Diversity (GD). To operationalise the final element of global diversity, existing measures were first reviewed (Preece, et.al., 1998; Zahra et.al. 2000 etc.). The continents became a starting point to define regions with two adaptations. First, we decided to distinguish between the countries in the European Union and other European countries because conducting business in and outside the Union makes a considerable difference with for instance respect to regulations. Second, the Middle East was included as a separate region since it has distinct cultural and political aspects and there is no consensus as to whether the Middle East is in Africa or Asia. To classify as a born global, a firm should be active in at least two of the following regions: (1) EU countries, (2) other European countries, (3) NAFTA countries, (4) Latin America, (5) Asia, (6) Australia and New Zealand, (7) Middle East, and (8) Africa. In summary, the new measure classifies firms as being a born global when the following criteria are met: 1. Within three years after founding a firm should, 2. reach a GO higher than three, 3. be involved in at least two different types of cross-border activities, and 4. perform these activities in at least two different regions. Proposed RELATIONSHIPS BETWEEN METHODS After reviewing the previous literature, identifying the two underlying methods, and developing a third method for identifying born global firms, we expect that several types of interrelationships could exist. Theoretically, five patterns of relationships exist among the three methods of identifying born global firms. The range of relationships is graphically represented in Figure 1-5. Within these figures, each method represents a different approach to defining and operationalising the born global phenomenon, whereas method 1 represents Knight (1997), method 2 represents Harveston (2000) and method 3 represents the new method presented above. There are many alternatives that could result from using the three methods. First, the methods could result in the identification of three totally unrelated groups of companies as shown in Figure 1. Although researchers have defined and operationalised born global firms in different manners, the reviewed publications were clearly discussing similar phenomena. Therefore we do not expect that the groups will show a relationship pattern that is similar to the first possibility (P1). P1: Analysis of firms using the three methods of identification will not result in three distinct groups of born global firms. FIGURE 1 Mutually exclusive Relationship between Methods of Identifying Born Global Firms
Second, the methods could theoretically result in the identification of identical groups of born global firms. This idea is graphically displayed in Figure 2. By looking at the previous sample specifications within the literature, it is clear that this result is highly unlikely. For example, when comparing Knight’s (1997) sample to that of Harveston (2000), it is extremely unlikely that the samples will be exactly the same due to the difference in criteria inclusion (the addition of a three country minimum). P2: Analysis of firms using the three methods of identification will not result in an identical group of born global firms. FIGURE 2 1:2:3 Relationship between Methods of Identifying Born Global Firms 
Method 1:2:3 Another alternative result could be, that the three methods result in three partially overlapping groups of born global firms as shown in figure 3. The likelihood of this pattern relationship occurring is higher than the two previous alternatives (P1, P2). For instance, when using the new method developed in this study, firms could be identified as born global firms when having value chain activities that are globally dispersed while not reaching a international sales level of 25% as specified in Knight (1997) and Harveston’s (2000) definitions. P3: Analysis of firms using the three methods of identification will likely result in three partially overlapping groups of born global firms. FIGURE 3 Overlap Relationship between Methods of Identifying Born Global Firms 
A fourth alternative, as presented in Figure 4 is that the three methods of identification could results in a stacked relationship with the second group being a subgroup of the first and the third group being a subgroup of the second group. Continuing the example of Knight (1997) and Harveston (2000), it is more likely that some of the firms within Knight’s sample will meet the criteria for inclusion (the addition of a three country minimum) in Harveston’s sample and in the new method proposed above. P4: Analysis of firms using the three methods of identification will likely result in the identification of stacked groups of born global firms. FIGURE 4 Stacked Relationship between Methods of Identifying Born Global Firms 
If this relationship would emerges, it would indicate that the three identification methods could be combined to create a scale to measure the level of born globalism rather then determined dichotomously if a firm is born global or not. The final alternative pattern of relationships is a combination of P3 and P4. It is possible that the samples of Knight (1997) and Harveston (2000) may be stackable as shown in P4 and it is also likely that there are some differences between the two samples (P3). We classify this pattern of interaction between the methods as a combination relationship. This relationship is presented in Figure 5. We believe that the final pattern is the most likely to emerge once the methods are tested simultaneously. After all, the three measures are different but still aim to identify a similar group of born firms. P5: Analysis of born firms using the three methods of identification will most likely result in the identification of a combination relationship of born groups that overlap in a stacked manner. FIGURE 5 Combined Relationship between Methods of Identifying Born Global Firms 
Directory: pub pub -> Project Scoring Template Pre-Construction Phase New Core/Branch Campus Projects pub -> Acm word Template for sig site pub -> The german unification, 1815-1870 pub -> Baltic Olympiads in Informatics: Challenges for Training Together pub -> Preparation of Papers for ieee transactions on medical imaging pub -> Forthcoming meetings and conferences pub -> Asilomar Conference on Circuits, Systems & Computers, Pacific Grove, ca, November 1978, pp. 55 58 pub -> Forthcoming meetings and conferences pub -> Harmonised compatibility and sharing conditions for video pmse in the 7 9 ghz frequency band, taking into account radar use Download 1.73 Mb. Share with your friends:
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||