Effectuation and networking of internationalizing SMEs.

VerfasserGalkina, Tamara
PostenRESEARCH ARTICLE - Small and medium-sized enterprises

Abstract This paper explores previously discarded phenomena in the internationalization process literature, namely the non-predictive logic of foreign market entry, and employs effectuation theory to examine how small and medium-sized enterprises (SMEs) network during internationalization. It integrates effectuation theory with the revisited Uppsala internationalization process model to understand the unintentional aspect of networking by internationalizing SMEs. The research design is a multiple-case study approach. The findings show how entrepreneurs network with interested partners, instead of carefully selecting international partners according to predefined network goals. Entrepreneurs who network effectually enter markets wherever an opportunity emerges, and commit to network relations that increase their means. Network relations become an integrating point for effectuation theory from entrepreneurship research and the revised Uppsala model from international business. This bridge between the two areas suggests some implications for network research in International Entrepreneurship.

Keywords International SMEs * Internationalization * Effectuation * Networks * International entrepreneurship

1 Introduction

A large stream of research in International Entrepreneurship (IE) focuses on the importance of network relations for the successful foreign expansion of small and medium enterprises, or SMEs (e.g., Chetty and Blankenburg Holm 2000; McDougall and Oviatt 2000; Young et al. 2003; Jones et al. 2011). Numerous scholars suggest that networks provide internationalizing firms with various tangible and intangible resources (e.g., Coviello and Munro 1997; Oviatt and McDougall 1994; Manolova et al. 2010). The strategic thinking behind this resource-based view of networks implies that partner selection follows the country choice, and is made as a purposeful response to the objective information gathered with regard to foreign network structures. The stream of literature on international partner selection also shows that internationalizing new ventures strategically choose foreign partners according to their portfolios, fit to the firm (Varis et al. 2005), and knowledge about local consumers, competitors, and networks (Lu and Beamish 2001).

In contrast, another stream of research provides evidence that the internationalization process often lacks strategic orientation (Frishammar and Andersson 2009). The rationale is that decision-making is done under conditions of uncertainty and goal ambiguity (Gabrielsson and Gabrielsson 2013) and the relationship component makes this process difficult to predict (e.g., Lee and Brasch 1978; Brown and Cook 1990; Ellis 2000; Ellis and Pecotich 2001). In employing predictive rationality concepts, these studies do not go beyond simply admitting the existence of this phenomenon and describing it in terms of "boldness in decision making" (Moen and Servais 2002, p. 59), "chance," "serendipity," "coincidence" (Meyer and Skak 2002), "random," "opportunistic," "non-systematic," or "ad-hoc" internationalization treated as a "deviant case" and an "anomaly" (Ellis 2000). As evidence of such internationalization mounts, it cannot be dismissed as abnormal, and it is important to find new explanations to understand the phenomenon.

Our main objective in this paper is to examine networking under uncertainty during the internationalization process by integrating the Uppsala model of internationalization (Johanson and Vahlne 2009) with effectuation (Sarasvathy 2001, 2008). The two main research questions are: how do entrepreneurs make decisions about networking under conditions of uncertainty while they are entering foreign markets? Why do entrepreneurs commit to specific network relationships when entering foreign markets?

Effectuation theory, with its focus on non-goal driven logic, improvisation and leveraging contingencies (Sarasvathy 2001, 2008), has great potential to explain the unintentional aspect of networking by internationalizing SMEs (Bhowmick 2008; Mainela and Puhakka 2009; Gabrielsson and Gabrielsson 2013; Kalinic et al. 2014; Sarasvathy et al. 2014). In order to explore the abovementioned "anomalies", effectuation logic provides a new lens to examine how SMEs employ networks during their internationalization. The effectuation approach, which helps to understand the decision-making logic under uncertainty, has been developing steadily within entrepreneurship theory during the past decade. It provides an alternative logic of reasoning to predictive rationality. Instead of the goal-oriented reasoning of causal rationality, effectuation suggests a means-driven logic that goes beyond predicting an uncertain future (Sarasvathy 2001). Put simply, entrepreneurs using causation logic have a pre-determined goal and select resources to attain these goals. Conversely, those using effectuation logic start with a given set of resources, and then collaborate with willing partners to increase these resources to co-create goals. Thus, entrepreneurs using causation start with a goal (planned strategy), while those using effectuation start with their means and then create their goal (improvisation and exploiting contingencies).

We chose Johanson and Vahlne's (2009) revisited Uppsala model as the main theory of internationalization process for this paper because of the central role of business networks. They consider internationalization as an outcome of a firm's attempts to develop its positioning within a network. We build on emerging research that links effectuation and the internationalization process, especially the work of scholars who developed the original work for these two streams of literature, namely Schweizer et al. (2010) and Sarasvathy et al. (2014). Since effectuation and the revisited Uppsala model are rooted in behavioral theory (March 1991; March and Simon 1958; Simon 1959), the concepts of partnership, networks and commitments are central in both theories. These are the key concepts that we elaborate on to develop new insights on networking during the internationalization process.

This study contributes to the IE literature in three areas. First, it considers the phenomenon of internationalization as an entrepreneurial process. This perspective allows for combining the Uppsala model from International Business with the effectuation theory from Entrepreneurship, which conceptually advances the IE domain. While the Uppsala model explains the internationalization process at the firm level, effectuation theory helps to understand internationalization process at the level of decision-making of an individual entrepreneur. Integrating the two theories responds to a call for "fresh ideas and questions that might extend the understanding of IE as a phenomenon, and incorporate perspectives from other disciplines" (Jones and Nummela 2008, p. 350). Second, our study contributes to a very embryonic stream in effectuation research that explores effectuation principles in an internationalization context (Laaksonen et al. 2010; Andersson 2011; Harms and Schiele 2012; Kalinic et al. 2014). It does so by showing how entrepreneurs use and expand the 'who I know' (networks) aspect of their means in foreign markets. Third, we contribute to network research in IE by deepening our understanding regarding the dynamics of entrepreneurial networking as a process, and by the means of qualitative methodology (Hoang and Antoncic 2003; Slotte-Kock and Coviello 2010; Jack 2010).

Regarding the structure of this paper, the next section outlines the theoretical framework for this research. Later, the methodological section provides details on the multiple-case study approach employed. This is followed by a discussion on the findings from the cases. Finally, the article ends with conclusions and implications, and provides directions for future networks research in IE.

2 Theoretical Background

2.1 Network Approach in International Entrepreneurship

The network approach to the internationalization of SMEs is recognized as one of the most established theoretical foundations of the IE field (Young et al. 2003; Keupp and Gassmann 2009; Jones et al. 2011). In this paper, IE is defined as "a combination of innovative, proactive, and risk-seeking behavior that crosses national borders and is intended to create value in organizations" (McDougall and Oviatt 2000, p. 903).

From the perspective of the resource-based view, different types of relation are essential for the foreign expansion of small firms that often lack, and often do not own, their foreign assets (Oviatt and McDougall 1994; Dimitratos and Plakoyiannaki 2003; Madsen and Servais 1997; Agndal and Chetty 2007). Thus, networks help to obtain financial resources, new capabilities, and knowledge about foreign market and institutional structures (Yeung 2002; Wright and Dana 2003, p. 142; Keupp and Gassmann 2009, p. 616). In addition, network relations serve as governance mechanisms that secure international transactions through trust and moral obligations (Oviatt and McDougall 1994; Etemad 2004). However, network relations (both foreign and domestic) may also inhibit internationalization efforts and result in high risks, network rigidity, liabilities, and negative effects on a firm's development (Coviello and Munro 1997; Mort and Weerawardena 2006, p. 567; Sasi and Arenius 2008).

Overall, the network view of SMEs' internationalization does not focus on foreign market entry mode selection and decision-making. Instead, it looks at the character and number of business relations, and indicates the importance of their coordination, development, and the building of cooperative relations with network actors (Axelsson and Johanson 1992; Blankenburg Holm 1995; Blankenburg Holm et al. 1996; Nakos and Brouthers 2002). In addition, the network approach has instigated significant changes to one of the most influential theoretical foundations in international business...

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