Internationalisation for survival: the case of new ventures.
| Verfasser | Puig, Francisco |
| Posten | RESEARCH ARTICLE |
Abstract The aim is to deepen our understanding about the internationalisation--survival relationship in the case of new ventures in traditional manufacturing sectors. Hypotheses were tested through Cox's proportional hazard regressions on a sample of 3,350 firms aged 10 years or less, from the textile-clothing and footwear industry in Spain. A vast majority of new ventures that were both established and closed down over that time are purely domestic firms. That means, a firm increases its likelihood of survival when it becomes international. The highest failure risk relates to those new ventures which are territorially agglomerated and are domestically oriented. Internationalisation is an unconditional strategy for surviving in the case of new manufacturing ventures. In addition, location and efficiency in the activity both matter when operating in international markets. Statistical tests show that an interactive effect of agglomeration and internationalisation exists, while no support for the interaction between age and internationalisation is found. Future research should investigate the trade-off between growth and survival forces to determine the optimum moment to go international and to characterise the strategic choices followed by those new ventures that survive longest.
Keywords Survival * Internationalisation * Traditional manufacturing sector * New ventures
1 Introduction
The current economic climate has brought internationalisation to the fore as a key strategy for surviving, particularly in traditional manufacturing sectors such as the textile and footwear industry (Coucke and Sleuwaegen 2008). This industry has suffered from a dramatic increase in rivalry and competence stemming from a global tendency towards deregulation of international markets (Scott 2006; Abecassis-Moedas 2007). This has meant a constant decline in competitiveness in this sector in developed economies that, according to Eurostat data, has caused a contraction in their output and jobs of an average of around 15-22 % in the EU over the period 2004-2009 (Puig and Marques 2010).
Globalisation is considered to benefit firms in their competitive efforts, search for optimum locations and efficiencies (Buckley and Ghauri 2004). However, new manufacturing ventures usually see globalisation as a threat, bearing in mind that quite often these firms operate mainly in domestic markets and have fewer resources than multinationals. This calls for research on how traditional manufacturing sectors may compete and survive in this fierce competitive context (Jones and Hayes 2004).
The entrepreneurship literature on the survival of new ventures suggests that entrepreneur education, the availability of financial resources, the institutional-business frame, and macroeconomic conditions at the time of establishment are key factors to be considered (Holmes et al. 2010). Researchers in the international business field have analysed the strategic decisions made by new ventures concerning market selection or the geographical scope of their actions and the effect of these on performance (Sapienza et al. 2006; Giovannetti et al. 2011). However, how and to what extent internationalisation affects the performance of new ventures is still inconclusive.
Meta-analysis by Bausch and Krist (2007) suggested that disagreement in the internationalisation-performance relationship is rooted in a type of context dependence, calling for research on the identification of moderators rather than principles or generalisations. In the case of traditional manufacturing ventures, other key factors should also be considered, such as location and activity (Puig et al. 2009), and the performance analysed should include survival and failure rates (Mudambi and Zahra 2007).Thus, the aim of this study is to analyse the internationalisation-survival relationship in the context of new ventures from a traditional manufacturing sector. The remainder of the paper is organised as follows. First the rationale for the hypotheses is introduced. Then the sample selection and statistical methods are described. Findings are discussed and conclusions in terms of theory and practice are drawn, which point to some avenues for future research.
2 Literature on the Internationalisation--Survival Relationship
A search of some keywords was conducted in the Social Sciences Citation Index (SSCI) and in Scopus databases to check the dynamics of the internationalisation--survival relationship throughout the literature. The search included the expression ["international*" and "surviv*"] in article titles, keywords and abstracts. The initial list was screened to select only business-related literature. For the period 1956-2012, (1) SSCI returned 466 results (281 since 1992) and Scopus 155 (150 since 1992). Articles not dealing with the topic directly were excluded from the analysis, such as articles on the survival of central banks and similar topics.
Research dealing with survival and internationalisation has been conducted for different types of international enterprises, ranging from multinational corporations (MNCs) and their subsidiaries (Delios and Beamish 2001; Lu and Beamish 2006; Coucke and Sleuwaegen 2008) to international joint ventures (Lu and Hebert 2005; Meschi and Riccio 2008), new ventures (Mudambi and Zahra 2007; Chen et al. 2009; Zou et al. 2010), large enterprises, exporter plants and franchisees (Mascarenhas 1997; Bernard and Jensen 1999; Thomas et al. 2007; Kalnins 2005), to small and medium-sized enterprises (SMEs) (Lu and Beamish 2001; Westhead et al. 2001; Lee et al. 2012).
Two trends for the period considered and the activity sectors for the samples are detected. First, many articles use a longitudinal sample in discussing the effects of both age and cohort (Lu and Beamish 2006; Thomas et al. 2007; Dhanaraj and Beamish 2009; Manolova et al. 2010). Second, high-tech or technology-based sectors are often selected in empirical articles (Giarratana and Torrisi 2010; Coeurderoy et al. 2012; Khalid and Larimo 2012). The study by Bernard and Jensen (1999) dealing with exporter plants is a notable exception. Nevertheless, control variables related to the sector a firm belongs to are usually split into several different categories in longitudinal samples, thus presenting mixed findings. This problem may be rooted in the typical classification of sectors and the lack of differences between them: industrial activities are frequently quite similar in terms of survival, but are essentially different with regard to services (Westhead et al. 2001; Giovannetti et al. 2011). This may lead unsatisfactory statistical results because of the lack of robust differences among the sectors analysed. In addition, a firm may change its sector of activity at any time during the period analysed. This might induce some noise in the results when using multi-sectoral samples.
The methodology for empirical tests also deserves attention to identify the best method for delivering robust results. Methods include logit/probit regressions (Mudambi and Zahra 2007; Coucke and Sleuwaegen 2008; Schueffel et al. 2011; Lee et al. 2012), Cox's proportional hazard (Lu and Hebert 2005; Meschi and Riccio 2008; Giovannetti et al. 2011), multivariate regression (Chen et al. 2009; Manolova et al. 2010), and structural equation models (Zou et al. 2010; Khalid and Larimo 2012). The method should take into consideration how events occur over time. Cox's regression is one of the best choices for this because it is a duration model, while other approaches fail to consider time in the model.
3 The Research Model: Rationale for Hypotheses
The rationale for hypotheses on the survival of a new venture in relation to internationalisation is now introduced on the basis of an in-depth literature review.
3.1 Effect of Internationalisation on the Survival of New Ventures
How and to what extent internationalisation affects the performance of new ventures are some of the most controversial issues in the literature. To deal with these issues, arguments for and against the hypothesis that internationalisation increases the survival rate of new ventures are introduced. Then arguments for this hypothesis in the particular case of manufacturing industries are provided.
Theoretically, two opposing forces act when a new firm tries to position itself in international markets: growth and survival (Sapienza et al. 2006). New ventures that are seeking to grow may propose international markets as an alternative to take advantage of their higher growth rate according to the experience curve. This is critical for several types of industries and contexts, and in particular for traditional manufacturing industries, which are suffering from high failure rates across Europe. Ursic and Czinkota (1984) claimed that experience curve effects are key in explaining the international activities of younger firms. This is mainly because internationalisation is frequently the only alternative available to ventures to reach a relevant size to be able to take advantage of scale economies. Therefore, younger ventures can utilize their higher growth capability and increase their size via international activities, which will lead to greater production volume (Lu and Beamish 2001). However, they are also exposed to a greater risk of failure because of liabilities in terms of their newness, foreignness and outsidership (Stinchcombe 1965; Zaheer and Mosakowski 1997; Johanson and Vahlne 2009).
New ventures from traditional industries can expect that internationalisation will increase their survival likelihood. The hypercompetitive environment pushes them to seek new markets (for either selling or sourcing) outside the domestic environment (Buckley and Ghauri 2004; Coucke and Sleuwaegen 2008). A new manufacturing venture that engages in internationalisation diversifies and enlarges its markets and reduces its dependency on the evolution of the domestic market (Zahra et...
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