Maturing, technology-based, born-global companies: surviving through mergers and acquisitions.
| Verfasser | Almor, Tamar |
| Posten | RESEARCH ARTICLE |
Abstract To date, there has been little research about the corporate growth of born-global companies and relatively little data exist about their maturation, survival as independent companies (or failure to do so) and their international strategies. The present paper is based on an empirical study of Israeli technology-based companies that were identified in the late 1990s as born global. We collected data about the continuing development of these firms for the decade spanning 2000-2009. Our findings show that maturing technology-based, born-global companies can increase their chances of survival by acquiring other firms. Although such acquisitions do not increase profits, they allow born-global firms to continue increasing their sales and to expand and upgrade their product line, which in turn increases their chances of remaining independent. The data also show that if the firms prefer to merge with another company, they are in a better position if they do not acquire any other firms beforehand. Finally, our data show that although the majority of born-global companies can continue operations if they survived the first decade, they are not highly successful on the measures of growth and shareholder wealth. One of the recommendations of this study is that for maturing, technology-based, born-global companies to remain successful, they must be more aggressive in their M&A strategy than they are at the moment.
Keywords Maturing born-global companies * Israeli high-tech * Mergers and acquisitions
1 Introduction
The emergence of small entrepreneurial companies that internationalize rapidly at the early stages of their existence has been reported in different countries since the end of the twentieth century (e.g., Almor 2011; Autio et al. 2000; Knight and Cavusgil 2004; Oviatt and McDougall 1994, 1997; Zahra et al. 2000). Most empirical papers about born-global companies examine firms that exist for less than a decade. Moreover, the studies are concerned primarily with questions of the initial survival and growth of these companies (Hashai and Almor 2004; Jones and Coviello 2005; Rialp-Criado et al. 2010). Incidental case studies published in newspapers, however, have suggested that at least some of these born-global companies have now been in existence for about two decades, are maturing, and have been addressing issues that differ from those encountered by the young companies. The maturing of born-global companies seems to be a relatively new phenomenon that has not yet been researched to date, and therefore few questions have been raised regarding their maturation process. As a result, relatively little data exist about maturing born-global companies, whether or not they have survived as independent companies, and what international strategies they use.
The present paper aims to explore the ongoing development of technology-based, born-global companies after they have experienced initial success, in the first decade of their operation, by focusing specifically on mergers and acquisitions as a means of surviving and organizational growth. Growth in the international arena is part and parcel of the continuing success of technology-based, born-global companies, which are funded mostly by external capital and must show continuing growth in sales and profits in order to remain attractive to investors (Almor 2013). Although there are many examples of born-global, technology-based companies that have been acquired by larger technology-based firms and have been merged into the larger businesses (e.g., IVC Research Center's Report on Exits 2012; Levi 2005; Shelah 2006; Weber and Tarba 2011; Weber et al. 2012a, b), there are relatively few that have survived as independent companies.
In the present paper we argue that despite their relatively young age, small size, and scarcity of resources and capabilities compared to large technology-based multinational enterprises, born-global companies must use mergers and acquisitions (M&As) to survive and succeed in a competitive global environment. We examine the use of M&As by born-global companies empirically and examine whether this strategy is pertinent to the survival of these companies after their initial success in the first decade of their operation. We further examine the relationship between the use of M&As and the financial data of born-global companies.
The paper is organized as follows: we begin by presenting a conceptual framework that addresses the growth of born-global companies by means of M&A strategies, and the derived hypotheses. Next, we describe the methods of data acquisition and present the results. Finally, we discuss the results and present the conclusions.
2 Conceptual Framework
Rapidly internationalizing, entrepreneurial companies seem to emerge more frequently in small countries with advanced economies, such as Israel, than in larger economies such as the US (Efrat and Shoham 2012; Gabrielsson and Kirpalani 2004; Moen and Servais 2002), and are often referred to in literature as "born-global" companies (Autio et al. 2000; Bell et al. 2003; Hashai 2011; Hewerdine and Welch 2013; Melen and Nordman 2009). Born-global companies are frequently characterized as having the ability to create innovative, self-developed, technology-based products that are sold internationally from the start of their existence (Bell 1995; Bloodgood et al. 1996; Coviello and Munro 1997; Dana et al. 1999; Knight and Cavusgil 2004; Nordman and Melen 2008; Oviatt and McDougall 1994, 1997; Rennie 1993; Rugman and Wright 1999; Zahra et al. 2000). In this paper, born-global companies are defined as business organizations that from the time of their founding or shortly thereafter seek superior international business performance, by creating knowledge-based resources and capabilities in which form the basis for sales in various countries (Almor 2013; Gabrielsson and Kirpalani 2004; Knight and Cavusgil 2004; Oviatt and McDougall 1994).
Technology-based born-global companies are often characterized by their proprietary technologies and innovations, which they use to differentiate themselves from other competitors (Aspelund and Moen 2001; Hashai and Almor 2004; Coviello and Munro 1995; Jones 1999; Knight and Cavusgil 2004; Lewin and Massini 2003; Oviatt and McDougall 1994; Rialp-Criado et al. 2002). These unique technologies and innovations often have a limited home market, especially when the firm originates in a small country; therefore, born-global companies are driven to international markets early in their organizational existence in order to exploit first mover advantages and monopolistic gains (Acs et al. 1997; Amin and Thrift 1994; Keeble et al. 1998; McNaughton 2000). This strategy, however, creates a problem that is not easily solved. Technology-driven companies need to stay in close contact with their customers, not only to protect their proprietary know-how but also to receive feedback regarding their technology through the processes of distribution and after-sale services (Almor and Hirsch 1995; Hirsch 1989). This type of interaction can lead to further technological innovations and also create customer loyalty and a strong client base. But born-global companies are usually young, small, and have relatively few resources, which limits their ability to serve a broad segment of the international markets and large numbers of customers without resorting to strategic alliances, which, however, may place their relationship with customers and their technological innovations at risk (Almor and Hashai 2004). Many technology-based, born-global companies cope with this quandary by focusing on global niches in which they typically serve a small number of organizational customers that create a high added value (Freeman and Cavusgil 2007; Rasmussen and Madsen 2002; Rennie 1993; Rialp-Criado et al. 2002). In this way, the need for a substantial marketing infrastructure is reduced and a modest marketing entity may suffice.
Although global focus-differentiation allows the technology-based, born-global company to grow initially, it also creates dependence upon a highly specific product life cycle. Although technology products can be upgraded and updated, they still belong to a single industry, which eventually declines when it is challenged by new industries that produce technologically superior substitute products (Christensen 1997; Hill and Jones 2004; Foster 1986). This problem is becoming increasingly acute because product and industry life cycles are becoming compressed. For example, various Internet-based industries have progressed from initial introduction to apparent maturity within a few years (Cusumano and Yoffie 1998).
Furthermore, technology-based, born-global companies frequently finance their initial growth by means of external capital, floating the company publicly by venture capital or private investments, and therefore they need to continue their growth in order to remain attractive to investors (Barrow et al. 2005; Manigart and Sapienza 1999). Therefore, technology-based, born-global companies are expected not to remain complacent and not to behave like typical niche companies that remain small. Instead, after they become established in their global niches they must examine different options for continued growth.
One option is to sell the company to another, usually larger technology-based company. This strategy is commonly used by many high-tech entrepreneurial companies, and it is considered common among born-global companies as well (PriceWaterhouseCoopers Israel Hi-Tech Exit Report 2012; Senor and Singer 2009). Another option is to grow the company at a relatively high pace. In this paper we focus on maturing born-global companies that use acquisitions as a means to survive and remain independent.
2.1 Continuing Growth of the Independent Born-global Company
Innovation is an important source of value creation in many industries. In the first decade of the...
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