The effect of global orientation on the performance of international new ventures: evidence from Italy.
| Verfasser | Cerrato, Daniele |
| Posten | RESEARCH ARTICLE |
Abstract The aim of this paper is to investigate the relationship between global versus regional orientation and the performance of international new ventures (INVs). Building on internalization theory and organizational learning literature, we develop two competing hypotheses on the performance effect of geographic scope on INV performance. We test these hypotheses on a sample of Italian manufacturing INVs. The study extends the regionalization/globalization debate to the context of INVs. Our findings show that INVs mainly operate on a regional, rather than global basis. However, when they succeed in achieving a global reach, the effect on profitability is positive and significant, supporting the hypothesis that global orientation improves firm performance.
Keywords Global strategy and regional strategy * Internationalization ? International new ventures * Performance
1 Introduction
Firms variously labeled as 'international new ventures' (Oviatt and McDougall 1994; McDougall and Oviatt 1996), 'born-globals' (Knight and Cavusgil 2004), 'global start-ups' (Oviatt and McDougall 1995), have attracted increasing attention from academic research since the 1990s. Most studies are aimed at identifying the reasons at the basis of the emergence of the INVs, such as the role of the founder/ entrepreneur and the management team (Bloodgood et al. 1996; Carpenter et al. 2003; Kundu and Katz 2003; Spence et al. 2011; Rasmussen et al. 2012), and the importance of knowledge-based resources and capabilities (Oviatt and McDougall 1995; Sharma and Blomstermo 2003; Coviello 2006; Freeman et al. 2012; Khalid and Larimo 2012; Femhaber 2013). Fewer studies have been conducted with the specific purpose to analyze the determinants of INVs' performance (McDougall and Oviatt 1996; Autio et al. 2000; Zahra et al. 2000; Sleuwaegen and Onkelinx 2014; Zhou and Wu 2014). In their recent comprehensive inventory of the domain of international entrepreneurship research, Jones et al. (2011) identify and thematically map 323 relevant journal articles published in the period 1989-2009: only 16 out of 323 analyze the factors affecting the performance of INVs and even fewer articles specifically address the internationalization-performance relationship. This evidence suggests that, in spite of the growing body of literature, the born-global phenomenon still solicits both theoretical developments and larger empirical evidence on the performance of INVs (Zahra 2005; Aspelund et al. 2007; Kuivalainen et al. 2007). Although the number of studies addressing the performance effects of early internationalization is recently increasing (e.g., Femhaber 2013; Sleuwaegen and Onkelinx 2014; Zhou and Wu 2014), literature still shows inconsistent results: some studies found a positive relationship between internationalization and performance (i.e. Bloodgood et al. 1996; Khavul et al. 2010), while others revealed a negative impact (Lu and Beamish 2001) or a non- significant effect (McDougall and Oviatt 1996; Femhaber and Li 2010).
Mixed findings of the studies on INV performance might depend on different approaches to the definition of INV (Aspelund et al. 2007) and various strategies to operationalize variables (Sapienza et al. 2006; Zhou and Wu 2014). In addition, inconclusive results can be ascribed to the omission of INV geographic scope (Jones et al. 2011; Sleuwaegen and Onkelinx 2014).The geographic scope of the firm is not extensively taken into account in the analysis of INV profitability (Kuivalainen et al. 2007). In their definition of INVs, Oviatt and McDougall (1994) refer to the 'sale of outputs in multiple countries', but neither the number of countries nor the degree of geographic diversity or distance across countries is specified. Foreign sales as a percentage of total sales is by far the most commonly used measure of internationalization. When geographic scope is included, INV studies frequently use the number of countries in which a firm exports (or has foreign sales) (Coviello 2006). However, the lively debate on regionalization/globalization (Rugman and Verbeke 2004; Delios and Beamish 2005; Li 2005; Banalieva and Dhanaraj 2013) demonstrates the importance of the region, (1) rather than the country, as a unit of analysis in international business. The empirical evidence that the great majority of the world's 500 largest firms derive most of their sales from their home region (Rugman and Verbeke 2004) suggests that a liability of inter-regional foreignness exists and regional strategies are more effective. With the exception of Lee and Marvel (2009), who analyzed the effect of geographic orientation on the performance of Korean SMEs, regionalization literature focuses on large MNEs from both developed countries (Li 2005; Qian et al. 2010; Banalieva and Dhanaraj 2013) and emerging economies (Banalieva and Santoro 2009; Banalieva and Sarathy 2010). The possible performance difference ascribed to the global versus regional orientation has therefore remained under-analyzed in the INV context. For the sake of clarity, by 'regional' orientation we mean the propensity of an INV to expand within the home region (Banalieva and Dhanaraj 2013), as opposed to 'global' orientation, i.e. the propensity of an INV to expand outside the home region.
In seeking to bridge this gap, we build on internalization theory and organizational learning literature to develop hypotheses that relate the geographic orientation of INVs to performance. Grounded in transaction cost economics (Williamson 1975), internalization theory (Rugman 1981; Rugman and Verbeke 2003, 2005) suggests that, when expanding outside the home region, transaction costs occur in host regions that are much higher than those in the home region and the firm's capability to transfer and exploit its firm-specific advantages (FSAs) successfully is constrained. Internalization theory therefore provides useful insights to understand the performance implications of global versus regional expansion. As far as organizational learning literature is concerned, this research stream emphasizes the crucial role of learning in enabling an INV to adapt to the changing environment and capture business opportunities in overseas markets (McDougall and Oviatt 1996; Zahra et al. 2000; Weerawardena et al. 2007; Prashantham and Young 2011). Operating in diverse markets may affect the learning outcomes since the firm is exposed to multiple stimuli. We therefore apply arguments from internalization theory and organizational learning literature to the INV context to explain the possible performance effects of the INV geographic orientation.
Our study makes two main contributions to the international business field.
First, in spite of the label 'born-globals', the geographic scope of these firms in terms of diversity of their international sales is overlooked in the literature. Our study demonstrates that the global versus regional strategic orientation of INVs does have an impact on performance. We thus respond to Jones et al. (2011), who suggest that the analysis of performance antecedents could be linked to specific venture type, e.g., global start-up versus geographically focused start-up.
Second, this analysis leads us to provide a contribution to the regionalization/globalization debate. While previous research on global and regional strategies has focused almost exclusively on large MNEs, we argue that the literature on the regionalization/globalization debate may provide new insights to the analysis of the internationalization-performance relationship in the INV context. Hence, our study extends the empirical evidence on regional and global strategies that previous research has provided on MNEs (Rugman and Verbeke 2004, 2007), SMEs (Lee and Marvel 2009; Beleska-Spasova and Glaister 2010), and software INVs (Lopez et al. 2009) to the context of manufacturing INVs.
The empirical analysis is carried out on a sample of 180 Italian INVs. The Italian industrial system is predominantly constituted by SMEs and represents a relevant setting for research into SMEs and new ventures. Our sample includes firms from a variety of manufacturing industries, ranging from high-tech firms to those operating in less technology-intensive industries.
In the remaining of the paper, we first review the literature on the internationalization-performance link, with a specific focus on INVs. We also offer a synthesis of the regionalization/globalization debate, in terms of implications for firm performance. Hypotheses are then developed on the performance effects of regional versus global orientation in the context of INV. In the following section we describe the sample, data and method used for the empirical analysis. We then present the results. We conclude with a discussion of our findings and their implications for researchers and practitioners.
2 Literature Review
The relationship between firm internationalization and performance is a core research topic in international business. Scholars have investigated such a relationship using various theoretical lenses and providing a large body of empirical evidence (Hennart 2007, 2011; Glaum and Oesterle 2007; Verbeke et al. 2009). Whether and under which conditions the benefits of internationalization outweigh costs is still debatable. Some studies have shown a positive linear relationship (Tallman and Li 1996). Others have reported a negative relationship (Geringer et al. 2000). Other studies have identified a curvilinear, U-shaped relationship (Ruigrok and Wagner 2003), an inverted U-shaped relationship (Hitt et al. 1997) and an S-shaped relationship (Contractor et al. 2003; Lu and Beamish 2004). Very recently, empirical evidence on the possibility of an M-curve fit has been provided (Almodovar and Rugman 2014). Conflicting results may be due to measurement issues, diversity of research settings as well as to a number of country and firm-specific factors that influence the...
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