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Lecture 1. IE and performanceSchwens et al. International Entrepreneurship: a meta-analysis on the
internationalization and performance relationship
Entrepreneurial internationalization is a strategy combining “innovative, proactive, and risk-seeking behaviour that
crosses national borders and is intended to create value in organizations”. Firms should choose an appropriate level
of international involvement in order to be successful. Two opposing views: can enhance firm performance because
of growth and innovation opportunities, however can also offset firms’ performance because of uncertainty and risk
requiring the adaptation of internal routines and external processes (lack knowledge and resources).
Unclear whether entrepreneurial internationalization is beneficial due to
Opposing theoretical arguments
Focus on different dimensions (degree/scope/speed) of internationalization and performance
Contextual factors = boundary conditions: firm type, certain countries etc
Research aim: To conduct a meta-analysis on the internationalization and performance relationship using knowledge
intensity as a boundary condition among internationalizing entrepreneurial firms.
Valuable resources allow a firm to pursue internationalization strategies with greater efficiency (resource
based view RBV -> valuable, non imitable, rare, non substitutable) and such a resource is knowledge
(knowledge based view KBV) (moderator in this report). KBV pays particular attention to the exploitation,
integration, and protection of knowledge-based resources in dynamic environments. Internationalization is
a way to get access to knowledge and it is easier to gain knowledge than other resources, but the firm
should make sure that dissemination of knowledge can be prevented.
Three key dimensions of internationalization strategy
1. Degree: firm’s percentage of foreign sales to total sales -> extent to which firm is exposed to foreign market
Entrepreneurial internationalization enables firms to leverage their competitive advantage by proactively
exploiting profit opportunities abroad.
I. additional revenues, higher growth, and larger customer base feed forward into higher performance
II. firms realize economies of scale and lower costs
A higher degree causes additional costs:
I. greater complexity of a firm’s internal/external processes
II. additional demand for resources such as labor, logistics or information processing
2. Scope: the number of different countries/regions the firm is active in -> diversity in international activities
Firms with greater scope can exploit their competitive advantage across a larger number of markets:
I. diversification spreads the internationalization risk and stabilizes the firm’s revenue streams
II. firms can improve the cost structure (e.g. distributing overhead costs or exploiting cost differences)
A greater scope requires considerable resources:
I. enhances coordination and governance costs as firms are exposed to different institutional settings
II. firms need to adapt to miscellaneous industry practices, customer demands, and competitive
pressures in different countries.
3. Speed: length of time between firm’s inception and its first foreign sales -> earliness of firm’s exposure to
foreign market environments. No direct relationship between speed and performance is found in this research.
Firms internationalizing from a young age benefit from learning advantages of newness:
I. development of flexible routines and processes
II. deeply imprinted capabilities how to conduct business internationally
III. international identity (firms repeat internationalization steps based on developed capabilities)
Also incur costs due to liabilities of newness:
I. lack of foreign market knowledge and inability to leverage the firm’s domestic reputation,
relationships or positional advantages to foreign markets.
II. Investments in new processes and routines from scratch
Performance dimensions
1. Growth: can achieve sales growth through aggressive pricing leading to diminishing profitability
2. Profitability: return on equity ROE (ROI, ROE, ROA or EBIT)
,Knowledge as moderator
Knowledge = a firm’s capacity to apprehend and use relationships among critical factors in such a way as to achieve
intended ends (important for both process theories of internationalization + International New Venture theory).
Firms with greater knowledge intensity are better able to realize the benefits of international strategy, because they
are better able to integrate foreign knowledge and skills. Knowledge intensity = extent to which the firm depends
on the knowledge inherent in its activities and outputs as a source of competitive advantage. Measured with:
1. Objective: different ratios of the firms’ R&D expenditures
2. Subjective: scales measuring firms’ technological excellence
Degree of internationalization:
H1: Among internationalizing entrepreneurial firms, a higher knowledge intensity improves the performance
implications of a higher degree of internationalization. --> rejected
Knowledge intensive firms are more successful in exploiting foreign market opportunities, as such firms
quickly adapt to foreign market peculiarities
Knowledge intensive firms realize greater cost advantages, as firms can combine their knowledge with fixed
assets abroad at relatively low costs (copy the same thing in all countries).
Firms are exposed to novel ideas from foreign markets enabling knowledge integration
Scope of internationalization:
H2: Among internationalizing entrepreneurial firms, a higher knowledge intensity decreases the performance
implications of a broader scope of internationalization --> supported
Knowledge has low marginal costs of use enabling firms to quickly adapt to diverse foreign markets and to
exploit opportunities or factor cost differences
Knowledge protection across country-specific institutional environments is challenging, as property rights in
knowledge are difficult to define and enforce + knowledge overload from lots of countries is difficult to
manage. Knowledge intensive firms lose their competitive advantages or their ability to profit from narrow
windows of international opportunities if knowledge disseminates
Speed of internationalization:
H3: Among internationalizing entrepreneurial firms, a higher knowledge intensity improves the performance
implications of a higher speed of internationalization --> supported
Knowledge-intensive firms benefit from learning advantages of newness, as learning is more efficient when
firms can draw on existing knowledge (=absorptive capacity of firm is important).
Specific characteristics of knowledge (i.e. flexibility, distinctiveness) enable firms to overcome liabilities of
newness abroad
Knowledge enables entrepreneurial firms to market distinctive products and to gain legitimacy and an
advantage over established local competitors
Example questions: give the key reasons why knowledge decreases performance
Contribution
1. Reduces heterogeneity in IE by theoretically delineating and empirically identifying overall
directions/magnitudes of the relations between different internationalization (degree/scope/speed) and
performance (growth/profitability) dimensions.
2. Theoretically established and empirically validates the moderating influence of knowledge intensity on the
I-P relationship among entrepreneurial firms. So, highlights importance of knowledge as boundary condition
3. Meta-analysis: (1) basis to ground strategic decision on broad empirical evidence, (2) enables testing for
endogeneity and omitted variable bias and (3) synthesizes the IE literature and allows for identifying future
research directions
Results
Overall positive relations between internationalization and performance (r = .14***)
Degree = r .10**, scope r = .17**, speed r = .09 (positive but not significant)
Hypothesis: H1 = β = .04 (rejected), H2 = β = -.11* (greater knowledge, less performance), H3 = β .11*
(greater knowledge, more positive relation between speed and performance). Knowledge intensive firms
profit more from new knowledge because they have knowledge already, so improves scope and speed.
,Data and methods
Study identification process: total of 714 potentially relevant IE articles.
Final sample: 41 articles with 43 independent samples incl. 15,648 firms.
Hedges and Olkin (1985) meta-analysis (random effects model).
95 percent CIs around the weighted correlation (Whitener, 1990).
Q-statistic to test for homogeneity of effect sizes (Hedges & Olkin, 1985).
Meta-regression for the continuous moderator knowledge intensity (Lipsey& Wilson, 2001).
Robustness checks for publication bias, endogeneity, omitted variable bias.
Meta analysis
Meta-analytic results provide more than a summation of the integrated findings by generating additional insights
and directions for future research.
Plaatje ppt; Note: meta analysis effect measure is a weighted average of all the studies, so if N = 30 and another
study has N = 300 than the first study is taken into consideration 10 times less than the second study. It has greater
statistical power than all the studies separately.
Narrative -> new scholars asks old scholars for important papers
Systematic -> include all articles in a field that qualify according to a certain inclusion criteria (quantitative)
Purpose and advantages:
Assessment of overall directions and effect sizes by aggregating prior empirical evidence.
Aggregated effect sizes incorporate weighted (by sample size) magnitude and direction of each primary
study.
Synthesized effect size estimate has higher statistical power than the integrated primary studies.
Accounts for moderating variables causing variance of effect sizes across primary studies.
Reduces subjectivity bias and enhances statistical accuracy.
Caveats:
Garbage in, garbage out
o How did they search for articles?
o Which inclusion/exclusion measures
o How did they measure core constructs (e.g. smoking could be measured differently in each article)
o Did they push an agenda?
File drawer problem (publication bias) -> economic journals have the tendency to only make their significant
findings public. When everything is rejected, the paper is rejected overall. Cannot find an article that has
always remained in the file drawer. Problem is that the results of meta-analysis can be too positive or too
negative, because only significant findings were included.
Implications and limitations
Appeared that entrepreneurial behaviour is a greater contributor to firm’s success abroad than broader variables
such as firm size. Findings reduce the tension between learning advantages of newness and absorptive capacity in IE.
Two opposing views:
LAN (learning advantages of newness): less preexisting knowledge favorable, as firms have less baggage
that prevents the search for new knowledge abroad
ACAP (absorptive capacity): preexisting knowledge helps firms to better absorb foreign knowledge.
Limitations:
Meta-analysis excludes qualitative case-studies and conceptual papers although such articles represent the
majority of IE research
Publication bias in the overall I-P effect (focus on peer-reviewed studies only which have better quality, but
tendency to only upload significant findings)
Survivorship bias: firm survival was not an outcome of the internationalization process
, Lecture 2. Firm capabilities and survival
Key challenge in the 21st century -> mobility (e.g. image traffic jam)
A tale of early internationalization -> uber. Value propositions:
Sharing economy: everyone is/has a driver
Network orchestrator
Cheaper compared to conventional taxis
Intelligent mobility: app does everything + surge pricing (e.g. if it is raining outside, becomes more
expensive) + rating-based drivers and customers + location-based
Uber is currently (2016 compared to 2010) operating in 470 cities across 70 countries. Broad scope and very fast
speed, but despite the high growth rate, it is still losing money: net loss of $645 million on revenue of $1.75 billion in
Q2/2017. Sold autonomous driving to company to gain money. Setbacks:
Professionalism of (former?) management: e.g. false advertising, harassment scandal. CEO had to step down
because of scandals on how he treated drivers. Internationalization speed increases coordination costs so
management experienced more difficulties which lead to bad behaviour.
Legal woes across Europe: information society service vs transportation company. In Europe, person needs a
drivers license to be a taxi driver so Uber had to leave the market. Coming back now with real taxi drivers.
Trust and safety: e.g. self-driving car accidents, alleged assault (rating system was not working great)
So internationalization produced many costs and challenges and it remains to be seen whether they will be
successful in the long run or not.
Sapienza et al. A capabilities perspective on the effects of early
internationalization on firm survival and growth
Research interest
Study seeks to invest how internationalization impacts the firm. New venture internationalization theory views
individuals’ skills, experiences, and networks as critical to the decision to internationalize, while for the process
theory it depends on the history of the firm actions. INV says firms should internationalize because they have to
follow opportunities in the new market, while PTI is based on costs of going global. Early internationalizers (i.e. born
globals) challenge traditional theories of internationalization. Early internationalization of firms in dynamic and
technology-intensive sectors as an accelerator for growth.
Process theory of internationalization PTI holds that firms typically experience a gradual accumulation of
international experience, which enhances the firm's awareness of international opportunities, its ability to
pursue such opportunities, and the willingness of its management to commit further resources. There is an
interplay between the development of knowledge about foreign markets and an increasing commitment of
resources to foreign markets. Internationalization in culturally proximate markets to avoid liabilities of
foreignness. Based on two things:
o Geographic factors: psychic distance (CAGE)
o Experience: firm lacks international experience and is thus careful with how much it commits to the
foreign market.
The new venture internationalization framework INV highlights entrepreneurs' capacities and experiences that
allow them to successfully pursue an early, proactive mode of internationalization. Derive competitive
advantages from the use of resources and the sale of outputs in multiple countries from their inceptions.
Exploitation of international opportunities as main thrust of internationalization not hampered by psychic
distance. Entrepreneurial knowledge and vision enable firms to leap-frog stages of the establishment chain
(exports – distribution – licensing – franchising – joint venture – subsidiary). So two things important in INV:
o Born global
o Leapfrog stages (e.g. start with joint venture right away)
Difference: survival is of central importance in process theory (premature entry will threaten survival) vs growth
opportunities as internationalization driver in the new venture theory (hesitation means lost opportunity).
Growth and survival are two distinct concepts; survival does not guarantee growth and not all growth is
profitable.
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