The role of knowledge in internationalization

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ResearchinInternationalBusiness

andFinance

journalhomepage:www.elsevier.com/locate/ribaf

Theroleofknowledgeininternationalization

L.Brennan,D.Garvey

SchoolofBusiness,TrinityCollege,Dublin2,Ireland

articleinfoabstract

Thispaperexaminestheroleofknowledgeintheinternationaliza-tionofthefirm.Theearlierinternationalizationprocessmodelsarereviewedandchallengesrelatingtotheirassumptionsaboutknowl-edgearehighlighted.Thisisdiscussedinrelationtoarelativelynewphenomenon,the“BornGlobal”phenomenon.Asynthesisoftheresearchtodateonthisphenomenonispresented.Inthecontextofanewworldeconomy,adifferentperspectiveontheroleofknowl-edgeemerges.Thisviewofknowledgeisoneinwhichknowledgeintensityandinternationalizationknowledgeaccumulationinflu-encethepaceandpatternoffirminternationalization.Thepapercallsforfurtherresearchinthisarea.

©2008ElsevierB.V.Allrightsreserved.

Articlehistory:

Received30January2007

Receivedinrevisedform21January2008Accepted10March2008

Availableonline25April2008JELclassification:O19

Keywords:

InternationalizationKnowledgeBornGlobal

1.Introduction

Atthefirmlevel,twosomewhatsimilarinternationalprocessmodelshaveemergedinEuropeandtheU.S.Andersen(1993)hastermedtheseastheUppsalainternationalizationmodels(U-Models)(JohansonandWiedersheim-Paul,1975;JohansonandVahlne,1977)andtheinnovation-relatedmodels(I-Models)(BilkeyandTesar,1977;Cavusgil,1980).Theroleofknowledgeandinparticularexperientialknowledgegainedonamarketbasishasbeenoneofthekeyassumptionsunderly-ingtheinternationalizationmodelsto-date.Petersenetal.(2003)highlightthatknowledgenowplaysafarmorecomplexrolethanassumedininternationalizationmodelsofthe1980sandtheynotehowthispartlyexplainstheemergenceofanewphenomenonininternationalization—the“BornGlobal”phenomenon.Inthispaper,theroleofknowledgeininternationalizationisexploredfurther.ItbeginswithareviewoftheroleofknowledgeintheU-andI-Modelsaboveandexamineshowtheseassumptionsaboutknowledgeapplytothemorerecent“BornGlobal”phe-nomenon.Adifferentconceptualisationofknowledgeispresentedinthepaper,inrelationto

E-mailaddresses:brennaml@tcd.ie(L.Brennan),deirdre@swanton.ie(D.Garvey).0275-5319/$–seefrontmatter©2008ElsevierB.V.Allrightsreserved.doi:10.1016/j.ribaf.2008.03.007

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howknowledgeintensityandknowledgeaccumulationinfluencetheinternationalizationofthefirm.

2.Internationalizationprocessmodels

BoththeU-andI-Modelsviewinternationalizationasagradualincrementalprocess.Thefirstofthese,theU-Modelisthemoredominantofthetwofeaturedininternationalbusinessliterature.2.1.U-Models

BasedonacasestudyoffourSwedishfirms,JohansonandWiedersheim-Paul(1975)foundthatfirmsinternationalizeaccordingtoachainofestablishment.Basedontheirstudy,theyconcludethatthesefirmsenternewmarketswithsuccessivelygreaterpsychicdistanceinaseriesofstages.Theconcept,“psychicdistance”hasbeen“definedasfactorspreventingtheflowofinformationfromandtothemarket”includingsuchfactorsaslanguage,culture,politicalsystems,levelofeducation,levelofindustrialdevelopment(JohansonandVahlne,1977,p.24).ThebasicassumptionsoftheJohansonandVahlnemodel(1977)arethatlackofknowledgeaboutforeignmarketsisanimportantobstacletothedevelopmentofinternationaloperationsandthatthenecessaryknowledgecanbeacquiredmainlythroughoperationsabroad—throughexperientialmarketknowledge.Thismarketexperienceisseenascountry-specificandnotgeneralisabletoothercountries,withoutdifficulty.ItisbasedonastudyoflargeSwedishmanufacturingfirmsin1977.Themodelisadynamiconeinwhichtherearestateandchangeaspectsofinternationalizationvariables.Thestateaspectsaremarketcommitment—resourcescommittedtoforeignmarkets.Thechangeaspectbeingthedecisionstocommitresourcesandtheperformanceofactivities.Theyhighlightexperientialknowledgeas“thecriticalkindofknowledge”(JohansonandVahlne,1977,p.29)intheinternationalprocess.Experientialknowledgeisseenasthedrivingforcebehindtheprocess.

Themodelassumesexperientialknowledgeasnotonlyamethodofreducingriskbutasavehicleforacquiringinformationandforgeneratingopportunitiesabroad.TheJohansonandVahlnemodel(1977)impliesthatmarketcommitmentwillbemadeinsmallincrementalstepsasfirmsgainexperientialknowledgeovertime.Theyalsonotethatfirmsize,technology,productlineandhomecountryaffectthecharacterisationofinternationalizationindifferentways.Andersen(1977)notesthisconceptoffirmuniqueknowledge(experientialknowledge)assumesatime-dependentprocessaccordingtoasequenceofevents.

JohansonandVahlne(1990)describehowthismodelhasgrownoutofmicroeconomicandmarket-ingtheoryaboutSwedishfirmscompetinginternationally.WhiletheexpectationisthatthemodelislimitedtocountriessimilarinsizeanddevelopmenttoSweden,furtherstudiesinothercountrieshavesupportedthismodel.Theyciteanumberofempiricalstudiesshowingsupportingresults—amongthem:aU.S.study:(DenisandDepelteau,1985),aHawaiianstudy(HookandCzinkota,1988),astudyofJapaneseexportfirms(JohanssonandNonaka,1983),astudyofTurkishexports(Karafakioglu,1986)andastudyofAustralianfirms(Bartlett,1986).WelchandLuostarinen(1988)alsonotethatresearchinothercountries,althoughdifferentinsamplesize,periodofstudyandsubjectofanalysis,indicatedadegreeofconsistencywiththeScandinavianresearch.Overall,themodelhasreceivedstrongsupportinparticularforitsemphasisonmarketexperienceandcommitment.Ithasalsohighlightedtherele-vanceofpsychicorculturaldistanceininternationalbusinessdecisions.JohansonandVahlne(1977)suggestthattheirmodeloftheinternationalizationprocesscontributestotheinternationalizationprocessby“stressingtheimportanceofsomefactorsaffectingthedecision-makingprocess”(1977,p.32).WelchandLuostarinen(1988)highlightthatpatternsofinternationalizationwillvaryfromcountrytocountryovertimebecauseofenvironmentaldifferencesaswellasdevelopmentswithinacountry.2.2.I-Models

Theinnovation-relatedmodelsofBilkeyandTesar(1977),Cavusgil(1980),Czinkota(1982)andReid(1981)aresimilarinassuminginternationalizationasanincrementalprocessalthoughvarying

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inthenumberofstages.Internationalizationispresentedinthesemodelsasaninnovationofthefirm,alearningapproach.TheI-Modelsdifferentiatebetweentheinternationalizationprocessinlargeandsmallfirms.Cavusgil(1980)putsforwardafive-stageprocessofinternationalizationstartingwiththeestablishmentofadomesticmarket(stageone)withvaryingincrementalstagesofinternationalizationuntilthefirmhascommittedinvolvement(stagefive).BilkeyandTesar’s(1977)six-stageprocess,Czinkota’s(1982)six-stageprocessandReid’s(1981)five-stageprocessareallsimilarinthestagestheypresentfromapurelydomesticallyorientedfirm,togainingexport-information,throughthevaryingdegreesofexporttobeinganexperiencedexporter.Theydifferinthenumberofstagesandhowthestagesaredescribedbuttheyessentiallyrepresentagradualpatternofinternationalizationbasedontheadaptationofthefirm.TheroleofpsychicdistanceisalsoconsistentineachofthefourI-Modelsaboveinthatfirmsfirstexporttopsychologicallyclosecountriesbeforeexportingtomorepsychologicallydistantcountries.

Reid(1981)notesthattheexportbehaviourinsmallfirmsislikelytobeinfluencedbytheindividualdecision-makerwhereasinthelargefirmitislikelytobemorestructurallydetermined.Andersen(1993)highlightsthattheU-Modelisassumedtobevalidforfirmsofanysize,butthattheI-Modelsmaybeapplicabletosmallfirmsonly.BothU-andI-Modelsreflecttheearlystagesofinternationalizationfromtheperiodofnointernationalsalestoinitiationofinternationalization.Andersen(1993)describesbothU-andI-Modelsasbehaviourallyorientedandthatthegradualpatternofinternationalizationisattributedtothelackofexperientialknowledgeandtheuncertaintyrelatingtothedecisiontointernationalize.

AsnotedearlierinrelationtotheU-Models,therehavebeennumerousstudiesincountriesout-sideScandinaviatosupportthegradualinternationalizationpatternanditsassumptions.Ingeneral,anincrementalprocessofinternationalizationaspresentedbyboththeU-andI-Modelshasbeensup-portedbyfurtherstudies;Luostarinen(1980)andLarimo(1985)haveproducedsimilarevidenceforFinlandandBuckley(1982)intheU.K.CovielloandMcAuley(1999)identifiedeightdifferentstudiessupportinganincrementalinternationalizationprocessforsmallfirms.

However,researchonSwedishfirmsinJapanbyHedlundandKverneland(1985)suggestedaspeed-ingupoftheinternationalizationprocessfromagradualandslowprocesstomoredirectandrapidentrymodes.AreviewoftheinternationalizationapproachesoffirmsbyYoung(1987)raisesanumberofissuesparticularlyinrelationtohightechnologyfirmsandthechangingpaceofinternationalization.Despitethesupportfortheabovemodels,sincethe1980sthestagetheoryofinternationalizationhasbeenchallenged.Thesechallengeshavebeenspecificallyinrelationtotheprocessandpaceofinter-nationalization,andthefactorsinfluencingachangingpaceandpattern.ThechallengestotheU-andI-Modelsarediscussedfurther.

3.Challengestotheinternationalizationprocessmodels3.1.Contextualinfluence

WhiletheU-andI-Modelsfocusonthebehaviourofthefirmandindividualswithinthefirmintheinternationalizationprocess,itisimportantalsotohighlightthebusinesscontextofthefirmasanexplanatoryfactor.Thiscontexthaschangedsignificantlysincethe1970/1980swhenthemuchoftheresearchintotheprocessmodelswasperformed.

Dunning(1998)describeskeyfeaturesofanewworldeconomywhichimpactinternationalloca-tionalfactors;amongthemaretherisingsignificanceofknowledgeorinformation-intensiveindustriesandadvancesintransportandinformationandcommunicationstechnology(ICT).Thesearediscussedbrieflybelow.

3.2.Knowledge-intensiveindustries

Thereisevidencetosuggestthatindustriesarebecomingincreasinglyknowledge-intensiveandhighknowledgeintensityisassociatedwithhighlevelsofinternationalization.Markusen(1998)high-lightsthatMultinationalEnterprises(MNEs)arefoundinindustriesinwhichknowledgecapitalandknowledge-intensiveproductionareimportant.AmongthecharacteristicsthathenotesarethatMNEs

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areassociatedwithhighratiosofR&Drelativetosalesandtendtohavehighlevelsofintangibleassets.Kothaetal.(2001)alsohighlightthattherearenumerousstudiestosupporttheviewthatR&Dinten-sitytendstobepositivelyassociatedwiththepropensitytoengageinforeignproduction.Markusen(1998)alsohighlightsthatknowledgecapitalismoremobilethanphysicalcapitalinrelationtoMNEactivityandthatwhiletherearehighinitialcostsofR&D,subsequentproductscanbesuppliedatlowcost.

Theincreasedknowledgeintensityoffirmsandindustriesaredrivingdifferentneedsfrominternationalizingfirmsandtogetherwithagglomerationeffectswhicharemorecommoninknowledge-intensiveindustries,thisisalsoinfluencinginternationalizationdecisions.Anasset-augmentingapproachtoforeigndirectinvestment(FDI)isemergingasfirmsaccumulateknowledgeandlearning.Theincreasedlevelofintangibleassetsindicatesanincreasedmobilityofassetsacrossbordersincomparisontofixedtangibleassets.3.3.AdvancesinICT

InadditiontothenatureofMNE’sactivityanditsimpactoninternationalactivities,theimpactoftheInternetitselfhasbeenthesubjectofmuchdiscussion.PetersenandWelch(2003)examinetherangeofeffectstheInternethashadoninternationalbusinessatthatpointintime.TheyconcludethatinternationalizationmaybeinitiallyfacilitatedbytheInternet.Kothaetal.(2001)describehowInternetfirmsexperiencelessthe“liabilityofforeignness”(2001,p.770),Kotha’sresearchalsofoundthattheintangibleassetsofInternetfirmsintheU.S.wereimportantpredictorsofthepropensitytointernationalize.Henotesthatthegreaterthevalueoftheintangibleassetinthedomesticmarket,themorelikelythefirmwastodeploytheseinforeignmarkets.Erkkoetal.(2000)alsonotethatknowledge-intensivefirmsarelessconstrainedbydistanceandnationalboundaries,andhencecanexploitinternationalopportunitiesmoreflexiblythanfirmsdependentonfixedassetsalone.

Thedevelopmentsintelecommunicationsandinformationtechnologyhaveresultedinlowercostsassociatedwithinternationalization—lowerinternalco-ordinationcostsandtransactioncosts.Thereisobviouslymoreofanimpactwithinformation-intensiveproductsthanwithothertypesofproducts.

Therefore,theincreasedknowledgeintensityofindustriesandadvancesinICTpresentsasig-nificantlydifferentcontextthanthatinwhichtheinitialU-andI-Modelsemerged.Anumberofchallengestotheassumptionsofthesemodelsareidentifiedinrelationtotheirassumptionsaboutknowledge—thedifferenttypesofknowledge,thenatureofknowledgeandtheacquisitionofknowl-edgeinaninternationalizationcontext.3.4.Theroleofknowledge

Petersenetal.(2003)providesasummaryofthekeycharacteristicofknowledgeintheU-Models,whichmayalsobeappliedtotheI-Models:•••••

Theknowledgeofcriticalimportancetofirmsismarket-specific.

Knowledgeisexperience-basedandisacquiredinalearning-by-doingprocess.

Knowledgeisembeddedinindividualsandisnoteasilydisseminatedthroughouttheorganisation.Marketcommitmentincreasesproportionallywithacquisitionofmarketknowledge.

Itisquestionableiftheseassumptionsaboutthecharacteristicsofknowledgearestillvalidgiventhetechnological,economicandpoliticaldevelopmentssincethe1980s.Theassumptionsunderlyingthenatureofknowledge,theacquisitionofknowledgeandthedifferenttypesofinternationalizationknowledgeareexaminedinmoredetailasfollows.

3.5.Acquisitionofknowledge

Andersen(1993)challengestheassumptionofexperientialknowledgeoftheU-Models,high-lightingthatwhenmarketconditionsarestableandhomogenous,relevantmarketknowledgecanbegainedinotherwaysthanexperience.Similarly,Young(1987)notesspecificallyinrelationtohightechnologyfirms,asfirmslearnfromtheexperienceofothersthat“presumably”someof

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thebarrierstointernationalizationshouldbereduced.Otherstudiesalsoindicatethatexperien-tialknowledgeofotherfirmsmaybegainedwithoutgoingthroughtheexperienceofotherfirms(Erikssonetal.,1997).Petersenetal.(2003)highlightPenrose’s(1959)distinctionbetweenexperientialandobjectiveknowledge—theynotehowobjectiveknowledgecanbeacquiredthroughstandard-isedmethodsinthatmarketresearchcanbeeasilytransferredtoothercountriesandreplicatedbyfirms.BlomstermoandChoi(2003)alsodifferentiatebetweenobjectiveknowledgethatcanbeacquiredthroughtextbooksandmarketingcoursesandexperientialknowledgethatisuniqueandfirmspecific.

Petersenetal.(2003)highlightthatcompaniescanacquirecrucialinternationalknowledgebyrecruitingindividualswithvaluableinternationalknowledgethattheyhavegainedinothercompa-nies.Theysuggestthatthe“BornGlobal”phenomenonispartlyexplainedbyspin-offsofpersonnelfrominternationalcompaniesandthencehaveafasterinternationalizationprocess.Thisideathatinternationalizationknowledgeisacquiredotherthanexperientiallyonafirmbasisisdiscussedfur-therinrelationtoresearchtodateonaccumulatedinternationalizationknowledge(Erikssonetal.,1997).

3.6.Accumulatedinternationalizationknowledge

Bloodgoodetal.(1996)highlightthesimplicityofthestagetheoriesofinternationalizationasanexplanatorycontribution;themoreexperienceafirmhasthebetteritwillbeabletointernationalize.Thisinterpretationallowsforinternationalexperiencetobelocatedwithinindividualsandacquiredbythefirmindifferentwaysandnotjustgainedexperientially.

ResearchbyErikssonetal.(1997)indicatesthataccumulatedinternationalizationexperienceisnotrelatedtospecificcountrymarkets(asassumedinU-Models)butisfirmspecificknowledgerelatedtoallmarkets.ChristensenandJacobsen(1996)intheirstudyofnewlyestablishedinternationalfirmsinDenmark,concludethatfirmshavedifferentroutestointernationalizationbasedonknowledgeacquiredpriortotheformationofthebusiness.Thisiscloselyrelatedtotheroleofthefoundingentrepreneur(s).Theyalsonotethatmarketknowledgeandtheinternationalskillsandexperienceofthefoundermayalsohavebeenobtainedbeforethebirthofthefirm.Similarly,theideathatknowledgecanbeacquiredbyhiringindividualswithvaluableinternationalexperienceissupportedbyBarkemaandVermeulen(1998),ReuberandFischer(1997)andErkkoetal.(2002).

Almeidaetal.(2002)notethatknowledgeaboutinternationalmarketsandtheefficiencybywhichtheknowledgeislearned,areimportantdeterminantsofinternationalgrowthforentrepreneurialfirms.Erikssonetal.haveextensivelyresearcheddifferentaspectsofinternationalizationknowledgeaccumulation—theeffectofvariationonknowledgeaccumulationintheinternationalizationpro-cess(2000),experientialknowledgeandcostintheinternationalizationprocess(1997),theperceivedusefulnessofnetworkexperientialknowledgeintheinternationalizingfirm(2004),andpathdepen-denceandknowledgedevelopmentintheinternationalizationprocess(2000).Eriksson(2000,p.29)andcolleagueshavedefinedthreetypesofinternationalknowledgeasfollows:

•Internationalizationknowledge(IK)—afirm’scapabilityandresourcestoengageininternationaloperations.

•Businessknowledge(BK)—competitivesituationsinspecificmarketsandclientsinthesemarkets.•Institutionalknowledge(NK)—informationaboutgovernancestructuresinspecificcountriesandtheirrules,regulations,normsandvalues.

Inalaterstudy,Erikssonetal.(2000)examinedtheeffectofvariation1inthegeographicalscopeofinternationalbusinessoperationsonexperientialknowledgedevelopmentinthefirm.Thisvari-ationmaycomeintheformofdiversityacrossproducts,clients,technologiesandmarkets.They

Erikssonetal.(2000,p.27)definevariationasthediversityofforeignenvironmentstowhichtheinternationalizingfirmisexposed.

1

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foundthatvariationhadapositiveeffectoninternationalization,inthatfirmsdevelopknowledgeoninternationalizationbybeingexposedtoenvironmentaldiversity.

HadleyandWilson(2003)adaptEriksson’setal.(1997)abovementionedcomponentsofexperientialknowledgetotesttheassociationbetweenexperientialknowledge,firmdegreeofinter-nationalizationandmarketdegreeofinternationalization.TheyusedJohansonandMattson’s(1988)topologyofthenetworkmodelofinternationalization—namelyTheEarlyStarter,TheLateStarter,TheLonelyInternationalandTheInternationalamongothers.SimilarlytoEriksson’setal.(2000),theyfoundthatinternationalizationknowledgeissignificantlyrelatedtothefirm’smarketdiversity.Theyalsohighlightthatforeignbusinessknowledgeisstronglyrelatedtofirminternationaliza-tion.

Insummary,developmentsinourunderstandingofknowledgechallengesomeoftheearlierassumptionsaboutinternationalizationknowledge.Thesedevelopmentsareinrelationtothenatureofknowledge(Erikssonetal.,1997;Petersenetal.,2003;BlomstermoandChoi,2003),thetypesofinter-nationalizationknowledge(Eriksson,1997,2000);andthewaysofacquiringknowledge(Andersen,1993;Erikssonetal.,2000).Therefore,thereisevidencefrommorerecentresearchthatknowledgeplaysadifferentroleintheprocessofinternationalizationthanassumedintheearliermodelsasfollows:

1.Thereisalreadyinternationalizationknowledgeaccumulatedinthecompanythroughindividualfoundersontheformationofthecompany.

2.Differentconstructsofknowledge(IK,BKandNK)areacquiredindifferentways.Theresearchsuggeststhatinternationalizationknowledge(IK)maybegainedexperientially,acquiredthroughthehiringofindividualswithrelevantknowledgeoracquiredthroughinternationalalliances.

3.Someconstructsofknowledge—institutional(IK)aremoreeasilyacquiredthanothers(IKandBK).Themoreinternationalizedtheindustryis,thepotentiallyhigherlevelofinstitutionalknowledge.4.Knowledgeisnotnecessarilyaccumulatedexperientiallyonamarketbasisbutperhapsonanindividual,firmandindustrybasis.Thesechangingassumptionsaboutknowledge,asPetersenetal.(2003)note,partlyexplaintheemergenceofanewphenomenonininternationalization—the“BornGlobal”phenomenon.

4.TheBornGlobalphenomenon

AccordingtoKuemmerle(2002),theimportanceofdoingresearchintothisissueisemphasisedbytheincreasingnumberofstart-upcompanies,particularlyinthehigh-techsectorwhoattemptearlyandrapidinternationalizationstrategies.OviattandMcDougall(1994)highlightthatorganisationswhichareinternationalfrominception,whichtheyhavetermedinternationalnewventures(INVs)areanincreasinglyimportantphenomenon.Researchhasfocusedspecificallyonthischangefromagradualinternationalizationprocesstoamorerapidone,the“BornGlobal”phenomenon—Rennie(1993),McDougalletal.(1994),KnightandCavusgil(1996),MadsenandServais(1997),Erkkoetal.

¨(2000),MoenandServais(2002),ChettyandCampbell-Hunt(2004),KnightandCavusgil(2004).This

acceleratedpaceofinternationalizationisassociatedmostwith“hightechnology,knowledge-basedandserviceintensivefirms”(CovielloandMunro,1997,p.362).Asnotedearlier,KnightandCavusgil(1996,p.11)define“BornGlobals”as“smalltechnologyorientedcompaniesthatoperateininter-nationalmarketsfromtheearliestdaysofestablishment”.Theycharacterisea“BornGlobal”firmassmall(lessthan500employees)andwithanannualturnovertypicallyunder$100million,possessingleadingedgetechnologyanddevelopingproductsfornicheinternationalmarkets.McDougalletal.(1994)usetheterm“internationalnewventures”todescribe“firmsthatareinternationalfromthetimeoftheirformation”(p.470).Theyfurtherdefinetheseasfirmsthatfromtheirinceptionderivetheircompetitiveadvantagefromthesaleoftheiroutputsinmultiplecountries.Theyciteitasarela-tivelynewphenomenonandprimarilyinhigh-techbusiness(butalsobeginningtoemergeinavarietyofindustries).

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The“BornGlobal”phenomenonisarelativelynewphenomenoninInternationalBusinessandasynthesisoftheresearchtodateinthisareaprovidessomeclarityindefiningthe“BornGlobal”firmandunderstandingthekeycharacteristicsofthefirm.Table1providesasummaryofthekeyresearchintothe“BornGlobal”phenomenonto-date.ThisispresentedchronologicallyinTable1,highlightingkeyfocusoftheresearch.

Incontrasttothetraditionalviewofinternationalization,OviattandMcDougall(1994)highlightthatoneofthedefiningfactorsina“BornGlobal”firmistheageofthefirmwhenitinternationalizesandnotthesizeofthefirm.Knightetal.(2004)intheirlaterstudiesof“BornGlobal”firmsinU.S.A.andEuropealsoconcurinrelationtothis.Thefollowinghighlightsthekeyissuesfromtheresearchonthe“BornGlobal”phenomenontodaterelativetotheU-andI-Modelsdescribedearlier.4.1.Changingpaceandprocessofinternationalization

Muchoftheresearchtodatehasfocusedonthechangingpaceofinternationalizationandhow(andwhether)thepatternofinternationalizationhaschangedfromthedominantinternationalizationmodelsfromthe1980s(theU-andI-Models).MadsenandServais(1997)describehowthereisgeneralagreementintheliteraturetodateaboutthefastandimmediatepatternofinternationalizationof“BornGlobal”firms.

OviattandMcDougall(1994)highlightthattheemergenceofinternationalnewventurespresentsa“uniquechallenge”tothestagetheoryofinternationalization.TheydescribehowhistoricallyMNEsemergedfromlarge,maturedomesticfirmsbutsincethelate1980s,casestudiesofINVs/“BornGlob-als”frommultiplecountrieshaveindicatedotherwise.SinceINVshavenoexperiencewithanymarket,OviattandMcDougall(1994)notethatthisfundamentalassumptionofthestagetheoriesisclearlychallenged.Theyconcludethatwithchangesinindustryenvironments,technologyandfirmcapa-bilities–firmsmayskipstagesorinternationalizationmaynotoccurinstagesatall.AfurtherstudybyMcDougalletal.(1994)of24casesofINVsacrossmultiplecountriesfoundthatnoneofthefirmsfollowedanincrementalprocessofinternationalization.OneoftheoldestcasesintheirstudyOxfordInstruments,foundedin1959had50%oftheirrevenuefrominternationaloperationswithinitsfirstyearofexistence.Thisissomewhatdifferenttostudiesnotedabovewhere“BornGlobal”firmswerethoughttobeinexistenceonlyfromthe1990sonwards.Theircasestudiesalsoindicatethatcom-petinginanichehightechnologymarketisakeyfactorindrivingearlyinternationalizationandtheimportanceofmarketsoutsideofthedomesticmarketfrominception.

¨MoenandServais(2002)intheirempiricalstudyacrossthreecountries(France,NorwayandDen-mark)specificallyexaminetheexistenceofagradualdevelopmentofinternationalizationinrelationto“BornGlobal”firms.SimilartoOviattandMcDougall(1994)above,theyhighlighttheimportanceofafirm’syearofestablishmentonexportintensity.Theyfoundthatfirmsthatinternationalizedearlierintheirexistencehadahigherexportintensitythanthosethatdelayedexportinguntillaterintheirexistence.Specifically,thefoundthatfirmsthatinternationalizewithintwoyearsofestablishmenthadasignificantlyhigherexportshare.Theyalsofoundnoevidenceofagradualdevelopmentfrompsychicallyclosetopsychicallydistantmarketsovertime.Thefirmsthatinternationalizedwithintwoyearsofexistencehadagreaterdegreeofexportactivityinmoregeographicallyandpsychicallydistantmarketsandexportedagreaternumberofmarkets.

Thisstudyof“BornGlobal”firms,furtherchallengestheincrementalnatureofinternationalizationevidentinthestagetheoriesandtheroleofpsychicdistanceinmarketselection.Italsohighlightsthesignificanceoffirmsinternationalizingearlyintheexistenceonthelevelofinternationalization.HashaiandAlmor(2004)fromtheirstudyofIsrael-based“BornGlobal”knowledge-intensivefirms,arguethat“BornGlobal”firmsdointernationalizeinstages,albeitnotatthesamepaceortothesamepredictionsofthestagetheories.Theysuggestthatthemaindifferencesintheinternationalizationprocessof“BornGlobal”firmsandtraditionalMNEisinthesizeofthefirm(“BornGlobal”firmsbeingmuchsmaller),theimportanceoftheirhomemarketandtherelativepaceofinternationalization.ChettyandCampbell-Hunt(2004)intheirstudyofNewZealand“BornGlobal”firms,alsohighlightthesignificanceofthehomemarket.Theyhighlightthatthelimitedimportanceofadomesticmarketisrecognisedfrominceptionbythefoundersof“BornGlobal”firmsandtheythereforetargetinternationalmarketswithaperceptionofopportunityratherthanuncertainty.

Table1

Asynthesisofkeyresearchtodateintothe“BornGlobal”phenomenonResearchfocus

Countryfocus

Industryfocus

Author

“BornGlobal”firmprofileAustralia

Highvalue-addmanufacturing

Rennie(1993)

TowardsanewtheoryofINV

TheoreticalfocusonnecessaryconditionsforOviattandMcDougall(1994)INVandtypesofINV

ExplainingtheformationofINV—backgroundof

NewZealand,U.S.A.,Switzerland,U.K.,

Crossindustry

McDougalletal.(1994)

founders,firmmotivesforinternationalizationandCzechoslovakia,Germany,France,Brazil,Israel,thenatureoftheirinternationalactivitiesSingapore

ThechallengeofBornGlobaltotraditionalTheoreticalfocusonthechallengestoexistingKnightandCavusgil(1996)

internationalizationtheories

internationalizationtheory,thefactorsinfluencingaBornGlobalfirmandthecharacteristicsofBornGlobalfirms.StrategicandstructuralcharacteristicsimportanttoU.S.A.

CrossindustryBloodgoodetal.(1996)internationalizationof“highpotential”venturesInternationalizationprocessof“BornGlobals”(aU.S.A.,Australia,Denmark,Switzerland,Crossindustry

MadsenandServais(1997)synthesisofearlierworks)

Sweden,Italy,France“BornGlobal”internationalizationprocessNewZealand

SoftwaretechnologyindustryCovielloandMunro(1997)Factorsinfluencing“BornGlobal”phenomenaSynthesisofcountrystudiestodateCrossindustry

KnightandCavusgil(1996)Impactofinternationaldiversity,modeofentry,U.S.A.

HightechnologyindustriesZahraetal.(2000)technologicallearningandperformanceonINVsPatternandpaceofinternationalizationof“BornNorway,FranceandDenmarkCrossindustryMoen¨andServais(2002)Globals”

Impactoffirmdecision-makerandmarketconditionsNorwayandFranceCrossindustry

Moen¨(2002)onBornGlobalfirms

ManagerialorientedframeworkassessinginfluencesFinlandTechnology-basedfirmsErkkoetal.(2002)

andimpactofBornGlobalstrategies

“BornGlobal”internationalizationattributes

NewZealandCrossindustry

ChettyandCampbell-Hunt(2003)NetworkperspectiveontheinternationalizationofSweden

HightechnologyfirmSharmaandBlomstermo(2003)BornGlobals

InquiryintoBornGlobalfirmsinEuropeanandU.S.A.DenmarkandU.S.A.CrossindustryKnightetal.(2004)

Acomparisonofinternationalizationprocessof

NewZealandCrossindustryChettyandCampbell-Hunt(2004)traditionalinternationalizationand“BornGlobal”Innovation,organisationalcapabilitiesandtheBornU.S.A.Crossindustry

KnightandCavusgil(2004)Globalfirm

GradualapproachofBornGlobals

Israel

Knowledge-intensivefirms

HashaiandAlmor(2004)

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Knightetal.(2004)highlightanumberofwaysinwhich“BornGlobalfirms”challengethetradi-tionalU-andI-Models—inadditiontothosehighlightedabovetheyalsonotehowinitialforeignsellingistomultiplemarketssimultaneouslyandthatduetothenatureofdevelopmentsinICTtechnologies(theInternet),theyareineffect“Bornexporters”.4.2.Psychicdistanceasaguidetomarketselection

Pyschicdistanceisdefinedasthesumoffactorspreventingflowofinformationfromandtothemarket(JohansonandVahlne,1977,p.23).Theycitedifferencesinlanguage,education,business

¨practises,cultureandindustrialdevelopment.StottingerBarbaraandSchlegelmilch(2000)notethat

theconceptofpsychicdistanceisbasedonassumptionsthatmanagersarelesslikelytopursuebusinesswithcountriesperceivedtobedissimilar.

ChettyandCampbell-Hunt(2004)describetwooppositeviewsoftheroleofpsychicdistanceinthetraditionalinternationalizationand“BornGlobal”approaches.Thetraditionalapproachassumesthatthefirmentersnewmarketsasafunctionofpsychicdistancetothefirm.The“BornGlobal”approachassumespsychicdistancehasbecomeirrelevantintheinternationalizationprocess,andthattheinternationalizationdoesnotfollowthesestepsbutenteringmultipleglobalmarketssimul-taneously.

¨InMoen’s(2002)studyofNorwegiannewlyestablishedfirms,hefoundthatthemostimportant

marketsfor“BornGlobal”firmsweretheU.S.A.,Italy,TheNetherlands,Brazil,Germany,SwedenandnototherNordiccountries(countriesmostgeographicallyandculturallysimilar).MadsenandServais(1997,p.5)alsohighlightthatfor“BornGlobal”firms,thefirmdomesticmarketisnolongerasimportant“alearningplace”asearlierstudiesindicate.

Theyfoundthatnewlyestablishedfirmswithlessexportinvolvement(than“BornGlobal”firms)consideredtheNordiccountriestobetheirmostimportantnetworkmarket.Theyfoundthat“BornGlobal”firmstendedtobeinhighlyinternationalizedindustriesandthatspecificallyinrelationtocomputersoftwarefirms,somefirmsdidnothaveanydomesticmarketinNorway.ThischallengesthestagesofinternationalizationasdepictedintheU-andI-Modelsandalsothechainofestablishmentprocessofinternationalization.

InMadsenandServais(1997)analysisofvariouscasestudiesoftheinternationalizationof“BornGobals”,theynotethat“BornGlobal”firmsdonotchoosegeographicalmarketsaccordingtophysicalorpsychicdistanceincontrasttotraditionalmodelsofinternationalization.Theyhighlightotherfac-torsevidentacrosscasestudies—followershipofleadcustomers(Cochlearcasestudy)andnetworkcontactsofthefounder(MKElectronicscasestudy).Theydifferentiate“hightechBornGlobals”whichtheydescribeasattractedto“leadmarketstoaccessleadcustomersaswellasleadingedgetechnology”(1997,p.577).HashaiandAlmor(2004)whilealsonotingthedistinguishingfeatureof“BornGlobal”firmsastargetingmarketsfornewlydevelopedtechnology,arguethattheyfirsttargetpsychicallyclosemarketswhichareperceivedlessrisky.Theydescribeasequenceofhowfirmstargetpsychi-callyclosemarketsbeforepsychicallydistantmarketsinagradualpattern.SharmaandBlomstermo(2003)intheirworkonthenetworkviewoftheinternationalizationprocessof“BornGlobals”suggestthatthechoiceofmarketsaswellastheforeignmarketentrymodeof“BornGlobals”isinfluencedbythestockofknowledgeheldbythefirm.Thisstockofinternationalknowledgeonmarketsandcustomersisdevelopedfromnetworklinkagesandthereforereducestheriskinvolvedininternation-alization.ChettyandCampbell-Hunt(2004)alsonotethat“BornGlobals”benefitfrommarketandexperientialknowledgeofnetworksinsteadofhavingtoaccumulatethisknowledgeexperientiallythemselves.

Itcouldbearguedthatmarketsareperceivedtobeclosepsychicallyandlessriskyduetoexperience,knowledgeandlinkageswiththemarket.ThisviewisalsosupportedbyChettyandCampbell-Hunt(2004,p.62)astheynotehow“priorknowledgeandworkexperiencereducepsychicdistancetospecificmarket”.Theyalsohighlightas“BornGlobals”beginwithalevelofinternationalizationknowledge,theyarebetterabletoaccumulatenewknowledgeaboutinternationalization.Knightetal.(2004)alsoemphasisethatmanagersin“BornGlobal”firmsexperiencefewerinfrastructuralandmentalbarriersintheinternationalizationprocessandarehighlyentrepreneurialwithaglobalstrategicoutlook.

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Researchtodateonthe“BornGlobal”phenomenonhasnotindicatedacompleteirrelevanceofpsychicdistance,butneitherdoesitsuggestthatmarketselectionisafunctionofpsychicdistance.Theroleofpsychicdistanceasacceptedandpresentedintheresearchtodateinthisareaisoneofguidingmarketselectiondecisions.However,insteadofpresentingtheroleofpsychicdistanceasonewhichexplicitlyguidesmarketselection,aviewofpsychicdistanceemergesasoneinwhichaccumulatedinternationalizationknowledgeisimplicitintheirdecisionmakingaboutinternationalmarkets.Otherfirmandcontextual(industryandlocational)factorsmayalsoinfluencethemarketselectiondecisionaswellasthisaccumulatedinternationalizationknowledge.Thesedecisionsarenotjustinrelationtomarketselectionbutalsomodeofentry,timingandlevelallofwhichcomprisethefirm’sinternationalizationpatternandlevel.

Duetothenewnessandlackofdefinitionaroundthe“BornGlobal”phenomenonasaresearcharea,therearedisparateopinionsaboutthecharacteristicsofthephenomenon(MadsenandServais,1997).Theroleofknowledgeatfirmlevelemergesasoneofthekeydifferencesinthe“BornGlobal”internationalizationprocessasopposedtothetraditionalinternationalizationmod-elsreviewedearlier.Thisencompassestheimportanceofpsychicdistanceandtheaccumulatedinternationalknowledgeofthefoundersandmanagersininternationalizationprocessandmarketselection.

4.3.Theroleofknowledge

Erkkoetal.(2000)highlightedthatknowledgeplaysanimportantroleinboththeprocesstheoryofinternationalizationand“thenewventure”/“BornGlobal”theoryofinternationalization.Petersenetal.(2003)notethatduetoongoingglobalisation,firmsareinternationalizingfasterbutthat“empir-icalevidenceislacking”tosupportthis.PetersenandPedersen(1999)intheirempiricalstudyofDanishfirmssuggestthatfasterinternationalizationmaybetheresultofglobalisationofindustries.Globalmarketstendtorequirelittlelocaladaptationandthereforeonecouldarguethattheythenrequirelimitedinternationalizationknowledge.Despitethelackofempiricalevidenceinrelationtothe“BornGlobal”phenomenon,itispossibletodrawsomeinsightsfromtheresearchtodateinthisarea:

•Thereisevidenceofanincreasedpaceofinternationalizationinknowledge-intensiveindustries.

•Internationalizationknowledgeispotentiallylessofabarrieringlobalindustriesandthereforeaffordsafasterinternationalizationprocess.

•Knowledge-intensiveproductsandservicestendtohavehighcostsup-frontandlow(orzero)marginalcosts.Thehighlevelofintangibleassetsmaydrivetheneedformarketaccessquickerandchangestheincrementalnatureofinternationalization.

•DevelopmentsininformationtechnologyandtheadventoftheInternetmaycontributetolowercostsininternationalizationparticularlywhereknowledgeisthesubjectoftheexchange.Knightetal.(2004)describeadvancesinICTandparticularlytheuseofInternetsalesas“animportantfacilitatingfactor”intheemergenceofthe“BornGlobal”phenomenon(2004,p.659).

Thisleadsustoseeadifferentroleofknowledge,notasabarriertotheinternationalizationprocessofthefirmasintheU-andIModelsabove,butasadriverofanacceleratedinternationalizationprocessinthemorerecent“BornGlobal”approachabove.

Fig.1summarisessomeoftheknowledgerelatedissuesunderpinningtheU-andI-Modelsandwhatemergesfromsomeoftheresearchinthisareaastheinter-relatedfactorsfuellingthecurrentinterna-tionalizationprocess.Whiletheearliermodels(U-andI-Models)haveviewedknowledgeasbarriertointernationalizationinthatacquiringmarketknowledgeorthefirmdevelopingknowledgeasaninno-vativeprocess,influencestheinternationalizationprocessinanincrementalway.Ontheotherhandthe“BornGlobal”phenomenonisbeingdrivenbyknowledgeinthatitislargelypresentinknowledge-basedindustriesandcompetitiveR&Dlevelsaredrivingafasterandearlierinternationalizationprocess.

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Fig.1.Theroleofknowledgeininternationalization.

4.4.Knowledgeintensity

Brush(1995)highlightshowmorerecentlyestablishedfirmsaremovingintointernationalmarketsearlyintheirlifecycles.Henoteshowthesefirmsachievegrowthandpositivereturnsbycapitalisingonthecreationandexploitationofknowledge.Erikssonetal.(2000)arguethattheclosertherelationbetweenforeignenvironmentandafirm’sstockofknowledge,themoreapplicabletheknowledgewillbeabroadandthereforethemorerapidtheinternationalizationoffirms.Theyhighlighttheimpor-tanceoftakingtheinitialknowledgebaseofthefirmintoconsiderationwhenstudyingfirmsthatinternationalizefromtheoutset.

TheR&Dintensityofhightechnologysectorsismuchcitedintheliterature(Young,1987;BarkemaandVermeulen,1998)asoneofthekeyfactorsacceleratinginternationalization.KaragozogluandLindel(1998)intheirstudyofsmalltechnologycompaniesintheU.S.,foundthattheopportunitiesinforeignmarketsandfollowinginquiriesfromforeignbuyerswerethekeymotivesforsmallU.S.technologyfirmstointernationalize.TheyalsofoundintheirstudythatthethirdmostimportantreasonfortheU.S.companieswasthesizeofthedomesticmarkettosustaincompetitivelevelsofR&D,whichtheydefineas35%ofexpenditure.Erkkoetal.(2000)intheirstudyofFinnishelec-tronicsindustryfoundthathighknowledgeintensityispositivelyassociatedwithfasterinternationalgrowth.Theysuggestthatgreaterknowledgeintensityrequiresgreaterintensityofeffortbythefirmandthereforemorefullyembedsforeignorganisingknowledgeinafirm.PrashanthamandBerry(2004)describehowknowledge-intensivefirmshaveapropensitytobe“BornGlobal”(theynotethat“knowledge-intensive”firmasatermhassupersededtheterms“high-technologyfirm”and“technology-basedfirm”instudiesaboutsoftwarefirms(2004,p.51).Knowledgeintensityisseenasoneoffourkeyinfluencesontheinternationalizationofthesefirms—theirsmallsize,theenviron-mentandtheentrepreneurbeingtheotherthree.However,PrashanthamandBerry(2004)alsonotethatthesefourinfluencesare“moderatedbynetworkrelationships”(p.1).Theyciteevidencefromtheliteratureinthisareathatnetworkrelationshipshavebeenfoundtoacceleratetheinternation-alizationofsmall(theydefinesmallasfirmswithfewerthan100employees)knowledge-intensivefirms.

4.5.Knowledgeaccumulation

Fig.2illustratestheroleofknowledgeemergingfromtheresearchtodateintotheinternational-izationof“BornGlobal”firms.Recentresearchonfirminternationalizationindicatesanearlyandfastinternationalizationprocess.Itisparticularlyevident,althoughnotconfinedto,knowledge-intensivefirms.IthasbeenmuchcitedintheliteratureinthisareathatahighlevelofR&D(percentageofrevenuespentonR&Dbeingacommonmeasureofknowledgeintensity)contributestoafasterinternationalizationprocess.

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Fig.2.Theroleofknowledgeinthe“BornGlobal”phenomenon.

Theaccumulatedinternationalexperienceofthefirmiscentraltoits’internationalization.Thisknowledgeisaccumulatedinmanyways—throughits’founderspriortotheformationofthefirm,throughitsrecruitmentofindividualswithinternationalexperienceandwiththeleverageofinstitu-tionalsupport.

Anewpatternofinternationalizationhasemerged,oneinwhichfirmknowledgeiscriticaltotheinternationalizationprocess.Firmknowledgeencompassesknowledgeintensityandinternationaliza-tionknowledgeaccumulationwhichinfluencetheinternationalizationprocessandpattern.Insteadofpresentingtheroleofpsychicdistanceasonewhichexplicitlyguidesmarketselection(aspre-sentedintheprocessmodels),aviewofpsychicdistanceemergesasoneinwhichaccumulatedinternationalizationknowledgeisimplicitinthefirm’sdecisionmakingaboutinternationalmarkets.5.Conclusion

BlomstermoandChoi(2003)haveanalysedtheinternationalizationprocessmodelsbyanumberofdimensions,oneofthesebeingtheinternalstimuliofthefirmmotivatinginternationalization.Theydescribehowthesestimuli“canincludeadesiretoexploitmarketingortechnologicaladvantageortoofferauniqueproduct”(2003,p.21).Theyviewthelaterinnovation-relatedmodelsofCzinkota(1982)andReid(1981)ashavingaproactiveapproachtointernationalization.The“BornGlobal”approachtointernationalizationmayalsobeviewedasaproactiveapproachassociatedwithinternalstimuliforinnovation,drivenbytheirtechnologicaladvantagetypicallyinaglobalnichemarket.

Asnotedearliermuchoftheresearchinto“BornGlobal”knowledge-intensiveorhightechnologyfirms,focusesonacomparisonwithmoretraditionalincrementalinternationalizationprocess.Thetwoextremeviewsontheunderlyingassumptionsoftheearlierinternationalizationmodels(U-andI-Models)andtheinternationalizationof“BornGlobal”firms—particularlyinrelationtotheroleofpsychicdistanceisnotevidentconsistentlythroughouttheliterature.AsnotedbyBell(1995)whilethequantitativedatasupportsthenotionofpsychicdistance,thequalitativedataindicatedthatthisdidnotguideinternationalizationdecisionmakinginthesefirms.Referringtothediscussionearlierinthispaperonhowourunderstandingofthetypesofknowledge,thenatureofknowledgeandknowledgeacquisitionhasdeveloped;theperceptionofpsychicdistancemaybemoreimplicitthanexplicitindecision-making.Theaccumulatedinternationalizationexperienceoftheindividualandthereforethefirm,togetherwiththeknowledgeintegrationofinternationalnetworkrelationshipsclearlyinfluencesthepatternandpaceofinternationalization.Fromtheliteraturereviewedinthispaper,theknowledgeintensityofthefirmisseenasoneofthekeydriversofinternationalization;relatedtothisisthenatureofdemandinthedomesticmarketforhightechnologynicheproductsandglobalindustrytrends.

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