Born Global and Gradual Internationalization

Topics: Empiricism, Empirical, International trade Pages: 5 (1635 words) Published: March 18, 2012
In traditional models, firm internationalization is seen as a gradual process of capability build-up by which firms slowly accumulate the resources necessary to face foreign market uncertainty (Eriksson, Johanson, Majkgard, & Sharma, 1997). These models assume that firms grow in their domestic markets before they start to export extensively. This is supposedly so because there is a learning process involved in facing unknown markets, and such a process requires knowledge and resources to face and overcome uncertain outcomes and costly investments. Knowledge and resources are progressively acquired through experience, first in known domestic markets and then in larger foreign markets (for a review see Leonidou & Katsikeas, 1996). Much literature has documented this liability of foreignness, or the cost faced by firms that operate abroad, and the need for companies to create capabilities in foreign markets (Mezias, 2002; Zaheer, 1995; Zaheer & Mosakowski, 1997). Conventional models of internationalization have drawn criticism (Andersen, 1993; McDougall, Shane, & Oviatt, 1994; Turnbull, 1987). There is empirical evidence that shows the existence of small, young firms, endowed with very limited resources, which begin to export immediately after their foundation. For instance, Moen and Servais (2002) reported, for a sample of Norwegian, French, and Danish firms, the existence of many companies exporting a large share of their total sales shortly after their establishment. Such empirical evidence suggests that the Uppsala model is not the only possible way to describe the firm internationalization processes. Turnbull (1987) criticizes the determinism inherent in stage-based models, and argues against the notion that all firms, regardless of industry type, country context, or other variables, must inevitably follow a fixed route to become international. Other authors (Chadee & Mattsson, 1998; Erramilli & Rao, 1993; O'Farrell, Wood, & Zheng, 1998) contend that the internationalization process is not equally complex and costly in all industries. In industries where trade barriers, fixed investment, and transportation costs are low, such as services, internationalization may be less costly in terms of monetary and organizational resources. The born global argument essentially states that firm internationalization does not have to go through the progressive accumulation of resources and capabilities. It posits that firms can start exporting from the moment they are created, and it asserts that firms are capable of penetrating markets that are far away, both geographically or “psychically” (on account of their different cultural and language traits), despite having limited resources and little accumulated organizational learning. The definition of a born-global firm was coined by McKinsey & Co. in a report that analyzed a sample of Australian exporting firms (McKinsey & Co., 1993). It was used to describe firms that, apparently, had undergone faster processes of internationalization than would have been expected for firms of similar size, age, and nature. It was thus proposed that these firms were born globals. Cavusgil (1994), and also Knight and Cavusgil (1996), elaborated McKinsey & Co.'s empirical observation to argue against traditional models of internationalization. Cavusgil (1994: 18) went as far as to state that “gradual internationalization is dead.” These claims sparked an academic debate revolving around different theories of internationalization. Since then several authors (Collis, 1991; Knight & Cavusgil, 2004; Madsen & Servais, 1997; McDougall et al., 1994; Oviatt & McDougall, 1994) have attempted to provide a theoretical foundation for these empirical observations. The theory has focused on establishing the antecedents of such firm behavior. One research stream argues that the born global phenomenon will be most prevalent in knowledge-intensive firms, such as those that make software or information technology products....
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