Why is internationalization important for startups?
A key principle when creating new companies nowadays is to think global.
While many startup founders know that thinking global and expanding internationally is important, the underlying reasons might not be so clear-cut. What are the mechanisms through which internationalization helps a company improve its economic performance? What are the specific gains from expanding your company abroad?
In a paper titled “The role of internationalization in explaining innovation performance”, the authors suggest that the way internationalization impacts economic performance is closely related to innovation.
So, how is innovation affected by internationalization?
According to the authors, there are 2 groups of factors through which internationalization may improve economic performance:
- Factors that increase a firm’s capacity to innovate — or innovative capacity — and;
- Factors that allow a firm to better exploit its technological developments, being able to protect and appropriate the fruits of innovation.
Many factors which increase a firm’s innovative capacity are positively affected by a higher degree of internationalization. Multiple authors (check out the paper’s bibliography) have pointed out that more internationalized firms may generally:
- Use country-specific advantages.
- Hire better and diverse technical talent.
- Access a wider range of resources available globally.
- Borrow and exploit new ideas, imitate other firms’ developments, and integrate new research findings in products and processes.
- Make contacts and establish alliances with local suppliers, universities, research centers, and competitors.
- Adapt technology to local markets, thereby improving responsiveness and technical support, and engaging in local scientific cooperation.
- Improve the quality of new products thanks to the flow of information about the changing needs and requirements of customers.
Likewise, many factors which improve a firm’s ability to exploit its technological developments are also positively affected by a higher degree of internationalization. Again, several authors have written about how more internationalized firms may be able to:
- Recognize and react to foreign customer demands.
- Avoid fluctuations and business cycles specific to a single market/region.
- Charge higher prices and offer products to a bigger number of potential clients, hence covering better the costs associated with innovation.
- Create international alliances to get access to complementary assets — which determine who benefits and loses from innovation.
- Benefit from economies of scale lowering production costs and increasing performance.
In conclusion, the authors find that firms with a higher degree of internationalization are able to innovate more, as well as protect and exploit better those innovations. This, in turn, allows them to outperform less international competitors, therefore improving their market reach and, ultimately, their economic performance.
Having worked with over 45 international startups throughout 4 program editions, at Dat Ventures we’ve seen how some member companies have benefitted from their internationalization efforts through some of the above-mentioned mechanisms:
- Hiring technical talent.
- Approaching a wider pool of resources (such as venture capital).
- Building strategic alliances with local partners such as universities, research centers, and competitors.
- Making contacts and creating Boards of US Advisors.
- Borrowing and exploiting new ideas to pivot on their initial idea/product.
In spite of all the benefits of internationalization, going global is not easy. Timing and who you choose as strategic partners is crucial.
From Dat Ventures we recommend all startups to think global from day one, but act local, and take advantage of the increasing number of resources available locally nowadays. When the moment is right to make the jump, get in touch with us if you think the US might be your target market!
Dat Ventures holds virtual office hours every week. Feel free to schedule a time to gauge your business’ preparedness for the US market and learn about Boston’s startup ecosystem!
About Dat Ventures
Founded in 2014, Dat Ventures delivers a 3-month soft-landing accelerator program for international startups in Boston. Dat Ventures connects founders abroad with local US resources to build teams, adapt businesses, and engage with potential customers and investors. Dat Ventures’ mission is to be the gateway for international startups to enter the United States via Boston, while helping generate an economic and cultural impact in their countries of origin.
