Born Globals: internationalization strategies and life cycle
After a first look at Born Globals and the way startups grow and enter the international market, our mini-series takes a step forward by analyzing the factors influencing the internationalization process and a possible framework for the internationalization process.
Internationalization: the traditional models
To better understand how companies follow the general pattern in international activities, we will need to go back to some traditional models. Among the most interesting, the “Uppsala internationalization process model” represents a good starting point.
The fundamental tenet of traditional models is that companies start internationalizing only at a mature stage due to increased competition, and only once the firm has matured and consolidated its market knowledge. According to the Uppsala model, starting from no international activity at all, companies first start exporting via agents, then by creating subsidiaries, and finally reach the highest commitment level in setting production and manufacturing in other countries, starting from the ones that are geographically and culturally closer.
But can we identify a key factor influencing the whole process? Evidence has proven that a gradual experience-based knowledge of the foreign market helped firms detect opportunities and mitigate risks.
At the same time, various case studies have shown the opposite trend, which makes is difficult to identify a clear-cut single path to internationalization for all Born Globals. Whether the commitment to the new market it low or high, the company’s journey does not follow a progressive and logical sequence, but it is based instead on market potential and concentration, industry trends and characteristics.
What enables a Born Global to become international
In this perspective, a Born Global can be considered international in multiple aspects and functions, based on the type of foreign activity it undertakes: direct sales in international markets, foreign sales via intermediaries, strong partnerships with multinational companies or local consulting companies, licensing and franchising agreements, joint ventures, sales subsidiaries, headquarters and/or R&D and/or overseas production or even investment rounds coming from different countries.
The main common aspect of these different internationalization strategies is the intent to learn about the market by taking some degree of experience-producing business action, rather than accumulating knowledge from afar. Indeed, a management team’s experience and networks, investors, board members, incubators and other organizations can provide many practical learning opportunities that lead to early and rapid internationalization.
A standard path in the internationalization process?
As a few studies tried to identify and describe the life cycle of Born Globals. We can essentially boil down this body of research by saying that — before reaching maturity — they have to go through three or four main phases:
- The introductory phase: the product is still under development and the company is set on achieving rapid growth and financial outcomes. By leveraging relationships, building channels and networks internationally — since it cannot afford to wait for a slow organizational learning process before entering foreign markets — the company basically enters via direct entrepreneurial action, with a focus on international sales usually through partners, but also establishing its own sales subsidiaries.
- Resource and knowledge accumulation phase: the company, after a fast entry based on incomplete knowledge of the target market, starts accumulating local assets and develop a “playbook”. In this phase, success is a combination of both the unique characteristics of its products and services and the firm’s ability to absorb and process all the information it is acquiring through its networks into its own organizational knowledge and capabilities, making the internationalization process core to the company’s activities.
- The independence decision phase: only after these phases, the Born Global firm has to decide whether it wants to become an integral part of its local network and lose its independence or survive on its own. The firm is also now prepped to further penetrate potential markets, reducing dependence on network partners and establishing more subsidiaries.
Interestingly, for the most part, research shows that progression through the various phases is typically very rapid. Sometimes phases could also vary depending on the context, showing the dynamic nature of the internationalization process and the importance of global vision and of actively discovering and building networks as natural drivers of the internationalization process.
Once the early stage is over, Born Globals must face many challenges whose solutions will allow them to bring the internationalization process to completion. We’ll discuss this turning point in the next post.
Image by Flickr/Joseph De Palma — CC