As anticipated in our previous post, Born Globals face many challenges and have to find solutions to execute the internationalization process. Even though there are no definitive studies analyzing this process in depth, we can identify five major challenges that these firms face when entering foreign markets. Let’s find out what they are:
1. Lack of financial assets
The ability to attract local and international funding or otherwise fund growth is essential to starting up and growing as a company. At the beginning, most investments are done by founders, family and friends, or ex colleagues acting as business angels. Nevertheless, in the long run, startups must seek other investments from external entities such as the government, universities, technology transfer, public or private incubators, accelerators, VCs, angel investors and banks, all of them coming with different expectations regarding management control and internationalization constraints. Furthermore, stretching the company across borders increases, often dramatically, the financial needs of a firm to achieve certain milestones as compared to the same needs if it stayed in its home market.
2. Lack of human capital
Another relevant issue for Born Globals can be the lack of human capital i.e. the lack of people with the right internationalization skills. This may become a serious restriction to the international expansion capabilities of many firms. As founders may not have all the people and skills they need at the start of the business, they must build the essential knowledge capital that all successful internationalizing firms possess. Since human resources have become increasingly available and mobile and people are fluent in several languages, it has become easier to find qualified personnel.
3. Lack of knowledge
Managerial knowledge and market-specific knowledge are the key to sustainable and durable success. Thus, if a firm does not possess them, it has to find a way to acquire these competencies: the faster the learning process is, the faster they can grow. Managerial knowledge corresponds to the ability to monitor international activity and to its own organizational coordination of capabilities, like R&D investment, team management and financial capital management. The lack of these skills could make the difference between success and failure when entering a foreign market. That does not mean that founders with no previous international work or export or managerial experience cannot be successful, as long as they develop a system to rapidly acquire the right knowledge.
4. Creating competitive advantage
The future of the Born Global firm may depend on the challenge of creating appealing products and generating consumer awareness, overcoming the liability of newness and finally sustaining their competitive advantage. Many factors contribute: keeping learning and innovating with costly R&D investments, upgrading products, developing new ones, adapting products to new foreign markets. Especially when competition starts getting tough, these are the keys for a stronger domestic and international network, because it can help find solutions for their problems, from product development and innovation, to finding new investors and new opportunities, to seeking and finding help and information on markets.
5. Lack of Control
One of the biggest dilemma regarding control during rapid growth is whether to have direct sale and full control of the distribution channels. Indeed, leveraging larger partners and other distributors comes with some loss of control, in favor of more rapid growth. As introduced by Soldberg with “The Born Global dilemma”, this can lead to two extreme situations:
- If the firm tries to control its channels, with limited financial and managerial resources, it will “hit the wall”; whereas, if the control is left to partners, it will lose touch with the market and its learning capabilities, failing as an independent firm.
- If it does not try to enter new markets, it will lose great windows of opportunity and will be faster overcome by other Born Globals. On the other hand, if it leaves everything under the partners’ control, it will end up being acquired or sent out of the market.
To know where a firm actually is and where it’s heading, it’s really important to help managers, consultants and investors to be alert and informed in order to prepare the firms to overcome future challenges and prosper.
This is why integration between the life cycle of the Born Global firms and the challenges they face in entering foreign markets provides a good model that identifies ways for Born Globals to overcome those challenges and become successful global players.
The FireMatter Views research survey was carried out to understand what these small high tech companies from all around the world are facing when entering the US market and how they are solving their internationalization challenges at such an early life stage.
Image by Flickr/Alan Stark — CC