Internationalization through network relations – Network Perspective - Assignment Example

The network perspective focuses on international market entry through network relations (Lu & Beamish, 2001). As seen in the previous section, the revised Uppsala model also shows the importance of networks for the internationalisation. Johanson and Vahlne (1990) are of the opinion that new ventures without sufficient networks have extreme disadvantages on the way to enter a market abroad. According to Dunning (1995), the extreme focus on networks is due to the increasing independence of companies, countries and markets. In comparison to the Uppsala model, the reason for the internationalization of companies lies in the multitude of network relationships instead of in an incremental internationalization (Coviello & Munro, 1997). According to Coviello (2006), a larger network helps the company to internationalize more quickly and derive more benefits from it.

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According to Johanson and Mattsson (1988) the network relations can be with customers, suppliers, distributors, government as well as with competitors.

Granovertter (1985) describes this type of relationship as business networks, but notes that they are weak ties because due to the fact that they are less personal and more functional. On the other hand, however and especially extremely important for entrepreneurs in the initial phase, are the strong informal networks, such as family and friends (Hayer & Ibeh, 2006). This is also evident in the internationalization of Kiva, in which the founder initially relied on financial support from the family and friends which acted as the first donor for the occasional small global aid projects.

Nevertheless, the weak ties are the more useful ones as they provide access to new knowledge, information and possibilities (Granovetter, 1985). The various possibilities and types of weak ties range from strategic alliances, exporting and joint ventures to licensing. Senz Umbrella also considered licensing SENZ Original and SENZ Mini to take advantage of the low development costs and risks.

Similar to the Uppsala model, knowledge plays an important role in the network perspective. In the context of market development, networks can provide newly founded small firms with important information about international markets (Blomstermo & Sharma 2003; Hite, 2005). The advantage of the network perspective is easier access to market knowledge, information and resources (Bell et al. 2003). Furthermore, important exchange relationships can develop within the network, which facilitates internationalisation for small firms and can represent competitive advantages (Oviatt & McDougall, 1994).

In addition to the advantages of the network perspective, the internationalization through network relations has also some limitations (Lu & Beamish, 2001; Chetty & Campell-Hunt, 2003). Thus, for example, the dependency of small firms on dominant network partners and the associated lack of opportunities for the further development of foreign activities outside the network relationship is one of the risk (Chetty & Campell-Hunt, 2003). Moreover, small firms usually have few resources available, which limit the number of potential network engagements (Chetty & Campell-Hunt 2003). According to Fink and Kraus (2007), mutual trust between the network partners is therefore an essential prerequisite for realizing network benefits. Ideally, companies test the weak ties in advance to minimize risks and find the right people (Johanson & Vahlne, 2009).

Kiva\’s internationalization also shows how important trust in its network partners is and how easily trust can be abused. For example, a partner of the company (co-founder and pastor in Uganda) used the trust to his financial advantage. According to Tenzer et al. (2014) proximity and similarities between network partners promote trust. Which is why Child et al. (2009) see psychic distance as a disruptive factor in international cooperation. Language barriers and cultural misunderstandings are examples that can affect the building and development of trust (Tenzer et al. 2014).

As mentioned above the network perspective assumes that access to an international network can accelerate internationalization and helps to overcome market entry barriers faster (Chetty & Campbell-Hunt, 2004; Freeman & Reid, 2006). This contradicts the model of Johanson and Vahlne (Morschett, 2010). It also shows that especially the newer approaches in the literature see the speed of internationalisation as a central aspect (Chetty & Campbell-Hunt 2004; Zhou et al. 2007).

Oviatt and McDougall (2005) have summarized the main forces that influence the speed of internationalization in their model \”A Model of Forces Influencing Internationalisation Speed\”. In addition to “technology” and “competitors”, the forces already discussed, such as \”knowledge\” and \”network relations\”, play an important role (Oviatt & McDougall, 2005). Freeman et al. (2006) indirectly complement the model by arguing that owning a unique technology which offers a competitive advantage also accelerates the internationalization of small firms. Due to the unique technology of SENZ umbrella, international attention could be created within a short time. With a resulting increase in sales, the entrepreneurs started to consider shortly how they could enter the US market.

The born global theory approach which will be described in the following paragraph also sees international networks as a major success factor for internationalisation (Bell et al, 2001; Chetty/Campbell-Hunt, 2004). In addition, the new theoretical approach takes up another force of Oviatt and McDougall´s model (2005), “the entrepreneurial actor”, which is also described as an important factor for the dynamics of international orientation (Oviatt et al. 2004).

Global mind-set from inception – Born Global

Today, international entrepreneurship is mainly connected to the born global approach (McDougall & Oviatt, 2003). While the network perspective looks at the internationalization of small firms that are already established, the theoretical studies on born global focus on international new ventures that operate from inception in international markets (Oviatt & McDougall, 1994; Lu & Beamish, 2001).

Hashai (2011) rightly points out that born global companies are not actually born globally, but instead they start their internationalization right from the beginning by aligning their geographical activities abroad. Compared to the two approaches described above, born global companies develop international strategies much earlier (Knight & Cavusgil, 2004). Another difference is that knowledge is not context-specific, but can also be transferred to other situations, companies and partly countries (Freeman et al. 2010).

With regard to the beginning of internationalization and the decisive success factor, different opinions in the literature exist (Coviello, 2015). The start of the internationalization process of born globals is not driven towards one goal, as the Uppsala model provides for. According to Andersson (2011) entrepreneurs start with existing knowledge and networks to open up new opportunities.

Nevertheless, knowledge alone is not enough to start the operation internationally, which is why Freeman and Cavusgil (2007) also highlight the importance of network relationships for born global firms to compensate the lack of experience. It is also interesting to note that, unlike the Uppsala model, the choice of markets is not a question of psychic distance but only of better market potential (Andersson & Wictor, 2003). In addition to market potential, a key factor influencing the selection of markets is whether network relationships exist in the countries or not (Arenius, 2005; Coviello & Munro, 1995).

Due to the limited opportunities in the start-up phase, new ventures often fall back on existing networks (strong ties) and try to expand them in the further course of internationalisation (Chetty & Campell-Hunt, 2004). Findings from the entrepreneurship literature also indicate that the networks of young companies begin as social ties (inner circle) and then develop into economic ties (outer circle) (Hite & Hesterly, 2001; Granovetter, 1973). Nevertheless, Conviello and Munro (1997) mention that network relations are usually not the reason for the beginning of internationalization, but they definitely accelerate it.

Instead, several approaches in the literature see the decisive success factor and the driven force in internationalization in the person of the entrepreneur (Madsen & Servais, 1997; Oviatt & Mc Dougall, 1995). According to this, a successful founder requires special skills in foreign markets, language and a global vision and orientation (Holtbrügge and Wessely, 2007). Madsen and Servais (1997) assume that the entrepreneur\’s background of experience and knowledge play a decisive role in the start of internationalisation. The study by Harveston et al. (2000) also shows that born global is mostly led by people who are more open to the international environment and who have already gained experience abroad.

Therefore, in born global theory, the psychic distance is considered a lesser problematic, since international experience changes the perception of the psychic distance of the entrepreneur (Crick & Jones, 2000). A good example of this is the founder of Kiva, who spent several months abroad before she started with the internationalisation of her start-up. Furthermore, the born global approach assumes that there are differences in the entrepreneurs\’ willingness to take risks. Means that not only individual prior knowledge is a reason for the rapid internationalisation, but also a higher willingness of entrepreneurs to take risks (Pedersen et al. 2003).

The special feature of born global entrepreneurs is that they enter new markets that are difficult to predict. Sarasvathy\’s effectuation model (2001) explains entrepreneurial action by showing that founders are concerned with the environment and try to engage in sensemaking (Rasmussen et al., 2001). This enables entrepreneurs to identify opportunities for their company that others would not see (Andersson, 2011). According to Sarasvathy (2001), effectuation is particularly helpful where human action plays a special role, as in the case of the internationalization of new ventures.

Thus, similar to effectuation theory, the entrepreneur is confronted with uncertainty about the new markets, especially in the early phase (Sarasvathy, 2001). The reason for this is that the company is not yet active on the market and is still developing its network relationships. The great scope for design at the beginning of international activities is also similar to the view of the effectuation model (Andersson, 2011). As mentioned above the entrepreneur starts with one set of alternatives that can end in many different ways. The founder is obliged to use the available resources to shape the future of the company and to balance the decision between available resources and affordable loses (Sarasvathy, 2001).

ven if the born global theory can best describe the internationalization of newly founded firms, Johanson and Martín (2015) note that so far there are only few empirical studies about disadvantages and the following steps. Keupp and Gassmann (2009) add that the multitude of areas to consider and the spectrum of perspectives within born global theory make the clear representation of the phenomenon complex, why several studies mention the need for further research in this topic (Rialp et al., 2005; Chetty & Campbell-Hunt, 2004).