The Barcelona factory was supposed to serve as a nearby manufacturing base for western European markets, while Nitra, due to its geographical location, could focus on central and eastern European markets. The Barcelona site also operated as the European technology center for Sony’s LCD TV assembly. The Nitra factory would make use of its state-of-the-art equipment to concentrate mainly on large-size, high-end Bravia LCD sets for the common European market (Sony, 2006c). As Katsumi Ihara, corporate executive officer of Sony Corporation, commented, ‘Following our ten-year experience producing television sets in Trnava, Slovakia, we are very pleased to officially announce the foundation of a brand new factory in Nitra. This will allow us to expand our LCD television set business in Europe. We are convinced that the new plant will have an outstanding importance with regards to market penetration of Sony’s superior technology and design performance. We seek to develop Sony’s Bravia brand to become the leading LCD television set brand in Europe’ (Sony, 2006c).

With regards to procurement flexibility and transportation cost economics for component supply in Europe, Sony’s joint venture with Sharp made sense. At that time, the major LCD panel assembly lines of Sony’s previous partner, Samsung, were located in Asia (Sony, 2006b). Thus, these transportation-sensitive electronic LCD modules needed to be shipped and imported to Europe, which causes time delays and costs. Sony’s new LCD manufacturing partner, Sharp, was able to deliver its LCDs from Torun, Poland (Sharp, 2008a). The modules produced at Sharp in Poland could be delivered in less than one day to Nitra, Slovakia. Both Japanese firms make use of the expanded common European market, which profits from the cessation of country border controls. The future was supposed to be bright, but something went wrong.

The LCD market in Europe became saturated in 2008; and, within a very short time, Sony’s management realized that its LCD television set business performed far less well than expected (Sony, 2008 f). In parallel, the entertainment business (movies and music) did not develop as successfully as planned, which further weakened the firm’s overall business performance. Net sales stagnated and went down. The analysis of net income (loss) presented in the figure below underlines Sony’s worsening situation. The data indicate, for example, for 2009 (loss of USD 1.1 billion), 2010 (loss of USD 0.492), 2011 (loss of USD 3.13 billion), and 2012 (loss of USD 4.85 billion) (Sony, 2014; Sony_Financial_Holdings, 2014).

Concerning the highest loss in the firm’s history, in 2012, Sony announced various reasons for the loss, such as the unfavorable impact of foreign exchange rates, the impact of the Great East Japan Earthquake, the floods in Thailand, and the deterioration in market conditions in developed countries (Jordan, 2012). The main reason for the loss, however, was the performance of Sony products in its major markets. As a former executive of Sony, Mr. Yoshiaki Sakito, commented, ‘Sony makes too many models; and for none of them can the company say, this contains our best, most cutting-edge technology. Apple, on the other hand, makes one amazing phone in just two colors and says, this is the best’ (Tabuchi, 2012a).

Considering the fact that Sony was accumulating further losses, the management decided to reorganize its business, which came along with plans to reduce its stake in the television set business. Thus, the management started looking for investors. Finally, the Taiwanese Hon Hai Precision acquired 90 percent equity in the Nitra plant from Sony in 2010. Today, most of the television sets in the European markets are assembled by Hon Hai, based on an original equipment manufacturing (OEM) contract relationship with Sony. Nitra remains the most important production location of LCD televisions for Sony in the European region, based on its OEM relationship with Hon Hai (Hon_Hai, 2013).

In 2010, Sony Barcelona Tec was sold to a joint venture between the Spanish companies Ficosa International SA and Comsa Emte SL (EU_Japan, 2010). Finally, at the end of June 2012, Sharp and Sony announced that their joint venture relationship to produce and sell large-sized LCD panels and modules would terminate and that Sony would sell its shares (representing 7.04 percent of the issued shares) in Sharp Display Products Corporation (SDP) to SDP (Sony, 2012b).

Businesses other than LCD panel and television sets – for example, personal computers (PC) – also performed below forecasts and caused the management to try to sell them out. Consequently, in 2014, Sony officially gave up on laptops and desktops, announcing plans to sell its Vaio PC business to a Japanese investment group. The company sold 7.5 million units in 2013, and its products have been available all around the world. Sony positioned itself as a manufacturer of high-end laptops but maneuvered its products too far into high-price markets, where PC buyers are usually reluctant to go. At the same time, the Chinese Lenovo, which meanwhile has become the world’s largest PC maker, has seen further growth for its PC revenues (Newman, 2014).

For decades, Sony ranked as one of the most reputable and best-known brands in the global and European consumer electronics markets. Sony was known for its unique ability to develop and manufacture all of the major components used in television sets. However, Sony missed upcoming flat panel technologies in the television set industry and also mobile handheld business because, among other reasons, it had routed too much of its resources to the movie, entertainment, and gaming business since the 1990s. As per today, it seems difficult for Sony to gain back its technological leadership position in television set manufacturing. As the Sony management experienced to their regret, product and technology life cycles have become shorter. Continued adaptation to the fast-changing technological environment has become a pivotal strategic issue for organizations’ management (Wu & Wu, 2014: 543).

2.6.1.3.6How about the future?

Entrepreneurial models in the academic literature stress the importance of a firm’s founders and their influence on the strategic orientation of the enterprise and its internationalization paths (Zahra, Korri, & Yu, 2005: 21). Sony’s entry into the entertainment business was to a great extent caused by the ambitions of Akio Morita, one of the firm’s cofounders. Morita’s affinity for the US contributed to Sony’s early commitments in the American market and, despite its traditional Japanese roots, the firm’s open mind set towards a multinational management philosophy. Sony’s company culture and global reputation still serves as a valuable competitive advantage because it represents one of the most internationalized enterprises among Asian-based electronics firms involved in the high-technology business.

Despite Sony’s difficulties against the background of increased competition worldwide, Sony has tried for a long time to maintain traditional Japanese firm values, reflected in its employee treatment philosophy, such as long-term employee relationships. In return, the firm expects unconditional loyalty from its company staff (Chen, 2004: 157–163; Frisch, 2004: 23). As a vital part of its company culture, Sony stresses the importance of human capital for the success of the firm. From executives to assembly-line workers, the philosophy of the co-founding entrepreneur, Morita, was designed to make sure that Sony employees were treated well. ‘Sony has a principle of respecting and encouraging one’s ability and always tries to bring out the best in a person’, Morita once said. ‘This is a vital force of Sony’ (Frisch, 2004: 24).

However, at the end of 2008, Sony’s difficulties, particularly in the electronics business, became so severe that the firm had to decide, against its traditional values, on a drastic lay-off program. Sony announced plans to cut 8,000 jobs in the midst of a financial crisis that had many consumers distancing themselves from the electronics consumer markets in order to save money. In the biggest layoff announced by an Asian firm so far in the financial crisis, the Japan-based electronics firm said it would cut about 4 percent of its 160,000 employee workforce, scale back investments, and pull out of businesses as it aimed to cut USD 1.1 billion in costs from its ailing electronics operations. ‘These initiatives are in response to the sudden and rapid changes in the global economic environment’, Sony stated in its press release. About 10 percent of the company’s fifty-seven plants were shut down. Sony also intended to reduce its investments in the electronics sector by approximately 30 percent in the fiscal year ending March 2010. The cutbacks would save Sony more than USD 1.1 billion a year (Sony, 2008d, f).

As a result of the investment cuts, it became questionable whether and when Sony would gain back its technological leadership position in consumer electronics. At one time, the consumer electronics business helped develop Sony’s valuable reputation worldwide. It can be assumed that business success or failure in the consumer electronics segment is of vital importance for the firm’s future destiny. In 2012, Sony revealed that it would eliminate 10,000 additional jobs. The announcement followed a corporate realignment that demoted its once-sacred television business. Looking ahead, Sony’s new chief executive, Kazuo Hirai Hirai, said Sony would focus more on games, digital imaging, and mobile products (Pham, 2012). Mobile products? This is not a new story.

Already by the second half of the 1990s, Sony had experimented in the mobile phone business but with little success. Therefore, Sony transferred its mobile phone device business to an international joint venture with the Swedish Ericsson Group in 2002 (Sony, 2008b, e). Unfortunately, the international joint venture Sony Ericsson Mobile Communications has never reached a reputation as a technological leader compared to, for example, Apple Inc. Around one decade later, in 2011, Sony took over full control of the international joint venture operation in the course of their revised company strategy to re-enter the smart-phone device business (e.g., launching a new brand series called Xperia) and connect its mobile-gadget offerings with an online network of music, videos, and games. Sony paid Euro 1.05 billion (USD 1.46 billion) in cash for Ericsson’s 50 percent share in the international joint venture (Grundberg, 2011). Sony Xperia smart phones are competing against Apple’s iPhone and Samsung’s Galaxy. And new competitors such as Xiaomi from China are coming up.

Sony’s most serious mistake was that it failed to recognize important waves of technological innovation in recent decades, such as digitalization, a shift toward software, and the importance of the Internet. One by one, every sphere where Sony competed – from hardware to software to communications to content – was turned upside-down by disruptive new technology and emerging rival competitors. With its portfolio of music and its foundation in electronics, Sony had the tools to create a version of the iPod long before Apple introduced it in 2001 (Tabuchi, 2012a).

Sony Corp.’s new chief executive, Kazuo Hirai, has vowed to turn things around, telling investors that ‘Sony will change’ (Pham, 2012).

Chapter review questions

2.6.1.4The approach of Johanson and Mattsson

Beginning in the mid-1980s, among the first to focus attention on network dynamics in the internationalization of business were Johanson and Mattsson (1985; 1988; 1992). They claimed that firms are embedded in industrial networks and linked to each other through long-lasting relationships that develop complex inter-firm information channels. As a result, the industrial system is composed of firms engaged in supply, production, distribution, and service. The authors describe this system as a network of relationships among the firms (Johanson & Mattsson, 1988: 290 –291).

A firm’s internationalization development is to an important extent dependent on its position in the network. Thus, the internationalization characteristics of both the firm and the market influence the process. The firm’s market entry resources have different structures if the firm is highly internationalized (e.g., foreign market experience) in relationships than if it is less or not experienced at all. Furthermore, the market assets of other firms in the network have a different structure depending on whether the market has a high or low degree of internationalization. From this assumption, Johanson and Mattsson identify four categories that determine the degree of market internationalization in relation to the degree of firm internationalization. These categories are illustrated in Figure 17 below.

The early starter describes firms with few relationships with other enterprises abroad. Competitors, suppliers, and other firms in the domestic as well as in foreign markets have few but important international relationships. The initiative to start foreign operations comes from other parties, such as distributors or important customers located abroad.

The lonely international is a firm that is highly internationalized, while its market environment is not. The company has unique knowledge of cultures and institutions abroad developed through relationships in foreign markets. The firm’s advanced international expertise compared to other firms gives it a favorable position with easier access to international networks. Initiatives for further internationalization are not developed by other parties in the network since the firm’s suppliers, customers, and competitors are not internationalized. The lonely international has the qualifications and resources to promote internationalization for the firms that are engaged in the network. To exploit the advantages of being a ‘lonely international’, the firm has to coordinate activities in the different national networks, which necessarily requires international integration knowledge (Johanson & Mattsson, 1988: 300 –302).

The late starter describes a firm focused on the home market and forced to internationalize by other players, such as customers or suppliers that are actively involved in international business (e.g., the follow-the-customer phenomenon). Comparative disadvantages for the late starter come from less international experience. On the other hand, because it is embedded in the network, the late-coming firm is able to gain access to the knowledge and international experience of other firms (Johanson & Mattsson, 1988: 302–303). The descriptions of a late starter are in accordance with Matthew’s international latecomer phenomenon and its derived advantages and disadvantages for the firm in the global business arena (Mathews, 2002: 8, 222).

The fourth category is the international among others. In this case, both the firm and its environment are highly internationalized. Market expansion and penetration of an international firm takes place in global networks. The advantage for this firm is that it is able to coordinate operations in international networks in order to react to changes in the market environments. Disadvantages derive from an increased communication and coordination complexity on a global scale. The international among others predominantly faces counterparts and competitors who are themselves internationally active in markets that are rather tightly structured. Major position changes in the network will increasingly take place through merger and acquisitions and joint ventures in contrast to the situations of firms in the previously introduced categories (Johanson & Mattsson, 1988: 306).

Johanson and Mattsson (1988: 311) claim that the network approach can distinguish entry strategies that differ with regard to the characteristics and number of relationships the entry firm seeks to establish with other firms in the network. It can be expected that because of the cumulative nature of network processes, the sequential order of activities in international markets is important and should be given more attention in research. From the strategic point of the most interesting research issue is derived the analysis of how to get prepared for international market entry and penetration when the time is ripe. Following the idea of the network concept, preparedness for and the successful implementation of international market entry strategies is largely a matter of having relationships with other firms and institutions embedded in the network.

2.6.1.5The concept of Johanson and Vahlne

An increasing market dynamism linked with the rapid internationalization processes of firms, particularly witnessed since the 1990s, has led Johanson and Vahlne to review their own concept of psychic distance and conclude that ‘we have a situation where old models of internationalization processes are still applied quite fruitfully at the same time as a number of studies have suggested that there is a need for new and network-based models of internationalization. We think it might be worthwhile to reconcile and even integrate the two approaches’ (Johanson & Vahlne, 2003: 84). As a result, Johanson and Vahlne have further developed their Uppsala internationalization model of incremental market entry towards an integrated business network model for internationalization. They define business networks as sets of interconnected business relationships, in which each exchange relation is between firms and is conceptualized as collective steps. According to this definition, all firms are engaged in a limited set of business relationships with customers, suppliers, and service providing firms (e.g., logistics, finance, and banking) that, in turn, have relationships with other firms (Johanson & Vahlne, 2003: 92).

Hohenthal (2001: 54) claims that there is always a connection of two separate pools of knowledge when a new relationship between actors is created. Through this connection, the firms gain access to each other’s knowledge systems (and their international experience), which can be used in other relationships and in the creation of new international business opportunities with less cost than would be required to generate the knowledge by themselves. International experience gives the firm an ability to see and evaluate global business opportunities and thereby reduce the uncertainty associated with commitments to foreign markets. Accumulated knowledge and experience in foreign markets leads to improved overall international business performance (Lou & Peng, 1999: 290).

Johanson and Vahlne (2003: 91) distinguish between market-specific experience and operation experience. The former concerns conditions in the particular market and cannot, without great difficulty, be transferred to other markets. The latter refers to ways of organizing and developing international business operations that can more easily be transferred from market to market. Apparently, the internationalization of a firm is associated with commitment decisions such as cooperative agreements with suppliers, distributors, or customers; acquisitions of competitors; or direct investment in operations and manufacturing abroad. The more specific and the more integrated those activities abroad, the stronger is the firm’s dependence on them and, as a consequence, the higher the corresponding market exit barriers (Johanson & Vahlne, 2003: 91). Within a business network perspective, market entry difficulties are not mainly associated with the general market surroundings in a country. The challenge is rather in terms of specific customer or supplier firms’ characteristics due to language, ethics, and cultural obstacles, such as different perspectives on avoiding business uncertainty and short versus long-term business performance views (Hofstede, 2001: 145, 351; Johanson & Vahlne, 2003: 91–92).

Consequently, Johanson and Vahlne (2003: 96) combine the incremental internationalization process and the network models, assuming there is one set of business-related managerial issues that is relationship-specific and another set of challenges associated with country-specific institutional and cultural barriers. On the way to internationalization, the enterprise has to overcome these challenges. International expansion is a result of the firm’s establishment of relationships with other industry actors, such as suppliers and customers. Success in international business significantly depends on the company’s ability to build a network, which, for its part, depends on the firm’s learning openness and experience in developing it. Subsequent foreign entries benefit from the learning and experience gained from previous operations. Experienced managers who are familiar with international business help the company overcome difficulties related to entry activities in new markets (Li, 1995: 347). Johanson and Vahlne (2003: 93–94) distinguish between three types of network learning, which acquire extraordinary importance with regard to prosperous internationalization activities.

Three types of network learning

First, firms do business in customer-supplier relationships. They learn partner-specific behaviors, such as willingness and ability to maintain and develop the relationship (e.g., order forecasting reliability, flexibility, and keeping promises related to the business). As a result, they learn about each other and how to coordinate their activities in ways that strengthen their joint business. Such connection increases the firms’ commitment in the foreign market.

Second, experience in relationship development assumes that when interacting in business engagements, the involved partner is learning skills that may be transferred to and used in other business transactions. These skills include how to get in touch with new business network actors (e.g., customers and suppliers) as well as expertise on knowing how to develop and deepen relationships with them.

Third, coordinating experience concerns several supplier relationships, for example concerning new product developments or just-in-time delivery schedules. It also concerns coordination between a supplier and a customer in order to make both parties’ value chain activities more efficient. All of these connect and intensify the relationships of the business network (Johanson & Vahlne, 2003: 93–94).

International business experience is not the result of positive international business outcomes only. Negative experiences gained from a firm’s failure concerning its foreign market entry are also of significant value for the management and develop the entire internationalization competence of a firm. Experience, whether negative or positive, thus seems to be important in the triggering, creation, and development of the international market entry processes (Hohenthal, 2001: 206).

As a consequence of relationship learning, the firm acquires expertise on how to build new business relationships and how to connect them to each other. The relationship development experience is likely to be useful also when the enterprise approaches strategic relationships (Johanson and Vahlne, 2003: 94). For instance, joint ventures may be made in order to secure technological resources or to gain the strategic advantage of the cooperating partners through shared distribution channels relative to their competitors. Foreign market expansion is a matter first of developing the firm’s relationships in the specific market, second of establishing and developing supporting relationships (e.g., local politicians and government), and third of cultivating connections that are similar or connected to the focal one. In order to support a strategic relationship with a partner, the firm might be forced to develop a relationship in another country, thereby entering that foreign market (Johanson & Vahlne, 2003: 94, 97).

Mathews (2002: 45) similarly argues that firms possess a unique set of relationships that contribute to their own resources and capabilities. An enterprise is able to improve or enhance its capabilities by attracting and sharing resources with other firms with which it shares connections. A network perspective of the economy and its players, which can accommodate the perspectives of firms developing complementary strategies and accessing more mobile resources, needs to be contrasted with the conventional view that sees enterprises as atomistic entities engaged in arm’s length transactions with each other, mediated through the price system. Those firms are viewed only as production entities with transparent technology in the form of a production function that converts input and output. However, markets have become increasingly integrated (e.g., electronics in vehicles), industries have become digitalized, and value added activities are more complex. Therefore, the conventional view of a (manufacturing) firm and its internationalization processes needs to be replaced with an inter-disciplinary perspective and the firm’s location in networks.

The creation of knowledge through technological learning is crucial to gaining a competitive advantage in international business. Interactions with reliable business partners provide important insight into other firms’ research and how those products develop over time in the international markets. The functions and the design of products and services used to meet local customer expectations can be more easily observed through interlinks with foreign business partners. Thus, the development of future products and services can be adapted to better meet local market conditions. The main characteristic of those interlinked firms is their engagement in a global ‘lattice’ construction, with accelerated global expansion as the key goal. Firms that develop a corporate culture and organizational structures that ensure the effective integration of technological and administrative learning from their international interfaces will boost their performance in international business (Zahra, 2005: 20–22; Zahra, Ireland, & Hitt, 2000: 925). As a result, the resource-based view turns out to be a suitable ground for understanding the dynamics of international competition. Seeing the emerging global economy as networks of interlinked enterprises provides a fresh perspective on the process of internationalization (Mathews, 2002: 46, 217; Sharma & Blomstermo, 2003: 739–740).

2.6.1.6Review of inter-organizational network positioning approach

The network concept draws particular attention to the social and cognitive ties that are formed among actors (e.g., suppliers, customers, service providers, banks, etc.) engaged in international business. The rapid growth of new entrants in the global arena leads to the conclusion that enterprises do not necessarily internationalize incrementally as claimed in the Uppsala approach (Johanson & Vahlne, 1977: 23–32). Against the background of globalization, international firms make increasing use of their global networks. While traditional foreign-market entry research describes how firms decide on markets and appropriate entry modes on their own, the network approach concentrates on how existing actors influence the entry of new firms into networks that provide the base for business activities abroad (Björkman & Forsgren, 2000: 13).

Firms maintain a range of bilateral relationships, and researchers who favor the network approach need to include a variety of variables in their analysis. Thus, the measurement and evaluation of a firm’s business performance within the context of international relationships and their individual impact on the firm’s performance in terms of its foreign market entry success are methodologically enormously complex and are, therefore, challenging (Samiee & Walters, 2006: 597). Further conceptual difficulties are measuring the ownership control and the efficiency and effectiveness of bilateral relationships in networks (Jones & Coviello, 2002: 9).

Network research tends to focus on the actor’s behavior in oligopolistic business-to-business market surroundings (Dunning, 1995a: 473). The resource dependence theory, which is derived from the resource-based view, emphasizes resource exchanges, such as in international joint ventures, as the central feature of these relationships (Newbert, 2007: 139). According to this perspective, groups and organizations gain power over each other by controlling valued resources. In parallel, there is always the risk of opportunistic behavior from the participating players in the industry network. This causes network instabilities as a considerable number of firms involved in joint ventures experience failures, much to their regret (Das & Teng, 2000: 78; Glaister, Husan, & Buckley, 2003: 83; Schuler, 2001: 13). While descriptions of individual examples through case studies of business reality are often satisfactory, the corresponding research results are hard to generalize and future predictions tend to be vague. Consequently, the theoretical potential of drawing conclusions about common patterns of internationalization in global networks is challenging and requires intensive and costly research (Björkman & Forsgren, 2000: 14).

Since the 1990s, the network approach of internationalization has been amplified. Innovative, young, and usually small firms often start their foreign business early in their establishment. Therefore, the phenomenon of rapid and not necessarily gradual internationalization processes entered the academic literature. The appearance of these types of firms and the influence of their ‘entrepreneurs’ have led to a second stream of the network approach that specifically focuses on social ties of bilateral personal relationships in networks (Ellis, 2011: 100).

Chapter review questions

2.6.1.7The case study of Haier (China) – Learning by imitation

Haier’s origins go back to Qingdao Refrigerator Company, which started operations in the 1920s. In 1949, the firm became a government-owned company; and in 1984, Zhang Ruimin, who is still chairman and CEO, took over leadership of Haier. That same year, based on an international joint venture with the German firm Liebherr, Haier began to produce refrigerators, which were called ‘Qingdao Liebherr’ (manufacturing around 80 units per month, indicating an average failure rate of 20 percent). In Chinese, Liebherr is pronounced ‘Li-Bu-Hai-Er’, thus the last two syllables contribute the current firm name, Haier (Munich_Innovation_Group, 2012). Since that time, Haier has been transformed from an insolvent collectively owned factory to a global home appliance manufacturer (Haier, 2014).

In the 1990s, Haier, which is headquartered in Qingdao, started exporting refrigerators to Europe, based on contract manufacturing for well-known multinational brands including Liebherr. In parallel, it acquired various smaller Chinese companies. Haier concentrated on further improving its technological expertise through joint ventures with companies such as Mitsubishi (Japan) and Merloni from Italy. CEO Zhang Ruimin said about the firm’s strategy,

‘First we observe and digest. Then we imitate. In the end, we understand it well enough to design it independently’ (Frynas & Mellahi, 2011: 178).

Today, Haier employs more than 70,000 people; and its products are sold in more than 100 countries (Munich_Innovation_Group, 2012: 19). Haier’s home appliance business consists of 1) washing machines, 2) water heaters, and 3) services (e.g., after-sales, e-commerce, distribution, and logistics). The organization of the firm is designed around the three strategic business units illustrated in Figure 18 (Haier, 2014a). Haier pursues a related diversification strategy.

In recent years, Haier has strengthen its research and development activities, resulting in 10,167 patents in 2013 (Haier, 2014a, c). One of the most important subsidiaries of Haier Group Corporation is Haier Electronics Group Co., Ltd., which is listed in Hong Kong. Haier Electronics is engaged in the research, design, development, and manufacturing of washing machines and water heaters. In 2010, emphasizing their customer-oriented service approach, Haier launched a global brand called ‘Goodaymart’ (Haier_Electronics, 2014). Sales – as recorded since 2004 – indicate a sharp increase between 2009 and 2013, while net income remains at a marginal level (Haier Electronics Group Co., 2005; Haier Electronics Group Co., 2010, 2013).

Relative to its competitors from Japan and South Korea, Haier is an international latecomer that seeks to increase its global market shares within the shortest possible time, which is, however, costly as the marginal net income for the years from 2004 to 2013 illustrate (compare Figure 19).

One of the major reasons for Haier’s rather marginal net income is the firm undertook various foreign direct investments through greenfield investments and acquisitions, such as of the Italian refrigerator assembler Meneghetti in 2001. In the same year, Haier established a plant in the US. The acquisition of the washing machine, refrigerator, and consumer electric appliance business of Sanyo Electric Co., Ltd., from Japan manifests a further milestone in the course of Haier’s progressive internationalization (Haier, 2012). In 2015, Haier communicated its ambitious plans for customer integrated ‘e-commerce in transit’ sales concepts by providing on-demand services integrating sales, distribution, installation, and after-sales services through direct web-based communication channels with its consumers (Haier, 2015b). As per September 2015, Haier is running eight research and development centers, twenty-nine manufacturing bases, and sixteen so-called industrial parks in Europe, North America, Asia, the Middle East, and Africa (Haier, 2015a).

Chapter review questions

2.6.2Interpersonal relationships approach

2.6.2.1Early internationalization of the firm

The digitalization of various industries, up and coming e-commerce, improved and faster logistics, and liberalized trade patterns has permanently fostered new business opportunities for smaller firms with limited conventional resources. The phenomenon of rapid internationalization of relatively young firms has directed the focus of scholarly research to the role and influence of the entrepreneur in the firm’s international activities (Oviatt & Mc Dougall, 1994: 49; Shrader, Oviatt, & Mc Dougall, 2000: 1235).

Firms that are able to internationalize rapidly often have established personal relationships with firms abroad. Consequently, they are intensively embedded in international business structures (Hohenthal, 2001: 25). Thus, members of the international network value relationships rather than discrete and contractual, formalized transactions (Coviello & Munro, 1997: 365).

How to define an ‘early internationalizer’

The emergence of digitalized service-based industries in particular has further supported the business opportunities of small- and medium-sized enterprises to internationalize rapidly after inception. The changing pattern of internationalization, especially among small firms, has been increasingly discussed in the literature. However, definitions that describe the phenomena of firms that internationalize in the early stages after the firm’s founding are rather heterogeneous than unified in the literature (Lopez, Kundu, & Ciravegna, 2009: 1230).

One of the most cited definitions stems from Oviatt and McDougall (Oviatt & Mc Dougall, 1994: 49, 94), who describe an international new venture (INV) as a business organization that ‘from inception, seeks to derive significant competitive advantage from the use of resources in the sale of outputs in multiple countries’. Further INV definitions, to name just a few, are from Zahra et al. (2000: 928), who specify INVs as firms competing in several countries with operations in different international regions and targeting multiple market segments. Coviello (2006: 713) describes INVs as ‘different’ from conception because from near founding, they have a global focus and commit resources to international activities. According to Madsen (2013: 70), INVs coordinate value chain activities across borders within three years of inception.

In addition to INV, another differentiating term emerged in the literature: the ‘born global’. INV and born global deal with the same phenomenon: a category of firms that implement their international business from their foundation. They develop their internationalization knowledge through an ‘absorptive capability’, usually fostered and developed by their entrepreneurs, who use their versatile and diversified personal relationship ties in foreign markets. These firms are usually found in new technological-based service businesses with a strong customer orientation linked to the utmost flexibility in order to adapt their market entry strategy to the needs of the local market circumstances (Sharma & Blomstermo, 2003: 749–750).

Grant (1996: 121) emphasizes the role of the individual as the primary actor in knowledge creation and the principal repository of knowledge. According to this logic, a firm’s potentials to immediately launch international business engagements are fostered by the firm’s people, in particular the entrepreneur, who is often, but not always, the founder and business owner (Zahra et al., 2005: 21). Entrepreneurial capabilities may result in finding ways to create value beyond the established competitors and usually conventional, resource-rich industry incumbents. Competitive advantages in the global marketplace are mainly derived from the particular intangible assets of the young and early internationalizing firm (e.g., organizational cultures and personal relationships). Consequently, the success of the firm is influenced by the ability of the entrepreneur to mobilize and dynamically combine external and internal resources and adapt them to changes in the environment. Particularly, personal contacts and social interaction play an extraordinary role when it comes to market entry decisions – especially where complex technological products with a high service value are concerned (Axelsson & Easton, 1992: 33; Ellis, 2000: 462). Dynamic capabilities allow a flexible reconfiguration of the firm’s asset structures in terms of product portfolio, process efficiency, and personal and organizational experience (Zuchella & Scabini, 2007: 172–173).

International entrepreneurship has been identified as involving firm activity that crosses national borders. Consequently, it is a combination of innovative, proactive, and risk-seeking behavior intended to create value in organizations (Jones & Coviello, 2002: 4; McDougall & Oviatt, 2000: 903; Young et al., 2003: 33). McDougall and Oviatt (2003: 7) enlarged the definition of international entrepreneurship ‘as the discovery, enactment, evaluation, and exploitation of opportunities – across national borders – to create future goods and services’. An integrative model comparing traditional and rather large firms versus modern entrepreneurial small business firms and their diversified internationalization processes was developed by Bell at al. (2003: 351) and is illustrated in Figure 20. The authors claim that firms can follow different pathways of internationalization. These modes include the traditional, the ‘born global’, and the ‘born again global’ pathway. The model attempts to explore and seeks to explain any variations in the patterns, pace, and process of internationalization. The authors illustrate contrasting internationalization patterns, including different motivations, aims, strategies, and methods of market entry.

In business reality, internationalization patterns tend to be highly individualistic, situation specific, and unique. Firms with advanced international knowledge tend to launch international business faster and often more efficiently. The internationalization process is significantly dependent on external environmental conditions as well as on a firm’s internal circumstances, including resource availability, behavioral characteristics, and a global vision of the key personnel. Enterprises may pass periods of rapid internationalization and drawbacks in international business. These periods are influenced by political-legal impacts, the firm’s customers, or other actors in the industry network. The focus of the model by Bell et al. (2003: 351–352) is on strategic issues with respect to internationalization concepts of small firms. Additionally, the model provides recommendations for strategy formulation and implementation in order to assist the internationalization process.

2.6.2.2The dimension of time

In their model, Jones and Coviello (2005: 297) combine the dimension of time, management’s behavioral aspects, and the influence of the external environment on the firm’s performance. The scholars assume that internationalization is a reflection of time-based behavior, specific to individual entrepreneurs as participants and managers of social systems and networks. Behavioral aspects of the entrepreneur, determined by the decisions and actions that occur at a specific point in time, move to the center of research interest (Jones & Coviello, 2002: 2–3; 2005: 287, 289). The relationship between the entrepreneur, the organization, and the external environment is viewed from a systems perspective and assumes the continued activity of input, process motion, output, and feedback over time, whereby elements of the external environment moderate internationalization behavior. The entrepreneurial influence serves to combine resources and knowledge as part of the strategic and tactical activity of the firm (Jones & Coviello, 2002: 15; Jones & Coviello, 2004: 485).

Entrepreneurial activities include specific decisions and actions that result in or contribute to internationalization. External associations, such as international business links with other firms abroad and corresponding modes of market entry, are seen as part of that interaction (as indicated on two dimensions, time and country distance). Cross-border activity may commence or terminate at any time, thus leading to a complex pattern of internationalization decisions, processes, and activities. Enterprises with an open, responsive interactivity with the external foreign business community will internationalize more rapidly and successfully than those whose boundaries are relatively impermeable. Consequently, internationalization is a process of behavior that emerges as a firm’s unique response to internal and external influences and is particularly driven by the entrepreneur. Time is a fundamental component of internationalization in that each firm has a history comprised of significant internationalization events occurring at specific points in time. For example, the establishment of a new type of cross-border link, such as the start of an export activity, represents a milestone in the firm’s chronology of internationalization (Jones & Coviello, 2002: 16–17).

The internationalization process is understood as ‘value-creating-events’ (Jones & Coviello, 2005: 297). As illustrated in Figure 21, the entrepreneur’s level of innovativeness, risk tolerance, and managerial competence has a significant impact on the firm and its organizational structure. The firm’s internationalization behavior is a result of ‘fingerprint pattern’ and profiles over a period of time. The ‘fingerprint’ of internationalization behavior includes the functional diversity (decision of entry mode choice) and country diversity (geographic, economic, and cultural distance) in relation to time. ‘Fingerprint’ patterns give a static impression at a specific point in time, whereas profiles identify changes over a period of time. Thus, the firm’s internationalization process (e.g., market entry organization) mirrors the entrepreneurial behavior and the firm’s organization (organic vs. mechanistic). Internationalization can be seen as a firm-level entrepreneurial behavior manifested by events and outcomes in relation to time. Internationalization behavior influences the firm’s performance expressed in financial data (profit or loss as indicators of market success) or non-financial assets (degree of organizational learning). Different ‘fingerprint’ patterns of internationalization behavior evolve over time, and firm performance will impact future behavior through an iterative process of further organizational learning.

Reuber and Fischer (1999: 31) build on the relationship of time and the ‘stock of experience’, which influence the international new venture’s performance. Experience includes things that happen or events that occur during a specific time period. A particular event can have both a positive and negative impact on the international business of the firm. For instance, the loss of a key customer might reduce the sales revenue in the short term. This loss may result in better long-term performance if the firm is able to learn from its experience, for example through improvement of product quality or service.

Hurmerinta-Peltomaki (2003: 219, 224) claims that traditional internationalization models describe a firm’s export activities as a linear and predictable pattern on a simple, orderly, or progressive path, which is often an unrealistic notion. Consideration should be given to the idea that particular events or experiences in the past may cause a firm’s reorientation, moving the foreign trade activities in a negative direction and causing export involvement to decrease or even to be interrupted. Thus, experience over a period of time may cause strategic reorientation that alters or stops the international activities of the firm. Time enables us to understand various organizational processes, in particular those of decision making and learning from positive and negative business episodes. During decision making, the owner or manager intentionally attempts, in the present, to connect the past to the future by assessing the relevance of his/her experience to the future. Experience is the antecedent of present and future activities, and it is this property that makes it relevant and interesting (Butler, 1995: 925; Reuber & Fischer, 1999: 30).

The past experience dimension, on both the organizational (enterprise) and the individual (entrepreneur) level should be taken into account when describing a firm’s internationalization process. Thus, cyclical, experience-based internationalization on an individual level affects internationalization on an organizational level. Cyclical internationalization may also be perceived on an organizational level in a forward-backward-forward movement. For example, the enterprise is able to utilize its past export experience to continue the internationalization process at present and in the future (Hurmerinta-Peltomäki, 2003: 226–230).

The dimensions of time in international business have not been emphasized adequately in conventional concepts of internationalization so far. As illustrated in Figure 22, the direction of development in research on the internationalization process evidently proceeds from the upper left-hand corner (positive direction-linear) towards the lower right-hand corner (no fixed direction-cyclical) (Hurmerinta-Peltomä-ki, 2003: 225–226). Traditional research on internationalization is mostly based on a linear idea of time; that is, the models consist of several identifiable and distinct successive stages. A higher stage of international activities indicates a greater foreign involvement (Leonidou & Katsikeas, 1996: 527). The challenge in this context is to understand internationalization as a process that is highly dynamic and time dependent. However, paradoxically almost all internationalization models are static in nature; for example, models fail to conceive each export stage as a continuum of episodes and micro-steps (Leonidou & Katsikeas, 1996: 527). This is one explanation as to why ‘stages models’ on internationalization are commonly used because permanent changes between the stages are difficult to perceive by researchers. It could be said that two dimensions of time are relevant to the development of internationalization concepts: linear, which describes the human understanding of time as a forward-going line in a positive direction (past-present-future), and cyclical time, which reflects the business reality, but where there is no fixed direction or arrow. This allows for the description of a backward direction of internationalization (Hurmerinta-Peltomäki, 2003: 226–227).

2.6.2.3Towards a conceptualized model typology of international new ventures and born global firms

Due to a lack of previous or fixed routines in entering foreign markets, international new ventures (or the synonym, born globals) combine their conventional resource disadvantages with the potentials of other actors through personal relationships usually fostered and developed by the entrepreneur (Sharma & Blomstermo, 2003: 248).

DiGregorio et al. (2008: 190) emphasize the concept of entrepreneurship ‘as the nexus of individuals and opportunities’ applied to international new ventures by distinguishing between opportunities that entail novel resource combinations versus opportunities that entail novel market combinations. The first category of opportunities essentially generates potential for creating value by combining internationally dispersed resources. The latter category of opportunities entails leveraging existing resources into new markets. Resource combination chances refer to the potential to create value via innovative arrangements of international strategic factors. Such factors may include assets that are confined to certain geographic locations, for example access to natural resources, labor force qualifications, and consciousness of the customers and employees. Resource combinations may also involve cross-border pooling of innovative entrepreneurial talent and corresponding knowledge, and/or access to important markets. Market combinations, on the other hand, entail introducing a particular product or service from one country into one or more other countries. Introducing this new perspective enables the delineation of two distinct phenomena: first, the creation of international ventures and second, the process of internationalization of recently established ventures. DiGregorio et al. (2008: 191–192) categorizes firms into four typologies (compare Figure 23).

Quadrant I – Domestic New Venture

The first quadrant contains new venture firms that have a strictly domestic orientation. That means no international sales or resource combination occurs. Such firms cannot be defined as an international new venture but, instead, are a domestic joint venture.

Quadrant II – Accelerated International Sales

International new venture firms categorized in this segment begin international sales at an early stage but do not combine resources across borders. These firms concentrate their resources locally and are typically founded in response to local opportunities. They rapidly expand their market scope to include international markets in order to take advantage of their domestically based resources to exploit differences between local and foreign markets in terms of quality or cost.

Quadrant III – Cross-Border Resource Integration

International new venture firms take advantage of geographically dispersed resources and the diverse knowledge embedded within those resources. The combination of resources across national borders is the main basis for gaining competitive advantage. Because they are embedded in international networks, their opportunities to improve the product quality, service, innovation potentials, or cost structures are enhanced. Existing business models in one market are transferred into another.

Quadrant IV – International Resource and Market Combination

Firms located in this segment depend on cross-border interactions for their tangible and intangible resources in order to realize market opportunities. Competitive advantage is developed by careful management of the risks associated with multiple entries into foreign markets. For these firms, internationalization is a means of creating new value via cross-border resource combination and capturing existing value via international sales (DiGregorio et al., 2008: 191–192).

International new ventures emerge when resources abroad are combined without necessarily coordinating value chain activities internationally as witnessed for multinational enterprises. For example, an international new venture is created by combining a resource such as technology or a business model from one country with resources and/or markets in another country. International new ventures arise from leveraging domestic resources into foreign markets or to exploit new foreign resource combinations. While Oviatt and McDougall (1994: 45) focus on internationalization soon after a firm’s inception, the concept of Di Gegorio et al. (2008: 191–194) concentrates on the emergence process of an international new venture. The importance concerning external opportunities of foreign resources (e.g., material procurement, knowledge, and technology transfer), which help to improve the firm’s performance in domestic and foreign markets, has been ignored so far. Entrepreneurs of young firms seeking to internationalize should intensively and permanently search for foreign resource opportunities.

Gabrielsson et al. (2008: 385–388) propose a born global firm definition that includes various aspects. A firm should have a global market potential and entrepreneurial competence that enables rapid internationalization. Furthermore, a firm should have a distinct differentiation strategy and products with either an unique technology, superior design, unique service know-how, or other highly specialized competence. Born globals understand foreign markets as a chance to explore and create new knowledge regarding products with global market potentials. The establishment of a successful start-up firm needs a global vision linked with reasonable risk awareness. The time factor should be regarded along with two dimensions: precocity (early internationalization) and speed (effectiveness). All-in-all, these types of firms show a broad entrepreneurial scope, high intensity in the business focus, and rapid growth (Gabrielsson et al., 2008: 386–388; Kuemmerle, 2002: 99).

In order to overcome the conceptualization weakness of the entrepreneurial models, Gabrielsson et al. (2008: 391) attempt to develop a combined approach that includes the born global phenomenon and its behavior over time. They describe the firm’s development in different stages and the reasons it proceeds as it does. As a result, the evolution process is divided into three phases: first, the introduction and initial launch phase; second, growth and resource accumulation; and third, the break-out and desired strategies phase as described in more detail below.

The first phase, the introduction, describes the period when born globals have limited resources and an undeveloped organizational structure. They rely on unique and mostly tacit knowledge to achieve competitive advantage. The most important resources are the firm founder(s) and other employee resource (knowledge) capabilities and inimitable skills. Combined with entrepreneurship, these abilities may lead to the development of products with global market potential. Firm growth mostly depends on the distribution channel strategy and the relationships chosen—for example, a long-term sales contract concluded with a multinational enterprise and further relationships created through personal relationships of the entrepreneur. Organizational learning is important for the success of the born global, especially knowledge about foreign markets (Gabrielsson et al., 2008: 391–395).

Phase two describes growth and resource accumulation. Business success depends on the product and service itself and the ability to place it on the market. Knowledge rests on the ability to learn from partners, suppliers, and customers, as well as collected success and failure experiences (Gabrielsson et al., 2008: 396).

Phase three, the break-out and desired strategies phase, describes the period where the born global decides on a strategy based on its previous learning and experience in order to arrange its own position in the markets and its industry network. The strategic reorientation is influenced by the desire for independence from global players and the control of its own actions. A fundamental global vision and devotion are necessary as well as the availability of a client portfolio, which allows the development of international success to continue. At this stage, a born global may develop and continuously grow to become a ‘normal multinational enterprise’ in the future (Gabrielsson et al., 2008: 400).

2.6.2.4The phenomenon of the ‘born again global’

The limited focus on the start-up phase of new venture firms led (Bell et al., 2003: 340) to an expansion of the discussion of the ‘born again global’ phenomenon. This term describes firms that have become well established in their domestic market with apparently no great motivation to internationalize, but which have suddenly embraced rapid and dedicated internationalization. Born again global firms fail to conform to the conventional stage models of small firms’ internationalization process concepts, which concentrate on the initial phase from the firm’s inception.

The radical change in internationalization behavior of the born again global firm may be triggered by a critical incident or several events happening at the same time. These incidents may include a change of ownership or management, a decision to follow a main customer to foreign markets, or the introduction of Internet-based distribution channels. Especially a change of ownership or management has significant influence on the internationalization path of born again global firms. Not only top management representatives with an international vision but also other human resources of the firm with special international expertise (for example, embedded in the firm’s sales or purchasing department) influence the company’s internationalization re-launch. Furthermore, additional financial resources and new opportunities may come up due to access to new international industry networks and, consequently, more amplified knowledge (Bell et al., 2003: 345–346).

The motivation of born again global firms to internationalize is, in comparison to born globals, rather reactive; they only respond to a critical event. Business goals of born again global firms include the utilization of new industry relationships and corresponding emerging resources. Born again global firms show, after the initial reactive event, a more systematic and structured approach to internationalization than born global (international new venture) firms. They also tend to originate from traditional industries rather than from high technology and service sectors. It might be assumed that born again global firms have a better position from which to finance rapid internationalization because they have secure revenues from their home market. These firms have a certain stock of financial resources and knowledge from the ‘critical incident’ at their disposal. However, international business success will not become reality if the firm faces difficulties in the domestic market (Bell et al., 2003: 347–353).

The born again global concept may also apply well to service intensive organizations because these firms will remain in the domestic market until the business idea and the service quality has been verified as successful and able to be culturally adapted abroad. Another explanation of the born again global firm phenomenon is that these firms initially tried to internationalize but failed. Thus, they decided to build up a supporting domestic infrastructure that would allow them to internationalize quickly and successfully at a later time (Bell et al., 2003: 351–353; Gabrielsson et al., 2008: 386). An entrepreneurial person may also be able to bring organizational change and innovation to established enterprises. These changes in strategies and knowledge may enable the corporation to form new capabilities and sources of innovation and creativity. Two different approaches derive from this: first, ‘corporate entrepreneurship’ and second, ‘dispersed corporate entrepreneurship’, also known as ‘intrapreneurship’ (Zuchella & Scabini, 2007: 69–70, 113). These approaches will be introduced in the following chapter.

2.6.2.5Individual and corporate international entrepreneurship

When born global firms have grown successfully over time and thus have become mature and carry out various cross-border activities, the variability of the term ‘entrepreneurship’ is increased. Corporate entrepreneurship is characterized by a new division in an established company that identifies and develops new business opportunities for the firm. The department or division acts autonomously, has a relatively flat hierarchical structure, but has strong internal integration with high availability of resources and support from management. In contrast to this, the term dispersed corporate entrepreneurship (intrapreneurship) assumes that every employee has the potential to behave in an entrepreneurial way. Thus, entrepreneurial groups are formed and deal with normal managerial tasks. This entrepreneurial culture within the company culture serves as a basis for any activity, including among others the firm’s internationalization movements (Zuchella & Scabini, 2007: 113). The phenomenon of rapid internationalization is often a result of a firm’s internal projects carried out by team members with entrepreneurial and international spirit (‘international intrapreneurship’) (Cavusgil & Knight, 2015: 11).

There are several ways that entrepreneurial activities can take place either inside or outside of a firm. Developing them inside the firm would involve organizational structures and managerial capabilities. Outside development would include another business stakeholder – for example, long-term contractual relationships with a supplying firm. Entrepreneurial activities increasingly become the focus of international subsidiaries of mature and rather large enterprises. These subsidiaries are controlled by the firm’s headquarters but act proactively and find new resources and chances to expand their business. Over time, they develop their own unique capabilities and personal bilateral relationships. The local environment makes local managers alert to new opportunities and creates an entrepreneurial orientation within the subsidiary. As a result, the local subsidiaries act independently for the most part in pursuing opportunities and develop an organizational culture that sets particular international goals and strategic directions. This development of entrepreneurial subsidiaries can be seen in connection with the need for local market responsiveness. To what extent the subsidiary can determine independent actions, roles, and objectives, or whether these issues have to be strictly in accordance with the goals of the headquarters seems to be important. The self-determined and autonomous approach facilitates local entrepreneurship. It ensures exposure to different resources, local knowledge, and close contact with markets and their customers. Entrepreneurial subsidiaries allow further development of adapted solutions and more effective management in the course of the firm’s internationalization process (Zuchella & Scabini, 2007: 113–117).

If the role of the firm’s international subsidiary is more independent and innovative, it develops and implements better performing strategies because it is closer to the local markets. Moreover, this role supports the employee’s motivation to be innovative and entrepreneurial in the future. It can be assumed that turbulent, complex, and dynamic environments better foster entrepreneurship due to the pressure for the firm to be competitive through permanent innovation and improvement. Nevertheless, there is still a need for coordination and integration of companies in order to avoid duplication of efforts. The multinational firm needs to monitor and evaluate the subsidiary in strategic and financial terms, which cannot be done without managerial and organization efforts that entail corresponding costs (Zuchella & Scabini, 2007: 118).

2.6.2.6Review of the international new venture, born global, and entrepreneurial concepts

Entrepreneurship and its impact on a firm’s internationalization concepts are recent and upcoming research topics. The different contributions in this field have their roots in many disciplines (e.g., business administration and social sciences, psychology), but generally accepted definitions and unified theoretical frameworks are still missing (Holmquist, 2003: 74; Zuchella & Scabini, 2007: 57).

Success in international business is dependent upon the embedding of the entrepreneur in cross-border institutional structures comprising national and international networks (Young et al., 2003: 36). Coviello (2015: 23) claims that further research is necessary concerning the entrepreneurial characteristics and behavioral qualities that drive international new ventures. In addition to the role and influence of the entrepreneur, international new venture models take into account various other influential factors (e.g., the factor of time, internationalization processes, and internal and external environmental surroundings of the firm). The weight of a single businessman or entrepreneur when making internationalization decisions seems significant in small- and medium-sized companies. This influence is, however, rather restricted or even legally restrained in larger or multinational companies. The impact of the owner on internationalization decisions is fundamentally stronger in hierarchical cultures with a relatively high degree of top-down decision power than in less hierarchical firm cultures.

Rialp-Criado et al. (2002: 10) critically mention diversified denominations such as international new venture, born global, instant international, and so forth, which describe the same phenomenon of internationalization but increase the confusion and complexity of the theoretical concept. They further argue that the term ‘global’ is too ‘optimistic’ to be suitable for most firms and their degree of international scope. Therefore, the authors recommend using the term ‘international new venture’. In the corresponding literature, there are variations in the definitions regarding the time span until an international new venture records the first international sales after its establishment and how much this contributes to the total sales. Oviatt and McDougall (1997: 86) define a period of six years as a standard time span. Madsen (2013: 70) requires ‘coordinated value chain activities across borders within three years after inception’. Liesch et al. (2007: 852) categorize a firm as ‘born global’ when it ‘internationalizes rapidly after the firm’s establishment’. In comparison, Loane et al. (2007: 493) require 50 percent export ratio, while Karra and Phillips (2004: 1–2) presuppose ‘at least 25 percent international sales’, and Chetty and Campbell-Hunt (2004: 61) postulate ‘rapid engagement in multiple national markets’. Therefore, confusion arises because there are no fixed definitions of the time span concerning the initiation of international business after the firm’s establishment and the extent of foreign business in order to arrive at a common basis for empirical research.

Entrepreneurs take considerable risks when they pursue opportunities in international markets. Differences in international business performance among firms arise because of the creativity and modes of exploitation the entrepreneurs might use. Entrepreneurs are also embedded in a social context and in institutional external environments and experience with success and failure influence their internationalization behavior (Zahra et al., 2005: 131, 136).

Loane et al. (2007: 501) argue that entrepreneurship research tends to focus on the owner or key decision maker. In light of project team structures, particularly in knowledge-based industries, this approach needs to be reconsidered. Team members as a collective may have more experience in a greater number of international markets, and their combined networks of contacts are likely to be more extensive than those of a single founder Rapidly internationalizing small- and medium-sized firms are often founded by teams that have more diverse skills and wider personal network relationships (Cooper & Dailly, 1997: 144; Loane, Bell, & Cunningham, 2014: 469). Similarly, Zuchella and Scabini (2007: 172) recommend that the role of individuals, as well as organizations, has to be analyzed in conjunction with their relationship networks.

A firm-specific transformational process, sometimes provoked spontaneously due to severe market or technology changes, causes new organizational structures (Van de Ven & Poole, 1995: 535). Further research is necessary, which may lead to a classification of those environmental conditions that are more supportive of successful international entrepreneurship activities and those with neutral or negative influence (Young et al., 2003: 38). Hypothesis testing of entrepreneurial, international new venture, and time-based approaches tends to be difficult due to limited quantifiable data. For example, it is hard to verify whether a particular time event (e.g., a meeting with visitors who passed the firm’s booth at the trade fair by chance and later became international customers) causes changes or routes the international business activities of the firm in a particular direction. Thus, empirical methodology and a structured, dominant theoretical framework are missing in the current status of the literature. Future research is necessary in order to evaluate those determinants of behavioral patterns that describe how firms venture into foreign markets right from inception (Schwens & Kabst, 2008: 15).

Chapter review questions

1. How would you describe the major characteristics of an ‘early internationalizing firm’?
2. What are the significant differences between the interpersonal network approach and other internationalization theories?
3. Discuss conceptual overlaps between the resource-based view and the interpersonal network approach in terms of valuable resources, how to overcome resource drawbacks, and how to gain competitive advantages.

2.6.2.7The case of Xiaomi: An early internationalizer – made in China

Chinese mobile phone maker Xiaomi (which means ‘little rice’) was founded in April 2010 by Lei Jun. Listed by Forbes as one of China’s wealthiest entrepreneurs, Mr. Lei’s property was already worth USD 1.7 billion because he had cofounded three successful technology start-ups during and after the late 1990s (Yu, 2014).

The young company of not even five years of age has built up its business by learning from market rulers such as Apple and Nokia. Lei Jun is unmistakably mimicking Steve Jobs in his presentations and is copying Apple’s marketing techniques. In addition to acquiring managers from Microsoft and Motorola, signing Hugo Barrara (ex-Google executive) to become a member of Xiaomi’s growing international team has taken the company a step further toward going global and becoming a serious market competitor. Currently, the company is estimated to hold a total worth of USD 4 million and has joined the group of leading smart phone vendors in the world: Samsung, Apple, LG, and others. What is even more astonishing is that Xiaomi reached this position by mainly selling its products in Asia at very reasonable price levels (Horvath-Papp, 2015). The firm organization is, relative to its competitors, extremely simple in terms of its business units and managerial hierarchy (compare Figure 24)

Sharp supplies liquid crystal display (LCD) touchscreens and Qualcomm decided to supply processors to Xiaomi’s open innovation Miui system. Taiwan’s Foxconn, which also makes the iPhone, agreed to assemble the new Xiaomi phones (Yu, 2014). Unlike its competitors, Xiaomi does not spend money on traditional advertising. Xiaomi does not have a major network of its own stores to staff and maintain. Instead, it largely sells its phones directly to consumers through e-commerce distribution channels (Kan, 2014).

2.7Summary of Internationalization Theories

More than two hundred years ago Adam Smith and David Ricardo (compare Figure 25) were ahead of their time (in terms of reasons that favor liberalized trade patterns among countries) when they launched their trade theories (absolute and comparative advantage). After World War II, trade models were further developed (Heckscher-Ohlin). In addition, these models were amplified by a firm (management) perspective focusing on ‘location factors’ linked with the question of ‘where to initiate international business’. The location concept, despite all its methodological limitations (it is rather a structured approach than a generally applicable theory), has proved to be important. For example, manufacturing relocation activities due to changing regional differences influencing a firm’s value added activities (e.g., development of regional industry networks, local market size, costs, etc.) have been intensively discussed in light of the recent outcomes of globalization. Therefore, very recent contributions to the literature combine place and space in their discussions. The diamond model by M.E. Porter, first published in 1990, brings traditional location concepts to a national level. Taking a country perspective, the model indicates particular factors as drivers for gaining competitive advantage and is sensitive to issues that are hard for the enterprise to plan for (government and the role of chance).

The product life-cycle approach by Vernon (1966, 1972) was developed from the perspective of US-based enterprises and their international business activities for the period beginning after World War II until the 1960s. Against the background of liberalized trade patterns and shortened product and technology life cycles, Vernon’s product life-cycle theory became almost outdated for the majority of modern industries and their related economies. Nevertheless, Vernon’s model, combining the product’s age and varying international market entry concepts, significantly influenced the international management and marketing literature at that time.

The internalization concept of Buckley and Casson (1976: 109–110), which is based on the transaction cost theory (compare: Coase, 1937, Williamson, 1975, 1985), explained for the first time the nature and development of the MNE (which takes advantage of country-specific market failures). However, the internalization model fails to consider the phenomenon of changing internationalization processes (Johanson and Mattsson, 1988: 307) and the aspect of learning that is emphasized by the Uppsala model, which was introduced at the end of the 1970s.

The Uppsala concept (Johanson and Vahlne, 1977: 23–27) belongs to the most intensively discussed models in the corresponding literature in the last decades. Meanwhile, the model has not proved totally obsolete; but a firm’s independent, linear, and forward-directed internationalization approach does not serve as a general theory, particularly against the background of globalized procurement, manufacture, and sales patterns.

At the beginning of the 1980s, the eclectic (OLI) paradigm by Dunning appeared in the literature. The model combines elements of the resource-based view, location concepts, and the internalization theory. The attempt to reflect as much as possible the complex international business environment in the theory served at the same time as major criticism of the eclectic paradigm. The eclectic paradigm shaped the academic discussion of firms’ internationalization during the 1980s until the 1990s.

At the end of the 1980s and in particular during the 1990s, more and more findings in empirical research led to the conclusion that firms tend to be embedded in supplier-customer-competitor networks. Consequently, firms do not decide their internationalization activities independently. For example, the fact that a firm has to ‘follow its important customer abroad’ (as witnessed by increasingly globalized value added activities) in order to remain a supplier is definitely not an independent decision of the firm. Alternatively, a competitor’s movements towards other regions in the world may force a firm to follow and to enter a certain foreign market (‘follow the competitor’). In contrast to Uppsala, which emphasizes ‘self-learning’, the network literature indicates a common denominator: the development and transfer of knowledge through active and/ or imitator learning from other actors (e.g., suppliers, customers, competitors) in the industry network. The inter-organizational network theory is based on the assumption that a firm’s changing internationalization situation is the result of its institutional positioning (as a result of bilateral relationships with other actors) in a network. Industry network structures change over time, which leads to a network reconfiguration of the involved firms (e.g., instabilities lead to the termination of a joint venture).

Since the middle of the 1990s, due to the phenomenon of small and young firms that immediately internationalize following their foundation, there have been an increasing number of articles that deal with the factor of time and the behavioral aspects of internationalization. Research on behavioral aspects deals with the role of the entrepreneur and/or the team in international new ventures (born globals). All of this research disagrees with the Uppsala model, which claims an incremental internationalization path from neighboring markets to more distant markets utilizing accumulated experience and learning.