- Strategy and entrepreneurship
Some companies rapidly become players on the global stage, often much faster than larger competitors. Alina Kudina, George Yip and Harry Barkema studied a dozen such firms all located in Silicon Fen. Such companies, the authors believe, have lessons to teach in an increasingly international marketplace.
Most multinational companies – such as BT, Microsoft, Matsushita and Siemens – grew big in their home markets before they went overseas. More recently, a number of newer companies (mostly small- and medium-sized enterprises) have gone international within a few years of inception, even while quite small and unknown at home. Furthermore, these so-called “born globals” rapidly reach very high percentages of international revenues, sometimes 100 per cent of their total revenues. In contrast, in most countries, most companies manage only token levels of internationalization. For example, of the 300 or so largest publicly listed UK companies, fewer than 30 per cent generate half of their total revenues from international sales.
Born-global companies merit much more attention than they are receiving, as their growth strategies could provide lessons for many other organizations. We have been studying such firms to unlock their secrets to success. Specifically, we have been trying to pin down when a firm should seek early and rapid internationalization – and how to do it successfully.
A brave (and quick) new world
First, let’s define the genus of business that we have been studying. Classically, born globals, or international new ventures (INVs) are defined by one source as “business organizations that, from inception, seek to derive significant competitive advantage from the use of resources and the sale of outputs in multiple countries”. A more quantitative definition, from another source, describes born globals as “companies who have reached a share of foreign sales of at least 25 per cent within a time frame of two to three years after their establishment”. Definitions aside, what’s most intriguing is how they became global enterprises so quickly.
The traditional approach to internationalization has been described as a “stage” model, in which a company first grows solidly in its home market, and then starts exploring opportunities for expansion into adjacent countries in the region. As the company’s experience and familiarity with foreign markets grows, it subsequently ventures farther overseas. A number of large multinationals have followed this path, starting with old European companies like BP, Philips and Bank Santander, and continuing with much younger technology companies like Nokia and Ericsson.
However, as noted, a growing number of companies are venturing international having just been founded; their path to internationalization is much more rapid than the traditional one. Prior research has found three key reasons for the emergence of born globals: new market conditions, advances in technology and managerial change.
Nevertheless, a question that remains largely unanswered is why some new ventures opt to go international from their inception, whereas some choose the traditional path of developing their domestic markets first. Prior experience of the founders, their international experience and recognition of international business opportunities, followed by the level of global integration of the industry in which a company operates – these are some of the reasons that have been put forward most often as possible explanations. Perhaps a more critical way of looking at this question is from the viewpoint of a company’s top management. When should they seek to go international early? After all, foreign business is generally much tougher than domestic business. Why not stay at home as long as possible?
High tech and highly global
We knew that high-technology companies were particularly prone to the born-global effect, and we wanted to investigate why some of these companies were more successful in their internationalization efforts than others. In order to control for as many confounding factors as possible, we studied only companies in the same geographic area, an area of Britain known as the Greater Cambridge Area Cluster or, more colloquially, “Silicon Fen”. This meant that all the companies were subject to the same geographic influences, particularly through the role of the University of Cambridge in generating technology innovation and related business start-ups.
Cambridge has been acknowledged as one of the world’s leading high-technology business clusters by various publications including Time, Fortune and Wired. For example, Time assessed the top 50 hightechnology companies in Europe, and nine were based in Cambridge. Also, this area is one of a handful of regions to be consistently ranked by the European Commission as “excellent for its support of innovative start-ups”. Currently, Cambridge Technopole (another name for the region) is home to over 1,500 high-technology ventures employing around 45,000 people.
In the summer of 2006, we began an intensive study of one dozen high-technology companies located in the Greater Cambridge Area Cluster. The sector includes computer services, Internet, software, computer hardware, electronic office equipment, semiconductors and telecommunications equipment.
Continue Reading in PDF Format . . .