Int. Journal of Business Science and Applied Management, Volume 3, Issue 2, 2008

A study of the enablers of non-sequential internationalization

process among small and medium-sized firms

Aihie Osarenkhoe

Department of Business Studies, University of Gavle,

SE-801 76 Gavle, Sweden

Tel: +46 (0) 26 64 85 84

Fax: +46 (0) 26 64 85 89

Email: aoh@hig.se

Abstract

The question addressed in this paper is: Is non-sequential internationalization process solely technology enabled

or a product of mutually interdependent forces? It is shown in this paper that even though the sequential

approach in the process model is intuitively appealing, not all firms follow such a path. This void is filled by

explaining how the international market entry process has changed with respect to the sequential approach. Data

collection entails 60 Swedish SMEs operating in other countries and foreign SMEs operating in Sweden that

tends not to develop in incremental stages with respect to their international. Findings include: that the sequential

model is by no means reflective of, or appropriate for all firms’ approaches to international business; the

usefulness gained by using an international relationship approach to study the international activity of a firm; and

the interplay between the identified driving forces behind a non-sequential internationalization process.

Knowledge acquired from the empirical study is used to develop an integrated framework which aptly depicts

that non-sequential internationalization process is not solely enabled by technology, as commonly envisaged in

literature, but a product of mutually interdependent forces. Implications include: all firms are exposed to

irrecoverable transaction costs that hamper their behaviours and complicate export supply responses in

international markets. However, the magnitude of the costs and speed of internationalization is dependent on the

ability of the firms to take advantage of the enablers of non-sequential internationalization pattern. This is

particularly important for firms to and from developing countries and emerging markets and their propensities to

succeed in their internationalization endeavours.

Keywords: non-sequential, Born globals, Uppsala internationalization model, transaction costs, relationships

and networks

Aihie Osarenkhoe

1 INTRODUCTION

Internationalization – the process of increasing involvement in international operations across borders

(Welch & Luostarinen, 1988) – comprises both changed perspectives and changed positions. Thus

internationalization is a major dimension of the ongoing strategy process of most business firms (Melin, 1997).

With the development of behavioural internationalization models (Johanson & Vahlne, 1977, 1990; Hedlund, &

Kverneland, 1985; Babichenko, 2006; Ruzzier et al., 2006), an unprecedented corpus of work in the

internationalization process of the firm has been produced in the last three decades. Thus the export behaviour

and internationalization processes of firms have received tremendous attention in extant literature involving

different and complementary research fields, from international business to international marketing and – more

recently – international entrepreneurship (Evans et al., 2000; Hutchinson et al., 2006; Evans & Bridson, 2005;

Servais & Rasmussen, 2004). Since the mid-1970s, two distinct streams of research have emerged, one in

Europe, e.g. (Johanson & Vahlne, 1977, 1990), and one in North America, e.g. (Bilkey, 1977; Cavusgil, 1980).

Both research traditions conceptualize export development as taking place in gradual and sequential stages

(learning sequences involving feedback loops), based on a series of incremental commitment decisions

depending on perceptions, expectations, experience, managerial capacity, etc. The firm is assumed to build a

stable domestic position before starting international activities.

The Uppsala model (Johanson & Vahlne, 1977, 1990) has its theoretical base in the behavioural theory of

the firm (Cyert & March, 1963; Aharoni, 1966). The origin of the behavioural approach and its role in a firm’s

growth path is found in the theory of the growth of the firm (Penrose, 1959). The basic assumption in Johanson

& Vahlne’s (1977) model is that the outcome of one decision - or more generally one cycle of events –

constitutes the input of the next. This internationalization model is considered a process in which a firm’s

international engagement is believed to increase gradually. The process evolves in the interplay between the

development of knowledge about the foreign markets and operations, and an increasing commitment of

resources to those markets (Johanson & Vahlne, 1990; Johanson & Associates, 1994). The central issues of the

model are how organizations learn and how their learning affects their investment behaviour (Forsgren, 2002).

Another important aspect of the Uppsala model is that it is a dynamic model; it describes the internationalization

of a firm as a gradual process. However, the number of people with extensive experience of international trade

has also grown, meaning that firms can easily hire the competence they require rather than creating it themselves

(Hollensen, 2001; Hill, 2003; Wild et al., 2003). In an evolving international economy dominated by growing

global integration, emerging fragmentation of traditional markets into global niches, and the birth of new

competitive spaces thanks to technological developments, the steps and modes of foreign markets entry could

experience significant deviations compared to the internationalization patterns of firms characterized by a series

of incremental decisions, experiential learning and risk aversion, as envisaged in the traditional sequential

models (Luostarinen, 1994; Cavusgil, 1980; Bilkey & Tesar 1977; Leonidou & Katsiekas 1996; Johanson &

Vahlne, 1977, 1990). As the stage models imply internationalization in stages in countries with little

psychological distance, it is not particularly applicable to those types of firms that tend to skip certain stages of

the process in order to accelerate it. A review of extant literature gives the impression of a fragmented view of

the driving forces behind the rapid internationalization process encountered by many small and medium size

firms today.

The basic research question to answer in this paper is: Is non-sequential internationalization process enabled

by single independent factors (e.g. technology, networking ability, business specific or globalisation factors) as

commonly envisaged in literature (Lindqvist, 1991; Saarenketo et al 2004; Coviello and Munro, 1997; Chetty

and Blankenbourg Holm, 2000; Jolly et al., 1992; Bell, 1995; Keeble et al., 1998; De la Torre and Moxon, 2001;

Dunning and Wymbs, 2001; Autio et al, 2000), or a product of mutually interdependent forces?

In other words, this paper aims to show that even though the sequential approach in the process model is

intuitively appealing, not all firms follow such a path. This void is filled by explaining how the international

market entry process has changed with respect to the sequential approach. The findings from the empirical study

of firms that tend not to develop in incremental stages with respect to their international activities, and therefore

start international activities by entering very distant markets and multiple countries right from birth without prior

experience, is used to develop an integrated framework.

The rest of this paper proceeds with a presentation of internationalization models that can be used to explain

the rapid internationalization process encountered by many small and medium size firms today, followed by a

description of the research context and presentation of the findings. The knowledge gained from the empirical

studies is then used to develop a framework that links the driving forces behind the non-sequential approach to

internationalization. The paper closes with concluding remarks and implications. In this paper, stage models and

Uppsala model are synonymous and both models used to depict sequential process of internationalisation.

Int. Journal of Business Science and Applied Management / Business-and-Management.com

2 THEORETICAL FRAMEWORK

Three models for explaining the internationalization process form the basis for the theoretical framework.

Transaction Cost Approach suggests that the most efficient choice of internationalization pattern is one that will

help minimise production and transaction costs (see Table 1). In contrast to series of incremental decisions,

experiential learning and risk aversion envisaged in Uppsala Internationalization model, extant literatures

suggest that a network perspective can be used to study the rapid internationalization of SMEs.

The point of departure of the corpus of writings on internationalisation of firms is general marketing

theories. The Penrosian tradition (Penrose, 1959; Prahalad and Hamel, 1990), for example, reflects the traditional

marketing focus on the firm’s core competences combined with opportunities in the foreign environment (cf.

Hollensen, 2007). The cost-based view of this tradition suggests that the firm must possess a “compensating

advantage” in order to overcome the “cost of foreignness” (Kindleberger, 1969; Hymer, 1976; Dunning, 1980,

1988). This led to internationalisation being dealt with as the choice between exporting and Foreign Direct

Investment (Dunning, 1980, 1988; Leonidou, and Katsikeas, 1996; Buckley et al 1998) Later on, technological

and marketing skills were identified as the key success factors in foreign entry (Jolly et al 1992; Bell, 1995;

Bennett, 1997; De la Torre and Moxon, 2001). During the past decade there has been increased focus on

internationalization in networks, by which the firm has different relationships not only with customers but also

with other actors in the environment (Axelsson and Easton, 1992; Håkansson and Johanson, 1992; Hadley and

Wilson, 2003; Boari et al., 2004, Johanson and Mattsson, 2006; Johnsen, 2007).

Uppsala Internationalization (Stage or Sequential) Model

The main consequence of the Uppsala Internationalization Model (Johanson and Wiedersheim-Paul, 1975;

Johanson and Vahlne, 1977) is that firms tend to intensify their commitment towards foreign markets as their

experience grows. The core antecedents of the Uppsala Internationalisation Model are experiential learning and

risk aversion. Together, the two issues explain why firms typically adopt an incremental and sequential approach

to internationalization, while the different stages describe how the process occurs (Chetty, 1999; Zucchella,

2004; Servais & Rasmussen, 2004). The Uppsala model thus describes, and to some extent predicts, the

internationalization process of firms (Cavusgil, 1980; Bilkey & Tesar, 1977; Leonidou & Katsiekas, 1996;

Johanson & Vahlne, 1977, 1990). Its basic premise is that the outcome of one decision – or, more generally, one

cycle of events – makes up the input of the next. In the model, a distinction is made between the static and the

changing aspects of the variables of internationalization. Commitment of resources to the foreign markets

(market commitment), and knowledge about foreign markets and operations, are the two main components of the

static aspects. Decisions to commit resources and conducting current business activities are the main variables of

the change aspects. Market commitment and market knowledge are believed to influence the decisions about

commitment of resources to foreign markets and how current activities are conducted. Thus internationalization

is seen as causal of cycles.

Transaction Cost Approach (TCA)

The foundation for TCA was made by Coase (1939). He argued that analysis should focus on the costs of

entering into transactions (see Table 1). The internalization perspective is closely related to the TCA

(Williamson, 1975). The paradigmatic question in internalization theory is that, upon deciding to enter a foreign

market, should a firm do so through internalization within its own boundaries (a subsidiary) or through some

form of collaboration with an external partner (externalization)? The internalization and TCA are both concerned

with the minimization of Transaction Cost and the conditions underlying market failure (Williamson, 1979;

Horaguchi & Toyne, 1990; McNaughton, 2002; Dunning, 1980, 1988). The intention is to analyse the

characteristics of a transaction in order to decide on the most efficient, i.e. Transaction Cost minimizing,

governance mode. The internalization theory can be considered the TCA of the multinational corporation

(Rugman, 1986; Madhok, 1998). For example, when a firm is going to internationalize, it may find the search

costs for a nearby and familiar market more acceptable than those for a market further away. And, if it finds that

it is cheaper to organize the internationalization through an intermediary, it will externalise.

Aihie Osarenkhoe

Table 1: Three models for explaining the internationalization process

Uppsala

Internationalisation Model

(Johanson & Wiedersheim-

Paul, 1975; Johanson &

Vahlne, 1977, 1990, 1993;

Cavusgil, 1980; Bilkey &

Tesar, 1977; Leonidou &

Katsiekas, 1996. Forsgren,

2002. servais & Rasmussen,

2004; Anderson, 1993;

Babichenko,2006).

Transaction Cost Analysis)

Model

(Williamson, 1975, 1985; Buckly

& Casson, 1976; Rugman, 1986:

Madhok, 1998; Kogut, 1988;

Contractor & Lorange, 1988),

Hollensen, 2007; Donaldson &

O`Toole, 2007; McNaughton,

2002; Borgensen, 2006; Horaguchi

and Toyne, 1990)

Network Model

(Johanson & Mattsson, 1988,1992;

Johanson & Associates, 1994;

Johanson & Vahlne, 2003;

Håkansson & Johanson, 1992; Ford

et al. 1986; Turnbull & Valla, 1986;

Axelsson &Easton, 1992; Chetty &

lankenburg-Holm, 2000; Mattsson

& Johanson, 2006; Chistokhvalova,

2004; Ford et al., 1986; Tikkanen,

1998; Havila et al. 2004)

Unit of

analysis

The firm The transaction cost approach

focuses on costs and how these

costs affect a firm’s choice of

market and mode of entry.

Draws on theories of social

exchange and focuses on firm

behaviour in the context of

interorganizational and interpersonal

relationships.

Assumptions

about firm’s

behaviour

Internationalization is linked

with managerial learning - a

key element for a firm

moving from one stage to

another. Internationalization

is defined as a step-by-step

process from the simplest

form (export) to

manufacturing abroad (This

process combines getting

experience and knowledge

and increasing resource

commitment to a foreign

market.

Transaction cost analysis proposes

that analysis should focus on the

costs of entering into transactions.

It views organisational structure as

one important arrangement for

establishing and safeguarding

transactions and reducing

transaction costs between

participants and across

organisational boundaries. Hence it

is useful to classify transaction

costs into: costs of searching for

information about markets,

products, buyers and sellers;

negotiation costs; and monitoring

(enforcement) costs.

The ‘glue’ that keeps the

relationships together is based on

technical, economic, legal and

especially personal ties. It

emphasizes the role and influence of

social relationships in business

transactions. According to the

network perspective, a relationship

involves the control of resources, the

implementation of activities, or the

link between resource and activity.

A firm does not act alone in relation

to other actors in a market. Through

interactions, the various actors build

knowledge about mutual trust,

which leads to a strong commitment.

Explanatory

variables

affecting the

process

development

Internationalization is seen

as causal of cycles. Further

market commitment occurs

in small steps – with three

exceptions: The

consequences of

commitment are small when

firms have large resources.

Firms with surplus resources

are therefore expected to take

larger internationalization

steps; Relevant market

knowledge can be gained in

ways other than through

experience if market

conditions are homogeneous

and stable.

However, in the real world there

are transactional difficulties

between buyer and seller. This

friction is mainly caused by

opportunistic behaviour: the self-

conscious attention of the single

manager. Transactional difficulties

and transaction costs increase

when transactions are characterized

by: Asset specificity; Uncertainty

(internal and external); Frequency

of transaction.

Long-term relationships between

business actors and the context in

which the firm operates have the

explanatory value in the description

of the internationalization of firms.

Hence the network in which the firm

is active enables the

internationalization. All the actors in

a network are interdependent and

interact with each other in one way

or another. This makes it possible

for a firm to have a high degree of

internationalization without a high

degree of assets in a specific foreign

market. Another assumption in the

model is that a firm is dependent on

other firms’ resources within the

network, for example, customer and

supplier relationships.

Normative

implications

for

international

Businessmen

Additional market

commitments should be

made in small

incremental steps: Choose

new geographic markets with

small psychic

distances from existing

markets; Choose an ‘entry

mode’ with few

marginal risks.

Firms should select the

organizational form/location for

which transaction costs are

minimized. A firm will expand its

operations until the cost of making

an extra transact-ion within the

firm is equal to the cost of making

similar transaction elswhere. The

firm will continue to grow

internally, internalise, until

external sources have a cost

advantage, and then externalise.

Network relationships are critical

avenues for the acquisition of

resources and knowledge necessary

for foreign development of firms.

The relationships of firm in a

domestic network can be used as

bridges to other networks in other

countries. Such direct or indirect

bridges to different country

networks can be important in the

initial steps abroad and in the

subsequent entry of new markets.

Int. Journal of Business Science and Applied Management / Business-and-Management.com

Network Approach

Table 1 shows that the basic assumption of the network approach is that the international firm cannot be

analysed as an isolated actor but has to be viewed in relation to other actors in the international environment

(Turnbull and Valla, 1986; Johansson and Mattsson, 1988; Forsgren, 2002; Butel & Watkins, 2006). Many

trends in the international business environment of today are providing fertile conditions for the use of

relationship to cement and develop international business. Hence, a growing number of scholars advocate the

adoption of a network perspective to understand and explain the rapid internationalization of young firms

(Coviello & Munro, 1997; Chetty, & Campbell-Hunt, 2003; Hadley & Wilson, 2003; Johnsen, 2007). According

to Szarka (1990)

the small firm is particularly dependent on the nature and quality

of its relations with other firms

and with the external world.

These relations can be conceived in terms of exchange networks,

communication

networks and social networks. Boari et al (2004) illuminated the role of social inter-organizational networks in

facilitating internationalization process. They extended the network approach to include the social networks

theory (Lin et al, 2001), thereby affirming that social competence available in firms enables the

internationalization process. A common denomination in the definition of social capital offered by Nahapiet and

Gh oshal (1998) and Lin et al. (2001) is their definition of social capital construct as resources embedded in a

social structure, which are accessed and/or mobilized in purposive actions, and it is considered a heterogeneous

resource that consists of structural, relational and cognitive components.

It is pertinent to mention that many firms no longer develop in incremental stages with respect to their

international activities (Aspelund et al., 2007; Andersson and Evangelista, 2006; Svensson, 2006; Knight et al.

2004). Firms are often reported to start international activities right from their birth, to enter very distant markets

right away, to enter multiple countries at once, to form joint ventures without prior experience, etc. Such firms

have been labelled International New Ventures (Oviatt & McDougall, 1994), High Technology Start-Ups (Jolly

et al., 1992), and Born Globals (Cavusgil, 1994; Knight & Cavusgil, 1996; Madsen & Servais, 1997; Autio et al,

2000) Born-again global firms (Bell et al. 2001); New generation of small European exporters (Moen, 2002);

International entrepreneurship (Mort and Weerawardena, 2006).The explanation for this new picture of

internationalization of firms is claimed to be increasingly global conditions, new developments in transportation

and communication technologies, and the rising number of people with international experience, networking and

entrepreneurial capabilities of the owners of the firm. Consequently, these variables (business-specific factors,

networking magnitude, entrepreneurial prowess, and global mindset) are extracted from extant literature. The

variables are used as yardstick to operationalise the research problem stated in this paper.

3 RESEARCH METHODOLOGY

The following criteria were used to identify the firms that tend not to develop in incremental stages with

respect to their international activities, and therefore start international activities right from their birth, to enter

very distant markets right away, to enter multiple countries at once without prior experience, etc., are the

following: 1) The firms have been operating internationally for no more than five years; 2) The firms are

engaged in international operations and therefore maintain an international presence, with at least 50 percent of

sales volume from abroad; 3) The firms are not only exporters but also importers; 4) The firms encompass all

sectors, including high-tech, food products, entertainment, fashion, medical services, indeed, all business sectors;

5) They are small and medium-sized firms (SMEs) with a total workforce of no more than 10. The data banks of

the Swedish Trade Council and the Gävleborg and Stockholm counties’ Chambers of Commerce were utilized to

locate the firms. The empirical study entails analysis of new exporters from among the small and medium-sized

firms. This means that the focus was not only on new – entrepreneurial – firms, but also on firms that have

recently begun to export to Sweden and from Sweden, as well as on firms with growing exports in the five years

prior to the survey – the so-called emerging exporters. In this way, sporadic exporters were excluded from the

survey, along with firms that were highly international. 90 emerging exporters were identified and, of these, 60

answered the questionnaire and were also interviewed. Since the survey encompasses Swedish SMEs operating

in other countries and foreign SMEs operating in Sweden that meet the above-stated five criteria, the findings

(review of extant literature and empirical data reported in this paper) are transferable to other geographical

contexts.

During the data collection process, the majority of the companies requested anonymity. The characteristics

of the investigated firms are summarized in Table 2, which lists variables such as business-specific factors or

line of business, niche focus, networking attitude and magnitude, entrepreneurial prowess or organizational

capabilities, and geographical coverage or global mindset. The above characteristics were measured against

performance parameters rated as Strong (based on a score of > 85%), High (a score of >75%), Average and

Weak (a score of <75% and <25%, respectively). Precocity implies the number years from inception to first

foreign sales. “0” implies that the firm was global from day one and without sales in the domestic market. In this

study, business networks are defined as a set of interconnected business relationships, in which each exchange

relation is between firms conceptualized as collective actors (Anderson et al., 1994; Håkansson & Johanson,

Aihie Osarenkhoe

1992), which has shown that establishment and development of lasting business relationships are important

elements in improving the effectiveness and efficiency of firms.

Entrepreneurial prowess, in this study, assessed the role of entrepreneur along the dimension of vision,

innovativeness, and organizational capabilities in international growth. The frame of reference to operationalize

the entrepreneurial prowess and managerial factors in this study originates from Zucchella’s (2004)

recommendations. Entrepreneurial prowess and managerial factors are operationalized against the background of

the changing economic landscape in the business environment which has led to the emergence of a new breed of

entrepreneurs and managers with a higher education than their predecessors, and a stronger international vision

(thanks to intense use of Information and Communication Technology (ICT), frequent travel, studies abroad,

better knowledge of foreign languages). The relevance of business-specific factors (niche orientation) in

explaining early and fast international growth has been underlined. It is assumed that niche orientation could be a

driver of early and accelerated internationalization processes, because micro-segmenting potential markets are by

definition a world-based process (Zucchella, 2004). This implies that global scope (Nummela, 2004) is the

natural outcome of a deep niche focus. Deep niche firms, although small in size, can be leaders in their market

segment on a global scale (Malaksedh & Nahavandi, 1985). For the purpose of this study, opting for a deep

niche focus is predominantly a matter of entrepreneurial drivers, competences and vision, with a strong impact

on the firm’s international performance. For this reason, the argument will also be considered under

entrepreneurial factors.

4 ENABLERS OF NON-SEQUENTIAL INTERNATIONALIZATION PROCESS

Table 2 below shows findings from survey of 60 small and medium-sized firms (SMEs ). The criteria for

selecting Swedish SMEs operating in other countries and foreign SMEs operating in Sweden entail firms that

tends not to develop in incremental stages with respect to their international activities is available in the previous

section. In Table 2, global in terms of geographical mindset implies that the firm operates in one form or the

other in at least three continents. EU implies that the firm has international activities in at least eight of the

European Union member countries. Europe : if the firm is operating in some EU nations and at least two

European states that are not members of EU. Americas includes North and South America. The firm is regarded

to have operation in the Americas if it conducts business in at least five Latin American nations and some states

in USA. Asia implies that the firm is operating in at least eighty Asian countries. The summary in Table 2 shows

that non-sequential internationalization processes are common and typically include the features of born globals

and in some cases leapfrogging. A majority of the firms showed strong international vision and organizational

capabilities, despite the absence of international experience. The knowledge gap was filled by employing export

consultants, and the Swedish Trade Council as well as Chambers of Commerce proved to be valuable in this

regard. All the investigated firms fit into the born global characteristics: global orientation within two years of its

inception, niche focus, non-sequential entry modes, global mindset irrespective of psychic distance, greater

proportion of sales abroad, and in some cases no domestic sales at all (Mort & Weerawardena, 2006; Moen,

2002; Rasmussen et al., 2001). The salient features of an integrated framework where the main drivers of non-

sequential internationalization process are integrated are depicted in Figure 1.

Figure 1: Integrated framework of the enablers of a non-sequential internationalization

“Born

Global”

Technological

Forces

Globalisation

Forces

Entrepreneurial

Process

International

Relationships/

Networking

Business Specific

Factors

Table 2: Findings from survey of 60 Swedish and foreign small and medium-

sized firms (SMEs).

Firms

Business

sector

Entry

modes

%foreign

sales to

tot. sales.

Preco-

city

Global

mindset

Geographical

coverage

Entre -

preneu-

rial

prowess

Relation-

ship

Netwo-

rking

Dependency

on Techno-

logical tools

1 Medical high tech

JV (Joint venture) 90% 2 Global Strong Strong High

2 Foodstuffs Export 70% 2 Global Strong Strong High

3 High tech JV, production

plants

100% 0 Global Strong Strong High

4 Foodstuffs Exports 50% 1 EU, Asia,

USA

Strong Strong High

5 Music Export, concerts,

www

90% 0 Global Strong Strong High

6 Online gaming Website 50% 1 Asia, EU,

USA

Strong Strong High

7 Ecological

clothing

FDI (Foreign

direct investment)

80% 1 Global Strong Strong High

8 Foodstuffs Export, JV 60% 2 EU, Asia,

USA

Strong Strong High

9 High tech FDI 100% 0 Global Strong Strong High

10 Electronics Sales subsidiary 100% 0 Global Strong Strong High

11 Online music Export 70% 1 Global Strong Strong High

12 Software FDI 95% 0 Global Strong Strong High

13 Precision

mechanics

Export, JV, FDI 80% 2 Global Strong Strong High

14 Mechanical parts Export, sales

subsidiary

75% 2 Global Strong Strong High

15 Clothing/fashion World Wide Web 95% 0 Asia, EU,

USA

Strong Strong High

16 Health foods Export, sales

subsidiary

80% 1 Global Strong Strong High

17 Health foods Export, agents 85% 0 Global Strong Strong Average

18 Home electronics Export, World

Wide Web

70% 0 Global Strong Strong High

19 Fashion/clothing Export, FDI 100% 0 Global Strong Strong High

20 Leather products Export, FDI 80% 1 Global Strong Strong High

21 Hides & leather Export 98% 0 Global Strong Strong High

22 Cosmetics Export, FDI 78% 2 EU, USA,

Russia

Strong Strong High

23 Whitefish roe Export, website

“hits”

80% 1 Global Strong Strong High

24 Jeans/clothing Export, agents 90% 0 EU, Asia,

USA

Strong Strong High

25 Music Export, concerts 88% 1 Japan, China,

Strong Strong High

26 Organic foods Export, agents,

website

100% 0 Global Strong Strong High

27 Video

communities

Website 100% 0 Global Strong Strong High

28 Fashion/clothing Export, website 92% 1 EU, Asia,

USA

Strong Strong High

29 Music videos Website 100% 0 Global Strong Strong High

30 Traditional foods Website, agents,

export

100% 0 Global Strong Strong High

31 Traditional foods Agents, export 80% 1 Global Strong Strong High

32 Fashion/clothing Website, JV (Joint

Venture)

100% 0 Global Strong Strong High

33 Health foods Website, Export 100% 0 Global Strong Strong High

34 Ecological

clothing

Website, Export 100% 0 Global Strong Strong High

35 Music Export, online

concerts

90% 2 Global Strong Strong High

36 Online gaming Website 70% 1 Asia, EU,

USA

Strong Strong High

37 Hides & leather JV, FDI 100% 1 Americas,

Australia,

Europe

Strong Strong High

Aihie Osarenkhoe

38 Jeans/clothing Export, JV, FDI 60% 2 EU, Asia,

USA

Strong Strong High

39 Fermented

herrings

Export, agents 100% 0 Global Strong Strong High

40 Fermented

herrings

Website/online

sales

100% 0 Japan, China Strong Strong High

41 Cosmetics Export, sales

subsidiary

86% 1 Europe,

Australia

Strong Strong High

42 Whitefish roe Online sales,

Agents

100 0 Asia,

Americas

Strong Strong High

43 Ginger biscuits Export, website 80% 2 Global Strong Strong High

44 Crisp bread Export via online

sales

90% 2 Global Strong Strong High

45 Clothing/fashion Online sales 95% 0 Asia, EU,

USA

Strong Strong High

46 Health foods Export, sales

subsidiary

90% 0 Global Strong Strong High

47 Cosmetics Sales subsidiary,

WWW

95% 2 Europe,

Americas

Australia, Asia

Strong Strong Average

48 Smoked salmon Online sales 100% 0 Asia,

Australia,

USA

Strong Strong High

49 Music Concerts, in store

sales

80% 1 Japan, China,

Strong Strong High

50 Glassware Export, online

sales

90% 0 Europe, Asia,

Americas

Strong Strong High

51 Interior design Export, online

sales, JV

98% 1 Global Strong Strong High

52 Interior design Agents, JV 90% 0 Global Strong Strong High

53 Souvenir articles Web site, sales

subsidiary

100% 0 Global Strong Strong High

54 Circular saw

blade

Sales subsidiary,

JV, FDI

90% 2 Asia,

Americas,

Africa

Strong Strong High

55 Diamond

sawblade

Sales

representatives,

FDI

100% 0 Africa,

Americas

Strong Strong High

56 Traditional foods Online sales,

agents

100% 0 Global Strong Strong High

57 Hi-tech products Web site, Agents,

90% 0 Global Strong Strong High

58 Electronics Sales subsidiary,

98% 1 Global Strong Strong High

59 Music videos WWW, online 100% 0 Global Strong Strong High

60 Swedish

glassware

Sales subsidiary,

online

100% 0 Global Strong Strong High

The Non-sequential Internationalization Process

Findings presented in Table 2 aptly depict that firms did not follow the traditional stages pattern in

their internationalization process. This is a sharp contrast to the sequential model of internationalization

(Johanson and Wiedersheim-Paul, 1975; Johanson & Vahlne, 1977, 1990, 2003). Such firms have been

termed born globals by Mort & Weerawardena (2006), Knight and Cavusgil (1996) and Madsen &

Servais (1997); global start-ups by Oviatt & McDougall (1994); high technology start-ups by Jolly et

al. (1992) and Keeble et al. (1998); infant multinationals by Lindqvist (1991); and international new

ventures by McDougall et al. (1994). The term born globals refers to firms that aspire to a rapid

international growth from early on in their lives, firms that implement a global strategy from inception

(McDougall et al., 1994; Oviatt & McDougall, 1994). Thus, the majority of the firms presented in

Table 2 exhibit the characteristics of born globals because many of them did not establish domestic

sales before starting international sales. Furthermore, in their choice of international market entry, the

majority of the firms ignored psychically close markets.

The concept, “born global” was introduced in academia by Cavusgi (1994): “There is emerging in

Australia a new breed of exporting companies, which contribute substantially to the nation’s exp ort

capital. The emergence of these exporters though not unique to the Australian economy, reflects two

fundamental phenomena of the 1990s: 1) Small is beautiful. 2) Gradual internationalization is dead” (p.

18). The main drivers of the non-sequential internationalization process model (see findings reported in

Table 2) consist of those that are firm-specific, executive management-specific, and those specific to

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environmental forces following globalization. Among such factors are information technologies, which

constitute the backbone of globalizing economies and societies (Kobrin, 1991). From the firm’s

perspective, IT supports real-time information flows, increasing and speeding up access to global

sources of information and to global business opportunities, and makes possible the management of

international value chains (Quinn, 1992; De la Torre & Moxon, 2001).

The growth of born globals can also be explained by the increased importance of niche markets

(Moen, 2002). Customers in mature markets demand specialized and tailor-made products because as

global markets grow increasingly efficient, competition no longer takes place between individual

businesses, but between entire supply chains (Sahay, 2003, p. 76). All the small firms presented in

Table 2 have no other choice but to specialize within a niche because competition is so fierce both

domestically and abroad. Such firms often achieve success through fast access to the market as their

products undergo continuous innovation and improvement. In other words, they are dependent on the

speed offered by technological developments. This creates good conditions for born globals. Thus, a

number of factors play a role in the development of born globals, which also do business in markets

where cultural differences and psychological distance are of decreasing relevance (Knight & Cavusgil,

1996; Rasmussen et al. 2001). As the Uppsala model implies internationalization in stages in countries

with small psychological distance, it is not particularly applicable to those types of firms that tend to

skip certain stages of the process in order to enter markets faster.

Changed environmental conditions following globalization

The globalization concept is something different from the idea of worldwide homogenization of

preferences, structures, etc (Otlacan & Otlacan, 2006). Globalization is a highly dynamic process that

leads to a growing worldwide interdependence, both accompanied and boosted by a growth and

interconnection of systems, geography, firms and individuals (Wild et al., 2003). The findings reported

in Table 2 demonstrate that the globally networked economy creates potentially new ways in which

firms can create and capture value from being quick to respond to changes in the market and in the

environment (Brandenburger & Nalebuff, 1998; Eisenhardt, 1989), to being able to profit from

information scanning and intermediation (Evans & Wurster, 1999; Otlacan and Otlacan, 2006) and

from knowledge creation and exploitation (Dunning, 2000). All firms presented in Table 2 aim at

international markets and the global market right from birth. Nordström (1991), however, believes that

differences between countries are beginning to diminish, leading to less psychological distance in an

increasingly homogeneous world. This circumstance, he suggests, leads to a situation in which start-up

companies will be increasingly willing to enter markets that were previously far away in terms of

psychological distance. This may be a result of the increased globalization taking place at present (Hill,

2003; Wild, 2003). Consequently, there is not the same need to create knowledge within the company

either, as it is relatively easy to source externally, for example because of the increased international

focus of education. The number of people who have experience of international trade has increased,

meaning that firms can hire the competence they need rather than creating it themselves (Saarenketo et

al., 2004). The ongoing market globalization removes barriers between markets and enables knowledge

to be transferred easily across large distances.

Against this background, born global phenomenon is not limited to just a few firms; it applies to

the majority of newly established exporting firms. “Furthermore, in terms of global orientation, export

strategy, competitive advantages and market situation – the newly established, highly-involved

exporters possess similar characteristics to the old global firms. Also, newly established low level

involvement exporters resemble old low level involvement exporters. Examining the differences

between newly established firms with high or low export involvement levels revealed that a decision

maker’s global orientation and market conditions (home and export markets) are important factors”

(Moen, 2002 p. 156). Consequently, this study supports findings by Moen (2006) that since a firm is

either “born global” or “born local”, the relevance of internationalization process stage models, as

described in previous research, must be questioned.

The role of technology in the internationalization process

According to Li et al. (2007), the first Internet boom started in the mid-1990s, and it quickly led to

a dot.com bubble on the stock markets, which eventually burst in 2001. However, the market recovered

very rapidly and by 2005 there was already talk of a second Internet boom, which is much more robust

than the first one. “Continuous rapid developments in Internet and related technologies, infrastructure,

services and applications are leading to new opportunities and challenges that could not even be

envisaged only a few years ago” (Li et al. 2007). Key benefits of Internet technology frequently

mentioned by the firms listed in Table 2 are that it lowers the cost of internationalization (see Quelch &

Klein, 1996; Sterne, 1995; Hoffman & Novak, 1996). Specific savings were gained in market research

Aihie Osarenkhoe

(Hamill & Gregory, 1998), and simplified order processing (Bennett, 1997). Internet technology

reduces the cost of transactions for most businesses (Afua, 2001; Gong et al., 2007) because it is easier

to give the right offer to the right person at the right time. Thus, the ensuing lower resource

requirements serve to level the playing field so that financial resource constraints no longer inhibit the

internationalization of small firms to the extent suggested by some earlier small business

internationalization literature (Buckley et al., 1998; Hansen et al., 1994). Hence, small firms are

expected to benefit from the advent of the Internet (Kozinet, 1999) since information technology has

been viewed as a facilitator of internationalization (de la Torre & Moxon, 2001; Dunning & Wymbs,

2001).The connections between the simultaneous rise in the number of born globals , accelerated/serial

international growth paths, and the spread of globalization processes, with their typical time and space

compression features, shrinking transportation and communication costs (Hofstein, 1992), and better

accessibility to information and knowledge (Czinkota & Ronkaininen, 1995; Nordström, 1991), seem

in fact substantial (Knight & Cavusgil, 1996). The findings from this study support Quelch & Klein’s

viewpoint (1996) that the Internet may help firms to capitalize on global niche opportunities.

International business literature proposes global niche opportunities as a route for small, resource-

constrained firms to internationalize rapidly (Hollensen, 2007; Wild. et al., 2003). The findings

reported in Table 2 demonstrate that the Internet enables small firms to compete globally because they

can contact foreign customers without expensive and time -consuming travel. Sellers can demonstrate

their products to prospective customers inexpensively and rapidly via video teleconferencing. Home

office managers have closer, more rapid, and less expensive contact with their overseas operations by

using e-mail. Consequently, changes in the technological environment are one of the drivers leading

firms to globalization of their operations (see Table 2 above).

Business-specific factors

Business-specific factors are operationalized in this study as the characteristics or nature of the

product being sold (Malaksedh & Nahavandi, 1985; Zuccella, 2004). The feature of the globalizing

economy pushes towards early and fast internationalization of a growing number of activities and

firms, but this occurs much more massively and intensely in certain industries, where the impact of

globalization dominates or even shapes the business itself. The digital economy led to the progressive

dismantling of barriers between industries, creating new competitive arenas where previously separated

industries converged, progressively, mainly due to technological advances (Hamel & Prahalad, 1994).

In these enlarged arenas, there is room for smaller niche firms, innovative and capable of dominating

their specific sub-arenas. To do this successfully, firms included in this study developed, from their

inception, a global orientation. The findings in Table 2 are supported by viewpoints by Preece (1988);

Bell et al. (2001) and Blomstermo & Sharma (2002). Preece et al. (1988) outline three basic conditions

that draw these firms into an early international expansion: 1) The tendency to organize within a

narrowly -defined market niche, which leads to an international market horizon in order to break even,

since the domestic one – at a small niche level – does not permit the to reach adequate sales volumes;

2) The high development costs typical of most businesses in digital space; 3) The speed of competition

and product obsolescence, which leads firms with short product lifecycles and intense competitive

dynamics to simultaneous domestic and international market penetration.

With reference to Table 2, an increasing number of SMEs , encompassing both tangible products

(clothing, foodstuffs, music, electronics, etc.) and intangibles (health care, music concerts, travel, etc.),

are getting involved in international activities more rapidly and intensively than they have historically.

Evidence from this study is not in agreement with commonly held views that the non-sequential

internationalization process is attributed solely to high-tech firms. On the contrary, the findings

demonstrate that a non-sequential internationalization exists in all industries, but is most common

among high-tech firms in the IT sector. The importance of executive management is emphasized due to

the fact that their view of the world plays a major role. These views are also related to views exp ressed

by Borgersen (2006) that firm-level factors are more important determinants of export behaviour than

factors related to industry. The importance of firm characteristics seems especially true for industries

dominated by SMEs, as they represent a myriad of different production technologies and their industry

characteristics are hard to detect.

Entrepreneurial prowess

According to Butel & Watkins (2006), entrepreneurs operate in conditions of dynamic uncertainty;

identifying and exploiting opportunities presented by the business environment. Opportunistic search is

core to entrepreneurial activity. Findings reported in this study regarding entrepreneurial abilities show

that the executive managers of born globals are often greater risk-takers than managers in traditional

firms. They are also more innovative and have an explicit global vision, making no distinction between

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the domestic and international markets. The whole world is viewed as a single marketplace. The typical

born global executive manager also has experience of an international market and has often previously

worked in an international firm; such managers are thus more capable of initiating a successful

international market entry as they have already built a network. Their common denominator is speed.

The above findings are in agreement with those of Saarenketo et al (2004). Moen (2002) also found

that the strategic choices and personal network of the entrepreneur are crucial, but that many questions

about the transfer of visions, leadership and knowledge remain unaddressed.

Firms that belong to the category reported in Table 2 were found to be more flexible in their

decision-making process. For example, they were quick to adapt to the demands and standards of

international markets. The owners of these firms have a global mindset. This finding is also in line with

that of Nummela (2004). Another societal trend that influences the growth of born globals is the

increasing relevance of global networks (Blomstermo et al, 2002). Successful international business is

facilitated to a great extent by partnerships and collaboration with international firms, including, for

example, suppliers and trade associations. According to Sahay (2003), collaboration can provide the

competitive edge that enables all the business partners in a supply chain to prevail and grow. In

addition, inexperienced managers can increase their chances of international success if they take their

time to build long-term and mutually profitable alliances with international companies (Hollensen,

2001; Elmuti & Kathawala, 2001; Todeva & Knoke, 2005). Successful international trade also

increases through the creation of partnerships with international players, such as distributors, trading

companies and traditional buyers and sellers (Blomstermo & Sharma, 2002). One way for small firms

to achieve international sales successes and at the same time suppress competition is, as mentioned

earlier and in Table 2, by entering into alliances with other firms. This observation is in agreement with

extant literature on strategic alliances and collaboration (for a review see: Elmuti & Kathawala, 2001;

Todeva & Knoke, 2005).

International Networking and relationship conceptualization

In the network context, internationalisation means that the firm develops business relationship in

networks in other countries through international extension, penetration or international integration

(Johanson and Mattsson, 1988; Coviello and Munro, 1997). The network approach is particularly

important in turbulent, high technology industries (Johanson and Vahlne, 1990). The definition of

network utilized in this paper, which is presented in the literature review and in the methodology

section above, is based consistently on a framework of international entrepreneurship researchers

(Anderson et al., 1994; Oviatt & McDougall, 1994; Coviello & Munro, 1997; Bell, 1995; Johanson &

Vahlne, 2003; Mattsson & Johanson, 2006), and considers that relationships develop gradually when

firms learn from interacting with each other and make a stronger commitment to the relationship

(Anderson, 1993). In other words, firms use their networks to gain access to resources, to improve their

strategic positions, to learn new skills, or to gain legitimacy (Gulati, 1995; Boari & Associates, 2004).

In this approach, networks are always analysed as a process (Coviello & Munro, 1997), because

markets are depicted as a system of relationships among a number of different players, and strategic

action is rarely limited to a single firm. Thus, the nature of interorganizational networks established

with actors in the market influences and often dictates future strategic options concerning the

internationalization process of firms (Coviello & Munro, 1997).

According to Mort & Weerawardena (2006), by operating in international networks, firms may

enjoy a “learning advantage” abroad and find it easier to go abroad than firms whose exchange partners

are domestic firms. Firms investigated in this study have shown to be successful without having a

reliable and stable domestic market. They have achieved success without gradually building an

international market. It is evident from Table 2 above that the founders’ networks were a vital enabler

of the pattern of internationalization indulged in by the majority of the firms. Many studies (Havila et

al., 2004; Rutashobya & Jaensson, 2004, Mattsson & Johanson, 2006) have shown the importance of

international networks, both on a personal level as well as on an organizational level, in understanding

a firm’s international development. However, some born global firms studied are founded without any

international network of the founder being involved (see also Rasmussen et al., 2001). To born globals,

international market entry is exploratory in nature, as they utilize their networks and contacts to spread

their products in the international market through partnerships and joint ventures. Because they lack

their own competencies and resources for international market entry, networks are vital. The firms

initially conduct their sales activities through a network, in which they seek partners that complement

their own competencies. The network perspective (Mattsson & Johanson, 2006; Ford et al., 1986;

Tikkanen, 1998) takes into account many different types of relationships that may exist between the

parties involved. By being part of a network, a firm’s internationalization process will proceed more

rapidly. It has been shown that entrepreneurs in this area have a large network (Hollensen, 2001).

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Strategic alliances, according to Todeva & Knoke (2005), can be an effective way to diffuse new

technologies rapidly, to enter a new market, to bypass governmental restrictions expeditiously, and to

learn quickly from the leading firms in a given field. It is confirmed in Table 2 above and in Todeva

and Knoke (2005) that using a well-managed strategic alliance agreement enables companies to make

gains in markets that would otherwise be uneconomical. Considerable time and energy must be put

forth by all involved in order to create a successful alliance.

5 CONCLUSIONS AND IMPLICATIONS

To create successful export strategies, international market experience of exporters, or the lack of

it, must be considered as a starting point. The market entry costs show how both experience and firm-

level factors matter for export behaviour and export structures. Transaction or market entry costs

(Hollensen, 2001; Williams on, 1979; Donaldson & O`Toole, 2007), in this regard, consist of searching

for information about products, prices, inputs and buyers or sellers, negotiation costs, and monitoring

(or enforcement) costs. Borgersen (2006) provides a partial argument in relation to optimal industry

structure by taking into account the entry costs firms in developing countries face in international

markets. The importance of trade costs and market entry costs are of particular importance for

developing countries.

It was mentioned earlier in this paper that the emergence of a growing literature body on the non-

sequential internationalization process led to increasing criticism (Anderson and Forsgren, 2000;

Forsgren, 2002; Autio, 2003; Saarenketo, 2004) of stage models and their core assumptions, i.e. that

the process is path-dependent. Empirical findings and the review of relevant work reported in this study

support the growing relevance of non-sequential growth paths. However, this does not necessarily

contrast with some basic assumptions of Johanson & Vahlne’s (1977, 1990, 1992 & 2003) model

because, according to Figure 1, which aptly depicts the main drivers of the non-sequential

internationalization process, at least two basic outcomes of the traditional model – experiential learning

(Forsgren, 2002; Johanson & Vahlne, 2003) and international networking (Mattsson & Johanson, 2006;

Mort & Weerawardena, 2006) – seem to maintain a crucial validity in the non-sequential

internationalization process as well. According to Mainela (2003), a functioning network is immensely

important. Thus, if an international collaboration is to work well over a longer period of time, the

executive management of a firm must be able to develop and utilize social relationships with many

actors.

According to Boari et al (2004), the use of the network approach in explaining the

internationalization process has important implications. This paper shows that the speed of

internationalization of the firms is, among other things, a result of its development of relationships with

customer resources, which enabled the non-sequential internationalization process. In this respect,

networks can be a question of survival, particularly for small firms. This implies that personal

relationships are fundamental to a network because it is the relationships that bond the network and

give it its character. The trust created by the relationships is also important, with the network

developing as the social dimension and trust develop (Hunt & Morgan, 1994; Håkansson & Johanson,

1992; Tikkanen, 1998; Sahay, 2003; Mattsson & Johanson, 2006). Networks are value-based as they

cannot survive by themselves. Autio et al (2000) also emphasized the importance of networks and the

influence of relationships on the internationalization process, as demonstrated in the findings reported

earlier in this study. These findings are in line with what network researchers have advocated, for

example, that firms with large international social capital (Evans & Carson, 2005) learned more from

the internationalization and that this also increased their sales. Boari & Associates (2004) and

Osarenkhoe & Bennani (2007) suggest that a firm should cultivate its networks and work to gain a

good reputation, as customers are the key to learning. Similar view was expressed earlier by Sahay

(2003). Contrary to the findings presented in this study, the traditional sequential approach

(Luostarinen, 1994; Cavusgil, 1980; Bilkey & Tesar 1977; Leonidou & Katsikeas, 1996; Johanson &

Vahlne, 1977, 1990) gives the impression that the market entry decision is taken by firms acting on

their own. It also tends to recommend the following: assessment of products in the foreign markets

(choosing the target product/market), setting objectives and goals, choosing the entry mode, designing

the marketing plan, and checking for performance. These stages are iterative but clearly based on the

assumption of a firm acting independently.

As discussed earlier in this paper, firms are exposed to irrecoverable entry costs or transaction

costs in international markets (Willianson, 1979; McNaughton, 2002; Gong et al 2007). In addition to

hampering their behaviour in international markets, the market entry costs complicate export supply

responses (Borgersen, 2006). On the basis of this, it seems entry costs/transaction costs in international

markets may be an obstacle for firms with similar characteristics as the ones studied in this paper.

Int. Journal of Business Science and Applied Management / Business-and-Management.com

However, the magnitude of the costs of internationalization is dependent on the ability of the firms to

take advantage of the enablers of non-sequential internationalization process outlined in Figure 1 and

discussed in the previous section. For example, entrepreneurial ability and social

competence/networking may serve as tools to reduce transaction costs, thereby removing obstacles that

may hamper the speed of internationalization. Based on the preceding discussion of the salient features

of the integrated framework of the enablers of the non-sequential internationalization process (see

Figure 1) that emanated from the empirical study, it is hereby underlined that the non-sequential

internationalization pattern is a relevant phenomenon. However, even though market entry patterns of

firms investigated in this study demonstrate a non-sequential internationalization process, they are still

within the general theoretical framework where the basic assumption of the sequential

internationalization model can maintain its validity.

Boari and Associates (2004) suggest the importance of enlarging the network model of

internationalization through the social capital theory (Coleman, 1990), according to the idea that firms

are embedded in social networks with other actors and that social relations shape economic action.

Boari and Associates further suggest that there is a need for a theoretical model that explicates the

influences of social capital on the firms’ foreign growth, in order to devote more attention to the social

content of relationships between partners, rather than on the structural properties of networks (Borgatti

et al., 1998). Consequently, according to Boari & Associates (2004), the use of the social capital

approach suggests that a start-up’s international growth process is contingent on the nature and

structure of its social relationships (Granovetter, 1985). Other implications of this study are that the

development of strong levels of social capital (Coleman, 1990) can become a profitable source of

competitive advantage abroad. Thus, while firm-level social capital has been increasingly studied in the

context of domestic relationships (Borgatti, 1998; Coleman, 1990; Gulati, 1995; Nahapiet & Ghoshal,

1998; Lin et al., 2001; Evans & Carson, 2005), the findings from this study and those of Boari &

Associates (2004) demonstrate the importance of its deepened application also in international settings.

It is shown in this paper that a firm that rapidly becomes international, gains an international

identity, picks up new technology, and has the potential for exponential growth. It gains access to a

larger market at an early stage and has a larger number of markets to rely on. This has an impact on the

learning of the firm in a larger perspective. It becomes easier for the firm to appropriate new

knowledge, which is important in today’s knowledge-intensive society. As mentioned earlier in this

paper, knowledge allows companies to transform business ideas to business opportunities (Bhatt,

2001). Knowledge is an enabler that allows the application of information in a useful context

(Osarenkhoe and Bennani, 2007). This is essential for any upstart in any market, including a born

global. The Internet in some sense lowers the entry barriers of a market, although an upstart may find it

difficult to overcome network externalities created by established competitors. The foundation of any

successful business rests within a company’s ability to place its trust in potential business partners

(Sahay, 2003). This is a problem for Internet-based solutions since trust is a complex process, which

demands interaction between the partners. This interaction is not easy to facilitate in an Internet-based

situation, therefore the conclusion is that Internet is an enabler of market presence and not a deciding

factor for market success. It is worthwhile for future study to critically address in a large scale study

market entry costs for firms with similar characteristics as the ones studied in this paper in order to

determine whether or not entry costs constitute an obstacle for all categories of firms as commonly

envisaged in extant literature such as Anderson and van Wincoop (2004), Borgersen (2006), Leonidou

and Katsikeas (1996).

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