International Exposure Through Network Relationships: Implications for New Venture Internationalization

TL;DR: This article examined the extent to which international exposure from key informal (geographically proximate firms) and formal (alliance partners) network relationships impacts new venture internationalization, and found that the effects differ based on the age of the venture.

About: This article is published in Journal of Business Venturing.The article was published on 2013-03-01 and is currently open access. It has received 169 citations till now. The article focuses on the topics: Social venture capital & Internationalization.

Summary

2. Introduction

• The importance of networking in the international context continues to escalate due to the increasing interdependencies among firms, countries and markets (Dunning, 1995).
• The criticality of networks for new venture internationalization is further evidenced by the growing research stream and calls for research devoted to this topic (e.g. Coviello and Munro, 1997, Hara and Kanai, 1994 and Sharma and Blomstermo, 2003).
• Given that the international environment is constantly changing and much of the knowledge gleaned prior to the start of the venture may become outdated over time, a need exists to examine the impact of international exposure via network relationships.
• The authors hypotheses are tested on a sample of 448 U.S.-based, publicly held ventures in high-technology industries, using an archival data set.
• The paper closes with a discussion of implications for research and practice, limitations, and suggestions for future research.

3.1.1. International exposure through network relationships

• International exposure, which is defined as the extent to which a venture's management team comes into contact with international knowledge through prior experiences or network relationships, is an essential ingredient for new ventures that aspire to enter foreign markets.
• Similar benefits have been reported in Chen and Chen (1998), Johanson and Vahlne (2006) and Ellis (2011), although the industry contexts vary.
• Second, networks can lead to the formation of exchange relationships, which have been suggested to be a vital component to new venture internationalization as they can provide both resources and legitimacy (Oviatt and McDougall, 1994).
• As noted by the work of Eriksson et al., 1997 and Eriksson et al., 2000, such knowledge can be based on business (i.e. customers and competitor base in foreign country), institution (i.e. government, rules, norms) or internationalization (i.e. capability to enter foreign market, resources needed).
• In a foundational study on network relationships, Birley (1985) concluded that informal and formal network relationships offer varied benefits.

3.1.2. Managerial attention

• To provide additional theoretical insight, the authors suggest it beneficial to consider why and where venture managers focus their attention in order to lay the groundwork for understanding how international exposure through key network relationships affects new venture internationalization.
• Indeed, prior work on information processing by LaBerge (1995) and attention processing by Simon (1947) and Weick (1979) has recognized that managers have limited cognitive capability to process the typical information overflow.
• The overarching premise of the attention-based view (Ocasio, 1997) is that decisions made by managers are based on where they focus their attention.
• Considering the nature of globalization and the frequent need for firms to internationalize to remain competitive, venture managers may purposely search for solutions and opportunities that pertain to expanding abroad.
• That is, exposure from certain sources may catch more venture managers' attention than exposure from other sources.

3.2.1. Informal network relationships

• Given that new ventures are heavily reliant on their local environment (Stuart and Sorenson, 2003), geographically proximate firms represent key informal network relationships that are likely to receive the attention of venture managers.
• Such a situation, on one hand, pushes managers to attend to information and knowledge located external to their own ventures and, on the other, encourages the incorporation of a broad range of information from external environment into decision-making.
• In addition to the resources, information or knowledge can also be easily extracted through informal relationships (Haati et al., 2005).
• This implies that new ventures, typically featured by the situation of being weaker and more fragile than existing firms, are likely to be more attentive to and benefit more from informal network relationships.
• The degree of international exposure from geographically proximate firms is positively related to new venture internationalization.

3.2.2. Formal network relationships

• Within the external environment, the other influential component that venture managers situate their attention allocation upon is the venture's formal network relationships.
• Alliance partners represent a key formal network relationship that new venture managers interact with on a regular basis.
• The situated attention to alliance partners can be particularly relevant, in-depth, and sometimes convenient.
• Thus, alliance partners can make available to new ventures a repertoire of demonstrations of internationalization benefits including, for example, economies of scale and scope and richer resource endowments (Keeble et al., 1998).
• Johannisson (2000) posited that new ventures gain unintended information through alliance relationship by interacting with their alliance partners.

3.2.3. Informal and formal network relationships: substitutes?

• The authors have discussed the situation of a new organization requires and encourages venture managers to attend to and act upon international exposure from informal and formal network relationship.
• Thus, the authors discuss below how venture managers' attention might be situated by the existence of international exposure from network relationships and how such a situation can affect the hypotheses presented above.
• The impact may depend upon other factors.the authors.
• As posited by Ocasio (1997), the attentional capability of humans is limited and it is challenging, many times even impossible, to capture the scope of available alternatives.
• The authors argue that not all network relationships are equal and the existence and reliance upon one network relationship will limit the reliance upon others.

3.3. International exposure through network relationships, venture age and new venture internationalization

• The attention-based view argues that what issues and answers decision-makers attend to and act on depends on the particular situation they find themselves in, and that what particular situation decision-makers find themselves in depends on the firm's structural distribution of attention.
• Second, the authors argue that managers of younger ventures pay more attention to geographically proximate firms while managers of older ventures pay more attention to alliance partners, due to the change of the structure of distributed attention as new ventures age.
• Certain knowledge/information will be “locked out” if firms do not acquire it early on (Cohen and Levinthal, 1990).
• Such relationships are likely to result from being in a close geographic proximity.
• Putting these together, the authors argue that the degree of international exposure from alliance partners increases new venture internationalization the most for older new ventures with a low degree of international exposure from geographically proximate firms.

4.1. Sample

• This study utilizes a sample of 448 high-technology, U.S.-based new ventures that completed an IPO between 1995 and 2005.
• The Securities Data Corporation's (SDC's) Global New Issues database was used to identify firms that potentially could be included in the sample.
• Public firms were chosen in order to have a consistent data source against which to measure both the independent and dependent variables.
• Within the entrepreneurship literature, using new ventures that have undergone an IPO is relatively common given the access to data it provides (see for example Bloodgood et al., 1996, Chang, 2004, Carpenter et al., 2003 and Robinson and McDougall, 2001).
• The authors have followed the latter definition in order to allow time to fully examine the effect of new venture age on their subsequent reliance on external knowledge sources.

4.2. Measures

• The purpose of their study is to examine the impact of international exposure from network relationships on new venture internationalization.
• Given that their sample firms have all undergone an IPO, the authors gathered their variables keeping in mind this major event.
• The data do not change dramatically year after year, and are representative of the potential exposure in the subsequent years leading up to the IPO.
• There are many different ways to operationalize internationalization in the literature.
• Second, as the operationalization of international exposure from geographically proximate firms and alliance partners (our independent variables) in this study are based on the internationalization of the respective firms' sales, it made sense to examine the subsequent impact on the international sales of the new venture.

4.2.2. International exposure from geographically proximate firms

• The geographically proximate firms' international exposure variable considers the level of international sales by firms within the new venture's headquartered location as of the year of the new venture's initial public offering.
• This variable was operationalized by taking the percentage of public firms that had reported international sales within the respective location.
• The geographic unit of analysis was the metropolitan statistical area (MSA) of the new venture.
• Data for the computation of this variable were obtained from Compustat.

4.2.3. International exposure from alliance partners

• To assess the international exposure of the alliance partners of a new venture, the authors first identified all alliance partners through the Joint Venture/Strategic Alliance Database of the SDC.
• This information was obtained via Compustat North America if the firm was public.
• Otherwise, a telephone inquiry and/or web search was made to determine how to classify the alliance partner.
• The resulting variable thus represented a count of the alliance partners that met either of the above criteria.

4.2.5. Control variables

• Multiple control variables were included in their model.
• The international experience of the new venture executives was controlled for, because it is a key source of prior knowledge ( Casillas et al., 2009) that has been found to lead to new venture internationalization ( Bloodgood et al., 1996, Carpenter et al., 2003, Reuber and Fischer, 1997 and Sapienza et al., 2006).
• Thus, dummy variables were utilized to control for the high-technology industry group that the new venture belongs to.
• The cluster location quotient is an index which indicates the degree to which a given metropolitan area has a higher, lower, or equivalent representation of cluster employment than what exists in the U.S. at large.
• To address this concern, the authors ran the interval regression analysis using the robust cluster option within Stata.

5. Results

• Correlations, means and standard deviations of the variables are presented in Table 1.
• The results of the interval regression on new venture internationalization are presented in Table 2.
• As the regression coefficient in Model 3 for the two-way interaction term is positive and strongly significant (β = 0.023, p < 0.001), Hypothesis 5 is also supported.
• It is lastly proposed in Hypotheses 6a and 6b that together new venture age, geographically proximate firms' international exposure and alliance partners' international exposure explain new venture internationalization.
• In the analyses reported, the authors did not control for the presence of co-located alliances.

6. Discussion

• The purpose of this study was to further examine the understudied role of international exposure through network relationships on new venture internationalization.
• As prior research has shown, informal and formal network relationships can impose varying effects on new ventures.
• The authors study focused on two highly visible examples of informal and formal network relationships to examine how international exposure from these two network sources affects new ventures' internationalization and how these effects differ at different ages of ventures.
• The authors find that international exposure from both geographically proximate firms and alliance partners enhances new ventures' internationalization.

6.1. Contribution

• The authors research contributes to the international entrepreneurship, international business and strategic management literature.
• 2005, Gulati, 1999, Johanson and Vahlne, 2006 and Johanson and Vahlne, 2009), results on the differential degrees of reliance on networks for venture internationalization are intriguing.
• The authors analysis shows that younger ventures are more subject to exposure from neighboring firms' internationalization and older ventures are more subject to exposure from formal alliance partners' internationalization.
• Meanwhile, the evolving feature of new ventures offers the attention-based view a natural context to apply attention under different situations and attention structures.
• The authors research has practical implications as well.

6.2. Limitations and future directions

• The present study has several limitations and opportunities for future research.
• Yet they will offer a channel to directly evaluate the change of managerial attentions rather than relying on outcomes of managerial attention shifts, which can contribute to both the management and neuroscience fields.
• There are several limitations other than the reliance on archival data that warrant future research.
• It is necessary to ask whether such activities resulting from/based on network influence are the “right” ones.the authors.
• That is, their study does not perform a direct comparison between ventures and established firms regarding the impacts of network relationships on their internationalization.

7. Conclusions

• In conclusion, their study demonstrates that international exposure remains a key catalyst leading to internationalization.
• For new ventures pursuing internationalization, international exposure can be gleaned and leveraged through both geographically proximate firms and alliance partners.
• These two sources of international exposure substitute for each other.
• Moreover, ventures at different ages are subject to the international exposure from these two network sources at varying levels.
• Thus, their study offers important insights into how new ventures defy the in-house step-by-step international processes outlined by traditional international business theory and rely on network resources to internationalize.

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Frequently asked questions

Q1. What are the contributions in "International exposure through network relationships: implications for new venture internationalization" ?

In this paper, the impact of network relationships on new venture internationalization has been explored in the context of new ventures. 

Q2. What are the future works in "International exposure through network relationships: implications for new venture internationalization" ?

The present study has several limitations and opportunities for future research. Although the attention-based view is highly useful in enriching their understanding of venture internationalization, it is recommended that future studies attempt a fine-grained measurement of attention through surveys and interviews. There are several limitations other than the reliance on archival data that warrant future research. Thus, the authors call for research efforts to study the performance implications of international exposure through networks. 

Q3. What is the significance of this research?

their study contributes to the strategy literature by broadening the application of the attention-based view to new ventures. 

Q4. What is the significance of network relationships in the international context?

international exposures from both formal (alliance partners) and informal (geographically proximate firms) network relationships positively influence new venture internationalization.