Knowledge spillovers and new ventures’ export orientation
Dirk De Clercq Æ Jolanda Hessels Æ
Andre
´
van Stel
Accepted: 13 July 2008 / Published online: 5 September 2008
Ó The Author(s) 2008. This article is published with open access at Springerlink.com
Abstract We draw on the knowledge spillover
literature to suggest that a country’s proportion of
export-oriented new ventures represents an outcome
of knowledge spillovers that stem from foreign
direct investment (FDI) and international trade
(export spillovers) as well as a source of knowledge
spillovers (entrepreneurship spillovers). To test the
hypotheses, we use macrolevel data from 34 coun-
tries during the period 2002–2005. We find that the
relationship between FDI and international trade on
the one hand and a country’s proportion of export-
oriented new ventures on the other differs for
higher- and lower-income countries. In addition, a
country’s proportion of export-oriented new ven-
tures affects the subsequent emergence of new
businesses.
Keywords Knowledge spillovers Export
Country-level entrepreneurship
JEL Classifications F10 F21 F23 L26 O57
1 Introduction
Evidence indicates that the number of international
new ventures, that is, ventures that view their
operating domain as international at or near their
inception, is increasing in many countries around the
world (Moen 2002; Rennie 1993); in response, a
wealth of research investigates factors that drive new
venture internationalization (Autio 2005; Rialp et al.
2005). Research on international new ventures
mainly concentrates on exporting, a common entry
mode that young entrepreneurial firms use to inter-
nationalize (e.g., Burpitt and Rondinelli 2000;
Campbell 1996; Zahra et al. 1997), but knowledge
about why some countries have more export-oriented
new ventures than others and whether and how
export-oriented new ventures contribute to macro-
economic outcomes remains limited. We address
such issues by investigating macrolevel
D. De Clercq
Brock University, 500 Glenridge Avenue, St. Catharines,
ON, Canada L2S 3A1
e-mail: ddeclercq@brocku.ca
J. Hessels (&) A. van Stel
EIM Business and Policy Research, P.O. Box 7001,
2701 AA Zoetermeer, The Netherlands
e-mail: joh@eim.nl
A. van Stel
e-mail: ast@eim.nl
J. Hessels
Erasmus University Rotterdam, Rotterdam,
The Netherlands
A. van Stel
University of Amsterdam, Amsterdam, The Netherlands
123
Small Bus Econ (2008) 31:283–303
DOI 10.1007/s11187-008-9132-z
antecedents and outcomes of a country’s proportion
of export-oriented new ventures.
1
In particular, we
argue that the proportion of export-oriented new
ventures represents both an outcome and a source of
knowledge spillovers. Furthermore, current under-
standing of international new ventures relies mainly
on case studies or single-country samples, despite the
need to track and study international new ventures in
multiple countries (Coviello and Jones 2004; Oviatt
and McDougall 1997). Therefore, we consider 34
countries over a 4-year period to uncover trends
across different economies.
Entrepreneurship literature examining the early
entry of new firms into foreign markets relates
internationalization mainly to individual-level fac-
tors, such as entrepreneurs’ international experience
(Bloodgood et al. 1996; McDougall et al. 1994;
Oviatt and McDougall 1995), or firm-level factors,
such as entrepreneurial orientation (Sapienza et al.
2005) or a technology or knowledge base (Autio
et al. 2000; Keeble et al. 1998). Whereas this
literature acknowledges the importance of macro-
level environmental conditions (e.g., economic
integration, transportation advances) to explain the
emergence of international start-ups (Bloodgood
et al. 1996; Knight and Cavusgil 1996; Oviatt and
McDougall 1994; Rennie 1993), empirical contribu-
tions generally fail to include macrolevel factors as
possible determinants of new ventures’ international
orientation. We argue that two important categories
of macrolevel factors may serve as determinants of
new ventures’ export orientation: foreign direct
investment (FDI) and international trade. Recent
research suggests that FDI and international trade
offer likely sources of export spillovers (Aitken
et al. 1997; Banga 2003; Greenaway et al. 2004;
Kneller and Pisu 2007; Terjesen et al. 2008), which
take place when knowledge about foreign markets
or other knowledge that is useful for operating in
foreign markets (e.g., technological knowledge)
transfers from one economic actor to another
or competition forces actors to become more
productive through exporting (Kneller and Pisu
2007). Building on the literature on export spill-
overs, we posit that a country’s level of inward and
outward FDI, export, and import positively relates to
the share of new ventures that focus on serving
customers abroad. Furthermore, we speculate that
export spillover effects may depend on the country’s
capacity to absorb such spillovers (Borensztein et al.
1998; Durham 2004;Go
¨
rg and Greenaway 2004;
Gugler and Brunner 2007) and, more specifically,
that higher-income countries may benefit more from
such spillovers than their lower-income counterparts.
In addition to studying macrolevel antecedents of
new ventures’ export orientation, we examine a
possible consequence of such export orientations,
namely, an increase in the number of new
businesses. Few empirical studies focus on the
possible economic contributions of international
new ventures. Some investigate the impact of early
internationalization on growth and profitability
(Autio et al. 2000; Bloodgood et al. 1996
; McDou-
gall and Oviatt 1996; Zahra et al. 2000) but typically
at the firm level. We instead argue that export-
oriented new ventures within a country may generate
spillovers that encourage the set up of (more) new
businesses within the country’s borders (entrepre-
neurship spillovers). We suspect that export-driven
new ventures may be an important source of knowl-
edge spillovers, because such ventures tend to be
innovative and have high human capital levels
(Bloodgood et al. 1996), and thus serve as role
models for aspiring entrepreneurs (Davidsson and
Honig 2003). Thus, we add to literature that suggests
that the nature of early-stage activity may provide an
important source of spillovers (Audretsch and Keil-
bach 2004; Parker 2005).
The scope of this article encompasses whether
we can identify a relationship at the macrolevel:
(1) among inward FDI, outward FDI, and interna-
tional trade on the one hand and the proportion of
export-oriented new ventures on the other hand
and, in turn, (2) between the proportion of export-
oriented new ventures and a country’s total level of
entrepreneurial activity. Thus, though we draw
from the economics literature on knowledge spill-
overs to predict and interpret these macrolevel
relationships, we leave it for further research to
investigate, at the microlevel, how such knowledge
spillovers take place among individual economic
actors.
1
We focus precisely on the proportion of new ventures
relative to the total number of new ventures that target above
25% of customers in foreign countries (Moen 2002). For
parsimony, we use the shortened term ‘‘proportion of export-
oriented new ventures’’ hereafter.
284 D. De Clercq et al.
123
2 Theoretical background
The term ‘‘spillover’’ pertains to the transfer of
knowledge across economic players; such spillovers
may enable important productivity gains (Coe and
Helpman 1995; Jaffe et al. 1993; Marshall 1920).
According to endogenous growth theory, a country’s
economic growth stems from the endogenous devel-
opment of knowledge through spillover effects across
economic actors (Romer 1986). Spillovers or knowl-
edge externalities allow firms to acquire knowledge
from other economic players without having to pay
for it in a formal market transaction (Acs et al. 1994;
Bernstein and Nadiri 1988). They take place from one
firm to another partially because knowledge repre-
sents a public good (Grossman and Helpman 1991)or
a ‘‘nonrival’’ asset that different economic actors may
use simultaneously in different locations (Romer
1990). Furthermore, knowledge generally is not
excludable, so knowledge-generating firms have
difficulty extracting compensation in return for
others’ use of their knowledge (Grossman and
Helpman 1991). Thus, knowledge-generating firms
cannot fully appropriate or internalize the returns on
knowledge investments, and some returns spill over
to benefit others as well.
2.1 Export spillover effects and new ventures’
export orientation
Many studies on knowledge spillovers focus on
productivity spillovers (for an overview, see Go
¨
rg
and Greenaway 2004), including those across country
borders. Grossman and Helpman (1991) explain that
cross-border movements of capital and trade affect
economic growth through their related knowledge
spillovers. Prior work on the role of spillovers also
devotes particular attention to inward FDI, in which
knowledge flows from foreign multinational enter-
prises (MNEs) to the host country’s domestic firms
are studied (e.g., Feinberg and Majumdar 2001;
Fosfuri et al. 2001). Such research generally assumes
that MNEs possess superior firm-specific assets, such
as management know-how or technologies, when
they enter foreign markets (Dunning 1981; Hymer
1976), but they face the challenge of protecting these
advantages against other firms in the countries in
which they operate (Go
¨
rg and Greenaway 2004;
Kneller and Pisu 2007).
In addition to traditional literature on productivity
spillovers, an emerging body of research focuses on
the effect of spillovers on the export decision of
domestic firms, or export spillovers (e.g., Aitken
et al. 1997; Banga 2003; Greenaway et al. 2004;
Kneller and Pisu 2007). Domestic firms may be more
inclined to engage in export activities if they are
exposed to other economic actors’ international
activities (Greenaway et al. 2004). Aitken et al.
(1997), for instance, note a spillover effect from
foreign MNEs to domestic export activity in Mexican
manufacturing industries and show that the domi-
nance of foreign MNEs in a particular industry sector
increases the probability that domestic firms in that
sector also export. Similarly, Greenaway et al. (2004)
use UK data to show that foreign MNEs’ export
activities have a positive effect on a domestic firm’s
export probability.
This study focuses on such export spillover effects,
with the assumption that export spillovers should be
particularly relevant in the context of new ventures
because emerging firms are more likely to benefit
from (external) knowledge spillovers than their more
established counterparts (Acs et al. 1994; Henderson
and Clark 1990). Whereas in mature firms external
knowledge spillovers may be less important because
they must compete with internal knowledge spill-
overs that result from prior and ongoing operations,
the knowledge production function of new ventures
likely gets influenced by the input provided by
external organizations or activities (Acs et al. 1994).
Furthermore, export market entry requires upfront
sunk costs for firms to sell products or services in
foreign markets, such as the costs associated with
establishing distribution and logistic channels and
acquiring information about the tastes of foreign
customers and market structures (Greenaway et al.
2004; Requena-Silvente 2005). These sunk costs are
higher for new ventures compared with their more
established counterparts, because they confront
resource constraints more directly (Requena-Silvente
2005). Accordingly, new ventures are more likely to
depend on and benefit from external spillovers.
To understand the mechanisms of how spillovers
occur across country borders, extant research identi-
fies different spillover channels, specifically with
respect to the case of inward FDI. First, market
access spillovers occur through commercial links
between foreign MNEs and local suppliers, which
Knowledge spillovers and new ventures’ export orientation 285
123
give the local suppliers preferential access to new
technological capabilities and foreign customers’
product design and quality preferences (Aitken et al.
1997; Barrell and Pain 1997; Blomstro
¨
m and Kokko
1998). Second, a demonstration or imitation effect
prompts domestic firms to copy foreign MNEs’
organizational practices, either through formal inter-
firm collaborations or more informal channels (Wang
and Blomstro
¨
m 1992). Third, when local employees
gain important skills while working for a foreign
MNE, a training effect transfers those skills to other
organizations (Fosfuri et al. 2001). Fourth, foreign
entrants may increase local competition by, for
example, infusing new technologies into the local
market and acting as competitive catalysts (Barrell
and Pain 1997; Cantwell 1989; Chuang and Lin 1999;
Glass and Saggi 1998). For the purpose of this
research, we argue that these different channels of
cross-border spillovers may clarify how not only
inward FDI but also other sources of knowledge
spillovers—such as outward FDI and international
trade—influence a country’s proportion of export-
oriented new ventures.
2.2 New ventures’ export orientation and
entrepreneurship spillovers
In addition to examining the antecedents of new
ventures’ export orientation, we examine whether
export-oriented new ventures generate spillovers that
affect a country’s economic activity, particularly with
regard to the creation of new businesses within the
country’s borders. This focus on entrepreneurship
spillovers matches recent research that argues entre-
preneurial activity (i.e., new business creation) results
from the exploitation of knowledge that incumbent
firms have not fully appropriated or commercialized
(Acs et al. 2006, 2007). Specifically, when an
economic agent with a new idea cannot convince
decision makers within the firm to pursue the idea,
the agent may start a new business in an attempt to
appropriate the new knowledge. This new knowledge
thus spills over from the agent to a new business in
which it gets commercialized (Audretsch and
Keilbach 2004). Hence, a country’s total level of
entrepreneurial activity represents an important out-
come of spillover effects. Similarly, we extend
existing literature by suggesting that new business
creation may result from spillovers from not only
incumbent (large) firms but also other new ventures;
in particular, we argue that export-oriented new
ventures present a source of spillovers that may affect
the emergence of additional new businesses in the
country.
3 Hypotheses
3.1 Inward FDI and the proportion of export-
oriented new ventures
Foreign MNEs (through inward FDI) may act as
catalysts of new ventures’ export orientation for
several reasons. First, foreign MNEs can facilitate
exports among new ventures through the direct
channel established when the latter serve as suppliers
or subcontractors for the MNEs. Commercial link-
ages with foreign MNEs thus provide new ventures
with knowledge about new technological develop-
ments and foreign market conditions; over time, this
knowledge may prompt new ventures to export
(Blomstro
¨
m and Kokko 1998). Foreign MNEs can
also pave the way for new ventures to enter the same
export markets, either because the MNEs have
created adequate transport infrastructures or because
they disseminate knowledge about specific foreign
markets that new ventures can use directly. Second,
demonstration effects may lead new ventures to use
foreign MNEs as role models for their own decision
to engage in exporting (Powell and DiMaggio 1991).
Third, spillover effects from foreign MNEs may take
place when new ventures acquire relevant human
capital. It is difficult for foreign MNEs to lock in their
human capital (Djankov and Hoekman 1999;
Dunning 1981; Fosfuri et al. 2001
), but because they
often require a skilled labor force, they organize
training for local employees. When those employees
move away and start their own businesses, the
internationalization skills they gained while working
for the foreign affiliate spill over to new ventures
(Gerschenberg 1987). Fourth, inward FDI infuses
new technologies in host countries (Barrell and Pain
1997), and foreign affiliates might replace inefficient
firms in the host country (Narula and Marin 2003).
The increased competition should provide local start-
ups with the capabilities and incentives to expand the
geographical scope of their activities; that is, the
increase in competition that occurs as a result of
286 D. De Clercq et al.
123
foreign entry may prompt new ventures to expand
their horizons and engage in export activities.
Hypothesis 1 The greater a country’s inward FDI,
the greater its proportion of export-oriented new
ventures.
In addition, spillover effects may be more pro-
nounced in higher-income versus lower-income
countries. The exploitation of spillovers relates to a
country’s structural characteristics, especially its
absorptive capacity (Durham 2004;Go
¨
rg and
Greenaway 2004). Spillover effects from inward
FDI materialize more easily when the host country
has a minimum stock of human capital or level of
economic development (Blomstro
¨
m et al. 1994; Bo-
rensztein et al. 1998). Extant literature suggests that
when the technology gap between the investing
country and the host country is not too large—which
indicates that firms in the host country have sufficient
capacity to absorb advanced technologies—the host
economy can benefit from positive spillovers
(Borensztein et al. 1998;Go
¨
rg and Greenaway
2004). Similarly, we reason that lower-income coun-
tries may have limited capacity (e.g., human capital)
to absorb exporting knowledge provided by foreign
MNEs. Furthermore, in lower-income countries,
positive spillovers from inward FDI to new ventures’
export orientation may be hampered because inward
FDI contributes to the development of scale econo-
mies and thus to the economic activities of larger,
incumbent firms rather than those of new ventures
(Acs et al. 1994; Wennekers et al. 2005).
Hypothesis 2 The positive spillover effect from a
country’s inward FDI to the export orientation of its
new ventures is more pronounced in higher-income
than in lower-income countries.
3.2 Outward FDI and the proportion of export-
oriented new ventures
Although literature on the impact of FDI on a host
country’s economic activities focuses mostly on
spillover effects stemming from inward rather than
outward FDI, domestic MNEs should also affect a
country’s proportion of export-oriented new ventures
(Blomstro
¨
m and Kokko 1998). The presence of these
domestic MNEs in foreign countries may familiarize
foreign customers with common business practices in
the MNEs’ home country, which could create a pull
effect (Nagel 2003). Furthermore, the rationale for
the spillover effects of domestic MNEs to new
ventures parallels arguments associated with foreign
MNEs (Blomstro
¨
m and Kokko 1998). First, spillovers
may occur if a domestic MNE adapts its products to
local conditions abroad and shares this adaptation
with its suppliers (e.g., new ventures) in its home
country (Aitken et al. 1997). Second, the spillovers
obtained through demonstration, training, and com-
petition effects, as outlined in the argumentation
leading up to hypothesis 1, may work in a similar
fashion for domestic MNEs. For example, in terms of
the training effect, a manager of a foreign subsidiary
may return to the home country and become an
(export-oriented) entrepreneur (Cantwell and Hodson
1991; Kogut and Chang 1991). Third, the structural
changes that take place in the new ventures’ home
country because of the wider presence of domestic
MNEs (i.e., when there is more outward FDI) may
positively influence new ventures’ export orientation.
Specifically, an increase in outward FDI should shift
the home country toward economic activities that
entail greater productivity (Blomstro
¨
m and Kokko
1998); this increased productivity may then force new
ventures to increase the overall quality of their
products, which ultimately should increase their
propensity to export.
Hypothesis 3 The greater a country’s outward FDI,
the greater its proportion of export-oriented new
ventures.
Similar to the argumentation used for the effect of
inward FDI, we also speculate that the beneficial
spillovers from outward FDI to new ventures’ export
orientation materialize more easily in higher- versus
lower-income countries. That is, lower-income econ-
omies may lack the capacity to absorb spillovers from
outward FDI, because their new ventures have
relatively lower levels of human capital, which they
need to engage in exports (Bloodgood et al. 1996), or
they may participate in low-technology sectors for
which export opportunities are limited (Durham
2004;Go
¨
rg and Greenaway 2004).
Hypothesis 4 The positive spillover effect from a
country’s outward FDI to the export orientation of its
new ventures is more pronounced in higher-income
than in lower-income countries.
Knowledge spillovers and new ventures’ export orientation 287
123