C H A P T E R 1 1
Innovation, Entrepreneurship and ‘Born Global’
Firms
Chapter objectives
1. Understand the international dimensions of innovation, for large and small firms. What
innovation advantages can firms gain from being international, in theory and practice?
3. Analyze small- and medium-sized enterprises (SMEs), with a particular focus on why and
4. Explain using concepts such as dynamic capabilities, born global and born regional,
Chapter summary
1. The ability to continually recombine resources, assets and capabilities from different
locations to meet the changing needs of customers in different markets around the world
2. Firms centralize or decentralize various innovation activities (sensing, responding to and
implementing) globally depending on the trade-offs between standardization and economies
3. Definitions of SMEs vary around the world; in Europe these are firms with less than 250
employees, in the US it includes firms below 500 employees. A small proportion engage in
4. Born global firms depend from birth on a global presence for their survival. A key debate
is whether firms count as born global if they simply trade, rather than engage in FDI. There
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5. Dynamic capability is the firms ability to integrate, build, and reconfigure internal and
external competences to address rapidly changing environments. The dynamic capabilities
6. Industry clusters evolve from the efficiencies of colocating specialist industry suppliers and
contractors. But part of their evolution is also due to the continuing value of face-to-face
7. Because SMEs lack the resources to invest in rigorous market analysis, personal experience
8. SMEs need to be more entrepreneurial, innovative and adaptable to successfully break into
foreign markets, given they lack the resources, scale and scope advantages of larger firms.
Chapter outline
Introduction
International dimensions of innovation
The location of innovation activities in the MNE
The innovative MNE as a differentiated network
International small- and medium-sized enterprises (SMEs)
What are small firms?
The international activities of SMEs
International business theory and international new ventures
Dynamic capabilities and small firms
The practical challenges for internationalizing SMEs
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How do SME managers know which markets to enter?
Modes of entry and adaptation for success in foreign markets
International business strategy in action
Lecture outline
A. Introduction
1. Innovation can simply be thought of as the successful exploitation or commercialization
of new ideas. But an expanded and more useful definition is: the renewal and
2. Entrepreneurship and innovation go hand in hand. Entrepreneurs, whether they are
working in small or large firms, as owner-managers or employees, are distinctive
3. Born global is a term used to describe a firm that is, from its beginnings, immediately
or very quickly reliant on a global presence to survive and succeed. Leveraging
particular firm-specific advantages (FSAs), such as new technologies, unique products
or services or a valuable capability derived from one or more locations, such firms serve
B. International dimensions of innovation
1. A major defining feature of multinational enterprises (MNEs) is that they manage
business operations across a range of country contexts, each of which represents a
different set of opportunities for innovation, in two specific ways. First, a distinctive set
2. National contexts vary in terms of their economic, social, cultural, political, institutional
characteristics and this variety underpins both of these kinds of innovation opportunity.
These factors influence the kinds of resources and capabilities that are available in a
Rugman and Collinson, International Business, 6th edition, Instructor’s Manual
particular location and the kinds of customers and markets that develop there. Studies
also show how different forms of competitive advantage at the national, industry and
firm levels stem from the particular characteristics of the national innovation system
3. Internationalization is related to innovation in MNEs. The two main forms of
internationalization; namely, market-seeking and resource-seeking very often go
hand-in-hand. Local specialists, whether engineers, plant managers, distribution
C. The location of innovation activities in the MNE
1. Multinational enterprises have to cope with the competing pressures of integration and
responsiveness. That is, to derive benefits such as economies of scale from the
2. A second framework, developed by Nohria and Ghoshal (1997), extends this logic by
describing several archetypal MNE structures for managing different kinds of
3. Centre-for-global, local-for-local, local-for-global and global-for-global is four
structural archetypes for three innovation-related activities: sensing, responding and
implementing. These result from the need for some innovation activities to be
centralized and/or standardized and others to be decentralized and/or customized (or
Rugman and Collinson, International Business, 6th edition, Instructor’s Manual
D. The innovative MNE as a differentiated network
1. One of the major natural competitive advantages of MNEs results from their ability to
combine (and continually recombine) various inputs (particularly knowledge and
2. Differentiated networks require strong integrative and dynamic capabilities to operate
effectively. Not only must they integrate disparate resources and knowledge from the
3. Firms that operate as dynamic networks also balance the division of decision-making
responsibility for innovation between headquarters (the center) and subsidiaries (the
4. Research has shown how and why firms differ in their integrative innovation
capabilities.
E. International small- and medium-sized enterprises (SMEs)
1. Each country tends to have a different legal definition of “small” sometimes depending
on the industry in question. The Small Business Administration in the United States
2. Within studies of SMEs in general there is some evidence that they are more innovative
than their larger counterparts. According to the US Small Business Administration (US-
F. International activities of SMEs
1. The data shows that, in general, a relatively small number of SMEs sell products and
services outside their domestic market, compared to the total number of active SMEs.
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2. In the European Union just a quarter of all SMEs export or have exported at some point
during the last 3 years. Moreover, their international activities are mostly geared
3. Table 11.1 shows how international SMEs can be engaged in trade and/or FDI to access
inputs or to sell outputs from abroad. If they stick to trading via imports (for inputs such
G. International business theory and international new ventures
1. Oviatt and McDougall (1994) produced some of the most influential early studies on the
topic and defined international entrepreneurship as the discovery, enactment,
2. A number of ongoing debates have developed around the concept and the empirical
reality of the born global firm. Three key areas of dispute are (1) the applicable
definition of global, specifically is a firm born global (or global at all) if it simply
3. Some studies define new in this context as less than 6 years old and it was this aspect
of INVs that was most at odds with established theories of internationalization. As
4. Another debate has focused on the scope of internationalization by small firms. Based
on the broad concept of the triad regions (i.e. North America, European Union and
Asia-Pacific), Rugman and Verbeke (2004) introduced a regional aspect to the Uppsala
schools stepwise and incremental internationalization process of multinational
5. Other theoretical perspectives (the resource-based view of the firm, transaction costs
6. Born regional firms tend to locate their overseas businesses in their home region of the
triad to escape the liability of interregional foreignness.
H. Dynamic capabilities and small firms
1. Dynamic capability is the firms ability to integrate, build and reconfigure internal and
external competences to address rapidly changing environments. The dynamic
2. Research suggests that dynamic capabilities relate to the processes by which and the
success with which, small firms learn to grow and adapt to changing threats and
opportunities in their surrounding competitive environment. This includes a heightened
I. Life cycles, networks and clusters
1. Life cycle models are commonly used to depict the growth profiles of SMEs. Because
of lack of investment capital and lack of specialist expertise and other constraints on
survival and growth the ability of the individual entrepreneur to utilize personal
2. For some time researchers and policymakers have emphasized the importance of local
networks or clusters as the lifeblood of new business growth. A unifying theme is the
3. High tech and low-tech clusters, or geographic concentrations of related businesses,
exist all over the world.
Industry clusters research show that, up to a point and for certain kinds of businesses,
small firms are the product of their immediate environment. They rely on local
resources, capabilities and connections and the success of the entrepreneur depends on
his or her ability to orchestrate these via local networks in a dynamic way, responding
K. The practical challenges for internationalizing SMEs
1. SMEs face significant limitations compared to large firms, making internationalization
strategies riskier. These limitations mean that small firms often need to be that much
more entrepreneurial and innovative and/or take risky shortcuts, to expand across
national borders.
L. How do SME managers know which markets to enter?
1. Mathews and Zander (2007) propose three milestones of international entrepreneurial
2. The first major challenge for any firm looking to expand internationally is to decide
which market location offers the best cost-benefit opportunity. Studies show how small
3. A study by Collinson and Holden (2005) used mental maps to capture the perceptions of
decision-makers in a sample of British SMEs of the relative risks and rewards of foreign
markets. Mental maps are defined as cognitive representations of the nature and
Rugman and Collinson, International Business, 6th edition, Instructor’s Manual
M. Modes of entry and adaptation for success in foreign markets
1. In terms of modes of market entry, studies suggest that firms tend to opt for higher
commitment and higher risk entry modes (such as M&A or greenfield investments) with
2. Clearly the specific challenges vary depending on the nature of the target country
market and the individual firm. One in-depth study of British SMEs in Japan
Answers to review and discussion questions
1. What is innovation? What innovation advantages do all multinational firms have?
What disadvantages to SMEs have relative to large multinational enterprises for
innovation?
Innovation is the renewal and enlargement of the range of products and services and the
associated markets; the establishment of new methods of production, supply and distribution;
2. As a form of country-specific advantage (CSA), how might a strong national system of
innovation (NSI) support the development of innovation-related firm-specific
advantages (FSAs) for an internationalizing firm?
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3. List some examples of innovation FSAs for market-seeking internationalization and
for resource-seeking internationalization.
4. Give one example of local-for-global innovation (from one of the case studies in this
chapter if you can find it).
5. Why do national governments need specific criteria for defining an SME? Why might
different governments use different definitions?
6. Explain, with an example, why an international new venture for SME might combine
both trading activity (imports and exports) with FDI to maintain an international
business.
Firms have the option to import or export and engage in FDI instead of one or both of these
7. What are the key debates around the definition of the born global firm and why do
these make a difference in terms of our measurement and understanding of them?
A number of ongoing debates have developed around the concept and the empirical reality of
the born global firm. Three key areas of dispute are (1) the applicable definition of global,
8. Why are dynamic capabilities particularly for small and internationalizing firms?
9. Why might the importance of physical co-location in industrial clusters diminish
relative to online networks or virtual hubs of specialists?
10. How do mental maps help us better understand market selection decision making in
small firms?
A study by Collinson and Holden used mental maps to capture the perceptions of decision-
Answers to Real Cases
GE Healthcare in India: Locally driven innovation
1. In what ways is GEs Mac 400 ECG the result of local-for-local innovation?
2. Why would GE establish R&D facilities in India?
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3. What indications are there that the Mac 400 ECG has become an example of local-
for-global innovation?
Two thousand of the 7,500 Mac 400s that GE Healthcare has sold has been bought by Indian
customers, the rest has been bought by customers in other country markets.
4. How can multinational firms destroy its own profits by engaging in low-cost or
bottom-of-the-pyramid innovation?
Success in one market segment can, however, create challenges elsewhere. The fact is that
SetJam: The mini multinational
1. In what ways is SetJams product and service particularly innovative?
2. How might SetJams organization structure be seen as innovative? What specialist
capabilities does the firm gain from each its two global locations?
SetJams client and investor connections are developed and maintained by CEO Ryan Janssen
together with a project manager and the rest of a small team in the firms New York office. The
rest of SetJams employees, consisting of six full time developers and three quality assurance
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3. Is there evidence that SetJam has particularly strong dynamic capabilities?
4. What are the benefits of sourcing specialist expertise online, as an input into the firm?
What factors underpin the continuing importance of physically colocated specialists or
businesses for SetJam?