Effectuation and foreign market entry of entrepreneurial firms

Abstract

Purpose: The purpose of this study is to examine the decision-making process for entrepreneurial firms when entering foreign markets and how and why they entered those markets.Design/methodology/approach: We combine a nascent theory in entrepreneurship called effectuation with internationalization process theory as the conceptual framework to study decision-making under uncertainty. The central concept in both these theories is relationships and how they can be used to gain knowledge and thus reduce uncertainty and in the case of effectuation to co-create opportunities to enter foreign markets. The research design involves a multiple case study of software firms from Finland and New Zealand. Findings:We found that entrepreneurs differentiate between foreign market selection and foreign market entry during their internationalization process, potentially using different decision-making processes in them. They tend to interweave effectuation and causation logics as substitutes in their decision-making. Uncertainty during foreign market entry is not always a barrier because it can provide opportunities depending on the logic used. In addition, we have evidence that entrepreneurs who have existing relationships in foreign markets tend to use effectuation to select and enter foreign markets.2 Originality/value: This paper transposes effectuation from its original field of entrepreneurship research to the context of internationalizing entrepreneurial firms. Consequently, it contributes towards understanding the decision-making process for selecting and entering foreign markets.

A time-based process model of international entrepreneurial opportunity evaluation

“…Opportunity evaluation is central to the study of the entrepreneur's cognitive processes in international decisions and, arguably, remains underexplored and poorly understood (Lamb et al, 2011;Maitland & Sammartino, 2015;Zahra et al, 2005). Scholars have recently begun to link internationalization and effectuation theory (e.g., Kalinic et al, 2014;Chetty et al, 2015) yet very little research explicitly studies the role of time and its impact on international entrepreneurial opportunity (IEO) evaluation and actualization. By interviewing the founders of 15 early-internationalizing small to medium sized firms in Australia from 2005 to 2012, this study explores and answers the primary research question: How do entrepreneurs evaluate international entrepreneurial opportunities (IEOs)?…”

“…For instance, Kalinic et al (2014) argued that entrepreneurs prefer the causal over the effectual approach if the information is available and the company has the resources, and they asserted that entrepreneurs switch between causal and effectual logic when problems appear too complex. Chetty et al (2015) propose that ''it is meaningless to consider causation and effectuation as opposites of a continuum but to consider them as substitutes'' and that ''these logics are not linear but are nuanced as they intertwine during decision-making and actual implementation'' (Chetty et al, : 1453. Harms and Schiele (2012: 95) found that ''experienced entrepreneurs tend to apply effectuation rather than causation.'…”

“…The theoretical constructs of interest -IEO evaluation and time -and the derivable insights influenced the choice of sampling for this research. A review of the extant research on decision-making models in IB (e.g., effectuation) reveals a lack of research beyond the European-focused context (e.g., Finland, Germany, Sweden; Andersson, 2011;Chetty et al, 2015;Harms & Schiele, 2012;Kalinic et al, 2014;Galkina & Chetty, 2015). Australia, the focal country in this study, has a relatively small open economy that is heavily reliant on export.…”

“…For example, IB effectuation research (Kalinic et al, 2014;Chetty et al, 2015) does not incorporate the influence of time on entrepreneurs' reasoning. This study found that entrepreneurs' ability to revise their decisionmaking rules was critical to their long-term success.…”

“…The effectuation perspective, derived from the entrepreneurial decision-making research, is a problem-solving approach that eschews prediction or planning and uses practices aimed to control uncertainty, including the affordable-loss principle, contingency leveraging, and market cocreation with stakeholders Sarasvathy, 2001). The small body of internationalization research that employs the effectuation lens has studied the extent of effectuation in international new venture creation (Harms & Schiele, 2012), the application of effectuation on internationalization (Chetty, Ojala, & Leppäaho, 2015;Andersson, 2011), and the implications of effectuation on the internationalization process (Kalinic, Sarasvathy, & Forza, 2014). Despite their valuable contributions to internationalization research, these studies largely impose the effectuation concept on data (rather than 'letting the data speak' to inform theory development), and they focus on the static, atemporal aspect of the entrepreneur's decision-making.…”