Untangling the relationship between new venture internationalization and performance

Abstract

Abstract:To help untangle the inconsistency in prior performance studies for new venture internationalization, the dynamic capabilities perspective is revisited to consider whether the relationship is more complex than previously assumed. While internationalization requires the reconfiguration of routines and resources, survivability is argued to peak at moderate levels of internationalization where the associated resources and risk is balanced between local and foreign markets. In contrast, sales growth is suggested to peak at either low or high levels of internationalization where a singular market focus and set of capabilities is being exploited. The results confirm that the level of new venture internationalization exhibits an inverted U-shaped relationship with survival, while the opposite U-shaped relationship exists with sales growth.

Is more always better? Risk trade-offs among internationalizing new ventures

“…While internationalization can benefit a new venture by opening up the much needed growth opportunities, there are also significant costs involved. In line with previous research (Fernhaber, 2013), we argue that the extent to which these costs inhibit a new venture depends largely on the extent to which the venture is committed to foreign markets. Specifically, for a new venture that is only dabbling with internationalization, typically through exporting, it can leverage its adaptability skills associated with the advantage of newness and compete while expending minimal resources.…”

“…In line with international business scholars (Lu and Beamish, 2004;Gomes and Ramaswamy, 1999), Fernhaber (2013) argues that while internationalization initially facilitates a positive relationship with new venture performance, at some point, the rising costs associated with internationalizing erase any advantage, resulting in negative returns. To manage the negative returns that may occur at higher levels of internationalization, one conclusion could be that moderate levels of internationalization are better.…”

“…First, we respond to multiple calls for research to reconcile the relationship between new venture internationalization and performance (Sapienza et al , 2006;Jones et al , 2011). This paper focuses on the profitability measure of performance and builds on the earlier work of Fernhaber (2013) which examines the non-linear relationship between varying levels of internationalization on growth and survival. Second, there is limited theoretical exposition as to how new ventures can overcome the rising costs at higher levels of internationalization.…”

The Effect of Global Orientation on the Performance of International New Ventures: Evidence from Italy

“…Cerrato, M. Piva McDougall and Oviatt 1996;Zahra et al 2000;Fernhaber 2013;Lee 2013;Sleuwaegen and Onkelinx 2014). Focusing on the US, in their analysis on 62 new venture manufacturers in computer and communications equipment industries in the late 1980s, McDougall and Oviatt (1996) find that internationalization alone did not lead to increased profitability: no significant relationship emerges between higher levels of internationalization, measured as percentage of foreign sales to total sales, and return on investment.…”

“…Most studies are aimed at identifying the reasons at the basis of the emergence of the INVs, such as the role of the founder/ entrepreneur and the management team (Bloodgood et al 1996;Carpenter et al 2003;Kundu and Katz 2003;Spence et al 2011;Rasmussen et al 2012), and the importance of knowledge-based resources and capabilities (Oviatt and McDougall 1995;Sharma and Blomstermo 2003;Coviello 2006;Freeman et al 2012;Khalid and Larimo 2012;Fernhaber 2013). Fewer studies have been conducted with the specific purpose to analyze the determinants of INVs' performance (McDougall and Oviatt 1996;Autio et al 2000;Zahra et al 2000;Sleuwaegen and Onkelinx 2014;Zhou and Wu 2014).…”