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This report is a literature review based on the premise that globalization is an enabler of international entrepreneurship. In order to investigate that globalization is an enabler of international entrepreneurship, numerous articles will be reviewed which are relevant from this point of view.
How and why globalization assists international entrepreneurship will be investigated from various perspectives and this report is divided into key areas. Firstly, what globalization means to entrepreneurship will be discussed in terms of incentives, identifying emerging markets, early internationalization and knowing the market. Born global perspectives are also discussed. Secondly, how business practices are influenced by the affects of globalization are discussed in terms of communication, business size and organizational change are discussed. Modeling of internationalization is then discussed. How Governments impact entrepreneurs in terms of policy and strategies are then discussed. Different countries and their cultures effect the success and rate of entrepreneurship and this is discussed in terms of favorable settings and locations, network building and obtaining local knowledge. The beliefs of individuals within their countries affect the rate of entrepreneurship. The United States of America, Turkey and Russia will be contrasted. Understanding culture and personality differences is also essential for effective business. This is discussed with reference to the Global Entrepreneurship Monitor (GEM) and culture differences within Ireland, China and the United States of America.
Globalization and entrepreneurship
Effects of Globalization means incentives for entrepreneurs
Lau, Shaffer and Au (2007) investigate entrepreneurial career success from a Chinese perspective. Entrepreneurs are respected as people who are able to generate economic recovery through innovation and new job creation. Globalization, downsizing of the workplace, and more multitasking and open careers have changed the way traditional organizations conduct themselves. It also often means that there are reduced opportunities for promotions in large organizations. This had led to an increasing number of people seeing an entrepreneurial career as a viable and attractive alternative. Over the last decade new business ventures within China have increased, especially since China's entry into the World Trade Organization.
Emerging markets for entrepreneurial opportunities
Pisano, Ireland, Hitt and Webb (2007), report on emerging markets that are showing entrepreneurial opportunities. Strategic alliances are noted as the most suitable way for an overseas company to enter an emerging economy with success. The culture, political and legal systems are often very different in emerging markets. Companies investigating further international entrepreneurship should be able to explore and exploit at the same time. Due to increased and intensive market globalization, together with increased competition, companies are now looking at emerging economies' markets.
Often the governments of emerging economies offer attractive policies that encourage foreign investment and economic liberalization (Pisano, Ireland, Hitt and Webb, 2007). They often have fast economic growth and are able to offer advantages that for first mover organizations. Ability to learn in new environments is a key indicator of international entrepreneurship success. Being able to react correctly and continually adapt to changing dynamics of the country is also essential. An adaptive strategy can also be implemented more rapidly.
Effects of globalisation
Hartungi (2006) indicates that globalization is characterized by the increasingly rising inter-dependence and inter connectedness of national economies and markets. With businesses that are dependent upon each other there is a decrease cost of transaction for many factors including capital, products, goods, information, people and materials. Rapid changes in the business and economic environment are a result of globalization.
Benefits of entrepreneurship
Sjørup (1997) indicates that entrepreneurship that creates wealth creation and innovation, benefits from free market policies. As a result of this, the global market has become more connected through local economies.
Early Internationalization factors
Zucchella, Palamara and Denicolai (2007) discuss the factors leading to early internationalization of firms within in their first three years of starting. There are two factors, precocity and speed, that occur in early international expansion. The company should develop expansion plans as soon as business opportunities emerge so that the firm can benefit from first mover benefits. They are then able to learn more quickly about their new markets and also access profits soon than their rivals.
The research by Zucchella, Palamara and Denicolai (2007), investigate the impact of key drivers on the precocity of firm internationalization. They found that younger firms are
more likely to start business overseas. This is within their first three years of operation. The international and local experience of the entrepreneur was also a strong factor in decided to go global early on in the company life.
Knowing the market - Diffusing quickly
Zhang and Dodgson (2007), in discussing the technology based sector, show that the possession of relevant international technical standards provide considerable advantages for companies wishing to quickly internationalize. Country and cultural factors constrain quick and early internationalization. The developing of a new international entrepreneurship must understand the characteristics of the technology products and markets, business systems in other countries and cultural differences for the successful management abroad.
High technology products have typically short life cycles. Hence it is seen as advantageous to diffuse their products quickly and broadly. One must use an international market and the globalized economies make this task easier these days. In looking at a Korean start up technology company, namely Avaro, an international market was essential as high technology companies are rarely able to rely on a domestic market. They wanted to expand internationally but were constrained by their national and cultural "baggage" for two reasons. Firstly, technological advantage is often lost in alliances. Secondly, they wanted to maintain Korean identity and has a strong sense of nationalism Zhang and Dodgson (2007),.
A Finland perspective
Kuivalainen, Sundqvist and Servais (2007) investigate international new ventures or global start-ups, sometimes known as "born-globals'. A born-global firm is defined as a rapidly internationalized firm less than three years old with at least twenty five percent of turnover coming for a foreign market.
In looking at entrepreneurial firms in Finland, there is increased evidence that they are aiming to quickly become internationalized, even if they small in size. The benefits in becoming internationalized are increased sales, profits and market presence. Two key elements concerning time are firstly the time it takes to found and secondly the time it takes to begin operations and the speed of subsequent growth. An international perspective, together with management and staff motives are common features of born-globals from around the world (Kuivalainen, Sundqvist and Servais, 2007)
Early internationalization of born globals
Zhou (2007), investigates the literature suggesting tension between the process models of internationalization and the early internationalization of born-global firms. This is in terms of the role of foreign market knowledge. Zhou argues that this tension can be understood by understanding the source of the knowledge.
Companies need to acquire knowledge about overseas markets from their experiences of business abroad. For firms without international experience, the most efficient approach is then to adopt an incremental approach for expansion overseas. This international knowledge can be used to deal with differences in foreign markets. Zhou (2007), finds that for firms wanting to internationalize early on, foreign market knowledge is more likely to come from opportunities across national borders. Foreign market knowledge allows early and quick internationalization.
Globalization and business
Importance of communication
As indicated by Rao (2001), Globalization is a major force affecting management theory and every facet of practice. As consumers needs become more homogenized, companies think and behave within a global village. Globalization has seen international trade dramatically increase, with organizations increasingly sourcing and exporting their products overseas. Communication has therefore become a key success factor.
Globalization has made the business environment more challenging. Traditional business models are inadequate in when not applied correctly to developing overseas markets (Rao, 2001)
According to Welsch (2004), Globalization and its access to huge amounts of information, have encouraged the trend towards entrepreneurial behavior. Entrepreneurs build and manage networks, not traditional hierarchies, by bringing communities together. They share the rewards in order to ensure cooperation. The main pitfall of entrepreneurial businessmen is that they do not value change.
Giamartino, Mcdougall, Barbara and Bird (1993) note that globalization is felt across all organizations regardless of their size and if they are public or privately run. In a study which asked entrepreneurship academics the question what international entrepreneurship mean to them there were mixed responses. Research on ventures that become international was the top response with a 74% response. Research on venture that begin as international received 64%. Other popular responses were teaching the issues of differences and teaching cases from other countries. Universities are also stakeholders in the global international entrepreneurship market as they must map the processes and redefine research and education in this field.
Business size characteristics
International entrepreneurship is not restricted to large companies. Mort and Weerawardena, (2006) show that it is also possible for even small and medium sized companies. This may be achieved through dynamic networking capabilities of the company and plays a central role in fast internationalization by developing knowledge-intensive products and in international market performance.
Organisations and change
As new products, processes and services are discovered, existing products, processes and services will be valued less (Younkinds, 2000). Organizations must be able to constantly innovate and not be tied to the past to stay ahead of their competitors.
Jones and Coviello (2005), develop three potential models of internationalization involving the time factor for entrepreneurial behavior. It is important to understand and predict the development of firms internationally. There are two classic approaches to the analysis of internationalization. These are the entrepreneurial process and the internationalization process. This model is then expanded to include time and is then called the general model. The third level of analysis or model is called the precise model, where a precise casual model is described. The precise model is a context-specific model for empirical investigation, concentrating on a certain aspect of the internationalization.
Internationalization may be described as a process of innovation and is essential to the process of internationalization (Jones and Coviello, 2005).
Traditional versus the born global approach
Chetty and Campbell-Hunt (2004) describe two views of internationalization. These two views are the traditional or born-global approach. They find that many features of born globals are shared with traditional internationalization lines but are drastically changed to achieve a global outcome.
The born global model has many aspects in common with small business internationalization. The model is also very relevant to our globalized world economy where a more aggressive learning strategy is required. In looking at New Zealand, after deregulation it became one of the most open economies in the Organization for Economic Co-operation and Development (OECD). Before 1984, firms could take advantage of the Governments export incentives but after 1984 these incentives were removed. Chetty and Campbell-Hunt (2004), found that the born-global model is more representational after 1984. Before 1984 with the export incentives, the traditional view of internationalization is more accurately described.
Government policies and strategies
Dunning (1997), highlights that national governments have a decisive role which affects the economic activities and competitiveness within their country. With increased globalization, governments need to reassess their policies and strategies which provide incentives for domestic firms to be more competitive globally. The role of the Government is to create and sustain an efficient economic system. In terms of improving competitiveness Dunning (1997) believes the Government should be doing the following activities. Governments must create and communicate an economic vision. They must also ensure that it is translated into reality by being in touch with the learning and innovative driven economy. It is also the responsibility of government to ensure that the policy matches up to the standards their global competitors. The governments also need to create and sustain an international framework which encourages entrepreneurship. Finally the government needs to monitor its laws and policies that can either help or hinder business activities.
Acs, Morckb and Teungc (2001), investigate the impact of government policy on influencing the conditions for the internationalization of small and medium-sized enterprises (SMEs). Within Canada, the Export Development Corporation (EDC), is a special devision of the Government to assist firms in overseas markets.
Acs, Morckb and Teungc (2001) find that assistance of financing and risk insurance within the export market may be counterproductive to the long-term interests of many SMEs. Many managers of SMEs may be persuaded towards direct exporting to established multinational enterprises rather than indirect exporting. By doing this the SMEs may loose their innovative edge. Their report indicates that innovative SMEs may be better advised in dealing with MNEs and sharing direct exporting profits with them.
Local governments tend to favor foreign firms that invest in their countries as these firms often have expertise in a specific industry and technology, and the emerging governments have a strong interest to import the firm's advanced knowledge (Luo, 2002)
Country and cultures
Thomas and Mueller (2000), determine that societies and cultures that are goal oriented and achievement driven will be more open to accepting entrepreneurship. They indicate that a given entrepreneur from one culture or country is likely to be able to co-operate with another entrepreneurs from a different culture. While they may have difficulties they will be able to work together based on mutual respect. An essential factor in doing business in our increasingly globalized world is being able to understand different cultures. For example the Asian culture give family typically more importance than does the west with its more individualistic style. If there is a significant culture gap between the culture of the new country where business is to start compared to the country that they are from, there will be greater challenges. As the culture gap widens, so does the challenge for becoming a successful entrepreneurs within that culture.
Freytag and Thurik (2007) investigate how a culture's social, economic and educational system can affect the success of then entrepreneur within that society. They refer to this level as the level of legitimacy for the entrepreneur. A high level of legitimacy would mean that the society has given the entrepreneur tax concessions for business start ups and subsequent higher social status. On the other hand, for a low level of legitimacy, the international entrepreneur may be presented with resentment and face operating difficulties.
The importance of local knowledge and network building
Being an international entrepreneur requires local knowledge of whether the given product or service is desired, culturally accepted and also how the product value will be communicated according to Mu, Gnyawali and Hatfield (2007). In order to build up relationships with new countries that have different cultures, it is beneficial to develop social and business networks in the new culture. By building up these networks, new information about the market can be obtained, even if the links are not strong or weak. The information can then be used to overcome culture differences and improve the chances of success within the new country and or culture.
Location factors within Italy
Majocchi and Presutti (2009), analyze the distribution of foreign direct investments (FDI) within Italy. Their analysis showed that investments by multinationals are attracted by those areas that combine industrial cluster characteristics with an agglomeration of foreign firms and that have a high level of entrepreneurial culture. Their study investigated how the distribution of multinational investment was influenced and which provinces were chosen for investment. They found that economic and strategic factors are factors which influence where to invest in Italy. Organizations tend to concentrate where there are related companies and also where foreign investment exists already. They conclude that the location strategies of industrial clusters must simultaneously take into account strategic, economic, institutional and area specific factors.
Comparing countries and their beliefs
Turkey and the West
Turan and Kara (2007), looks at entrepreneurship in Turkey. Given the fact that globalization, together with foreign investment is constantly rising around the world, Entrepreneurs are now seeking emergent markets in Turkey as many investors see similarities between the west and Turkey. As economic, political and competitive environments are constantly changing, there are added pressures for organizations to adapt or face elimination from the marketplace.
The study by Turan and Kara (2007), involved two hundred questionnaires given to Turkish entrepreneurs in several southern cities of Turkey. The results showed interesting demographic information such as most female entrepreneurs were more comfortable starting businesses where they already had experience as apposed to a completely new and innovative business idea. Entrepreneurs tended to think in shorter time periods and lacked long term vision. This may be due to the fluctuating and instable economy of Turkey and also perhaps less education with regard to entrepreneurship when compared to the west.
The main attitudes of Turkish entrepreneurs included ensuring the organization functions well, providing a second chance on failure and respect for people who start their own businesses Turan and Kara (2007), The biggest challenges they faced were more responsibility, finding financial loans for the business, finding suitable locations for the business, strains on personal and family life and also increased stress due to hard work. In terms of a Globalised market; companies should view Turkey to be a very attractive market as it shares many values similar to the west. It also has a favorable, more liberal investment environment.
Russia - High Technology
Tovstiga, Den Hamer, Popova, Efimov, Moskalev and Bortnik (2004), looks at the Russian markets of small innovative enterprises and suggest three factors that move these companies to foreign markets. These are macro-economic obstacles, management and business deficiencies and differences in business and cultures. While Russia has not historically had a entrepreneurial mindset for international markets there is new motivation particularly within the technology industry.
National culture and economic conditions
Bhaskaran and Sukumaran (2007), indicate that culture is a sum of values, beliefs and attitudes that were developed over a long period of time. They were created through shared historical and social experiences that a particular social group were experienced to.
Baughn and Neupert (2003), investigate how cultures and economic conditions facilitate or constrain new start up companies. While there are new business start ups in all countries, there are differences across different countries. To explain these differences the Global Entrepreneurship Monitor (GEM) project is working on a framework to link social, cultural and political aspects to favorable Entrepreneurship conditions. As different countries have very different financial, government and laws in place, this effects the Entrepreneurship motivations.
Attracting early financing is key and often the most important step to successful overseas Entrepreneurship. Countries that have low uncertainty avoidance typically provide easier loans and venture capital and have less restrictive administrative burdens. Easier loans and venture capital is also easier in individualistic cultures and these countries typically have better legal protection. Greater labor flexibility is found more in low uncertainty avoidance cultures.
Ardichvili and Gasparishvili (2003), in seeking to extend the body of knowledge of international and cross-cultural entrepreneurship, investigates the degree of variance in cultural values between Georgia and Russia, two former countries of the Soviet Union. They confirm that there are indeed significant inter-country differences between entrepreneurs and non entrepreneurs in terms of culture and occupational groups.
Cultures within Ireland and China
Tsang (2006), in looking at a team of software developers in Ireland and China, investigates how national culture influences entrepreneurship.
Tsang finds that the founding processes of new software companies are due to differences in the nature of entrepreneurial networks. National culture also represents differences in the nature of the networks. The underlying assumptions and diversity, size and density of such networks will lead to differences in entrepreneurial behavior and firm level strategies according to Tsang (2006).
Personality - Ireland and United States of America
De Pillis and Reardon (2007) investigates persuasion and personality as variables in predicting the entrepreneurial intention of different cultures. Their study indicates that individuals become entrepreneurs based on different decisions from different cultures.
American subjects in the study viewed entrepreneurship as a socially acceptable outlet for their achievement motivation. Americans also viewed the mass media message about entrepreneurship as being a motivating force. This however was not the case for Irish subjects. Since culture in the United States of America has very high individualism and also reduced uncertainty avoidance, these two values make Americans very suited to entrepreneurship.
The Irish people tend to view failure more seriously than the Americans and have a lower tolerance for such an outcome. As a consequence there are many more start up businesses in the United States when compared to Ireland. There are also more logistical hurdles for starting up a business in Ireland. The perception that people have about entrepreneurship is different between the American and Irish cultures. These perceptions can influence the intention to become an entrepreneur.
This literature review found many issues relating globalization and international entrepreneurship and how globalization assists international entrepreneurship.
Globalization has changed the way traditional organizations conduct business. Key areas for success include strategic alliances. Building strategic alliances requires a clear understanding of the cultural, political and legal systems within the country. The culture, political and legal systems are very different in emerging markets. Business systems are also frequently different. Being able to learn efficiently and quickly is a key indicator of success. Organizations must acquire knowledge about overseas markets as this allows early and quick internationalization.
In addition the Government policies of countries also affects the attractiveness of countries for entrepreneurship and international entrepreneurship. Governments need to watch their global competitors to create and communicate economic vision. In order to internationalize early, it is important engage expansion plans early to benefit from first mover benefits. This is most important in the high technology markets where products have typically shorter life cycles. The benefits of internationalism are increased profits, from sales and market presence. Communication across cultural divides is a key success factor in addition to valuing change. The challenge for successful entrepreneurship is to reduce the culture gap as much as possible. Dynamic networking and innovation is essential to stay ahead of competitors in a globalized economy as well as selecting a suitable location for the new business. Also the attitudes of people from different countries about entrepreneurship differ and individuals become entrepreneurs based on different decisions from within their own cultures. In industries such as high technology where products have shorter life cycles, products need to be distributed quickly and broadly. A globalized economy and establishment of an international market makes achieves this task.
Globalization affects all aspects of business practice and theory. Companies must think as a global village where international trade has increased dramatically with the help of modern day communication technologies. They must build world networks and embrace change within their organizations. Companies must have an international perspective with common management and employee motives are key features of born-globals. Globalization has also made organizations want to internationalize their businesses as quickly as possible (Rao, 2001).