BORN GLOBAL FIRMS
Born Global Firms
There is a lack of definitional clarity around what constitutes a born global firm, with recent definitional attempts to capture scale and/or scope also problematic. Critically evaluate this statement.
Born global firms are an emerging phenomenon in the international business world where competition is fierce, large multinationals dominate the international space, and resources are scarce. This entrepreneurial concept is often associated with small start-ups that venture into the international business environment as their original and only strategy, despite not having built their cultural knowledge from experience or having served and saturated their domestic markets to justify their internationalization. Controversy regarding whether it is possible to enter the international business environment as the first and only business model and strategy indicates that born global firms are still difficult to define and that the existing definitions lack clarity. The controversy surrounds the scope and scale of what constitutes a born global firm. This discussion delves into this definitional challenge and makes a case for born global firms as a poorly understood concept with several definitions that have scale and scope challenges. Although the discussion will present the various definitions available in the literature, it will argue that these definitions leave much leeway for understanding what born global firms are in terms of their scale and scope, such that the recent definitional attempts have not succeeded entirely in resolving this dilemma.
There are several definitions of born global firms that appear in the literature. For instance, Dlugoborskyte and Petraite (2017 p. 174) apply this term to mean firms that “operate internationally from at or near their inception”, a definition found in other published literature. Ferguson et al. (2021) call them successful export-intensive companies. They note that this term was coined by McKinsey, an American management consulting firm, which also provided some characteristics of born global firms, including venturing swiftly and successfully into foreign exportation, overcoming initial internationalization barriers without establishing a robust domestic market presence initially, and circumventing the arduous process of internationalization observed with multinational corporations. Escandon-Barbosa et al. (2019 p. 1) call them “entrepreneurial start-ups” that strive to generate a “substantial proportion” of their revenue from selling products in the international market. Similarly, Knight and Liesch (2016 p. 94) call born globals international new ventures (INVs) that derive competitive advantage from using few resources to sell products and services in multiple countries from the outset. These definitions lack clarity because there is no clear distinction of whether born global firms are initiated as such act their conceptualization or become international market players following a rapid and accelerated internationalization process. Similarly, whether the firms conduct a significant amount or all their business activities on the international market presents ambiguity. In the same vein, it is not clear where those kinds of companies are headquartered or whether there is a specific business model associated with operations. Likewise, it remains unresolved which size of firms constitute born globals in terms of their number of employees, turnover, sale volumes, and the minimum number of countries where they should have a presence. These are questions of scope and scale that remain unresolved and inject ambiguity and inconclusiveness into the definition of born global firms.
Born global firms appear to defy established theories of internationalization, particularly the Uppsala Internationalization Process Model. According to Johanson and Vahlne, the conceivers of the original model, internationalization is a gradual and incremental process in which firms learn to enter into the international market after dominating and exhausting their domestic ones (Johanson and Vahlne 2017). In other words, entrepreneurs founded their ventures targeting the local market initially. This initial venture aims at helping the firm learn market-specific knowledge using few resources and low commitments. As they gain more market experience, they scale up their resource commitment and expand their scope. It reaches a time when the firms feel confident enough to venture into markets beyond their local jurisdiction because they have gathered sufficient market knowledge emboldening them to internationalize their operations. The main assumption of this model is that firms lack sufficing knowledge about foreign markets. This knowledge is built gradually and incrementally over time as the firms interact with different clients domestically, reducing the risks of uncertainty when entering markets that are little known about (Escandon-Barbosa et al. (2019). This assumption was arrived at after Johanson and Vahlne studied several Swedish manufacturing firms to understand how they ventured into a foreign market. Once the internationalization decision has been made, first meticulously select the most appropriate foreign market that presents the least entry challenges after gathering sufficient intelligence about the different international markets of interest. The initial foreign market offering the least entry barriers is then used as an experimental model for scaling up and expanding the scope of international engagements and operations. Such markets have close psychic proximity to the domestic market and present the least liability of foreignness because their business conditions are similarly or almost similar to those of the domestic market (Neubert 2016). All the while, the internationalizing firms maintain their headquarters in their home countries from where they run their international operations. After gaining sufficient knowledge and confidence in the international arena, the firms can decentralize their operations by establishing regional and foreign offices and soon become fully global entities with complex global networks and operations. The internationalization journey becomes more complex as the firms venture into more psychically distant destinations requiring more international market knowledge and increasing the liability of foreignness (Neubert 2016). Today’s large multinationals ventured internationally gradually by testing specific foreign markets requiring the least commitment.
The network approach is another theoretical framework used to explain the internationalization process. Introduced by Johanson and Mattsson, the framework emphasizes the importance of the customer, supplier, and market relationships and linkages in stimulating foreign ventures (Kujala and Owusu 2021). The networks created with diverse customers, suppliers, and markets are a valuable source of information and knowledge that helps firm navigate the complexities of their foreign destinations. Informational and communication technological advancements have been critical in accelerating the internationalization process.
However, Johanson and Vahlne acknowledge that when they conceptualized the term “born global firms” in 1977, the business environment was very different from what it is today, and they had just a basic understanding of the complexities in markets. For instance, at that time, markets were not extensively networked as they are today, and the psychic distance was large, although it reduced over time with increased experience in international operations (Johanson and Vahlne 2017). Besides, Hofstede’s cultural dimensions theory was not been formulated to explain the different national cultures that influenced business operations at the time the born global term emerged (Beugelsdijk et al. 2018). Consequently, crosscultural issues were poorly understood then, and business models were still rudimentary. However, today, the knowledge of these business conditions has expanded exponentially, yet the definition of born global firms has not changed correspondingly. Therefore, the definition of born global firms continues to be problematic because it is shrouded in ambiguity and imprecision. For instance, firms that start as local ventures but venture internationally at an accelerated pace are also considered to be born global firms. This means that there is no clear definitional distinction between firms that start local and swiftly enter foreign markets and those that enter directly into international operations at the onset. Similarly, firms that create substantial competitive advantage from operating international are also considered to be born global firms. Therefore, there is no distinction between firms that generate significant competitive advantage and those that derive all their competitive advantage from foreign operations. These dilemmas indicate it is not believed that a firm can venture into foreign markets at its inception without testing the domestic ones, albeit for a brief period. Knight and Liesch (2016 p. 94) conceded that many born global firms were not actually “born” global but internationalized rapidly after their establishment. Therefore, the “born global” label highlights the new paradigm in the global economy, although such firms have existed for a long time. Another dilemma emanates from equating born global companies to international new ventures (INV), which are described for their value chain activities rather than the sale of products and services. Neubert (2016) noted that although born global firms and international new ventures may have started under similar conditions of establishing domestic markets before rapidly venturing internationally, the two terms are not synonymous.
Nonetheless, there are few areas in which different scholars agree regarding what born global firms are. For instance, there is a fundamental agreement that born global firms are small and medium enterprises with limited resources to deploy in their business models. There is also agreement that these firms are highly specialized to capture markets niche that are ignored or underserved by large multinational enterprises. Similarly, born global firms thrive on modern advanced technologies that enable them to coordinate their operations in different foreign markets (Kujala and Owusu 2021). Therefore, they tend to be largely knowledge-based and technologically-empowered. Also, born global firms thrive on extreme and creative entrepreneurism characterized by risk-taking, swift learning, and bold decision-making (Liu 2017). These considerations provide a workable view of what born global firms are or should be.
Altogether, the argument presented here indicates that the definition of born global firms lacks clarity because it is shrouded in ambiguity and imprecision. Theoretical frameworks like Uppsala Internationalization Process Model and the network approach have not helped resolve this dilemma because they do not account conclusively for the problematic scope and scale issues confronting born global firms to discriminate them from the international new ventures. Consequently, the definitional models have not succeeded in discriminating ventures that enter the international market at their onset from those that start domestically and internationalize swiftly after their inception. Therefore, the statement presented at the beginning of this discourse is valid and operational to date. Consequently, more theorizing is required to resolve this dilemma. What is required is increased studying of the new business models of international ventures operating in the current international business environment, which has experienced tectonic shifts from the rapid technological advancements and complex networking and interdependencies on the global business stage. This could help resolve the scale and scope issues that continue to complicate the definitional precision of born global firms, an increasingly emerging business model among the new small and medium enterprises.
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