E-Magazine
Margaret Fletcher
Importance of knowledge and learning for internationalisation
The aim of this short article is to discuss how knowledge and learning are important drivers of internationalisation and how the concepts are applied to advanced academic thinking in the field of international entrepreneurship. Increasing internationalisation in all industries has given rise to an increasing number of small firms operating in the international market place. Small firms are internationalising more rapidly and earlier than before, this has generated a growing interest in understanding how these firms gain sustainable competitive advantage. Internationalisation is a learning intensive process but little is known about how high growth, innovative firms (commonly known as international new ventures - INVs), learn in the global market place, though recent research is emerging to fill this gap. Governments have encouraged SMEs to internationalise to promote wealth creation and international competitiveness, however, internationalisation is a high risk activity. As research reveals, early and rapid internationalisation may increase prospects for growth among INVs, but decrease their probability of survival. Thus although there has been a rise in the number of INVs; in order to reduce risks, an incremental or sequential approach is common among internationalising firms.
Internationalisation as a learning intensive process
Knowledge and the related notion of learning, have a central role explaining these two approaches by SMEs to internationalisation. Knowledge acquisition is one of the key factors behind a firm’s international behaviour in terms of selection of foreign markets, the ways firms enter markets and the speed of the launch. The subsequent speed of internationalisation involves how quickly a firm’s percentage of foreign sales increase and number of countries entered.
For over 30 years knowledge acquisition has been explicitly associated with the internationalisation process (IP) approach. Internationalisation is viewed as a series of incremental decisions whereby in order to minimise the degree of uncertainty and risk, as firms gain knowledge and experience in a country, they increasingly invest in more advanced ways of operating in that market. Lack of knowledge and resources are important obstacles, the consequence of which is that IP theory sees internationalisation as a sequential process, driven by a firm’s experiential learning. To reduce risk, firms select markets that are physically or psychologically similar to their home market, and will gradually increase involvement in a specific market.
Example: O&GS Ltd, provide oil and gas well optimisation services. Initial internationalisation by exporting was “incremental and low risk” to English speaking countries, using agents in the US market, expanding to Canada then Australia. European markets were serviced from the UK. After several years of operating in the US an office was opened by the firm. Expansion continued to more distant markets such as South America and Dubai by using agents, then offices.
More recently, in the case of INVs, entrepreneurial firms don’t fit this incremental approach to market entry, internationalisation is seen as a strategy for growth, where a firm’s capability to learn is vital to enable speedy decisions in order to support rapid internationalisation. Successful INVs often have a unique product or service in leading markets enabling the firm to process competitive advantage over the indigenous firms’ more thorough understanding of its market. INVs overcome disadvantages of newness (lack of experience) and size, by being first to the market. Unique knowledge, technological intensity and mobility of intangible knowledge drive early and rapidly internationalisation of INVs.
From an international entrepreneurship perspective, knowledge influences internationalisation at the level of the individual, company and inter-organisational networks. Entrepreneurs and top management teams bring to the new firm their prior international knowledge, abilities and experience, and are influenced by their backgrounds. However, this prior experience may become outdated or less relevant over time, and thus new learning is required. At the organisation level, younger firms may benefit from “learning advantage of newness”, where organisational routines and structures are better integrated for internationalisation than late internationalisers, where inertia may limit older firms’ abilities to learn. Thus it is argued that the speed of learning drives the speed of internationalisation, but this will vary between INVs. After start-up, speed of international expansion may vary according to a firm’s capabilities in accumulating and commercialising knowledge. A firm’s internal and external networks, the form of individual and company knowledge sharing networks, and external relationships with customers, suppliers and institutions, have an important role enabling INVs to acquired new knowledge to expand internationally.
Example: IS Ltd. is an INV that provides software to the aviation sector. Through expensive market research it identified the US as a main market and formed a strategic alliance with a US to enter the market. In order to expand rapidly into new overseas markets, the firm employed a new director to acquire his experience of the international aviation market place. Emphasis was placed within the firm on sharing this experience and new knowledge gained from overseas operations.
Content of Knowledge
Firms require knowledge in various forms. Drawing on IP and IE frameworks, market and technological knowledge are vital in influencing how quickly firms internationalise. As firms operate in an overseas market, they accumulate specific market knowledge and experience. This has been identified as business knowledge of clients, competitors and market conditions in a particular market, and institutional knowledge of government, institutional frameworks, rules and norms. This knowledge drives the advancement of operations in a specific market. However, as they operate internationally, firms accumulate transferable market knowledge which is neither specific to any one country or method of entering a market, but is specific to the firm. It is knowledge that is transferable from market to market and influences for example, information search processes and evaluation of opportunities, knowledge can then be applied by firms to expand geographically, leading to strategic market entry decisions. Thus, the acquisition of specific and transferable market knowledge is important to firms for international market entry and the development of existing and new overseas market.
Many INVs operate knowledge intensive sectors such as ITC and bio-technology. Greater technological and knowledge intensity has been associated with a greater degree of internationalisation and faster growth of entrepreneurial firms. The transferability of technological knowledge across borders enables early and rapid internationalisation. Technological learning allows firms to recognise and develop new product opportunities. Knowledge intensive firms develop learning capabilities necessary for the development of technologies and adaption of products for successful growth in new markets, and to avoid stagnation in existing markets.
Conclusions
The important roles of knowledge and learning have featured in both the IP and IE approaches to internationalisation. Although there has been an increasing number of studies and conceptual development, there is still much research needed to increase our knowledge of what and how entrepreneurial firms learn the global market place. Insights can be gleaned from existing frameworks, such as the knowledge-based view of the firm, organisational learning, social capital and entrepreneurial learning to investigate the phenomena at the level of the entrepreneur and the firm.
Notes
1. A full list supporting references are available from the author.
2. Company names have been changed to preserve anonymity.
Dr Margaret Fletcher, Centre for Internationalization and Enterprise Research (CIER), University of Glasgow, margaret.fletcher@lbss.gla.ac.uk