Lecture 2 (BGF and INVs) - Canvas - 23 24

Born Global Firms –
International New Ventures

(INVs)
Learning Objectives
• To recap the concept and understand the

historical trend of Born Global
Firms (BGFs) and International New Ventures
(INVs)
• To understand the characteristics,

motivations and capabilities of Born Global
Firms (BGFs) and International New Ventures
(INVs)
• To understand
Who are Born Global Firms or INVs?
Free Internet phone technology, called voice-over
Internet protocol, or VoIP.
Skype website, accessed November 1, 2010,

Millions of users logged in on Skype; (Internet/
software application),
Niklas Zennstrom and Janus Friis, the same two

entrepreneurs who invented KaZaA (one of the most
popular Internet file-sharing software programs in the
world) also developed Skype.
Founded in Sweden as Tele2, Skype is now

headquartered in Luxembourg and has offices in
Europe, the United States, and Asia. Skype and has
received significant funding from some of the largest
venture-capital firms in the world.
Who are born globals /INVs?
• PC mouse,
• founded by two Italians and a Swiss. The
company’s operations and research and
development California and Switzerland
• Production in Ireland and Taiwan.
• With its stylish and ergonomic products,
Logitech captured 30 percent of the global
computer mouse business by 1989,
• industry leader in the design and
manufacture of computer peripheral devices
• has manufacturing facilities in Asia and
offices in major cities in North America,
Europe, and the Asia-Pacific region; and
directly employs more than 6,000 people
worldwide.[
Born Globals and International New Ventures
• Some scholars suggested that born globals and

international new ventures are one and the same.
• In some ways, however, born globals and international
new ventures might be distinct.
• INVs primarily exemplify early internationalization
whereas BGFs emphasize the setting up of firms in global
context.
• “International new venture” can be viewed as a broader
concept.
5
https://www.forbes.com/sites/ellenhuet/2014/12/11/ubers-global-expa
c2e382d550a
Providing video coverage of the events for more

than 60 other countries around the world.
https://www.youtube.com/watch?v=QsF4VHriFFY https://www.youtube.com/watch?v=faDZhvvcU8k
https://www.youtube.com/watch?v=DG8ikmzOL34
https://simpleflying.com/history-of-easyjet/ https://www.youtube.com/watch?v=feX59UcgyP4
Early Observations
• 1980s: Globalization and technological advances helped
reduce costs of internationalization => many young, small
firms began expanding abroad.
• Late 1980s: Growing numbers of born globals observed in
Australia, Denmark, Japan, US, elsewhere.
• Late 1980s and early 1990s: More evidence emerged
worldwide (e.g., Business Week 1992; Gupta 1989; Nikkei
Sangyoo Shimbun 1995; Rennie 1993).
• 1993: Rennie and McKinsey & Co. coined the term “born
global” – companies that internationalize substantially at
or near founding of the firm.
7
Early Observations
• Oviatt and McDougall (1994) identified early
internationalizing firms, which they termed “international
new ventures” (INVs).
• The mid-1990s:
Knight, G. & Cavusgil, S.T. (1995) The Born Global

Firm: Challenge to Traditional Internationalization
Theory. In Proceedings of the Third Symposium of
the Consortium for International Marketing
Research, Tage Madsen, ed. Denmark: Odense
University.
8
The Definitions in IE field
• Knight & Cavusgil (e.g., 1995) defined born globals as

“entrepreneurial start-ups that, from or near their
founding, seek to derive a substantial proportion of
their revenue from the sale of products in
international markets”.
• Oviatt & McDougall (e.g., 1994) defined international

new ventures as “business organizations that, from
inception, seek to derive significant competitive
advantage from the use of resources and the sale of
outputs in multiple countries”.
9
Motivation for IE firms
Motivation for International Entre.
Motivation for International Entre.
http://zoobug.com/why-zoobug/
Required capabilities for
success and growth
13
http://www.rovop.com/
Characteristics of Int. Entrepreneurs
16
Internationalisation
Theories:
(Why do firm go abroad)
Existing theories from International
Business and the phenomenon of IE
• Product Life Cycle theory
• Monopolistic Advantage Theory
• Oligopolistic theory
• Internalisation theory
• Stage Theory of Internationalization

Theories aim at explaining:

• Why do multinationals exist?
• What should be the pattern of Internationalisation?
• What should be the entry mode?
– Exporting
– Greenfield
– Acquisition
– Joint venture
– Strategic alliance
• A variety of theories explain the existence of

the multinational and the Internationalisation
process
– Monopolistic Advantage theory
– Product Life Cycle theory
– Oligopolistic Reaction theory
– Internalization theory
– The Stage theory of Internationalization or Stages
models (e.g. the Uppsala Model)
Existing theories from International
Business and the phenomenon of IE
• Product Life Cycle theory
• Monopolistic Advantage Theory
• Oligopolistic theory
• Internalisation theory
• Stage Theory of Internationalization

Internationalisation Theories and INVs
• Product Life cycle theory (Vernon, 1966)
– MNEs exist because of the cycle of product development
– Firms make direct investment to protect the markets that they originally
served through exporting.
– Firms invest abroad only after products mature and competition becomes
cost-based
– FDI in low cost production countries allow foreign investors to compete with
local entrepreneurs because they can enjoy low production cost and who seek
to export
However, the theory does not explain for INVs
– INVs engage in foreign investment to sell products for which competition has
not yet become standardized and cost-based (Logitech)
– INVs purchase foreign assets prior to exporting to foreign markets. In the case
of many INVs, foreign markets are served by production from foreign
investment sites before the costs are driven down by local competitors.
• Monopolistic Advantage theory
– MNEs exist because of a firm as a unique source of superiority over
foreign firms in their own markets (Hymer 1976)
– This advantage is called “superior ability” (superior knowledge,
manufacturing process, brand names, differentiated products,
organizational talents or patented technology) belong to the MNE and
cannot be acquired by other firms
– The firm can exploit this advantage overseas at no additional cost
(Caves, 1971)  more advantage than local entrepreneurs
 Internationalisation is an optimization of costs and revenues across
international borders
– However, the theory cannot explain why some entrepreneurs perceive
the opportunity of using their monopolistic advantage from inception
– Also many INVs go abroad even before the monopolistic advantage is
established in home market
• Oligopolistic Reaction Theory (Knickerbocker, 1973)
– Firms imitate one another’s action to reduce the risk of being different
– Firms internationalize at the same time with competitors to match the actions of the other
members of an oligopoly
– Risks going abroad will be reduced.
– Many INVs is the first firm in the industry to internationalise or invest internationally.
Eg: IXI Limited was a Cambridge, UK-based software company founded in 1988. The company was a supplier of windowing
software for Unix, supporting all the popular UNIX platforms of the time. IXI's best-known product was X.desktop, an X11-based
graphical desktop for UNIX systems
IXI did not consider its desktop windowing computer software for UNIX operating system to be in
competition with any software competitor. The founder found the need for the new market and
hence set his INV to serve.
“IXI started because people wanted the software. They coudnot get it from anywhere” So he did
not see IXT as part of an oligopoly.
– Firms act similarly to their other oligopolists as they see them as competitors. But many INVs
are small firms, who cannot compete with existing established firms, so they are set to avoid
this competition.
• Internalisation Theory (Hennart, 1982) Buckley and Casson, 1976)
Based on Transaction cost theory
– MNEs exist because market imperfection create the opportunity for firms to
earn higher economic rents by internalizing the transfer of factor goods and
services across national boundaries with firm (rather than they can by
transactions between firms)
– When international markets are likely to fail, firms form to govern economic
transactions by ownership of operations in multiple countries to reduce cost

– Many INVs do not always choose the lowest cost location for each activity the
firm performs (they want access to customers, access to technology…)
Eg: Logitech set its headquarter (manufacturing and market operation) in Sillicon
Valley not because of cost reason rather because of being there to stay ahead or
be aware of technology trends and changes in customer requirements.
– Cost reduction is not the key behind INVs setting up.
The Uppsala Model
The stages
• Exporting via an agent

• Establishing a sales subsidiary
• Production in the host country
The model is based on observations of Swedish

manufacturing firms that developed
international operations in small steps
The Stages
State aspects and change aspects
Psychic distance
Factors that prevent or disturb the flows of

information between the firm and the market:
– Language
– Culture
– Political system
– Level of education
– Level of industrial development
The process
• Incremental adjustment to changing conditions of the

firm and its environment
• These changes expose new problems and
opportunities
• Managers look for solutions in the area of the problem
• Current activities are the main source of experiential
knowledge – which is the critical knowledge
• The decision to commit resources to foreign
operations depends on the firm’s approach toward risk
Summary
• Born global firms and international new ventures are
new forms of firms to compete in new global
competitive market.
• The formation of these firms require International

Entrepreneurs a global vision, a new set of capabilities
and competences to creatively combine cross cultural
factors and resources
• Conventional Internationalisation theories can not

explain for the formation of BGFs and INVs
33
Readings and Watching
Readings:
Recap: Tran, Y., & Batas, S. (2016). International Entrepreneurship
and Growth. In N. Arshed, & M. Danson (Eds.), Enterprise:
Concepts and Issues (pp. 157-178). Goodfellow Publishers.
Rennie, M. 1993. Born global. McKinsey Quarterly (4): 45–52.
McDougall, P., Shane, S. and Oviatt, B. M (1994) Explaining the

Formation of International New Ventures: The Limits of Theories
From International Business Research, Journal of Business
Venturing, 9 (6)
Karra, N, Phillips, N, and Tracey, P,. (2008). Building the Born

Global Firm Developing Entrepreneurial Capabilities for
International New Venture Success Long Range Planning 41, 440-
459
https://www.youtube.com/watch?v=KFoVbMJDQ44
https://www.youtube.com/watch?v=5UllXWffsPU

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Born Global Firms –

International New Ventures

• To recap the concept and understand the

• To understand the characteristics,

Skype website, accessed November 1, 2010,

Niklas Zennstrom and Janus Friis, the same two

Founded in Sweden as Tele2, Skype is now

• Some scholars suggested that born globals and

Providing video coverage of the events for more

Knight, G. & Cavusgil, S.T. (1995) The Born Global

• Knight & Cavusgil (e.g., 1995) defined born globals as

• Oviatt & McDougall (e.g., 1994) defined international

• Monopolistic Advantage Theory

• Stage Theory of Internationalization

Theories aim at explaining:

• A variety of theories explain the existence of

• Monopolistic Advantage Theory

• Stage Theory of Internationalization

However, the theory does not explain for INVs

• Exporting via an agent

The model is based on observations of Swedish

Factors that prevent or disturb the flows of

• Incremental adjustment to changing conditions of the

• The formation of these firms require International

• Conventional Internationalisation theories can not

Rennie, M. 1993. Born global. McKinsey Quarterly (4): 45–52.

McDougall, P., Shane, S. and Oviatt, B. M (1994) Explaining the

Karra, N, Phillips, N, and Tracey, P,. (2008). Building the Born

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