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Management International Review

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01-10-2014 | Research Article

Internationalisation for Survival: The Case of New Ventures

Authors: Francisco Puig, Miguel González-Loureiro, Pervez N. Ghauri

Published in: Management International Review | Issue 5/2014

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Abstract

The aim is to deepen our understanding about the internationalisation–survival relationship in the case of new ventures in traditional manufacturing sectors. Hypotheses were tested through Cox’s proportional hazard regressions on a sample of 3,350 firms aged 10 years or less, from the textile-clothing and footwear industry in Spain. A vast majority of new ventures that were both established and closed down over that time are purely domestic firms. That means, a firm increases its likelihood of survival when it becomes international. The highest failure risk relates to those new ventures which are territorially agglomerated and are domestically oriented. Internationalisation is an unconditional strategy for surviving in the case of new manufacturing ventures. In addition, location and efficiency in the activity both matter when operating in international markets. Statistical tests show that an interactive effect of agglomeration and internationalisation exists, while no support for the interaction between age and internationalisation is found. Future research should investigate the trade-off between growth and survival forces to determine the optimum moment to go international and to characterise the strategic choices followed by those new ventures that survive longest.

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The longitudinal data show increasing relevance for internationalisation and survival in the last 20 years, particularly since 2007. In previous periods, an average of ~8–10 papers each year were published. After 2007, the average number increased to 25–30 papers per year, with the highest number in 2010, when 40 were published.

Similar to Morris et al. (2006), we use business models to explain firms according to their competitive characteristics. According to Zott et al. (2011), this can be defined as the way a firm does business. This affects the organisational structure, location and subsector decisions, the degree of vertical integration (make or buy), and size, among others.

NACE-93 rev.1 codes 17.1–17.7, 18.2 and 19.3.

Last available official data from the Spanish National Institute of Statistics (INE) (accessed 21 July, 2012).

In the literature there is no consensus on the age that defines “new internationalised firms”. For example, following Oviatt and McDougall’s definition of INV (1994), Zahra et al. (2000) included ventures aged 6 or less years, while Bantel (1998) used 12 years.

The SABI database is provided by Bureau Van Dijk and Informa. It provides data from the Official Commercial Register and additional information such as establishment date, date of status change (active, non-active) and international activity. It is widely used in research on Spanish manufacturing firms (Puig et al. 2009).

Note that data provided by the SABI database refer to the last year available. It was not possible to obtain any information on possible discontinuities in international activity or the starting date for international activity for each firm.

We have the limitation that the data are aggregated at provincial level (and are not specific or at the municipal level). If a province exhibits SC = 1.4 for the textile and footwear industry, this means that the degree of concentration for this manufacturing industry is 1.4 times the overall Spanish average. Municipal or individual SCs may vary over time, leading to changes in the national average. However, in aggregate form, the fact of being agglomerated (SC > 1.4) or not (SC ≤ 1.4) does not change substantially over time. Therefore, a dichotomous codification in terms of 0 (non-agglomerated) or 1 (agglomerated) is closer to reality at the present time.

For instance, in the case of the variable YOUTH, if the beta coefficient is positive, then it will mean that the younger a new venture, the higher its failure risk and vice versa.

Although there are no thresholds for this indicator, the lower its value, the better is the adjustment (Storer and Crowley 1985). Values in previous studies that used Cox’s regression range from 117.75 to 1,355.77 (Lu and Hébert 2005; Lu and Beamish 2006; Thomas et al. 2007; Meschi and Riccio 2008; Dhanaraj and Beamish 2009; Giovannetti et al. 2011). Other criteria such as Akaike’s AIC indicator penalise the number of parameters estimated, multiplying it by two. The AIC obtained for a Cox regression is not comparable with other parametric models such as Weibull, log-logistic, and log-normal, because the events used in a Cox regression are failures within risk pools, conditional on the time at which failure occurred, whereas parametric methods use actual survival times. In addition, the log-likelihood indicator is very sensitive to the number of events and penalises large numbers of events in a given sample. Thus, unfortunately it cannot be compared among studies with different numbers of parameters (covariates) and events (Storer and Crowley 1985).

Parallel to this analysis, mean differences were compared to provide additional evidence of the lower likelihood of failure for INVs than for their purely domestic counterparts. Parametric (t test for two independent samples) and non-parametric tests (Mann–Whitney U test and Kolmogorov–Smirnov Z test) were conducted. First, international propensity is higher among surviving firms (all tests significant at p < 0.050). Second, survival time is also higher among international than among non-international new ventures (p < 0.05).

It should be mentioned that INT and AGG are categorical variables. If included along with the interactive effects, then the method would result in near-perfect linear dependence and hence the model would hardly converge. This trade-off between main and interaction effects is usually a limitation in the case of categorical variables. Therefore, only interactions of INT with EFF and AGG were included. If INT × YOUTH had been included, the method would also result in near-perfect linear dependence because of the limited values that YOUTH can take (natural numbers between 2001 and 2010).

Additional tests of mean differences between international and purely domestic new ventures reinforced this result. On average, efficiency was higher among INVs (parametric and non-parametric tests significant at p < 0.010).

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Title: Internationalisation for Survival: The Case of New Ventures
Authors: Francisco Puig
Miguel González-Loureiro
Pervez N. Ghauri
Publication date: 01-10-2014
Publisher: Springer Berlin Heidelberg
Published in: Management International Review / Issue 5/2014
Print ISSN: 0938-8249
Electronic ISSN: 1861-8901
DOI: https://doi.org/10.1007/s11575-014-0209-4

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