1 Introduction
The forces of globalization present both a market opportunity and a competitive challenge for entrepreneurs. Policymakers have thus become interested in encouraging and accelerating startups’ export activity in order to promote economic growth and boost job creation. This has led many countries to adopt policies that assist small- and medium-sized enterprises (SMEs) and startups to expand into export markets. The goal of these policies has been to create successful export-intensive firms, which are often referred to as born globals.
The term born globals was first coined in a report by McKinsey (Rennie
1993) to describe enterprises that are able to quickly and successfully engage in foreign exports. Born globals are characterized by an ability to overcome the initial barriers that are associated with entry into foreign markets without first establishing a strong home market presence. The ability of these firms to circumvent a more lengthy process before taking steps to become internationally competitive has piqued the interest of many governments in both developed and developing countries.
1 For example, in 2015, the Swedish government published an export strategy that specifically emphasized the importance of encouraging born global firms.
2 One part states that “There are many successful examples of Swedish companies that have been international from the start, but there could be even more of these so-called born globals,” implying that born globals can be created through government support. There are few studies, however, that rigorously investigate the performance advantages typically associated with born globals compared to other exporting firms.
Our study has two aims. First, we examine the long-run performance outcomes of born globals compared to other exporters in terms of employment, sales, and value added. Second, we examine how removing continuing firms and spinouts affects the results. Given the widespread use of government policies that encourage exporting, we ask whether a born global export strategy leads to larger and faster-growing firms compared to a more gradual export strategy. We focus on the dynamics of firm size in this study because it is a central element of economic growth. Many firms in the data appear as though they are a genuinely new firm but have simply changed their organizational number or been spun out from an existing firm. We show that removing such firms from the analysis yields much more modest results.
Policymakers’ interest in born globals is driven by several studies by academics and think tanks from the 1990s and onward. These studies claimed that born globals were growing in numbers throughout the world (Rennie
1993; UNCTAD
1993; OECD
1997). A study by Eurofound (
2012), the European Union agency for the improvement of living and working conditions, claimed that as much as one-fifth of all new firms in Europe are born globals and concluded from survey data that such businesses are characterized by higher employment growth. The OECD (
2013) claimed that such firms played a pivotal role in mitigating the economic downturn of the great recession. If these claims are true, it would be difficult not to concur with Eurofound’s (
2012, p. 3) conclusion:
Bearing in mind that born globals’ effect on the economy and labour market is not limited to a single country but, due to their international activities and the knock-on effects of these, become apparent at the European level, it is not only up to national, but also to EU policymakers to enhance their potential.
However, these strong statements and policy conclusions are often based on results from surveys and case studies, which focus on a highly selective group of successful born globals that may not be fully reflective of the behavior of born globals in general. Cavusgil and Knight (
2015) and Zander et al. (
2015) have thus called for a more rigorous approach to study born globals in the fields of Strategic Management and International Business, namely using longitudinal data on all exporters in an economy in order to obtain a proper control group of other startups. In this study, we use detailed annual data covering all Swedish manufacturing startups founded 1998–2011. Since our data spans 1998–2014, this allows us to follow born globals and other exporting firms in the data for up to 17 years. As a small open economy with many export-oriented firms, Sweden is the ideal testing ground for evaluating the performance of born globals.
Our study contributes to a small and recent literature that uses register data to estimate the impact of a born global export strategy on long-run firm size. These studies focus on manufacturing, where detailed firm-level export data that covers the universe of firms in a particular country is readily available. On the one hand, a born global export strategy may lead to firm growth by accessing consumers in as many markets as possible, providing the firm with a competitive edge (Oviatt and McDougall
1994). Indeed, the very definition of born globals rests on the assumption that these firms “derive a substantial proportion of their revenue from the sale of products in international markets” (Knight and Cavusgil
2004), which may lead to firm growth. On the other hand, however, international expansion is risky (Bonaccorsi
1992; Knight and Cavusgil
2004). Whether the pro-growth or anti-growth mechanism dominates is thus an empirical question.
Several existing empirical studies of born globals’ long-run performance focus on non-size measures such as sales per employee, profits over sales and labor productivity (Braunerhjelm and Halldin
2019),
Tobin’s q (Garcia-Garcia et al.
2017), or long-run export performance (Kuivalainen et al.
2007; Hashai
2011). We focus on firm size since we are interested in how a born global export strategy contributes to growth. Our work is most similar to two existing studies that include firm size in the analysis and employ large-scale firm-level longitudinal register data. Choquette et al. (
2017) find that Danish born globals in manufacturing have higher sales and employment compared to other exporters. Braunerhjelm and Halldin (
2019) mainly focus on non-size measures of firm performance, but they do include employment as a size measure and find that Swedish born globals in the manufacturing sector have higher employment levels 5 years after the establishment of a born global firm compared to other similarly aged exporting firms.
Our work is distinct from Choquette et al. (
2017) and Braunerhjelm and Halldin (
2019) in many respects. Our data covers the period 1998–2014, which allows us to study the performance of firms after the financial crisis. In contrast, Braunerhjelm and Halldin’s analysis was limited to the 1998–2008 period. We study firm size comprehensively in terms of firm-level employees, sales, and value added, while Braunerhjelm and Halldin’s only size measure is firm-level employment. At the same time, we also apply best practices in terms of removing continuing firms and spinouts from the analysis, which was a major limitation in the Choquette et al. study. Our ability to properly identify startups yields much weaker results compared to Choquette et al. In contrast to Braunerhjelm and Halldin, we find no statistically significant born global size advantage in terms of employment. We find no statistically significant firm size difference in terms of sales or value added either. Our results thus suggest that the firm size advantage related to a born global strategy previously found in the Swedish data are not robust.
We also include value added as a third proxy for firm size, which is novel to the born global literature that tends to focus on employment and sales. Value added is a common measure of firm size in the economics literature and is the basis for GDP. Moreover, using value added as a metric for firm size circumvents the problem that some firms are highly engaged in the import and export of intermediate inputs, which inflate sales but adds very little value in-house (Johnson and Noguera
2012).
The rest of the paper is organized as follows. We summarize the literature explaining the size and growth of born globals in Section
2. Data sources, the definition of born globals, descriptive statistics, and our regression methodology are provided in Section
3. The regression results are presented and discussed in Section
4. Conclusions follow in Section
5.
2 Explaining the size and growth of born globals
The notion that exporting firms in general may have beneficial effects on employment and growth is often motivated from a vast international economics literature, which has found that exporters tend to outperform their non-exporting peers in terms of productivity, employment, capital intensity, financial resources, and spending on R&D and investments (Bernard and Jensen
1999; Mayer and Ottaviano
2008). But these same studies also show that very few firms export, and even fewer firms are export-intensive. Born globals are distinct from other exporters by their ability to overcome the initial barriers associated with entry into foreign markets without first establishing a strong home market presence. Many studies have found born globals to be small, yet fast-growing exporters (Knight and Cavusgil
1996; Moen and Servais
2002; Knight
2015).
Both market-level and firm-level factors can explain the emergence of born globals. Knight and Cavusgil (
1996) hypothesize that structural change and new technologies were important underlying factors that encouraged the development of born globals. In terms of firm-level factors, Hagen and Zucchella (
2014) discuss the long-term growth of born global firms and reason that the “openness” of the founders and the early preparation for growth determine both the extent and speed of organizational learning, which in turn drives long-run growth. In the international economics literature, there is broad empirical support for the “selection into exporting” hypothesis, which asserts that only firms that are sufficiently productive self-select into exporting and that the source of this productivity advantage predates their entry into export markets (Bernard and Wagner
1997; Bernard and Jensen
1999,
2004).
Since the aim of this study is to provide evidence regarding the claim of born global firms’ superior performance compared to startups with a more gradual export strategy, especially in the long run, the theoretical literature on the advantages and liabilities associated with a born global strategy is highly relevant. Starting with the advantages, Autio et al. (
2000) argue that the early pursuit of international opportunity induces superior entrepreneurial behavior and leads to faster growth. Autio et al. suggest that young firms can more easily adapt their processes and structure to new markets, which allow young firms to enjoy the “learning advantages of newness.” Young firms, for example, may be able to integrate knowledge about foreign markets quicker than large incumbents (Johanson and Vahlne
2009; Figueira-de-Lemos et al.
2011; Casilllas and Moreno-Menéndes
2014). Bell et al. (
2003) posit that a rapid internationalization provides a first-mover advantage by locking in customers and more efficiently exploiting proprietary knowledge. Almor (
2011) shows that Israeli born globals handled the Great Recession of 2008 better than other firms, due in part to their ability to tap customers in many markets. A born global export strategy may encourage firm growth by accessing consumers in as many markets as possible, providing the firm with a competitive edge (Oviatt and McDougall
1994).
In a related vein, the international economics literature has tested for the presence of “learning by exporting,” whereby firms can improve their performance as a consequence of exporting due to a learning process. Aw et al. (
2000) posit that firms can also become more productive after expanding to export markets by obtaining economies of scale in production. However, empirical support for the “learning by exporting” hypothesis is mixed. Wagner (
2002), Andersson and Lööf (
2009), and De Loecker (
2013) find positive productivity effects using German, Swedish, and Belgian data, respectively, including employment growth and wage increases in German firms. At the same time, Clerides et al. (
1998) and Aw et al. (
2000) find no such evidence of “learning by exporting” effects for Columbian, Mexican, Moroccan, Korean, and Taiwanese firms. The learning mechanism is sensitive to export intensity, as Andersson and Lööf (
2009) show.
The literature also describes many liabilities associated with a born global strategy. Although exporting may lead to higher revenues, it is seen by many firms as a risky strategy (Bonaccorsi
1992; Knight and Cavusgil
2004). Increased exposure to risk may lead to a survival bias among studies that employ case studies and surveys to examine successful born globals. Born globals’ need for exporting knowledge from the very beginning, as well as new and more complex risk profiles due to foreign market exposure, can lead to negative effects on employment and growth (Luostarinen and Gabrielsson
2006). Knowledge and skills in navigating foreign markets are crucial, and firms with an aggressive international expansion may face a disadvantage of “foreignness” (Zaheer and Mosakowski
1997; Rugman and Verbeke
2007) and “newness” (Stinchcombe and March
1965; Zahra
2005) compared to foreign incumbents, which may adversely affect the performance of some firms. Young firms are particularly constrained with respect to management competencies and other resources, which can make rapid internationalization risky (Andersson and Wictor
2003; Oviatt and McDougall
2005; Sapienza et al.
2006; Carr et al.
2010). Sui and Baum (
2014) find that born globals face increased liabilities of foreignness compared with other strategies, which make them more prone to failure. Sleuwaegen and Onkelinx (
2014) find that survival rates are lower for born globals, which appear to stem from their “liability of newness.”
Overall, there are arguments for both advantages and liabilities associated with a born global strategy, and it is ultimately an empirical question as to which effect dominates. Observable differences in size or other characteristics between born globals and other exporting firms at founding may be indicative of the selection mechanism. The learning by exporting hypothesis would suggest that differences will become more important over time, although this could also be driven by differences in initial unobservable characteristics, such as entrepreneurial ability, that take time before they are observed in firm performance.
A related factor to consider is that the relative ease of scalability, which is a common attribute among born globals (Kudina et al.
2008; Cannone and Ughetto
2014), can imply that employment growth does not rise proportionately with output growth among these firms. The ease of scalability is often associated with the presence of economies of scale, whereby fixed production costs are a large component of total costs compared to the variable cost of production. If labor costs are primarily a fixed production cost, then employment growth will lag behind growth in sales and value added as firms’ output expands. Therefore, studies evaluating the performance of born globals should look at output-based measures of size in addition to employment, such as value added.
5 Conclusion
Promoting the emergence and growth of born globals is seen in many circles as a desirable policy goal. Such advice is typically motivated by reference to studies claiming that born globals are disproportionately important for job creation and economic growth. As a result, such firms have become the target of policy interventions in many countries. We have analyzed whether born globals lead to higher employment, sales, and value added in the long run. We study this question using detailed firm-level data on the universe of Swedish manufacturing firms founded between 1998 and 2011, which allows us to follow firms until 2014, i.e., for a period of up to 17 years.
Overall, our results do not suggest any robust evidence of a size or growth advantage associated with born globals in the Swedish manufacturing sector. Our results stand at odds with other studies using register data to study the performance outcomes of born globals. We show that the measured performance advantage of born globals hinges critically on restricting the sample to true startups and excluding spinouts. The evidence presented here suggests that there is no clear advantage in terms of long-run employment, sales, or value added associated with a born global strategy. This could be driven by the fact that the costs and risks of a born global strategy cancel out any of the benefits associated with reaching more foreign markets, or that the costs and benefits are both too small to detect.
Our results also suggest that a born global export strategy is practiced by a small number of Swedish manufacturing firms; a mere 3.6% of all new manufacturing firms founded 1998–2011 were born globals. Policymakers must therefore be aware that encouraging more born globals need not necessarily lead to large benefits for the overall economy, especially in terms of employment. Our study also holds a valuable lesson for entrepreneurs, namely that adopting an aggressive global export strategy from the start, rather than entering export markets more gradually, does not necessarily lead to higher firm growth.
Our study is subject to certain limitations that deserve mention. First, our analysis is limited to manufacturing due to the availability of data on trade in goods, but many born globals are active in the service sector. Future research into born globals in the service sector would thus be highly relevant. Second, the nature of the register data limits our ability to study the particular management strategies used by each firm. Such studies may shed light on the underlying mechanisms that lead to success or failure. Large-scale detailed survey data based on questionnaires that combine more management strategy detail with large sample sizes may thus be a fruitful avenue for future research. Third, our study does not address the aspect of firm exit, which affects the composition of the sample over time. We thus leave a study incorporating exit into studies of long-run performance for future research.
Publisher’s note
Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.