Elsevier

Journal of World Business

Volume 42, Issue 3, September 2007, Pages 350-366
Journal of World Business

The competitive advantage of early and rapidly internationalising SMEs in the biotechnology industry: A knowledge-based view

https://doi.org/10.1016/j.jwb.2007.04.006Get rights and content

Abstract

Our knowledge on ‘born globals’ (BG) is fragmented and lacks an integrative framework. Starting from a knowledge-based view of the firm, we analyse internationally active biotechnology small and medium enterprises (SMEs) from Switzerland, Germany, and Australia to find out about the generation and protection of their competitive advantage that enables them to internationalise early and rapidly. Our results question some of the conventional wisdom on ‘born globals’ and discuss implications for the established body of knowledge as well as implications for practitioners.

Introduction

The past 10 years have brought forth an impressive volume of research on internationally active small and medium enterprises (SMEs). Throughout this paper, we will refer to them as ‘born globals’ (BGs), being aware of the multitude of other denominations.1 However, the call for papers of this special issue of JWB notes very well that research on these firms is fragmented and lacks a cohesive theoretical framework.

As of today, the field of international entrepreneurship (IE) is lacking in solid theoretical frameworks, a deficiency that may cause fragmentation in this area (McDougall & Oviatt, 2000). Gaps remain in terms of the development of normative implications for international new ventures (INVs), and in the elaboration of new theoretical insight for the development of practitioner-oriented planning frameworks (Autio, 2005). Although authors have employed perspectives as different as organisational learning (Zahra, Ireland, & Hitt, 2000) and evolutionary economics (Knight & Cavusgil, 2004), we neither completely understand which capabilities enable SMEs to be internationally active at all, nor do we know the elements of their international competitive advantage. Both conventional wisdom that assumes a constrained resource endowment of SMEs, and the export-focussed view on BGs have limited our understanding of why an SME becomes a BG (Jones, 1999). Some issues that can greatly favour internationalisation of SMEs, such as intellectual property rights protection, have received little attention. Moreover, in our own empirical work which is featured in this article, we found some surprising phenomena, such as internationally active SMEs that are not exporting at all, new business strategies based on comparative advantage in international value chains, and SMEs that by virtue of intellectual property rights can serve world markets.

Given these gaps in theory and these empirical phenomena, we feel that there is a need for an inductive, hypothesis-generating approach. Specifically, we want to identify the basis of the competitive advantage of a BG that enables it to early and rapidly internationalise. Thus, we do not focus here on the patterns and entry modes of the internationalisation process. Rather, we ask which specific intra-firm resources and capabilities enable the firm's internationalisation process at all. Thus, we lament that there has been very little empirical research aimed at uncovering the actual bundles of capabilities that make SMEs internationalise early (Knight & Cavusgil, 2004).

To make this contribution, we analyse empirical findings from in-depth case studies of six BGs from the biotechnology sector. This analysis is guided by the following research questions:

  • (1)

    What is the basis of a BG's competitive advantage, given the common presumption that BGs have a limited resource endowment and thus suffer from a ‘liability of smallness’?

  • (2)

    How is this competitive advantage generated, sustained, and protected?

  • (3)

    How is the rent-generating potential of an SME's competitive advantage effectively realised in international markets, that is: how can BGs transform their specialised knowledge into business performance, given their lack of tangible resources?

To explore these questions, this paper will proceed as follows. Having set out in detail the theoretical and empirical need for our investigation, we will conceptually base our paper on the knowledge-based view of the firm and explain why this perspective is suitable for an analysis of our research questions (Section 2). Having described our research methodology (Section 3), we feature and analyse the empirical data obtained from our interviews. These findings and analyses are then used to construct a model of how SMEs can early and rapidly internationalise (Section 4). Subsequently, we discuss the implications of our findings for future theory development (Section 5), for managers (Section 6), and the limitations of our approach as well as directions for future research (Section 7).

Section snippets

Literature review

Literature on BGs can be separated into two streams: First, contributions that analyse the external processes or patterns of internationalisation of BGs over time, and second, studies that look inside the firm at either personal traits of the entrepreneur or at firm-specific characteristics.

Methods

As theory is fragmented and lacks a common framework, we employed a qualitative methodology for construct and hypothesis generation (Eisenhardt, 1989, Yin, 1989). We chose the biotechnology sector because it is populated by many SMEs that differ considerably in their degree of internationalisation. In addition, biotechnology is heavily regulated by authorities, so that development and production are constrained by safety regulations that often demand costly equipment such as bio-safety

Results

Following the example of Weerawardena and Mort (2006), we analyse our findings in two stages. First, following the outcome of content analyses, the results are grouped along seven themes, in order to study related data together, rather than in the order of firms or interviews (Section 4.1). For each of the seven themes, we present our findings in a narrative which is subsequently analysed by comparisons of cases amongst each other, between cases and the KBV that represents our conceptual basis,

Implications for theory

On the basis of our findings and analyses, we will now highlight five areas which can potentially serve for future theory development on the topic of the early and rapid internationalisation of the firm.

First, the conceptual positioning on the knowledge-based view has addressed several claims and presumptions from literature. Our findings provide evidence that the applicability of the theories and views of the firm to the empirical phenomenon of BGs is beneficial. More eclectic theory-building

Implications for management practice

Overall, our findings have provided managers of SMEs and BGs with suggestions how to turn their specialised knowledge into realised business performance, and how to protect their intellectual property, both despite a lack of tangible resources in their firms. Specifically, several benefits emerge for firm managers. First, our framework can be applied to the manager's specific industry as an analytical tool as the constructs and propositions we have derived are not limited to high-tech

Conclusions and indications for future research

Returning to our research questions as stated in Section 1, by using the knowledge-based view of the firm as a conceptual foundation, we have provided some evidence as to what the basis of BGs’ competitive advantage is and how it can be sustained by adequate protection. We have also argued that the ‘liability of smallness’ of BGs has been overstated, and shown that there are many innovative measures BGs have found to overcome the problem of limited tangible resources. Finally, we have suggested

Acknowledgements

We are indebted to the editors and three anonymous reviewers for valuable comments, to the managers of the firms in our sample who shared their insights with us, and to Martin A. Bader for helpful comments on IPR issues. This research was supported by a grant from the Basic Research Fund of the University of St. Gallen.

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