The Internationalisation of British Start-up Companies in High-Technology Industries

There are 17 million small and medium-sized enterprises (SMEs) in the European Union which play an important role in economic life. Within this subset, increasing recognition is being given to “new technology-based firms.” ¹ In the literature, different definitions have been put forward to describe the term new technology-based firm (Oakey et al 1988; Roberts 1991; Autio 1995; Storey and Tether 1998). Common denominators include that the activity is based on the exploitation of advanced technological know-how, the prior affiliation of founders with research establishments and the entrepreneurial character of the firm. Research studies in Europe, North America and the Pacific Rim have identified these firms’ important contributions in new employment creation, export sales growth, product and process innovation and structural adjustment (e.g. Rothwell & Zegveld 1982; OECD 1986; Oakey et al 1988; Acs & Audretsch 1991; Roberts 1991; Coopers & Lybrand 1996).

The surge of interest in new, technology-based firms is to a large extent motivated by the US experience. Firms like Hewlett-Packard, Intel, Microsoft, Genentech, Cisco Systems and more recently Yahoo, Netscape, America Online and Amazon.com have set examples of how firms can grow from small start-ups to global players that dominate their industries. They all based their activities on the exploitation of recent technological developments and produced a constant stream of hitherto unknown products and solutions. These firms are widely credited as creators of value-added, employment, innovation and as source of structural adjustment.

The literature review has identified a number of gaps in the existing research on international entrepreneurship. Above all, it is striking how little overlap there is between the case study research and the quantitative surveys published to date. The majority of propositions generated by the case studies have, at present, not been subject to empirical testing. Furthermore, only a minority of the quantitative studies tried to examine questions at the heart of the field of international business such as the determinants of the decision to internationalise, the choice of entry mode or the market selection pattern. An empirical test of the propositions of the case studies should also include a control group in order to investigate whether they have the power to discriminate between international start-ups and domestic start-ups.

As already mentioned in the introduction, the current research is part of a larger Anglo-German project on the international activities of British and German startups in high-technology industries. The expertise of the German research team was of particular benefit to the identification of data sources and the sampling process. A number of methodological issues arose from the comparative nature of the larger research project. We will, when appropriate, elaborate on them in the following sections.

In this chapter, we will give an overview of the sample of eligible firms by providing some basic descriptive statistics and discussion of the results. As mentioned in the previous chapter, 362 usable questionnaires could be retained for analysis. Given that our mail sample was generated using a stratified random sampling procedure (see chapter 4), we deliberately introduced a bias into our data. For example, there was a deliberate over-sampling of larger firms and a deliberate under-sampling of service firms. In order to infer from our sample on the estimated larger population of high-tech start-ups, this bias had to be neutralised. To this end, the values of the firms in each of the eight strata have been adjusted using a weighting procedure. The next section briefly discusses how these weights were calculated.

In our hypotheses, we stated that the various dimensions of internationalisation are expected to be a function of firm size, international experience of the founders, external fmance, technology intensity, innovativeness, the extent to which products are customised and the costs of commercialisation. Accordingly, we have to measure these influence factors. Firm size was operationalised in several ways. In the questionnaire, we asked respondents to state employees and sales both at start-up and at the time of the survey. The descriptive analysis revealed that the distributions are highly skewed to the right. Such a distribution is to be expected in a sample of start-up firms. Consequently, the direct operationalisations of size, i.e. the inclusion of the absolute sales volume or number of employees risk producing statistically insignificant parameter coefficients. Highly skewed distributions can be normalised using logarithmic transformations. We therefore first calculated log values of our various size measures. Second, for the regression models shown here, we constructed an index of the log values for firm size measured by number of employees and firm size by sales. The levels of the alpha coefficient (0.72 at start-up; 0.88 today) are above the recommended thresholds (Nunally and Bernstein 1994), therefore indicating construct validity. Since the actual firm size at the time of the survey could at the same time represent the cause and effect of international activities, we primarily used size at start-up in our regressions. We thus avoid possible effects of endogeneity in the models. Nonetheless, in most cases we also report parameter coefficients when size today is entered into the regression equation in order to explore whether the results are consistent.

We started this research by pointing out that there is a dearth of empirical evidence on the extent of international activities among technology-based startups. We then reviewed empirical knowledge in the area of international entrepreneurship and examined different theoretical frameworks that could explain the international activities of start-up firms. Unlike other authors (McDougall, Shane and Oviatt 1994; Knight and Cavusgil 1996), we argued that their widespread international operations per se are not inconsistent with the literature of in the field of international business. In the theoretical part of the literature review, we showed that the various aspects of cross-border expansions of entrepreneurial firms can be accommodated quite well within the existing frameworks. We argued further that the question whether existing theories are applicable to the phenomenon could only be answered after a systematic survey of the international activities of start-ups within a clearly defined setting. This allowed us to respond to three major weaknesses in international entrepreneurship research. First, with a few exceptions, the propositions of the exploratory, case-based research have not been subject to empirical testing. Secondly, the quantitative studies paid comparatively little attention to studying the core dimensions of internationalisation, such as degree of internationalisation, timing of market entry and choice of market entry mode. Thirdly, and most importantly, the majority of empirical studies studying the phenomenon did not include a control group of non-internationalisers.