Key Influences on the Early and Rapid Internationalization in the Airline Industry. A Case Study on easyJet


Master's Thesis, 2016
128 Pages, Grade: 1,0
Johannes Michl (Author)

Excerpt

Table of Contents

1 INTRODUCTION
1.1 Research question
1.2 Objectives
1.3 Structure of the dissertation

2 LITERATURE REVIEW ON INTERNATIONALIZATION
2.1 International business theories: an overview
2.1.1 Transaction cost theory
2.1.2 OLI theory
2.1.3 UPPSALA model
2.1.4 Multi stage theory
2.1.5 The lessons from dragon and regional multinationals
2.2 Born Global Firms
2.2.1 Born Global Firms and its characteristics
2.2.2 Internationalization behaviour of Born Global Firms
2.2.3 Summary
2.3 Key influences on early and rapid internationalization– a conceptual model
2.3.1 Foundation of the conceptual model
2.3.2 Conceptual model
2.3.3 Key influences on the early and rapid internationalization
2.3.4 Summary

3 THE EUROPEAN AVIATION AND THE EASYJET AIRLINE
3.1 European Aviation
3.1.1 Systematisation of air traffic
3.1.2 Deregulation of the air traffic
3.1.3 Market definition
3.1.4 Facts and figures
3.2 The easyJet airline
3.2.1 History
3.2.2 Business strategy
3.2.3 Fleet
3.2.4 Passengers
3.2.5 Competition

4 METHODOLOGY
4.1 The case study approach
4.2 Selection of the case study
4.3 Case study procedure
4.4 Data collection
4.5 Data analysis

5 ANALYSIS OF THE KEY INFLUENCES ON EASYJET’S EARLY AND RAPID INTERNATIONALIZATION
5.1 Market conditions
5.1.1 Market conditions in the United Kingdom
5.1.2 Host country conditions in the Netherlands
5.1.3 Industry-specific conditions
5.1.4 Summary
5.2 Resources
5.2.1 Organizational resources
5.2.2 Social resources
5.2.3 Human resources
5.2.4 Physical resources
5.2.5 Technological resources
5.2.6 Financial resources
5.2.7 Summary

6 CONCLUSION

References

Appendix A – Main competitor Ryanair

List of Figures

Figure 1: Types of International New Ventures

Figure 2: Key influences for the early and rapid internationalization

Figure 3: Key influences and success factors of BGFs

Figure 4: Systematisation of air traffic

Figure 5: Market share development in Europe various business models

Figure 6: Percentage of easyJet bookings online

Figure 7: Number of easyJet aircrafts over time

Figure 8: Number of passengers in millions over time

Figure 9: Market share of low-cost carriers in Europe by number of departures in a week in 01/2014

Figure 10: Passengers transported in the UK

Figure 11: Total population Netherlands 1995 – 2000

Figure 12: EasyJet’s revenue 1996 – 2000

Figure 13: Passengers transported in Germany 1995 – 2000

Figure 14: Timeline of the first easyJet internationalization steps

Figure 15: The career of Stelios 1967 – 1995

Figure 16: Price strategy low-cost airlines

Figure 17: Ryanair Passenger Growth in Millions

List of Tables

Tab. 1: Research on the key influences on early and rapid internationalization

Tab. 2: Research on the key influences on the early and rapid internationalization (continuation)

Tab. 3: Secondary data used in the case study

Tab. 4: EasyJet’s fleet matrix in 2015

Tab. 5: Low-cost carriers in Europe by number of departures in a week in January 2014

Tab. 6: Sequence of low-cost airlines’ entry into new destinations

Tab. 7: European airports traffic statistics

Tab. 8: Market key influences on the early and rapid internationalization of easyJet

Tab. 9: Comparison of low-cost airlines (February 1998)

Tab. 10: EasyJet shareholders (November 2000)

Tab. 11: Resource key influences on the early and rapid internationalization of easyJet

Tab. 12: Ryanair’s punctuality

List of Abbreviations

Abbildung in dieser Leseprobe nicht enthalten

Abstract

This dissertation analyses the key influences on the emergence of Born Global Firms (BGFs) in the airline industry. Thus, it helps to contribute to the general knowledge on the topic known to date and to be an inspiration for future studies in this area. At the centre of attention is the question what key influences favoured the early and rapid internationalization in the case of the low cost airline easyJet. In order to answer this question the appropriate methodology of a single case study content analysis approach was chosen. Hence reference is made to various documents and archival records such as books, company documents, company websites, journal articles, newspaper articles, official statistical data and other Internet sources. The time period under consideration is from the foundation of the firm to the first internationalization steps. The results show that the market conditions of the low state protection in the home country, the strong opportunistic behaviour of easyJet when selecting the host country, the high internationality and extensive use of technology in the airline industry has promoted the early and rapid internationalization of eayJet. Further the findings recommend that majority of easyJet’s resources had a positive influence on early and rapid internationalization. The most important key influences could be identified in the Human Resources. Thus the founder of easyJet is a young, confident, international experienced man who possesses a positive mind-set, an international vision and a high risk-tolerance. Missing industry knowledge of the founder is compensated through the extension of the senior management. Thus, we can conclude that the decisive aspect of whether or not to internationalize lies with the attitudes of senior management. In many cases it requires a “paradigm shift” in order to move toward the BGF model.

Key Words: Born Global Firms, Internationalization strategies, early internationalization, rapid internationalization, airline industry

1 INTRODUCTION

“It was 7 a.m., it was a wet, miserable, lousy day in Luton, and equally cold and miserable in Glasgow. I discovered very quickly that this was not going to be glamorous” – Stelios Haji-Ioannou, founder of easyJet,(Calder, 2006)

This is how the young Greek-Cypriot easyJet founder recalls the day of the first easyJet flight from London to Glasgow on November 10, 1995. In the years after the company was founded, easyJet grew extensively into international markets. Already one year after its launch, easyJet started to offer routes to the Netherlands, France and Spain. Today, easyJet has become the second biggest low-cost airline in Europe, boasting a net revenue of around £ 4.686 million in 2015 (EasyJet annual report, 2015).

The internationalization of enterprises is nowadays one of the main tasks of management teams, who seek continuous growth for their companies. If a firm does not want its products and services to bind them to local markets, expanding into foreign countries is often unavoidable.

Traditionally, the internationalization of enterprises is explained with the aid of the very influential process theory approach. This theory examines the internationalization behavior of the firms. It is therefore assumed that enterprises enter into foreign markets gradually. In other words, firms try first to establish a comfortable position in their home markets before they venture into foreign markets. This procedure of gradual expansion can be attributed to the fact that firms view foreign expansion as a high-risk strategy. Consequently, the theory assumes a very risk-averse behavior of firms and slow internationalization.

This conservative concept of gradual expansion, which used to be the most widespread and influential, is however increasingly being questioned. The rapid development in information, production and communication technology and changing market conditions due to globalization has further accelerated the process of internationalization (Holtbrügge & Enßlinger, 2004). For example, in the 1970s, it took a newly founded company more than twenty years to conduct its first international activity (Luostarinen & Gabrielsson, 2002). In contrast, you can increasingly observe companies since the 1980s, which engage in international operations almost from day one. This often includes not only exports, but also challenging internationalization strategies such as foreign branches or transnational business cooperation. The internationalization process thus differs significantly from traditional businesses in the past. This dramatic acceleration of the internationalization process makes it necessary to develop new internationalization theories to explain this phenomenon.

By the early 1990’s, scholars had become aware of the new trend of early and rapid internationalization. Michael W. Rennie (1993) was one of the first to study and write about this new business model and contributed to the creation of the term “Born Globals” which many more researchers and scholars enhanced upon. To date, the majority of studies have focused on the high-tech industries such as Information Technology (IT) where the highest number of Born Global Firms (BGFs) can be found.

This dissertation aims at examining the airline industry, which has not yet been the focus in most studies on BGFs and therefore differentiates this dissertation from former analysis. This thesis will shed light on the rapid and early internationalization of one BGF. It will focus on a single case study, the low-cost airline easyJet. EasyJet is a perfect case because the UK-based airline is one of the most successful low-cost carriers in Europe and has an outstanding internationalization speed.

1.1 Research question

The topic of early and rapid internationalization still raises many unanswered questions. Ever since this issue has come into the focus of scholars it has been accompanied with never-ending discussions about possible key influences that favour the emergence of BGFs. It is in fact very difficult to consistently identify the same key influences across several branches. Therefore, this work will put its focus on the UK low-cost airline easyJet. Thus, in conjunction with the early and rapid internationalization of BGFs and the easyJet airline, the following research question arises: What key influences favoured the rapid and early internationalization of the low-cost airline easyJet?

1.2 Objectives

The goal of this research paper can be divided into one general objective and four subordinate specific objectives. The general objective of this dissertation is to critically analyse what key influences were responsible for the rapid and early internationalization in the case of easyJet. Thus, the analysis of the growth patterns of BGFs is at the centre of attention in this study.

To achieve the research goal, the following specific objectives can be derived from the general objective:

- Describe the first internationalization steps of easyJet.
- Identify the most common external key influences on the early and rapid internationalization of BGFs in the literature.
- Identify the most common internal key influences on the early and rapid internationalization of BGFs in the literature.
- Detailed investigation using a conceptual model to assess the key influences on the early and rapid internationalization of easyJet.

1.3 Structure of the dissertation

This dissertation is divided into six chapters. After the introduction, the basic literature on internationalization is discussed in chapter two. This paper therefore offers an overview of international business theories. The current state of academic knowledge regarding BGFs is discussed in more detail and a conceptual model is introduced that deals with key influences of early and rapid internationalization. The categorization of key influences is based on the conceptual model of Wessely (2010), which differentiates between market-related and resource-related key influences.

In terms of the case study’s context, the European aviation industry and the airline easyJet is analysed in chapter three, which will shed light on the environment in which the low-cost airline operate. The section about European aviation shows a theoretical distinction between different modes of air transport and the profound impact of the deregulation on the aviation industry is put forward. Additionally the aviation market as well as facts and figures is presented, before providing a brief overview of the company.

Chapter four discusses important aspects of the method used in this paper. The general case study approach is explained, before the criteria are introduced, which were used to select the case. In addition, this chapter explains the step-by-step procedure of a case study as well as illustrating how relevant data was collected and analysed.

Chapter five attempts to specifically answer the research question, thus key influences are examined carefully in regards to market conditions and resources. A large number of different sources and methods were used in order to answer the research question as accurately as possible.

In the paper’s conclusion, the research results will be summarized and interpreted. The paper’s last part illustrates management implications and recommendations for future studies.

2 LITERATURE REVIEW ON INTERNATIONALIZATION

With the increased globalization of the economy, research on internationalization has become more important in academic literature. This chapter describes the theoretical foundations for a better understanding of the main part of this work. In addition previous works from various researchers in the field of internationalization strategies should be appreciated and compared. First, in Section 2.1, a brief overview of the main theories in the field of international business theories is given. This is followed by a more extensive literature discussion of the main theme BGFs in section 2.2. The section 2.3 introduces the conceptual model for the case study on easyJet.

2.1 International business theories: an overview

This section deals with the theoretical models of the internationalization of firms. It intends to show, according to these theories, how companies develop various strategies to be active in international markets. This review also presents a more recent investigation about regional multinationals and dragon multinationals. These concepts are introduced with the intension to help the reader to better understand the later on following case study on easyJet.

2.1.1 Transaction cost theory

The British economist Ronald Harry Coase (1937) first investigated the transaction cost theory. Coase (1937) has dealt with the following question: “Why has in the free market formed economic organizations with internal work-sharing structures?” With this question, the author refers to a fundamental theory of Adam Smith (1776), who argued that in many areas a division of labour is necessary to efficiently achieve goals. Since the basic considerations of Coase (1937) a great number of internationally known researchers have dealt with the subject of the transaction costs theory (e.g. Brouthers, 2013; Coase, 1937; Ghoshal & Moran, 1996; Hennart, 2010; Martins, Serra, Leite, Ferreira, & Li, 2010; North, 1990; Picot, 1982; Williamson, 1979, 1989).

Another key issue that Coase (1937) discusses in his work is why companies outsource some of their services, when the neoclassical assumption is that the coordination opportunities over the competition in the market is the most efficient way (Coase, 1937). This topic was taken up and further developed by Williamson(1989). Thus Williamson discusses the economic opportunities and risks of distributing rare goods at markets, with special consideration of the transaction costs. The focus of Williamson’s study (1979) is to find the most efficient organizational coordination possible. Therefore he uses as a benchmark the level of transaction costs.

A transaction is the exchange of resources between two or several parties (Williamson, 1979). These resources can be tangibles but also intangible goods such as for example ideas or information. Further the transaction costs can be fundamentally divided into four categories (Picot, 1982).

1. Origination costs such as information search and procurement
2. Agreement costs such as contract formulation and agreement
3. Control costs for example securing quality and establishing appointments
4. Adjustment costs such as volume and price changes during the time of the agreement

Various performance indicators determine the amount of the transaction cots. Williamson (1979) has identified the three indicators asset specificity, uncertainty and frequency of the transaction. Subsequently, these indicators are explained in more detail.

Specificity – The specificity describes the loss of value occurring when a transaction object is used again (Williamson, 1979). A transaction object refers to the resources required for the transaction. This may be materials or services. It is also crucial in how far the transaction objects are bound to a specific use in the company. If the transaction objects have only a very specific use then a high degree of specificity can be found in that transaction. This can cause problems when a company is highly dependent on opportunistic business partners.

Uncertainty – The uncertainty of a transaction is the unpredictability before and while a transaction is in progress (Williamson, 1979). The unpredictability of a transaction has to be examined in particular in the areas of job changes, transaction agreements, control of the transaction and adaption of the transaction. For example, when expanding into an unknown market or the introduction of a new IT system are transactions that are surrounded by a high degree of uncertainty.

Frequency – The frequency of the transactions is concerned with whether the execution of a transaction can take place repeatedly or only once (Williamson, 1979). For firms it is normally more beneficial when transactions are frequently repeated. Whereas for one time executed transactions often high costs arise.

The main application field of the transaction theory is the question whether products or services are to be produced internally or even outsourced (Hennart, 2010; Williamson, 1979, 1989). Based on the transaction cost theory one can say that the higher the specifity, uncertainty and frequency of transaction is, the more likely the transaction should be handled within the company. When these features are rather weak, the company should outsource.

The more recent work of Brouthers (2013) “A retrospective on: Institutional, cultural and transaction cost influences on entry mode choice and performance”. The author relates transaction costs and institutional approach to the international new market entry mode choice (Brouthers, 2013). Brouthers could identify a very strong relationship between transaction cots and the entry mode selection. The author argues that the best internationalization strategy is the one, which helps to minimise the transaction costs. Further he argues that transaction costs are influenced by country differences. In this study the author used the primary measure of the institutional distance. Brouthers found out that researchers agree little on which aspects make up the institutional environment. He recommends to agree among scholars on measurements and to constantly improve the methods of measurement (Brouthers, 2013).

2.1.2 OLI theory

This theory is also known under the term eclectic paradigm and contributes to the further development in the field of internationalization. The OLI theory is recognized internationally, and various researchers have contributed to its development (Buckley & Casson, 2009; Dunning, 2000; Dunning & Lundan, 2008; Gray, 2003; Rugman, 2010; UNCTAD. Division on Investment, 2005). The OLI theory is characterized by three main factors that influence the competitiveness and the economic outcome of a firm. These factors introduced by Dunning are ownership advantages, location advantages and finally internationalization advantages (Dunning, 2000).

Ownership advantages (O)

Ownership advantages refer to the specific benefits that will accrue to an enterprise as a result of its involvement in a foreign direct investment approach. These benefits include for example manufacturing techniques, marketing competencies, leadership abilities or copyrighted products and services. It is argued that the rule of thumb in regard to these advantages is: the greater these advantages are perceived from a firm, the more likely the firm is going to foster its foreign line of business. According to the OLI theory, ownership advantages tend to arise in particular from licensing, exports and foreign direct investments as a market entry strategy (Dunning, 2000; Rugman, 2010).

Location advantages (L)

The second main factor of the OLI theory is the location advantages. These advantages refer to the specific benefits that occur for a firm pursuing an internationalization strategy as a result of its involvement in a specific geographic location (Dunning, 2000). Some of these benefits are for example the availability of production components such as raw materials, tax benefits for the company or low labour costs. The availability of these advantages to an investing firm represents an incentive to engage in the specific locations where these advantages arise (Dunning, 2000).

Internalization advantages (I)

The last characteristic of the OLI theory is the internalization advantages or also often called internalization theory. The advantages refer to specific advantages that a business entity enjoys as a result of undertaking an internal production approach as opposed to outsource this process or getting into partnerships with other third parties (Dunning, 2000). Benefits that can be summed up under this category are, for example, economies of scale, specialized production processes or an overall low cost production proposition. The higher the incentives for a firm to produce internally, the higher the likelihood of more frequent internal production is to be found. Internalization theory and advantages are generally categorized under the foreign direct investment approach (Dunning, 2000).

2.1.3 UPPSALA model

The UPPSALA model is created based on empirical observations of Swedish international companies by Johanson and Vahlne (1977). This model is among the most discussed theories in international business matters. The duo Johanson and Vahlne (1977) have identified a gradual process of internationalization in their investigations. In other words, the scholars crafted their independent model that explains the sequential steps necessary to expand to a foreign market. Johanson and Vahlne (1977) refer to this as the so-called “establishment chain”.

Thus, companies that have little knowledge of a specific market start with only exports, as they are very low risk. The scholars argue that experience in that market is growing over time and riskier activities are put forward, which promise higher profit margins (Johanson & Vahlne, 1977). The establishment chain distinguishes the four different steps of entering an international market:

1. No regular export
2. Export via independent representative (agent)
3. Foreign sales subsidiary
4. Foreign manufacturing

Another characteristic of the UPPSALA model is that firms preferably first internationalize to countries that are only slightly different to their home country. Johanson and Vahlne (1977) call the difference between countries the “psychic distance”. The physic distance describes all the factors that may affect the flow of information. These include, for example, differences in social behaviour, in language and cultural differences. Consequently, firms expand first to countries that are close to their home country with respect to the psychic distance. To countries with a large psychic distance expansion only takes place as soon as enough information and experience is available.

Further, the theory states that there exists a positive correlation between the knowledge of the market and the commitment of the market. (Johanson & Vahlne, 1977). The increase in the knowledge about a certain market will ultimately lead to higher commitment to the same market and vice versa. Notably, the theory distinguishes the general market knowledge from specific knowledge. The latter can hardly be used in other markets. However, the general market knowledge is inclined more to the manner in which a certain foreign market operates. Such knowledge is transferable between markets.

Limitations of the UPPSALA model

The model has greatly contributed to a wider understanding of the internationalization of firms. Also many researchers confirm the basic approach of this model. Nevertheless, some aspects of the UPPSALA model are under criticism. For example the lack of experience abroad is presented only at the beginning of the model to be a crucial restriction. However, international experience seems to be an important aspect also in later stages such as the foreign production.

Often the actual internationalization approaches are more diverse and multi-layered than those predicted by the UPPSALA model. Notably, the model does not put into account the incentives of the management and their consequences in making important decisions. Moreover the model empathizes on the four steps in the market entrance and consequently overlooks other effective methods of internationalization such as alliances, joint ventures, licensing, market diversification as well as franchising. Whereby the model loses its claim to be complete and comprehensive.

2.1.4 Multi stage theory

The multistage theory examines the impact of a firm’s international expansion. Specifically, the theory explains why firms are regional in the sense that their geographic coverage is far from being global (Contractor, 2007). Many researchers contributed to this area of study since the early 90s (Bell, 1995; Contractor, 2007; Glaum & Oesterle, 2007; Melin, 1992; Thomas & Eden, 2004).

The studies about the performance of multinational enterprises have yielded mixed results (Thomas & Eden, 2004). It is important to note that international expansion may not automatically improve the performance of an enterprise. This is often true especially during the initial stages of internationalization. Further, the positive impact may not result where a firm has over-internationalized. In the later stages, which occur sometime after a firm enters the international market, the concerned firm starts enjoying economy of scale. Further, the firms start gaining access to foreign ideas, cheaper inputs, and greater use of production capacity. The firms also gain the ability to bring their value chains more effectively in line with the host country. Progressively, the corporations gain market power and can compete favourably with the foreign firms. Most recent research tries to describe the relationship between internationalization and performance of firms (Thomas & Eden, 2004). The most common approaches argue that there is a linear, U- or inverted-U or a sigmoid like relationship, but among scholars there is no agreement about this relationship until now.

The literature of the multi stage theory says that a firm initially expands and later turns into proximate markets due to the low costs associated with conducting business in the home location. The multi stage theory is broadly being sub-divided into two theories; the economic approach and the behavioural approach (Contractor, 2007; Glaum & Oesterle, 2007). The former has its base in mainstream economics. It focuses on the company and its environment. The fundamental assumption of the economic approach to internationalization is that firms are usually pseudo-rational in investment decisions. Also, the approach assumes that the decision maker has perfect information at his disposal. According to the traditional economic approach on the internationalization process, the choice of the firm’s geographical location for foreign investment is due to deliberate judgment. The level of efficiency leads the decision maker whose primary objective is to enhance the profitability of the firm. The theories following the behavioural approach treat the top management and personal learning as very important aspects in order to understand and enterprise’s international behaviour. One of the major concerns of the behavioural perspective are the effects of the international venture on the pace and direction of internationalization.

2.1.5 The lessons from dragon and regional multinationals

The following two sections are less a theoretical approach for a company’s internationalization, but rather provide two examples, which consider the internationalization of companies from a different angle. On the one hand Dragon Multinationals gives hope to firms, which face not the best circumstances for internationalization. On the other hand Regional Multinationals questions the importance of internationalization on a higher level.

2.1.5.1 Dragon multinationals

This approach seeks to answer the question on how firms can challenge established positions in the global economy and outdo the incumbents who are often fiercely competitive and highly advanced. Usually it is difficult to get in such competitive markets, especially when the new entrant is small, lacks key resources and is far away form major markets (J. A. Mathews, 2006). This is the case that motivates researchers to investigate in the area of dragon multinationals (Li, 2007; J. Mathews, 2009; J. A. Mathews, 2006; Zheng, 2013). Dragon multinationals are Asia-Pacific firms, which are considered to be located in peripheral region in the world economy (J. A. Mathews, 2006). They have successfully gone international and in some cases become the leading firms in their area of specialization. In other words these firms start small and overcome their weaknesses in terms of resources and experience to emerge as industry leaders. Dragon multinationals turn their major weaknesses into strengths through leapfrogging to acquire advanced technology or by leveraging their way into the markets through partnerships and joint ventures.

The leading commentators assert that firms from the periphery can expect nothing but defeat in face of the incumbent market leaders (J. A. Mathews, 2006). The incumbent leaders are believed to be shaping the world economy and the global business arena based on their choices and preferences. The theory of Dragon Multinationals contrasts this belief. There is evidence that it holds true that all firms have the ability to find their way into the developing tissue of international firm’s connections and networks that make up the emerging global economy. Dragon multinationals can be seen as active players capable of shaping their own future. This phenomenon was especially encouraged by the increasing globalization.

Dragon Multinationals exercise a countervailing pressure on established positions through moving rapidly to take advantage of new emerging opportunities in markets (J. A. Mathews, 2006). The global market and the more and more global patterns of the industrial development create those opportunities. It is not only the firms of the major markets that can respond to these opportunities, but also the firms of the peripheral. The reason behind the responsiveness of Dragon Multinationals is that they are not burdened with the pre-existing commitments and self-sufficiency (J. Mathews, 2009). They regard the global market as their home where they are free to take any opportunity that arises.

The rise of East Asia into a major industrial power was built on the skilful learning of the global market trends as well as the adoption of new advanced technologies. Further, the theory of the Dragon Multinationals presupposes that the Asian-Pacific firms combined the factors described above with relentless focus on penetrating the western-based markets. After the financial crisis in 1990s the Asian firms have made great strides in the manufacturing field, services and trading activities. Other common fields are high technology sectors as for example the semiconductors and the flat panel displays. The Dragon Multinationals are evidently the latecomers in the global economy. The outsiders and the so-called incumbents were the global giants before their appearance(Li, 2007; J. A. Mathews, 2006; Zheng, 2013).

The conservative view of the globalization sees it as a process that is driven by the giant firms from Triad regions of the Northern region of the United States, entire Europe, and Japan (J. Mathews, 2009). The conventional perspective holds that the powerful firms from these three regions shape the world in their desired image. However, the theory of the Dragon Multinationals contrasts this view with a description of one or two multinationals from the "periphery" and how they globalize their operations rapidly. The multinational enterprises from the developing countries are currently the most visible manifestation of a considerable increase in the outward foreign direct investment. The general implication of the Dragon Multinationals model is that the 21st-century global economy offers hope not just to Multinational Enterprises from the periphery, but also to all firms that are able to find their way to enmesh themselves in the global economy(J. A. Mathews, 2006).

2.1.5.2 Regional multinationals

There are many firms that label themselves as global but in the real sense there are often only little of them that can back up that claim. It is only a small proportion of the 500 top companies that sell the same products and services across the globe as in their home market. During the last two decades, Rugman among other scholars conducted research on the world's three major markets (North America, Europe, and Asia-Pacific) regarding that topic (Rugman, 2005, 2006; Rugman & Li, 2007; Rugman & Oh, 2013; Rugman & Verbeke, 2002, 2005). The studies provide empirical and theoretical evidence that the world’s globalization develops through regional paths. Further the studies suggest that internationalization theories are considered as too important and that regionalism is more or less overlooked.

Rugman and Oh (2013) investigates the geographic distribution of sales across the Triad regions in endeavour to support the regionalization theory. Through the analysis of the Triad region marketing diversity and sales distribution, Rugman classifies the corporations into four groups. The first group of firms is the home region oriented firms, the second group is the bi-regional firms, the third group comprises of the host-regional firms and the fourth group comprises the globally oriented firms. The home region oriented firms have at least fifty per cent of their total revenue from sales derived from the regional markets of the triad. A total of 320 firms were classified as home region oriented. A bi-regional company is the one that derives a twenty per cent of their sales from at least two legs of the triad. Notably, these corporations must have less than fifty per cent of the total sales in the enterprises’ home region. Only twenty-five companies are in this group. A host-region oriented firm is characterized by having more than fifty per cent of its sales in another region rather than the home region. A total of eleven firms were classified as host-region oriented firms. The last group is the global firms group that has total sales of 20% or more from each of the three regions. The firm should have less than fifty per cent of the total sales from any one region. Strikingly only nine firms were classified as global corporations. They included IBM, Sony, Philips, Nokia, Intel, Canon, Coca-Cola and others. The studies in the area of Regional multinationals reveals that even the world’s biggest Multinational Enterprises have a great focus in their activities on their home region (Rugman & Oh, 2013).

2.2 Born Global Firms

This section begins to define the term BGFs and explains the basic features of it. In the following the internationalization behaviour of BGFs is described with the help of one empirical and three theoretical studies. Finally the key findings about BGFs are summarized.

2.2.1 Born Global Firms and its characteristics

Rennie (1993) discovered in a study designated by the Australian government, that a quarter of the 300 studied Australian enterprises shortly after or at the very beginning of their existence were active in various foreign markets. The research field of internationalization has been strongly influenced by his findings. Rennie’s investigations (1993) created an independent research area, which deals with the so-called phenomenon of BGFs. Even earlier approaches such as by Hedlund (1985) have found that the phase model of internationalization by Johanson and Vahlne (1977) cannot describe all aspects adequately. Many scholars took up the study of Rennie and examined the internationalization behaviour of BGFs in respect to other regions, countries and sectors (Benjamin Oviatt & McDougall, 1994; Madsen & Servais, 1997; Persinger, Civi, & Vostina, 2011; Alex Rialp, Rialp, & Knight, 2005; Sharma & Blomstermo, 2003).

Despite the considerable research that BGFs have experienced in the past 22 years the term for that phenomenon varies relatively strong within the new field of research. In addition to the introduced term “Born Globals” by Rennie (1993), there are the further designations: “Infant Internationals” (Bell, McNaughton, Young, & Crick, 2003) or “International New Ventures” (Benjamin Oviatt & McDougall, 1994). However, the majority of the scholars adhere to “Born Globals”.

There is also a wide spectrum in the definition of the term BGFs. The definition for BGFs generally represents a major challenge, which is why the topic is addressed very carefully in the literature. Some researchers even avoid a definition for BGFs completely and merely describe the characteristics. This suggests that even experts in the field of internationalization have not agreed yet on a universal definition of this concept. Oviatt and McDougall (1994) define the term BGFs or as they call it in their study “International New Ventures” as follows:

“We define an international new venture as a business organization that, from inception, seeks to derive significant competitive advantage from the use of resources and the sale of outputs in multiple countries. The distinguishing feature of these start-ups is that their origins are international, as demonstrated by observable and significant commitments of resources (e.g., material, people, financing, time) in more than one nation” (Benjamin Oviatt & McDougall, 1994).

Knight, Madsen and Servais (2004) define BGFs as following:

"Firms less than 20 years old that internationalised on average within three years of founding and generate at least 25 percent of total sales from abroad”(G. A. Knight & Cavusgil, 2004).

Subsequently, this work will orient itself on the latter definition. This explanation is very popular and has spread internationally very far.

Most limitations for the BGFs definitions can be found along the components speed of internationalization, geographical reach and degree of internationalization. Both the number of components, as well as their determination between the different researchers varies greatly.

In particular the speed of internationalization is greatly discussed among researchers. This is most often measured by the time between business creation and the first foreign sales. Many scholars consider firms in their research, which start to export only after a few years after its foundation (G. A. Knight & Cavusgil, 2004). Also Rialp et al. (2005) note that the time span between foundation and first internationalization steps varies greatly among researchers. Oviatt and McDougall (1994) define for example as a criterion a 6 year period in which the first form of internationalization should take place. In contrast, Rennie (1993) argues that first foreign activities should be taken only within two years after foundation. In the literature periods can range from 0 - 6 years, however, the majority of researchers have used a time period of 2-3 years (G. Knight et al., 2004; Madsen, Rasmussen, & Servais, 2000; Rennie, 1993).

The number of countries or the number of cultural regions determines the geographical reach of BGFs (Lummaa, 2002). Holtbrügge und Enßlinger (2004) recommend a minimum of two cultural regions where the BGFs need to be active. In general, this criterion is applied very rarely in investigations.

The degree of internationalization is often measured with the share of foreign sales in total turnover of the firms. However, there is also only little agreement among researchers how big the foreign sales share should be. Many scholars recommend a minimum value between 5 to 25 per cent (G. Knight et al., 2004; Madsen et al., 2000; Rennie, 1993).

Further Madsen and Servais (1997) argue that the phenomenon BGFs is not limited only to technology-oriented companies as some researchers did indicate in the past. Thus companies from many different industries such as for example the automotive, energy, electronics, IT, chemical and telecommunications industries are identified as BGFs in the literature. Famous examples for BGFs are Skype, eBay, Logitech, Amazon, easyJet,.

BGFs are considered to be among the small and medium sized enterprises (Holtbrügge & Enßlinger, 2004). The definition of small and medium enterprises is similarly vague as the one of BGFs. However, it can be assumed that the internationally recognized characteristics for a small and medium sized firms established by the EU Commission can be at least give some guidance.

Rialp et al. (2005) investigate over a period of 10 years (1993 - 2002) on the phenomenon of early internationalization. The scholars manage to identify the following five variables of BGFs: Number of foreign activities, size, geographic distribution, foreign branches and the export behaviour. In another work there are even seven variables established: Geographical range, small size, products and services, industry affiliation, internationally oriented management, speed and integration into networks (Holtbrügge & Enßlinger, 2004). Based on these two different sets of key variables the BGFs can be described.

Additionally researchers have tried to specify concrete characteristics of BGFs. Regarding the following characteristics a broader consensus exist already. The BGFs specialize in niche markets. The management often has a strong international orientation and training, and thus often speaks several foreign languages. Additionally practical experience abroad comes with a wide flared international network. Products are developed at the outset for the international market and adapted to the different needs. The market potential and not so much the geographical location often heavily influence the selection of markets. The Firm occurs shortly after it was founded simultaneously in the most important markets identified by them. For the development of these enterprises to the development of a functioning international network plays an important role. Early global orientation, rapid internationalization and a high export potential characterizes the firm (Bell et al., 2003; Benjamin Oviatt & McDougall, 1994; Holtbrügge & Enßlinger, 2004; G. Knight et al., 2004; Madsen & Servais, 1997; Alex Rialp et al., 2005; Sharma & Blomstermo, 2003).

2.2.2 Internationalization behaviour of Born Global Firms

As described above, many scholars have in the past addressed the issue of BGFs. Frequently empirical and theory-based studies have been made in order to explain BGFs. Mostly, the studies relate to one particular geographical region. It is striking that especially the Scandinavian area is often studied (Axinn, Matthyssens, Aspelund, & Moen, 2001; G. Knight et al., 2004; Madsen & Servais, 1997).

Most studies on BGFs deal with the three areas: internationalization behaviour, key influences on the early and rapid internationalization and success factors. Below four studies on the internationalization behaviour of BGFs are presented, one of them has a theoretical approach and three an empirical approach. This helps to better understand the subsequent following key influences on the early and rapid internationalization.

The theoretical study that should be looked into is the study by Benjamin Oviatt & McDougall (1994). Overall, there are few studies that theoretically deal with the issue of BGFs. In 1994 Oviatt and McDougall first tried to define a theoretical model for BGFs or as stated in their study for “International New Ventures”.

In their work the scholars try to define International New Ventures more precisely. This is done using the two determinants “coordination of the value chain” and “number of countries involved”. For both determinants either the value few or many can be assigned. This creates a matrix model with four quadrants, where the International New Ventures can be divided in the following categories. This allows a simple overview and categorization of the various forms of International New Ventures.

Figure 1: Types of International New Ventures. Reprinted from (Oviatt & McDougall, 1994), 09/09/15

Abbildung in dieser Leseprobe nicht enthalten

The matrix of Oviatt and McDougall intends to provide a concise overview of the various types of International New Ventures.

Export / Import Start-ups and Multinational Traders are summarized by the scholars under the term “New International Market Makers”. These companies benefit from the fact that they can move goods from their home location to the country where their goods are needed. The great strength of these companies is that they can detect resource inequalities between countries quickly and that they are able to create markets where none did exist before (Benjamin Oviatt & McDougall, 1994).

The difference between Import / Export Start-ups and Multinational Traders is the number of countries involved. Export / Import Start-ups deal only with the countries with which the firm has already gained experience. In contrast, Multinational Traders are involved with many countries and are always on the outlook for new trading opportunities (Benjamin Oviatt & McDougall, 1994).

Geographically focused start-ups create their competitive advantage in a manner that they are active in a niche market with customers who have a specialized demand. The main competitive advantage can be found in the value chain, especially in the fields of technological development, knowledge and production. The competitive advantage is largely based on “tacit knowledge”. This is why these companies are often very difficult to copy (Benjamin Oviatt & McDougall, 1994).

Global Start-ups are the most radical form of International New Ventures. They act proactively across national borders in order to get access to the most important markets and resources. To develop a Global Start-up is often more difficult compared to the other forms of International New Ventures, but it also seems to generate the most sustainable competitive advantage (Benjamin Oviatt & McDougall, 1994).

The first empirical study comes from Madsen, Rasmussen & Servais (2000). Madsen and Servais (2000) consider in their empirical study 272 companies from Denmark that export to foreign countries. The scholars examine whether a difference in export performance between BGFs and traditional exporters can be noted. The companies surveyed are divided into four categories of firms. BGFs are defined as firms that export within the first three years after foundation and at least 25% of its total turnover is generated abroad.

With the help of the three criteria competition, market and product, geographical distribution of foreign markets and market entry strategy and control of marketing the scholars attempt to find out differences between BGFs and the other types of companies (Madsen et al., 2000).

The central finding of this study is that BGFs are significantly younger than the comparison groups. However, the spread and intensity of export activities hardly differ. Moreover BGFs do not follow the classic slow path of expansion. Also, BGFs specialize right at the beginning on a small group of customers, which is, however, to be found worldwide. This is why a good network with many decentralized organizational units are of crucial importance. BGFs preferably use external distribution channels.

The second empirical study is by Moen (2002) who has analysed 70 French and 335 Norwegian companies in his study. The author has examined in particular the differences between BGFs and traditional companies with respect to the factors: global orientations, environmental situation, export performance and competitive advantage. The firms were classified by the two determinants established before or after 1990 (old or new) and total revenue greater than or less than 25% (global or local) in a matrix.

The group of companies in the “new” and “global” quadrants represent the BGFs. Moen (2002) noticed in particular that BGFs have very similar characteristics to companies in the category “global and old”. In terms of competitive advantage and export only minor differences between BGFs and the rest of the firms can be seen. But BGFs differ markedly from other companies with respect to the international vision and proactive approach. On top of that BGFs often have a better competitive position in their niche and have a strong international orientation with regard to their sales structures. Due to that, markets in other countries are often considered more important than the home market of BGFs.

The third empirical study comes from Moen and Servais (2002) and investigates on the export behaviour of 677 small and medium-sized firms from three different countries. The objective of the study is to analyse the time between company foundation and first export activities with the help of the determinants export intensity, distribution, market selection and global orientation. It should be noted whether BGFs just need less time before the first exports or have a fundamentally different export behaviour.

The results of the study show that the export intensity, distribution, market selection and the global orientation is not dependent on the founding year of the company. However, it could be further noticed that one third of the investigated firms have already first export activities within the first two years after foundation. The export intensity of theses early exporting firms is significantly higher than of those firms who need more time until the first exports. Thus, the results recommend that future export involvement is strongly influenced by the behaviour of the firm shortly after foundation. The study further recognizes the creation of firm resources during the establishment phase as an important factor to be competitive on the international market.

2.2.3 Summary

So far, no concrete model for the internationalization behaviour of BGFs is worked out in the previously discussed literature as well as in the four studies introduced earlier. To date, only a differentiation to the traditional internationalization models is achieved. The different approaches as well as the definitions for BGFs show that the parameters “speed of internationalization”, “degree of internationalization” and “geographic reach” are one of the most important characteristics. Thus BGFs expand faster and more frequently at the same time in several countries.

Geographical reach describes that the order of where to expand first is different for BGFs. For example they often do not expand to psychic close countries first, which are very similar and close to the home country. It is striking that often countries are preferred which have a large market potential. Moreover often firms from geographically isolated countries are forced to an early global orientation (e.g. Ireland, Australia).

The way of internationalization of BGFs differs less compared with traditional businesses. For example, other researchers recognize export also as the first step of internationalization for BGFs (Bell, 1995; Madsen et al., 2000; Moen, 2002). Therefore, one can state that the topic BGFs is primarily concerned with the factors that influence rapid internationalization. For this reasons, researchers are focusing their studies increasingly on key influences that can explain the early and rapid expansion.

2.3 Key influences on early and rapid internationalization– a conceptual model

As a basic conceptual model for this work, we follow the conceptual model in the study proposed by Wessely (2010). In her dissertation “Management of BGFs: Initial forces, success factors, management tools” she develops a comprehensive conceptual model that deals with the key influences on the early and rapid internationalization. Consequently, in a first step, the foundation of the conceptual model is described, to present in a second step the conceptual model itself, which combines the market-based and resource-based view. Lastly, the research results of previous studies on the key influences mentioned in the conceptual model are presented.

2.3.1 Foundation of the conceptual model

Wessely (2010) has reviewed the most important studies on the key influences on early and rapid internationalization critically. Comparing the results of the scholars, one can see overlaps between the identified factors. The overlapping factors are therefore of increased importance and are in particularly taken into account in the later on presented conceptual model.

The scholar has considered the results of nineteen studies regarding the key influences on the emergence of BGFs. A detailed overview of the studies is presented chronologically in table 1 and 2. The two tables are arranged chronologically according to their date of publication. In particular, the last column in the tables is of big interest, since it contains the significant key influences on early and rapid internationalization identified in the study. Exemplarily some of these studies are described below.

Lindqvist (1991) was one of the first who examined the factors influencing the early and rapid internationalization of companies in her dissertation. The companies included in the study are all relatively small. Her empirical study based on 15 case studies and 95 written questionnaires, which are carried out in very different branches in Sweden. As a result, the study shows that in particular a limited domestic market potential, an international vision, the use of international experience of other companies, external equity, branch-knowledge and high-tech products are important key influences for the early and rapid internationalization (Lindqvist, 1991).

Coviello and Munro (1995) examine based on software companies in New Zealand how the network relationships of an enterprise affects its international activities In their study, they examine four case studies and perform 25 questionnaires. Coviello and Munro (1995) come to the conclusion that the network contacts have a greater influence on the choice of foreign markets and the market entry choice as the rational management decisions (N. E. Coviello & Munro, 1995). The scholars distinguish the network contacts in formal (business related) and informal (e.g. friends and family).

Reuber and Fischer (1997) investigate in their study whether or not the international experience of the top management has a direct impact on the internationality of a firm. Therefore the duo questioned in Canada 49 software companies. The results show that firms, which have a management teams with international experience, are more likely to start earlier their sales activities abroad after business creation (Reuber & Fischer, 1997).

Stray, Bridgewater and Murray (2001) have limited their study on the biotechnology, pharmaceuticals, IT, electrical engineering, telecommunications and multimedia branch. Based on 44 interviews it was examined how quickly individual firms internationalize in these industries. Thereby the trio could see the pattern that small and young companies internationalize relatively quickly (Stray et al., 2001). On the other hand, older and larger companies are not so quick to expand into foreign markets.

In 2002 Gaba, Pan and Ungson (2002) investigate what aspects may explain the timing of the market entry of a company. The secondary data on the entry of 126 US Fortune 500 companies in the Chinese market is used to investigate this issue (Gaba et al., 2002). The Scholars find in their study that especially the aspects of international experience, size of a company, degree of diversification, behaviour of competitors, risk of foreign market entry without equity participation are of great importance for a rapid internationalization. Thus, Gaba, Pan and Ungson (2002) argue that small companies with a weak diversification and a low level of international experience expand significantly slower to China.

The investigation of Mahnke and Venzin (2003) examines how product characteristics can affect the internationalization of a digital information provider. A single case study based on eBay serves to investigate this issue. Mahnke and Venzin (2003) come to the conclusion that in particular the key influences international experience of the top management teams, network relationships and product characteristics of the digital good are of significant importance. The scholars further recommend developing new theories based on product characteristics and with respect to digital information providers (Mahnke & Venzin, 2003).

Johnson (2004) first performs in his study 12 interviews of high-tech Start-ups. Further the scholar tries to evaluate his findings with a survey of 106 companies in the US and UK. As a result, he notes that the key influences international character of product / industry, small home market, customers in foreign markets, globally applicable technology, International experience and vision of the founders, identification of a specific international chance, request international leadership, international contacts / distribution channels and the desire to create an international identity from the very beginning favours an early internationalization (Johnson, 2004).

Zucchella, Palamara and Denicolai (2007) also investigated on the subject of key influences on the early and rapid internationalization. The scholars investigate on the characteristics of the founders of 144 companies (Zucchella et al., 2007). As a result , previous work experience, foreign language skills, international experience and strategic focus are identified as relevant key influences on the emergence of BGFs.

Tab. 1: Research on the key influences on early and rapid internationalization

Abbildung in dieser Leseprobe nicht enthalten

Note: Adapted from (Wessely, 2010)

Tab. 2: Research on the key influences on the early and rapid internationalization (continuation)

Abbildung in dieser Leseprobe nicht enthalten

Note: Adapted from (Wessely, 2010)

2.3.2 Conceptual model

The studies in the previous section made it clear that key influences have occurred that can be attributed directly to the company (e.g. international experience, global vision from the beginning), and factors, which can be assigned to the environment of the firm (e.g. network connections). Wessely (2010) argues that these two sets of key influences can be examined with the resources-based view. The scholar points out that the resource-based view has already been used in several previous studies to investigate on BGFs (Gaba et al., 2002; G. A. Knight & Cavusgil, 2005; A. Rialp & Rialp, 2003; Schmidt-Buchholz, 2001; Yeoh, 2004).

Other key influences could be identified in section 2.3.1 with respect to the home and host country as well as the industry (e.g. weak domestic market, state protection). To operationalize these aspects Wessely (2010) uses the market-based view. Similarly, this approach has already been used in previous studies to investigate on the phenomenon of BGFs (Aspelund & Moen, 2005; Pla-Barber & Escribá-Esteve, 2006).

Following, the main characteristics of the resource-based view and market-based view are explained briefly in order to integrate them both later in a conceptual model. The market-based view assumes that the external environment is for companies of great importance for its success (Porter, 1990). In other words, the sustainable success of firms depends on the market conditions and the strategic behaviour of the firm. Under the strategic behaviour is understood: unique selling points, a clear focus on the product-market fit and the creation of unique value added activities. Porter (1990) uses for the analysis of the industry the five-forces-concept, which differentiates between suppliers, customers, competitors, new entrants and substitute products. Porter’s model (1990) leaves out international aspects and it assumes a precisely definable market. However, Wessely (2010) argues that a distinction between the domestic market and the foreign market in the analysis of BGFs is of crucial importance. For this reason, the model of Porter is extended to industry-specific and country-specific key influences, which is further divided into home country and host country characteristics.

Edith Penrose (1959) develops the resource-based view. Barney (1991) among other scholars further develop this model. Unlike the market-based view, the resource-based view considers to generate competitive advantages through unique and difficult to imitate internal resources. Resources may be tangible (machines, materials, buildings) and non-tangible (e.g. information, patents). In the literature, various further subdivisions for the term resources can be found. Wessely (2010) uses in her model the distinction by the kind of resource. Thus resources can be physical, organizational, social, human, technological and financial.

In the conceptual model the resource-based view and the market-based view is combined in order to categorize the earlier identified key influences on the early and rapid internationalization of BGFs. Thereby the following conceptual model illustrated in figure 2 accurse.

Abbildung in dieser Leseprobe nicht enthalten

Figure 2: Key influences for the early and rapid internationalization. Adapted from (Wessely, 2010), 03/10/15

In figure 2 one can see on the left side the market conditions (market-based view), which can support the emergence of BGFs. Here one can distinguish country-specific and industry-specific factors. Country-specific factors are relevant for all companies operating in the country studied. In contrast, industry-specific factors can vary greatly depending on the industry and are not limited to one country. For example companies in high technology industries often have a greater internationalization speed. The right side in graphic 2 represents the resources that can be assigned to the company itself. The resources of the firm are subdivided into six categories with specific variables.

Within the conceptual model, the market conditions and the resources can be seen as key influences, which favour the early and rapid internationalization. Key influences are present either already at the time of the establishment or when the firs internationalization steps are taken on. Wessely (2010) argues that key influences are further developed through management tools over the course of internationalization. Thus, key influences are basic requirements and restrictions for the subsequent internationalization success. This relationship is illustrated in figure 3.

Abbildung in dieser Leseprobe nicht enthalten

Figure 3: Key influences and success factors of BGFs. Adapted from (Wessely, 2010), 03/10/15

2.3.3 Key influences on the early and rapid internationalization

The previous conceptual model developed in graphic 2 distinguishes between market-related and resource-related variables / key influences that can affect positively the early and rapid internationalization of BGFs. In the following, the results of previous studies regarding these two sets of variables should be presented. With the help of the research results one can later on examine the key influences of the BGF easyJet.

2.3.3.1 Market Conditions

Country-specific factors – home country

The first aspect to be examined in terms of market conditions is the importance of the home country. For many BGFs the home market has only a minor importance (Axinn et al., 2001; Bell, 1995; Boter & Holmquist, 1996; Chetty & Campbell-Hunt, 2004; Madsen et al., 2000; Madsen & Servais, 1997). Frequently BGFs are active in their home market, but expand at the same time in other international markets (N. Coviello & Munro, 1997).

The considered studies show that BGFs increasingly come from smaller domestic markets (Johnson, 2004; Lindqvist, 1991; McNaughton, 2001; Oviatt & McDougall, 1999). Lindqvist (1991) shows that in particular a limited domestic market potential influences the rapid internationalization of the firm. Since the domestic market for such enterprises is often too small to achieve sufficient sales they concentrate on other more profitable international markets (G. Knight et al., 2004; McNaughton, 2001). Wessely (2010) names as an example for a BGF from a small domestic market the firm Logitech. The firm is founded in Switzerland, a country with a population of only 7.6 million inhabitants.

In addition, companies seem to push more towards internationalization the lower the competition in the home market is. McNaughton (2001) detected this relationship. The author argues that a strong domestic competition binds much of the available resources of a firm and consequently cannot be used for international activities. A contrary opinion has Evanelista (2005). The scholar points out that a highly competitive domestic market is mostly avoided by BGFs and thereby they expand more extensive into other foreign markets.

The last aspect in terms of the home market is the state protection and regulation. Oviatt and McDougall (1999) argue that firms with a highly protected home market are less likely to expand abroad early. The state protection refers to a state measures intended to protect the domestic economy from foreign competition. State protections are for example subsidies for the domestic economy or customs duties.

Country-specific factors – host country

Favourable features of the host country can also promote early internationalization. The host countries in which the BGFs want to internationalize are often already relevant at the time of the foundation. Entrepreneurs are very attentive to opportunities that are offered to them in other countries. Thus, many BGFs choose their host country based on where the most benefits arise (Gaba et al., 2002, 2002; Johnson, 2004; Oviatt, Shrader, & McDougall, 2004).

A high market growth and a big market size in the host country is found by Gaba et al. (2002) to be very attractive for BGFs. This is because only in a sufficiently large market, in which the customers are willing to buy the firm’s products can create a high economic value for the firm. Thus, the selection of markets is often heavily influenced by the market potential and not so much by the geographical location (Bell et al., 2003; Benjamin Oviatt & McDougall, 1994; Gaba et al., 2002; Holtbrügge & Enßlinger, 2004; G. Knight et al., 2004).

Johnson (2004) further identifies the presence of important customers in the host country as a reason for a firms early and rapid internationalization. Important customers can be for example, foreign investors or local companies. Mahnke and Venzin (2003) come in their study on Ebay to a different result and do not include important clients abroad in the key influences of rapid internationalization.

Lastly, Gaba, Pan and Ungson (2002) found evidence that a low market risk in the host country can trigger an early internationalization. The secondary data on the entry of 126 US Fortune 500 companies in the Chinese market is used to investigate this issue (Gaba et al., 2002). The results recommend that the low market risks for firms are significantly associated with an early internationalization.

Industry-specific factors

Generally BGFs can occur in almost every industry. Rennie (1993) has already identified a wide range of BGFs in various industries. Nevertheless, research is increasingly focused on the industries that contain the highest density of BGFs.

The industry-specific factors in the studies show that the emergence of BGFs is most common in technology-intensive industries (Andersson & Wictor, 2003; Oliver Burgel & Murray, 2000; N. E. Coviello & Munro, 1995; Harveston, Kedia, & Davis, 2000; Lindqvist, 1991; Zahra & Garvis, 2000). One possible explanation for this could be the high scalability of the products. Scalability is about the question of how far one can increase sales without continually increase the fixed costs. One example for such a firm is eBay with their easily expandable website. One other explanation comes from Coviello and Munro (1995). The duo argue that entrepreneurial high technology companies are in a better position to build international relationships with organizations, which help them, compensate their lack of resources. Therefore these companies seek for opportunities on a global scale.

Frequently BGFs can also be found in knowledge-intensive industries (Bell et al., 2003; Benjamin Oviatt & McDougall, 1994; G. A. Knight & Cavusgil, 2004). A high knowledge-intensity can result in international competitive advantages, since the knowledge is often used for the development of unique products and services. Thereby the market shares can be increased and a faster international expansion can take place.

The products of BGFs often have a short product life cycle (N. E. Coviello & Munro, 1995; Saarenketo, 2004; Schmidt-Buchholz, 2001; Shrader, Oviatt, & McDougall, 2000). Due to this characteristic an increased internationalization rate could be determined. The short product life cycle pushes firms to internationalize more rapidly, as they can achieve higher profits in several markets. According to Saarenketo (2004) the short product life cycle in addition with high research and development costs enhances the situation of earlier internationalization further.

Further the overall internationality of an industry has influence on the emergence of BGFs (Gabrielsson & Kirpalani, 2004; Johnson, 2004; Moen, 2002; Rennie, 1993). If many companies in one branch already follow international activities, newly founded companies in the same sector are also more likely to do the same.

2.3.3.2 Resources

Organizational resources

Considering the resource side of the model, first the organizational resources should be looked at. With regard to the organizational resources, many scholars argue that a great age of the company has a negative effect on the speed of internationalization (Johnson, 2004; McNaughton, 2001; Stray et al., 2001). This finding could be confirmed by Wessely (2010), who has found out that BGFs are significantly younger than traditional companies.

Stray et al. (2001) investigate in their study on 44 companies in the UK and categorize them based on their size, age and degree of internationalization. The goal was to examine how quickly the individual firms internationalize. The scholars managed to identify three clusters of companies. (1) Small, young, highly international (2) Small, young, less international (3) Larger, older, mediocre internationalization The result of the study recommend that younger companies internationalize often faster than older ones (Stray et al., 2001). One possible explanation for this is that younger companies are less limited to their decisions in the past and therefore can expand more rapidly in foreign markets than older ones.

Similarly, the size of the company affects the internationalization speed (Lindqvist, 1991; Stray et al., 2001). Stray et al. (2001) is able to find here again that companies from group 1. and 2. expand faster into new markets as the companies from group 3. It is stated that large companies often do not have the necessary flexibility to perform this process as quickly. Lindqvist (1991) supports this finding in his study. However, the small size of the firms is to a big part due to the young age and the early internationalization.

Social resources

Among scholars there is big agreement when it comes to the topic of social resources. Thus it is found in numerous studies that good networks of firms favour the rapid internationalization (N. E. Coviello & Munro, 1995; Johnson, 2004; Laanti, Gabrielsson, & Gabrielsson, 2007; Lindqvist, 1991; Mahnke & Venzin, 2003; Schmidt-Buchholz, 2001). Here, both formal networks (e.g. business partners) and informal networks (e.g. friends, family) are of great importance.

Coviello and Munro (1995) come in their study to the conclusion that the network connections have a greater influence on the choice of foreign markets and the market entry choice as the rational management decisions. Johanson (2004) specifies the term networks in more detail in his study with “possession of international contacts and sales leads”(Johnson, 2004). Thus, it is argued that strong international networks in particular in the form of sales leads can result in increased internationalization of the firm. Rasmussen et al. (2001) further argue that one of the major resources of BGFs are networks. In some cases, it is even the only existing competitive advantage.

Firms can benefit in various ways from networks. In the beginning stadium, BGFs often may not have many resources available. However, due to good networks they can get resources from their network partners to much better prices (Benjamin Oviatt & McDougall, 1994). With networks also the exchange of experience and thus the international learning is favoured (Reuber & Fischer, 1997). As a result, for example, relevant market knowledge can be acquired faster.

Human resources

The human resources are similar to the social resources very significant for the early and rapid internationalization. Arguably the greatest consensus that can be found in the literature on early internationalization is with respect to the international experience. Many scholars recognize the presence of international experience of the top management of BGFs as a supportive factor for early internationalization. (Gaba et al., 2002; Harveston et al., 2000; Johnson, 2004; Lindqvist, 1991; Mahnke & Venzin, 2003; Reuber & Fischer, 1997; Schmidt-Buchholz, 2001; Westhead, Wright, & Ucbasaran, 2001). Thus, the top management of BGFs feel that internationalization is less risky than internationally inexperienced managers.

Some founders of BGFs even see a high risk by only being locally active (Karra & Phillips, 2004). Reuber and Fischer (1997) study shows that firms, which have a top management with international experience, are more likely to start earlier their sales activities abroad after business creation. Harveston et al. (2000) come to similar results as they could find in their research that top managers of BGFs often had higher international experience as managers from traditional firms. Westhead et al. (2001) point out that the internationally experienced top manager is more likely to recognize international market opportunities and assimilate and use new market knowledge faster. There are many different ways to acquire international experience. Some of the most common are for example a study semester abroad, international occupational activities or through informal networks.

Further, an international coinage of the top management can also be obtained by an international family background (McAuley, 1999; Westhead et al., 2001). This is the case when the parents come from different countries of origin or if the family does not live in the country of origin of the parents. Wessely (2010) mentions with Pierre Omidyar a good example. He is the son of Iranian parents and moves with already six years with his family in the United States. Later, Piere Omidyar founds the worldwide operating BGF eBay.

Similar to the international experience, the top management of BGFs often have the ability to speak foreign languages (Schmidt-Buchholz, 2001; Zucchella et al., 2007). Zucchella et al. (2007) could notice that in particular most founders of BGFs are able to speak even multiple foreign languages.

The personal characteristics of the top management can also influence the internationalization process of a BGF. Wessely (2010) has for example the presumption that a higher age has a positive effect on the internationalization speed. It is argued that with a higher age there should be already a higher international experience present.

[...]

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Title
Key Influences on the Early and Rapid Internationalization in the Airline Industry. A Case Study on easyJet
Course
International Management
Grade
1,0
Author
Year
2016
Pages
128
Catalog Number
V337872
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9783668296268
ISBN (Book)
9783668296275
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2644 KB
Language
English
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Born Global Firms, Internationalization strategies, early internationalization, rapid internationalization, airline industry, easyJet, Ryanair
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Johannes Michl (Author), 2016, Key Influences on the Early and Rapid Internationalization in the Airline Industry. A Case Study on easyJet, Munich, GRIN Verlag, https://www.grin.com/document/337872

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