Risk and Uncertainty in Internationalisation and International Entrepreneurship … · 2017. 9. 9. · international markets (Welch and Luostarinen 1988). In the newer fieldof international

Focused Issue: 50 Years oF MIr

Abstract: 0 Inthisarticlewereviewhowriskanduncertaintyintheinternationalexpansionofthefirm

are treated in the internationalisation and international entrepreneurship literatures, including emergingresearchinbothfields.

0 Weconcludethatthereisneedforamorenuancedtreatmentofriskandofuncertaintyintheinternationalexpansionoffirmsintheirinteractionswitheachother.

0 We show that, despite the prevailingperspective in the literature,more uncertaintiesmightberevealedandriskmightincreasewithinternationalexperience,therebyinhibitinginterna-tionalisation,andinsomecasesinducingde-internationalisation.

0 We introduce thedynamic concepts of uncertainty acclimatisation and risk accommodationasabetterrecognitionofhowuncertaintyandriskmightalterovertime.

0 Coevolutiontheoryisdrawnupontoconceptualisehowtheinteractionanddynamicsofper-ceptionsofuncertaintyandassessmentsofriskduringtheinternationalisationprocessmightbedevelopedtheoretically.

Keywords: risk · uncertainty · coevolution · Internationalisation · International entrepreneurship

Manag Int rev (2011) 51:851–873DOI10.1007/s11575-011-0107-y

Risk and Uncertainty in Internationalisation and International Entrepreneurship StudiesReview and Conceptual Development

Peter W. Liesch · Lawrence S. Welch · Peter J. Buckley

Received: 02.11.2009/Revised: 15.05.2010/Accepted: 04.08.2010/Published online: 04.11.2011©Gabler-Verlag2011

Prof.P.W.LieschUQBusinessSchool,TheUniversityofQueensland,St.Lucia,Australia

Prof.L.S.Welch()MelbourneBusinessSchool,UniversityofMelbourne,Carlton,Australiae-mail:[email protected]

Prof.P.J.BuckleyCentreforInternationalBusiness,UniversityofLeeds,Leeds,UK

852 P.W.Lieschetal.

Introduction

Risk and uncertainty, primarily as a composite, have occupied an important place inexplanations of firm internationalisation and in theorising regarding international ent-repreneurshipasappliedtotheinternationalexpansionofthefirmsincetheemergenceofbothfields.JohansonandVahlne(1977,p.27),earlyproponentsoftheinternationa-lisationprocessmodel,stressed thatabasiccomponentwas thefirm“striving tokeeprisk-takingatalowlevel”(seealsoJohansonandVahlne2006,p.165).Alongsidethisenduring recognition of risk there was a concern, in early efforts to explain internationa-lisation,toextendthetreatmentofuncertaintytoreflecttherealitythatit“iscomplexandheterogeneous”(Wiedersheim-Paul1972,p.5).Similarly,Bonaccorsi(1992,p.627),inreviewingtheresearchliteratureonexporting,saw“riskperceptionandriskaversionaskeyconstructstoexplainexportbehavior”.

In the internationalisation process perspective, links are typically drawn as well to otherfactorssuchasknowledge,networks,culture,thepersonalbackgroundofdecision-makers,andindividualandfirmcommitmenttointernationalactivity,sothattheimpactsofriskandofuncertaintyondecision-makingareseentooperatewithinabroadercon-textofinfluenceandinteractiveeffects.Riskanditsmitigation,anduncertaintyanditsmanagement, areusually treatedasdynamicvariables in internationalisation research.Theirinfluenceisseenasinteractingwithinternationallyrelevantactionandtheexperi-enceofafirmasopportunitiesareexploitedininternationalmarkets.Themanagementofuncertaintyandriskreductionareviewedasconsequencesofsuchexperience,therebyfacilitating further international commitments that extend and deepen involvement ininternationalmarkets(WelchandLuostarinen1988).

Inthenewerfieldofinternationalentrepreneurship,riskfiguresprominently,uncer-taintymarkedlylessso.Anearlydifferenceinthesetwofieldsemergedinthetreatmentofrisk,particularlywiththeshiftininternationalentrepreneurshipawayfromstressingriskaversebehaviourtoanemphasisonentrepreneurs’risktolerance.Fromtheoutset,international entrepreneurship studies have concentrated on international new ventures (INVs),orso-calledbornglobals,businessesthatinternationaliserapidlyafterestablish-ment,whichseemedtochallengenotionsoftheconstrainingeffectsofuncertaintyandrisk at the start of international operations, as stressed in the internationalisation process literature (autio 2005; Madsen and servais 1997; oviatt and Mcdougall 1994).ThatentrepreneursarecapableofinitiatingINVsistakenasanindicationofacapacitytoover-rideseeminglyobviousrisks(Freemanetal.2006).Initially,McDougallandOviatt(2000, p.903)evencharacterisedinternationalentrepreneurshipas“acombinationof innova-tive,proactive,andrisk-seekingbehaviour”.Morerecently,thedefinitionalemphasishasshiftedawayfromrisk-seekingtothatofopportunityidentificationandexploitationaskeycomponentsofentrepreneurialbehaviour.Notably,OviattandMcDougall(2005b, p.7)haveput forwarda ‘workingdefinition’of internationalentrepreneurshipas“thediscovery,enactment,evaluation,andexploitationofopportunities—acrossnationalbor-ders—tocreatefuturegoodsandservices”(seealsoZahraandGeorge2002).

Despitethisrecentshiftindefinitionalemphasis,entrepreneurs’attitudestowardriskremainakeyunderlyingelementofwhatisregardedasentrepreneurialbehaviourintheinternational arena, reflected, for instance, in psychological traits such as “risk-taking

853risk and uncertainty in Internationalisation and International …

propensity” (oviatt and Mcdougall 2005a,p.542).DimitratosandPlakoyiannaki(2003, p.200)arguethatoneofthesixcomponentsofaninternationalentrepreneurialcultureisinternationalriskattitude,specificallyapreparednesstolaunchintotheinternationalarena in the face of risk exposure, often including personal financial risk.As Schen-del (2007,p.53)observes,“probablytheforemostcharacteristicofentrepreneursinthemindsofmostisthattheyarewillingtotakerisks,togowhereotherswillnot”.

However,contraryresearchontheroleofriskforentrepreneurshasbeenemerging.Forexample,inameta-analysisofstudiesexaminingriskpropensitydifferencesbetweenentrepreneursandmanagers,MinerandRaju(2004,p.3)concludedthat“entrepreneursaremore riskavoidant”,whileother researchpoints to the roleof emotion indrivingandmoderatingtheapproachtoriskbymanagersandentrepreneurs(Loewensteinetal.2001).Further, ignoranceon thepartofdecision-makersmightbeatplay indecidingwhether and how risk is assessed and acted upon: if the nature of risks faced is not recog-nised,entrepreneursareinasenseprotectedbytheirignoranceand,hence,areabletoactmoreboldly(Sarasvathy2001).

Thus,areviewofuncertaintyandofriskinthetwoliteraturesistimely,includingaconsiderationofemergingrelevanttheoriesandempiricalresearch.Webeginbypresent-inganoverviewoftheconceptsofuncertaintyandofrisk,includingbothindividualandfirmperspectives.Wethenreviewthewayinwhichbothuncertaintyandriskhavebeentreatedinthetwostreamsofliterature,andconsideremergingideasin,andaround,bothfieldsthatofferscopeforabetterunderstandingofthewayriskanduncertaintyinteractwith international involvement over time.The concepts of uncertainty acclimatisationandofriskaccommodationareintroducedasaresponsetotheseevolving,processsensi-tiveideas.Coevolutiontheoryisthenproposedasonewayofexploringthedynamicsofchangeandinteractionsthatresultfromthemediatingeffectsofuncertaintyacclimatisa-tionand riskaccommodationon the internationalexpansionof thefirm.Weconcludewithresearchimplications.Weseeourcontributionasbringinguncertaintyandriskbacktocentrestageinthestudyofinternationalexpansionbehaviour;asintroducingevolv-ingresearchthatshowstheseconceptsinanewlight;andinconceptualdevelopmentofuncertaintyandofriskasdistinctbutinteractingconceptsinthedynamicsettingoffirminternationalisation.

An Overview of Risk and Uncertainty

Inmuchoftheresearchoninternationalisationandinternationalentrepreneurship,‘riskanduncertainty’aretreatedasanamalgam—acompositeexplanatoryfactorandoftenunder theconfusing labelofone termonly.Thishas resulted in little ifanyfine-grai-nedunderstandingofhow these twoelements impacton the internationalisationdeci-sion.Alvarez andBarney (2005, p.778) have noted a similar pattern in the strategicmanagementandentrepreneurshipliteratures,that“riskanduncertaintyaretreatedasiftheyweresynonyms”.Inpart, thisappearstoreflecttheunderstandingofmanyentre-preneursandinternationalbusinessmanagers,althoughAlessandrietal.(2004,p.755)assertthatmanagersdoconsiderriskanduncertaintyas“distinctconstructs…withdif-ferent impacts, individually and jointlyon thedecision-makingprocess”. Importantly,

854 P.W.Lieschetal.

however,managersandentrepreneursarerarelycalleduponbyresearchers toidentifywhetheritisriskoruncertaintytheyaredealingwith,andtodefinethemeaningstheyascribewhentheyusetheseterms,astheyrespondtoquestionnairesandprovidenarra-tiveexpositions.

Theinternationalentrepreneurshipliteraturehastendedtofocusmoreonindividualentrepreneursandtheirassessmentsofrisk,albeitintheprocessofdrivingtheircorporatecreations. Incontrast,within the internationalisation literature, there ismoreemphasison thefirmperspective following theeconomics-basedbehavioural theoryof thefirm(cyert and March 1963),althoughwithsomefocusonindividualperceptionsindiversestudies,especiallyinsomeoftheexportingresearch(Freemanetal.2006).Ingeneral,theretendstobelittleclarificationonthispoint,withnospecificationofthemovefromtheindividualtotheorganisationallevelwithrespecttobothriskanduncertainty.Miller(2007,p.70)hasnotedthat“riskresearchbasedon…thebehavioraltheoryofthefirm…posits organization-level constructs to explain risk taking. Few risk researchers…bringtogethertheindividualandorganizationallevelsofanalysisintheirtheorizingandempiricalresearch”.

Withinafirm,individualperceptionsofforeignmarketsituationsarelikelytodifferandthereisnosimplepathfromanindividual’sperceptiontoa‘firm’sperception’.Thekeydecision-maker’sperceptionsmaybecritical,butrelevant informationtendstobefilteredthrough,andre-interpreted,byothers.Ofcourse,itisnotunusualforindividualswithinandacrossfirmstodevelopcommonperceptionsofuncertaintyandassessmentsofriskincertainforeignmarketcontexts,particularlywhentheyinvolvepowerfuleventsorchanges.Ultimately,though,individualperceptionandassessmentisthearbiterofthemeaningandsignificanceof informationaboutdifferent foreignbusiness,culturalandpoliticalenvironments.Similarly,inresearchonorganisationalbehaviour,therehasbeenaresurgenceofinterestintheroleofindividualsinfirmsactingasinternalagentsandentrepreneurs(Georgeetal.2006).

Fromatraditionaleconomicsapproach,riskanduncertaintytendtobedifferentiated,althoughthetermuncertaintyisnotalwaysconsistentlyapplied:uncertaintysometimesreferring todecisionsituationswhere there isanunknowablefutureandsometimes tosituationswherethisfutureisknowable,butnotcalculable.Riskreferstodecisionswherethe consequences of actions are subject to known probability distributions, followingKnight’s(1921)distinction.Williamsonian(1985)uncertainty—coretotransactioncosteconomicsandusuallyinvokedinsituationsofambiguityandsketchiness—emphasisestheboundedrationalityofhumanstoassembleandinterrogateallpossiblecontingenciestoadecision.However,thereareuncertaintiesimpactingondecisionsthatdefyknowinginthatthecontingenciesaresimplynotknowable.Informationonallpossibleoutcomesis just not available, and not all possible outcomes are knowable. In these situations,Williamson’s(1985)deterministicuncertaintymisrepresents thisso-callednon-ergodicworld (dunn 2000; slater and spencer 2000),aworldwhereinferencefromthegeneralcontexttoaspecificsituationisproblematicas“thepastdoesnotprovideaguidetothecourse of future events, (and where) agents are truly uncertain as there currently does notexistinformationthatwillhelpthemdiscoverthefuture.Decisionshavetobemadeand choice is genuine” (dunn 2000, p.427).This is theworld of trueKnight (1921) uncertainty.


Recognising future exigencies in non-ergodic worlds demands of decision-makersmanagerial judgement and trueKnightian enterprisewhere entrepreneurial returns arerealisedby theexerciseof this judgement (Courtneyetal.1997). Inanapplicationoftheseideas,Alessandrietal.(2004)framethedecisionprocessintermsoftheseparateandjointeffectsofriskandofuncertainty,andrevealthattheuncertaintyeffectsdomi-nateoverriskeffectswhenbothoccurconjointly.Inthemanagementliterature,theroleofmanagerialperceptionhasbeenstressed,withDowneyandSlocum(1975) long ago identifyingfourmainelementsthatcontributetoanoverallperceptionofuncertaintyinanygivensituation:perceivedenvironmentalcharacteristics;individualcognitiveproc-esses;behaviouralresponserepertoires;andsocialexpectations.

even earlier, Penrose (1972,p.56)hadattemptedtoshift thinkingonrisk,arguing:“…thefactthatthefuturecanneverbeknownwithaccuracymeansthattheplanningofbusinessfirmsisbasedonexpectationsaboutthefuturewhichareheldwithvaryingdegreesofconfidence…‘Uncertainty’referstotheentrepreneur’sconfidenceinhisesti-matesorexpectations;‘risk’,ontheotherhand,referstothepossibleoutcomesofaction,specificallytothelossthatmightbeincurredifagivenactionistaken”.Thus,attentionwasdrawntothedecision-maker’sfocusontheriskofadecision’spotentiallossvis-à-vis its potential gain (see also March 2006; shackle 1974).Thisisparticularlyimportantforinternationalisingfirms,andevenmoresoformanyentrepreneurialsmallfirms,wheretheowner/managersareoftenhighlyexposedfinanciallywithmuchtoloseatapersonallevel(Lieschetal.2007).Similarly,MarchandShapira(1987,p.1411)havenotedthat“inrecenttreatisesonriskassessmentandriskmanagement…riskhasbecomeincreas-inglyatermreferringnottotheunpredictabilityofoutcomesbuttotheircosts”.Thefocusonriskofalossprovidesamoreconcretelinktotheriskaversebehaviourstressedintheinternationalisationliterature.Earlyresearchdrewheavilyonideasdevelopedinthebehaviouraltheoryofthefirmstressingtheimportanceofriskavoidanceasadriveroffirmbehaviour(CyertandMarch1963).

Ingeneral, inboth the internationalisationand internationalentrepreneurship litera-tures,whileresearchappearstohavebeeninfluencedbyprevailingperspectivesregardingboth‘riskanduncertainty’inthemanagementandeconomicsdisciplines,therehasbeenlimitedinvestigationanddevelopmentoftheconceptsthemselvesandthewaytheyoper-ateinthecontextsunderinvestigation.Thishasoccurreddespitetheimportanceplacedontheirroleinfirms’internationalexpansioninbothliteratures,aswenowreview.

risk and uncertainty in the Internationalisation Process

Inmuch of the internationalisation literature, high risk and uncertainty are treated asconstrainingfactorsonforwardmomentum(JohansonandVahlne1977;WelchandLuos-tarinen 1988).Inessence,itisargued,unlessthe‘risksanduncertainties’associatedwithaninternationalcommitmentare,orcanbe,reducedtoanacceptablelevelasperceivedbythedecision-maker,commitmentisunlikelytoproceed.Acceptablelevelsof‘riskanduncertainty’wereviewedasnecessarybut not sufficient conditions for ongoing inter-nationalcommitments.Both‘riskanduncertainty’wereseenasaffectingthenatureandcontentofactiontaken;forexample,throughtheuseoflow(e.g.licensing)ratherthan

856 P.W.Lieschetal.

highcommitmentforeignoperationmodes(e.g.foreigndirectinvestment)inthefaceofassessmentsofhighriskandgreateruncertainty.

Uncertaintyandriskmaybeimportantindecisionmakingatvariouslevelsofinter-nationalactivity,butparticularlyasfirmsengageinnewactivitiessuchasenteringnewmarkets,usingdifferentmodesofoperationorchanginginternationalstrategies.Intheearlystagesofinternationalisation,manyfirmshavebeenfoundtobelackingininforma-tionandknowledgeabout,andexperiencein,foreignmarketsandthepracticalitiesofinternationalactivity,accentuatingperceptionsof‘riskanduncertainty’.Inareviewof35exportingstudies,Leonidou(1995,p.40)concluded“thedatarevealedthatlimitedinfor-mationtolocate/analyzeforeignmarketshadthegreatestinhibitingeffectonthefirm’sabilitytoinitiateordevelopexports”.AlargeAustralianexportingstudywhichincludedanexaminationofnon-exporters (intendersandnon-intenders) foundmanyfirmswithseeminglyappropriatecapabilitiesbut“neverevenmakeittothethresholdofintention.When pressed to explain,managers of these firms tend to overestimate the risks andunderestimatethebenefitsofexporting.However,thisperceptionofhighriskisloweredandtheawarenessofbenefitsisincreasedthroughinternationalexperience”,particularlywhenitinvolvesinternationalexposureofindividualmanagers(Austrade2002,p.32).Thisstudyalsofoundthatthe‘perception’ofriskinexportingwasreducedwhenfirmswereabletonetworkwithexistingexporters.

The chain of reasoning—explicit or implicit—typically found in the internation-alisation literature tends to be that, over time, more relevant information, increasedinternationalknowledgeandskills,andexpandednetworks, lowerbothperceptionsofuncertaintyandassessmentsofrisk,therebyimprovingthedecision-makingclimate,andsupportingincreasesincommitmenttointernationaloperations.Focusingonuncertainty,Buckley and carter (2004,p.372)argue:“Ourviewofknowledgeisthatitisthecon-verse of uncertainty … uncertainty inhibitstheabilityoffirmstocreatevaluebylimitingthescopeandeffectivenessoftheactivitiestheyundertake”.

risk and uncertainty in International entrepreneurship

Research in international entrepreneurship has been overwhelmingly on internationalnewventures (INVs)orbornglobals (KeuppandGassmann2009).This researchhasrevealedagrowingnumberoffirmsthatareseeminglynotasconsciousof,orconstrai-nedby,internationalknowledgeandexperiencedeficienciesattheoutsetofinternationalactivity.InarecentAustralianstudy,bornglobalswerefoundtorepresentabout25%ofnew exporters (austrade 2002).Incontrast,exportingresearchingeneralhasshownthatmanypotentialexportersregardexportingactivityastroublesomeanddemanding,andnotsurprisingly,tendtoreadilyfindtheproblemstheywereconcernedabout,reinforcingthe sense of uncertainty and of risk. In some cases, this leads towithdrawal from aninterestinexportingevenbeforeastarthasbeenachieved,orsoonthereafter(WelchandWiedersheim-Paul1980).

Scholarsininternationalentrepreneurshiphavecometoviewtheapproachofentre-preneurstointernationalactivityasinpartdefinedbythewaythatriskistakenon-board.Risk-seekingwasviewedasoneofthedefiningcharacteristicsofinternationalentrepre-neurship inMcDougallandOviatt’s (2000)earlier, influentialdefinition.According to


thisperspective,highriskmayberecognisedbyinternationaldecision-makers,buttheyarepreparedtotakeactionnonetheless.Othersstressriskaversionasaconstraint thatbornglobalentrepreneursarereadilyabletodevisewaysofovercoming(Freemanetal.2006).Giventheconstraintthatriskposesformany,ifnotmost,internationalisingfirms,itseemsratherobviousthatthoseabletoestablishINVsareinaspecialcategorywithregardtorisktolerance.However,isthistoosimplistic?Inthefollowingsectionwecon-sideremergingresearchthatcastslightonthisquestionandotheraspectsofinternationalexpansion,providingasetofideasonhowamorepluralisticperspectiveonuncertaintyandriskmightbedeveloped.

Beyond the Orthodoxy

HowRiskyIsInternationalisationtoEntrepreneurs?

Thereisaveinofemergingresearchwhichchallengesthebasicideathatentrepreneursare less risk averse, even concluding entrepreneurs are risk avoiders (Miller 2007; Miner andRaju2004).Inarecentexaminationoftheriskconstructingeneralresearchpertai-ningtoentrepreneurs,JanneyandDess(2006,p.386)stressthedangersofviewingriskseekingortolerancesimplyintermsofobjectiveentrepreneurialaction.Theyarguethat“anactionmayappearriskytoanestablishedfirm;however,inanentrepreneurialcon-text,itmightactuallyprovelessso.Anentrepreneurwhoacceptssuchriskswillappeartobeacceptinggreaterlevelsofriskrelativetotheirmoreestablishedcounterparts,even though the entrepreneur does not perceive this greater risk”.Thus,apparentriskseekingbehaviour,asinrapidinternationalentry,maybeillusorywhenconsideredatthelevelofindividualdecision-makerperception.ShaneandVenkataraman(2000,p.223)arguethat“peoplewhoexploitopportunities tend toframeinformationmorepositivelyand thenrespondtothesepositiveperceptions”,andthisobservationcanbeappliedtohowriskisassessedanduncertaintyperceived.

Whilethesituationsexaminedarenotexactlycomparable,researchonprospecttheory(KahnemanandTversky1979)raisesfurtherquestionsaboutthelinkbetweenobjectiveentrepreneurialaction,anduncertaintyand risk.Georgeetal. (2006) stress that under prospecttheoryindividualsarepredictedtoberiskseekinginthefaceofpotentialloss,but riskaversewhendealingwithpotentialgains—theyareconservativebecauseofaconcernthatgainsalreadyattainedmightbelost.However,theroleofuncertaintyisnotcoveredinthistheory,dealingasitdoeswithwell-specifiedalternativesratherthantheunknown.Takingintoaccountsituationsofhighthreat,unpredictabilityanduncertainty,wherethereisasenseoflossofcontrol,conservativeactionismorelikely.Thus,Georgeetal.(2006,p.351)concludethat“riskybehaviouris…morelikelywhendecisionmak-ersperceiveasenseofmasteryandcontroloverthedomaininquestion”.

Simonetal.(2005,p.113)arguethatpastresearchhasshown“entrepreneursdonothave a high risk propensity … (to) knowingly take risks”, with their own research suggest-ing“entrepreneursmaynotperceivetheriskinessofstartingventures”.Thisisbecause“cognitivebiasesleadindividualstoperceivelessrisk”.Thebiasesconsideredwereover-confidence,theillusionofcontrol,andthepreparednesstodrawconclusionsfromlim-

858 P.W.Lieschetal.

itedinformation.Overconfidenceandunreasonableoptimismappeartobecommontraitsamongstartingentrepreneurs (Haywardetal.2006). Ina largestudyofentrepreneurswhohadrecentlybecomebusinessowners,Cooperetal.(1988) found not only a high levelofoptimismoverallbutthatpoorlypreparedentrepreneurswerejustasoptimisticasthosewhowerewellprepared.

However,astrongdifference in theapproachofmanagers in largeorganisationsasagainstentrepreneurswasfoundinastudybyBusenitzandBarney(1997).Entrepreneurswerefoundtobemoresusceptibletocognitivebiases(e.g.overconfidence).Presumablythiswouldmean thatmanagers in largeorganisationswoulddisplaymore risk-aversebehaviours,althoughoverconfidenceandhubris isnotuncommon(Hayward2007).Inaddition,therisktoamanager’scareerofabaddecisionmayaccentuateanyinherentriskattachedtoaparticularinternationalventure.Individualmanagers,however,donotoperateinisolation.Theimmediategroupcontextandbroaderfirmnetworksareimpor-tantreferencepointsinseekingtocopewiththesenseofpersonalriskaboutimportantdecisions,andcouldacttomoderatetheextentofriskthatanindividualmanagerfeels.Nevertheless, research indicates that personal differences in perceptions of uncertainty andassessmentsofriskheldbymanagersdoaffecttheirdecisions,reflectingtheimpactof personal feelings, experience and context (March and shapira 1987).Thus, adeci-sion-maker’scognitivebiasesmediatetherelationshipbetweenthedecision-makingcon-text and internationalisation decisions via differences in perceptions of uncertainty and assessmentsofrisk.

Sometimestheexplanationforsuchdiverseperceptions,evenincommonforeignsitu-ations, lies in thebackgroundof individuals—for instance, in thetypeof internationalexperience.Individualsmayacquireinternationalexperienceinavarietyofforms—forexample,asbackpackers;asaresultofworkinginforeignlocations;orthroughforeignstudy.Theseexperiences inevitablygenerate interest inanda loweredsenseofuncer-taintyandriskaroundbusinessactivitiesinthesameforeigncountry.Migrantsnaturallybringawarenessof,andinterest,intheircountriesoforigin,aswellasknowledgeandskills,suchas therequisite language(SimmondsandSmith1968). Insomecases too,individualsmayhavebeendevelopinganewideawellinadvanceofcompanyestablish-ment,asiscommoninhightechnologysituations—‘selling’theideaindifferentinter-national contexts, seeking patent protection locally and internationally (Hewerdine and Welch 2008).Whenthesepersonseventuallyestablishacompanystructure,theymighthaveconfrontedmanyofthedemandsofinternationaloperationalready,includingsomeoftheuncertaintiesandrisks.

Thereissomecommonalityintheinternationalisationandinternationalentrepreneur-shipliteraturesontheimportanceofthepersonalexperienceandnetworksofentrepre-neursand/ordecision-makersinexplaininginternationalisation.Forboththeindividualandthefirm,pastsuccessesandfailures,problemsencountered,badexperiencesandthelikeaffecthowanynewactivityisviewed.Historymattersintheformationofpercep-tionsaboutuncertaintyandinassessmentsofrisks,soakingintohabitsandwaysofview-ingtheworld,providingtheframeofreferenceforhownewsituationsareassessedandactions adopted (Garud and rappa 1994).


Ignorance and Its dissipation

Asnotedalready,despiteseeminglyhighuncertaintyandriskysituations,somedecision-makersareabletoreadilygoaheadwithnewventures.Anexplanationforthismaybethe‘ignoranceisblissphenomenon’:thedecision-makerisabletogoaheadbecauseofigno-rance,orunawareness,ofthepotentialproblemsanddemands.Ignorancemayprovideperceptualprotectionfromtheconstrainingharshrealitiesofmanyinternationalventures.Ithasbeenarguedthatmuchorganisationalactivityisundertakeninconditionsofigno-rance(RobertsandArmitage2008).ArecentsurveyofexportersinAustraliafoundtherathersurprisingresultthat32%ofrespondentsindicatedtheydid not face any barriers in undertaking international operations (Harcourt 2006).

Inmanybornglobal situations, theactionofentrepreneurscouldbea reflectionofignoranceratherthanareadyrecognitionandacceptanceofuncertaintyandrisk.Igno-rance in this context is not necessarily the same asmisplaced confidence, although itmayleadtoit.IgnoranceissimilartoelementsoftheconceptoforganisationallearningdisordersnotedbySnyderandCummings(1998).Theyoutlinethecontributoryfactorsofblindnessandprojection:blindnessischaracterisedbynotseeingwhatisthere,generat-ingoverconfidenceorcomplacency;whileprojectioninvolvesdistortingwhatisseen,tosupportperceptions,eveninthefaceofavailabledata.

However, ignorancemaynot last into the longer term. Increased informationflow,practicalactivitiesinthepursuitofinternationalexpansion,andadverseoutcomescouldresultinquestioningofaninitiallysanguineviewofthedemandsofinternationalopera-tions, leading to the perception of greater uncertainty and of increased risk À priori, there is noreasontoexpectthatinternationalexperience,emerginginformationandtheoutcomesofcross-culturalmarketingendeavourswillnecessarilylowerperceiveduncertaintyandrisk.Theoutcomeofinternationalexperiencecouldwellbeviewedasdisturbing,anditisnotsurprisingthatsomeevidenceshowsahighdrop-outrateamongstearlyexporters(Welch andWiedersheim-Paul 1980).An exportermight engage in a range of activi-tiesthatarecapableofintroducingnewperspectives,forexample,attendingexportingseminars,conductingforeignmarketresearch,andtalkingtootherexporters.Allofthesehavethepotentialofexposingdemandsnevercontemplated.Theremaybefeelingsofinadequacyrelativetootherinternationalfirmsthatareencountered.Governmenttradepromotionfundingagenciesmaybeaccessed,andtheyarelikelytocallforclearplans,budgetsandthelike—thepreviouslysimplebecomesmorecomplicated,andassurancecandrainaway.Ignoranceisnolongerbliss.Theendresultofthisawakeningprocessmaybethatdecision-makersbecomemorecautiousinthefaceofasignificantlyheight-enedviewoftheriskstobeborneandtheuncertaintiestomanage.

As international operations develop, decision-makers become exposed to problemsaroundalackofinformation,andmisleadingorincorrectinformationaboutforeignmar-kets.Theremaybeconsiderablediscomfortifitbecomesevidentthatunreliableand/orconflictinginformationisbeingreceived(Welchetal.1996).Aswell,searchprocessesmayuncoverdisturbing informationaboutunforeseenproblemsand threats,causingare-evaluationof thefirm’spositiononsomeof its foreignmarketcommitments. Inanearlytreatmentoftheissue,Nyström(1974,p.131)warnedthat“theroleofinformationcannot—asintraditionalanalyses—berestrictedtoreducinguncertainty;insteadadded

860 P.W.Lieschetal.

informationmaywellincreaseuncertaintyinasubjectivesense”.Basedonrecentempiri-calresearch,Petersenetal.(2008) concluded that knowledge gaps could increase with internationalisation,causingperceivedmarketuncertaintytorise:thehighestknowledgegapwasfoundtobeat4.5yearsafterforeignmarketentry.

Justhowquickly ignorancedissipates,perhapsalongwitherroneousconfidence,asinternationalisation unfolds and new, disturbing information is exposed, is not clear.Research indicates thatentrepreneursdonot readilyadjust theirbeliefs in the lightofnewinformation.Inastudyof700self-employedBritons,Parker(2006,p.1)foundthatwhile entrepreneurs “exploit new information, theygivemuchgreaterweight to theirprior beliefs when forming their expectations”, although younger entrepreneurs weremoreresponsivethanolderentrepreneurstoemerginginformation.Thisresponseseemstobeconnectedtotheoverconfidencethatsomeentrepreneursdisplayinfoundingtheirfirms,ignoringobjectiveriskfactorsinnewventuresandindealingwithnewinformation(Forbes2005;Haywardetal.2006).

confusing experience

In the area of organisational learning, scholars point out that while experience tends to leadtoimprovedperformance,perceptionsoflowereduncertaintyandrisk,andelevatedconfidencelevels,areverseoutcomeispossible.Experiencecanattimesbeconfusing.LevinthalandMarch (1993,pp.96–97)argue that“learning fromexperience involvesinferencesfrominformation.Itinvolvesmemory.Itinvolvespoolingpersonalexperiencewithknowledgegainedfromtheexperiencesofothers.Thedifficultiesoflearningeffec-tively in the face of confusing experience(italicsadded)arelegendary.Evenhighlycapa-bleindividualsandorganisationsareconfusedbythedifficultiesofusingsmallsamplesofambiguousexperiencetointerpretcomplexworlds”.Itisfeasiblethatindividualswhostartedwitharelativelyclearideaofthedemandsofinternationalmarketentryfindthatastheirinternationalexperienceunfoldstheyencounterconfusionratherthanconfirma-tionandclarity.LevittandMarch(1988) use the concept of superstitious learning to refer tothemisunderstandingsthatariseasoutcomesfromorganisationalactionunfold,asthelinkbetweenactionsandoutcomesbecomedistortedfordecision-makers.

Theseconsiderationsmayhaveimportantconsequences.Basedonacasestudyinves-tigationoftheentryofaSwedishfirmintotheRussianmarket,JohansonandJohanson(2006,p.202)foundthat“discoveries”wereimportantforthe“paceanddirectionoftheentryprocess”.Theywereledtospeculatethatinturbulentenvironments,unanticipateddiscoveries,withbothpositiveandnegativeconsequences,andassociatedeffectsonthewayuncertaintyandriskareviewed,couldbedeterminingfactorsininternationalisationbehaviour.Whileexperiencehasbeenfoundtobe“…conducivetoearlyinternationali-zation…notalllearningisfunctionalorbeneficial”(Zahra2005,p.24).Ingeneral,inter-nationaloperationscanproducedisturbingoutcomesinmanyformsforinternationalisingfirms.Thereactiontonewinformationisnotjustaboutthetypeofinformationreceived.It isconnected toasetofexperiences for those involved,suchas theexportmanagerandtravellingsalesstaff,colouringandshapingthewayinformationissought,received,evaluatedandultimatelypresentedwithinthefirm(Welchetal.2007).


Inaddition,afirm’sinternationalperformanceisanimportantpartofthesettingwithinwhichnewinformationisassessed.Stronglypositiveornegativesalesoutcomescaneas-ilyoverwhelminformationevaluation,particularlywhenfailure looms.Assuch, thereisnosimpleconnectionbetweeninformationreceived,perceptionsoftheuncertaintiesrevealedandassessmentsofrisk,anddecisionsregardinginternationaloperations.Giventheroleofindividualsintheformationofafirm’suncertaintyandriskperspectivesrelat-ingtodifferentinternationalactivities,itisinevitablethatpositionscanchangerapidlyasindividualsmovearound,andinandoutoffirms,changingthebalanceofafirm’sexperi-ence,knowledgeandattitudestointernationaloperations.

coping responses

Theabilityoffirmstointernationaliseinthefaceofuncertaintyandriskappearstobepartlyexplainedbythevariouscopingmechanismstheyareabletoemploy.Forexam-ple,inastudyofthelegalrisksassociatedwithforeigndirectinvestmentinChile,Frickand Brewer (2010)foundthatcompanies’assessmentoflegalrisksdependedinpartontheirabilitytomanagethem.Studiesalsoshowabiastowardsmoreamenableforeignlocationsinforeignexpansion—amenableintermsoffactorssuchasculture,languageandpoliticalsystems,andhistorical,socialandsportinglinks(Arrow1969; Brewer 2007; dow 2000;JohansonandWiedersheim-Paul1975).Thesenseoftheunknownisdiminis-hedbyfamiliarityinforeignlocationchoice.

As well, firms are able to manipulate perceived exposure to uncertainty and riskthroughoperationmodedecisions.Forinstance,somefirmsstaywithagivenmodeinforeignmarketsforlongperiodsoftime(WelchandWelch2004).Growingcompetenceand confidence in using a givenmode facilitates a reduction in perceived uncertaintyandrisk.Acommonresponsebyfirmsinthefaceofgreateruncertaintyandhigherriskistooptforlowcommitmentforeignoperationmodes,suchasexportingviaagentsorlicensingratherthanusingforeigndirectinvestment,andinsertingswitchingoptionsinmodearrangementsthatallowrelativelytroublefreeexitorchangetoanotherformofoperations.Forexample, theoption-to-buyclause issometimesused in licensingcon-tracts(Hilletal.1990;Petersenetal.2000).Ratherthanfocusingonswitchingorexitoptions,somefirmsrelyondetailedexaminationofpotentialforeignpartners,includingthepotentialpartner’sdealingswithcustomers,suppliersandthelike.Ofcourse,otherfirms rely on the strength and extent of coverage of contractual arrangementswith apotentialforeignpartner.

Furtherapproachestoreducinguncertaintyandthemanagementofriskinclude:exten-sivemarketresearch;marketspreadingstrategy;enlistinggovernmentsupport;marketexperimentationtechniques;andthepaymentofincentives,giftsandbribes,inageneralsenseseekingto“…arrangeanegotiatedenvironment”(CyertandMarch1963,p.119).Thereisacostlimit,though,tothetypeandextentofsuchuncertaintyandriskcopingactionsthatafirmcanundertake.Penrose(1972)notedcostasaconnectinglinkbetweenuncertaintyandriskandtheabilityofafirmtoundertakeexpansion,anditcanbearguedthatthisisevenmorepertinenttointernationalexpansioninviewofthewiderangeofadditionalinformationcollection,transmissionandinterpretationcoststypicallyinvolvedin international operations (arrow 1969; carlson 1975).Forinternationalentrepreneur-

862 P.W.Lieschetal.

shipresearchers,animportantquestionraisedbycopingbehaviouriswhether theriskacceptancebehaviour seenasahallmarkof entrepreneurs ismerelya reflectionof anabilitytorecognise,accessandimplementappropriatecopingresponses.Theexistenceofbornglobalfirmsmaybeindicativeofconfidenceintheircopingresponsesratherthanasubordinateregardforuncertaintyandforrisk.

Network effects

Boththeinternationalisationandinternationalentrepreneurshipliteraturesemphasisethecontributionofindividualandfirmnetworkstofirms’internationalisationefforts(Johan-sonandVahlne1990; oviatt and Mcdougall 2005a).Forexample,astudyoftheinter-nationalisationofasampleofUKfirmsconcludedthatinter-personalrelationshipshadaprofound impacton theprocess,particularly inprovidingaccess tokeynetworks inforeignmarketsthatfacilitatedentry(HarrisandWheeler2005; ellis 2000).Amblerandstyles (2000,p.501)pointout“theapparentparadoxisthatunderconditionsofgreateruncertaintyassociatedwithaninternationalmarket(vs.thedomesticmarket),particularlyupon first entry…managers rely (more) on socially generated subjective knowledge”,emphasisingtheimportanceofexporters’networksasasourceofuncertaintyreducingknowledge.Theauthorsstressthecontrasttothedeepunderstandingthatexporterstendtopossessabouttheirdomesticmarket,inasenseleadingtoamagnificationofthefee-ling of a lack of knowledge at the international level and, therefore, accentuating the uncertaintytheyexperience.IntheChinesecontext,ithasbeenarguedthatconnectionsor relationships(guanxi)are importantasaprelude todealmaking, loweringriskandeliminatingsomeuncertainties,enablingsuchdealstoproceed(AmblerandStyles2000).ThisisinlinewithresearchontheexportbehaviourofItalianfirmsandtheinfluenceofthecollectivecontextoftheindustrialdistrictswithinwhichtheyarelocated.Bonaccorsi(1992,p.629)found that“in industrialdistricts theperceptionofexport riskbysmallentrepreneursisgreatlyreducedbecausefirst-handinformationisavailableaboutoppor-tunitiesinforeignmarkets…Decision-makersstronglypreferpersonalanddirectsourcesofinformation.Therearepersonalandfriendlyrelationshipsamongentrepreneurs”.

Networks and relationships, particularly trusting ones, are an important antidote todisquietinguncertaintyandrisk,a‘place’togotohelpsolveproblems;toclarifyfuturepaths; to gain knowledge; to access new networks in other countries, and to generate assuranceaboutthebehaviourofconnectedparties.Theyareanimportantarena,there-fore,ofmanagerialactionasinternationalisationunfoldsforafirm.Theyaffectandareaffected by international activity and outcomes, interacting with uncertainty and risk(Welch and Welch 1996).Networkusecanturnaseeminglyhighlyuncertainandriskysituation,suchasforeignmarketentry,intoarelativelycomfortablestep.Butnetworksdonotalwaysdeliverpositive,comfortingoutcomesinsupportofinternationalisation.Theycanbeagentsofdisquietinginformation,therebyheighteningperceiveduncertaintyandbringingforthmorerisk.Firmscanbeintroducedtonetworksinforeignmarketsthatturnouttobeunhelpful,evenexploitative,againaccentuatinguncertaintyandheighten-ingrisk(Welchetal.1996).

Organisationalresearchersalsohavebeenconcernedwiththelinkbetweenriskandorganisationalaction,notingthatinthefaceofrisk,asaferesponseisisomorphicbehav-


iour:followingtheactionsandresponsesofotherkeyactors.Todootherwisethreatensthe legitimacy of action taken (George et al.2006).Movement into a foreignmarketalongsideotherfirmsfromthesamelocalenvironmentprovidesablanketoflegitimacythatcanamelioraterisksanduncertainties,asinthecollectivebehaviourofsomeItaliansMes (Bonaccorsi 1992).Thenetworkcontextisimportantasasettingwithinwhichatti-tudestouncertaintyandriskinforeignoperations,bothpositiveandnegative,arelearntandsubjecttotheinfluenceofothers.However,embeddednessinvolvesmorethanthenetworkconnectionsofafirm.Itincludesabroaderarrayofindividualsandorganisationssuchascompetitors,otherreferentialfirmsandgovernmentbodies.Well-publicisedinter-nationalforaysofhighlyregardedfirms,thoughunconnected,canbecomeamodelforfollowerfirms,generatingperceptionsoflesseruncertaintyandloweredrisk.Imitationor‘fashion’effectsinforeigndirectinvestmentactivityhavelongbeennoted(Knicker-bocker1973).Chanetal.(2006)arguethatfirmscangainapparentlegitimacyfortheiractionsbyfollowingthebehaviourofothersinsituationssuchasforeignmarketentry.

Risk Accommodation, Uncertainty Acclimatisation and Opportunity Seeking

Ourreviewhasshownthatevenwithentrepreneurialconfidenceandgrowinginterna-tional experience, perceptions of uncertainty and of risk can rise, with the potential to constrainsubsequentinternationalcommitmentsandinvolvement.Thebornglobalent-repreneurmightbetransformedintoacautiousglobalplayer,evenengaginginpartialde-internationalisation (Benito and Welch 1997).However,researchinthefieldofentre-preneurshipindicatesthatmanyentrepreneursarepreparedtodiscountemerginginfor-mationthatrunscountertotheirpriorbeliefs,soitisdifficulttoknowwhenandinwhatformanewinternationalpathmightemerge(GarudandRappa1994; Parker 2006).Whilenegativeoutcomesfromafirm’sinternationalexperiencerequireattentionatsomestage,thenatureofthatresponsecanbehighlyvariable.Long-standingmanagementresearchhas noted the tendency for highly committedmanagers tomaintain commitment to agivenstrategy,andevenescalatingcommitment,inthefaceofnegativeresults,allocatingincreased resources and effort to ‘ensure’ ultimate successof the chosen internationalpath (staw 1976; Benito and Welch 1997).

Arangeofinteractiveprocessesmaybeatworkinmoderatingtheeffectsofchangesin perceived uncertainty and risk on internationalisation, and vice versa, so that a consist-entpathofeffectscannotbeassumed.Differencesamongindividualsastohowriskisviewedanduncertaintyunderstoodensurewidedifferencesinreactiontocommonsitua-tions.Thebackgrounds,attitudes,knowledgeandskillsofmanagersarecritical.Itisnotsurprisingtofindmanycasesofmanagementchangeprecipitatinginternationalmarketentry,accelerationof internationaldevelopment,orde-internationalisation(BenitoandWelch 1997).Nevertheless, some consistencies in uncertainty perceptions and assess-mentsofriskbyfirmsandindividualsinthefaceofspecificexternalcircumstancescanbeexpected.Forexample,volatileforeignenvironments,withrapidchangeanddisrup-tive,intrusivegovernmentaction,tendtobeseenasheighteninguncertaintyandintro-ducingmorerisksinanegativeway,discouraginginvolvement.

864 P.W.Lieschetal.

Entrepreneursandmanagersseemtopractisewhatwetermuncertainty acclimatisa-tion and risk accommodation.Uncertaintyacclimatisationreferstotheadaptationsandresponses,psychologicalandmaterial,thatindividualentrepreneursandfirmsmaketotheevolvingperceiveduncertaintiesofforeignoperations,enablingthemtooperatewithintheconstrainingeffectsofdoubtfulnessandapprehensionthatensuefromthesenseoftheunknown.Uncertaintyacclimatisation,exercisedasmanagerial judgement, isevidenceoftrueKnight(1921)enterprise.Internationalisationresearchindicatesthat,overtime,learningcanbeapowerfulcontributortotheuncertaintyacclimatisationprocess,whiletheability todealwith risk facilitatesuncertaintycoping.Riskaccommodation,asanoverarching term, includes riskmanagement, risk spreading and other copingmecha-nisms, representingways inwhich firms and individual entrepreneurs dealwith theirconcernsaboutperceivedrisk,howeversubstantial,enabling themtocommit to inter-nationalisationandtoprogress international involvement.Inastudyofwomen-ownedbusinessesthatengageinexporting,theparticipantsdescribedthemselvesas‘riskaverse’yettheydidnotregardexportingas‘inherentlyrisky’, ineffectequatingriskaversionwithriskmanagement(Welchetal.2008).Althoughwearguethatuncertaintyandriskareseparateconcepts,theyarenotunconnectedintheireffects.

Whileopportunityseekinghascometobestressedasadefiningfeatureanddriverofinternational expansion (oviatt and Mcdougall 2005a),theformthatittakesisaffectedbytheuncertaintyacclimatisationandriskaccommodationresponsesofentrepreneurs. In astudyofhighperformingsmallerandmedium-sizedAustralianfirmsthathadinterna-tionalised early after inception it was found that their approach to international develop-mentwasanythingbutcavalierandrisk-seeking(Lieschetal.2007).Themanagersofthesefirmswerecautiouslypositioningtheirenterprisesinworldmarketsknowingwellthatoneill-consideredmovecouldbefatal,withlittleinreservetosustaintheenterprise.Themanagers viewed the international business environment as one characterised bymanyuncertainties,someofwhichpresentedrisksthatcouldbemitigated.Theuncertain-tieslargelyremained.

TheCEOof theAustralian agri-biofirmTechnico claimed thatwhile internationalbusinesshasmanyuncertainties,thekeytosuccessistobeabletomitigatetherisksbyunderstandinghowyou“…make investmentswithout losingyour shirt…don’tmixfinancialandmarketrisk”(Lieschetal.2007,p.24).TechnicoenteredtheChinamar-ket very early in its inception with its innovative seed potatoes through a wholly-owned facility,butonlyaftersigningacontractwithPepsiCoFritolaytotakeaverylargeshareofitsseedpotatoesforseveralyears.Byguaranteeingitsmarket,Technicoremovedsub-stantialmarketrisk.Inaddition,byestablishingawholly-ownedfacility,itlessenedtheriskofdissipationofitsintellectualproperty.WhileuncertaintiesofoperatinginChinaremained, themarketwasseen torepresentanattractiveandenduringopportunityforTechnicoasChinawasamajorconsumerofpotatoeswithappreciablegrowthprospectsasitadoptedmoreWesterninfluences.Thepursuitofmarketopportunitiesinanuncer-taincontextbyTechnicocannotbesimplyviewedasanexerciseinrisktoleranceorriskseeking, althoughmitigationof someof its perceived risks—accommodation—helpedTechnicoinacclimatisingtotheuncertaintiesoftheChinesecontext.Inanoverallsense,it is this interaction of uncertainty and risk, as they coevolve, that pervades how the inter-nationalbusinessenvironmentisviewedbyentrepreneursandmanagers.


A Coevolutionary Framework

We have shown that uncertainty and risk coevolve with one another, and with other internationalisationfactors—suchasresourcesaccessibletothefirm,includingevolvingnetworks; the domestic and international context; andmanagerial oversight ormana-gerial agency, infusingaspects suchas ignorance, confusionandbiases intodecision-making(MeyerandGelbuda2006;MadhokandLiu2006).Thesevariousfactorsaffectthepace,directionandcontentofinternationalisation,asdepictedinFig.1.Ofcourse,influencealsoflowsinthereversedirection:thecourseofinternationalisationanditsout-comesinfluencefactorssuchastheavailabilityofresources,andmanagers’perceptionsofuncertaintyand theiraccommodationof therisksable tobe identified. Importantly,weconjecture,asdidDowneyandSlocum(1975,p.576)longago,thatunderstandingfully the relationship between the environment, the individualsmaking decisions andtheir perceptionsof uncertainty, and the influence these antecedentshaveonoutcomevariables,willnotbeuncovereduntil“uncertaintyceasestobeconsideredasanenviron-mentalattribute”.Assuch,wearguethatperceptionsoftheuncertaintiesofoperatingininternationalcontextsaredeterminedbymanagerialoversightandtheresourcesavailabletomanagersastheyoperateinaparticularcontext,andthattheseperceptionsofuncer-taintiesinfluenceassessmentsoftherisksofpursuingaparticularcourseofaction.Bothuncertaintyacclimatisationandriskaccommodationcoevolvetoseparatelyandjointlyinfluenceinternationalisationdecisionsthatresultininternationalcommitmentsandacti-vitiesthroughopportunityexploitation.ManagerialoversightinFig.1 issimilartotheconceptofmanagerialintentionalityinthecoevolutionaryframeworkusedbyLewinetal.(2009)inexaminingtheglobalriseofoffshoringininnovationprojects,althoughwestressoversightasincludingdirectionandcontrol.

The coevolutionary influences noted are in linewith coevolution theorywhichhasbeenappliedrecentlytotheinternationalfirmbyMadhokandLiu(2006)andPajunenand Maunula (2008).Coevolutiontheoryembracesfivepropertieswhichareapplicable

Fig. 1: Uncertaintyandrisk—Coevolutionininternationalisation

Resources(knowledge, skills,networks, etc)

Context(domestic,

international;e.g., other firms’

actions)

Managerialoversight

Internationalisation/de-internationalisation:international activitiesand commitments -opportunity exploitation &coping responses

Uncertainty(acclimatisation)

Risk(accommodation)

866 P.W.Lieschetal.

tothewayuncertaintyacclimatisationandriskaccommodationevolveinfirminterna-tionalexpansionprocesses.Theseproperties,identifiedbyLewinandVolberda(1999), aremultilevelness/embeddedness,multidirectionalcausalities,nonlinearity,positivefeed-backandpath/historydependence.First,intheinternationalisationprocess,theresourcesof thefirm, thedomesticand internationalmacro-contextsof thefirm’sactivities,andmanagerialoversightwillinteractwithandinfluenceperceptionsofuncertaintyandsub-sequentriskassessmentsindecidingonlevelsofinternationalcommitment(seeFig.1).The individualmanager, thefirm,and thefirmwithin themarket,coevolveasentitiesthroughthismultilevelorder.Microevolutionemergeswithinthefirm,withthemanagerlearningfromthefirm’scompetitiveenvironment,andadapting,asthefirmabutsotherfirmswithinanested(GarudandVandeVen1992)macroevolutionofdynamicswithinthedomesticandinternationalmarketplaces(McKelvey1997).Intheinternationalisationprocess, there is evidence of multilevelness and embeddedness as part of a coevolutionary process.

Second,internationalisationdoesnotsimplyhappenforafirm.Processesareorches-tratedbymanagersinresponsetoconstantlychangingdomesticandinternationalcon-texts,withdifferingtypesandlevelsofriskassociatedwiththemultitudeofactivitiesnecessarytotakeafirmfromlocalmarketsintotheinternationalcontext.Theuncertain-tiesconfrontedaremany,andtheyareconfrontedvariouslybydifferentfirms,andbydif-ferentmanagerswithintheonefirm,astheyacclimatisetotheseuncertainties.Notionsofdependentandindependentvariablesinthesesystemscanbeproblematic,andcausality,particularlydirectcausality,canbemoreorlessmeaningful(LewinandVolberda1999) dependingonhowpartial,orcomplete,oneconsiderstheanalyticalframeofreference.Theinternationalisationprocessisaprocessofmanyactivities,eachaprocessinitself,all with multidirectional causalities, the second property of coevolutionary processes (LewinandVolberda1999).

Alignedwith this endogeneity in suchcomplex systems, andwithmultiple entitiesat different levels of the organisation interacting in diverse ways, expectations of direct, linearrelationshipsbetweenassociatedvariablesmustbetempered,evenputaside.Asanderson (1999)andothershaveobserved,analyticaleleganceandresolutionofdepend-encieswithin these systems,hasdemanded that nonlinearities in these interactionsbeassumedaway.Managerialacclimatisationtotheuncertaintiesandaccommodationoftherisksoftheinternationalisationprocessoftenproduceindeterminatepathsofinternation-alisationcharacterisedbynonlinearitiesintherelationshipsamonginteractingvariables,LewinandVolberda’s(1999)thirdproperty.

Whiletheseindeterminaciesandidiosyncraciespervadetheinternationalisationproc-ess,madeevenmoreunpredictablebyinteractionsacrossmultiplelevelsoforganisation,managersandfirmsnecessarilyneedtorespondandadapttoenvironmentalinfluences.There is causality and intentionality, positive feedbackisobserved,andlearningoccurs.Managersestablishanddevelopinternationalexperiencethroughactiveinvolvementinforeignmarkets,increasingcommitmentandnetworkdevelopment(JohansonandVahlne1977, 1990, 2006).Theyorchestratetheirfirmsthroughtheinternationalisationprocesswithaneyetothefuture,whilebeingresponsivetothepast,includingdevelopedperspec-tivesonassociateduncertaintiesandrisks(Benitoetal.2009).Thus,path dependencies


areobserved;thehistoriesofmanagersandthefirmmatter,inlinewiththefifthpropertyofcoevolutionarycontexts(LewinandVolberda1999).

Coevolutiontheory,therefore,appearstobeanappropriateframeworkfortheconcep-tualdevelopmentofuncertaintyandriskinthefieldsoffirminternationalisationandofinternationalentrepreneurship.Theconceptsofuncertaintyacclimatisationandof riskaccommodationfitwellwithinthecoevolutionframework,nestedastheyarewithinabroadsetofsimilarlyevolvingfactors.Likewise,theideaofmultidirectioncausalityasoneofthefivepropertiesfitswell,givenourstressoninteractionandinfluencebetweenuncertaintyacclimatisationandriskaccommodation.Thisisanimportantstepinthecon-ceptualisationofuncertaintyandofriskandtheirbearingoninternationalactivity.Theliteraturerevealslittleattempttoexploretheseinteractionsbetweenuncertaintyandrisk.Virtuous(positive)andvicious(negative)circlesofinteractionsarefeasible,withflow-oneffects for internationaloperations.Viciousandvirtuouscirclesof interactionscanbe viewed as the two extremes,with a range of intermediate positions. For example,therecouldbepositiveriskalleviatingdevelopmentsasaresultofanewoperationinaparticularforeignmarket,suchastheearlypositiveeffectsofpromisingsales,butcoun-terbalancedbynegativeexposuretopreviouslyunforeseenthreatsintheforeignmarketthataccentuateuncertainties,perhapsintheformofnegativegovernmentactionsand/ormacroeconomicdevelopments.

Acrucialpartofthecoevolutionframework,weargue,istheresponsivenessofpercep-tionsofuncertaintyandassessmentsofriskandotherfactorstotheprocessesofmana-geriallyguidedselectionandadaptation.Forexample,problemsinonecountrycontextmay cause a re-evaluation toward perceptions of greater andmorewidespread uncer-taintyandthushigherrisktobeaccommodated,leadingtoadown-gradingofactivitiesandeventualwithdrawal.Nevertheless,thetranslationofcontext-effectsintoactionandadaptationbyfirmsisnotstraightforward,asWeick(1979,p.125)sometimeagonoted:“Decision-makers in organizations intervene between the environment and its effectsinsidetheorganization,whichmeansthatselectioncriteriabecomelodgedmoreinthedecision-makersthanintheenvironment”.Becauseoftheinterveningroleofindividualperceptions,DowneyandSlocum(1975,p.576)haveevensuggestedthat“environmen-taluncertaintycanbeconsideredasacontradictionintermsandthusmisleading”.Thus,managerial oversight (seeFig.1) hasbeen included asoneof thekeydrivers of howuncertaintyisperceived,andacteduponthroughriskassessments.

The internationalisationprocessof thefirm isorchestratedbymanagers inaworldinvolvingmorethandeterministic(Williamson1985)andtrueKnight(1921)uncertainty.It is onewhere there are both separate and joint effects of uncertainties and of risks(Alessandrietal.2004),andwheretheseeffectschangeovertimeastheinternationalisa-tionprocessunfolds.Thisisaworldwhereconfusingexperiences,ignoranceandotherseeminglyirrationalbehavioursintercedeinwhathasgenerallybeentakentobeawell-determinedandorderlyprocess,wheremanagerssimply‘manageriskanduncertainty’,andevenmoreinaccurately,seekoutrisksas‘proactiverisk-seekers’inentrepreneurialexploits.

868 P.W.Lieschetal.

Concluding Remarks and Research Implications

Almostfourdecadesago,inearlyresearchoninternationalisation,itwasnotedthatwhileuncertaintywasimportantinaninternationalcontext,ithad,uptothattime,beentreatedinasuperficialmanner(Wiedersheim-Paul1972).Ourreviewof thesubsequent inter-nationalisationandinternationalentrepreneurshipliteraturesshowssimilarlythatuncer-tainty and risk and their effectshavebeen treated in a relatively simplistic fashion todate,withlittlemeaningfuldifferentiationbetweentheseconcepts.Ininternationalisationstudies,thefocustendstobeontheriskaversecharacteristicsoffirms,theunitofana-lysis,whereasininternationalentrepreneurshipthereisagreateremphasisonindividualentrepreneurs’risktolerance,evenrisk-seeking,allowinglessconstrainedresponsestoemergentinternationalopportunities.

Thereseemstobeanunderlying,unwrittenassumptionthatiffirmshavebeenabletoachievesuccessfulinternationalisationthenuncertaintyandriskmusthavebeendeemedsufficiently low, or immaterial, to have allowed international involvement to proceed.However,ourreviewshowsthatobjectiveactionisnotnecessarilyagoodguidetothewaythatuncertaintyandriskareregarded,norisitagoodguidetotheirinfluenceupononeanother.Firminternationalisationmaybedrivenbyanarrayoffactorsanditisdif-ficulttodeterminewhatpartriskandwhatpartuncertaintyplayinthecomingtogetherofdifferentinfluences—particularlyinrelationshiptothepersonalcharacteristicsofdeci-sion-makers and entrepreneurs. Personal experience, including different types of pastinternationalinvolvement,canprepareindividualsinvariouswaysfortheuncertaintiesandtheriskslikelytobefacedasfirmsseektointernationalise.

Attheleast,itisclearthatthereisnotaconsistentrelationshipbetweenuncertainty,riskandinternationalisation:perceptionsofuncertaintyandassessmentsofrisksmayriseorfallfromastartingposition,contributingtoachangeindirectionandpaceofinter-nationalexpansion,helpingtoensurethevariedinternationalisationbehaviours,includ-ingpartialorfullde-internationalisation,noted inemergingresearch.Amorenuancedperspectiveon thenatureof,andmovement in,uncertaintyperceptions in response toongoing international operations is likely to provide greater clarity in themeaningofentrepreneurshipingeneral,butmoreparticularlyintherelativelynewfieldofinterna-tionalentrepreneurshipwhereadynamicperspectiveislacking.

Ofnolesserimportanceisamorenuancedunderstandingofhowentrepreneursandmanagersapproachrisk,whethertheydifferentiateitfromuncertainty,andwhatheuristicstheyemploytoaccommodateitintheirdecisionmaking.Howtheyacclimatisetouncer-taintyseemsfundamental.Forexample,bornglobalandINVstudiesneedtobeplacedinthelongitudinalcontextoffirms’internationalisationinordertoassesswhetherthereis a continuing difference from other firms’ internationalisation patterns, andwhetherdifferencesinriskaccommodation,andacclimatisationtouncertainty,canexplainanyvarianceinthedifferentinternationalisationpatternsobserved.Similarly,adeterminationofwhether learningaffects the individual’sability tomakeastute riskassessments, toaccommodaterisk,mightassistinexplainingsuccessfulinternationalexpansiontrajecto-ries,andalsoseeminglyidiosyncraticinternationalisationbehaviours.

Internationalisationresearchhaslongtaken-for-grantedthatfirmsfaceuncertaintiesinoperatinginforeignlocations,butthatallinternationalisingfirmsconfronttheseuncer-


taintiessimilarly,andthatmanagersadoptheuristicsthatbecomeindustryrecipes,suchasenteringmarkets thatarepsychicallyclosefirst.Likewise, lowcommitmentmodesareadoptedfirst,thatalackofforeignmarketinformationorknowledgeofthepoliticalenvironmentinthatlocationmotivatestheappointmentofalocalsalesagentortheadop-tionofajointventurewithalocalpartner,andthelike.However,notallfirmsinthesameindustrybehaveaccordingly—thereare inconsistentresultsacrossempiricalstudies.Itmightwellbethatsomeofthevariationinbehavioursobservedinthesestudiesmighthave been accounted for by including, andmore fully and accurately specifying, riskaccommodationanduncertaintyacclimatisationvariablesinthemodelsestimated.

Weconjecturethatresearchersinthisfieldmightimprovetheexplanatorypoweroftheirmodelsbyincludingconsiderationofthekeymediatingeffectsofuncertaintyaccli-matisationandriskaccommodationasitisgenerallyacceptedthatuncertaintyandriskare fundamental to the processes of internationalisation—they should not be assumedaway.Acceptingthatthesearetwodifferentbutinter-relatedconstructs,andthatattemptshadbeenmadetomeasureaspectsofthem(seeDuncan1972;DowneyandSlocum1975) at about the same time asfirm internationalisation researchwas emerging,will hope-fully spawnfurtheroperationalisationand refinementof theirmeasurement.Likewise,ininternationalentrepreneurshipstudies,whereconsiderationofriskhasbeendominantindefinitionalgymnasticsasproponentshavestruggledtocharacterisethisnewerfield,morerefineddiscriminationthatincludesuncertainty,notasanenvironmentalattribute,butasaperceptualconcept(DowneyandSlocum1975)mightassistinitsframingintoempiricalresearchratherthanitsconvenientomission.Reconsiderationofthenatureandroleofuncertainty,anditscleardifferentiationfromrisk,mightevenassistindefinitionalclarityforthisemergingfield.

Inconcluding,wehavearguedforamorepluralistictreatmentofuncertaintyandofrisk, along with their differentiation, in order to advance our understanding of the way theybothaffectthecourseofinternationalisation.Thismayrequirenotjustdetailedcasestudyresearchonfirmsandindividualsbutperhapsanin-processmethodologythatena-blesresearcherstoexposethesubtletiesofmeaning,interactionandchangeeffectsthatthesetwomostdifficultofconceptsinvolvedintheinternationalisationprocessspawn.Assuggestedhere,coevolutiontheorymayprovideanappropriatefoundationforunder-standing thedynamicsandco-determinationofuncertaintyacclimatisationandof riskaccommodation,enablingtheirseparateandjointlyconfoundingeffectstoberevealedinbothfirminternationalisationandinternationalentrepreneurshipstudies.Attheveryleast,weofferadynamicexpressionofthelong-standingstaticnotionsofuncertaintyandriskthroughouruncertaintyacclimatisationandriskaccommodationconcepts.

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