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Theory Development: Appropriate
and Novel Theories in International
Entrepreneurship research
Gary Knight
Professor of Global Management
Helen Jackson Chair in International Management
Atkinson Graduate School of Management
Willamette University
Salem and Portland, Oregon, USA
1
2
International Entrepreneurship (IE)
• Associated with globalization and advanced
technologies
• Emphasizes entrepreneurial internationalization of
young or small firms, or of ventures in established
firms.
• Young and small firms face limited resources.
• Internationalization provides various advantages,
but such firms typically face three liabilities:
newness, size, and foreignness.
• Represents a shift in the IB literature, which long
was dominated by FDI and large MNEs.
3
Milestones of IE
1998: McGill International Entrepreneurship Conference
launched (Hamid Etemad and Richard Wright)
2000: AMJ Special Issue on IE (there have been numerous
other special journal issues since)
2003: Journal of International Entrepreneurship launched
2004: Oviatt and McDougall won the JIBS Decade Award
for 1994 article on ‘‘international new ventures’’
2010: Academy of International Business add the track –
SMEs, Entrepreneurship, and Born Global – to their annual
conference. It has become one of the leading tracks.
2014: SDU Odense International Entrepreneurship
conference/workshop launched
4
Major Topic Areas to Date
• Early, exploratory research (e.g., Hedlund & Kverneland 1985; Ganitsky 1989;
McDougall 1989; Rennie 1993; Oviatt & McDougall
1994; Knight & Cavusgil 1996)
• General characteristics of INVs and Born
Globals (e.g., Fan & Phan 2007; Fernhaber,
McDougall, & Oviatt, 2007; Freeman & Cavusgil
2007; Knight 2000; Luostarinen & Gabrielsson 2006;
Madsen & Servais 1997; Rialp, Rialp, & Knight 2005;
Servais, Zucchella, & Palamara 2006; Zhou, Barnes,
& Lu, 2010)
5
Major Topic Areas to Date, cont’d
• Early internationalization
(e.g., McDougall, Oviatt, & Shrader 2003; Moen &
Servais 2002; Bell, McNaughton, Young, & Crick
2003; Hashai, N. 2011 McNaughton 2003; Chetty
& Campbell-Hunt 2004; Mathews & Zander 2007;
Fernhaber, McDougall, & Oviatt 2007; Zhou 2007;
Kudina, Yip, & Barkema 2008)
• Role of technology in IE (e.g., Loane 2006; Servais, Madsen, & Rasmussen
2007; Zhang & Tansuhaj 2007)
6
Major Topic Areas to Date, cont’d
• Role of Networks in IE (e.g., Chetty & Campbell-Hunt 2003; Coviello 2006;
Coviello & Cox 2006; Knight & Cavusgil 1996;
Schwens & Kabst 2009; Freeman, Hutchings, Lazaris,
& Zyngier 2010; Sharma & Blomstermo 2003; Yu,
Gilbert, & Oviatt 2011; Zhou, Wu, & Luo 2007)
• International Entrepreneurial Orientation (e.g., Acedo & Jones 2007; Jones & Coviello 2005;
Kuivalainen, Sundqvist, & Servais 2007; Mathews &
Zander 2007; Weerawardena, Mort, Liesch, & Knight
2007; Zhou 2007)
7
Major Topic Areas to Date, cont’d
• Role of strategy in IE (e.g., Knight, Madsen, & Servais 2004; Knight &
Cavusgil 2005; Knight & Kim, 2009; Freeman,
Edwards, & Schroder 2006; Laanti, Gabrielsson, &
Gabrielsson 2007; Mudambi & Zahra 2007;
Kuivalainen, Sundqvist, & Servais 2007; Aspelund,
Madsen, & Moen 2007)
• International entrepreneurship (e.g., Cavusgil & Knight 2009; Coviello & Jones 2004;
Danis, Kiss, & Cavusgil 2012; Jones & Coviello 2005;
Jones, Coviello, & Tang 2011; McDougall & Oviatt
2000).
8
• Unify and improve heterogeneous conceptual and
operational definitions.
• Employ better formulated and integrated theoretical
frameworks.
• Expand the base of explanatory perspectives, e.g.,
beyond internationalization models. Draw on
theories and frameworks from various domains,
including nonbusiness disciplines.
• Reconcile the fact that some aspects of IE contrast
with traditional views of internationalization.
• Integrate entrepreneurship and international
business, and span theoretical disciplines to create
new perspectives.
Research Needs
10
• A science is: -- a classified and systematized body of
knowledge;
-- organized around central theories, theoretical
perspectives, and numerous general principles
-- knowledge that permits the production and
(often) the control of future events.
• Explanation of phenomena is the essential role of
science.
• While business scholarship does not necessarily
constitute a “science”, scholars aim to follow
scientific approaches in business research.
What is Science?
11
• Science aims to develop theories and laws to
explain, predict, understand, and control
phenomena.
• Scholars generally believe that scientific
explanations should explain why, and often, what
questions. E.g., why did phenomenon X occur?
What factors give rise to phenomenon X? What
causal and other factors explain phenomenon X?
• Many explanations do not rise to the level of
theories. These can be called “models,” “views,”
or “theoretical perspectives”.
What is Science, cont’d
12
1. Development of new theories
2. Falsification of existing theories
3. Expansion of a theory to include new phenomena
4. Reduction of specific theories into more general
theories (“induction”)
• In general, new theories and explanations are
built on existing theories and explanations
How is Science Extended?
[Sources: Robert D. Buzzell, 1963, "Is Marketing a Science?" Harvard Business Review, 41
(January-February), pp. 32-40; Carl Hempel, 1970, Aspects of Scientific Explanation, New York:
Free Press; Shelby Hunt, 1991, Modern Marketing Theory, Cincinatti, OH: South-Western
Publishing; Ernest Nagel, 1979, The Structure of Science, Indianapolis, IN: Hackett Publishing]
13
• A theory is a systematically related set of
statements, including some lawlike generalizations,
that are empirically testable.
• A fully formalized theory consists of a formal
language system that has been axiomatized and
completely interpreted.
• Formal language systems contain
(1) elements,
(2) formalization rules, and
(3) a set of definitions,
• All three items above must be rigorously specified.
Theory: Background
14
• An axiomatic formal language system includes a set
of transformation rules showing how some
statements can be derived from other statements
and a set of fundamental statements that are
(a) free from contradiction,
(b) independent,
(c) sufficient, and
(d) necessary.
• Lawlike generalizations are statements that give
theories their explanatory and predictive power.
Theory, cont’d
Sources: Shelby Hunt, 1991, Modern Marketing Theory, Cincinatti, OH: South-Western
Publishing; Karl Popper, 1980, The Logic of Scientific Discovery, New York: Routledge
15
1. What: Which factors (variables, constructs, concepts)
should be logically included in the explanation of the
phenomenon of interest? Emphasize both
comprehensiveness and parsimony.
2. How: How are the factors specified above relate
to one another? Typically visualized via a path
diagram, in which two factors connected by a line
usually represent a hypothesis.
3. Why: What are the explanations (theories) from
economics, sociology, psychology, and other fields
that justify the factors and associated relationships?
I.e., hypotheses need to be rigorously justified.
4. Who, Where, When (“context”): These conditions
place limitations on the hypotheses and propositions
generated from a theoretical model.
A theory has four main elements:
16
• In developing a theory, logic replaces data as the
basis for evaluation.
• Good academic research aims to create new
knowledge or extend existing knowledge, not
simply replicate it.
• A statement such as "A causes B" can be tested
without understanding the Whys underlying the
model. However, this leads to data-driven
research rather than theory-driven research.
• What and How describe (descriptive research);
only Why explains (causal research).
Theory, cont’d
17
• Scholars propose a
theory (or an
explanation) to explain
a phenomenon.
• The theory gives rise to
hypotheses.
• Hypotheses are
subjected to rigorous
empirical tests, which
either support or ‘falsify’
the theory.
Theory: Background
Source: Karl Popper, 1980, The Logic of Scientific Discovery, New York: Routledge
Theory
Bridge Laws
or
Guiding Hypotheses
Research Hypotheses
Test
Analysis of
Results
CO
NF
IRM
DIS
CO
NF
IRM
19
Elements of Empirical Research
Source: Edmondson, A.C. & McManus, S.E. 2007. Methodological Fit in Management Field
Research. Academy of Management Review, 32(4), 1155-1179.
20
Methodological Fit: Mean Tendency
Source: Edmondson, A.C. & McManus, S.E. 2007. Methodological Fit in Management Field
Research. Academy of Management Review, 32(4), 1155-1179.
Exploratory
Confirmatory
21
Conceptual Framework
in International Entrepreneurship Environment / Context
Domestic market
-- Level of economic development
-- Risk / uncertainty
-- Size and growth rate
-- Economic conditions / dynamism
-- Institutions / political / legal
-- Culture / psychic distance
-- Presence of opportunities
-- Competitive intensity
-- Other characteristics
General environment
-- Globalization
-- Technology
-- Other characteristics
Foreign market
-- Level of economic development
-- Risk / uncertainty
-- Size and growth rate
-- Economic conditions / dynamism
-- Institutions / political / legal
-- Culture / psychic distance
-- Presence of opportunities
-- Competitive intensity
-- Other characteristics
Resources, Capabilities and Strategies of Born Global Firms
Resources Capabilities / Dynamic Capabilities Strategies
-- Monopolistic advantages
-- Knowledge / market knowledge
-- Capital
-- Top management characteristics
-- Human resources
-- Legitimacy
-- Social capital
-- Networks / alliances
-- Networking / partnering
-- Products
-- Digital technologies
-- International experience
-- Channel effectiveness
-- Government support
-- Others
-- Managerial vision / commitment
-- Managerial competence
-- Knowledge creation competence
-- Learning orientation / capability
-- Innovativeness / technological competence
-- Absorptive capacity
-- International growth orientation
-- International business competence
-- International entrepreneurial orientation
-- Proactiveness and aggressiveness
-- Risk-taking proclivity or tolerance
-- Flexibility / adaptability
-- Market orientation
-- Marketing competence
-- Networking / collaboration competence
-- Internal processes
-- Others
-- Internationalization / entry strategies
-- R&D intensity
-- Strategic orientation
-- Generic strategies
-- Niche market strategy
-- Integration / responsiveness
-- First mover / pioneer
-- Follower / imitation
-- Product standardization
-- Marketing communications
-- Distribution
-- Service / support
-- Digitalization
-- Servitization
-- Others
Firm
Performance
Firm Characteristics General Phenomena
-- Industry
-- Size
-- Structure
-- Age
-- Age at internationalization
-- Performance objectives
-- Others
-- Early and rapid internationalization
-- Liabilities of newness and foreignness
-- Opportunity creation
-- Opportunities discovery
-- Opportunities exploitation
-- Social responsibility / sustainability
-- Others
22
23
Major Theoretical Perspectives
International Business
• Internationalization Views
• International Entrepreneurship View
23
24
Theoretical Perspectives, Cont’d
Firm or Management Level
• Life-Cycle Theory
• Resource-Based View
• Knowledge-Based View of the Firm
• (Dynamic) Capabilities View
• Monopolistic Advantage Theory
• Strategic Choice Theory
• Generic Strategies Model
• Absorptive Capacity
• Effectuation
24
25
Theoretical Perspectives, Cont’d
Firm Ancillary Level
• Agency Theory
• Network Theory
• Social Capital Theory
25
26
Theoretical Perspectives, Cont’d
Market Level
• Stakeholder Theory
• Legitimacy Theory
• Service- Dominant Logic
• Perspectives on Risk and Uncertainty
• Institutional Theory
• Culture Explanations / Hofstede Typology
26
27
Theoretical Perspectives, Cont’d
• Other perspectives from international business
• Other perspectives from entrepreneurship
27
28
29
• Uppsala Model
• Stages Model
• Internalization Theory
• Eclectic Paradigm
• FDI Theory
• Integration / Responsiveness Model
Internationalization Views
30
• Entrepreneurship is conceptualized in terms of
risk attitude, innovativeness, and proactiveness
• International entrepreneurship: Combination of risk-
seeking, innovative, and proactive behavior that
crosses national borders and aims to create value in
organizations
• Applies to born globals and international new
ventures
• Theories and models from international business
and entrepreneurship provide useful perspectives (e.g., Dana, Etemad & Wright 1999; McDougall & Oviatt,
2000; Zahra & George, 2002)
International Entrepreneurship View
31
32
• Firms encounter similar types of challenges at
specific stages in their development.
• Many challenges arise as a function of firm age,
size, and volume of activities.
• Where challenges
are predictable,
management can
anticipate and
devise strategies
to address them (e.g., Adizes, 1079; Churchill
& Lewis, 1983; Galbraith, 1982;
Greiner, 1972; Kazanjian, 1988)
Life-Cycle Theory
Source: Ichak Adizes
33
Infancy. Small size; young; inexperienced; informal
structure; risky decision-making; fewer resources and
capabilities; higher cost structure; innovative and
entrepreneurial; flexible; focus and differentiation strategies
Adolescence. Medium size; more formalized structure;
more formalized decision-making; less risky decision-
making; lower cost structure; more resources and
capabilities; less focus/differentiation, more cost leadership
Maturity. Large size; formal and bureaucratic structure;
formalized decision-making; abundant resources and
capabilities; low cost structure; less flexible and
entrepreneurial; strategic momentum; entrenched methods
and practices
Firm Characteristics at Different Stages
34
Possible Variables in a Life-Cycle Framework
Organizational structure
(e.g., centralization)
Specialization
Formalization
Level of resources
Level of capabilities
Strategic orientation
Learning orientation
Entrepreneurial
orientation
Innovativeness
Flexibility
Differentiation
Customer focus
Cost structure
35
36
• Differential endowment of organizational resources
helps determine firm strategy and performance.
• Resources include all assets, organizational
processes, information, knowledge, technologies,
etc., controlled by the firm.
• The most critical resources are those that are
superior in use and hard to imitate or supplant.
• Two main assumptions: (1) firms are heterogeneous
with regard to the resources they control; and (2)
resources are not perfectly mobile across firms;
hence, heterogeneity tends to be long-lasting (e.g.,
Barney 1991; Collis 1995; Porter 1991; Wernerfelt
1984)
Resource-Based View
37
• Firms function partly to integrate knowledge, which
they then leverage to support operations and enhance
organizational performance.
• KBV emphasizes learning and learning perspectives
• Development of strategy, products, marketing
activities, and services necessitate the input and
coordination of a wide range of specialized knowledge
• Knowledge is especially critical if international
performance depends on knowing markets and how to
do business there. Thus, very knowledgeable
managers are especially valuable assets (e.g., Grant,
1996; Nonaka, 1994)
Knowledge-Based View
38
• Organizational capabilities are the main source of the
firm’s performance advantages (e.g., Grant, 1991).
• They reflect the ability of the firm to perform
repeatedly productive tasks that create value through
effecting the transformation of inputs into outputs.
Dynamic capabilities are especially important.
• Examples: innovatory capacity; business
management capabilities; marketing capabilities
• Arise from the integration of individuals’ specialized
knowledge (e.g., Conner and Prahalad, 1996; Dierickx
and Cool, 1989; Grant, 1996; Leonard-Barton, 1992;
Nelson and Winter, 1982; Teece and Pisano, 1994)
Capabilities View
39
• Monopolistic advantage refers to resources or
capabilities that a firm holds that few other firms have.
• Successful internationalization (especially via FDI) is
partly a function of the possession of monopolistic
advantage(s) not available to firms in local markets.
• The advantage(s) must be ‘firm-specific’, that is,
available only or largely to the internationalizing firm.
• Examples include economies of scale; superior
technology; strong brand name; or superior
knowledge in marketing, management, or finance
(e.g., Hymer 1960)
Monopolistic Advantage Theory
40
• Managers can enact and actively shape the
environments where the firm operates.
• Managers’ decisions play a big role in the firm’s
success or failure.
• Strategic choice analysis emphasizes managers,
markets, and the relationship between them.
• The skill and nature of decisions depend on
managers’ capabilities and competencies.
• Socio-political systems within firms are a key
context (e.g., Child 1972, 1997).
Strategic Choice Theory
41
Cost Leadership: Cost minimization achieved through
efficient scale facilities; vigorous pursuit of cost
reductions through experience; tight cost and overhead
control; avoiding marginal customer accounts; cost
minimization in R&D, service, sales force, etc.
Differentiation: Offering a product that is perceived
industrywide as being unique. Usually achieved via
product design, branding, marketing, or service.
Focus: Focusing on a particular buyer group, segment
of the product line, or geographic market. Firm serves
its narrow strategic target more effectively or efficiently
than those competitors who compete more broadly
(e.g., Porter, 1980).
Generic Strategies Model
42
• Refers to the firm's ability to recognize the value of
new information, assimilate it, and apply it to
performing business activities.
• The firm must possess organizational routines and
processes to acquire, assimilate, transform and
exploit knowledge, in order to create dynamic
organizational capabilities.
• Innovation is critical to performance, particularly in
international business. Superior absorptive capacity
enhances the ability to innovate and learn, leading to
enhanced performance (e.g., Cohen and Levinthal,
1990; Zahra and George, 2002).
Absorptive Capacity
43
44
Traditional view of management:
• Future events in the firm’s external environment
are largely predictable.
• Managers can plan for predicted events and
develop strategies to deal with them (e.g., Ansoff,
1979; Porter 1980; Schendel and Hofer, 1979).
• Rational decision-making based on prediction
positively affects organizational performance.
Effectuation Theory
45
The effectuation view:
• Future events are hard to predict. Contingencies
arise that limit the utility of formal planning.
• Rather than expend limited resources on
predicting and planning, firms should adopt a
flexible and adaptive posture that will allow them
to improvise appropriate strategies as needed.
• Effectual logic emphasizes improvisation,
exploitation of contingencies, and market creation,
typically by partnering with others.
Effectuation Theory
46
• Effectuation theory more accurately represents
the way young, small firms operate.
• Such firms are relatively entrepreneurial, flexible,
and adaptive. They change course constantly to
manage environmental circumstances as they
arise (E.g., Chandler et al, 2011; Gabrielsson &
Gabrielsson, 2013; Read, Song, & Smit, 2009;
Sarasvathy, 2001, 2008; Wiltbank, Dew, Read, and
Sarasvathy, 2006)
Effectuation Theory, cont’d
47
Representative Literature
on Prediction and Control
Source: Robert Wiltbank, Nicholas Dew, Stuart Read and Saras D. Sarasvathy (2006). What to Do Next? The
Case for Non-Predictive Strategy. Strategic Management Journal, 27(10): 981-998.
48
49
• Internationalizing firms employ managers in foreign
subsidiaries, or in independent organizations such as
distributors.
• The theory delineates firm owners as principals that
hire agents (managers) to operate the organization.
• The “agency problem” arises when the interests of
owners and managers diverge. Due to information
asymmetry, managers may act opportunistically.
• Cross-cultural differences magnify the problems of
uncertainty, asymmetric information, and monitoring.
Thus, agency relationships are more challenging
internationally than in domestic environments (e.g., Bergen, Dutta, and Walker 1992; Jensen and Meckling 1976).
Agency Theory
50
• Refers to the firm’s system of relationships that match
its needs aimed at maximizing the firm’s performance.
• Relationships consist of actors, resource ties, and
activity links.
• Actors, including managers and organizations, control
the resources and perform the activities.
• Activities link resources to each other; an activity
occurs when actors combine, develop, exchange, or
create resources by using other resources.
• Resources include input goods, financial capital,
technology, personnel, and marketing (e.g.,
Granovetter 1973; Håkansson 1989; Thorelli 1986)
Network Theory
51
• Organizations and their markets constitute people
whose relationships and interpersonal assets (e.g.,
trust, cooperation) shape the firm’s activities and
performance outcomes.
• Sensemaking among individuals in and between
organizations is key to trust-building and maximizing
performance in value chains and markets.
• The theory is a good foundation for explaining
collaboration and competition (e.g., Bourdieu 1986;
Nahapiet and Ghosal; Homburg, Wieseke, and Kuehnl
2010; Gundlach and Cannon 2010)
Social Capital Theory
52
• Addresses the nature and interactions with various
constituent groups that aim to accomplish multiple,
and not always congruent, goals and purposes.
• Stakeholders include employees, suppliers,
shareholders, communities, regulators, the media,
and special interest groups.
• Firms should undertake ongoing efforts to develop
and nurture exchanges with various important
stakeholders, to achieve organizational objectives
and performance goals (e.g., Donaldson and Preston
1995; Freeman 1984; Mitchell, Agle, and Wood 1997)
Stakeholder Theory
53
• Legitimacy refers to the generalized perception or
assumption that the actions of an entity are
desirable, proper, or appropriate within some
socially constructed system of norms, values,
beliefs, and definitions.
• Legitimacy is a property of (social) objects that
conform to widespread, taken-for-granted systems
of norms or social codes.
Legitimacy Perspective
54
(a) Implies construction of social reality, consistent with
cultural beliefs, norms, values shared by local actors
(b) Fundamentally a collective process, although can
be influenced by individuals, e.g., opinion leaders
(c) Depends on apparent or actual consensus among
local actors regarding the validity and virtue of the
object’s attributes and actions
(d) Has both a cognitive dimension wherein some
social object is taken for granted, and a normative
dimension that prescribes the object’s morality (e.g., Berger and Luckmann 1966; Cattani et al., 2008;
Johnson et al, 2006)
Characteristics of Legitimacy
55
Legitimacy in International Business
SOURCE: Kostova, Tatiana and Zaheer, Srilata (1999), “Organizational Legitimacy under Conditions of Complexity: The
Case of the Multinational Enterprise,” Academy of Management Review, Vol. 24 Issue 1, p64-81.
56
57
• Argues that service provision rather than physical
goods is fundamental to economic exchange. Here,
“service” is the application of specialized knowledge
and competencies through deeds, processes, and
performances, to benefit of buyers. Goods are simply
a distribution mechanism for service provision.
• Focuses on intangible resources, the co-creation of
value with buyers, and buyer relationships.
• The firm’s goal is to customize offerings and create
‘value propositions’, partly by involving buyers in the
customization process, to better fit their needs and
wants (e.g., Lusch and Vargo, 2006; Vargo and Lusch
2004; Vargo and Morgan, 2005)
Service- Dominant Logic
58
• Entrepreneurs must make decisions under
uncertainty
• Uncertainty is distinct from risk, which can be
measured and predicted.
• In order to grapple with the natural uncertainty of the
marketplace, the entrepreneur attempts to optimize
his or her judgment by obtaining information on the
market.
• The entrepreneur who manages uncertainty through
superior judgement can maximize market
performance (e.g., Boudreaux and Holcombe, 1989;
Knight, 1921)
Risk and Uncertainty Perspectives
59
• Refers to the formal or informal procedures, routines,
norms, and conventions in the political economy of
nations. E.g., governments and political systems are
important institutions.
• Institutions provide resources, but they also impose
constraints on economic activity. Institutions limit
some forms of action and facilitate others.
• Institutions govern societal transactions in the areas of
politics (e.g., corruption), law (e.g., regulation), and
society (e.g., ethical norms, attitudes toward business) (e.g., DiMaggio & Powell, 1991; Hall and Taylor 1996;
Peng, Wang, & Jiang, 2008)
Institutional Theory
60
• Numerous explanations have been developed to
explain culture and cultural differences.
• Hofstede (1980) typology:
• Individualism/Collectivism: The key relationship
between an individual and his/her fellows.
• Power Distance: The way a culture deals with
people at differing levels of society, typically
related to differences in power and wealth.
• Uncertainty Avoidance: Extent to which people are
concerned about future uncertainties and risk.
• Masculinity/Femininity: Extent to which men and
women are free to take on each others roles.
Culture Explanations / Hofstede Typology
61
• From International Business
• From Entrepreneurship
Other Perspectives
62
63
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Thank you
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