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International Entrepreneurship: Competing and Learning in a Flat World

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International Entrepreneurship: Competing and Learning in a Flat World Celebration of the 10 th Anniversary of Department of Management Science and Technology Athens University of Economics and Business
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International Entrepreneurship: Competing and Learning in a Flat World Celebration of the 10 th Anniversary of Department of Management Science and Technology Athens University of Economics and Business Shaker A. Zahra Carlson School of Management University of Minnesota Agenda Agenda Competition in a flat world: global innovation networks. International entrepreneurship reframed. Internationalization and new ventures: Ownership & management Mobility and immigration Operations Venture capital Dynamics of learning in a flat world Research Opportunities Conclusion International Entrepreneurship is: the movement of people, capital, ideas and intellectual property across borders to create new businesses. People Money Ideas/IP New Business Creation Job creation Technological Development Economic Progress Political Independence International Entrepreneurship (IE) the process of creatively discovering and exploiting opportunities that lie outside a firm's domestic markets in the pursuit of competitive advantage Types of International New Ventures [INVs] # of Countries Involved Few Many Few # of International Activities Coordinated Many Import/ Export Start-Up Geographically Focused Start-Up Multinational Trader Born Globals Oviatt & McDougall, 1994 Changing Patterns of Global Trade Destination Venture Country of Origin Advanced Emerging Advanced #1 #3 Emerging #2 #4 #s 1 & 2 : the traditional focus of study # 4 : Less studied # 3 : Growing Interest Emerging Economies Emerging economies 80% of the world population 20% of worldwide wealth Focus on catching up & economic development Wealth accumulation is rapid. Some Illustrative Trends 2571 new ventures [Companies less than 6 years of age] This represents 21% of firms targeted in: Argentina Belgium Brazil China Czeck Finland France Germany India Poland South Africa Sweden UK US Target Markets: First 5 Years [n=2571] Country of Origin Destination Advanced Emerging Advanced 42% 11% Emerging 23% 24% # of Country-Markets Entered within the First 5 Years [n=2571] Country of Origin Destination Advanced Emerging Advanced Emerging Country of Origin & Sources of Revenues: First 5 Years [n=2571] Country of Origin Destination Advanced Emerging Advanced 57% 22% Emerging 43% 77% Manufacturing Locations: First 5 Years [n=2571] Country of Origin Destination Advanced Emerging Advanced 60% 19% Emerging 40% 81% Marketing & Distribution: First 5 Years [n=2571] Country of Origin Destination Advanced Emerging Advanced 55% 38% Emerging 45% 62% % Foreign Ownership: First 5 Years [n=2571] Country of Origin Destination Advanced Emerging Advanced 17% 3% Emerging 12% 15% Multinational Corporations (MNCs) Basic Statistics Over parent MNCs with 770,000 affiliates Responsible for: 50% of world GDP. 75% of world commodity trade 80 % of world technology transactions Many MNCs conduct a high % of their R&D abroad. MNCs Help Promote Local Entrepreneurship Local entrepreneurship= creation of new companies and expansion of existing ones. How do MNCs Stimulate Local Entrepreneurship? Demonstration effect - Locating unfilled market needs - Legitimizing - Promoting Vicarious learning Creating a cadre of potential entrepreneurs - Socialization (via training) - Learning by doing - Employee exits & Connections Different Types of Local Entrepreneurship Dimension Absorptive Capacity Low High MNC Knowledge Flows Tacit Copycats Competing Explicit Ancillary Symbiotic [ 11 Countries, 89 MNCs, 1307 new ventures; 291 closely linked to MNEs] Different Types of Local Entrepreneurship Dimension Absorptive Capacity Low High MNC Knowledge Flows Tacit Explicit Copycats [28 to 33%] Ancillary (46 to 31%) Competing [02 to 07%] Symbiotic [23 to 29%] Five Years ago Current Internationalization of Venture Funding Internationalization of Venture Capital Funding Cross-border VC has increased from 15 % (in the early 1990s) to 40% in VCs from other countries are active in funding start-ups, even in the US. VC flows from countries with high-end human capital. High tech industries receive lion s share of VC deals Most VC deals are local; distance is negatively associated with deal value. Closer social ties (e.g., language) is positively associated with deal value. Key (net) importers of VC include: France, Israel, Canada, India & PRC (the largest net importer after 2003). Aizenman & Kendell, 2008; Gompers & Lerner, 2001; Guler. 2003, 2005, 2007, 2008; Lerner, 2001; Patricof, 1989; Wright et al., 2005) Internationalization of Traditional Venture Capital (CV) [n=2571] % Receiving Funding Source of CV Funding Internationalization of Informal Funding [n=2571] % Receiving Funding Source of Informal Funding Internationalization of Corporate Venture Capital (CVC) Funding [n=2571] % Receiving Funding Source of CVC Funding Mobility & Immigration Employee mobility & immigration provide the intellectual and human capital necessary to start and grow new businesses. Movement of People: Mobility & Immigration Employee Mobility: Immigrant Skilled Labor International Experience Abroad With Foreign companies but in domestic market Immigration Sometimes, out of necessity Some countries skim the best talent, attracting the best trained immigrants These are the ones who create high potential, high growth companies. Founders of Born Global Ventures % Ventures with TMTs With 1 Members with international experience (n=2571) % International Experience Founders of Born Globals [n=2571] Immigration & Entrepreneurship Immigrants create more new jobs than native US born, according to the GEM database. 25% of US-based tech companies created between had one or more foreign-born founder(s). This rate was higher in the Silicon Valley (=52%) Immigrant founded companies produced $52 billion in sales (2005) Same companies hired 450,000 employees. Most founders came to the US for study (52%); only 1.6% came to create businesses. Immigration & Entrepreneurship FDI flows follow immigration routes: immigrants serve as linking pins and conduits for the flow of capital. Immigrants move into and out of business ownership at much higher rates than non-immigrants: Some sell the business & retire Some return to their native countries. % of Foreign Born who are Self Employed Remittances (in US$ billion) All data are for 2009 except those followed they are for 2008 Immigration & Entrepreneurship Native Country Capital: * Remittance * FDI Flow Skills Connections Immigrants Adopted country Skills Capital Opportunities Learning in a Flat Economy Internationalization & Learning Internationalization Learning Knowledge Capabilities Performance Learning in International Markets More than technological learning: Market Social Organizing Need to engage in multi-faceted learning and do so quickly. Multiple Sources (Other companies, MNEs, Networks) 3 Critical Requirements: Social Capital Boundary Spanning Roles Absorptive Capacity Knowledge Integration Learning Advantages of Newness New companies have advantages over established companies in learning in international markets: Unfettered by history/ inertia Managers are heavily involved Learn by doing Learn by observing. New ideas do not clash with existing power structures Research Opportunities Should we rely on the free market in the creation of new firms? How can we develop entrepreneurial skills? How can we increase the supply of entrepreneurs? What if there is market failure? What is the role of (national) entrepreneurial policy? How can we balance social & other types of profit-seeking ventures? In what ways do we need to re-examine immigration policies to attract and retain talented entrepreneurs? Conclusion Better to view international entrepreneurship as: the movement of people, capital, ideas and intellectual property across borders to create new businesses. Newly born companies reflect the new flat world in terms of ownership, knowledge base, supply chain, management styles, and business models. These new start-ups are also the creators of change, working with other companies (new and established) to keep global innovation networks vibrant and productive.
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