How Smaller Born-Global Firms Use Networks and Alliances To Overcome Constraints ToRapid Internationalization

How Smaller Born-Global Firms Use Networks and Alliances to Overcome Constraints to
Rapid Internationalization
Author(s): Susan Freeman, Ron Edwards and Bill Schroder
Source: Journal of International Marketing, Vol. 14, No. 3 (2006), pp. 33-63
Published by: American Marketing Association
Stable URL: http://www.jstor.org/stable/25049054
Accessed: 31-01-2018 16:34 UTC
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How Smaller Born-Global Firms Use
Networks and Alliances to Overcome
Constraints to Rapid Internationalization
The authors identify the following key constraints that smaller ABSTRACT
born-global firms face: lack of economies of scale, lack of
resources (financial and knowledge), and aversion to risk tak
ing. The authors explore how such firms overcome these con
straints by using technology to achieve competitive advantage
and by networking competencies to develop a range of alliances
and collaborative partnerships. Thus, the article focuses on a
particular aspect of business-to-business marketing, namely
how small firms achieve rapid growth internationally through
alliances with suppliers, distributors, and Joint-venture part
ners and how these relationships change over time to meet the
changing needs of the partners.
Although there is substantial literature on the internationali

zation process for small and medium-sized enterprises Susan Freeman, Ron
(SMEs; see Dimitratos and Plakoyiannaki 2003; Johnson Edwards, and Bill
2004; Knight and Cavusgil 2004), the literature on the more
recent emergence of the "born-global" phenomenon among
Schroder
SMEs is limited (Autio 2005; Bell et al. 2003; Chetty and
Campbell-Hunt 2004; Oviatt and McDougall 2005). Rialp,
Rialp, and Knight (2005) argue that small born-global firms
are increasingly prevalent in international business. Crick
and Spence (2005, p. 168) identify several studies that focus
on the internationalization of firms that operate in innova
tive and high-tech markets, discussing how some SMEs
internationalize more rapidly and follow market entry routes
that differ from those in low-tech markets, suggesting that
high-tech firms require particular attention independent of
generalized surveys.
The limited literature on the international activities of SMEs

emphasizes constraints to rapid internationalization,
namely, lack of economies of scale (Welch and Luostarinen
1988), lack of financial and knowledge resources (Karlsen et
al. 2003), and risk aversion (Dimitratos and Plakoyiannaki
2003). Westhead, Wright, and Ucbasaran (2002) argue that
internationalization involves a high degree of risk, and own Submitted April 2005
ers of smaller firms are less able to manage uncertainty and Accepted February 2006
risk than larger, more financially secure, and experienced Journal of International Marketing
firms. Smaller firms have limited resources to cope with ? 2006, American Marketing Association
Vol. 14, No. 3, 2006, pp. 33-63
adversity. The three constraints are exacerbated in situations ISSN 1069-031X (print)
in which smaller firms internationalize early and rapidly 1547-7215 (electronic)
33
(Knight and Cavusgil 2004). Firms that succeed in interna
tionalizing early and rapidly do so by using multiple busi
ness relationships, such as strategic alliances, joint ventures
(JVs), and wholly owned subsidiaries, as well as more tradi
tional entry strategies (Crick and Spence 2005).
However, no studies have examined the factors that drive the

international performance of young, smaller firms with small
domestic markets, and none have identified the bundles of
capabilities that facilitate early and rapid internationaliza
tion (Knight and Cavusgil 2004). Thus, there is a need to
understand better the problems and possibilities associated
with relationships and top-management network develop
ment in smaller born-global firms and how networks are
used to achieve early and rapid internationalization. With
this in mind, the broad objective of our research is to exam
ine the internationalization strategies of small firms that
have successfully internationalized early or at inception and
to ascertain how they overcame constraints identified in the
extant literature. Our first objective is to focus on how top
managers in born-global SMEs use networks to develop part
nerships and alliances in multiple entry modes to overcome
these constraints and bring their unique innovations and
technology to international markets early and rapidly. Our
second objective is to explore how networks are used and
how relationships are modified and adapted over time to
meet the changing needs of the relationship partners.
Several issues emerge under this broad objective. First, Ovi

att and McDougall (1994) recognize the use of multiple
modes in their study of international new ventures, in which
importing, exporting, licensing, strategic alliances, and JVs
are used for sourcing, manufacturing, and distribution activ
ities along the value chain. Second, they identify (p. 60) a
heavy reliance on "close network alliances in multiple coun
tries," which they describe as a "proprietary network" that
gives these international new ventures an essential competi
tive advantage. Not only do network members provide SMEs
with knowledge, but they also directly influence a firm's
internationalization (Harris and Wheeler 2005). Third, cre
ativity is a driver of competitive advantage and, perhaps, has
the greatest impact within the entrepreneurial smaller firm.
Creativity is viewed as a key competency at the marketing
interface and is linked with related issues, such as innova
tion, vision, leadership, and motivation (Fillis 2002). Our
research attempts to understand the issues of how smaller
born-global firms manage relationships and network devel
opment and of the role of senior management in these
processes.
We begin by examining the literature on born-global firms,

focusing primarily on network theories (Martin and Grbac
34 Susan Freeman, Ron Edwards, and Bill Schroder
2003) and organizational culture (Knight and Cavusgil 2004).
Then, we briefly examine problems and possibilities associ
ated with relationships and network development and the
role of senior management in network development. We fol
low this with an analysis of in-depth interviews of 20 senior
manager and three focus group sessions. We base this analy
sis on the three key constraints: poor access to economies of
scale, lack of knowledge and financial resources, and risk
aversion. Following further analysis and a discussion of our
findings, we develop a conceptual framework that provides
an explanation of how small born-global firms overcome key
constraints by employing five strategies and how senior
managers use networks to achieve rapid and substantial
international activity within two years of establishment. The
key elements of their strategies are (1) the use of innovation
(advanced technology) to achieve competitive advantage and
(2) managing relationships through partnerships and
alliances. Finally, we discuss limitations of the research and
present a conceptual framework and a set of propositions for
further research.
In the development of technology, networking is viewed as a

"partnered learning approach to research and development Internationalization and
(R&D) management" (Daniel, Hempel, and Srinivasan 2002, Smaller Born-Global
p. 653) and is accessed through structures such as strategic Firms
alliances or collaborative relationships between smaller
firms and large foreign suppliers. The exploitation of new
and existing networks to expand early and rapidly and to
penetrate global segments to protect and exploit proprietary
knowledge and lock in clients as a first mover is the main
objective of the small born-global firm. Critical episodes
drive such firms to exploit existing and new networks, and
they are not overly influenced by "psychic" proximity. Small
born-global firms use "client followership" more than tradi
tional SMEs, relying less on agents/distributors and more on
integrating into customer and supplier channels. Alliances/
licensing agreements build more integrated relationships
than working through agents/distributors (Bell et al. 2003).
Globalization pressures that follow the liberalization of an

economy are now considered a driver for the emergence of
born-global firms (Gabrielsson and Kirpalani 2004; Knight
and Cavusgil 2004). In dynamic high-tech markets, a factor
that appears to influence the performance of smaller firms is
speed to internationalization (Crick and Spence 2005). Thus,
SMEs may not have time to integrate prior knowledge and
develop their international strategies fully before they imple
ment them (Johanson and Vahlne 1977). High-tech SMEs
need to respond rapidly, develop mechanisms to take advan
tage of opportunities quickly, and deploy resources to take
advantage of the opportunities within a small time frame.
This explains some of the pressure these early, rapidly inter
Smaller Born-Global Firms and Rapid Internationalization 35
nationalizing SMEs face as they try to survive in a dynamic
environment (Gabrielsson and Kirpalani 2004). The factors
identified as contributing to born-global firms include top
management team characteristics (Bloodgood, Sapienza, and
Almeida 1996), international networks (Oviatt and
McDougall 1995), and knowledge and culture (Knight and
Cavusgil 2004). These organizational resources enable SMEs
to overcome constraints to early, rapid internationalization
associated with limited financial and human resources
(Young, Dimitratos, and Dana 2003). Finally, there are no
consistent definitions of either SMEs or born-global firms in
the literature. McKinsey & Company (1993) argue that the
born-global firm's maximum time from inception to an inter
nationalization debut is two years. Knight and Cavusgil
(2004) claim three years, and McDougall, Shane, and Oviatt
(1994) claim eight years. This suggests that a definition is
more a matter of degree than an absolute figure. We define an
SME as a firm having fewer than 100 employees, and we
adopt McKinsey & Company's definition of the born-global
firm.
Studies of successfully internationalizing born-global SMEs

Organizational Culture have found that such firms are characterized by an organiza
and Smaller Born-Global tional culture that is proactive, risk taking, and innovative.
Firms In an internationalization context, risk taking refers to the
proclivity of a firm to undertake risky ventures in foreign
markets (Dimitratos and Plakoyiannaki 2003). Innovative
ness refers to a firm's capacity to generate new ideas, prod
ucts, and services for foreign markets and its determination
to develop creative solutions to challenges it faces (Knight
2001). Proactiveness reflects a firm's proclivity to take initia
tives, anticipate and pursue new opportunities, and partici
pate in foreign markets, and it involves actively pursuing
market opportunities rather than simply reacting to moves
by competitors (Miller 1983).
There is also a relationship between the international experi

ence of the senior management team and international net
works (Oviatt and McDougall 1995). The more internation
ally experienced the managers are, the more likely they are to
form networks required for internationalization (Reuber and
Fischer 1997). The transfer of knowledge among network
members is facilitated by the cognitive abilities of the man
agement, enabling not only the identification of knowledge
but also its communication to the firms (Nahapiet and
Ghoshal 1998). Sharir and Lerner (2006) identify eight fac
tors that contribute to the success of social (not-for-profit)
ventures, all of which are senior management focused. The
top three are the managers' social networks, their dedication
to the venture's success, and previous managerial experience.
Problems. Interfirm network development is an evolution
of unprecedented states rather than a predetermined Problems and Possibilities
sequence of irreversible stages, which suggests that managers Associated with Relationships
should move away from following a programmed "stages" and Network Development
model of network development and toward a general "states"
model of network relationship development (Batonda and
Perry 2003a). There are also identifiable differences in how
culture affects interfirm network development; thus, firms
require different strategies for developing and maintaining
quality, long-term relationships in international marketing
(Batonda and Perry 2003b). Gadde, Huemer, and Hakansson
(2003, p. 357) argue that it is crucial for a firm to relate to
those around it, which presumes an ability to generate and
sustain business relationships "to enhance its performance,
and it is through the continuous combining and recombining
of resources that new resource dimensions are identified
and further developed within business relationships." From
an industrial network perspective, strategizing implies that
the heterogeneity of resources and interdependencies
among activities across firm boundaries create problems for
the firm's organized collaboration in relationships among
the firms involved because they must be considered
simultaneously.
International relationships are subject to uncertainty because

of the difficulty of enforcing contracts across borders, infor
mation asymmetry, geographical distance, and the difficulty
in ascertaining the capabilities of a foreign distributor. Thus,
various formal and informal governance procedures, such as
incentive design, monitoring, and the development of rela
tional norms, are established to reduce these risks. The use of
networks through long-term relationships is fundamental to
SMEs' development of business activities because of the
greater geographic and psychic distances that separate buy
ers, sellers, and partners in international markets (Svensson
2004). Leek, Naude, and Turnbill (2003) argue that as the
demand for technological innovation and economic effi
ciency has grown, the complexity of relationships has
increased. Instead of relying on straightforward buyer-seller
relationships, firms use strategies such as JVs and strategic
alliances so that it is no longer unusual for more than two
partners to be involved in a relationship, which affects inter
actions and the atmosphere in the network.
Ghauri and colleagues (2003) suggest that networks are

essential to smaller firms in overcoming export-marketing
problems. In a model of factors for successful export network
organizations, they find that small exporters need a willing
ness to work together to develop solidarity, coherence, and
commitment and to initiate foreign market activities. Styles
and Ambler (2003) examine the particular problems related
to relationship development facing firms in cross-border set
tings, including more explicit reconciliation of the interests
of the individual with those of the firm. Problems arise when
there is conflict between the two. There is also the problem
of being on the "outside" as opposed to the "inside" of a net
work. It has implications for the way managers should think
about market entry. However, successful network entry is a
critical factor for allowing the firm to be considered and
treated as an "insider"; this means that the firm needs to get
involved with channel members, government, and advertis
ing to overcome many of the market-related constraints to
exchange. Finally, senior management needs to explore a
paradox: On the one hand, there is a rapid increase in com
munication technology and a reduced need to travel for busi
ness, and on the other hand, business travel continues to
increase. Finally, managers need to develop relationships in
a wider relational context. This implies that though a par
ticular act may have immediate benefits, it also creates
delayed benefits, such as obligations.
Possibilities. Frequently, relationships originate from per

sonal and business contacts and prior networks, which pro
vide communication infrastructures with shared common
interests (Hallen 1992). Internationalization of firms also
includes activities that are inward oriented (e.g., purchase of
machinery, procurement of raw materials) and provide
opportunities for building relationships with foreign actors.
These links provide opportunities for firms to learn about
foreign trade and ways to use various modes; by actively
using such knowledge, firms should be in a better position to
start, or extend, outward foreign operations (Karlsen et al.
2003). In the creation and utilization of knowledge through
inward and outward connections, though firms face many
constraints, they seldom realize the full potential of such
connections, such as improved access to market knowledge,
more business opportunities, improved quality of new oper
ations, less time spent on the establishment phase of new
operations, and risk reduction. Further examples of how this
potential might be realized are important for future research
(Karlsen et al. 2003).
Ellis and Mayer (2001) suggest that firms should pursue

more horizontal partnerships with competing firms, not just
vertical integration along supply chains, to offer opportuni
ties for closer strategic integration, greater collaboration, and
flexibility across activities (e.g., new product development
[NPD]). Daniel, Hempel, and Srinivasan (2002) identify sig
nificant evolutionary patterns in the development of collabo
rative relationships that remain successful in the long run,
including the creation of research capacity that yields
advances in processes and product knowledge, technology
transfer behavior among the participants, partners' satisfac
tion with outcomes, and continuity of industry sponsor sup
port (i.e., commitment to a long-term outcome).
Experience through cross-border partnerships, which pro

vide shared benefits and costs, provides insights into how to
build more productive alliances and network development.
That the outcomes of collaborative efforts, such as access to a
pool of talented future employees, are undervalued suggests
that studies of the evolution of relationships in which the
experience affects future commitment are necessary (Daniel,
Hempel, and Srinivasan 2003). To capture the various mean
ings of the construct of value creation in relationships,
empirical research should rely on multidimensional scales of
relationship value in business markets rather than overall
measures. Thus, a formative, not a reflective, measurement
approach is recommended in the modeling of relationship
value (Ulaga 2003).
All the problems we discussed are faced more intensively by

SMEs under the added pressure of early, rapid internationali
zation. Three constraints to the rapid internationalization of
SMEs have been identified in the literature: lack of
economies of scale, lack of financial and knowledge
resources, and aversion to risk taking. Our objective is to
address the shortcomings of previous conceptualizations of
relationships and network development and to explore the
concepts from the perspective of senior management in
smaller born-global firms. Consequently, we ground the
investigation of network development in the language of sen
ior managers. This approach complements existing knowl
edge and offers new insights for a better understanding and
measurement of the concepts. In line with this objective, we
use a qualitative methodology.
We employed an in-depth interview method using both

single and aggregated analysis (Feagin, Orum, and Sjober Methodology
1991; Yin 2003) to strengthen the robustness of the analysis.
The context of the research is born-global SMEs in Australia,
a relatively small economy that has been substantially
deregulated since the 1980s. The SME is a major business
category in the Australian market, comprising more than
95% of Australian firms (Australian Bureau of Statistics
2004). The Australian market is small and subject to intense
competition from imports. Thus, Australian firms need to
develop offshore markets to grow. A similar situation applies
in New Zealand (Chetty and Campbell-Hunt 2004). We used
the Australian exporter database (data from 2001 to 2002)
and contacts with locally based companies to identify three
firms that were willing to cooperate in an extended inter
viewing process; in total, 20 interviewees, representing three
small born-global firms, participated in in-depth interviews,
and we conducted three focus group sessions, including sup
pliers and senior managers from the three firms. This
approach provided a sufficiently rich exposure to the small
born-global phenomenon, but it did not generate such a vol
ume of data that the task of analysis would be incapable of
generating meaningful results (Eisenhardt 1989).
We used Eisenhardt's (1989) recommendations as our guide;

thus, in the current study, we select three cases to provide a
sufficient number for cross-case analysis. We interviewed
senior managers on multiple occasions. Interviewees had
direct knowledge of international activities. On average, the
in-depth interviews lasted VA hours (for a total of 52 hours of
interview time), and focus group discussions, which
involved 3-14 senior managers, lasted approximately 5
hours (for a total of 57 hours). The interview was the unit of
analysis. We were careful in the selection of interviewees to
ensure that they could not be regarded as idiosyncratic in
nature but rather as exhibiting typical knowledge of the pro
cesses involved. We conducted fieldwork over a 12-month
period throughout 2001. Each company provided a clear, in
depth, and comprehensive understanding of how it managed
the process of rapid internationalization and how it coped
with the strains this placed on senior management. We inter
viewed chief executive officers (CEOs) on at least three occa
sions during the data collection period. This method pro
vided robust, multiple insights into how management coped
and why it made the decisions it did. In this sense, it was
like "hearing the story unfold." The (fictional) names of the
case-study firms and their principal activities were Midland
Fruit (MF), a citrus fruit and table grape sorter, packer, stor
age provider, and exporter that incorporates advanced tech
nology into its activities, making it the market leader in tech
nological processes in the industry; Tele Netcom (TN), a
manufacturer and service provider for high-tech communica
tion products in digital communication and air-wave distor
tion; and Radley and Mortman (RM), a computer-assisted
designer (CAD) and manufacturer of shop-fitting for photo
graphic outlets and pharmacy retailers that incorporates
high-tech design processes, making it a national leader in the
technology in the industry.
We included analyses of primary and secondary source

documents (company memos and reports) to round out the
information collected from interviews and to support knowl
edge of prior events. We used the secondary sources to com
plete a detailed company profile and history before conduct
ing interviews. We also used sources to identify firms with
sufficient international market experience that were under
going rapid internationalization and were able to provide
access to key staff. We analyzed the interviews and docu
mentary evidence using methods based on grounded theory
(Strauss and Corbin 1998) as part of the theory-building
process (development of a conceptual framework) for this
study. Eisenhardt (1989) emphasizes that an exploratory
approach to data analysis is guided by a process of under
standing field data, bringing some order, structure, and
meaning to the mass of collected data. The analysis included
open, axial, and selective coding to interpret and develop the
descriptive narrative about the central phenomenon (Strauss
and Corbin 1998). We analyzed each interview to determine
the significance of the three key constraints on rapid interna
tionalization identified in the extant literature and to pro
vide insights into how management in each firm dealt with
these problems and managed the pace of change. Finally, we
selected the Australian market as the context because of the
prevalence of the phenomenon of smaller born-global firms,
identified by McKinsey & Company (1993) and recently by
Bell and colleagues (2003), who reviewed and analyzed the
comparisons among a series of studies conducted on small
firm early and rapid internationalization in Australia.
For the managers in each of the firms, the domestic market

offered neither scale economies nor higher-price opportuni Findings
ties. Mangers were able to meet the requirements for large
volume and different quality by approaching both ends of Access to Economies of Scale
their value chain simultaneously, namely, local suppliers
and foreign customers. For example, managers initiated the
practice of setting up contracts (strategic alliances) with key
local suppliers to offer them some form of security and to
create a degree of loyalty. Before this initiative, there had
been a great deal of switching by suppliers among local
competitors.
The three firms achieved economies of scale in their opera

tions quickly, entering 10-20 key foreign markets within two
years. To build volume rapidly, the managers of these inno
vative firms began forming stronger links with key foreign
customers by going beyond their initial entry mode of
exporting and seeking involvement through more elaborate
entry modes, such as strategic alliances. However, when
declining international markets made it difficult to sustain
high volumes through outward strategies (exporting, JVs),
inward arrangements (importing) with established partners
began to emerge.
During the second year of operations, TN initiated both

inward strategies (exclusive contracts to resell its overseas
partners' products into the Australian market) and outward
strategies (exporting, strategic alliances, and JVs) with large,
key foreign suppliers in the dominant industry markets of
the United States and Western Europe. Managers moved
from distant to closer, stronger types of relationships through
their choices of appropriate entry modes. During a global
telecommunications downturn in early 2000, TN maintained
its international business activities and network connec
tions. The collaborative (with others) rather than competitive
(on its own) relationships provided management with the
ability to expand, despite a global economic downturn.
There was going to be a downturn. Rather than narrowly

focused with niche products in t?l?coms, we've now
broadened it very significantly.... [We] tried to establish
a customer base, establish credibility, establish our
selves as being good service providers, and then sell our
innovations to our existing customer base, (interna
tional marketing manager, TN)
The small local market offered minimal opportunities for

large-volume rollouts, such as those that RM sought for its
CAD retail designs. To expand volume and take advantage of
the economies of large-scale operation, RM focused on the
global market, entering more than 30 countries in the first 18
months. The first task was to locate large-scale foreign cus
tomers in industries such as the pharmaceutical and photo
graphic retail industries in Western and Eastern Europe, the
Middle East, and the United States. Radley and Mortman
focused on setting up its first business contract in Europe
before opening a domestic office. Personal networks were
used to locate very large foreign customers in markets in
Western Europe. The company selected Western Europe as a
key foreign market because this region is highly industrial
ized and insists on high quality. This was not the case in the
Asia-Pacific region, so RM did not enter this region initially.
Through a personal contact of one of the joint managing
directors, RM was able to secure as its first assignment a
management contract (special project) in a foreign market
(Germany) to redesign and upgrade 1500 retail photographic
outlets. This was followed immediately by the customer's
retail outlets in Eastern Europe, bringing the total to 3200
outlets in just under two years. This provided immediate
access to economies of scale and a much-needed cash flow
that was not possible in the small, saturated domestic market
of this small firm.
In 1997,1 was going overseas quite a lot and doing a lot

of talking to K's [large photographic multinational enter
prise] customers, big groups, 2000-3000 people in all
these countries. And their biggest customers and, in
fact, biggest in Europe?a German company?had 3200
shops. They asked us to come over and do a new con
cept for them and then train their design team.... So
they put a price on it, and so we did it.... [F]amilies
moved to Germany for three months, and then K Europe
said could we do a similar thing for them, and so we set
up in London, (joint director, RM)
Susan Freeman, Ron Edwards, and Bill Schroder
Managers focused on four key tasks, or "bundles of activi
ties" (Knight and Cavusgil 2004), to overcome severely lim Lack of Financial and
ited financial resources and market knowledge to achieve Knowledge Resources
superior performance. Tasks included carefully selecting for
eign customers using personal networks, identifying best
practices in the industry globally, investing in the relevant
technology early in their development, developing strong
ties with key local suppliers through strategic alliances, and
investing early in quality management to develop excellent
relationships with local suppliers. For example, MF
described as a major hazard in one foreign market the prac
tice of customers demanding discounts to compensate for the
allegedly poor condition of the product on arrival, even
though the entire shipment had arrived in excellent condi
tion. To neutralize this practice, MF achieved end-to-end
monitoring and control of the product along the supply
chain. The managing director reinvested nearly all profits in
the first two years into leading-edge technology for sorting,
packing, recording, cold storage, and reliable container
transportation.
The cost of rejected shipments could have put MF out of

business, so the company invested to reduce this risk. Mid
land Fruits identified industry best practices, and it bought
the technology from U.S. suppliers that set the global stan
dard. This early investment in technology enabled manage
ment to achieve first-mover status and become a market
leader locally and to offer consistently excellent standards
internationally in storing, packing, and transporting its prod
uct. The early, rapid expansion also allowed quick growth in
the firm's cash flow, a critical factor for financially con
strained new, small firms.
[We are] in a position now that... makes it very difficult

for our competitors to jump up at that level. We cer
tainly have a distinct advantage. A shed around here of
average size would be producing half a million cartons.
For them to go to a million cartons, they've got to turn
around and invest in the likes of what we've got. (mar
keting manager, MF)
There were several constraints that senior managers faced

regarding knowledge deficiencies. These included knowl
edge about the quality, quantity, and consistency of the local
supply required to meet exacting overseas orders; knowledge
about the processing, handling, and monitoring of the prod
uct along the supply chain to foreign markets; and knowl
edge about the changing requirements of key foreign cus
tomers. The suppliers manager at MF had this information
fed back to local suppliers in the export services sector in
supplier-management meetings so that a better fit among
product size, color, and volume could be achieved by the
local suppliers for each overseas customer market.
We are conscious of the different size requirements of

the different markets. We'll measure our commitment to
one market to make sure we don't run short in another.
So, there is certain recognition of the special require
ments of different markets and different customers in
developing a market, (suppliers manager, MF)
The high level of R&D required in the communication soft

ware and hardware sector meant that TN was under signifi
cant financial pressure in the early years. Strategies for over
coming its lack of resources included the use of JVs and
strategic alliances for NPD, securing public funding through
the issuing of shares, and developing inward rather than
relying solely on outward strategies for market entry during a
global economic downturn. In TN's third year of operations,
these inward (importer) relationships were developed into
outward strategies, such as JVs for NPD, leading to consider
able resource savings. Foreign suppliers became foreign cus
tomers, there was joint NPD, and TN sold these new prod
ucts through its large U.S. and European global distribution
networks at no expense to the small born-global firm.
I'm just about to do a deal with them [a major U.S.

telecommunications firm] as well so they won't be a
competitor anymore. They'll do the R&D, and then
they'll sell it. And they will compete with me in other
markets.... I'll go into Europe and sell my side, and
they'll go into Europe and sell their side, and I know
we're in competition there, but I support both sides.
(CEO, TN)
Managers were limited by a lack of knowledge about the uses

of their products by foreign customers, lack of knowledge
about reliable and trustworthy foreign partners as suppliers
and customers, and lack of knowledge about the levels and
types of after-sales service foreign customers required. The
lack of knowledge about foreign customers' product usage
was a key concern for these managers. Tele Netcom was pri
marily dependent on just three key foreign partners to con
tinue to facilitate its move into the leading high-tech network
communication markets of the United States and Europe.
Tele Netcom frequently used exporting alone for the first 12
months and, then, simultaneously with strategic alliances
and JVs. Its key foreign partners provided an exclusive prod
uct (e.g., through an exclusive reseller contract for Australa
sia) to be sold to other foreign markets. This provided TN
with a competitive advantage through exclusive distribution
rights. These larger suppliers also provided TN with impor
tant information for NPD, which the smaller firm then imple
mented and supplied to them as part of its JV for NPD. This
provided TN with market knowledge about the foreign uses
for its products. The exclusive supply of software from these
key U.S. players, which the company added value to through
slight product adaptation to provide a better fit with cus
tomer requirements locally and internationally, was made
possible through the knowledge sharing between this small
firm and these large U.S. suppliers. This led to subsequent
joint NPD projects. The CEO of TN described this as follows:
One of our tricks was that we saw this downturn coming

months back and started to adapt. [We] broadened our
whole product base.... [We] went back to North America
and [said] who's got the best products in North Amer
ica? That are starting to succeed? And we went out and
grabbed them, to be in Australia. So be represented. And
now you find [TN's competitors]! Suddenly their share
price has just gone skyward; everybody else is going
down.
Managers of the small high-tech firm RM overcame their lim

ited financial and knowledge resources by entering early into
a key market in a leading region using a special project and
moving to the location with all expenses paid. Securing this
initial project with a large player in the region helped the
small firm develop a level of visibility and credibility
quickly but inexpensively; this also helped the firm convey a
demonstrable level of commitment to the region early in its
internationalization process by setting up a shared JV sales
office in a lead market. Allocation of its limited resources
was prioritized, so the foreign office could be set up before
the domestic market.
We did a stint in Germany first..., before we got to the

U.K.... It was on the way to the U.K. [We] stopped off
and did the whole rollout in Germany and continued
working in Germany while we were in London..., doing
a lot of traveling between London and Nuremberg.... It
was a stopover there, but that actually ... funded our
London office, (joint director, RM)
The key constraint for the case-study firms as newcomers to

the foreign networks was a lack of knowledge about potential
customers. Although the three firms needed market knowl
edge to facilitate their participation in foreign markets, they
also needed to create a level of visibility so that key foreign
players could learn about the services they could obtain from
these small firms. The rapid entry into many foreign markets
throughout Western Europe, Eastern Europe, the Middle
East, and the United States can be attributed primarily to
their high level of visibility through foreign networks. They
achieved this market coverage initially through their exten
sive network contacts. In addition, they were able to attract
the interest of one or two very large global actors and "fol
low" them quickly into their networks (client followership).
Dependency worked reciprocally; for example, the manager
of the small high-tech service firm RM supplied CAD retail
designs and R&D, much sought after by the large foreign
firms, and the large global retail players gave access to their
global retail chains in the photographic industry, facilitating
the firm's rapid entry.
This industry was so driven by personalities. He was

one of the instrumental players, and he was Australian.
He was one of the key players to get us into Eastern
Europe and to all these markets. He left, and there were
still two to three of his regional managers that he'd con
verted, and that is why we were doing a lot of work after
he'd left.... We were in charge of ... quite exotic loca
tions. Eastern European regions and the subcontinent
and Africa. All of a sudden, we were exposed to these
global markets, within the space of a very short period
of time. One guy was still giving our presentations fly
ing around the world in about a quarter of a million dol
lars, giving our presentations to all these countries and
regions throughout the world. And getting away with it!
(joint managing director, RM)
The firms managed the risks associated with local suppliers

Aversion to Risk Taking switching to competitors by developing strong, cooperative,
and innovatively structured relationships with their pre
ferred suppliers. For MF, in managing the risks of refusal to
pay and/or of product returns on the grounds of alleged poor
quality control, strong relationships were again important, as
was the major investment in state-of-the-art technology.
These relationships required adaptation by MF in several
areas, including branding, product type, and volume. By
placing trust in a key foreign customer, MF gained access to
high-volume, high-turnover markets in Malaysia and to sales
with little risk of last-minute cancellations. In return, the for
eign customer obtained an Australian exporter that provided
consistent, high-quality products and an exclusive brand,
which is a highly prized feature and a crucial element of the
relationship, and this protected the foreign customer's mar
ket position.
Mr. Lau's got huge, cool rooms. Literally, the best I've
seen anywhere in the world. He's been fantastic for our
business because Malaysians and Singaporeans go to
Mr. Lau, see his operation, and think this guy is fantas
tic, and they also see our brand, (managing director, MF)
The major risk facing TN's small, high-tech operations was

the possible loss of contacts during an economic downturn
in 2000. Initial contacts in 1999 had been positive, and TN
initially operated primarily as an exporter of high-tech net
work communication software and hardware, supporting the
after-sales service with frequent visits, e-mails, and tele
phone calls. During the rapid global downturn that occurred
in the United States and then Europe in early 2000, clients
withdrew from ongoing business as the financial pressure on
their companies escalated. The large foreign companies also
expressed concern about the geographic distance separating
TN in Australia from the United States and Western Europe.
Tele Netcom reduced this risk to its position, remaining
"connected" and profitable by moving away from an export
mode (outward activity) and toward an import mode through
exclusive reseller contracts (inward activity). This gave TN
continuously "renewed connections" with key foreign net
works, despite a global downturn, providing these large for
eign players entry into the Asia-Pacific market with little
effort on their part.
So the idea is that you go in and sell the hardware and

systems and then the services on the back end of it.... So
we make more money out of [the] back-end services
(exclusive reseller), and then [we] ultimately sell our
product out through them as well. The same through
[TN's competitor]. We're actually helping them to com
pete with us. (CEO, TN)
To reduce the risk of dealing with multiple and diverse cul

tures, the senior management at RM dealt only with the
regional managers of these large global photographic retail
organizations. The managers' personal contacts were with
regional managers who had risen to these senior positions in
recent years, providing the small firm with access to all their
retail outlets throughout Europe, Africa, and the Middle
East. Some regional managers were in charge of a chain of
1500 to 1800 retail outlets in a single market.
Directly, we have dealt with all the countries in Western

Europe. We have been marginally exposed to a big
chunk in Eastern Europe. Because we had one guy who
was very keen, and he was running them out as fast as
we could do the drawings! And we've been exposed to
the Middle East regions. That's the same as Europe,
(joint managing director, RM)
We develop our conceptual framework (Figure 1) by integrat

ing the findings of our three case studies with the extant lit Development of a
erature on small-firm early and rapid internationalization, Conceptual Framework
network perspective, client followership, innovation, and
technology. Figure 1 shows the importance of the environ
ment (internal and external) and its impact on the three key
constraints to smaller-firm rapid internationalization identi
00
CO
c
C/3
Q
b
I
) Market
Q
?
5a
?
Network knowledge
Ambitions and interests
I"
Connected relationships
Firmfectors
b -Managerial commitment
ta
Co
S Aversion to
3 risk taking
25
fied from the literature (lack of economies of scale, lack of
financial resources and market knowledge, and aversion to
risk taking). Our analysis confirms the three key constraints.
Figure 1 also shows the relationship among the three key
constraints that smaller born-global firms face and the five
strategies they implement simultaneously to overcome them,
namely, (1) personal network contacts, (2) strong relation
ships with large foreign customers and suppliers, (3) client
followership, (4) use of advanced technology, and (5) multi
ple modes of entry. These strategies can be broadly classified
as network development and alliance-building capabilities,
technology advantage, and multiple entry modes. Although
each construct is a separate entity, there are close relation
ships to other constructs, which we note throughout this sec
tion to show their interconnections in our framework. We
also show how relationships constantly change, such that
new relationships are formed and personal networks are
"added on" to existing relationships. The ability of these
small firms to keep making new contacts to expand their net
work of relationships is essential for the management of the
rapid pace of international expansion.
Table 1 provides an overview of prior studies leading to the

development of constructs for the first section of our concep
tual framework, including the environment (internal and
external forces) and the three constraints. We then integrate
the findings into the conceptual framework with the identifi
cation of five strategies used by small-firm senior managers
engaged in early, rapid market entry.
The way that firms combined these five strategies was

adapted over time, and business-to-business linkages for net
work development were critical for SMEs to achieve early,
rapid international expansion. This study is cross-sectional
and focuses much attention on the particular problems fac
ing SMEs and how key constraints have been overcome as
the SMEs rapidly internationalize. All five strategies make
important contributions to the way managers in smaller
firms manage this process. Rapid internationalization has
enabled the firms to grow quickly, despite the constraints
associated with their smaller scale, and to keep pace with
rapidly evolving technologies. The five strategies acknowl
edge that certain firm-specific resources affect the pace of
small-firm internationalization. The case-study firms use
these resources to achieve rapid internationalization and
explain how and why they do so. We explain that the differ
ences between industries are important. Investments in
leading-edge technology and in processes that are innovative
and high tech provided the firms with first-mover advantage
in international markets. More rapid internationalization
might be expected to lead to earlier profitability, but at a cost
Smaller Born-Global Firms and Rapid Internationalization
Construct Supporting References
Table 1. Environment (internal and external
Incorporation of Prior Studies entry forces)
and Findings into the Environmental (industry) factors Caloghirou et al. (2004)
Development of Constructs for Chetty and Campbell-Hunt (2004)
Market impediments (i.e.,
the Conceptual Framework smallness, saturation, and Garrielsson and Kirpalani (2004)
isolation) and the effects of
Crick and Spence (2005)
Caloghirou et al. (2004)
globalization (driver for small-firm
internationalization)
Knight and Cavusgil (2004)
Internal (firm-based) factors Chetty and Campbell-Hunt (2004)

Blankenburg (1995)
Preentry (investment) and internal
Daniel, Hempel, and Srinivasan (2002)
entry (network knowledge,
Reuber and Fischer (1997)
ambitions and interests, connected
Oviatt and McDougall (1995)
relationships, and network
Svensson (2004)
internationalization) forces
Leek, Naude, and Turnbill (2003)
Ghauri et al. (2003)
Styles and Ambler (2003)
Firm factors (managerial Caloghirou et al. (2004)

commitment and organizational Bloodgood, Sapienza, and Almeida
characteristics) (1996)
Young, Dimitratos, and Dana (2003)
Three Key Constraints

Poor access to economies of scale Welch and Luostarinen (1988)
Lack of financial resources and market Johnson (2004)
knowledge Karlsen et al. (2003)
Dimitratos and Plakoyiannaki (2003)
Reuber and Fisher (1997)
Knight (2001)
Aversion to risk taking Dimitratos and Plakoyiannaki (2003)
Westhead, Wright, and Ucbasaran
(2002)
Oviatt and McDougall (1994)
Miller (1983)
Five Key Strategies Derived from the cross-case analysis

Extensive personal network contacts
Collaborative partnerships with large

foreign customers and suppliers
Client followership
Use of advanced technology
Multiple modes of entry
Early and Rapid Foreign Market Entry Derived from the cross-case analysis
to senior management. The five strategies reveal how man

agement copes with the rapid rate of change necessary for
early and accelerated international expansion.
Environmental (industry) and internal (firm-based) factors

Environment drive small born-global firms to seek international expansion
and to use several strategies simultaneously. Figure 1
acknowledges the role of environmental factors (market
impediments, such as smallness, saturation, and isolation)
and the effects of globalization (the driver for small-firm
internationalization) that Gabrielsson and Kirpalani (2004)
and Chetty and Campbell-Hunt (2004) previously identified,
as well as firm factors (managerial commitment and organi
zational characteristics; Caloghirou et al. 2004). Our frame
work acknowledges the findings of a recent study of small
and large Greek manufacturing firms (Caloghirou et al. 2004)
that firm-specific factors (internal factors) have a greater
impact than industry factors (environment and globalization
factors) on the performance of small born-global firms. Next,
we discuss the five strategies in greater detail and examine
how the strategies contribute to overcoming the constraints.
Extensive Personal Network Contacts. Managers displayed a

strong personal commitment to participate in international Strategies
markets, which underpins the way senior managers perceive
the three key constraints and how they build an integrated
response using the five strategies. This was especially evi
dent at the senior management level, where managers had
many long-term personal contacts in foreign markets across a
range of industries closely related to their own. This sup
ports the work of Chetty and Campbell-Hunt (2004) and Bell
and colleagues (2003), confirming the important link
between the networks of each manager and the pace of inter
nationalization. We provide insights into how network
development occurs in early, rapidly internationalizing
SMEs, observing a "passion" for internationalization and the
extensive networks of all senior managers as antecedents and
of particular importance to the development of smaller born
global firms. Senior managers in smaller born-global firms
exhibited high commitment, drive, and a willingness to take
risks. They were able to use their networks to connect to lead
markets through large key foreign customers and suppliers
and, thus, to participate rapidly in those markets with large
orders from inception.
Collaborative Partnerships with Large Foreign Customers

and Suppliers. The utilization of personal networks to facili
tate business relationships was a major strategy. Ritter,
Wilkinson, and Johnston (2004) argue that business relation
ships are embedded inside (employees, departments, and
functional units) and outside (customers, suppliers, comple
mentors, and competitors) a firm and that a firm seldom has
control over all these relationships. They suggest that the
interplay among external, interorganizational, and cross
departmental relationships using a network approach
demands an integrated understanding. They call for further
research to focus on how firms should manage these rela
tionships, not just on understanding relationships, and we
show how managers in small born-global firms achieve this
through relationships and network development. By devel
oping strong, adaptable relationships with large global sup
pliers and by achieving high standards of quality, our man
agers minimized the risks of "switching" and cancellation of
large orders. Managers might accept an exclusive arrange
ment with a foreign buyer in return for an early commitment
to large orders. Strong relationships facilitated ongoing inter
action and were useful in monitoring and controlling the
relationship.
For MF, risk was the cost of adapting packaging for an exclu
sive brand, which takes time and is administratively expen
sive, for a new customer referred from a previous customer.
However, the large Asian buyer viewed this outlay as an
"adaptation" and a demonstration by the SME of its early
commitment to the relationship with the large buyer. The
large buyer felt obligated to "reciprocate" with very large
orders from the small firm at the commencement of the rela
tionship. This reveals how the managers developed new
relationships from prior ones in foreign markets and how
essential this was for the small firm to expand rapidly. Man
aging the rapid pace of international expansion places sig
nificant strain on firm resources, so trust must be developed
quickly, and risk taking is necessary to create new relation
ships from existing ones. Risk taking was compensated by
referrals from existing partners in networks that, in a sense,
protected the small firm from "unknown" partners. This
allowed the managers to rely on these referrals from collabo
rative partners to build more network partners early and
quickly and to expand rapidly into the international market.
Client Followership. For small firms, the risk of making rapid

and dedicated international expansion and penetration deci
sions can be minimized through client followership (Bell et
al. 2003). By developing relationships with large suppliers
and customers into strategic alliances, licensing, and JVs,
managers of small born-global firms share the financial risk
and burden with partners and rapidly follow their client base
for sourcing, sales, and NPD, regardless of downturns in the
global environment. The new foreign customers that client
followership provides the small firm also raise the firm's
visibility in the foreign network, which in turn leads to refer
rals; this is how small firms build new relationships quickly
for rapid international expansion. This strengthens the argu
ment that firm-specific factors are more important than envi
ronmental factors in firm outcomes, not simply for small
firms (Caloghirou et al. 2004) but for smaller born-global
firms as well.
Use of Advanced Technology. Smaller, knowledge-intensive

firms have proliferated in the new global economy and are
perceived as more proactive in their internationalization
strategies than traditional firms (Crick and Spence 2005).
There is also a high prevalence of such firms as emerging
exporters in the high-value-added manufacturing sectors
(Gabrielsson and Kirpalani 2004). Our extensive search was
able to locate only born-global firms that were high tech and
innovative in nature or in processes, and this appeared to be
a major factor in facilitating their rapid pace. Johnson's
(2004) U.S.- and U.K.-based findings that high-tech levels are
prevalent in "start-ups" appear to be true also in the Aus
tralian context. We could not find start-ups intent on early
and rapid internationalization that were not high tech in
their industry or market leaders in high-tech processes.
Thus, high-tech processes appear to underpin the achieve
ment of sustained, early, rapid international growth.
Multiple Modes of Entry. Small firms internationalize at a

rapid pace using multiple strategies, such as strategic
alliances, JVs, wholly owned subsidiaries (Karlsen et al.
2003), and client followership (Bell et al. 2003). Johnson
(2004) argues that entry modes of small firms and their early,
rapid internationalization processes have received little
attention in international business. In our analysis, managers
in small born-global firms did not pursue the strategies with
equal intensity. They tended to rely on multiple strategies for
rapid market entry achieved through collaborative partner
ships and client followership. Our findings suggest the sig
nificance of network development for simultaneous multiple
modes of entry.
Poor Access to Economies of Scale. Economies of scale pro

vide larger firms with relatively lower unit costs of produc How the Strategies
tion because of their superior buying power and because Contributed to Overcoming the
they can spread fixed costs more effectively. These Perceived Constraints
economies render a larger firm more competitive than
smaller firms and therefore assist it in creating capacity to
pursue export opportunities (Welch and Luostarinen 1988).
Our case-study managers proactively sought out and formed
collaborative partnerships, which enabled them to achieve
economies of scale quickly and, also, to provide overseas
customers with large-volume orders on a consistent basis.
They also outsourced activities for which they could not
achieve economies of scale internally.
Lack of Financial and Knowledge Resources. It is argued that

smaller firms face financial constraints that impose an addi
tional limitation on their development of activity to interna
tionalize (Knight and Cavusgil 2004). Such firms also lack
expertise to identify opportunities to export and may not
have the specialist executives to manage international opera
tions (Johnson 2004). The use of multiple entry modes by our
born-global firms, along with exclusive partnerships, when
appropriate, enabled rapid foreign expansion and penetra
tion, thus enabling the firms to realize economies of scale.
We also show how these managers achieved economies of
scale. The economies of scale facilitated both debt financing
and equity financing through JVs. Multiple linkages also
maximized access to knowledge resources.
Aversion to Risk Taking. The "network structure itself tends

to control the risk ... because network members usually
share rents" (Oviatt and McDougall 1994, p. 57). The concep
tual framework allows for entry modes that can be separated
into outward activities (export intermediary, export agent,
export direct, sales office overseas, foreign direct investment
in sales office, licensor overseas, and franchisor overseas),
inward activities (import intermediary, buying agent, import
direct, buying office overseas, licensee in host country, and
franchisee in host country), and linked activities (strategic
alliances and cooperative management) to share the risk. We
show how managers can use the different entry modes to
mitigate risk. During economic downturn, our managers
were able to use a risk-reducing strategy, moving from out
ward (exporting) to inward (importing as an exclusive dealer
in a strategic alliance) business activities, allowing them to
remain "connected" and, later, to reestablish the relationship
as an outward one (JV with NPD). We reveal two types of risk
here: the risk associated with diversifying into import activi
ties and the risk of losing a valuable relationship because of
the economic downturn. Our small firms perceived the latter
type of risk as more important than the former. This risk tak
ing and persistence, perceived as evidence of an entrepre
neurial culture within each small firm (Dimitratos and
Plakoyiannaki 2003), enabled managers to remain connected
and visible to key players in main markets, despite the nega
tive environmental factors. Evidence of an entrepreneurial
culture is that they take a high-risk path. The strategies are
how they minimize and manage the risks. Thus, risk mini
mization through adaptation, use of multiple strategies
(exporting, importing, strategic alliances, and JVs), and per
sistence, especially in the early stages of their growth (first
two years), enabled the three SMEs to maintain an interna
tional presence and to grow, despite considerable risks of
nonpayment, cancellation, switching, and economic down
turn. Table 2 summarizes the links between the five strate
gies and the three constraints and provides a framework for
the development of propositions/hypotheses for further
research.
We identified several arguments in support of the proposi

Conclusions, Limitations, tion that smaller firms face particular constraints when rap
and Implications for idly internationalizing. To echo the work of Johnson (2004,
Further Research p. 139), we acknowledge that the "principal factors influenc
CO
D
fe
CD
hl
to Constraints
o
3i
Lack of Financial and Knowledge
o Strategies Poor Access to Economies of Scale Resources
cr
Q Personal networks Rapid increase in sales volume is Limitations in financial and knowledge
achieved by using personal networks to resources are overcome using formal
establish partnerships and alliances and informal alliances developed
quickly. through personal networks. Access to
ce
key markets is gained at a low cost
D through collaborative arrangements.
?3
to Collaborative partnerships Economies of scale in production were Collaborative partnerships (JVs and
Q achieved by developing relationships alliances) share financing expansion in
with suppliers, which enabled firms to specific markets. Rapid development of
outsource activities for which they multiple networks facilitates access to
could not achieve economies of scale knowledge resources for NPD
internally. (intellectual property).
? Large, growth-oriented distribution

partners facilitate rapid growth in
o international sales and associated
?3
Q economies of scale and provide links
fe with competitors to meet large overseas
o orders.
E*.
o
?3
O?
O?
O?
05
Constraints
CO Lack of Financial and Knowledge

c Strategies Poor Access to Economies of Scale Resources
en
Q
? Client followership Trusted clients facilitate rapid access to Trusted partners provide access to
?
new markets, allowing early, rapid knowledge resources and, in some cases,
growth and access to economies of financial resources through JVs and
CD scale. alliances.
3
? Use of advanced technology Unique technology is the key element Unique technology attracts partners that
giving the firm a competitive advantage are able to provide the market
to that attracts customers and alliance knowledge the case-study firms lack.
o
? partners, providing first-mover
marketplace advantage and rapid growth
that facilitates economies of scale.
?
hl Multiple modes of entry Multiple modes of entry facilitate access
to multiple markets and, at the same
Multiple modes for entry into multiple
markets and regions facilitate learning
V.CO time, enable rapid growth and access to and generate cash flow.
Q economies of scale.
?
CO
s
5
ing early stage internationalization of international start-ups
are the international vision of the founders, their desire to be
international market leaders, the identification of specific
international opportunities, and the possession of interna
tional contacts and sales leads." Small firms can have unique
technology along with the flexibility and agility that make
them quick to respond and adapt. Their competitive advan
tage comes in being quick to size up opportunities, use first
mover advantage, and move rapidly into multiple interna
tional markets. Managing the risks and moving quickly is
fundamental to their dynamic, innovative, continuously
changing, and sustainable rapid market expansion. Larger
firms, which the SMEs seek out as partners, need the tech
nology, flexibility, and adaptability that these smaller born
global firms offer as part of their supply chain across the
global market.
Seeing the global market through the eyes of our managers,

we get the strong impression that the perceived constraints,
rather than being a barrier to internationalization, prompt
them to seek rapid involvement in multiple markets to gain
access to multiple resources and to share the risks. Collabo
rating rather than competing with large foreign players
makes the phenomenon of the smaller born-global firm pos
sible. The conceptual framework we provide in Figure 1 and
delineate in Table 1 (with an explanation of the linkages
between the strategies and the constraints in Table 2) shows
the approach managers take for risk management, their abil
ity to achieve economies of scale soon after inception and to
share the financial burden through alliances/partnerships,
how they manage the risks of high financial exposure and
limited market knowledge through client followership, and
how they go about their rapid internationalization process.
Collaborative partnerships provide greater levels of market
knowledge and sharing of the financial burden for rapid,
simultaneous, multiple-market expansion and penetration
by SMEs. All three SMEs experienced rapid growth, which
Chetty and Campbell-Hunt (2004) identify as a destabilizing
factor that leads to problems of coherence and market risk.
However, we found that the early, rapid growth was not
destabilizing and that the SMEs managed well. Although we
are aware that many firms experience problems of lack of
coherence and market risk, our research reveals how man
agers can manage these particular issues. The managers in
the current study shared risk through strong partnerships
and, in this sense, were "sheltered" from the full impact of
the acceleration. One manager used regional managers in
Eastern and Western Europe as his collaborative partners.
The regional manager contacted all country managers in the
region and told them to accept the product changes that the
management team in the born-global firm brought to their
firm. In this way, the management team did not need to deal
with potential industry- and country-specific problems,
which would require considerable foreign-market knowl
edge. The large foreign partner managed this for the born
global firm, acting as a buffer between it and individual
country requirements and negotiations.
The innovative approaches that all managers of our born

global firms chose revealed firm-specific factors (organiza
tional capabilities) and exhibited an absence of incremental
ism. The stage model (Johanson and Vahlne 1977) has little
application because our firms adopted some stages but not
others and did so in no incremental order. Indeed, they
moved among the stages over time as a way to manage their
levels of risk. The key constraints identified in extant litera
ture and confirmed in our analysis are not unusual to small
firms. Both large and small firms engaged in internationali
zation are likely to face some or all of these constraints, but
managers in smaller born-global firms respond by develop
ing strategies that allow them to expand rapidly into interna
tional markets while sharing resources and the risks. Each
strategy is strongly related to networks, and these business
networks are derived from personal networks that have taken
a long time to develop, suggesting that a network perspective
is a major theoretical underpinning. There is also high entre
preneurial passion, which we can partially explain as a
desire and ability among senior management to expand rap
idly into international markets and to manage the risk by
spreading the responsibility and sharing the rewards with
large foreign customers and suppliers through the client fol
lowership approach.
In my instance, it was largely a personal thing. Why not

have a go? I did say we have to put "X" amount of
money aside to go do this, and I'm going to lose here and
here. So, I did make decisions, but it was from the heart
as opposed to the pocket, (joint managing director, RM)
Although our findings support those of Chetty and

Campbell-Hunt (2004) that born-global firms are forced to
focus on innovative products, they also reveal that the inno
vative processes are important insofar as they open up global
markets for the firms. As a result of limited financial
resources, these firms tend to use representation sourced
within foreign markets for these tightly focused, technology
based industrial and consumer goods and services. Confirm
ing the particular constraints to rapid SME internationaliza
tion, we reveal what drives managers' choices and mix of
strategies for achieving rapid market entry and their search
for foreign suppliers whose products they can bring into
their domestic market (e.g., exclusive reseller alliances).
Finally, the stage model does not adequately explain the
strategic use of inward strategies (e.g., the use of exclusive
reseller alliances after the withdrawing from a foreign mar
ket) that our born-global firms adopted to remain connected
to key markets during an economic downturn.
This research is based on three case studies located in Aus

tralia. Thus, the findings cannot be generalized beyond this
context. However, this limitation is also a strength; an in
depth analysis of a small number of firms can provide origi
nal insights into the how and why of executive behavior
(Gabrielsson and Kirpalani 2004)?in this case, how and
why small firms engage in rapid internationalization soon
after their establishment. The case studies unfold the stories
of the three companies over a year (though we incorporate an
extended discussion of how the three firms evolved to this
point). They explain how the firms moved rapidly to realize
their vision and become global players within two years. The
firms had been relatively successful by most measures of
business performance (e.g., international market penetration,
sales growth, financial performance).
Further research is needed to understand more fully the

motivation of senior managers and their strategic choices for
born-global SMEs (Chetty and Campbell-Hunt 2004) and
whether the process model captures this phenomenon or
explains the development of network contacts. We argue that
it does not accurately depict the way born-global firms
behave, in the sense that they do not appear to follow stages
(Johanson and Vahlne 1977). Hallen (1992) provides a net
work perspective of senior management network evolution,
but further research is needed to determine how such net
works are passed on (Svensson 2004). Bell and colleagues
(2003) identify pathways for internationalization for "tradi
tional" and born-global firms, but research is needed into
external (market- and industry-specific characteristics) and
internal (knowledge-intensive or scientific knowledge
embedded firms) factors as antecedents to rapid internation
alization for small firms. We provide a conceptual frame
work and hypotheses for future testing (see Table 1).
We identified seven key variables that can be hypothesized

to be positively associated with rapid internationalization of
SMEs:
1. A domestic market that is perceived as too small to

achieve financial viability;
2. A strong commitment by senior management to the

idea of internationalization;
3. Personal networks that provide the basis for establish

ing partnerships and alliances;
4. Unique technology that provides a source of competi
tive advantage;
5. A commitment to growth through partnerships and

alliances with both suppliers and distribution
partners;
6. Adaptation of relationships over time so that they are

sustained and meet the changing needs of partners,
and development of new relationships to enter new
product markets; and
7. The use of multiple entry modes in different combi

nations for different markets.
Therefore, our broad research proposition is that rapid SME

internationalization (the dependent variable) is positively
related to these seven independent variables. In developing
this proposition, we recognize that the concept of "equifinal
ity" may apply (i.e., different combinations of these variables
may result in equally rapid rates of internationalization).
This implies that attempting to identify typologies may be a
fruitful avenue for further research. The United Kingdom,
the United States, Australia, and New Zealand have been
identified as having high numbers of smaller born-global
firms, providing a basis for international comparisons. Given
the paucity of quantitative research on the born-global SME
phenomenon, considerable work must be done to develop
valid measures of the dependent and independent variables
and measures for testing the hypothesized relationships
between them. We suggest a quantitative test of our frame
work across U.K., U.S., Australian, and New Zealand mar
kets, the subsequent comparison of their strategies for inter
nationalization, and the identification of the types of
entrepreneurial approaches adopted by the born-global firms
in these regions.
Australian Bureau of Statistics (2004), "Characteristics of Small

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How Smaller Born-Global Firms Use Networks and Alliances To Overcome Constraints ToRapid Internationalization

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American Marketing Association is collaborating with JSTOR to digitize, preserve and

Although there is substantial literature on the internationali

The limited literature on the international activities of SMEs

However, no studies have examined the factors that drive the

Several issues emerge under this broad objective. First, Ovi

We begin by examining the literature on born-global firms,

34 Susan Freeman, Ron Edwards, and Bill Schroder

In the development of technology, networking is viewed as a

Globalization pressures that follow the liberalization of an

Smaller Born-Global Firms and Rapid Internationalization 35

Studies of successfully internationalizing born-global SMEs

There is also a relationship between the international experi

36 Susan Freeman, Ron Edwards, and Bill Schroder

International relationships are subject to uncertainty because

Ghauri and colleagues (2003) suggest that networks are

Smaller Born-Global Firms and Rapid Internationalization 37

Possibilities. Frequently, relationships originate from per

Ellis and Mayer (2001) suggest that firms should pursue

38 Susan Freeman, Ron Edwards, and Bill Schroder

Experience through cross-border partnerships, which pro

All the problems we discussed are faced more intensively by

We employed an in-depth interview method using both

Smaller Born-Global Firms and Rapid Internationalization 39

We used Eisenhardt's (1989) recommendations as our guide;

We included analyses of primary and secondary source

40 Susan Freeman, Ron Edwards, and Bill Schroder

For the managers in each of the firms, the domestic market

The three firms achieved economies of scale in their opera

During the second year of operations, TN initiated both

Smaller Born-Global Firms and Rapid Internationalization 41

There was going to be a downturn. Rather than narrowly

The small local market offered minimal opportunities for

In 1997,1 was going overseas quite a lot and doing a lot

Susan Freeman, Ron Edwards, and Bill Schroder

The cost of rejected shipments could have put MF out of

[We are] in a position now that... makes it very difficult

There were several constraints that senior managers faced

Smaller Born-Global Firms and Rapid Internationalization 43

We are conscious of the different size requirements of

The high level of R&D required in the communication soft

I'm just about to do a deal with them [a major U.S.

Managers were limited by a lack of knowledge about the uses

44 Susan Freeman, Ron Edwards, and Bill Schroder

One of our tricks was that we saw this downturn coming

Managers of the small high-tech firm RM overcame their lim

We did a stint in Germany first..., before we got to the

The key constraint for the case-study firms as newcomers to

Smaller Born-Global Firms and Rapid Internationalization 45

This industry was so driven by personalities. He was

The firms managed the risks associated with local suppliers

The major risk facing TN's small, high-tech operations was

46 Susan Freeman, Ron Edwards, and Bill Schroder

So the idea is that you go in and sell the hardware and

To reduce the risk of dealing with multiple and diverse cul

Directly, we have dealt with all the countries in Western

We develop our conceptual framework (Figure 1) by integrat

Smaller Born-Global Firms and Rapid Internationalization 47

Table 1 provides an overview of prior studies leading to the

The way that firms combined these five strategies was

Smaller Born-Global Firms and Rapid Internationalization

Internal (firm-based) factors Chetty and Campbell-Hunt (2004)

Firm factors (managerial Caloghirou et al. (2004)