International New Ventures, Organizational Structure, and IC Management

International New Ventures, Organizational Structure, and IC Management

Irene M. Herremans (University of Calgary, Canada) and Robert G. Isaac (University of Calgary, Canada)
DOI: 10.4018/978-1-60566-679-2.ch016
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Abstract

Flare Solutions Limited is an entrepreneurial international new venture (INV). Of particular interest is the manner in which the firm developed a strategy by combining a special set of resources to provide knowledge products to markets in various countries. The firm realized early on that its knowledge, systems, and relationships were to be the keys to its success. With this in mind, the founding partners took steps to ensure that the firm’s structure and controls were conducive to management of its intellectual capital (IC). The chapter discusses the formation of the INV and the management of its IC in special ways to sustain its entrepreneurial activity. In part, this involved creating management processes consistent with its objective of creativity and innovation for the broad purpose of knowledge development. Consequently, the firm has been able to mobilize its IC to sustain its competitive edge in providing knowledge services.
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Introduction

Early research regarding multinational enterprises generally ignored most small- and medium-sized enterprises (SMEs), believing that they rarely attempted to internationalize their operations beyond exporting. This line of research assumed that firms wishing to operate in foreign countries require large commitments of resources, generally unavailable to SMEs. Until the early 1990s, most multinational enterprise (MNE) research was based on the stage theory, suggesting that an enterprise begins operations in domestic markets and once settled there, then progresses to exporting to similar countries. The next stage might be exporting to dissimilar countries or setting up a marketing office in a similar country. The enterprise moves slowly in stages, gradually committing resources in foreign operations, then ultimately becomes a mature MNE in multiple countries with a large and visible presence. Countries compete heavily to make foreign investment attractive to the tangible resource-heavy MNEs. Incentives offered to MNEs by governments often include among others, tax holidays, favorable environmental regulations, lax labor standards, and attractive locations.

The original concept of the large and mature MNE, with its subsidiaries or franchises visible in a multitude of countries, still exists (e.g. General Motors, General Electric, Royal Dutch Shell, and Pizza Hut). However, due to electronic forms of communication, the rise in the service and information economy, and the growth of e-commerce, the barriers to internationalizing operations are now disappearing. These characteristics allow more SMEs to reap the benefits of operating in a variety of different countries without heavy commitments of tangible resources. The Internet has blurred borderlines, changing the way we conceive MNEs. And the movement to a heavier reliance on knowledge as a wealth creating activity allows many SMEs to cross borders with little trace and less controversy associated with traditional multinational enterprises. Compared to traditional MNEs, international SMEs have less political, economic, and social impact but add value in their own special manner.

A new wave of studies in the business literature recognizes that many SMEs also operate internationally without large commitments of resources; however, little is known about international new ventures (INVs) (Zahra, 2005), global small firms (Prasad, 1999), or micromultinationals (Ibeh, Johnson, Dimitratos, and Slow, 2004; Dimitratos, Johnson, Slow, and Young, 2003). In their seminal paper on INVs, Oviatt and McDougall (1994) pointed out that owning resources does not necessarily define MNEs; rather their actions should be more indicative of such classification. Oviatt and McDougall (2005) defined an INV as “a business organization that, from inception, seeks to derive significant competitive advantage from the use of resources and sale of outputs in multiple countries” (p. 31) with the distinguishing feature being that it starts with a proactive international strategy rather than evolving in stages. Using entrepreneurial theory to explain the emergence of INVs, DiGregorio, Musteen, and Thomas (2008) suggested that INVs come into existence when either of two opportunities arises: 1) to leverage internationally resources that are based domestically, and 2) to exploit resources internationally that are located internationally. The authors suggested that an entrepreneur has the ability to combine resources or markets in novel ways to provide a product or service. This suggestion is rooted in the Schumpeterian and Austrian perspective of entrepreneur activity,

Based on the work of Venkataraman (1997), Shane and Venkataraman (2000) defined scholarly investigations of entrepreneurship as the “study of sources of opportunities, the processes of discovery, evaluation, and exploitation of opportunities, and the set of individuals who discover, evaluate, and exploit them” (p. 172). To extend this definition to the international arena, DiGregorio et al. (2008) suggested that opportunities can exist for either unique resource combinations (by combining resources distributed internationally) and/or unique market combinations (by finding special markets internationally). In an age of knowledge assets, combining resources internationally may mean pooling specific capabilities, knowledge, and skills held by individuals located in different countries, and distributing resources internationally may mean using technology to deliver or market products in different countries. Organizations recognize these conditions and exploit them, thereby creating an INV.

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