Internationalization Technology and IPO Firm Growth

Internationalization Technology and IPO Firm Growth

Fiona Xiaoying Ji (College of Business, Ohio University, USA) and Steve Bin Zhou (College of Business, University of Houston Downtown, USA)
Copyright: © 2014 |Pages: 13
DOI: 10.4018/978-1-4666-5202-6.ch120
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Introduction

The dynamic environment including technological, social and economic changes (McDougall & Oviatt, 2000) and the fast obsolescence of products or limited domestic demand (Crick & Spence, 2005), urges many entrepreneur firms to have an international focus from inception. These firms do not follow a systematic and sequential internationalization process suggested by the traditional international studies as an incremental expansion model of Multinational Corporations (MNCs). One type of entrepreneur firms includes those who issued the initial public offering (IPO), which has been considered as an important stage in the life cycle of the firms. According to Filatotchev and Piess (2009), IPO represents the point of entry, which gives firms expansion options through access to equity capital. However, there is little research, which bridges internationalization and IPO firms’ growth.

Some firms already entered into an international market before issuing IPO to explore less related international business knowledge to add to the existing firm capabilities, thus these firms are defined as pre-IPO internationalized firms in this study. Since initial internationalization before high expansion and growth stage, those firms might choose to go to similar foreign markets to leverage and exploit existing knowledge for growth or they might continue experimenting with less related international markets (Gassmann & Keupp, 2007; Mathews & Zander, 2007). Therefore during the process of growth, they are confronted with a paradox between exploiting existing competencies and exploring new sources through international operations (Vera & Crossan, 2004). We propose that these two activities have to be balanced to create value for IPO firms in order to benefit from internationalization (Eisenhardt & Martin, 2000; Teece, 2007).

In this study, we conceptualize IPO firms’ capabilities as embedded in activities and routines of organizations for addressing complex, practical and repeated problems including both technology development and international expansion. These entrepreneur firms can be regarded as different collections of tangible and intangible knowledge with the desire to identify, acquire and accumulate new knowledge to pursue perceived opportunities (Ireland, Hitt, Camp, & Sexton, 2001). According to the international entrepreneur research, entrepreneur firms are likely to possess the “learning advantages of newness” (Autio, Sapienza, & Almeida, 2000; Zahra, 2005). Given the fact that entrepreneur firms lack existing organizational routines, they face less inertia to learn knowledge from external sources including foreign markets (Barkema & Vermeulen, 1998). We propose that successful international entrepreneur firms achieve punctuated equilibrium or temporal evolution between accumulative growths in the long run and short bursts of aggressive expansion (Gupta, Smith, & Shalley, 2006). Entrepreneur firms may use sequential adjustments to shift between these two processes. More specifically, once a new venture initiates new market entries, the repeated use of existing knowledge can make managers become more aware of current local knowledge and lead them to have a deeper understanding of the opportunities available in the foreign market. We argue that competitive advantages will emerge in those international entrepreneurs that can identify the optimal equilibrium and balance of international growth paths.

In this study, we argue that IPO firms can develop balance and equilibrium capabilities incorporating both exploitative and explorative capabilities to benefit from early internationalization. Therefore, we propose that pre-IPO internationalization is associated with firms’ growth through capabilities development process at post-IPO stage. We propose that the ability to internationalize during a young age and simultaneously commit to exploitation technology activities is associated with firms’ growth. Second, we argue that an increased emphasis on exploration capabilities may impede the benefits stemming from early internationalization for IPO firms. Figure 1 gives the conceptual framework tested in this study.

Figure 1.

The impact of internationalization and technology development on IPO firm growth

Key Terms in this Chapter

International Entrepreneur: International entrepreneurs are defined as those pursue internationalization to exploit opportunities at an early growing stage.

Internationalization: Internationalization can be defined as the process of adapting firms’ operations including strategy, structure, resource to international environments.

New Ventures: New ventures are defined as those with firm at the age of six or younger.

Exploration: Exploration is defined as activities of searching and experimenting with new alternatives and entails a shift away from the current knowledge base and skills to a novel trajectory of knowledge including new market expertise, or external relationships.

MNC: Multinational Corporations are defined as those ones gradually increasing foreign involvement in which firms follow their way to become internationalized.

Exploitation: Exploitation is defined as activities of refining and extending existing knowledge. In this study, international exploitation involves improvements in existing business routines and builds on the existing international knowledge trajectory.

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