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Growing the

Growing the entrepreneurial


entrepreneurial firm firm

Networking for international


49
market development
Nicole E. Coviello Received November 1993
Revised May 1994
University of Auckland, Auckland, New Zealand and
Hugh J. Munro
Wilfrid Laurier University, Waterloo, Canada

Introduction
Growth of small and medium-sized enterprises is recognized as crucial to a
nation's economic development and future wellbeing. As part of growth, the
need for successful international market development is particularly acute for
smaller firms pursuing niche strategies from a limited domestic market.
The literature on the international market development initiatives of entre-
preneurial firms is quite limited and rather inconsistent in its findings (see
Miesenbock’s extensive review[1]). Much of the research focuses on issues
relating to the export performance of small firms[2-4], with literature on
entrepreneurial firm internationalization limited to the exploratory work of
Lindqvist[5] and Coviello and Munro[6]. In the latter study, entrepreneurial
high-technology firms were found to develop multiple relationships for
internationalization, and to use them in parallel across numerous markets. Also,
the internationalization process for these firms was compressed over a short
period of time (e.g. two to three years). Finally, it was found that the traditional
“stepwise” approaches to internationalization as discussed in the literature,
generally in the context of larger, traditional manufacturing firms (e.g. [7]), were
not followed by small, entrepreneurial high-technology firms.
The current research expands on Coviello and Munro’s[6] findings, and
examines the entrepreneurial high-technology firm’s approach to international
market development. In particular, the research focuses on their use of network
relationships to pursue foreign market opportunities and conduct international
marketing activities. The article proceeds with a brief literature review and an
outline of the research questions, followed by a summary of the research
method and discussion of research results. Finally, conclusions and
implications are presented.

Literature review
Increasingly, networks have come under examination as a clearly emerging
organizational design[8,9] appropriate to the global high-technology industry European Journal of Marketing,
Vol. 29 No. 7, 1995, pp. 49-61.
which is characterized by high-growth, entrepreneurial ventures[10,11]. © MCB University Press, 0309-0566
European In recent literature it has been suggested that network theory can offer a fresh
Journal perspective on the internationalization processes of firms, particularly for
of Marketing smaller organizations whose development tends to be dependent on
relationships with others[12,13]. In network theory, markets are depicted as a
29,7 system of relationships among a number of players including customers,
suppliers, competitors and private and public support agencies. Thus, strategic
50 action is rarely limited to a single firm, and the nature of relationships
established with others in the market influences and often dictates future
strategic options (see Axelsson and Easton[12] for a more in-depth review of
network theory).
In terms of internationalization, Johanson and Mattsson[14] suggest that a
firm's success in entering new international markets is more dependent on its
relationships within current markets, both domestic and international, than it is
on the chosen market and its cultural characteristics. For example, firms can
expand from domestic to international markets through existing relationships
which offer contacts and help to develop new partners and positions in new
markets. At the same time, network relationships may restrict the nature of a
firm’s growth initiatives[15].
In the context of the entrepreneur seeking to develop international markets,
network theory leads one to examine a variety of internationalization issues.
These include, for example, the impact of network relationships on foreign
market selection and the relative influence of other firms (in both direct and
indirect relationships) on new market entry strategies.
Other issues relate to the evolution of power and control in domestic and
foreign network relationships, the interconnectedness of network relationships
and the effect of network relationships on the rate and success of international
growth. While some of these issues are beginning to be addressed in the
literature[16,17], much of the literature to date examines issues related to
organization design and the general influence of formal and informal networks
on the entrepreneurial venture[9,18, 19]. There is a limited amount of discussion
or examination of the role of networks in growth and international market
development, except from the viewpoint of the focal firm[20,21]. The focal or
“hub” position however, is typically not that held by a small entrepreneurial
organization. Further, given the inherently weak role played by the marketing
function in entrepreneurial high-technology firms[22-24], there has been little
examination of the use of networks to outsource some or all of the marketing
activities for the resource-constrained high-technology venture, as it seeks to
expand internationally. This is particularly important given that effective in-
house marketing and management capabilities are believed to be vital to
successful international expansion[7,25].
Thus, there is much to be learned from further research examining network
theory in the context of the entrepreneurial firm. This research article
endeavours to offer new insights into the international market development
activities and growth of entrepreneurial ventures, through application of a
network theory perspective. More specifically, the objective of this article is to Growing the
examine the impact of network relationships on: entrepreneurial
(1) international market development, and firm
(2) marketing-related activities within international markets.

Method 51
Two sources of data provide the empirical basis for this investigation. The first
consists of four in-depth case studies of the internationalization processes of
entrepreneurial firms in the New Zealand software industry. This industry is
dominated by entrepreneurial firms competing with leading-edge technology in
international markets.
Given the early stage of international network theory development, this
research was exploratory and descriptive in nature. Therefore, case
methodology allowed for the rich detail necessary for theory building[26]. The
selected case companies were at a relatively mature stage of internationalization
(ranging from between ten and 15 years old, with 25-150 employees and 1991
sales of $NZ 2.4-16 million), and reflected rich histories of both successful and
unsuccessful international market development experience. The four
companies had different product characteristics and served different off-shore
markets, using a variety of international linkages (see Table I for details).
Multiple in-depth interviews with the key decision makers in each of the firms,
combined with secondary data, generated the information on which to build the
case histories.

Markets served Linkages used


Firm (by order of entry) (by order of development)

CBA NZ, Australia, Singapore Dealers, distributors, joint venture


UK, Malaysia (later wholly-owned)

DSR NZ, Australia, USA, Canada, Development agreements (with


Europe, UK, Japan, Middle East, marketing support), piggy-backing,
Asia/Africa distributors, joint marketing
agreement

Fact NZ, Australia, UK, Hong Kong, Development agreement,


US, Europe, Japan, Indonesia piggy-backing, distributors

MSL NZ, Australia, Spain, Distributors, development


Malaysia, Japan agreement, piggy-backing,
development and marketing
agreement Table I.
Case summaries
European The internationalization processes were captured chronologically, with the
Journal investigation focusing on when, how and why each development occurred and
of Marketing with what outcome. This historical mapping allowed for pattern-matching with
theory as suggested by case researchers[26,27], and also yielded the temporal
29,7 perspective recommended for network analysis[12]. Data related to the role of
network relationships in international marketing activities and the overall
52 internationalization process were also collected.
Following from the case research, a clear pattern of network use evolved, and
a second stage of research was conducted to examine the research questions
further. The second database consists of information collected from a
structured mail survey of firms in the same industry which were younger and
at an earlier stage of internationalization (see Table II for details). Using the
membership list of the New Zealand Software Exporter’s Association, all firms
serving at least one overseas market with indirect exporting methods or
linkages were targeted (a total of 60 firms). Of these, 70 per cent responded, with
25 firms providing data usable for this study (42 per cent). Information sought
from these firms related to market entry strategies and linkage relationships,
development and management of network linkages, and company performance.
Descriptive statistics were used on Likert-like 5-point itemized rating scales,
and content analysis was conducted on the open-ended questions. Both mean
and median values were reported, recognizing the small sample size and its
potential for a skewed distribution.

Average size 19 employees (median=9)

Average age of firm 7.5 years (median=6)

Annual sales levels (percentage)


Less than $1 million 68
$1-5 million 24
Greater than $5 million 8

Average number of off-shore markets served 2.5 markets (median=2)

Modes of market entry used a(Percentage)


Distributor 52
Agent/representative 40
Piggybacking 20
Joint development agreement 16
Joint development and marketing agreement 16
Joint venture 12
Joint marketing agreement 4

Table II. Note: a(Excluding direct sales)


Survey sample profile
Results and discussion Growing the
Two questions were used to guide this research. Each will now be addressed, entrepreneurial
utilizing information gained from analysis of the four case companies and the firm
survey sample.

What was the impact of network relationships on international market


development? 53
Both sets of data permitted some preliminary insights into the impact of
network relationships on international market development.
Case results. The four case companies reflected patterns of internationalization
which occurred fairly rapidly and across a number of international markets. To
a certain extent, this supports recent literature[28, 29]. That is, the behaviour of
these firms deviates from the accepted “stages” theory of internationalization
[7], which suggests a more gradual international market development path
linked to incremental experience, knowledge and comfort. This behaviour was
perhaps influenced by the highly competitive nature of the international
software industry and the relatively short lifecycles for software products. Also,
the domestic market for these firms was very limited, thus necessitating
international expansion to allow for growth.
However, it is also clear that the case firms were able to internationalize very
quickly by linking themselves to extensive, established networks. Within three
years of company formation, all four case firms were established in a number of
markets, with the average per annum growth rate of the firms (at time of data
collection) averaging 83 per cent. This rapid growth appears to have resulted
from the firms’ participation in international networks, with major network
partners providing the initial trigger to foreign market selection as well as the
entry mode.
To provide the simplest example of a case firm’s internationalization process,
that of CBA is outlined in Figure 1 and Table III. As evidenced by this case, the
network presented the firm with new market opportunities and established
players as potential partners, thus accelerating and shaping internationalization
efforts.
For example, CBA’s initial overseas expansion was to Australia via a network
contact, driven by the US multinational for whom both the Australian company
and CBA distributed the product. No other option for internationalization was
considered by CBA, as the distributor was interested in the CBA product and
provided an immediate opportunity for market access and achievement of
volume sales and growth in a short period. Later entry to Asia resulted from
contacts initiated by CBA’s formal network (an Australian dealer with business
contacts in Singapore) and its informal network (a New Zealand dealer with
family in Malaysia).
The case studies also revealed that market performance, particularly in
priority markets, contributed to network relationships being restructured, with
firms jockeying for control. In two of the four case firms (CBA and Fact) the
New Zealand-based firm evolved to become the focal firm in the network. DSR
European c Joint venture

Journal e Wholly-owned subsidiary


of Marketing US
Australia
MNC
29,7
a
54 b Dealer
d1

CBA d2
UK (NZ)
g Singapore
f j
h

UK Malaysia

i
Dealer

Key:
Original network Indirect/communication
Figure 1. relationships relationship
CBA New direct CBA a–j Order of occurrence
internationalization relationship
process and network
Note: Figure includes only key players in the network. Related network players
development (e.g. CBA dealers or other MNCs they distribute the product for) are excluded

Order Year Event

a 3 Contacted by Australian distributor of US multinational to


carry CBA product
b Signed Australian distributor
c Australian distributor became joint venture
d 5 Considered further expansion and developed product for new
markets
7 Introduced to Singaporean distributor by third party (dealer in
Perth)
Visited Singapore market
e 8 Bought out remaining share of Australian JV, establishing
wholly-owned Australian head office
f Approached by UK distributors
g Signed Singaporean distributor
h 9 Visited UK market and signed one of the interested parties as
dealer
Table III. i Malaysian distributor introduced by third party (NZ dealer
CBA International with family contacts)
process and network j Malaysian distributor signed (with no visit)
development
also increased in strength and negotiating power within its network. Of the four Growing the
case firms, three had relationships which yielded unsatisfactory market entrepreneurial
development results and were either terminated and replaced with new players firm
or the firm established its own sales/support office. In addition, the equity
investment in some relationships was increased by the case firms (e.g. CBA), in
an effort to increase management control and market performance. Finally, as
the firms became more successful internationally, they were wooed by major 55
players in their industry areas, either network members or firms on the network
periphery. By 1993, CBA, DSR and Fact had all been acquired by North
American multinationals, yet management and operations remain in New
Zealand. It is notable that two of these firms had previously been linked with
the network of a major Japanese organization. In the case of MSL, the fourth
firm, the power base of the relationship did not change, although efforts were
made to minimize the risk in being a small firm associated solely with one large
Japanese partner’s network.
Related to this is the issue of relationship power and control in the network.
For example, while networks enhanced the market development activities of all
four case firms, they also placed constraints in terms of pursuing specific
marketing opportunities and establishing relationships with others. In the case
of Fact, all early relationships were established, modified or terminated at the
suggestion of the major partner in the network. These constraints, and the
associated fears of total dependence and domination by a major partner,
contributed to all four firms developing new products for diversified markets,
and establishing their own support/service facilities.
Survey results. The survey data generally support the case findings, although
the internationalization efforts of these firms were at an earlier stage of
development and did not have sufficient history to gauge the network impacts
fully.
From the survey sample, 64 per cent (16) of the firms indicated that their
initial foreign market selection and entry mode were triggered by opportunities
presented by contacts in a formal or informal network, rather than resulting
from their own proactive identification process. General business contacts were
viewed as being most helpful in identifying potential linkages, followed by
customers in the targeted foreign market, their own salesforce and existing
linkage partners.
When asked to report on key international linkages, 36 per cent (9) of the
sample firms noted that there was at least one relationship crucial to their
current and/or future growth. These successful relationships tended to be of a
more involved nature (e.g. piggy-backing or joint marketing and development
agreements) and contributed to a large proportion of the sampled firms’ total
sales (ranging from 10 to 45 per cent). Forty-four per cent (11) of the firms in the
sample also identified relationships which they deemed to be less successful.
The major reasons offered for these negative sentiments included dealing with
partners who were not sufficiently committed or qualified to market the
software properly and/or who distorted marketing policies to serve their own
European interests. Such feelings reflect some of the risks involved in third-party
Journal relationships in international markets. Firms in the survey sample were at an
of Marketing early stage of network development and had not evolved beyond the non-focal
firm position. Thus, their power in relationships was limited, certainly in
29,7 comparison to the case firms at the time of data collection.
The survey findings also shed some light on how networks influence the
56 development of other relationships. Interestingly, existing major partners
exhibited very little influence on subsequent partner formation, although
general network contacts appeared to have moderate involvement in this
regard. This may reflect the relatively early stages of internationalization for
the survey firms (i.e. they may use only a distributor relationship in one foreign
market) as opposed to the more extensive international presence and associated
relationship networks evident in the four case studies. However, managers from
the sample firms indicated that existing networks and linkages were highly
instrumental in their firms’ growth to date and were likely to be even more so in
the future.
Summary. The two sets of data indicate that the internationalization efforts
of software firms, particularly with regard to both initial and subsequent
market entry and mode of entry, are shaped by the interests of other players in
their network of relationships. Market performance, particularly in priority
markets, contributed to powerplays within networks and also attracted the
interests of newcomers wanting to establish new relationships. Finally, network
relationships, while enhancing internationalization efforts, also constrained the
scope and nature of market opportunities open to the firms researched. This
restriction contributed to product and market diversification initiatives in an
effort to reduce dependency on, and control by, dominant players.

How did network relationships impact on marketing-related activities?


Given the technical orientation of entrepreneurial high-technology companies,
it was expected that they would establish relationships with others to
compensate for their limited marketing expertise and infrastructure. This was
so in both the case and survey data, which will now be discussed.
Case results. All four case firms focused on their core competence of software
development and tended to lever the marketing and distribution capabilities of
their network partners to grow their businesses internationally. In fact, the
patterns of evolution in international marketing for three of the cases were very
similar in nature. CBA, DSR and Fact tended to be very dependent on a network
of linkages for their international market development. Marketing
responsibilities, such as market research, customer education and service, and
market intelligence, were largely in the control of their network partners. Over
time, however, all three companies began to develop their own marketing and
service capabilities and to utilize them in a supportive capacity in priority
markets. Two of the three companies, DSR and Fact, also diversified their
product offering and established their own or separate joint marketing/
distribution arrangements for new products. This was done to avoid total
reliance on their major partners. CBA ultimately evolved its international Growing the
distributor relationship (established through its major partner’s network) into a entrepreneurial
joint venture and, ultimately, a wholly-owned subsidiary. Thus, control of CBA’s firm
marketing activities in key markets (Australia and New Zealand) was ensured.
MSL’s international marketing activities reflected the opposite development
path to that of the others. They began with direct sales efforts to Australia, but
soon signed a small distributor in their initial foreign market to accelerate sales’ 57
growth. Following rapid over-expansion to the US, the company was forced to
retrench to New Zealand, and then sought a major partner to support product
and market development. This relationship blossomed to the point where the
partner, a major hardware manufacturer, has complete responsibility for
marketing MSL’s products worldwide – except for Japan, where they helped
establish non-conflicting marketing representation. According to MSL’s
managing director, his organization is clearly positioned as a “development
arm” for the Japanese partner’s world network.
Of note is the fact that all four companies now perceive a need for market
intelligence and planning to the extent that marketing plans are being
developed in three of the firms, and marketing positions were created in all four
firms.
Survey results. The survey data reported similar results for the early stages
of internationalization, with firms entering relationships primarily to accelerate
entry into new foreign markets and enhance their foreign competitive position.
Relationships were also perceived to be very important in accessing local
market knowledge and obtaining initial credibility. Finally, they were viewed as
important to accessing established distribution channels as well as a means for
reducing market entry costs, risks and time.
Table IV reports survey results on the extent to which specific marketing
responsibilities are shared with partners in existing relationships. The scale
used ranged from 1 – NZ firm has total responsibility – to 3 – equally shared
with partner – to 5 – partner has total responsibility. The modal findings
suggest desire on the part of the New Zealand firm to maintain control over new
product development decisions and activities, as well as technical service.
Activities which are shared with partners include competitor analysis,
customer education and training, promotion, market research and, most often,
product sales. This pattern of protecting technically-oriented activities and
relinquishing those associated with the market and customer is similar to that
which emerged in the four case studies. Interestingly, however, core technical
areas, including product modification decisions and activities, are also shared
with partners, along with pricing and market entry decisions. This perhaps
indicates the relative influence of network partners after initial product
development.
Summary. Establishing and utilizing relationships with other firms is seen
by these entrepreneurial organizations as effective means for harnessing a
marketing infrastructure and levering marketing capabilities, two areas of
known weakness in smaller high-technology companies. Further, relationships
European Degree of sharing with partners
Journal Marketing responsibilities Mean SD Mode
of Marketing
29,7 New product development activities 1.62 0.82 1
New product development decisions 1.87 0.99 2
58 Product modification activities 2.08 1.01 3
Technical service 2.20 1.21 2
Pricing decisions 2.37 1.17 3
Market entry decisions 2.43 1.34 3
Product modification decisions 2.45 0.93 3
Competitor analysis 3.04 1.09 3
Customer education/training 3.08 1.24 3
Promotion decisions 3.16 1.37 3
Market research 3.16 1.37 3
Product sales 3.25 1.29 3
Table IV.
Marketing Note: 1 = Total responsibility in New Zealand
responsibilities shared 3 = Equally shared with partners
with existing network 5 = No responsibility at all (partner has total responsibility)
partners

are important to accelerating access and entry into new markets. The case
study insights do, however, suggest a tendency for more established high-
technology firms eventually to develop in-house marketing/sales expertise in
order to avoid total marketing control by other network players.

Conclusions and implications


Our understanding of the internationalization processes of entrepreneurial
firms is enriched when we expand the analysis beyond the individual firm’s
actions and address the impact of a firms’ role and position within a network of
relationships. From this perspective, foreign market selection and entry
initiatives emanate from opportunities created through network contacts,
rather than solely from the strategic decisions of managers in the firm. These
contacts may be formal (i.e. business-related) or informal (family, friends, etc.)
When network influences are combined with the market and product
characteristics noted earlier, it is not surprising that the observed patterns of
international market growth for entrepreneurial high-technology firms differ
from the processes of the larger manufacturing firms outlined in the literature.
Their relatively rapid and dispersed involvement in foreign markets creates the
impression of being random and somewhat irrational, when in fact the span of
activities can be linked to opportunities emerging from a network of
relationships.
Inherent in this form of international market development is a heavy reliance Growing the
on network relationships for marketing-related activities. The entrepreneurial entrepreneurial
high-technology firms appear willing to sacrifice some control over operations firm
in order to supplement their marketing weaknesses and to gain market access.
However, their evolution reflects a desire to gain back some of the lost market
control and to preserve their independence by developing internal marketing
capabilities. 59
Research implications
Further research, which employs a network perspective to examine the
internationalization process of entrepreneurial firms is warranted. On the basis
of the results of this study, the following issues should be examined more fully:
● the influence of early network partners on the internationalization
process, particularly in the areas of market development and marketing
activities; and
● growth management issues faced by small entrepreneurial firms linked
with large non-entrepreneurial firms (e.g. how small entrepreneurial
firms can best manage international market development and growth,
with less direct control over marketing operations).
Also, the question is raised as to whether or not a defined “marketing function”
is necessary in small, entrepreneurial high-technology firms seeking
international growth, given their active use of networks. If “marketing” is
necessary, the questions of what marketing skills and capabilities are required,
and when they are required, should be examined more fully.
Finally, future research should incorporate the perspectives of multiple
players in the network rather than that of a just single firm. This would yield
richer insights into the shift of network positions and relationship control over
time. Note that network theory as a whole requires more research attention as it
is at a relatively early stage of development.
In terms of research approach, it is suggested that longitudinal studies may
provide the most appropriate method for capturing the internationalization and
network development process over time. Case research and causal mapping
would also be useful in this regard, allowing for collection of richly descriptive
data in a chronological manner.

Managerial implications
Managers of entrepreneurial firms can benefit from a better understanding of
the impact of networks on international market development. Given that their
future opportunities emanate largely from network relationships, more
attention should be paid to how and with whom these relationships are
established. In addition, managers of entrepreneurial firms tend to sacrifice
marketing control for market access in their third-party relationships. This
tends to weaken their firm's position within a network, particularly when
managers lose touch with market dynamics. Efforts to keep on top of market
European activity, either through sales/support offices or through ongoing market
Journal research, can enhance leverage in relationships as well as facilitate performance
of Marketing evaluation of linkage partners. Finally, it is important that managers
successfully position their firms so that they have a wide array of relationship
29,7 options open to them. Their existing networks, as well as their ability to
establish new network relationships, should be managed as a key competitive
60 capability.
Network theory, while still in need of some refinement, offers a rich
perspective on how and why the international development patterns of
entrepreneurial firms occur. The interrelationships among a set of firms can
alter not only the range of strategic options available, but also the resource base
available for their pursuit.

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