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Innovation Prosess

​​Figure 1: The resource perspective in entrepreneurial internationalisation ​

International entrepreneurship does not happen overnight it needs to be nurtured

Nina Rilla | 8.12.2016

​The innovation and internationalisation processes are closely intertwined in entrepreneurial small companies. Innovation development is a key event in such companies; when studying internationalisation, overlooking the innovation process can leave some crucial internationalisation mechanisms uncharted. Internationalisation should therefore be part of a company’s operations and innovation development from the outset.

A recent doctoral thesis on international entrepreneurship field reveals how challenging it is to integrate the international business activities of innovative, entrepreneurial companies with innovation processes. So what is required when combining the innovation and internationalisation processes? The requirements are cross-border collaboration in the innovation process from the very beginning, the motivation to grow internationally and the creative use of resources. 


How to develop a dynamic environment supportive of growth?

International entrepreneurship research is a key area of business studies, since – regardless of the high level of technology and innovations involved – many small economies such as Finland’s face a key innovation challenge: how to generate innovative companies seeking international growth. From the perspective of management and innovation policy, a key question is how to develop a dynamic and strong, innovation-based environment that supports growth and promotes an entrepreneurial spirit which fosters the development of domestic technologies and inventions into successful international business. To succeed in this, in addition to public-sector support for growth companies, among other things firms need the capability to participate in global ecosystems and networks in order to develop innovations. 

The motivation to study innovative companies seeking international entrepreneurship stems from the observation that enterprises often view innovation development and internationalisation as separate events. This observation was particularly highlighted in interviews with small innovative companies. An interesting research subject emerged – could the process of internationalisation benefit from cross-border innovation partnerships? One way of exploring the issue would be to extend the rarely deployed resource acquisition perspective to early-stage entrepreneurship, i.e. the innovation process. It is safe to assume that cross-border inter-organisational relationships that are important to internationalisation can reach far back into the pre-venture stage.  

International entrepreneurship – the resource perspective 

Companies have been forced to respond to the challenge posed by the shortening of innovation lifecycles, rapid dissemination of technologies and multidisciplinary R&D by seeking external knowledge and expertise to supplement their own, insufficient resources (e.g. Tether 2002). Suitable resources are often found beyond national frontiers, which indicates that companies’ innovation processes have opened up and the related collaboration relationships have become common. Because information and knowledge-based capabilities are key resources when improving the competitiveness of a company (Nelson & Winter, 1982; Penrose 2009), many small companies are becoming exposed to the challenges and opportunities of international business earlier in their life cycles (Jones 2001). It is also common for innovative companies to bypass the domestic market and operate in the international context from the moment they are founded (e.g. Coviello 2006). Seeking and exploiting global resources – through which firms can be tightly bound into international innovation development long before the founding of an enterprise – have become a key function in entrepreneurial companies (Jones 2001).

It is important to understand entrepreneurship within innovation activities, since innovations form a major part of entrepreneurship – in fact, they are its key feature. For this reason, we focus on innovation-based entrepreneurship (Schumpeter, 1963; Nelson & Winter, 1982), rather than entrepreneurship that generates new business. Innovation and entrepreneurship are viewed as being inseparable in companies aiming at international entrepreneurship. The purpose of international entrepreneurship is to develop and commercialise innovations within the international context. Entrepreneurial internationalisation can therefore be viewed as a process that combines innovation and internationalisation, even if these have been studied separately in the past.  

Internationalisation has traditionally been studied as an outward-facing activity, such as exporting (e.g. Mathews & Zander 2007). However, it has been shown that a more accurate picture of the phases and mechanisms of internationalisation can be gained by paying particular attention to the acquisition of cross-border resources (Hewerdine et al. 2014). When internationalisation is understood as a state rather than the end result, an entrepreneurial company can pursue internationalisation on the basis of acquired resources (e.g. Hewerdine et al. 2014). It can acquire the missing resources, for use in innovation development and – later – in internationalisation, through various inter-organisational relationships. Since resources form inward and outward links in internationalisation processes (Figure 1), they can be viewed as promoting internationalisation (Welch & Luostarinen, 1993). In the light of the above-mentioned issues, internationalisation can be understood as cyclical rather than a linear, goal-based activity.  ​

Cross-border collaborative relationships  

Innovation collaboration is a topical issue for companies, and collaborative relationships can be viewed as an important intangible resource. Companies use such relationships to exchange and acquire know-how that they lack, in order to promote the development and internationalisation of innovation (Ritter & Gemünden 2003). Previous studies have found that small businesses, in particular, focus on local collaborative networks. This could lead to a damaging ’lock-in’ in terms of technology, knowledge or expertise and have a negative effect on a company’s ability to innovate (Boschma 2005). The challenge posed by this technological myopia can be countered by, say, seeking cross-border sources of knowledge and technology without exclusively focusing on domestic collaboration. Although the benefits of cross-border inter-organisational relationships are unclear in the case of small, innovative companies – in innovation literature, less attention has been paid to issues such as the geographical dimension or the quality of collaborative relationships (e.g. Rilla 2016) – such relationships have a clearly positive effect on internationalisation. The key is to make wise use of inter-organisational relationships.      

Innovation, which in this article refers to commercialised inventions, has a variety of sources. The literature on innovation tends to distinguish demand-based inventions from science-based ones (Dosi 1982), because they lead to a very different type of innovation development process. In the former case, the company knows in which markets it will commercialise its invention. In the latter case, the application areas and demand are created. Like the internationalisation process, the innovation process (Figure 1) can be thought of as being cyclical within companies, generating new innovations such as additions to various product generations. 

Internal nature of innovation a surprise

A study of the inter-organisational relationships involved in innovation and internationalisation processes in five Finnish and Austrian life science companies revealed huge variations in the entrepreneur’s attitude and motivation in relation to international growth. As we might assume for entrepreneurial and science-driven companies in general, many entrepreneurs had a proactive attitude to internationalisation. However, they sought slow growth in order to stay in control. Many technology companies regard using foreign venture capital as a faster alternative when financing international growth. However, international growth involves a major and bold effort for many firms and requires resources, even if the company has a ground-breaking innovation destined for its global markets. Many entrepreneur-led companies find the simultaneous management of technology development and international growth challenging.  

The case studies also revealed that international companies engaged in developing innovations obtained resources for various phases – not just, say, commercialisation – of the innovation process. External resources are sought to meet specific needs, such as clinical trials. In such cases, the partner tended to be a domestic operator due to the perceived benefits of geographical proximity. Science and technology-based companies often retain their strong relationship with the institution in which the invention originated. Despite the predominance of the domestic market, companies also entered into cross-border inter-organisational relationships from the outset of the innovation process. 

From the perspective of international entrepreneurship, the most interesting inter-organisational relationships were those used for both innovation development and internationalisation, i.e. those which, in theory, formed inward and outward links to the internationalisation process (e.g. Welch & Luostarinen, 1993). For example, the type of inter-organisational relationship which provided a company with complementary resources in solving a technological problem – and that could also be used in the later international commercialisation of the innovation – proved useful. However, very few of these dual inter-organisational relationships (only two of the studied companies had relationships of this kind) could be found. On the other hand, it was gratifying to note that companies acknowledged the importance of such relationships and were actively seeking them. The key problem in benefiting from such relationships was lack of the required skills, since entrepreneurs were seeking external, particularly cross-border, resources to patch up certain material resource deficiencies, while neglecting other areas. From the perspective of the study, the most useful inter-organisational relationships were those through which the entrepreneur also obtained advice on entrepreneurship, internationalisation, motivation or some other intangible and unspecified challenge. It was also observed that these same relationships are valuable in the formation of the collaborative skills required in resource-based internationalisation. 

The generally internal nature of innovation was also surprising. The entrepreneurs kept innovation development firmly in their own hands, partly due to the importance of innovation and partly because an entrepreneur-led company lacks the time to form inter-organisational relationships. In addition, cooperation with large companies did not come naturally. The lessons of open innovation and co-creation are yet to be learned within many innovative companies aiming to internationalise. On the other hand, the study highlighted the importance of experience, since the more experienced companies were better prepared than start-ups to take advantage of complex collaborative relationships. Firms need to learn about the timing of collaboration, the choice of partners and the drafting of contracts, to avoid pitfalls such as the unnecessary prolongation of the innovation process.  

In general, ’resource scavenging’ behaviour was based on a strategy involving the leverage of external resources when and as they were found without forward planning (e.g. Hewerdine et al. 2014). This is a natural practice for innovative companies that are short of resources, through which they learn to make use of inter-organisational relationships in entrepreneur-led internationalisation. 

Policy measures to ensure international entrepreneurship

International entrepreneurship requires courage, desire, knowledge, ingenuity and a little luck – above all from the entrepreneur who handles many of the key roles in the company simultaneously. Human and financial resources are therefore thin on the ground. There is not always time for collaboration, despite recognition of the benefits of collaborating in innovation and internationalisation. This begs the question of what could be done at policy level to bolster international entrepreneurship in Finland?  
Companies aiming at international entrepreneurship would best be fostered by an innovation and entrepreneurship policy which seeks to boost research, development and innovation (R&D&I) and create a (growth) entrepreneurship-friendly environment. Internationalisation, in turn, is often part of the support targeted at small and medium-sized enterprises. To achieve the maximum benefit, these policy areas should interact holistically. However, the simultaneous implementation of several policy packages or measures can be challenging, particularly in small economies such as Finland’s. As the findings revealed, the needs of different companies vary widely. Although Finland has invested in growth entrepreneurship in recent years – by developing entrepreneurship ecosystems, for example – public-sector support for processes such as internationalisation remains focused on exports, i.e. the acquisition of new markets. 

A few observations were made during the study, particularly on resource-based support for internationalisation focusing on, say, the pre-commercial phase of innovations. First, there is the issue of linking companies to cross-border resource networks from the outset of the innovation process. In this, the emphasis should be on collaboration and co-creation rather than only networking. The aim would be a collaborative culture focusing on the sharing of resources, knowledge and expertise between small companies and other innovators at European level. The circular economy principle could also be applied to R&D&I activities.  

Secondly, companies aiming at international entrepreneurship would benefit from well-functioning, public piloting environments that extend overseas. For example, a foreign partner could handle clinical trials in sectors where they are vital. Access to foreign piloting environments could be organised through universities and research institutes, such as VTT, by linking companies in the early stages of the innovation process to foreign projects – via co-creation rather than just networking. Universities and research institutes are part of cross-border science and resource networks due to the nature of research. More effective exploitation of such partnerships could prevent the unnecessary prolongation of the innovation process within companies. 

Public procurements could also be used to develop innovation at the pre-commercial stage, particularly in terms of accelerating the development and use of innovations that meet societal needs. Innovative procurements provide companies with the references necessary for international trade. In addition, procurement strategies should be developed within the public sector to ensure that such procurements succeed. VTT has built up extensive expertise in innovative procurement. Raising the quantity of cross-border public-sector procurements would help to promote international entrepreneurship. However, it should be borne in mind that that cross-border procurements and sharing resources with cross-border partners are not always possible within the scope of R&D grants; to work, this would require new legislation and arrangements. 

Finally, it should be noted that not all companies seeking international growth would benefit from the same innovation or entrepreneurship policy measures. Some entrepreneurs want to grow their businesses slowly, despite having world-class innovations. This means that not all can benefit from the currently fashionable business angel and venture capitalist networking events. Such entrepreneurs would benefit from services such as advice on bolder and better-directed management of internationalisation. Compared to rapidly growing companies, entrepreneurs of this kind often create more stable international growth with broader societal impacts, such as local employment and education. Companies grow into international entrepreneurship via innovation and business activities, rather than overnight. The growth process can take decades for innovative, entrepreneur-led companies. Policy makers should take account of this time-scale when seeking to secure international entrepreneurship. 


NinaRilla_e8r5403.jpg

Senior Scientist Nina Rilla graduated as a Doctor of Economics and Business Admistration (International Business) from the University of Turku School of Economics in June 2016. She has over ten years’ experience of science, technology and innovation policy projects in Finland and abroad, in which she has had a special interest in innovation processes and the activities of small and medium-sized enterprises. In addition, she maintains the VTT SFINNO® Finnish database of significant innovations. 
 

Sources

Boschma, R. (2005) Proximity and Innovation: A Critical Assessment. Regional Studies, Vol. 39 (1), 61–74.
Coviello, N.E. (2006) The network dynamics of international new ventures. Journal of International Business Studies, Vol. 37 (5), 713–731.
Dosi, G. (1982) Technological paradigms and technological trajectories. Research Policy, Vol. 11 (3), 147–162.
Hewerdine, L. – Rumyantseva, M. – Welch, C. (2014) Resource scavenging: Another dimension of the internationalisation pattern of high-tech SMEs. International Marketing Review, Vol. 31 (3), 237–258.
Jones, M.V. (2001) First steps in internationalisation: Concepts and evidence from a sample of small high-technology firms. Journal of International Management, Vol. 7 (3), 191–210.
Mathews, J. – Zander, I. (2007) The international entrepreneurial dynamics of accelerated internationalisation. Journal of International Business Studies, Vol. 38 (3), 387–403.
Nelson, R. – Winter, S. (1982) An evolutionary theory of economic change. Cambridge: Belknap Press of Harvard University Press.
Penrose, E. (2009) The Theory of the Growth of the Firm (4th Edition). New York: Oxford University Press.
Tether, B. (2002) Who co-operates for innovation, and why: An empirical analysis. Research Policy, Vol. 31 (6), 947–967.
Rilla, N. (2016) In search of the interrelatedness of innovation and internationalisation processes in entrepreneurial life science companies. Publications of Turku School of Economics, Series E 2.  Tampere: Juvenes print.
Ritter, T. – Gemünden, H.G. (2003) Network competence: Its impact on innovation success and its antecedents. Journal of Business Research, Vol. 56 (9), 745–755.
Schumpeter, J. (1963) The Theory of Economic Development (3rd Edition). New York: Oxford University Press.
Welch, L. – Luostarinen, R. (1993) Inward-outward connections in internationalization. Journal of International Marketing, Vol. 1 (1), 44–56.


 

 

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