Building External Corporate Venturing Capability*

ABSTRACT How firms build new capabilities to adapt to changing environments is at the core of strategic management. However, research has addressed this question only recently. In this paper, I propose a model that describes how firms develop a capability to create and develop ventures through corporate venture capital, alliances, and acquisitions. The model is based on two longitudinal case studies of large corporations operating in the information and communication technology sector in Europe. At the core of this model are learning processes that enable the firm to build up an external corporate venturing capability, by utilizing learning strategies both within and outside venturing relationships. To build this new capability, firms engage in acquisitive learning. Critical to deepening the capability acquired is adaptation of all knowledge to the firm specific context through experiential learning mechanisms. I also discuss the important role that initial conditions and knowledge management practices play in determining the direction and effectiveness of specific learning processes that lead to an external corporate venturing capability.     

Cooperative R&D ventures: Strategic behavior versus transactional efficiency

This paper examines a sample of 48 cooperative R&D ventures announced in the period 1983–1990 to determine their impact on the stock price of the announcing firms. It finds that the venturing firms earn statistically significant positive abnormal returns over periods surrounding the announcement date. These gains are greater than those that result from announcements of increases in expenditures on in-house R&D. The cross-sectional analysis reveals that abnormal returns to the venturing firms are independent of industry concentration, larger in international ventures than in domestic ventures, and equal in cooperative agreements and equity joint ventures. These results support the transactional efficiency perspective of cooperative R&D ventures and suggest that the relaxation of antitrust laws as they apply to cooperative R&D ventures in 1984 is a welfare-improving policy.     

External corporate venturing modes as new way to develop dynamic capabilities

Today, firms encounter scarce resources and rapid technology change which render formerly successful business models obsolete. Research shows that some firms perform better than others in continuously discovering, evaluating, and exploiting opportunities in volatile environments and that this is dependent on firm’s dynamic capabilities. Besides obtaining dynamic capabilities through internal R&D activities, firms have open up their innovation process to pursue dynamic capabilities outside their organizational boundaries through external corporate venturing by accessing startup's technological capabilities necessary to innovate. External corporate venturing is a means to develop new distinctive capabilities and businesses by exploring and exploiting business opportunities outside a firm’s existing boundaries. Drawing on the dynamic capability literature, we use a multiple case study approach to examine the contribution of external corporate venturing to firms’ dynamic capabilities. Our results reveal that firms indeed use corporate venturing to identify and exploit startup’s technological knowledge and competencies to increase firm’s dynamic capabilities. But our empirical data also shows that not every firm is fully profiting from all dynamic capability phases as their corporate venturing modes are not linked with each other and cumulative effects are not realized.     

Knowlege networks for innovation in small Scottish software firms

This paper examines the emergence of small indigenous software companies in Scotland, focusing on the strengths and weaknesses of the region's socio-economic infrastructure as a foundation for innovative new business ventures. Following a brief review of some of the accepted wisdom on high-tech start-ups and regional economic development the paper provides some background information on the Scottish region, comparing new firms in the software industry with the foreign multinationals that dominate the local IT industry. A framework - the ‘sociotechnical constituencies’ approach - is then proposed that allows the author to examine networks of specialist knowledge that underlie new business development. Agglomeration effects and the influence of ‘clusters’ of complementary types of knowledge, expertise and innovative competencies at the regional level are at the heart of the analysis. The framework is applied to a sample of local firms, looking at how ‘learning’ via sociotechnical networks underlies their evolution. Policy-makers' attempts to boost the region's new business birth rate and promote the hoped-for ‘silicon glen’ effect are viewed in the light of the study's findings.     

Entry mode choices in the international new ventures context. A study from different theoretical perspectives

Few studies have investigated the factors that enhance entry mode choice in the context of international new ventures (INVs). In this paper, we hypothesize that the characteristics of INVs’ products or services can explain their preference for equity entry modes. We also hypothesize that the inter-firm networks in which INVs are embedded play a deciding role in their choice of non-equity entry modes. When INVs are in inter-firm networks in which activities are developed to manage them, non-equity entry modes are preferred. We have adopted an effectuation approach to study the influence of different inter-firm network management activities on entry mode choice. In short, we have studied the effect of developing inter-firm network knowledge exchange, coordination, adaptation, conflict resolution and resource sharing management activities. In this paper we attempt to contribute to international entrepreneurship studies by reconciling the most widely accepted approaches to entry mode choice (Transactional Cost Economics, Organizational Capabilities-based and Network perspective) and international new ventures. Our findings show that the technological complexity of INVs’ products/services explain their preference for equity entry modes. Additionally, the development of network management activities among the networked firms determines the INVs’ preference for non-equity entry modes. Our results draw a decision model that differs from the ones derived from previous perspectives, which highlight the role of different characteristics of international new ventures.     

A new editorial order in entrepreneurship & regional development

The aim of this paper is to contribute to international entrepreneurship theory by adopting a foreign market perspective when examining the links between network development and knowledge creation. Network development is argued to enhance the understanding of regional market structures and make firms more inclined ? and better able ? to create knowledge in foreign market business relationships (business relationships represent focal points in networks). The basis of this argument is that networks provide a multitude of opportunities for the exploitation of previously unexploited combinations of knowledge. Data were gathered from surveys conducted with an effective random sample of 188 small and medium-sized enterprises (SMEs) in Sweden. A LISREL-based analysis was performed to test the three hypotheses deduced from theory. Findings showed that network development has a direct positive impact on knowledge creation and that knowledge combination functions as a mediating construct between network development and knowledge creation.     

Special issue on “The role of networks in entrepreneurial performance: new answers to old questions?”

The nature and extent of relationships between entrepreneurial networks and entrepreneurial performance are old questions. Scholars have explored the nature of entrepreneurial networks and have focused on their relationship with, and effects on, performance, which is viewed in this special issue in terms of the strategic development of established businesses and new ventures. However, while much is now known about the origins and effects of social networks there continues to a paucity of research on how social networks are used in various organizations, and when one or more networks are drawn upon for what specific purpose. Each article in this special issue addresses one or more of these questions in a range of industries and environments, namely poor village entrepreneurs who have to work in a highly challenging financial and social environment in Bangladesh, “early internationalizing small firms” in South Africa, high technology “early-stage ventures” in Hong Kong, 3-D technology ventures that operate with an “open” business model, and the “multi-rational” nature of networks in family businesses in and beyond the UK. In all, this collection of papers comprises a body of scholarship with fine-grained studies on how and when specific social networks are drawn on in various forms of organization. The subsequent discussion of these issues extends knowledge of the various ways in which entrepreneurs and entrepreneurial businesses advance their interests by leveraging familiar business and social networks.     

Next Generation External Venturing Practices in Family Owned Businesses

Drawing on an Entrepreneurship as Practice (EaP) approach, this article examines how next generation members in family owned businesses (FOBs) engage in external venturing. Our study builds on longitudinal qualitative research in two Mexican FOBs where the next generation launched ten ventures. It reveals five different practices of external venturing used by next generation family members: ‘obtaining family approval’, ‘bypassing family’, ‘family venture mimicking’, ‘jockeying in family’, and ‘jockeying around family’. The five practices are combined into three routes for external venturing: ‘imitating the family business’, ‘splitting the family business’, and ‘surpassing the family business’. Building on notions from Michel de Certeau’s practice theory, this study contributes to theorizing the five practices as ways of operating and the routes as modes of sensing to better understand how next generation family members deal with settings featured by dominant orders within the family and the FOB in their attempts to originate and launch their new ventures.     

Impact of culture on ‘partner selection criteria’ in East Asian international joint ventures

Selecting the right partner is important for the success of alliances and joint ventures. For international joint ventures (IJVs) from diverse cultures the partner selection process can become complicated. Prior studies have investigated the alliances and joint ventures to develop a set of objective criteria for evaluating potential partners. This paper reports the study of IJVs formed by Singapore firms in Peoples Republic of China and India. The intent was to develop a methodology for identifying partner selection criteria in a cross-cultural setting. The findings reveal that the partner selection process follows a different logic in Confucian societies. Trust has been established to be essential for developing enduring co-operative relationships. The paper explores the concept of trust in relation to commitment and control in the context of the Confucian culture. We discover that trust is critical to partner selection. Cultural differences do not significantly alter the partner selection criteria for Singapore firms. Results support the view that while Chinese may depend on networks for social solidarity, social trust does extends beyond the family and is necessary for harmonious and successful joint ventures.     

The performance of international returnee ventures: the role of networking capability and the usefulness of international business knowledge

This paper sheds light on the international new ventures led by returnee entrepreneurs and investigates the influence of networking capability and the usefulness of international knowledge for the overall performance of so-called international returnee ventures (IRVs). By integrating network theory with a capability view of firm performance, it advances six hypotheses that form a structural model, which is tested with LISREL on a sample of 194 IRVs from China. The findings show that international networking capability has a positive influence on the provision of international business knowledge, which in turn is positively related to the innovation performance, but they have a negative impact on the financial performance. Hence, this study presents a discussion of the usefulness of knowledge gained from the international network relationships of emerging market returnee entrepreneurs.     

Entrepreneurship training for new ventures

Several studies in the field of international entrepreneurship have indicated the inadequacy of public policy support for new ventures and called for more tailored training programs. This paper introduces a training program created for new ventures in Central Finland and analyzes its benefits and shortcomings using a qualitative case study. The findings reveal that the training program provided useful knowledge on how to develop a business further and how to make it understandable and attractive to a funder. However, the findings also indicate that there is a need for cultural adaptation: the training program developed originally for U.S. new ventures was not fully adapted for the needs of Finnish entrepreneurs. The program mainly focused on risk taking, raising funds from capital markets in the U.S., and entering into the U.S market soon after the establishment. This was in contrast to the Finnish entrepreneurs’ strategies: they preferred to grow their business in a more controlled and profitable manner. Thus, although knowledge-intensive new ventures operate in global environments, the training provided for them should take into account the cultural differences and the local way of doing business.     

Learning Through Joint Ventures: A Framework Of Knowledge Acquisition

Joint ventures (JVs) are becoming an increasingly important organizational form in international business. When JVs are formed, valuable learning opportunities may be created for the venture partners. The primary objective in this paper is to explore the conditions under which firms exploit JV learning opportunities through the acquisition of knowledge. A framework of knowledge acquisition by JV partner firms is proposed. Using JV partner organizations as the primary level of analysis, the paper identifies various factors that influence the acquisition of learning, its value to the learning organization, and the migration of knowledge from the JV to the parent. Two firm specific learning-based concepts are developed: alliance knowledge accessibility and knowledge acquisition effectiveness.     

Pursuing sustainable development through green entrepreneurship: An institutional perspective

Pursuing sustainable development through green entrepreneurship has been advocated, conceptualized, and empirically examined in the recent environmental management and entrepreneurship literature. However, green entrepreneurs are embedded in institutional environments that may discourage them from embracing sustainable development because of the “paradox of embedded agency.” How can a firm overcome the liability of such an agency issue and escape what has become known as a “green prison”? This study proposes that, because international venturing exposes firms to foreign institutions, it provides them with opportunities for institutional learning. Thus, we examine how international venturing influences green entrepreneurship which, in turn, impacts firm performance. Specifically, based on institutional theory, this study develops a firm-level green entrepreneurship framework with three dimensions: green initiatives (a firm's active adoption of green practices), received government green support (benefits that a firm gains from the government by adapting to governmental incentives, programs, and policies related to green practices), and green political influence (a firm's attempts to influence legislation that enacts laws, rules, and regulations related to green practices). The results obtained by analyzing 152 firms that engage in international venturing activities and 151 firms that do not show that international venturing is positively associated with green initiatives and government green support while these two factors further directly enhance firm performance and mediate the effects of international venturing on performance.     

Building entrepreneurial inter-firm networks in an emerging economy: the role of cognitive legitimacy

We take an organizational legitimacy perspective and use data from a large-scale nationally representative study on the state of small business in Saudi Arabia, in order to explore the antecedents to the formation of entrepreneurial ventures’ inter-firm networks in the context of an emerging economy (n?=?331). We argue that entrepreneurial ventures need to overcome a threshold of cognitive legitimacy in order to develop inter-firm ties with a diverse set of large, established firms. Results indicate that having a written business plan and a formal organizational structure are positively associated with the diversity of the new venture’s inter-firm network, while the education level of the entrepreneur does not have a significant effect. In addition, the effect of having a formal organizational structure is stronger for younger ventures. Implications are discussed.     

Leveraging networks,capabilities and opportunities for international success: A study on returnee entrepreneurial ventures

By integrating social capital theory with a capability-based view on performance, this paper aims to examine the extent to which returnee entrepreneurial ventures (REVs) gain international performance advantages from the founding entrepreneurs’ experience with international networks. Using data on 200 Chinese REVs, the paper proposes and tests a structural model with a focus on the link between individual entrepreneurs and the subsequent development of firm capabilities. The results provide evidence that it is important that the returnee entrepreneurs have an international social network for the REV to develop an international network capability, which, in turn, mediates the effects on opportunity knowledge and the international performance of the REVs. The findings highlight the concurrent effect of the role of entrepreneurs and organizational learning in internationalization, and they provide an understanding as to the importance of the returnee-specific advantages for the international performance of these firms.     

New product development in foreign customer relationships: a study of international SMEs

Abstract

This study identifies a gap in research concerning how small and medium-sized enterprises (SMEs) can benefit from pursuing locally (rather than globally) oriented internationalization strategies. Becoming overly dependent on one single foreign market could potentially reduce the inflow and diversity of new knowledge that can serve as input for new product development. This study discusses how this risk can be minimized. In this endeavour we create a theoretical model that investigates how the local sales concentration and relationship-specific commitment of SMEs relates to new product development. To do this we draw on the behavioural internationalization process framework. The theoretical model is tested on an effective sample of 188 Swedish SMEs. The results show that relationship-specific commitment mediates the effect of local sales concentration on new product development. The implication is that investments which enable collaboration in important business relationships are crucial requisites for keeping firms innovative and in pace with market fluctuations. The findings thus contribute to international business literature by showing that a local market scope of operations combined with a relationship orientation are beneficial for new product development in international SMEs.     

Old flames never die – the role of binding social ties for corporate entrepreneurship in family firms

This paper investigates the role of social ties and family embeddedness for corporate entrepreneurship in family firms. Family firms are mostly characterized by close and often inseparable ties between the dominant family coalition and the firm and offer specific resources within a context of both rational as well as non-rational factors that influence entrepreneurial strategies. We empirically test (n =?181) the relationship between binding social ties and innovation, strategic renewal, and corporate venturing. Our findings indicate a strong significance for networks and close and stable relationships both to inside the firm and the outside in decision making for corporate venturing and innovation. In contrast, the results for strategic renewal show no relevance of strong social ties. We link up with the debate on the role of owners as an important stakeholder group.

     

Management of Sino-Sino Joint Ventures

Abstract

Since China's implementation of its open-door policy in 1979, the most effective way to obtain a foothold has proved to be to create joint ventures (JV) with a Chinese business partner. The foreign partner provides the transfer of technology, management skills, financing and access to international markets, whilst the Chinese partner contributes a production base with cheap land and labor, contacts with central and local government officials and access to the domestic Chinese market. The Chinese economy has benefited to a large extent from the creation of joint ventures in the past two decades. Hong Kong firms have used China as a production base for many years, usually with great success and to the mutual benefit of both. However, although Hong Kong firms had considerable experiences in running business and manufacturing operations in China, several have suffered substantially from their investment in joint ventures with Chinese partners. This paper evaluates various issues relating to the performance of equity joint ventures in China. The evaluation is based on a case study of four Sino-Hong Kong joint venture manufacturing firms in the electronics industry, and the findings of this paper indicate that there are number of important factors affecting the stability of joint ventures in China. Foreign investors' experiences in other areas may not be applicable to their investment in China because the operation of a joint venture in China is inevitably faced with a variety of problems that the foreign firms may not have encountered before.     

Franchisors do their homework before entering international markets: Experiences from the Australian franchising sector

Whilst the literature on international franchising practice is well established, an issue that remains unaddressed is the optimal timing for international expansion activities. In this study an Internet survey of the population of business format franchisors in Australia is conducted to obtain a profile of franchising, including international expansion data. In the second stage, a series of case studies with 16 Australian-based franchise systems is reported. The results indicate that franchisors do not wait until the domestic market is saturated before venturing overseas. Moreover, franchisors tend to develop their international expansion strategies after the business has demonstrated success in the local market.     

Paradigms and entrepreneurial networks–some methodological challenges

The use of network approaches to gain an understanding of business behaviour in general, and entrepreneurial action in particular, has increased. Research into entrepreneurial networking, however, varies considerably depending upon paradigmatic assumptions. In deterministic contexts networks mainly represent restrictions while in voluntaristic settings the network is the very instrument by which new ventures are realized. A subjectivist approach thus seems to be most able to exploit the potentials of the network metaphor in entrepreneurship research since venturing means organizing through personal networking. Yet both quantitative and qualitative tools may be adopted when mapping and interpreting the characteristics of entrepreneurial networks.