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Internationalization of new ventures: tests of growth and survival

Patrick Schueffel
r Wirtschaft, Fribourg, Switzerland Hochschule fu

376

Wolfgang Amann
Goethe Business School, Goethe University, Frankfurt, Germany, and

Emilio Herbolzheimer
Henley Business School, University of Reading, Reading, UK
Abstract
Purpose The purpose of this paper is to investigate key contingencies affecting the internationalization of young ventures, and to shed light on early internationalizations implications for organizational survival and growth. Design/methodology/approach A previously suggested conceptual framework is tested based on a quantitative study of UK rms before explorative analysis takes the analysis further. Findings Contrary to the model suggested by Sapienza et al. that internationalization is of increasing importance at young ventures founding stage, no such indications were found in this study. Further statistical tests revealed interesting insights into the relationship between other organizational factors and a young rms survival and growth prospects. Research limitations/implications The empirical results suggest that internationalization is a largely overrated theoretical factor as far as young ventures short-term survival and performance are concerned. As internationalization paths differ contingent upon country of origin and other factors, further empirical tests are needed beyond the UK sample. Originality/value Empirical tests of previously suggested conceptual frameworks are needed to advance the body of knowledge on successful internationalization. Next to this initial test, further exploratory analysis suggests a rened framework. Keywords International business, Business formation, Business development, Business performance, Internationalization, New ventures, UK rms, Growth, Survival Paper type Research paper

The Multinational Business Review Vol. 19 No. 4, 2011 pp. 376-403 q Emerald Group Publishing Limited 1525-383X DOI 10.1108/15253831111190199

1. Introduction The strategy and international management literatures offer abundant explanations regarding why and how rms internationalize. Nevertheless, key models fail to capture one important element of internationalization: new ventures may be imprinted during their founding stage and, consequently, certain formative factors may inuence their future behavior. This article investigates crucial factors inuencing young ventures internationalization. It is based on the model developed by Sapienza et al. (2006) positing that internationalization has differing effects on rm survival and growth, which are moderated by organizational age, managerial experience, and resource fungibility. The paper rst reviews and then empirically tests for the rst time the model by Sapienza et al. (2006). This paper adds further exploratory analysis to round up the analysis. Subsequent sections present and discuss the results.

Consequently, it is argued here that there is a need for new conceptual thinking in order to better understand internationalizing young ventures. Whilst the article by Sapienza et al. (2006) has generally attracted considerable attention from scholars[1], the core model presented in their work has not yet been tested. This further underscores the need for an empirical test of the propositions posited by Sapienza et al. (2006). This is undertaken for the rst time here. 2. Theory and hypotheses Based on the model developed by Sapienza et al. (2006), a broad range of factors were taken into consideration to examine new rms survival and growth. Their degree of, and age at, internationalization; managerial experience; and resource fungibility lie at the core of their survival and growth. The age or relative youth of rms entering new markets is likely to inuence their rates of capability development and deployment. Most young rms have few established processes that restrict their ability to adopt new routines, which enhances their ability to capitalize on emergent opportunities in new markets. Managerial experience refers to the knowledge gained through executive practice with internationalization, either at an individual or organizational level. Resource fungibility is a concept that determines the extent to which a rms resources may be deployed for alternative uses. Internationalization can, in turn, be dened as an outward movement in a rms international operations (Turnbull, 1987, pp. 21-2) or the process of increasing involvement in international operations (Welch and Luostarinen, 1988, p. 36). Numerous accounts can be found of exemplary descriptions, discussions and classications of the international new venture literature (Coviello and Jones, 2004; Rialp et al., 2005). In his review of the international new venture framework, Zahra (2005) highlights research ndings with regard to new venture internationalization, but also stresses that very little is known about the effects of internationalization on young companies growth and survival prospects. Although substantial additional research efforts have been made since Zahra made this statement (for a comprehensive overview, see Keupp and Gassmann, 2009), little progress has been made in this regard. More specically, and besides studies on internationalization-performance mechanisms (for a comprehensive overview, see Ruigrok et al., 2007), no study has thus far used internationalization as the predictor variable in order to investigate potential linkages to survival and growth. Therefore, as the rst empirical test of its kind, this work contributes to an improved understanding of the rapid internationalization of new ventures. The research sheds light on the potential trade-off between internationalization and young rms survival. While the Uppsala process model of internationalization suggests that late internationalization allows a rm to build up resources and capabilities, the rapid internationalization framework posits that a rm ought to be exposed to foreign environments as early as possible to gain positional advantages. This apparent contradiction between the two most inuential internationalization frameworks will be investigated empirically, potentially resolving this tension. 2.1 Sapienza et al.s research model Sapienza et al. (2006) argue that when rms enter new markets for the rst time, they are not only forced to adapt some of their existing routines, but are also required to create

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entirely new ones. Citing Zott (2003), the authors state that the generation and adaptation of theses routines is a resource-intensive process that requires signicant investments. Following Singh et al. (1986), these knowledge-based routines are classied into internal processes that relate to routines coordinating the activities within the rm and external, market-related processes or processes pertaining to other organizations. Referring to the works of Hannan (1998), Stinchcombe (1965) and Sapienza et al. (2006) further stress that young rms also lack the positional advantages of their mature and well-established competitors. Therefore, entering foreign markets confronts young rms with difculties, such as adjustment to competition, industry practices, and customer behavior, which are likely to be costly. Hence, it is likely that many new ventures may not survive a market entry abroad. Thus, it is proposed here: H1. Ceteris paribus, internationalization decreases a rms probability of survival following initial foreign market entry. While entering foreign markets induces distress in the rm, it also presents the young company with additional growth perspectives. According to Sapienza et al. (2006), internationalization exposes a venture not only to growth opportunities, but also to opportunities to learn how to grow. By being exposed to a new environment with its uncertainties and risks, a rm is forced to adjust to the new context by undertaking structural changes. This requires the rm to develop new organizational routines for market entry and to adapt its resource base to sustain such activities, which in turn create a new capability for further international market entry. The authors further posit that this newly gained capability can be leveraged as a platform for expanding the scope of these rms activities, products and markets, providing an impetus for rapid growth (Sapienza et al., 2006, p. 919). Moreover, and referring to Stinchcombe (1965), they assert that the early exposure to risk and the required structural changes are likely to introduce candor with regard to the need for change and expertise in adapting the organization. Citing Brush (1992), Penrose (1959) and Sapienza et al. (2006) point out that productive opportunities multiply when a company enters a foreign market. Referring to the ndings by Birkinshaw (2000), the authors further argue that foreign market entry gives rms direct market-specic knowledge on competitors, customers, suppliers, and innovation, all of which help the rm to build positional advantages regarding their competitors. In addition, and by drawing on the ndings by Hamel and Prahalad (1993), the authors claim that the internationalizing rm can leverage its capabilities across markets, which will improve its ability to enlarge operations and grow a solid revenue base. Furthermore, the authors assert that capabilities developed in foreign markets may then also be leveraged to strengthen the business activities in the domestic market. Hence, these authors suggest that the internationalization process increases a new ventures probability for growth. The authors summarize their observations in the following proposition: H2. Ceteris paribus, internationalization generates new opportunities for a rm and increases its probability of growth following foreign market entry. According to Sapienza et al. (2006), the relationship between internationalization and venture survival is moderated by the rms age. They substantiate this assertion with the research undertaken by Henderson (1999), who found that age did not relate

directly to survival, but interacted with rm strategy. Moreover, Sapienza et al. (2006) point out that immature and well-established organizations may differ substantially in the way they attempt to generate new capabilities. Drawing on the ndings of Lumpkin and Dess (1996), they allege that young rms are more likely to exhibit an entrepreneurial orientation to internationalization, which results in a higher risk-taking proclivity, greater propensity to innovate, and a more proactive stance. Nevertheless, they point out that these rms have very limited reserves, which makes them extremely vulnerable if organizational mistakes are made. The authors therefore argue that the age or the relative youth of rms entering new markets is likely to inuence the rate at which they develop and deploy their capability. Internationalization requires rms to adjust. These efforts are usually costly, and young rms specically have few reserves. A wrong move could jeopardize the rms very existence. Sapienza et al. (2006) therefore propose: H1a. Organizational age will moderate the outcomes of internationalization such that the younger a rm at initiation of the internationalization process, the greater the negative effects of internationalization will be on the probability of the rms survival. Citing Gavetti and Levinthal (2000) and Sapienza et al. (2006) infer that the later a rm internationalizes, the greater the likelihood that it will have entrenched routines that will impede the exploration of new opportunities. Moreover, Sapienza et al. (2006) note that internationalizing rms are required to unlearn specic routines before new ones can be implemented. Referring to the research by Barkema and Vermeulen (1998), they highlight that inertial constraints will increasingly hinder this unlearning process the older the rm grows. Accordingly, when pursuing international opportunities, a young rm is more likely to possess structural advantages than older competitors. Drawing on the ndings by Autio et al. (2000) and Sapienza et al. (2006) stress that young internationalizing rms have learning advantages of newness (Sapienza et al., 2006, p. 996). Therefore, young rms are likely to have certain structural advantages when internationalizing, which should materialize in a positive inuence on growth. Thus: H2a. Organizational age will moderate the outcomes of internationalization, such that the younger a rm at initiation of the internationalization process, the greater the positive effects of internationalization will be on the probability of the rms growth. Building on the insights by Eriksson et al. (1997), who found that organizational experiential knowledge affects a rms future internationalization, Sapienza et al. (2006) propose that managers international experience from previous jobs moderates the relationship between internationalization on the one hand and survival and growth on the other. The works by other researchers are used to further support this claim: Nelson and Winter (2006) suggested that new routines are created as a result of the rms experience with an event and the circumstances under which this incident occurs. However, when a company enters a foreign market for the rst time, it cannot depend on these routines. In the absence of such routines, the rms prehistory resources and capabilities may become crucial for entering new markets (Helfat and Lieberman, 2002). Nelson and Winter (2006) suggest that prehistory resources and capabilities can be based on the rm employees experiences prior to its founding.

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Accordingly, Sapienza et al. argue that if the rms founding members were exposed to internationalization in previous positions, they are more capable of internationalizing their new venture. The authors substantiate this assertion with the ndings by Henisz and Delios (2001), as well as Martin et al. (1995), who established that a rms prior experience with internationalization inuences their later moves into the international area. Referring to Eriksson et al. (1997) once more, Sapienza et al. point out that venture managers prior experience is essential for developing solutions to problems that emerge from venturing into foreign markets. The managerial experience that a rms management team possesses is therefore presumed to inuence internationalization. Referring to other scholars in the eld of international management, Sapienza et al. (2006) stress that in the course of time, crucial decisions have to be made on issues such as market selection (Erramilli, 1991), entry mode (Root, 1994), uncertainty reduction (Delios and Henisz, 2003), and the contribution of subunits (Delios and Beamish, 2001). These authors thus presume that managements prior experience abroad facilitates the rms foreign expansion. Past experience thus helps minimize the time and resources spent on learning, and can positively inuence survival, which leads to the following: H1b. Managerial experience with internationalization gained from previous employment will moderate the outcomes of internationalization, such that it decreases the negative effects of internationalization on the probability of rm survival. Simultaneously, early experience with internationalization can be leveraged to sustain and expand operations in the critical phase of the companys internationalizing, which leads to the following: H2b. Managerial experience with internationalization gained from previous employment will moderate the outcomes of internationalization, such that it increases the positive effects of internationalization on the probability of rm growth. derl and Schu ssler (1990)[2], Sapienza et al. (2006) posit that a rm is likely to Citing Bru fail if its resources are insufcient to fulll its environments demands. Resource fungibility refers to the possibility of redeploying assets to serve new markets and, thus, to better meet the surroundings needs (Sapienza et al., 2006). Consequently, the authors argue that resource fungibility is important for early internationalizations outcomes and offer two reasons. First, fungibility increases an organizations ability to deploy resources for alternative uses, which is particularly important when a rm is required to adjust existing practices to a foreign environment. Second, resource fungibility gives the rm a higher degree of exibility to develop new capabilities by using already existing resources. In addition, and drawing on Hannans (1998) ndings, Sapienza et al. (2006) once more highlight that developing capabilities for international market entry is a costly endeavor and that initial missteps may have fatal consequences for the organization. At the same time, and referring to the ndings by George (2005), Holtz-Eakin et al. (1994)[3] and Sapienza et al. point out that start-ups and privately held rms tend to have rather little capital and consequently face resource constraints. They furthermore assert that resource fungibility plays a prominent role in undercapitalization,

because it not only decreases the costs of unsuccessful experiments, but also provides rms with the opportunity to apply their limited resources across various capabilities. Drawing on Alvarez and Busenitzs (2001) ndings, Sapienza et al. furthermore claim that resource fungibility enhances a rms ability to exploit growth opportunities and, thus, provides managers with a greater liberty to pursue growth opportunities at lower costs. Consequently, Sapienza et al. advance the following (Figure 1): H1c. Fungibility of the rms resource endowments will moderate the outcomes of its internationalization process such that it increases the positive effects of internationalization on the probability of rm growth. Since it is very important for capability development, resource fungibility also enables the rm to exibly exploit growth opportunities and, thus, to switch growth paths at relatively low costs. Thus: H2c. Fungibility of the rms resource endowments will moderate the outcomes of its internationalization process such that it increases the positive effects of internationalization on the probability of rm growth. 3. Methods 3.1 Sample This study draws upon a longitudinal data set of rms extracted from nancial analysis made easy (FAME). FAME is a database containing information on all UK registered companies (Bureau van Dijk, 2006, p. 5), which is frequently used for SME studies such as that by Requena-Silvente (2005) and new venture development (Yli-Renko et al., 2001; Crick, 2009; Helmers and Rogers, 2010). The longitudinal sample comprises rms founded in 2000, still existent at year-end, and registered in England, Northern Ireland, Scotland, or Wales. This six-year time horizon was chosen since researchers in recent years have generally used the convention of classifying as new

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Probability of firm survival Decreases P1a Initiation of the international entry process Decreases P1b Decreases P1c

Age at initiation

Managerial experience

Resource fungibility

P2a Decreases

P2b Decreases

P2c Decreases Probability of firm growth

Figure 1. Research model by Sapienza et al. (2006)

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ventures rms six years old or younger (McDougall et al., 2003, p. 69). Reecting the approach of Sapienza et al. (2006), who do not limit their model to any particular industry, rms from all sectors were taken into consideration. In order to avoid potential biases created by larger rms founding afliates, and to conform to Sapienza et al.s (2006) research subject of start-ups, companies were excluded if they were dependent, publicly listed, or exceeded the criteria dening SMEs. Thus, any company that had more than 250 employees, a turnover of more than EUR 50,000,000, or total assets of more than EUR 43,000,000 in its founding year was excluded from the sample, leaving a sample of 464 rms. A x 2 test for bias based on the SIC codes in the sample produced no results. To ensure an unbiased investigation of the suggested propositions, the sample included any rm regardless of its degree of internationalization. This ensured that purely domestic rms, as well as international new ventures, would be included in the sample population. As a dependent factor, survival plays a pivotal role in the model described above. Hence, the sample includes rms that are still active, as well as inactive rms. In cases where a rm ceased operations, the companys latest year of operations data were used for analysis. Data from 2005 were used for all active rms to test for potential relationships. In those cases where companies had not started internationalization activities within the observation period, their age at internationalization was set to six years, since this is the earliest possible internationalization year. 3.2 Measures The following section elaborates on the various variable types included in this study. The independent variables are: Internationalization (DEGREE) was dened as reliant on several measures. Sullivan (1994, 1996), for example, proposes a multi-item construct for measuring this factor, while Ramaswamy et al. (1996) argue for single-item measures. For the purpose of this study, the latter approach was applied: a continuous variable expressing the percentage of sales generated abroad in relation to the total sales was used to measure the degree of internationalization (Axinn, 1988; Schlegelmilch and Crook, 1988; Geringer et al., 1989; Collins, 1990; Bonaccorsi, 1992; Cavusgil and Zou, 1994; McDougall and Oviatt, 1996; Lane and Lubatkin, 1998; Rasmussan et al., 2001; Knight and Cavusgil, 2004; Bansal, 2005; Lu and Beamish, 2006). Age at initiation (AGE) refers to the time lag between the founding of a rm and the start of its international operations tinitiation int: operation 2 tfunding as described by Sapienza et al. (2006). Lu and Beamish (2006) also applied this measure in their study on SME internationalization and rm performance. Managerial experience (EXP) has no generally accepted approach to its measurement. Quantitative indicators, such as the number of units sold, which King and Tucci (2002) used to measure the experience of producing and selling to existing markets, are inappropriate to measure the managerial experience of young rms expanding into the international market place. Instead, a qualitative measure was devised that is closely linked to individual experience, since the extant literature on early internationalizing rms indicates that the managements previous international experience facilitates the early internationalization phenomenon (Rialp et al., 2005). In a similar vein, Sapienza et al. (2006) stress that individual experience plays a crucial role

when it comes to internationalization. Hence, the ratio between the number of nationalities represented on the board of directors and the number of board members was used as a proxy for managerial experience in internationalization. This measure may not capture the concept envisioned by Sapienza et al. (2006) comprehensively, but on a personal level it serves as a good proxy and corresponds to the notion of Oviatt and McDougall (1995) and McDougall and Oviatt (1996), who showed that new ventures led by managers with foreign work experience were, ceteris paribus, more likely to internationalize their operations quickly and successfully. This nding was further substantiated by the studies of Bloodgood et al. (1996), as rgel and Murray (2000), who found that managers who have worked abroad well as Bu are more likely to take new ventures international than their peers who have not worked abroad. In addition, Bloodgood et al. (1996) conrmed that there is a positive and signicant relationship between managers having received their education abroad rgel and Murray and the international expansion of their respective rms. Similarly, Bu (2000) showed that the percentage of rms that internationalize are, ceteris paribus, higher if the managers received their education abroad. Citing Levinthal and March (1993) and quoting Miller (1994, p. 95), Luo and Peng (1999, p. 270) state that learning does not take place in a vacuum, but rather has to cope with confusing experience in specic environments. Since board members who already work abroad are less likely to experience the same level of confusion as those newly introduced to a foreign surrounding, this experience with internationalization could have similar effects, in a personal context, as experience in a managerial context. Delios and Henisz (2003, p. 1155) point out that:
[. . .] experience is likely to have its most profound effect on uncertainty reduction when it is gained in a setting similar to the one in which an FDI entry is being contemplated.

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Teece and Pisano (1994) stress that, in the context of the rm, learning plays a crucial role. More specically, they highlight that learning involves organizational as well as individual skills (Teece and Pisano, 1994, p. 200). In addition, research conducted by Wasilczuk (2000) highlights the importance of personal experience. The author concludes that personal competencies, such as experience and traits, have a greater inuence on growth perspectives than operational ones. These ndings were further substantiated in cross-cultural studies. Intercultural sensitivity is crucial to allow people to reside and cooperate with people of different cultural origins (Brislin and Yoshida, 1994). Short term, non-language-based study programs abroad have already proved to have a positive impact on the participants intercultural sensitivity of Anderson et al. (2006). Since, ceteris paribus, a multinational board is more likely to possess a stock of experience gained in settings similar to the one to which the board members want to expand their business, it will appreciate a higher degree of intercultural sensitivity, as well as lower levels of uncertainty. This suggestion is in line with the ndings of Eriksson et al. (1997, p. 343), who showed that the lack of local institutional knowledge such as experiential knowledge of government, institutional framework, rule, norms and values, as well as a lack of familiarity with the language and local culture, can signicantly inuence the internationalization process. This reasoning is further supported by the research outcomes presented by Reuber and Fischer (2002), who demonstrated that internationally experienced managers typically achieve a greater degree of internationalization with their rms than

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their non-internationally experienced peers. In a similar vein, Ruzzier et al. (2007, p. 26) conclude from their empirical investigation into the relationship between human capital and SME internationalization that [e]ntrepreneurs most exposed to foreign cultures through travel or residence likely accumulate experiential knowledge of international market characteristics which benets them when internationalizing their rms. Consequently, scholars such as Hitt et al. (2006) call for further research to investigate specic issues, such as the relationship between board structure and international diversication. Whereas in large, publicly held rms, ownership and management are more clearly separated, the majority of SMEs are closely held and owner-managed (Schulze et al., 2001, 2003; Cowling, 2003). Therefore, SMEs can generally be characterized either by ownership and control held by one or a few individuals, or by the close relationships between the owners and managers (Storey, 1994; Bennedsen and Wolfenzon, 1999). Consequently, the ownership, board, and top management team often overlap, if they are not identical (Mustakallio et al., 2002; Nordqvist and Melin, 2002; Jenkins, 2006). Based on these ndings, nationality (Number Nationalities Board/Number Board Members) is regarded as a good proxy for managerial experience in internationalization matters. Resource fungibility (FUNG) is similar to managerial experience, and no generally accepted approach for measuring it has been developed to date. Sapienza et al. (2006, p. 924) describe fungible resources as endowments that may be deployed for alternative uses at a low cost. While cash may be a companys most fungible resource, it would make little sense to use a companys liquidity as a measure for resource fungibility, since cash is a tradable resource that cannot yield any competitive advantage in itself (Wernerfelt, 1984). Rather than cash items on the balance sheet, fungible resources as referred to by Sapienza et al. (2006) should contribute to the rms product or service production process and assist the rm in gaining a competitive advantage. Therefore, this study applies a more comprehensive construct of current assets as a proxy for resource fungibility. A current asset is dened as an item of economic value owned by a company, which could be easily converted into cash (i.e. cash and other liquid items) (White et al., 2002). This asset type differs signicantly from long-term assets, such as real estate, plants and equipment, or intangible assets, such as trademarks, patents, copyrights and goodwill, since they cannot be easily converted into cash. Fungibility inuences a rms performance by determining the rms capability to redeploy its assets to serve new markets (Anand and Singh, 1997). In order to control for rm sizes, resource fungibility was not measured by current assets in absolute terms. Instead, the ratio of current assets to total assets was used. The dependent variables are the following: . Probability of rm survival (SURVIVAL) refers to the actual survival, i.e. a binary dummy variable that indicated whether the rm is active or inactive (Mitchell et al., 1994; Gimeno et al., 1997; Agarwal and Audretsch, 2001). . Probability of rm growth (GROWTH) refers to a rms growth, which can be measured in terms of total sales. However, since a large variance can be expected, the natural logarithm of the total sales is used to avoid overly skewed results: ln (total sales) (Hart and Oulton, 1996).

Finally, as a control variable, rm size (FIRMSIZE) needs to be taken into account since a rms routines, as well as its organizational structures and resources, are expected to change with a change in its size (Stinchcombe, 1965). In this context, after ck reviewing the extant literature on small business internationalization, Miesenbo (1988, p. 46) stated that empirical ndings have been mixed, but on the whole they tend to show that the larger the rm is, the easier it starts exporting and runs international business. Hence, rm size is used to control for any effects of size on the survival and growth of young internationalizers. As the most widely used measure in ck, 1988), rm size is measured as the number of employees this context (Miesenbo working for one particular company, a measure numerous authors have utilized (Bonaccorsi, 1992; Verwaal and Donkers, 2002; Cavusgil and Naor, 1987; Yaprak, 1985; Burton and Schlegelmilch, 1987) (Table I). Having operationalized the independent as well as dependent variables, the following table provides an overview of the anticipated relationships. These relationships thus represent the hypotheses which will be empirically tested in the future course of this study (Table II). 4. Analysis and results The descriptive statistics and correlations are reported in Tables III and IV, while the regression results are found in Tables V and VI. Table III shows the means, standard deviations and variance for the dependent, independent, and control variables. Table IV displays the survival rate of the cohort of rms. Hierarchical moderated regression analyses were used to examine the hypothesized direct and moderating effects, generating
Construct name Internationalization Age at initiation Managerial experience Resource fungibility Probability of rm growth Probability of rm survival Firm size Variable DEGREE AGE EXP FUNG GROWTH SURVIVAL FIRMSIZE Units n.a. Years n.a. n.a. ln (sales in GBP) n.a. person Description Sales generated abroad divided by total sales Time lag between founding of a rm and the rst year of reporting sales abroad Number of nationalities represented on the board of directors divided by the number of board members Current assets divided by total assets Natural logarithm of total sales measured in pound sterling Probability that rm is still active at a given point in time Number of persons employed by a particular company at a given time

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Table I. Construct details

Dependent variable Predictor variables DEGREE DEGREE*AGE DEGREE*EXP DEGREE*FUNG SURVIVAL 2 (P1a) (P1b) (P1c) (P1d) GROWTH 2 (P2a) (P2b) (P2c) (P2d) Table II. Predictor and dependent variables and their anticipated relationships

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a series of successive models to determine each steps explanatory power. Moderated logistic regression analysis was used to determine the probability of rm survival. Moderated linear regression analyses determined the effects of company growth. A ve-step moderated hierarchical logistic regression analysis tests each of the hypothesized relationships with the probability of rm survival. An additional control variable explores the combination of variables predicting whether a rm would survive the ve-year period or not. The control variable was entered in the rst step, the hypothesized direct effect was added in the second step, and the hypothesized interactions were included stepwise in models 3-5. The tables summarize the roles of the parameters in all ve tested models. None of the calculated Wald statistics are signicant at a level of 0.05 or higher. Hence, none of the suggested parameters are useful to any of the proposed models. Similarly, none of the x 2-statistics associated with the control variable SIZE are signicant at a level of 0.05 or higher. The x 2-statistics are neither associated with the direct effect of DEGREE, nor with the entry of the hypothesized interactions DEGREE AGE, DEGREE EXP or DEGREE FUNG. Therefore, due to the insignicant x 2-statistics, this study concludes that inclusion of the direct variables and the suggested moderators does not add any explanatory power. In addition, the 2 2 log-likelihood indicates that some of the variables added to the initial model actually contribute less to the model. The 2 2 log-likelihood decreases from 272.041 in model 1 to 270.139 in model 5. Accordingly, the predictive powers of the models increase only slightly if at all. Thus, model 5 has the highest predictive power, but at the same time explains only 0.5 percent of the variance. As Table VII indicates, the four hypotheses on rm growth (H2, H2a-H2c) were tested using a ve-step moderated hierarchical linear regression analysis.
n Metric GROWTH AGE EXP FUNG DEGREE SIZE Binary SURVIVAL Range Minimum Maximum 2 0.08 0 0.00 0.00 0.00 1.00 0 11.36 6 1.00 1.00 1.00 2,299 1 Mean SD Variance Skewness 2 0.191 2 1.674 1.162 2 1.012 3.746 9.968

Table III. Descriptive statistics: metric and binary variables

280 11.44 463 6 459 1.00 459 1.00 463 1.00 367 2,298 463 1

6.5401 2.48605 6.180 4.94 2.189 4.792 0.2711 0.36617 0.134 0.7325 0.28126 0.079 0.0574 0.19151 0.037 54.74 161.160 25,972.593

Year 1 2 3 4 5 6

n 463 455 451 446 443 441

p (SURVIAL) 1.000 0.983 0.974 0.963 0.957 0.952

Table IV. Descriptive statistics: likelihoods of survival

1. GROWTH 1 1 1 1 1 459 0.059 0.205 459

2. SIZE

3. EXP

4. AGE

5. FUNG

6. DEGREE

1. GROWTH

2. SIZE

3. EXP

4. AGE

5. FUNG

6. DEGREE

Pearson correlation Sig. (two-tailed) n Pearson correlation Sig. (two-tailed) n Pearson correlation Sig. (two-tailed) n Pearson correlation Sig. (two-tailed) n Pearson correlation Sig. (two-tailed) n Pearson correlation Sig. (two-tailed) n 280 0.353 * * 0.000 220 0.072 0.234 278 2 0.377 * * 0.000 280 2 0.260 * * 0.000 279 0.189 * * 0.002 280 367 2 0.048 0.361 365 2 0.072 0.171 367 2 0.287 * * 0.000 366 0.004 0.935 367 459 2 0.127 * * 0.006 459 0.068 0.146 455 0.122 * * 0.009 459 463 2 0.012 0.798 459 2 0.515 * * 0.000 463

1 463

Note: Correlation is signicant at: *0.05 and * *0.01 levels (two-tailed)

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Table V. Parametric correlations

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Variable 1.965 0.000 0.152 2 0.378 0.031 0.031 272.041 0.000 0.064 0.031 272.008 0.000 0.902 271.170 0.002 0.032 0.707 0.397 0.912 137.273 0.033 1.955 0.000 124.386 0.033 1.954 0.000 124.369 0.036

Control Constant SIZE Direct effect DEGREE Interactions DEGREE AGE DEGREE EXP DEGREE FUNG x2 Dx 2 2 2 log likelihood Pseudo R 2

Notes: Parameter is signicant at: *0.01 and * *0.05 levels; pseudo R 2 is Cox & Snell R 2

Table VI. Results of hierarchical logistic analysis of survival (moderating effects) Model 1 Statistics Wald 1.946 0.000 2.202 2 0.539 2 0.240 * 1.933 270.139 0.005 Model 2 Statistics Wald Model 3 Statistics Wald Model 4 Statistics Wald 123.574 0.051 1.067 1.326 0.971 Model 5 Statistics Wald 1.946 0.000 2.226 2 0.540 2 2.386 * 2 0.038 1.933 270.139 0.005 123.503 0.051 0.512 1.188 0.763 0.000

Model 1

Model 2 VIF

Model 3 VIF

Model 4 VIF

Model 5 VIF 1.002 3.437 1.562 2.582

Variable

b
0.353 * * * 1.000 0.187 * * 1.000 2 0.021 30.979 * * * 0.124 0.124 0.120 1 20.582 * * * 0.035 0.159 0.152 2 13.691 * * * 0.000 0.160 0.148 3 1.407 2 0.022 2 0.001 10.221 * * * 0.000 0.160 0.144 4 1.407 0.200 0.199 * * 1.000 1.000 0.187 0.352 * * * 0.352 * * * 0.352 * * *

b
0.349 * * * 0.458

VIF 1.002 14.678 2 0.047 1.669 0.033 2.787 2 0.284 13.591 8.501 * * * 0.006 0.166 0.146 5

Control SIZE Direct effect DEGREE Interactions DEGREE AGE DEGREE EXP DEGREE FUNG F DR 2 R2 Adjusted R 2 df

Notes: *p , 0.05, * *p , 0.01 and * * *p , 0.001; the b coefcients are standardized

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Table VII. Results of hierarchical linear regression analysis of growth (moderating effects)

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The tests for the independent variable, GROWTH, yields several signicant results. The F-statistics are highly signicant for all ve models ( p , 0.001). At the same time, the R 2 values are fairly high, ranging from 12.4 percent in model 1 to 16.6 percent in model 5. The computed adjusted R 2 is similarly high, varying from 12 percent in model 1 to 14.6 percent in model 5. Whilst one major increase in R 2 could be observed from model 1 to model 2, the R 2 level remained largely the same for models 2-5. Not surprisingly, the corresponding variance ination factor (VIF) values are critically high regarding DEGREE, as well as regarding DEGREE FUNG, in models 4 and 5 as they were in the previous tests. Thus, the high VIF values once more point towards a dependency among the regressor variables. Table VIII displays the outcomes of the hierarchical logistic analysis of the direct effects on SURVIVAL. Similar to the test for moderating effects, none of the calculated Wald statistics are signicant at a level of 0.05 or higher regarding SIZE, DEGREE and AGE when testing for direct effects. Hence, except for EXP with computed Wald statistics at a 0.01 level, none of the hypothesized variables are useful for any of the proposed models. Equally, the x 2-statistics associated with the control variable SIZE are not signicant at a level of 0.05 or higher. Furthermore, the x 2-statistics are not associated with the direct effect of DEGREE, or with the entry of the hypothesized relationship interactions AGE, EXP or FUNG. These insignicant x 2-statistics show that adding any direct variables do not increase the explanatory power. Moreover, the computed 2 2 log-likelihood values show that adding further parameters to the initial model actually weakens the model. The 2 2 log-likelihood declines from 272.041 in model 1 to 262.095 in model 5. Correspondingly, the tested models explanatory powers increase only vaguely from R 2 0.0 percent in model 1 to R 2 2.7 percent in model 5. Hence, model 5 has the highest explanatory power; however, it accounts for only 0.27 percent of the variance. When the individual variables are examined, a particular observation can be made. While models 1 and 2 show identical results from the analysis of the relationship between survival and the interactions effects, different results are reported for those models where additional direct effects were added. In such instances, experience plays a particularly signicant role: foreign experience has a negative effect on the likelihood of rm survival (models 4 and 5, p , 0.01). Nevertheless, it should be kept in mind that the full models did not reach signicance levels of p , 0.05 or higher either. Moreover, in their entirety, these models only explain a fairly small amount of the varying outcomes (pseudo R 2 2.7 percent). In order to test for potential direct effects on the dependent variable, GROWTH, a hierarchical linear regression was run, using the previously assumed moderators as direct predictor variables. Table IX reports the results of the hierarchical linear regression analysis of the direct effects on GROWTH. Here, all ve regression models produced signicant results. In addition, the R 2 values are high, ranging from 12.4 percent in model 1 to 28.3 percent in model 5. The values resulting from the calculations of the adjusted R 2 are as high, ranging from 12.0 percent in the model 1 to 26.7 percent in model 5. Consequently, model 5 has the highest explanatory power. More specically, the R 2 values increased substantially from models 1 to 2 (DR 2 3.5 percent) and from models 4 to 5 (DR 2 3.3 percent), respectively. By assessing the models in terms of the calculated VIF values, it becomes apparent that multicollinearity does not degrade the precision of the estimate;

Variable 1.955 0.000 0.152 0.032 0.324 0.027 0.183 0.119 272.008 0.000 9.840 9.721 271.889 0.001 0.107 0.121 0.478 0.021 2 1.272 137.273 0.033 1.955 0.000 124.386 0.033 1.814 0.000 17.070 0.024 2.290 0.000 23.188 0.157 0.239 0.080 10.105 *

Model 1 Statistics Wald

Model 2 Statistics Wald

Model 3 Statistics Wald

Model 4 Statistics Wald

Model 5 Statistics Wald 2.128 0.000 10.962 0.073 0.214 0.060 10.161 * 0.139

Control Constant SIZE Direct effects DEGREE AGE EXP FUNG x2 Dx 2 2 2 log likelihood Pseudo R 2 0.064 0.031 272.008 0.000

0.031 0.031 272.041 0.000

0.453 0.202 2 1.278 0.227 9.977 0.137 262.095 0.027

Notes: Parameter is signicant at: *0.01 and * *0.05 levels; pseudo R 2 is Cox & Snell R 2

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Table VIII. Results of hierarchical logistic analysis of survival (direct effects)

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Variable VIF

Control SIZE Direct effects DEGREE AGE EXP FUNG F DR 2 R2 Adjusted R 2 df 1.000 0.187 * * 1.00 2 0.007 2 0.350 * * * 23.868 * * * 0.090 0.249 0.239 3 1.362 1.369 0.352 * * * 1.000 1.007 0.328 * * * 20.582 * * * 0.035 0.159 0.152 2

Notes: Signicant at: *p , 0.05, * *p , 0.01 and * * *p , 0.001; the b coefcients are standardized

Table IX. Results of hierarchical linear regression analysis of growth (direct effects) Model 1 Model 2 Model 3 VIF Model 4 VIF Model 5 VIF 1.010 2 0.004 2 0.346 * * * 0.043 17.991 * * * 0.002 0.251 0.237 4 1.368 1.378 1.024

b
0.330 * * *

b
0.276 * * *

VIF 1.099 1.372 1.378 1.027 1.097

0.353 * * *

30.979 * * * 0.124 0.124 0.120 1

0.014 2 0.346 * * * 0.052 2 0.189 * 16.926 * * * 0.033 0.283 0.267 5

all values are well below ten. As previously mentioned, model 5 can explain most of the variance of the dependent variable, GROWTH (28.3 percent). Looking at the individual variables included in the model, it becomes apparent that SIZE and AGE play a highly signicant role ( p , 0.001), whilst FUNG has a less signicant, but nevertheless considerable, effect on GROWTH ( p , 0.05). In the case of SIZE, the b coefcient is 0.276, indicating a strong positive interaction between SIZE and GROWTH. As far as AGE is concerned, the standardized coefcient is 2 0.347, indicating a strong negative relationship between AGE and GROWTH. When testing the effects of FUNG as an independent predictor variable on GROWTH, a slope parameter of 2 1.54 was computed, revealing a signicant negative link (Figure 2). 5. Discussion of ndings Drawing on data from a broad sample of UK-based new ventures, this study shows that survival and growth rates of young internationalizers are independent of a range of factors proposed by Sapienza et al. (2006). They are, furthermore, independent of an additional predictor variable suggested as a control variable. As far as the dependent variable survival is concerned, the results were inconclusive. Ultimately, none of the originally hypothesized relationships could be conrmed in the empirical test. Table X sums up this studys ndings. It is even more surprising that the tests for the control variable size do not yield any results, since Agarwal and Audretsch (2001, p. 22) state that [v]irtually every study undertaken has found that rm size is positively related to the likelihood of survival. On the one hand, this studys contradictory ndings may be partly due to the rather small number of rms that ceased operations in the observed ve-year period; on the other hand,

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Size + R3 Probability of firm survival

Age at initiation

R6

R1 Managerial experience Probability of firm growth

Resource fungibility

R5

strong relationship weak relationship

Basic Model Variable

Control Variable

Figure 2. Emergent model of the effects of organizational factors on survival and growth

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these ndings are not without a predecessor: large-scale analyses conducted by Harhoff et al. (1998) did not reveal any relationship between rm size and likelihood of exit. In his logical formalization of organizational mortality, Hannan (1998) sums up the three most common claims made in the literature regarding organizational mortality: rst, the risk decreases with age (the liability of newness concept); second, the risk increases initially and then decreases with age (the liability of adolescence concept); and, third, the risk increases with age (the liabilities of senescence and obsolescence concept). However, in his conclusion, Hannan (1998, p. 158) points out that a fundamentally different concept concerning aging is the basis of much of the theory and research on organizational mortality: [it] is the idea that aging per se does not affect the hazard of mortality; instead, age tracks the t between an organization and its environment. Consequently, age may have had no effects on survival in the research at hand, since rms potentially adjust to their environments very well, which means signicant mist cannot be measured. Similarly, the outcomes of the tests on rm growth are inconclusive. None of the propositions posited by Sapienza et al. (2006) were conrmed. Most importantly, no linear relationship could be established between the degree of internationalization and either of the two performance indicators, namely, survival and growth. While this nding does not yield any support for Sapienza et al.s (2006) propositions, it may be in line with the ndings by Ruigrok et al. (2007), who suggest that internationalization and performance may share a U- or S-shaped relationship, respectively. On the whole, it must be noted that extensive literature reviews, for example, Glaum and Oesterle (2007), suggest that the relationship between internationalization and performance is far more complex than suggested by the simple linear relationship brought forward by Sapienza et al. (2006). The overall negative relationship between age and growth may also be explained in terms of the learning advantages of newness concept as presented by Autio et al. (2000). In this context, it can be hypothesized that a young rm may be capable of capitalizing on simple decision-making processes, as well as on relatively at hierarchies, before it actually reaches a size that hampers further growth (Penrose, 1955). The direct tests on the dependent variables using age at initiation, managerial experience and resource fungibility as independent variables yields far more results than the tests of the moderating effects. Here, explanatory power increased substantially. The remainder of this section describes these relationships that lead to a new, emergent model of the effects of organizational factors on survival and growth in young ventures. 5.1 Relationships 5.1.1 The size-growth relationship. According to this studys statistical tests, size (SIZE) has a signicantly positive relationship with the probability of venture growth
Dependent variable Predictor variables SURVIVAL Not Not Not Not conrmed conrmed conrmed conrmed (P1a) (P1b) (P1c) (P1d) GROWTH Not Not Not Not conrmed conrmed conrmed conrmed (P2a) (P2b) (P2c) (P2d)

Table X. Predictor and dependent variables and their tested relationships

DEGREE DEGREE*AGE DEGREE*EXP DEGREE*FUNG

(GROWTH) at b 0.276 and p , 0.001 (R3). This nding contradicts results presented by scholars such as Tether and Massini (1998) and Brixy and Kohaut (1999), who found that the size of an establishment has a signicantly negative impact on employment growth. At the same time, this nding is in line with results presented, for example, by Dunne and Hughes (1994), and can be partly explained in terms of behavioral theory as presented, for example, by Penrose (1959), who describes growth as a continuous process driven by a management that constantly strives to exploit underused resources. The outcomes of this study suggest a negative relationship between age at export initiation (AGE) and rm growth (GROWTH), displaying a b of 2 0.347 at p , 0.001 (R6). This link supports ndings presented by researchers such as Yasuda (2005) and Harhoff et al. (1998), whose studies suggest that younger companies grow faster than old ones. At the same time, the relationship supports the learning advantages of newness concept (Autio et al., 2000). To some extent, this nding also corresponds to the research by Lu and Beamish (2006), who established a negative moderating effect for rm age at its rst foreign direct investment (FDI) and on the relationship between internationalization and rm growth. 5.1.2 The experience-survival relationship. The data set used in this study revealed a signicant negative relationship between managerial experience on the one hand and the probability of survival on the other (R1). This nding is worth mentioning, as experience is often considered positive in management theory. Nevertheless, experience cannot be detached from the circumstances under which it was gained. For the purpose of this study, experience was considered something built through the senior managements personal experiences in foreign environments, but this type of experience had negative effects on rm performance. Kilduff et al. (2000) provide a possible explanation. They found that demographic diversity among top management teams does not necessarily lead to an improved rm performance. This may be attributed to comparably poor communication patterns, as well as disproportionate levels of conict within diverse groups (OReilly and Flatt, 1986; Ancona and Caldwell, 1992). Moreover, this nding contradicts the research results presented by Dyer and Singh (1998), who suggest that external social ties may be especially critical regarding acquiring resources. Considering that a diverse board should have, ceteris paribus, more diverse external social ties than a homogeneous board, this outcome is somewhat surprising. 5.1.3 The fungibility-growth relationship. Similar to managerial experience, resource fungibility also has a negative effect on rm growth (R5). This correlation revealed a correlation of b 2 0.154 at p , 0.01. At rst glance, this nding is somewhat striking. It directly contradicts the assertion by Sapienza et al. (2006) that a higher resource fungibility has a positive moderating effect on rm growth. However, when Sapienza et al.s (2006) reasoning is examined, the apparent paradox can be resolved. Citing George (2005) and Sapienza et al. (2006) argue that high discretionary slack which is highly fungible by denition is positively related to rm performance. Accordingly, it is less surprising that high resource fungibility can also serve as a negatively related predictor variable for performance. Since no signicant relationship was discovered between internationalization on the one hand and survival and growth on the other, development is somewhat in line with the previous ndings by Ruane and Sutherland (2005, p. 457), who state that

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there is no evidence that enterprises improve their performance once they are in the export market (p. 457). 6. Conclusions This study provides a comprehensive longitudinal demonstration of the effects of early internationalization on the survival and growth of young internationalizing rms. A model proposed by Sapienza et al. (2006) was tested. Unlike prior studies on the internationalization behavior of start-ups, which have almost exclusively focused on internationalization as the dependent variable, this study examined how internationalization affects the survival and growth perspectives of start-ups, as well as the role that age, experience and resource fungibility play. This studys ndings hold interesting implications for strategic entrepreneurship research. The results contradict the conceptual work of Sapienza et al. (2006). Knowledge or experience for that matter was not found to be the key facilitator of internationalization. This does not correspond to the dominating internationalization framework, the process model of internationalization (Johanson and Wiedersheim-Paul, 1975; Johanson and Vahlne, 1977), which perceives experience as the internationalization catalyst par excellence. Moreover, the authors found no evidence for the view that rms become international for performance reasons, counter to the international new venture framework (Oviatt and McDougall, 1994, 1995; McDougall and Oviatt, 1996). This study aims to shed more light on rm internationalization by establishing different signicant relationships than those expected. Resource fungibility and age impact growth negatively, whilst rm size has a positive effect. Moreover, managerial experience has a weak negative impact on survival, while resource fungibility has a positive one. These ndings can lead to a new conceptualization of capability development in young ventures, with a new empirical approach to study survival and growth in young ventures. The ndings suggest that internationalization is a largely overrated theoretical factor when it comes to young rms short-term survival and performance. 7. Limitations of the research Like all research, this study has its limitations. First, cultural and geographic differences limit the generalizability of the results. Furthermore, the specic timeframe and spatial limitation may lessen this studys universal validity. This studys time span of six years is relatively brief compared with some ecological research studies (Carroll and Delacroix, 1982; Wade et al., 1998). However, Sapienza et al.s (2006) model clearly focused on new ventures, and six years is, therefore, a long enough period to capture the entire life history of a signicant number of ventures. Conceptually, this study is limited to a rather coarse denition of foreign sales. Owing to the limitation of the available data set, no differentiation was possible between the export destinations internationalizing rms. Having investigated the survival and growth chances of this rather broad group of new ventures, it should be possible to gain further insights by carefully segmenting the research objects. In their empirical work on Costa Rican software rms, Lopez et al. (2009), for example, found that early exporters are mostly born regionals. In a similar vein, additional ndings could be gained by investigating the survival and growth likelihoods of true born globals vs born regionals.

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Another possible conceptual limitation of this study can be found in the assumed linear relationships (Bacharach, 1989). Since this study follows strategic managements mainstream research pattern, there may be additional non-linear relationships between the variables observed. Finally, there is the question of the measures used in the analysis. The weakest of these is arguably that relating to managerial experience, which was measured by the proxy of the ratio between the number of nationalities represented on the board of directors and the number of board members. This limitation was due to the limitations of the UK data used for the analysis.
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Zahra, S.A. (2005), A theory of international new ventures: a decade of research, Journal of International Business Studies, Vol. 36 No. 1, pp. 20-8. Zott, C. (2003), Dynamic capabilities and the emergence of intraindustry differential rm performance: insights from a simulation study, Strategic Management Journal, Vol. 24 No. 2, pp. 97-125. About the authors Patrick Schueffel earned his doctorate at Henley Business School of the University of Reading cole de gestion Fribourg, Switzerland. and now serves as Adjunct Professor at the Haute e Wolfgang Amann is Executive Academic Director of Executive Education at Goethe Business School in Frankfurt. He was previously a Professor of Strategy and International Business at Henley Business School, as well as Executive Director and Faculty of the MBA at the University of St Gallen. Wolfgang Amann is the corresponding author and can be contacted at: amann@gbs.uni-frankfurt.de Emilio Herbolzheimer was a Professor at Henley Business School of the University of Reading, as well as Dean of Henley South Africa, Director of International Studies, Director of AMP, and Director of Studies for EDP.

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