The “Born Global Purchasers”: Internationalisation Through Outsourcing In The Uk Biotechnology Sector

2007 Oxford Business & Economics Conference ISBN : 978-0-9742114-7-3

The “Born Global Purchasers”: internationalisation through outsourcing in the

UK biotechnology sector

Călin Gurău

GSCM – Montpellier Business School

2300 Avenue des Moulins

34185, Montpellier, France

Email: cgurau@supco-montpellier.fr

June 24-26, 2007

Oxford University, UK

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The “Born Global Purchasers”: internationalisation through outsourcing in the

UK biotechnology sector

Abstract

The classical theories and models of internationalisation have been successfully challenged in the last 20 years by a series of structural transformations in the world economy. One of the most recent theories emphasize and describe the emergence of the “Born Global” companies in different areas of the world’s economy. These firms can be characterised by their small size, high-technology activities, and an early commitment to international expansion. The present paper presents an alternative model of internationalisation, specific for the UK small biotechnology companies – the ‘Born Global Purchaser’.

Keywords: Born Global Purchaser, Biotechnology, Small and Medium-sized Firms

Introduction

Liberalisation of economies, and the elimination of international trade barriers are opening an era of unprecedented growth for international operations. As a results of these factors, in the last 25 years there has been a dramatic increase in the crossborder inter- and intra-company transfer of goods (Baily and Farmer 1990). As global

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2007 Oxford Business & Economics Conference ISBN : 978-0-9742114-7-3 transaction increase in number and value, international purchasing becomes more important for the global success of the organisation.

Reasons for sourcing abroad include the following (Baily and Farmer 1990):

1) you may be forced to go abroad to get what is required;

2) you may prefer to buy from a foreign source which offers features not available on domestically produced goods of a similar type.

3) although goods of the type you want are produced domestically, domestic capacity may not be enough to meet demand, so the gap has to be filled from abroad;

4) there may be strategic reasons for foreign purchases, for instance to improve supply security by having a second source in another country;

5) you may be able to buy equivalent goods more cheaply abroad, because of larger quantities, lower wages, better productivity, better plant, or the rate of exchange;

6) countertrade may compel the firm to buy abroad. Sometimes it is not possible to win an export order without agreeing to a reciprocal import order.

However, most purchasers would still prefer to buy from suppliers located nearby, who speak the same language, belong to a similar culture, do business in the same legal system, work to the same standards, and have no currency exchange problems.

Shorter lines of communication and quicker delivery periods which are less subject to delays are further arguments in favour of local sourcing.

In the case of some industrial sectors, the firms may be obliged to outsource resources on an international basis, very early in their life cycle. This phenomenon represents a specific challenge for the small and medium-sized firms, because they often lack the

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2007 Oxford Business & Economics Conference ISBN : 978-0-9742114-7-3 necessary resources and experience to successfully manage international business operations. The present study presents and analyses the situation of the small and medium-sized biotechnology firms in UK. The specific characteristics of these firms and the competitive structure of the biotechnology sector, determine an original model of internationalisation.

The limitations of the classical internationalisation models

The classical internationalisation theories are mainly based on two models: the

Uppsala model, developed by Johanson and Wiedersheim-Paul (1975), and then refined by Johanson and Vahlne (1977, 1990); and the Management Innovation model, described in the work of Bilkey and Tesar (1977), Cavusgil (1980), Czinkota

(1982) and Reid (1981).

The systemic approach of these two models is almost similar. Both of them describe the internationalisation process as a gradual evolution of the firm through a series of stages, stages that correspond to an increasing foreign involvement of the company.

For example, Johanson and Wiedersheim-Paul (1975) have delineated four distinctive stages in the process of internationalisation:

1. No regular export activities.

2. Export via independent representatives.

3. The establishment of an overseas sales subsidiary.

4. Foreign production / manufacturing.

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The Uppsala model explains the internationalisation process considering two main strategic dimensions: the market knowledge possessed by the firm about different foreign markets, and the commitment of firm’s resources to those markets. The evolution of the company from a mainly domestic activity to a fully international profile is described as a slow, incremental process which involves the gradual acquisition, integration, and the use of knowledge concerning the characteristics of foreign markets, as well as an increasing commitment of the company’s resources towards international activities. The model also predicts that a firm will first target the markets that are most familiar in terms of language, culture, business practice and industrial development, in order to reduce the perceived risk of the international operations and to increase the efficiency of information flows between the firm and the target market (Johanson and Vahlne 1977 and 1990).

Johanson and Mattsson (1986) also show that some firms may initiate their internationalisation process using foreign agents, already established in the target markets, in an attempt to reduce the need for investment and risk-taking in the early stages of the internationalisation process.

On the other hand, the Innovation model (Cavusgil 1980; Czinkota 1982; Reid 1981) tends to explain the initiation of the internationalisation process through a series of management innovations implemented within the firm. The original theory created by

Bilkey and Tesar (1977) emphasizes the evolution of a firm’s internationalisation through a series of successive learning stages.

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The classical theories of internationalisation have been extensively challenged over the years, with numerous scholars advancing various criticisms of their validity and assumption (Knight and Cavusgil 1996). These criticisms helped to refine the outline of the previous models, either regarding the incremental characteristics of the internationalisation process (Johanson and Vahlne 1990), or the main causes and factors that determine and influence the evolution of a company through different stages (Reid 1984; Welch and Luostarinen 1988). Cavusgil and Zou (1994), Reid and

Rosson (1987) and Welch and Luostarien (1988) show that the initiation of international operations is usually the result of careful strategic planning, which takes into consideration a wide array of factors such as the nature of the foreign market, the firm’s resources, the type of product, the product life cycle, and the level of anticipated demand in the domestic market. On the other hand, the path to internationalisation does not have to follow necessarily the prescribed stages of development, with many other combinations of strategic options being available to the companies (Reid 1983; Rosson 1987; Turnbull 1987). For example, the first international sales can be realised through a joint venture or an international network of strategic alliances (Hakansson 1982). Other companies may also become international following alternative paths such as licensing, manufacturing or collaborative arrangements, without ever engaging in export activities (Carstairs and

Welch 1982/1983; Nordstrom 1991; Reid 1984; Root 1987).

All these criticisms mainly emphasize the limitations of the classical models of internationalisation, limitations partly derived from their tendency towards generalisation, and partly from the normal obsolescence of any theory in the present conditions of an accelerated technological and structural evolution. They show that it

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2007 Oxford Business & Economics Conference ISBN : 978-0-9742114-7-3 is difficult and even dangerous to draw a unique recipe for the internationalisation process (Buckley et al.

1979; Buckley 1982; Garnier 1982; Root 1987; Roux 1979;

Varaldo 1987), and that the firm’s stage of internationalisation is largely determined by the operating environment, industry structure, and its own marketing strategy

(Turnbull 1987).

The study by Knight and Cavusgil (1996) regarding the widespread emergence of the

Born Global companies in different areas of the world economy has represented another important challenge to the classical models of internationalization. Based on a study conducted in Australia, the Born Global companies are classified by the following specific characteristics (McKinsey and Co. 1993; Knight and Cavusgil

1996):

1. Management views the world as its marketplace from the outset of the firm’s founding; unlike traditional companies, they do not see foreign markets as simple adjuncts to the domestic market.

2. Born Globals begin exporting one or several products within two years of their establishment and tend to export at least a quarter of total production.

3. They tend to be small manufacturers, with average annual sales usually not exceeding $100 million.

4. The majority of Born Globals are formed by active entrepreneurs and tend to emerge as a result of a significant breakthrough in some process or technology.

5. They may apply cutting edge technology to developing an unique product idea or to a new way of doing business.

6. The products that Born Globals sell typically involve substantial value adding; the majority of such products may be intended for industrial uses.

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The authors argued that this phenomenon was determined by a series of recent trends that have facilitated the capacity of many companies to initiate early export activities

(Knight and Cavusgil 1996):

1. The increasing role of niche markets, especially in the countries of the developed world (Holstein 1992; Robinson 1986), determined by increased demand for specialised or customised products.

2. The recent advances in process technology that have created the possibility of flexible, low-scale, and low-cost production. Holstein (1992) notes that technology is allowing American small exporters to increase the competitiveness of their products in the global marketplace, while Robinson (1986) emphasizes the new technological capacity to produce a diverse range of products on an ever smaller scale.

3. The recent advances in communication technologies have reduced the costs of information transmission between distant markets. Through the use of computersupported technology such as electronic data interchange and electronic mail, even the managers of small firms can efficiently manage operations across borders (Holstein

1992).

4. The inherent advantages of small companies such as quicker response time, flexibility, adaptability and direct customer relations facilitate the international operations of Born Global companies, and offer them an important competitive edge in comparison with the larger multinationals (McKinsey and Co. 1993).

5. The means of internationalisation such as knowledge, technology, tools and facilitating institutions have become more accessible to all firms, regardless of their size or activity sector (Czinkota and Ronkainen 1995; Nordstrom 1991). The integration of the world financial markets, the globalisation of technology, and the

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2007 Oxford Business & Economics Conference ISBN : 978-0-9742114-7-3 increased mobility of economic assets have become the driving forces of the global economy.

6. The recent emergence of complex transnational networks of strategic alliances

(Covielo and Munro 1997; Hakansson 1982; Thorelli 1990). Today, the implementation of a successful international commercial strategy is highly facilitated through partnerships with foreign businesses - distributors, trading companies, subcontractors, as well as more traditional buyers and sellers.

The Born Global model is supported by numerous studies, that show that these types of companies are emerging in many national economies including France (Roux

1979), Canada (Denis and Depelteau 1985; Garnier 1982), Taiwan (Chang and Grub

1992), the United Kingdom (Buckley et al.

1979) and the United Stated (Holstein

1992; Norton 1994).

Although the international marketing institutions are examined primarily in their roles of sellers rather than buyers, the buying side of the exchange process should not be ignored (Kotler and Levy 1973). To maintain competitive advantage, multinational firms need to look beyond their national boundaries for sourcing of components and/or finished products. The options open to these firms range from establishing a transnational buyer/seller relationship, to entering into a joint-venture agreement with an existing foreign company, to investing directly in overseas production facilities

(Rajagopal and Bernard 1997).

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A critique of the Born Global model

The Born Global model seems to suffer from the same broad generalisation as the classical theories of internationalisation. First of all, the term “Born Global” is ambiguous and controversial. Other authors have used different expressions to conceptualise and describe the early commitment of SMEs towards internationalisation such as: Global Start-ups (Oviatt and McDougall 1994), High

Technology Start-ups (Jolly et al.

1992), or International New Ventures (McDougall et al.

1994).

The definition of the Born Global company emphasizes its capacity to start and quickly develop international operations - mainly exporting activities. However, a global activity is more complex than this, involving the implementation of an extensive network of transnational activities, as well as a re-structuring of the company’s internal environment (Bartlett and Goshal 1992; St. John and Young

1995).

Globalisation is a “fuzzy” imprecise concept: there are degrees of globalisation, and any given firm, market or country can and has to be expressed on a scale in terms of its degree of globalisation (OECD 1997). Globalisation cannot be measured directly, because, as a concept, it reflects a composite of several dimensions. For firms generally, the concept of globalisation seems to reflect (OECD 1997):

- the ability to move flexibly and to identify and take advantage of opportunities anywhere in the world;

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- the ability to source inputs, distribute products/services and move capital across borders;

- a lack of a home or national base (in the sense of not being committed to maintaining headquarters or a presence in a specific “home” country);

- being present (usually as establishments, alliances or parts of networks) in a number of different countries;

- having management that thinks and act “globally”; and

- the ability to market products/services successfully in different nations (although the products/services may be adopted to specific markets).

The OECD study (1997) has defined five different degrees of globalisation of small and medium-sized enterprises, based on the following three dimensions:

- the proportion of SME’s outputs and inputs (including capital) that are traded across national boundaries, either directly or indirectly;

- the number of establishments or affiliations in different regions or countries; and

- the number and range of regions which management perceives as market opportunities and/or competitive threats.

As can be seen, these studies have shown the importance of the purchasing function in defining the degree of globalisation. Consequently, the ‘Born Global’ phenomenon should not be considered only from a selling perspective. Recent studies (Gurău and

Ranchhod 1999; Gurău 2002) have shown that in some industrial sectors, the firms start their international operations with outsourcing activities.

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The specific situation of the biotechnology sector

Biotechnology is the systematic industrial use of biological processes and organisms to manufacture medical, agricultural and consumer products (Oakey et al.

1990). The science of biotechnology is also used to alter genetic information in animals and plants to improve them in ways that benefit people. The range of applications of biotechnology includes bulk and specialty chemicals, healthcare products, many food and drink products, extraction processes, waste and pollution treatment and agriculture (Mantegazzini 1986). There are large-scale applications of biotechnology in the traditional fermentation processes of sewage treatment and purification, and food and drink preparation. There are small-scale applications in high-value, lowweight products, such as antibiotics, aminoacids and enzymes (Walsh 1993).

Biotechnology techniques usually involve the integration of such advanced disciplines as biochemistry, cell biology, chemistry, genetics, chemical engineering, process engineering and computer science

Considering the subject of Born Global firms in biotechnology it is important to define the reasons why the SMBEs need to initiate and develop international operations:

1. Biotechnology is a global sector (Daly 1985).

2. All the industries that use biotechnology applications are highly internationalised or globalised (Russel 1988).

3. The limited human, technological and financial resources available on the domestic market may force a company to search abroad the necessary inputs for the development of biotechnology activities (Fontes and Coombs 1997). On the other

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2007 Oxford Business & Economics Conference ISBN : 978-0-9742114-7-3 hand a domestic business environment with excessive safety standards and regulations may encourage SMBEs to search abroad for more permissive markets.

4. The domestic market is often too small in number of customers or purchasing power in order to allow a rapid return on investments. “In the 1990s, it is the cost and risk of technology rather than the need for larger production runs that are primary motivation for the transnational integration of markets. In many strategic industries international markets are required to fully amortize the enormous R&D expenses associated with rapidly evolving process and product technology.” (Kobrin 1997:

149). “As the extent of a company’s R&D is mandated by the nature of its technology and competition rather than its size, this rapid growth of spending requires a corresponding expansion of sales - and ultimately, internationalization - if profitability is to be maintained.” (Kobrin 1997: 150)

The number of customers within the national market might be too small to ensure a proper return on investment, especially when the investment is large. Only by integrating potential customers from many different countries into a global market segment with a homogeneous demand, is a company able to compete and to efficiently develop its activities. Regarding this aspect Kobrin (1997: 151) wrote: “the evidence strongly suggests that the minimum size of markets needed to support technological development in industries such as aerospace, semiconductors, and pharmaceuticals is now larger than the largest national markets. In an emerging global economy international integration is a requisite of a competitive R&D budget; national markets are fused transnationally rather than linked through cross-border transactions.”

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5. The complexity and high risks of innovation and technological development within the biotechnology sector, determine the development of an integrated system of transnational strategic alliances - “it appears that even the global integration of markets by a single firm may no longer be sufficient to offset the huge costs and risks of technological development in a number of strategic industries” (Kobrin 1997: 150).

The process of product innovation and development is extremely complex in biotechnology (Euromonitor 1988). The full development of a new biopharmaceutical product can take as long as 6 to 8 years and it costs typically about £250 million

(Gracie 1998).The complete value-added chain of activities between the generation of a new idea and the commercialisation of the final product can be divided into 3 main stages: product innovation; product development and product commercialisation.

Each of these stages comprises a series of essential activities and processes

(Biomedicine 1998). It is obvious that meeting these requirements is almost impossible for small or even medium-sized companies, which are usually characterised by scarce resources and a strong, but essentially limited focus on their distinctive competitive advantage.

On the other hand, the limited human, technological and financial resources available on the domestic market may force companies to search internationally for the necessary inputs for the development of biotechnology activities (Fontes and Coombs

1997).

The small and medium-sized biotechnology enterprises (SMBEs) have to cope with the scarcity of internal resources, with unfavourable conditions on domestic market

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2007 Oxford Business & Economics Conference ISBN : 978-0-9742114-7-3 and with long and costly product development cycles. Because of this, their internationalisation process may be based on:

- the desire to access complementary resources;

- the incapacity of domestic environment to provide favourable conditions for development and growth;

- a lack of internal resources, which are unavailable in the domestic market;

- a desire to develop the firm’s competitive advantage.

The present study will attempt to explore the internationalisation process of the small and medium-sized biotechnology firms. Considering the specific conditions of the biotechnology industry and market, it can be assumed that the internationalisation process will present specific characteristics, the outsourcing and purchasing function playing a paramount role, at least in the first stages of the internationalisation process.

Research methodology

In order to collect data about the internationalisation process of the UK SMBEs, a questionnaire survey was applied. The population of study was represented by the independent UK SMBEs (firms with a maximum of 500 direct employees). These firms were identified and accessed using the 1999/2000 Database of the UK biotechnology firms, specialised Internet Databases, as well as information obtained from the British BioIndustry Association. The data was collected through a structured questionnaire, sent by mail to the respondents (executive managers of European

SMBEs), and then processed using an SPSS package.

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665 structured questionnaires were sent to the UK SMBEs, from which 211 were filled in and returned, resulting a response rate of 31.72%.

The domains of biotechnology activity were classified into four distinct sectors:

- healthcare;

- environmental biotechnology;

- agriculture/food;

- bio-reagents and instruments.

Obviously, although this classification has a relative value, however, it provides a rather clear distinction among different biotechnology applications, allowing a delimitation of the specific characteristics of each industry. This is also consistent with the previous classifications used in the specialised literature (Euromonitor 1988;

Mantegazzini 1986).

In order to explore the internationalisation process of the UK SMBEs, and its particular characteristivcs, the following research hypotheses were formulated:

H1: Most of the UK SMBEs can be considered as ‘Born Global’ firms.

H2: The main reason of the UK SMBEs to start international operation is to outsource international resources.

H3: The level of outsourcing of the UK SMBEs is substantial.

H4: The international operations of the UK SMBEs evolve during their life cycle – the importance of outsourcing operations declines when the firm reaches maturity.

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Presentation and analysis of data

Table 1 shows that the time period between the incorporation of the company and the initiation of its international activities is very short in most of the cases. In fact, in 109

(51.7%) from 211 cases, the implementation of international operations was made in the same year with the firm’s incorporation, and in another 75 (35.1%) cases in the first five years after incorporation. These figures show the relevance of international markets for the new biotechnology companies. Because of this many SMBEs are structured at the outset as international companies. They can be included in the category of ‘Born Global’ firms defined and analysed by Knight and Cavusgil (1996).

It is also important to observe that the large majority of UK SMBEs initiate their international operations relatively quickly - 94.3% of all respondent firms have initiated their international activities in the first decade after incorporation.

Table 1 About Here

The data presented in Table 1 confirm the research hypothesis:

H1: Most of the UK SMBEs can be considered as ‘Born Global’ firms.


Table 2 shows that the main reasons of the UK SMBEs to initiate international operations are either commercialisation activities (for the companies that already have

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2007 Oxford Business & Economics Conference ISBN : 978-0-9742114-7-3 a finalised product or service – mostly companies selling reagents and instruments), or outsourcing activities (for the dedicated R&D firms which need complementary resources in order to develop their technology platform and their product portfolio). In absolute numbers, the access to complementary resources is predominant. 59% of responses indicate the access to complementary resources as the main reason to initiate international operations, as compared with only 41% of responses for the access to new markets.


In order to understand the specific needs of the UK SMBEs it is important to analyse the resources accessed by these firms at international level. In the order of their importance these reasons are: access to technology (28.8%), access to funds (26.3%), access to information (22.9%), and access to other resources (22%). Among these other resources the respondents have specified as important their previous relationships with foreign companies (networking), access to patients for clinical trials, access to professional staff, as well as the general motive of adapting their companies to the international environment of the biotechnology sector.

It is interesting to observe that, in comparison with more traditional industries such as car manufacturing or food processing, the resources required by the SMBEs are knowledge-based (technology, information, specialised personnel). The importance of accessing funds also highlights the expensive nature of the R&D process in biotechnology, which forces the firms to outsource funds on an international level.

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The data presented in Tables 2 and 3 confirm the hypothesis:

H2: The main reason of the UK SMBEs to start international operation is to outsource international resources.


The percentage of inputs outsourced internationally by the UK SMBEs is substantial

(Table 4). 38.4% of the respondent firms outsource more that 40% of their inputs internationally, which is an important amount considering their level of development.

This data supports the research hypothesis:

H3: The level of ooutsourcing of the UK SMBEs is substantial.

, reinforcing the international image of the biotechnology sector.


Table 5 shows the types of international activities implemented by the UK SMBEs.

This is a table containing statistically aggregated results, in which the percentage of responses shows the proportion of each activity in the total number of responses, while the percentage of cases shows the percentage of each activity from the total number of companies (114). Because a company can implement more than one type of international activity, the total number of international activities is bigger than the number of respondent companies (494 activities for 211 respondent companies).

Both the percentage of responses and the percentage of cases reinforce the third hypothesis. Even if the access to markets represents one of the main objectives of UK

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SMBEs, the access to foreign complementary resources has a greater importance.

81.6% of the respondent companies are engaged in cross border research, 79.8% in international exchanges of information (which are the main sources for information and modern technology), and 69.3% in fund sourcing, in comparison with only 63.2% with distribution activities, 50.9% with foreign production, 45.6% providing services and only 43% investing abroad.


The results from Table 6 support the hypothesis that:

H4: The international operations of the UK SMBEs evolve during their life cycle – the importance of outsourcing operations declines when the firm reaches maturity.

Comparing the proportion of different international activities implemented by the UK

SMBEs incorporated in different time periods, it can be seen that the firms incorporated before 1975 have a larger proportion of companies engaged in distribution, production, servicing and investment than those incorporated in the next two periods. On the other hand the proportion of companies engaged in research and fund sourcing is increasing among the SMBEs incorporated in the most recent periods. The exchange of information has an interesting distribution, with a maximum among the companies incorporated before 1975, being followed by the companies incorporated in the 90s, and finally by the companies incorporated between 1975 and

1989.

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The results offer interesting insights in the evolution of the UK biotechnology companies. Initially, the SMBEs depend heavily on external sources of funding, and because of this the international fund sourcing represents a frequent activity.

However, the older companies who had the time to develop and launch products will progressively produce revenues, either from selling products or providing services, and correspondingly, the frequency of fund sourcing as an international activity will decrease. These older companies will also tend to allocate more of their internal resources for foreign investments, in order to develop their production capabilities and or distribution network.

The foreign research and the cross border exchange of information remain important activities for all SMBEs, regardless of their age and experience, even if the foreign research activities tend to decrease slightly over time. This is normal for an information and technology intensive sector like biotechnology, where the discoveries are made on a global basis.

Concluding remarks

The empirical data collected and analysed on the globalisation process of UK SMBEs has demonstrated the existence of a large number of “Born Global” companies among the internationalised small and medium-sized biotechnology businesses. The phenomenon of “Born Global” firms is not only present, but is also increasing in the

British Biotechnology sector.

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However, the model presented by Knight and Cavusgil (1996) is not flawless. The

“Born Global” theory ignores the differences that exist among different industries and companies regarding the degree of globalisation, the main reasons that determine and the various pathways that lead to a global position in the world economy.

A company has to compete with others, both to obtain the inputs necessary for its own existence and functioning, and to commercialise its outputs into the market. The nature of these inputs and outputs is extremely complex: human resources, information, raw materials, technology, funds, services, and final products (Moran and Riesenberger 1994). From this perspective a global company can be defined as being an organisation that is capable of functioning successfully taking advantage of the opportunities available on a global basis. The global concept in this case incorporates more than a simple trade orientation toward international markets, in fact it takes into consideration, planning, supply, production, outsourcing, collaborations, investments, structure, corporate philosophy and management (OECD 1997).

The biotechnology sector has a series of specific characteristics, and the SMBEs can be considered as different from the SMEs from more mature industries. The present study showed that:

the biotechnology sector can be considered global, given the patterns of competition, out-sourcing and commercialisation;

the biotechnology sector is knowledge and technology intensive;

the development of a final biotechnology product/service may be extremely long and expensive;

most SMBEs lack resources for their survival and development;

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As a result, the UK SMBEs are forced to become internationalised relatively quickly, because:

the domestic market does not provide enough resources for their survival and development;

the domestic market is limited in size and profitability;

the competition is transnational, affecting even the domestic environment;

the domestic business environment is sometimes unfavourable.

Most of the UK SMBEs usually start their internationalisation process:

without having a final product/service;

the firm has not yet any successes in the domestic market;

there is no surplus of internal resources, in fact, one of the main reasons for internationalisation is the cross-border access to complementary resources.

The UK SMBEs process of internationalisation will be driven by:

the desire to access complementary resources (information, technology, funds, staff, etc.);

the incapacity of domestic environment to provide favourable conditions for development and growth;

a desire to develop the firm's competitive advantage.

From this perspective, the internationalisation process is not only another strategic alternative among different possible paths of development, but often the only option for the survival and development of an UK SMBE.

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The internationalisation process of the UK SMBE has to be considered in the context of its corporate life cycle.

In the first stage of its operational life, an SMBE is usually focusing on two major objectives (Saviotti 1998):

1.

To develop its competitive advantage (which is usually technological or scientific);

2.

To obtain the necessary resources for survival and initial development.

These two strategic objectives are inter-related because a firm cannot develop and protect its competitive advantage without initial resources, and, on the other hand, the distinctive competitive advantage is opening the way for the integration of the company into a sectorial value-added chain and for access to supplementary resources necessary for further growth and development.

In the second stage of the SMBE operational life, the firm tries to get integrated into the sectorial value-added chain of biotechnology. In fact, this integration is at least partly achieved during the development and consolidation of the firm's competitive advantage.

Many SMBEs can be defined as “Born Global Companies” (Gurãu and Ranchhod

1999; Knight and Cavusgil 1996; Madsen and Servais 1997). The internationalisation process of SMBEs is not gradual, starting soon after incorporation. It can be considered that the internationalisation process of the UK SMBEs is mainly driven by out-sourcing reasons. However, as it will be demonstrated, the institutional forms of

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2007 Oxford Business & Economics Conference ISBN : 978-0-9742114-7-3 out-sourcing represent also a framework for international expansion. Considering these specific characteristics, the model created by Knoght and Cavusgil (1996) can be enriched with the concept of ‘Born Global Purchasers”, companies that start their internationalisation process with purchasing and outsourcing activities.

This study has a number of limitations. The biotechnology sector is not homogeneous and in order to understand in more depth the internationalisation process of different categories of companies it is necessary to analyse the differences between the companies activating in various industries (pharmaceuticals, environmental biotechnology, food/agriculture). On the other hand, the specific mechanism of outsourcing international resources needs to be described in more detail, in relation with the relationship between the firm and its suppliers, and with the organisation of the purchasing function within the UK SMBEs. These limitations represent promising directions for further research and analysis.

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Total

Table 1. The period passed between firm’s incorporation and the start of its international activities

Period between firm’s incorporation and the start of international activities

Frequency Percentage Cumulated

Percentage

0 years

1 to 5 years

6 to 10 years

More than 10 years

109

74

16

12

51.7

35.1

7.6

5.7

51.7

86.7

94.3

100

211 100

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Table 2. The main reasons of UK SMBEs to initiate international operations

Reasons to initiate international activities Count Percentage of responses

Commercialisation

Outsourcing

82

118

41

59

Total 200 100

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Table 3. The outsourcing activities indicated as reasons for initiating international operations

Count Reasons for initiating international activities

Outsourcing funds

Outsourcing information

31

27

Percentage of

responses

26.3

22.9

Outsourcing technology

Other reasons

Total of reasons

34

26

118

28.8

22

100

June 24-26, 2007


34

2007 Oxford Business & Economics Conference

June 24-26, 2007


ISBN : 978-0-9742114-7-3

Table 4. The percentage of inputs outsourced internationally by the UK SMBEs

Percentage of inputs sourced internationally

Less than 10%

Frequency

64

Percentage

30.3

Cumulated

Percentage

30.3

10% to 40% 66 31.3 61.6

41% to 70%

More than 70%

Total

40

41

211

19.0

19.4

100

80.6

100

35


Table 5. The types of international activities implemented by the UK SMBEs

International activities Count

Production 58

Percentage of Percentage of

responses cases

11.7 50.9

Distribution

Research

Information exchange

Service

72

93

91

52

14.6

18.8

18.4

10.5

63.2

81.6

79.8

45.6

Investment

Fund sourcing

Total of activities

49

79

494

9.9

16

100

43

69.3

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Table 6. Crosstabulation between the period of incorporation of SMBEs and their international activities

International activities /

Period of incorporation

Before 1975

N %

1975 - 1989

N %

1990 - present

N %

Total of

activities

Production

Distribution

5 71.4 21 51.2 32 48.5 58

6 85.7 31 75.6 35 53 72

Research

Information exchange

Services

Investments

Fund sourcing

5 71.4 31 75.6 57 86.4 93

6 85.7 29 70.7 56 84.8 91

5 71.4 23 56.1 24 36.4 52

4 57.1 22 53.7 23 34.8 49

3 42.9 24 58.5 52 78.8 79

June 24-26, 2007


37

The “Born Global Purchasers”: Internationalisation Through Outsourcing In The Uk Biotechnology Sector

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