The Rise of Born Global Firms and Evolving Theoretical Frameworks
Introduction
The ‘born global’ firm, a product of the rapid globalisation commencing in the 1980s is
an innovative, entrepreneurial enterprise that, from its conception, immediately targets
international market consumers. Knight & Cavusgil, (2004, as cited in Knight &
Cavusgil, 2015) define born globals as “entrepreneurial start-ups that, from or near
their founding, seek to derive a substantial proportion of their revenue from the sale of
products in international markets.” 1 Oviatt & Mcdougall (2015) define international
entrepreneurship “the discovery, enactment, evaluation, and exploitation of
opportunities—across national borders—to create future goods and services.”2
These born global firms began emerging from large domestic economies such as the
United States, however the escalating ease-of-entry into the international market has
allowed many entrepreneurs from emerging economies to capitalise on this new
frontier. Their rise has been facilitated by the expansion and development of modern
communications technologies such as the internet, and the ongoing process of
globalisation has drastically reduced the prices for the foreign expansion of small and
often under-resourced companies.
The rise of born global has challenged traditional models on the internationalisation of
businesses. Three models in particular are the Upsalla Model (Johanson & Vahlne,
1977),3 Dunning’s (1988) Eclectic Paradigm4, and Porter’s Diamond Model (1990).5
These models are primarily targeted toward a traditional, gradualist, integrationist or
systems development approach to internationalisation, and therefore they are not wellequipped to apply to born global firms. As will be seen, there are some areas where
these models have degrees of applicability to born globals, but their primary utility is
1
Cavusgil, S.T. & Knight, G.A. (2015). The born global firm: An entrepreneurial and capabilities
perspective on early and rapid internationalization. Journal of International Business Studies, 46(1), 316, p. 3
2 Oviatt, B.M. & McDougall, P.P. (2015) Defining International Entrepreneurship and Modeling the
Speed of Internationalization. Entrepreneurship Theory & Practice, 29(5), 537-553, p. 539.
3 Johanson, J. & Vahlne, J.–E. (1977). The internationalization process of the firm: A model of
knowledge development and increasing foreign market commitment. Journal of International Business
Studies, 4, 20–29.
4Dunning, J.H. (1988). The Eclectic Paradigm of International Production: a Restatement and Some
Possible Extensions, Journal of International Business Studies, 19:1-31, p. 1
5 Porter, M.E. (1990). The Competitive Advantage Of Nations. Harvard Business Review
in accounting for the myriad of structures or approaches necessary for a traditional
enterprise becoming a multinational.
Uppsala Model
A model that has least adapted well to the progress of globalisation and the rise born
globals is the Uppsala Model. The Uppsala model (Johanson & Vahlne,1977, see
figure 1) proposes a gradualist, integrative knowledge acquisition approach of the
‘pattern and pace’ of the internationalisation process a firm pursues, framed within
economic and business factors, in two separate directions:
6
There are two basic
assumptions underlying the Uppsala model: firstly, that the lack of knowledge is a
primary obstacle to the pursuit of international operations, and secondly, that the
knowledge required can be learned through undertaking these operations. 7 As Bell,
Crick & Young (2004) describe this model, “the evolution of internationalization is
based on managers’ cognitive learning and competency development, which gradually
increases through experience.” 8 Oviatt & McDougall (2015) point out the initial
problems with this approach: the Uppsala Model is designed to demonstrate traditional
behaviour across borders, rather than on the accelerated internationalisation made
Johanson & Vahlne, 1977
possible by communications technology. Additionally, the behaviour of the
entrepreneur is discounted, which is of significant value in born global firms.
6
Johanson & Vahlne, (1977), p. 23
Ibid, p. 23.
8 Bell, J., Crick, D. and Young, S. (2004). Small Firm Internationalization and Business Strategy: An
Exploratory Study of 'Knowledge-Intensive' and 'Traditional' Manufacturing Firms in the UK.
International Small Business Journal. 22(1):23-56, p. 4
7
Johanson & Vahlne,1977,9 showed that initial internationalization activities of many
firms were targeted to psychically close markets, and used less-committed methods
of entry to those markets, such as exporting. The former finding has some applicability
in born global firms, as many tend to start on a regional basis before expanding to
actually being ‘global.’10
Dunning’s Eclectic Paradigm
Another theory that has poor compatibility with born global firms is Dunning’s (1988)
Eclectic paradigm (see figure 2), also known is an OLI paradigm, which outlines
another entry-mode strategy or ‘holistic framework’ that focuses on developing an
ownership, location and internalisation advantages in order to be able to expand to
foreign markets. 11 These advantages can also be referred to as competitive
advantages, or monopolistic advantages, and their value, according to Dunning, must
be sufficient to provide for the costs of establishing an operation in a foreign location.
An ownership advantage refers to the possession of a rare or original organisational
resource that gives the company a competitive advantage over local rivals. Thus the
question that must be posed is, does the firm have competitive advantage of
ownership that can be monetized abroad, in a culturally applicable manner? 12 If the
answer is yes in a born global firm, the enterprise may internationalise immediately,
however in keeping with Dunning’s original intent, the traditional organisation must
also have a location advantage. Here, born global firms may see a parallel, but not
always. In the ‘sharing economy’ model, which primarily utilises apps or internet use,
born global firms can capitalise on travel, car sharing (such as Uber), finance, staffing,
and music (such as Spotify) and video streaming (such as YouTube) with little
geographical determinism in their enterprise, with the exception of nation-dependent
government interference.13
9
Johanson, J. & Vahlne, J.–E. (1977), p. 28
S.T. & Knight, G.A. (2015). The born global firm: An entrepreneurial and capabilities
perspective on early and rapid internationalization. Journal of International Business Studies, 46(1), 316
11 Dunning, J.H. (1988), p. 2
12 Ibid, p. 3
13 Hoffman, Andrew. 2016. “Uber and the Sharing Economy: Global Market Expansion and
Reception.” University of Michigan
10Cavusgil,
Figure 2, Dunning’s Eclectic Paradigm (1988)
Secondly, Dunning’s traditional model requires that location advantage in the foreign
economy the firm is trying to enter is necessary in order to proceed with
internationalisation. There must be distinct, geographical advantages that man confer
logistical, chain of supply related benefits, resource-oriented locations where cheap
raw materials and/or a skilled labour force are accessible, or locations with special tax
rates or tariffs. The question to be asked must then be, are any of these advantages
present? If the answer here is yes, then the firm proceeds to the final assessment to
ascertain whether establishing operations through licensing, franchising or foreign
direct investment (FDI) is an apt decision. Here, a born global’s international
operations may depend on location and resources, as is the case with Timeless Herbal,
a Jamaica and Canada-based medical marijuana supplier.14 CEO Courtney Betty’s
international expansion must take into account the legal infrastructure of the nations
he intends to supply.
Finally, the firm must look at internalisation. This section inquires whether or not it is
wiser to perform operations in-house through FDI rather than franchising. If a company
abroad can manufacture or perform certain activities at cheaper rates and with more
local knowledge, then it may be more prudent to outsource activities to an Original
Equipment Manufacturer (OEM) or a contract manufacturer. If the answer is yes to the
Mark, Ken. 2016. “Born Global: Timeless Herbal Prepares to Sell Medical Marijuana to Canadians.”
Ivey Publishing.
14
question, ‘does this confer internalisation advantages?’ then the firm should maintain
control over its activities and pursue FDI, either starting from scratch or through
seeking to establish joint ventures with local partners. However, if the answer is no,
then licensing may be preferred. This segment is of little applicability to born globals,
as the decision for licencing, franchising or FDI are not factors that tend to limit their
international operations.15
Porter’s Diamond Model
A final classic internationalisation theory is Porter’s (1990) Diamond Model (see figure
3).16 This framework endeavours to explain why a nation’s firm can be competitive and
innovative internationally, and why others cannot.
Porter claims innovation and competitive potential are based on an interconnected set
of domestic-location advantages that industries in different nations may possess.
These advantages are: 1) firm strategy, structure and rivalry, 2) factor conditions, 3)
related and supporting industries and 4) demand conditions. When all conditions are
favourable for the firm, it will be compelled to innovate and upgrade itself at a constant
rate in order to maintain its competitive advantage, thus establishing a readiness for
operations abroad against potentially larger competitors. Additionally, the role of
government and chance can have a significant impact in shaping the operating
environment. An immediate downfall of this model is that it implies that a strong and
resilient network of domestic institutions is necessary in order to facilitate the
establishment of an international enterprise, which is not the case for born globals.17
15
Knight, G.A. and Liesch, P.W. (2016). Internationalization: From incremental to born global. Journal of World
Business, 51(1), 93-102
16
Porter, M.E. (1990). The Competitive Advantage of Nations. Harvard Business Review
17 Cavusgil, S.T. & Knight, G.A. (2015) p. 8
Figure 3, Porter’s Diamond Model (1990)
The first component of the Diamond Model is the firm strategy, structure and rivalry,
which are all largely determined by the national context. These elements reflect the
capabilities and weaknesses of the organisation, as well as its structure and
competitive environment. These are the domestic forces that shape a firm into a
formidable organisation capable of entering a foreign market and maintain its
competitive edge. It must first be capable of holding its ground against domestic rivals.
Factor conditions refer to the capital, natural and human resources (such as
knowledge or labour) available to a firm. This theory is naturally suited to a tradition
global company, as Apple’s outsourcing of the iPhone to Foxconn in China is due to
the readily available technical engineers, logistical chain, factories and infrastructure
in highly concentrated locations – a feat that would be unmanageable in the USA.18
Competitive advantage in factor conditions is established through the constant refining
and upgrading of these assets to create world-class skills, specialisations and
institutions to reinforce the firm on the global stage. Conversely, for born globals,
competitive advantage tends to be established based on the conception of an
innovation , rather than upon reinforcing, capital-heavy resources.19
This aspect of the model has some mixed applicability with regard to born globals, as
Covin, & Miller, 2014, found that for stimulating International Entrepreneurial
Orientation (IEO) in a firm, ‘resources such as international connections, exclusive
alliances with distributorships, foreign licenses, and other assets may all constitute
Merchant, B. (2018). Life and death in Apple’s forbidden city. [online] the Guardian. Available at:
https://www.theguardian.com/technology/2017/jun/18/foxconn-life-death-forbidden-city-longhuasuicide-apple-iphone-brian-merchant-one-device-extract.
19 Knight, Liesch. (2016) 93-102
18
internationalization advantages that could potentiate and enhance the effectiveness…
paradoxically, those very same assets may make IEO less predictive of
internationalization as there may be less need for it given the strong position and
abundant, superior opportunities open to the company.’20
Demand conditions in the domestic environment will affect the favourability of an
industry in that economy. For example, a larger market will stimulate more rivalry, and
will demand a better quality, more innovative product from firms. Additionally, a more
demanding customer base will require faster, longer lasting competitive advances from
firms, giving them additional robustness against foreign rivals.21
Related and Supporting Industries provide a reinforcing means network of support,
often through partnerships, within which the primary firm may exist and thrive. A firm
gains competitiveness when it has a range of supporting industries and services to
develop high-quality inputs, streamlined communication and logistics. A nation and its
firms benefit from this to the highest degree when these partner companies and
suppliers are also global competitors. Additionally, there are enormous regional
benefits when such a framework is established, such as in Silicon Valley, where the
concentration of human capital in IT knowledge stimulate massive innovation, or in
China’s Shenzhen and Guangzhou industrial cities, which are streamlined for
production.22
Finally, later versions of the Porter Diamond model include the government and
chance. The government is a ‘catalyst and challenger,’23 whereby, governments can
intervene in any of the aforementioned sections, facilitating and encouraging
companies to engage in high domestic and international competitiveness through the
establishment of specialised infrastructure, and provide subsidies and tax breaks
where necessary. In the same sense, it can also be an inhibiting factor, conflicting with
companies in a myriad of ways and stifling their development. Chance takes into
account stimulating or detrimental effects of external calamities such as war or natural
disasters. Governments have, at times, been an important decisive force in the
20
Covin, J. G., & Miller, D. 2014. International entrepreneurial orientation: Conceptual considerations,
research themes, measurement issues, and future research directions. Entrepreneurship Theory and
Practice, 38 (1): 11–44.
21 Porter, 1990
22 Ibid, 1990
23 Ibid, 1990.
operations of born globals, such as in the case of Uber in China. 24 Here, the
government marginalised Uber’s operations, favouring instead a local firm named Didi
Kuaidi.25 Thus, the governmental element of the Diamond Model finds applicability
with born globals.
Conclusion
The Uppsala Model (1977), Ecclectic Paradigm (1988) and Porter’s (1990) Diamond
Model are built to apply to traditionally internationalising firms, presenting different
interpretations of a process by using an incremental, advantage-seeking and systems
optimisation approach respectively. There are elements in each of these theories that
applies to born globals, however due to the highly diverse nature of born globals and
the speed which which they internionalise, all of these models indicate that there is a
necessary build-up of time, resources and domestic competence necessary for
internationalisation – none of which are necessarily required for born-globals.
To construct future models that may apply specifically to born globals, it is
recommended by scholars such as Knight et al that digitalization and servitization, as
well as opportunity discovery and exploitation 26 are integrated, in addition to the
traditional elements such as resources, capabilities and strategies. Thus far, the
current models have been rendered obsolete.
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25 Ibid, 2016
26 Knight and Liesch, P.W. (2016), p.10
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