Is more always better? Risk trade-offs among internationalizing new ventures

• Published in: European business review 2014-08, Vol.26 (5), p.406-420
• Main Authors: Fernhaber, Stephanie A, McDougall-Covin, Patricia P
• Format: Article
• Language: English
• Subjects: Advantages; Business; Competition; Constraining; Costs; Entrepreneurship; Gain; Globalization; Hypotheses; Innovations; International business; International markets; Liability; Product development; Product innovation; Profitability; R&D; Regression; Research & development; Research & development expenditures; Risk; Small & medium sized enterprises-SME; Strategy; Studies; Tradeoffs
• ISSN: 0955-534X; 1758-7107
• DOI: 10.1108/EBR-02-2013-0030

Purpose – The purpose of this paper is to investigate how ventures manage the negative returns associated with higher levels of internationalization. Many new ventures are internationalizing to fully exploit new innovations and/or gain access to larger markets. Yet at some point the rising costs associated with internationalization outweigh any benefits, resulting in an inverted U-shaped relationship between internationalization and performance. Design/methodology/approach – New ventures are theorized to better manage high levels of internationalization by limiting exposure to other sources of risk. This can be achieved by leveraging greater size and/or limiting simultaneous diversification efforts on product innovation. To test the hypotheses, a regression using Heckman selection was run using a sample of 210 US-based, publicly held ventures in high-technology industries. Findings – The results confirm that when higher levels of internationalization are coupled with either a low emphasis on product innovation or larger size, the negative returns are mitigated and actually become positive. Research limitations/implications – A key implication lies in recognizing the role of risk management for internationalizing ventures. Future research could benefit by testing for generalizability in other countries as well as among privately held ventures. Practical implications – To manage the trade-offs associated at higher levels of internationalization, ventures need to maintain a low emphasis on product innovation or meet a threshold in terms of size. Originality/value – The value of this research lies in better understanding how ventures are able to overcome rising costs at higher levels of internationalization.