How can start-ups with limited resources achieve international success? The answer could lie in their entrepreneurial approach to innovation.
After 25 years in the computer industry, during which time he had helped to pioneer artificial intelligence and become vice-president of the HP forerunner Compaq, Dr Rustom Kanga quit his job for a new challenge.
His vision was to develop the world’s most advanced intelligent security surveillance system. Dr Kanga and his business partner Ivy Li had acquired a software package that they knew could be developed to address top-level surveillance needs. However their path to success was a rugged one.
In the pre 9/11 era, security surveillance was not the top priority, and they underestimated the challenges involved in bringing the technology to market. Their co-founders dropped out when they realised the size of the investment required, and it took them a further two years to work out how to address customer needs.
“We were pioneers in this field and we had to not just sell to the market, but to educate it and in fact create it,” recalls Dr Kanga.
Despite the challenges, when their first product was launched in 2004 it attracted an international audience from the start and the following year the company, iOmniscient, opened its first overseas office in Canada. Now it has offices around the world and its systems are used at landmark locations such as Sydney Harbour Bridge and Suntec City in Singapore.
iOmniscient is one of the ‘born globals’ – small companies that enter international markets at a very early stage. Not all are technology firms – in fact, born globals can be found in all industries and in all major trading countries. Since the phenomenon was first identified in a landmark Australian study over two decades ago, experts have questioned how start-ups with few resources can succeed in global markets which big firms may struggle to enter.
Now new research has provided possibly the most comprehensive explanation so far. The research team, which included Associate Professor Jay Weerawardena and Professor Peter Liesch of UQ Business School, investigated the knowledge and skills that the founders of born global firms acquired in their previous jobs and the process they went through in setting up their business to lay the foundation for early internationalisation.
Researchers conducted in-depth interviews with firms in Brisbane, Sydney and Melbourne over a two-year period, followed by a major survey of Australian and US born global firms. They discovered that the founders all shared an international vision and a highly entrepreneurial approach. “In new ventures lacking resources, a pro-active and visionary approach is needed to deal with risky and complex foreign markets,” says Associate Professor Weerawardena.
“Many of the founders had come from an international background and learned ways to succeed in global markets. They had repeatedly built market knowledge and technical knowledge and used this to develop new products or services to exploit market opportunities.
“These visionary leaders had come to appreciate the value of learning and had created a learning culture within their own companies. Under their leadership, their firms had developed ‘dynamic capabilities’ – the capacity to transform new technologies and knowledge they had acquired in their prior employment to address a promising market opportunity they had in sight.
“This collective sense making process, led by a key founder, enabled them to quickly build, integrate and reconfigure new knowledge resources to develop cutting edge products and innovating marketing approaches to take new products to market.”
The researchers found that dynamic capabilities fell into four different, but interrelated, areas - market learning, network learning, internal learning and marketing.
Market learning is the way in which firms build knowledge of the markets, identify niches and anticipate customer needs. Customers and competitors are a key source of information and in some cases, high-tech firms work with lead customers to ensure products suit their needs. The founder’s international vision helps drive the whole process.
Internal learning relates to knowledge coming from within the firm, and includes everything from research and development, to internal experimentation and sharing information among colleagues. For many companies, a key outcome of internal learning is the development of new technologies and products – both of which are linked with the ability to expand rapidly in international markets.
For example, after developing world class security surveillance technology, the iOmnicient founders realised that they had to make it compatible with existing security cameras in the market such as Sony and Cannon. This required them to develop in house imaging technology.
“This shows that the process of building, integrating and reconfiguring knowledge doesn’t always occur in a sequential manner and founders will have to again and again build technology in the new product development process,” says Associate Professor Weerawardena.
Network learning describes the capacity to build, integrate and reconfigure knowledge from external sources such as suppliers, business partners and contacts, and trade organisations. As small firms possess few resources, and possibly one single product, partners can provide complementary products or services and help them build knowledge – in particular technological knowledge as many firms do not have the expertise in house. The challenge here will be to figure out how the new ideas coming from external networks can be used for the market opportunity firms have in mind.
Born globals make use of their networks and also go on to develop an international network. However, companies need to be aware of where to find information - who knows what and where they can get help.
Marketing capability is the ability to create products with a global appeal, and use marketing communications to promote them to the target audience. Born globals constantly build and integrate their marketing knowledge, and adapt their strategy and resources. Driven by the owner’s vision and experience, they develop a distinctive marketing approach.
The study found that many of them adopt ‘entrepreneurial marketing’ strategies – smart, visionary marketing strategies to effectively reach the targeted customers with limited resources. This included using strategically gained publicity to attract customers, and gaining market acceptance by making their first sale to a well-established market such as the US and Europe. The evidence suggests that it is this marketing capability that differentiates born globals from those that enter international markets at a later stage.
According to Associate Professor Weerawardena, born globals are innovative by nature, though in the broadest sense of the word. “This constant process of building, integrating and reconfiguring enhances the firm’s ability to innovate, which gives rise to new products and services, and new ways of doing business. Innovation in born globals is not restricted to high-tech products but includes ‘soft’ innovations in marketing systems and internal processes.”
The team have the following advice for small firms on how to succeed in international – or indeed, domestic – markets:
- Build ‘dynamic capabilities’ within your own company – learning routines that allow you to transform the acquired technological, market, and marketing knowledge to suit the market opportunity you have identified. Remember the ‘build, integrate, and reconfigure’ model, though be aware that it does not always work in that order.Build networks which allow you to access new technology, or to develop your technological knowledge.
- Consider your internal learning processes and how these could be more effective. This is critical as the external knowledge you acquired will require modification to suit your requirements.Managers need to continuously develop new knowledge to develop the technology within their products so as to match customers’ expectations.
- Multiple sources of innovation are important – don’t limit it to products, consider also new processes and new ways of doing business.
- In addition to learning about target markets, building marketing capabilities is critical. “As the low-tech product firms we studied suggests, even products with only incremental innovations can be globalised through a highly innovative online marketing campaign,” Associate Professor Weerawardena says.
Professor Peter Liesch said born globals seemed to bypass the dangers of the early growth stage faced by traditional start-ups. “Small firms account for around 96 per cent of all businesses in Australia and produce over $330 billion of economic output per year.
“Our research has cast light on how born globals build dynamic capabilities which help drive their rapid internationalisation. We hope it will show others how to acquire, reconfigure, and exploit their capabilities to succeed in international markets, and may even help prevent some small business collapses.”
The research project, which also included Professor Gillian Sullivan Mort of La Trobe University, Dr Sandeep Salunke of QUT and Professor Gary Knight of Willamette University, USA, was funded by an Australian Research Council Discovery Grant. Detailed findings have been published in the Journal of the Academy of Marketing Science.