Liabilities,Advantages,and Buffers of Newness

Abstract

This article presents a conceptual discussion and a theoretical framework explaining how the liabilities of newness, which are traditionally thought of as disadvantages that young companies face, contribute to early firm internationalization. Through a systematic analysis of the liabilities that international new ventures face, as well as the liabilities and the advantages that a young age provides, we are able to integrate findings from the existing body of diffuse research on newness and internationalization, and develop propositions for future empirical research. Based on previous liabilities of newness and foreignness research, our study provides a novel theoretical model that explains early internationalization over and beyond existing internationalization models.

Keywords

liability of newness liability of foreignness international new ventures

Introduction

A prevailing view among organizational theorists is that young firms are less stable and more likely to fail than more established companies (Aldrich & Auster, 1986; Stinchcombe, 1965). Although studies of populations show that new firms and industries may be at a disadvantage (Carroll, 1983; Freeman, Carroll, & Hannan, 1983), there are also those firms that thrive despite their apparent age-related liabilities. Hence, research has also started to pay more attention to the resourcefulness, resilience, and adaptability of entrepreneurs and their firms (Powell & Baker, 2014). Yet one approach that has received limited attention in research so far concerns the potential role that the characteristics of newness have in molding the shape and scope of new organizations. We contribute to organizational theory by departing from the prevailing perspective in previous literature where newness has been typically analyzed as a factor that directly and negatively contributes to organizational survival, and introduce a model where the various types of liabilities related to newness interact with other aspects of emerging organizations to influence their operational scope.

Many new firms remain domestic, regional, and even local. Increasingly, however, digital marketplaces and social media provide even the youngest firms opportunities to operate on a global scale. As the empirical phenomenon of international new ventures (INVs) has now been established (Jones, Coviello, & Tang, 2011; Keupp & Gassmann, 2009; Oviatt & McDougall, 1994; Rialp, Rialp, & Knight, 2005), there is a “desperate” need for theory development on why some new ventures operate internationally, while others choose to organize for the domestic markets only (Jones et al., 2011; Keupp & Gassmann, 2009). In this study, we draw from the liabilities of newness (LON) as well as liabilities of foreignness (LOF) literatures to provide such theorizing. Without specific reference to any geographic location, we use the term “international new venture” to mean an organization that discovers, enacts, evaluates, and exploits opportunities to create and sell goods and services across national borders (Oviatt & McDougall, 2005).

We present a theoretical framework that draws from the sources of LON (Stinchcombe, 1965) to provide new propositions regarding the reasons for start-up firms to become INVs, that is, to internationalize early. As such, our study advances research on organizational theory by showing that the sources of LONs have surprising effects when analyzed together with other salient characteristics of new organizations, such as those related to the scope of their markets. In the end, our analysis shows that rather than studying the combined effects of LONs on survival, a more nuanced understanding emerges where the various sources of these liabilities can be analyzed separately to better understand early choice of markets (cf. Choi & Shepherd, 2005).

Despite the prominence of organizational theories in management research, their integration with early internationalization research has been limited, and this is where our study makes a distinct contribution. In fact, existing explanations of INV phenomenon predominantly focus either on external constructs (home country or industry, for example) or individual-level explanations (such as entrepreneurs’ networks and human capital), while organization-level issues have largely been ignored (Keupp & Gassmann, 2009; Oviatt & McDougall, 2005). Where organization-level issues, such as firm networks, have been considered, the beginnings of internationalization have typically not been the focus (Andersen, 1993; Johanson & Vahlne, 1977, 2009). In this study, we focus on the level of organization and show how newness can actually benefit firms in their earliest internationalization efforts. Furthermore, we show how young age can buffer firms from some LOF that are thought to confront all firms in international markets. LOF refer to the costs of doing business abroad (CDBA) that result in comparative disadvantage for an internationally operating organization (Mudambi & Zahra, 2007; Zaheer, 1995). Yet, as we demonstrate, the combined liabilities (LON and LOF) may sometimes have unexpected consequences.

Theoretical Background—LON and LOF

Both liabilities, that of newness and that of foreignness, adhere to the view that an organization shares interdependence with its environment (open systems perspective). In the following section, the theoretical underpinnings of both liabilities are described in more detail. Understanding the origins of the concepts is necessary for their subsequent integration for theory development.

Liability of Newness

Based on population ecology, Stinchcombe (1965) analyzed the “poorly understood conditions that affect the comparative death rates of new and old organizations” (p. 148). The population ecology model originated in biology with the work of Darwin, and in organizational studies, it has been used to explain organizational diversity: Why are there so many—or so few—organizations? (Scott, 1998). According to population ecology, organizations compete within an ecological niche (industry). Inputs in the niche are fixed and finite, and their quantity determines the optimal amount of organizations in the niche (carrying capacity; Johnson & Van de Ven, 2002).

Organizations are formed and they die at varying rates, and as a general rule, a higher proportion of new organizations fail than old (Stinchcombe, 1965). Stinchcombe (1965) identified four sources of liability of newness.¹ First, new organizations generally involve new roles that have to be learnt. In new organizations, there are no former occupants of roles that could teach their successors skills and prevailing organizational practices. Second, the creation of these new roles, determining their mutual relations, and structuring rewards and sanctions have high costs. Third, new organizations must rely heavily on social relations among strangers, who are almost always less trusted than people with whom we have had long experience. Fourth, new organizations lack a set of stable ties to those who use organizational services—one of the main resources of old organizations. The stronger the ties between old organizations and the people they serve, the tougher the job of establishing a new organization. Since Stinchcombe (1965), numerous organizational ecologists have studied the link between firm performance and age, and several studies have provided support for the liability of newness (Carroll, 1983; Freeman et al., 1983; Le Mens, Hannan, & Pólos, 2014). The early years of a firm’s life are the most hazardous, after which failure rates decline with increasing firm age (Henderson, 1999).

Stinchcombe’s (1965) original focus on new organizations in new economic sectors has been reflected in subsequent work on LON. Sine, Mitsuhashi, and Kirsch (2006) study newly founded Internet firms, Henderson’s (1999) empirical sample included firms in the U.S. personal computer industry, and Freeman et al. (1983) provided empirical evidence from semiconductor producers, local newspapers, and labor unions. However, liability of newness has also been conceptualized as a pattern of performance outcomes that is contingent on a firm’s strategy (Henderson, 1999; Thornhill & Amit, 2003). Rather than being indicative of the stage of development of an economic sector (industry), researchers have studied LON as a characteristic of a new organization regardless of whether the new firm occupies a position in an emerging, growing, mature, or declining industry (Brüderl & Schüssler, 1990; Wiklund, Baker, & Shepherd, 2010). Even if some sources of LON suggested by Stinchcombe—and listed above—may be more severe in emerging, new economic sectors because of the sector’s overall lack of legitimacy, it is likely that new firms in all economic sectors suffer from LON, and the nature of the selection pressure is possibly heterogeneous within industry contexts (Le Mens et al., 2014; Morse, Fowler, & Lawrence, 2007; Thornhill & Amit, 2003).

Liability of Foreignness

Firm internationalization is a multidimensional construct that represents allocation of physical and human resources to foreign versus domestic activities (Sullivan, 1994). Simply put, internationalization means that a firm commits to activities outside its domestic market. Internationalization typically starts with export sales, often operationalized as percentage of foreign sales, but it also entails investment in assets, people, and activities abroad (Sullivan, 1994). The underlying reason for reaching out to international markets is an economic one: the firm is looking to maximize profit. In this, the choice to operate internationally can help as it allows for access to a wider scope of markets as well as potentially cheaper resources. An internationalizing firm expects that the profit from international markets will be more than enough to offset the costs involved in selling abroad, and it is these costs that constitute the liability of foreignness.

Hymer (1976) proposed that firms setting up operations abroad face unavoidable costs that firms operating in their home environment do not. Local firms have better access to information about their economy, culture, language, and so on, than their foreign competitors. Thus, a foreign firm would, ceteris paribus, be at a competitive disadvantage relative to a local firm in a country (See also Buckley & Casson, 1976; Caves, 1982; Kindleberger, 1969). Hymer’s focus was predominantly economic; he described the types and sources of costs arising from a firm’s foreign operations. Later, Zaheer (1995, 2002) has reframed Hymer’s and Kindleberger’s (1969) “costs of doing business abroad” as “liabilities of foreignness” to focus attention away from market driven costs (typical for discussion on CDBA) to structural, relational, and institutional costs of foreign business (See also Eden & Miller, 2004).

Based on Zaheer (1995) and Zaheer and Mosakowski (1997), the sources of LOF can be summarized as follows: (a) coordination costs of international business, (b) firm-specific costs that are based on a particular company’s unfamiliarity with and lack of roots in a local environment and culture, (c) costs resulting from the host country environment such as the lack of information networks, political influence, and legitimacy of foreign firms, and (d) economic nationalism among host country stakeholders.

Following Zaheer’s work on the topic of LOF, numerous international business researchers have adopted the construct in their work (e.g., Mezias, 2002; Rugman & Verbeke, 2007; Sethi & Guisinger, 2002; Zhou & Guillén, 2015). Although the construct of LOF is still evolving, the work by Zaheer (1995) and Zaheer and Mosakowski (1997) on the topic has been influential and widely accepted. We base the analysis that follows on this body of knowledge, and contend that LOF is a dynamic and context-dependent concept (Nachum, 2003).

Most of the theoretical and empirical attention regarding LOF has been directed at how multinational enterprises (MNEs) may compensate for the liability of foreignness. Researchers have highlighted advantages of the MNE, such as economies of scale and scope (Dunning, 1993), superior technology and knowledge (Caves, 1982), brand recognition (Caves, 1982; Dunning, 1993), or managerial and organizational skills (Zaheer & Mosakowski, 1997). Yet the construct of LOF is equally relevant for internationalizing young, small firms (Mudambi & Zahra, 2007). Even if INV studies are seldom explicitly framed around the LOF construct, the LOF challenges often underlie the choice of research topics. To gauge the current state of empirical research in this field, we did a review of quantitative studies, published between 2005 and 2015 in entrepreneurship and management journals listed on the Financial Times 45 list. We searched for studies on international entrepreneurship that covered at least one of the LOF domains (i.e., coordination costs of international business, knowledge of/familiarity with the target country, information networks, or economic nationalism). We learned that the literature has been heavily focused on the effects of foreign market knowledge and social networks (Table 1; see also the review by De Clercq, Sapienza, Yavuz, & Zhou, 2012). Even here, only five out of the 14 articles we found from the past 10 years (marked with asterisk* in Table 1) look at the role of knowledge and/or network variables as an antecedent of the firm’s initial internationalization decision and/or speed (our focus in this research). Also notable is that the two other sources of LOF (coordination costs of international business and host country stakeholders’ preference for local players) have been seldom addressed from the INV perspective.² Foreign customers’ and other stakeholders’ preferences for domestic companies were not directly covered in any of the international entrepreneurship articles that our review returned, while coordination costs were only indirectly studied by Di Gregorio, Musteen, and Thomas (2009) and Coeurderoy and Murray (2008). With our explicit focus on all four sources of LOF, and on their relationship with the firm’s initial early internationalization, our study draws attention to the less-covered, yet important topics in INV research.

Table 1.

Articles Addressing Networks, Learning and/or Knowledge in INVs, 2005-2015 (Journals From the Financial Times 45 List).

Article	Antecedents	Outcomes	Sample	Home	Data	Key findings
Al-Laham and Souitaris (2008)	Cluster network characteristics, centrality of the firm within its national research network	International alliance formation rate	95% of sample firms were founded in 1995 or after	Germany	Archival data of 857 biotechnology companies	Location in a local cluster already dense with international linkages, the building of research alliances, and a central position in the national research network increase the probability of forming international research alliances.
Domurath and Patzelt (2016) *	Entrepreneur’s social ties and venture absorptive capacity	Venture internationalization	Incubator companies	Germany	136 entrepreneurs, Metric conjoint experiment	Attractiveness of foreign market entry depends on entrepreneurs’ social ties into these markets. This relationship is moderated by absorptive capacity and trust.
Fernhaber and Li* (2013)	International exposure from geographically proximate firms, international exposure from alliance partners, firm age	Venture internationalization (foreign sales)	Firms less than 10 years old at IPO	USA	Archival data of 448 high-technology ventures	International exposure from geographically proximate firms (informal networks) and alliance partners (formal networks) contribute to new venture internationalization and have a substitution effect.
Fernhaber and McDougall-Covin (2009) *	Investors’ (VCs’) reputation and international knowledge	Venture internationalization	Firms less than 6 years old at IPO	USA	Archival data of 93 high-tech companies	VCs are a catalyst to new venture internationalization. VCs’ international knowledge is most positively related to venture internationalization when the VC is also reputable.
Filatotchev, Liu, Buck, and Wright (2009)	Returnee entrepreneurs, R&D intensity, entrepreneurs’ international experience, global networks, knowledge transfer	Export orientation and export performance	3- to 5-year-old firms with fewer than 300 employees and total value of sales below 5 million RMB.	China	Cross-sectional survey data from 711 high-tech SMEs	The possession of global networks, the presence of a returnee entrepreneur, and international knowledge transfer are significantly associated with export orientation and export performance.
Lu, Zhou, Bruton, and Li (2010)	Institutional capital, managerial ties, information acquisition capability (mediator), adaptive capability (mediator)	Perceived international performance	Private SMEs founded in 1990 or later, with <500 employees and annual sales of <50 million RMB.	China	Cross-sectional survey of 775 SMEs	Adaptive capability partially mediates the relationship between firm resources (institutional capital and managerial ties) and international performance.
Milanov and Fernhaber (2014)	Number of domestic alliance partners with international experience, number of foreign alliance partners, management international experience	International intensity (% of foreign sales over total sales)	Firms less than 6 years old at IPO	USA	Archival data of 194 ventures in computer equipment and communication industries	Internationally experienced domestic alliance partners can serve as a substitute for lack of management international experience, and a complementary relationship is created with foreign alliance partners.
Musteen, Datta, and Butts (2014)	Network density, diversity, and tie strength	Foreign market knowledge, first international venture performance	Founded after the fall of the communist regime	Czech Republic	Cross-sectional survey of 169 independent manufacturing SMEs	Structural and relational embeddedness of international networks is related to the level of accumulated foreign market knowledge at the time of internationalization. Frequency of interaction with international contacts is related to higher levels of foreign market knowledge.
Naldi and Davidsson (2014)	Acquisition of knowledge from international markets (scale measure), firm age (moderator)	Sales growth in domestic and international markets	Less than 250 employees at the start of the study	Sweden	CEOs of 138 SMEs answered surveys in 2000 and 2006	Knowledge acquisition from international markets positively impacts sales growth from geographically new markets, whether at home or abroad.
Oehme and Bort (2015)	Network (peer) imitation, network position, firm international experience	Internationalization mode choice	Firms that were 3 years old or younger at the start of empirical data	Germany	Archival data of 977 biotechnology companies	Peers in a firm’s network influence the firm’s general propensity to internationalize as well as its internationalization mode.
Patel, Fernhaber, McDougall-Covin, and van der Have (2014) *	Geographic network balance, moderators of innovation complexity and various clockspeeds	Hazard of exporting an innovation during observation period (1995-2005; speed of internationalization)	Product innovations from firms that were established between 1995 and 2005 with a mean age of 5.71 years	Finland	Archival data on 407 product innovations	Ventures pursuing a balance of local and foreign network connections for the development of an innovation are able to bring their new product innovations into the international marketplace more rapidly.
Sapienza, De Clercq, and Sandberg (2005)	Degree of internationalization, age at international entry, entrepreneurial orientation	Learning effort	Less than 500 employees	Belgium	Cross-sectional survey of 90 SMEs	Early internationalization is positively related to international learning effort, but extent of internationalization is negatively related to domestic learning effort.
Yu, Gilbert, and Oviatt (2011) *	Technology expertise of technological alliance partners, marketing alliances with foreign firms, marketing alliances with internationally experienced domestic firms, network cohesion, time	Hazard of a venture beginning international sales	Firms less than 8 years old at IPO	USA	Archival data of 118 biotechnology ventures	Foreign sales are more likely to be initiated by a venture after establishing a marketing alliance with a foreign firm. In the long term, technological knowledge interacts negatively with network cohesion, while foreign marketing knowledge interacts positively.
Zhou, Barnes, and Lu (2010)	Entrepreneurial orientation, foreign market knowledge, use of international networks	Perceived international sales growth	Private SMEs, founded in 1990 or later, that generated 20%+ of their sales from multiple countries within 3 years of start up.	China	Cross-sectional survey data from 436 SMEs	Foreign market knowledge and use of international networks partially mediate the relationships between EO components and perceived international sales growth.

Note. * = research on the role of knowledge and/or network variables as an antecedent of the firm’s initial internationalization decision and/or speed.

INV = international new venture; SME = small and medium sized enterprise; VC = venture capital/ist; IPO = initial public offering; RMB = Renminbi

Overall, there is a lack of research that directly addresses how new ventures can overcome LOF (Autio, Sapienza, & Arenius, 2005). Different from the extensive resource endowments typical for MNEs, young firms typically struggle with resource constraints. Young firms seldom possess brand image or factor cost advantages (economies of scale or scope) that have been suggested to be means by which MNEs can overcome LOF (Mezias, 2002; Zaheer, 1995). What is more, INVs are not only subjects to LOF, but they simultaneously struggle with LON, as further explained in the following section.

Integrating LON and LOF

Based on the original contributions of Stinchcombe (1965) and Zaheer and Mosakowski (1997) reviewed above, Table 2 lists the sources of LON together with LOF. As is evident from Table 2, there are common themes that emerge from this combination of liabilities.

Table 2.

Liabilities of International New Ventures.

Sources of liabilities of newness		Sources of liabilities of foreignness
Coordination costs of new roles and tasks	—	Coordination costs of international business
New roles and tasks have to be invented and learned	—	Unfamiliarity with the foreign environment and culture
Underdeveloped internal networks, lack of trust in social interactions, and lack of informal information structure	—	Lack of information networks, legitimacy, and political influence in the host country
No stable links to clients, supporters, or customers	—	Inability to appeal to nationalistic buyers and other stakeholders

Source. Based on Stinchcombe (1965), Zaheer (1995), and Zaheer and Mosakowski (1997).

First, there are coordination costs in both establishing a new organization and in internationalization of operations. New ventures are initially characterized by low levels of role formalization and typically lack functional completeness at inception (Aldrich, 1999; Stinchcombe, 1965). Roles and responsibilities of people are often in a state of flux, and tasks are not carried out as efficiently as possible. Learning to work together takes time. The coordination costs of international business also partly have to do with processes that need to be learned, but partly these costs incur because of the increased physical distance (higher marketing and distribution costs, for example).

Second, both internationalization of operations as well as establishing a new organization require learning. In a new organization, new roles have to be invented, and new organizations are typically more flexible and informal than more established organizations (Knight & Cavusgil, 2004). Young firms have the advantages of being unfettered by bureaucracy and hierarchical thinking, as well as having quick response time when implementing new technologies and meeting specialized customer needs and tastes (Carroll, 1984; Mascarenhas, 1996). Even if new firms’ invention of new roles as well as learning come at a cost, these same qualities of a new organization may actually reduce the overall liabilities faced by INVs; they have a potential to attenuate the LOF that stem from unfamiliarity with the foreign environment and culture. Autio, Sapienza, and Almeida (2000) actually introduced the concept of “learning advantages of newness”; they conclude that as firms get older, they develop learning impediments that hamper their ability to successfully grow internationally. Choi and Shepherd (2005) arrived at a similar conclusion regarding newness: It can be an asset in the eyes of certain stakeholders. The relative flexibility of newer firms allows them to rapidly learn the competencies necessary to pursue continued growth, home and abroad (Autio et al., 2000; Choi & Shepherd, 2005).

Third, both young organizations as well as internationalizing organizations suffer from a lack of social networks. As far as the lack of information networks, legitimacy, and political influence in a host country is concerned, Zaheer and Mosakowski (1997) suggested that foreign firms (MNEs) might be able to partially compensate for their lack of local information networks through factors such as scale, capital available from a parent firm, superior managerial and organizational skills, or by being part of a multinational network that enables the firm to connect to worldwide information flows. However, these scale dependent sources of competitive advantage are rarely available for internationalizing new ventures. Instead, the lack of external social networks (liability of foreignness) is complemented with the lack of internal social networks in young firms (liability of newness), as described by Stinchcombe (1965). Thus, as described in Table 2, both the internal and external social networks of a young, internationalizing firm, are typically in a state of flux.

Fourth, both new organizations as well as internationalizing organizations face challenges in finding customers. For foreign firms, this important source of costs, which was highlighted already by Hymer (1976) and others, lies in the preference of local customers for domestic firms, with whom they have long-established relationships and who are usually perceived to have more stable and reliable links to their home country. MNEs are often able to overcome this liability of foreignness with their global branding and market communication strategies (Caves, 1982), but for internationalizing new firms gaining recognition among customers in a foreign market can be a lengthy endeavor. Actually, as described in Table 2, the mere fact that an organization is a new one already presents challenges for finding customers as these firms often lack a reputation in domestic markets as well.

Taken together, the liabilities of INVs (Table 2) depict a rather negative image of the chances of new organizations to succeed in foreign markets. Being new and foreign is costly, lonely, and challenging from a marketing perspective. Despite the overall negative scenario, it is fair to say that the amount of evidence in the literature on the existence of fast-internationalizing new ventures is well beyond anecdotal; INVs are out there, and some of them even prosper. Over time, the survival rate of INVs is not significantly different (Sleuwaegen & Onkelinx, 2014), or may even be better (Coeurderoy, Cowling, Licht, & Murray, 2012; Puig, González-Loureiro, & Ghauri, 2014), than that of domestic new ventures, even if INVs face both LON and LOF. Is it possible, then, that in some ways, the very “liabilities” of newness can actually help with early internationalization? Moving beyond a mere combination of LON and LOF (Table 2), the following section describes in detail the mechanisms through which LON can actually mitigate the negative effects of LOF in the context of INVs. We propose that those firms that internationalize at an early age do so because LON either buffer them from some sources of LOF, or actually create advantages that offset some LOF.³ To be sure, we are not comparing old and young firms. Instead, what we are saying is that among new firms, the levels of LON vary, and that variation can explain why some firms perceive the same LOF to be less of a barrier for internationalization than others.

From Liabilities to Advantages and Buffers of INVs

In existing literature, LOF is used to explain performance differential between domestic and foreign firms, whereas LON is used to explain survival variations. However, considering LOF and LON together helps us explain a new firm’s speed to internationalization.⁴ This commencement of international operations is of core importance to international entrepreneurship research (Rialp et al., 2005), meaning that the dependent construct of the propositions we present below is immediately relevant for this stream of research (see also Table 1). In the following, we draw on the liabilities described in Table 2 to propose the mechanisms through which the effects on early internationalization take place.

Learning

Organizational learning refers to the development of new knowledge or insights in an organization, which have the potential to influence the firm’s behavior (Olavarrieta & Friedmann, 1999). Both the LOF literature (Zaheer, 1995; Zaheer & Mosakowski, 1997) as well as the widely used stage-models of internationalization (Johanson & Vahlne, 1977) have made a convincing case for the liabilities that stem from a firm’s unfamiliarity with a foreign culture. In the stage-models, firms learn by initially targeting neighboring countries and subsequently enter foreign markets with successively greater “psychic distance” in terms of cultural, economic, and political differences (Burenstam-Linder, 1961). Similarly, the theory on early internationalization of young firms treats market knowledge, acquired through learning, as a central enabling resource for internationalization (McDougall, Shane, & Oviatt, 1994; Oviatt & McDougall, 1997). Initially, however, INVs would seem to defy the importance of learning about foreign markets; if a new venture enters a geographically and culturally distant market from birth, there has been no time for learning to take place.⁵ Yet INVs often start their internationalization from markets that are geographically and psychologically close to the home market and go through phases of a stage-model of internationalization, but at an increased speed (Autio et al., 2000; Hashai & Almor, 2004). In sum, internationalizing firms, young and old, need to learn about their foreign markets.

It is important to distinguish this process of learning from the stocks of knowledge that an organization possesses. Knowledge is a key resource of a firm, and previous research suggests that knowledge itself enables some firms to internationalize at an early age (Autio et al., 2000; Bruneel, Yli-Renko, & Clarysse, 2010; Fernhaber, McDougall-Covin, & Shepherd, 2009). In addition to this knowledge, we suggest that the process of learning is the key to early internationalization. A learning organization continually acquires, assimilates, and renews its knowledge stores (Amit & Schoemaker, 1993). Learning is a dynamic and interactive process, whereas organizational knowledge itself is the set of all that is known or understood by the organization and its members. Clearly, the two affect one another in that what the firm can learn is shaped in part by what it knows, and what the firm knows is affected by what it learns (Zahra, Sapienza, & Davidsson, 2006). However, the learning perspective suggests that the antecedents of early internationalization are to be found in the process of learning, not only in the stocks of knowledge possessed by the organization. This may explain why accumulated knowledge has sometimes been found to be uncorrelated with internationalization outcomes (Autio et al., 2000).

The liability of foreignness that stems from the need to learn about the foreign markets should, in itself, lead to foreign firms’ disadvantage in host country markets (Zaheer, 1995). Consequently, we expect that new ventures’ realization of this disadvantage should keep them away from those foreign markets, and make them focus on more familiar domestic markets instead, ceteris paribus. This is why in Figure 1 we first predict that a firm’s unfamiliarity with the foreign environment and culture has a negative effect on the likelihood of international entry at or near firm founding:

Proposition 1a (P1a): There is a negative relationship between a firm’s unfamiliarity with the foreign environment and the likelihood of international entry at or near firm founding, ceteris paribus.

Figure 1.

Proposed relationships.

Although P1a is directly in line with previous international business research (such as the studies listed in our Table 1) and the logic of LOF, the issue becomes more complex when we simultaneously consider the LONs that these new firms face. The LON literature suggests that young firms are in a state of flux; they constantly need to re-organize and innovate (see Table 2). A firm’s organizational structure is likely to influence the extent to which knowledge is internally transferred (Hedlund, 1994). In young, entrepreneurial firms, we can expect to see fast yet informal knowledge transfer as a result of limited centralization (Caruana, Morris, & Vella, 1998). Organic structures and participative coordination of new firms create an environment where a supportive climate for risk taking and a quick flow of information exist (Olson, Walker, & Ruekert, 1995). Here lies a central answer to the question why some firms internationalize at an early age: Because of their organizational flexibility, learning skills, and lack of inertia (Autio et al., 2000; Carroll, 1984; Choi & Shepherd, 2005; Mascarenhas, 1996; Naldi & Davidsson, 2014), some new firms quickly familiarize themselves with practices of doing business abroad.

A new venture that exhibits LON is one where members’ roles are invented from scratch, where relations and rules are still flexible, bureaucracy is minimal, and communication is informal. In this kind of an organization, information travels fast, dumb questions are allowed and even encouraged, and creative ideas from other businesses and even other industries can be welcomed. These by-products of the liability of learning to operate efficiently mean that openness and curiosity about ways to organize are present, possibly exposing these “high-liability” firms to different systems of organization, inducing internationalizing organizations. Exposure to diversity in cultures confronted, consumer groups served, and political systems observed can broaden the learning firm’s search for new markets even abroad.

The consideration of LONs suggests that a new firm’s “learning advantage of newness” (Autio et al., 2000) moderates the relationship outlined in P1a: Learning intensity makes the firm more likely to explore foreign markets. Some firms must unlearn routines before new routines, such as those related to internationalizing, can be adopted. Sapienza, Autio, George, and Zahra (2006) highlighted three ways in which lack of inertia and limited routines can benefit internationalization. First, in terms of structure, firms that have few established routines and inertial constraints can more easily recognize and pursue opportunities in international markets. Second, newness makes firms open to all types of new knowledge and opportunities. Third, new firms have not had the time to form bonding ties with domestic partners, which, again, makes them more open to foreign partners’ influences. In addition to these mechanisms, Bingham and Davis (2012) pointed out that learning advantages of newness are not only organizational but also extend to individual entrepreneurs: Entrepreneurs with less international experience prior to their current international venture appear to do more learning over time than those entrepreneurs with more prior international experience. Although previous experience, contacts, and knowledge may be relevant for the pursuit of new international market opportunities in some established firms in a path dependent manner (cf. Johanson & Vahlne, 2009), they can also prevent the firm from exploring truly novel opportunities outside of the chosen path. New firms that start from a blank page face high LON, but do not have the burden of having to unlearn established routines and possibly outdated knowledge when they choose to pursue international markets.

Even if learning takes place in all new organizations, new ventures still appear to differ in the extent of their learning, even if the sources of these variations have not been well defined in the literature (De Clercq et al., 2012; Zahra, 2005). Some entrepreneurs are notoriously dogmatic in their beliefs and still others are individualists, who do not excel in listening to others’ conflicting views. Entrepreneurs such as these are unlikely to encourage the knowledge-sharing and integration necessary to promote INVs’ organizational learning (Zahra, 2005). Clearly, there is variation in new firms’ abilities and willingness to learn. Related to the context of established firms, where organizational learning has been found to be central to the firm’s ability to benefit from international operations (Zahra & Hayton, 2008), we suggest that learning abilities related to newness can enable the initial launch of internationalization. Organizational learning capabilities are partly a by-product of high LON (Autio et al., 2000; Levinthal & March, 1993), and they enable internationalization at early age.⁶

Proposition 1b (P1b): The stronger the LON that relate to inventing and learning about new organizational roles and tasks, the weaker the negative relationship suggested in P1a, ceteris paribus.

P1a and P1b suggest that instead of being a liability, newness can be a benefit for a learning (internationalizing) organization (cf. Autio et al., 2000; Sapienza et al., 2006). A practical example of this proposition can be found in the appendix, under the “Organizational Learning (P1b)” section. In the following, we continue to show that in addition to learning, also other “liabilities” of newness can actually be the very forces that enable early internationalization.

Coordination costs

Liabilities-literatures suggest that coordination costs in INVs arise from two main sources: from having to establish an organization in the first place (delineating its boundaries and specifying the roles and relationships of individuals in the organization; Stinchcombe, 1965) and from the economic costs of international business (Hymer, 1976; Zaheer, 1995). Let us first focus on the costs of international business (LOF). Spatial distance in conducting business abroad inevitably involves the cost of travel and long distance communications, even if modern communication technologies have successfully alleviated this pain. In addition, LOF due to unfamiliar political, legal, social, cultural, and economic environments hinder firm operations abroad (Buckley & Casson, 1976) creating costs for the internationalizing organization. Government authorities and policies play a dominant role in doing business in many foreign countries, especially in developing and emerging markets (Chen, Griffith, & Hu, 2006). Hence, based on the LOF literature (Zaheer, 1995), we expect that coordination costs of international business are negatively related to the likelihood of international entry at or near firm founding (see Figure 1).

This relationship has not gone unnoticed in existing literature on INVs. Indeed, it has been suggested that early internationalization is more likely to take place among those firms that can lower the coordination costs of international business; online business provides a good example (Reuber & Fischer, 2009; Servais, Madsen, & Rasmussen, 2006). Also, low coordination costs of international operations for many types of high technology products may constitute a prime reason for the relatively frequent early international operations of new high-technology businesses⁷ (see, for example, Autio et al., 2000; Servais, Madsen, & Rasmussen, 2006). Coordination costs of international business may also be brought down by geographic and socio-cultural proximity of the host country (Miller & Richards, 2002). Combined, and aligned with the LOF literature, we suggest the following:

Proposition 2a (P2a): There is a negative relationship between a firm’s coordination costs of international business and the likelihood of international entry at or near firm founding, ceteris paribus.

Next, we suggest coordination costs of newness moderate the relationship outlined in P2a. Costs of internationalization are considered not only in absolute terms but also in relation to other costs of coordination that a firm faces even if it does not expand internationally. In other words, what matters for entrepreneurs’ decisions to sell their products abroad is not only the actual economic cost of doing so (e.g., tariffs paid), but also the perceived cost of coordinating the sales (e.g., the perceived cost of the time of an early employee with a fluid task description in an uncoordinated new venture). We suggest that a firm that is subject to high coordination costs of new roles and tasks will be buffered from the extra coordination costs that result from international business operations, whereas a firm that is efficiently and permanently organized to operate in domestic markets will perceive any coordination costs of international business to be high. This relative nature of coordination costs of foreignness has actually been articulated in previous international business research as well, albeit not in the context of INVs (e.g., Mezias, 2002). In sum, when a firm operates efficiently in home markets, re-organizing to take advantage of foreign business opportunities will be perceived as a cumbersome and costly process. However, if a firm is in the process of deciding who does what, while developing new roles and tasks for new personnel, the relative coordination costs of adding international operations may suddenly seem lower.

New organizations are said to suffer from LON because of their lack of structure, which results in role ambiguity and uncertainty (Stinchcombe, 1965). The formalization of roles and behavior over time enables organizations to reduce, predict, and control variability because role formalization creates a condition in which managers and employees know their own and each others’ tasks and responsibilities, which ultimately decreases coordination costs (Sine et al., 2006). However, if role formalization takes place in an organization that is set up to exploit domestic market opportunities, this very formalization makes adaptations to potential international customers’ needs less likely. If an organization that is set to serve domestic customers receives an unsolicited order from a foreign client this order may end up unfulfilled because nobody in the firm has knowledge or responsibilities that cover foreign shipments, tariffs, payment procedures, and so on. However, if the same unsolicited order arrives to an organization that is formulating employees’ tasks and responsibilities, the organization may be more likely to adapt its processes to the needs of a foreign customer. In sum, we suggest that the coordination costs of newness have the following role:

Proposition 2b (P2b): The higher the LON that relate to coordination costs of new roles and tasks, the weaker the negative relationship suggested in P2a, ceteris paribus.

Again, a practical example of how this proposition may play out in practice is provided in the appendix under the “Coordination Costs (Proposition 2b [P2b])” section.

Social networks

As illustrated in Table 1, both LON and LOF literatures have highlighted the importance of social networks. Liability of foreignness can result from the fact that local companies in a given host country are better integrated into local information networks and—at least initially—have a larger customer base than a foreign INV. Local companies are likely to have better connections to local governments, policy makers, and other key stakeholders—they are insiders. Entrants from other countries, however, suffer from “outsidership” (Johanson & Vahlne, 2009) in that they lack the relevant network positions. Thus, a local manufacturer of cutting edge electronic payment services in California might have a better feel for what kinds of requirements are placed upon such services by state and federal government organizations with regard to security checks and data storage capabilities than might a Korean venture with competing technology. What is more, the Californian start-up could already be integrated to potential local customers through connections via research institutions, universities, and commercial contacts, whereas the Korean competitor in the same market would probably suffer from the lack of legitimacy.⁸ As illustrated in Figure 1, a firm’s lack of information networks, legitimacy, and political influence abroad typically has a negative effect on internationalization:

Proposition 3a (P3a): There is a negative relationship between a firm’s lack of information networks, legitimacy, and political influence in foreign countries and the likelihood of international entry at or near firm founding, ceteris paribus.

Previous literature has suggested some ways in which companies can overcome those LOFs that result from the lack of networks and influence in a host country. A foreign entrant may be able to gain legitimacy and political influence in a host country through alliances with partners with local knowledge (Chan & Makino, 2007; Johanson & Vahlne, 2009; Lu & Beamish, 2001). Also, previous research has demonstrated the value of key managers’ social contacts in an INV’s choice of early foreign target markets (Aspelund, Madsen, & Moen, 2007; Domurath & Patzelt, 2016; Oehme & Bort, 2015). We suggest that in addition to these mechanisms of overcoming network-related LOF, the state-of-flux that is typical for new organizations may actually give them an “organizing advantage of newness” when it comes to early internationalization. In a new organization, relationships between employees are constantly evolving, and the firm does not have established links to customers, suppliers, or other key stakeholders. In this situation, a firm is vulnerable to influences from not only new stakeholders, like foreign partners, but also new employees with foreign market knowledge, or domestic customers and suppliers with links abroad, which might actually lead to early internationalization.

Focusing on the relationships that develop inside a new organization, Stinchcombe (1965) has suggested that new organizations must rely heavily on social relations among strangers, which means that relations of trust are much more precarious in new organizations than in old ones. In new organizations, internal network positions of actors constantly evolve, and new organizations may try to compensate their lack of legitimacy and political influence by increasing the geographical scope of their activities and social ties. For example, Van de Ven, Polley, Garud, and Venkataraman (1999) showed how new-to-the-world kinds of innovations tend to be pursued by a handful of parallel, independent actors who come to know each other rapidly through personal interaction, traveling in similar social and technical circles, such as attending technical committee meetings. Increasingly, such networks of key actors are global.

Aldrich and Fiol (1994) argued that a new firm’s internal processes for building legitimacy and establishing trust and ties within an organization happen simultaneously with external tie formation and reputation building. This could mean that the liability of newness that involves the building of trust and ties within a new firm, actually enables the building of trust and legitimacy in the eyes of outside stakeholders—domestic as well as international. Entrepreneurs and employees in new firms have to constantly justify their decisions and emphasize those aspects in their ventures and/or in their backgrounds that evoke trust in others (Aldrich & Fiol, 1994). Founders must do this work for domestic stakeholders as they negotiate with their own employees and with other firms, and expanding these processes to foreign partners may come naturally since the ability to actively build trusting relationships is transferrable from one context to another (Nguyen & Rose, 2009). In other words, the strategies for generating and sustaining trust, reputation, and legitimacy within a firm, with domestic partners, as well as in international contexts are highly interrelated. This is why we suggest that the liability of newness in the form of lacking an established internal tie structure, trust, and informal information structure within an organization actually makes the lack of international networks less of a liability for an internationalizing firm (see the practical example under Social network heading in Appendix). Because new firms have to be quick trust-builders and flexible information brokers in their internal relationships, they can also quickly build trust and absorb information—including information about foreign market opportunities—in external relationships. Where all relations of trust in a new firm need to be built from the ground up, LON becomes a moderator as follows:

Proposition 3b (P3b): The more ambiguous the informal information channels within the organization and the less developed the organization’s internal network structure of trust, the weaker the negative relationship suggested in P3a, ceteris paribus.

Positioning the firm in a market

Closely related to the challenges regarding social networks and legitimacy, INVs suffer from liabilities that stem from difficulties in finding customers in both home markets and abroad (Table 1). Foreign customers may be particularly difficult to find. According to the LOF literature, firms operating outside of their home markets suffer from an inability to appeal to nationalistic foreign buyers and other stakeholders (Zaheer, 1995). In the context of INVs, this liability of foreignness should lead to a negative relationship between this inability to gain foreign customers’ interest and the likelihood of international entry at or near firm founding (see Figure 1):

Proposition 4a (P4a): There is a negative relationship between a firm’s inability to appeal to nationalistic buyers/stakeholders and the likelihood of international entry at or near firm founding, ceteris paribus.

Previous research has suggested ways in which companies can attract the interest of foreign customers and hence overcome customer-related LOF. However, these explanations typically only apply in the context of MNEs. First, intense local competition in home country should discourage market leaders from being complacent in their home markets, hence creating pressure to work harder to innovate and compete (Porter & Wayland, 1995). This development of innovative capabilities as a result of home country competition assumes the presence of domestic customers. INVs, however, do not only struggle to find foreign customers but also their domestic customer base is limited. Second, MNEs typically attempt to develop their brands on a global scale (Craig & Douglas, 2000), which helps to attract foreign customers. There are many benefits from developing such global brands, the high quality and prestige perceived by international customers being the most important one (Craig & Douglas, 2000). INVs, however, seldom have financial resources to support global branding to the extent incumbents do.

Independent of each other, LOF and LON literatures have argued that foreign (LOF) and new (LON) firms have trouble finding customers. Because of market-related LOF, we would expect new firms to first start building a domestic customer base. However, because of the initial lack of customers—domestic and foreign—new firms may be particularly eager to search for new customers even abroad. Sapienza and colleagues (2006) have also highlighted this phenomenon: Unlike established firms, young firms have fewer ties with domestic partners and customers, and therefore face less internal resistance to developing relationships in international markets. In other words, market-related domestic liability of newness may simultaneously buffer these firms from the market-related liability of foreignness (for a practical example, see “Market Entry (Proposition 4b [P4b])” section in the appendix). As was the case with coordination costs, also here the trouble and cost of finding a new international customer is assessed in relation to finding a domestic customer. A new firm that immediately builds a loyal domestic customer base may shun away from international markets and not invest in their development. However, a firm that faces many challenges in finding its first customers may be more motivated to search for them even abroad, regardless of the LOF it will face there (cf. Reuber & Fischer, 2009):

Proposition 4b (P4b): The fewer stable links to clients, supporters, or customers the firm has, the weaker the negative relationship suggested in P4a, ceteris paribus.

Drawing on a business network view, Johanson and Vahlne (2009) argued that similar processes to those described in our P4a and P4b will be at play throughout the firm’s life. Difficulties associated with foreign market entry are very similar to those associated with domestic market entry, making internationalization less a matter of country specificity than of relationship specificity. “Insidership in relevant network(s) is necessary for successful internationalization” (Johanson & Vahlne, 2009, p. 1411).

Figure 1 summarizes our propositions P1a to P4b.

Discussion and Conclusion

Through our combination of theories from separate fields, namely, organizational theory (LON) and international business literature (LOF), we have presented a theoretical framework that provides new propositions regarding the reasons for early internationalization. Stemming from LON, we have identified advantages and buffers that organizational newness can provide (cf. Autio et al., 2000; Honig, Karlsson, & Hägg, 2013). In other words, we demonstrate how the very characteristics of newness, discussed as liabilities by Stinchcombe (1965) and others after him (Aldrich & Auster, 1986; Wiklund et al., 2010) can actually benefit new firm internationalization. Liability of newness entails that firms have fewer deeply embedded routines and few structural rigidities. Therefore, we believe such firms tend to take the plunge to international markets more rapidly. We have considered four specific areas where newness may be an advantage for early internationalization: in organizational learning, when dealing with coordination costs of organizing, when building social networks, and in positioning the firm in a market.

First, with regard to learning, LOF may be offset by a new firm’s organizational flexibility and inherent commitment to learning. LON literature has suggested that learning is an integral part of newness (Autio et al., 2000; Carroll, 1984; Mascarenhas, 1996). LOF literature, again, posits that having to learn about foreign country markets creates liabilities for an internationalizing organization. The importance of foreign market knowledge has been evident not only in traditional models of internationalization (Johanson & Vahlne, 1977, 2009) but also in the theorizing on INVs (Aspelund et al., 2007; Bruneel et al., 2010; McDougall et al., 1994; Oviatt & McDougall, 1997). The learning capabilities inherent to newness⁹ help overcome one key liability of foreignness: need to learn about new markets, customers, processes, and cultures. Our first propositions (P1a and P1b) suggest that lack of knowledge about foreign markets matters less for the internationalization of organizations that are fast learners (as opposed to slow learners). This moderated relationship could be tested in empirical research: instead of considering the independent or mediated effects of learning and knowledge (experience), as much of the international entrepreneurship literature has done (see the studies in Table 1, for example), researchers should look at their interaction effects (Learning × Knowledge) on speed to internationalization.

Second, liabilities-literatures suggest that coordination costs in INVs arise from two main sources: From having to establish an organization in the first place (delineating its boundaries and specifying the roles and relationships of individuals in the organization; Stinchcombe, 1965) and from the economic costs of international business (Hymer, 1976; Zaheer, 1995). The economic costs of international business, such as costs of exports, accrue regardless of the age of the firm. Internationalization is more likely for firms that face lower direct costs exporting and other international operations, such as firms selling information technology products and services (Aspelund et al., 2007). We have suggested an additional explanation for early internationalization: one based on an assumption that firms consider the costs of internationalization in relation to all other costs of coordination that they face. That is, the perceived costs of internationalization matter, in addition to the actual dollars spent. A de novo firm that is subject to coordination costs of new roles and tasks will be buffered from the extra coordination costs that result from international business operations, whereas a firm that is efficiently and permanently organized to operate in domestic markets will perceive any coordination costs of international business to be high. These suggested links between coordination costs and early internationalization remain, to the best of our knowledge, untested in empirical research. LOF-related coordination costs could be estimated, for example, by using country distance and/or tariff measures, whereas the LON-related costs have to do with hiring and training new employees, for example.

Third, we have also suggested a novel mechanism through which social network structures of a new organization can contribute to its internationalization. Research on INVs has already established that international social contacts of the entrepreneur(s) and the firm can trigger early internationalization (Domurath & Patzelt, 2016; Fernhaber & Li, 2013; Yu, Gilbert, & Oviatt, 2011). We add to this existing explanation for early internationalization by suggesting that, in the absence of exiting international networks, new international connections are more likely to be established when the internal organizational and relational structure of the firm is changing fast. This is because the processes and strategies for generating and sustaining trust, reputation, and legitimacy within a firm, with domestic partners, as well as in international contexts are highly interrelated (cf. Johanson & Vahlne, 2009). We have suggested that when it comes to organizing networks and relationships to foreign partners, new firms actually benefit from “organizing advantages of newness”: new firms actively pursue internal trust building and information-brokering, which helps them carry out similar processes with external partners quickly and efficiently whenever opportunities arise (cf. Nguyen & Rose, 2009). For example, the first members of a new organization need to get to know each other and learn to trust each other. Learning to know and trust parties external to the firm can happen simultaneously. Although potential foreign partners (or people who can help access foreign partners) initially seem risky as trust and reputation are lacking on both sides, a new firm with LON is used to such relational risks in all its relationships, including internal ones. As individuals learn to share information with and trust each other within the company borders, they have an advantage in doing the same with external partners, including foreign partners. To test this proposition, social network analyses of emerging organizations should compare internal as well as external (domestic and international) tie strength, stability, and formation, while looking for patterns of early and late internationalization.

Finally, related to the networks of new ventures, establishing links to buyers is a challenge for both new and foreign organizations. We suggest that even if INVs do not have the resources needed for global branding and extensive international marketing, they may still overcome LOF by being buffered from the challenge of developing an international customer base: INVs face the challenge of finding customers, and convincing international customers to buy may not be that much more challenging than winning domestic customers for a new firm.

To empirically test these propositions, the variation in the level of LON between new firms should be captured. Literature provides numerous ideas for the measurement of organizational learning (Fiol & Lyles, 1985) and networking (Marsden, 1990). To capture variation in the coordination costs typical for newness, one could look at the time and effort entrepreneurs have to expend to achieve a common milestone in the start-up process, such as the first sale or the hiring of the first employees. Variation in the LON related to lacking links to clients or customers could be measured by simply capturing the customer base of a venture at a standard point in time during early organizational development.

This study directly contributes to theory in two areas, which have developed rather independently of each other: LON and international entrepreneurship. Although some empirical investigations of international entrepreneurship have been framed around the language of LON and LOF (Coeurderoy et al., 2012; Lu & Beamish, 2001; Mudambi & Zahra, 2007), integrated theorizing on these two areas has been limited. In this study, we have demonstrated the potential role that the characteristics of newness have in molding the operational scope of new organizations and, specifically, whether they internationalize early. By expanding the thinking about influences of LONs to the domain of early internationalization, we have shown that LONs can be highly relevant for those entrepreneurs who are considering entering international markets early on. The propositions suggested here should be encouraging to them—and to policy makers supporting them—as they point to the benefits that newness may provide to an internationalizing organization.

In terms of contributions to international entrepreneurship literature, the coordination costs, learning capabilities, internal and external social networks, and market challenges discussed here provide unique insights that can both help us classify what we already know about INVs’ internationalization and develop interesting questions for future research. For example, the potential benefits of organizing advantages of newness discussed in our study could explain the unexpected findings by Sleuwaegen and Onkelinx (2014), Coeurderoy et al. (2012), and Puig et al. (2014): Despite their higher LOFs, new ventures entering multiple, diverse country markets early on do not face any higher risks of failure than domestic ventures or those with a more limited early international presence. Our theorizing about the benefits that newness provides for internationalizing ventures can explain this finding. We encourage future empirical research on the firm-level organizing advantages of newness.

The liabilities-based arguments we have presented with regard to networks and customer access also complement the latest developments of the Uppsala internationalization model, originally presented as a process model in the 1970s (Johanson & Vahlne, 1977). Johanson and Vahlne (2009) emphasized the importance of relationships in the newer Uppsala model: Managers of firms, large and small, leverage their networks and personal relationships to access customers, no matter where these customers are located (home country or abroad). Here, internationalization becomes a by-product of efforts by firms to improve their position within their networks (Sarasvathy, Kumar, York, & Bhagavatula, 2014; Schweizer, Vahlne, & Johanson, 2010). Adding to what Johanson and Vahlne have discussed, the specific LON arguments we propose show the importance that newness can have behind networking and market entry decisions. Specifically, we show that the newness of an organization makes it more likely to overcome internationalization barriers through its networks, no matter how rudimentary and small. Johanson and Vahlne assume a network embeddedness of the firm, whereas ours is a case where new organizations lack all kinds of formal networks, internal and external, yet they make the most out of whatever contacts they have. New organizations are in a state of flux, lacking legitimacy and power altogether. Our model suggests that this flexibility makes new firms more likely to rely on whatever relationships they can claim, foreign or domestic, whereas the model of Johanson and Vahlne can explain later stage continued internationalization based on the commitment to and learning from existing organizational relationships.

Even if quite comprehensive on the firm level, our propositions are not exhaustive and additional explanations for early internationalization remain plausible. For example, target country effects (such as cultural distance), home country effects (such as the size of the domestic market in the product/service area), industry effects (such as manufacturing vs. service industries), mode of internationalization effects (high vs. low control modes of internationalization), and firm effects beyond the ones discussed here (such as first mover advantages and push/pull or proactive/reactive motivations) all may have an effect. These factors are just some examples of contingencies that could be incorporated into empirical studies to test the conceptual model presented here (Prashantham & Young, 2011; Rialp et al., 2005). In addition to testing the propositions developed in this article, we encourage future research on INVs on multiple fronts. Although it is certainly true that some new ventures prosper in international markets and others struggle to stay alive, we have not focused on performance of these firms. This is not to say that understanding drivers of INV international performance is not important; on the contrary, we believe research in this domain has a lot to accomplish (cf. Carr, Haggard, Hmieleski, & Zahra, 2010; Jones et al., 2011). For example, the growth paths of Born Global firms over time could depend on some of the mechanisms we have discussed, such as organizational learning (Gabrielsson, Kirpalani, Dimitratos, Solberg, & Zucchella, 2008; Sapienza et al., 2006). Yet, for the time being, arguments from LON and foreignness literatures help in understanding why some new firms choose to internationalize soon after founding, while others focus their activities on domestic markets, or internationalize later on.

Footnotes

Appendix

Declaration of Conflicting Interests

The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

Funding

The author(s) received no financial support for the research, authorship, and/or publication of this article.

Notes

Associate Editor: Franz Lohrke

Author Biographies

Maija Renko is an associate professor of entrepreneurship at the University of Illinois at Chicago. She studies entrepreneurship and new ventures and her research has been published in journals such as Journal of Management, Journal of Business Venturing, and Entrepreneurship: Theory & Practice.

Sumit K. Kundu is a professor and James K. Batten Eminent Scholar Chair in International Business in the College of Business at Florida International University. He has published 35 papers in several leading journals such as Journal of International Business Studies, Journal of Management Studies, and Journal of World Business. He sits on the editorial board of all leading international business journals and serves as associate dean for International Programs in the College of Business at FIU as well as vice president (administration) for Academy of International Business.

Rodney Shrader is denton thorne chair in Entrepreneurship, Professor of Management and Faculty Director of University of Illinois at Chicago’s Institute for Entrepreneurial Studies. His research has been published in premier academic journals including Academy of Management Journal, Journal of Business Venturing and Entrepreneurship: Theory & Practice.

Alan L. Carsrud is visiting research professor at Abo Akademi University in Finland. He has published over 200 articles, chapters, and books on entrepreneurship.

Annaleena Parhankangas, PhD, is an assistant professor of Entrepreneurship at University of Illinois at Chicago. Her research interests include entrepreneurial finance, international entrepreneurship and entrepreneurs’ relations to key stakeholders.

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