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Born globals and internationalization theories: A comparative study

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 Born Globals and Internationalization Theories – A Comparative Study
Timo Oliver Schaefer
José Ednilson de Oliveira Cabral

Abstract

This article deals with the topic of Born Globals, a relatively new phenomenon in
internationalization theory that arose in the 1990s, but, although already established since back
then, still lacks a rigid definition. Hence, this article aims to identify criteria in order to
contribute to a further clarification about this topic. Based on the current theoretical and
empirical literature, the term of Born Global and its numerous interpretations as well as
common criticism is presented. It is further going to be argumented in which way
entrepreneurship, innovation, and technology play an important role in this development. Using
the method of a literature review, the Born Global approach is then opposed to the traditional
internationalization theories of the Transaction Cost Theory, the Eclectic Paradigm, and the
Uppsala Model in order to point out contrasts and similarities and finally justify its existence.
Especially by opposing it to the incremental stages suggested by the Uppsala Model, there is
enough evidence why the Born Global approach offers an interesting different perspective on
internationalization nowadays. In this comparison, the network view of Born Globals by
Sharma & Blomstermo (2003) plays an subordinate role strengthening the position of Born
Globals compared to the traditional internationalization theories.

Keywords: Internationalization, Born Global, Uppsala Model, Network View

1. Introduction

Theories about the internationalization process of a firm have emerged in increasing

numbers since the 1970s in order to explain this phenomenon representing the position that an
incremental process gradually intensifying commitment and resources to foreign markets is
recommended in order to prevent the risk of failure, as in the Uppsalla model (Johanson &
Valnhe, 1977). But in the 1990s, there has been identified the emergence of a new type of
company not following the suggested patterns of that model concerning its internationalization
process but rather being active in international business relationships serving a worldwide
market since its foundation: the Born Global. Hence, the traditional internationalization
theories came to their limits as they lacked explanatory power about this new phenomenon.

1
 Knight et. al (2004) refer to the fact that firms that operate on an international base shortly
after their founding emerge in great numbers all around the globe. Rasmussen & Madsen (2002)
agree and point out that conducted empirical studies between the 1990s and 2000s challenged
many results of export behavior reported in the traditional internationalization literature by not
following the incremental stages with respect to their international activities. They are rather
reported to start internationalizing shortly after their birth, into multiple countries at once, and
right away into distant markets without having acquired such knowledge and capabilities
neither in the domestic market nor elsewhere. Gabrielsson & Kirpalani (2004) identify an
approximation of the concept by the use of different constructs, such as entrepreneutship,
distribution channels, social networks, organizational innovation, and the use of the Internet as
inducing elements contributing to the establishment of a Born Global firm. Sharma &
Blomstermo (2003) emphasize knowledge and networks acquiring international market
knowledge before entering foreign markets as main variables for the development of the
internationalization process. They point out that many Born Globals engage in international
operations since day one whereas their process differs from the ones of other types of firms that
have the main focus on the accumulation of knowledge about foreign markets and institutions
which are ought to be entered. But they also state the fact that Born Globals need more theory-
driven research as the theoretical framework concerning this topic is still missing justifying the
necessity of this work.
Therefore, the aim of this paper is to bring more clarification into the theoretical
framework. First, the existing theory of Born Globals including its definition, drivers of this
phenomenon, and capabilities of such Born Global firms are presented. Next, a comparable
research is conducted by comparing Born Globals theory to the traditional internalization
theories of the Transaction Cost Theory, the Eclectic Paradigm, and the Uppsala Model in order
to point out contrasts and similarities and finally justify the existence of the concept. Finally,
the conclusion presents the outcome of this scheme and gives further outlook for future research
approaches.
The relevance of this study is based on the importance of Born Globals for economic
development in the future because, in general, the phenomenon of companies leaping the steps
of the traditional internationalization process tend not to be exceptions anymore but prove to
become the rule due to given international market relations.

2. Theoretical Framework

First, a theoretical framework about Born Globals has to be conducted until this concept can be

2
compared to the traditional internationalization theories. Therefore, a definition, drivers for this
approach, and capabilities of Born Global firms as well as frequent points of criticism are
presented prior to the intended analysis.

2.1 Born Globals – a definition

In the early works that observed the phenomenon of such firms that are internationalizing
directly upon their inception, there were manifold denominations: Born Globals (McKinsey &
Co. 1993; Rennie 1993; Knight & Cavusgil, 1996; Madsen & Servais, 1997), High-Technology
Start-Ups (Jolly et. al 1992), and International New Ventures (Oviatt & McDougall, 1994). But
over time, the term Born Global seems to have established itself to be used most commonly
(e.g. in works such as Bell et. al 2001; Freeman & Cavusgil 2007; Gleason & Wiggenhorn
2007; Andersson 2011) and is therefore referred to for the purpose of this paper as well. Much
of the research of Born Globals has been conducted on country-specific cases, such as Australia
(McKinsey & Co. 1993; Rennie 1993), England (Welch & Luostarinen, 1988), Ireland (Knight
et. al., 2001), Israel (Ganitsky, 1989; Almor, 2000; Hashai & Almor, 2004), New Zealand
(Dana, 2001; Chetty & Campbell-Hunt, 2004), different Scandinavian countries (Sharma &
Blomstermo, 2003; Kuivalainen et. al., 2007; Jantunen et. al., 2008), the United States (Knight
& Cavusgil, 1996; Oviatt & McDougall, 1994) as well as emerging markets in general
(Persinger et. al., 2007). The existence and results of these studies clearly demonstrate the
relevance and importance of this relatively new type of international business one a worldwide
base.
Welch & Luostarinen (1988, p. 84) define internationalization as "the process of
increasing involvement in international operations" where Born Globals are such firms that are
about to export immediately after the begin of their operations. The term itself was first coined
by Rennie (1993) who separated such Born Global firms from traditional domestic-based firms
as they exported on average around two years after they were founded with most of their sales
resulting from exports abroad. Oviatt & McDougall (1994, p. 49) refer to a Born Global as
Global Start-up that "from inception, seeks to derive significant competitive advantage from
the use of resources and the sales of outputs in multiple countries". According to Knight &
Cavusgil (1996, p. 11), Born Globals are "small, technology-oriented companies that operate
in international markets from the earliest days of their establishments". Rennie (1993)
emphasizes the importance of Born Globals as they are able to compete with large established
players and grow fast in such a way that would not have been possible in earlier decades
although they are relatively small.

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 Sharma & Blomstermo (2003) set the Born Global firm directly into a scientific
environment using network ties to acquire sales while Luostarinen & Gabrielsson (2006)
emphasizes this firm types high technological orientation in general. Anzam (2009, p. 12) goes
into a completely different direction and defines a Born Global as "a new firm that makes at
least one international sale to any new market within two years of formation" in order to expand
the increase the number of potential firms for the data pool eligible for future research questions
around the topic.
Knight et. al (2004, p. 649) operationalised Born Globals for their study as firms that are
"less than 20 years old that internationalised within three years of founding and generate at least
25 percent of total sales from abroad". Chetty & Campbell-Hunt (2004, p. 60) stress the fact,
that such enterprises might not even have sales in their home markets while Rennie (1993) even
proposes a sales ratio of 75% of sales from abroad with a minimum sum of at least AUD$12
million. Knight & Cavusgil (1996) are more specific and describe Born Globals as companies
having leading-edge technology producing mainly niche products, with less than 500 employes,
and an annual turnover of about US$ 100 million. Sharma & Blomstermo (2003, p. 745)
connect to this thought by emphasizing that Born Globals "are knowledge intensive firms with
a high degree of knowledge content and employ individuals who possess high scientific
knowledge. They sell products of services that ere either ´totally new´ or ´radically´ different
from existing products". Gabrialsson & Kirpalani (2004, p. 557) agree with the definition by
Knight et. al (2004) but have further additions expanding it by the following points as Born
Globals are companies that have

(1) vision and strategy to become global/international [...], (2) small technology-oriented companies [...],
(3) time to become global/international, varying from immediate to three years [...], (4) geographical expansion in
terms of a minimum of 25% of foreign sales [...] or a minimum number of countries served outside the home
country [...] and (5) geographical expansion outside the home continent with a minimum of 50% of external sales.

2.2 Capabilities of Born Globals

Madsen & Servais (1997, pp. 576 – 579) propose the following seven criteria in order to
talk about the antecedents, birth, and growth of Born Globals:

1. Strong entrepreneur(s) with strong international experience.

2. Extension is positively associated with the degree of internationalization of the market.
3. More niche oriented and specialized with either more custom-made or more
standardized products compared to other exporting firms.

4
 4. The past experience of founders, partners, economic and customer-related factors
determine the geographical location of Born Global activities either directly or in
interaction.
5. Born Globals rely more often on supplementary competences from other firms and
hybrid structures in their distribution channels compared to other exporting firms.
6. There is a positive association of Born Global´s growth and high innovative skills in
form of effective R&D and distribution channels often in close collaboration with
international partners across nations.
7. The propensity to become Born Global is higher for companies in countries with small
domestic markets. Where Born Globals from large domestic markets may be limited to
high tech industries, the ones from small domestic markets may rely on many different
products. Furthermore, there is a high proportion of Born Globals in countries with a
large number of immigrants.

Halldin (2012) agrees to this criteria to a large extent and stresses further the fact, that
small companies have the advantage over big corporations concerning flexibility, adaptability,
and quicker time response to market needs. Specifically advances in communication technol-
ogy as well as globalization decreasing trade barriers allow them to establish global networks
to generate sales abroad. This is crucial to Born Globals, as they are serving small niche markets
for which they have to increase their target audience all around the globe in order to be profit-
able. Doing that, their main competitive advantage lies in the exploitation of proprietary
knowledge (Bell et. al., 2003). They further gain sustainable advantages due to complex com-
binations, inimitable, causal ambiguity, and socially complex network of alliances in several
countries (Oviatt & McDougall, 1994).
Gabrielson & Kirpalani (2004) also define specific requirements for Born Globals. To
include a specific company within that definition, it has to fulfill at least one of the following
attributes: innovative product or service, know-how, systems, or other highly specialized skills,
superior design or unique technology (Gabrielson & Kirpalani, 2004).
According to Weerawardena et. al (2007), Born Global firms first attempt to develop su-
perior routines to acquire, disseminate and integrate knowledge. This again has an impact on a
company´s ability to develop products that are highly knowledge-intensive. In their case study
about the two Swedish companies Helax and IAR Systems, Sharma & Blomstermo (2003) em-
phasize the process and effect of networks: after ties in domestic markets are established, suc-
cessful solutions based on past domestic experiences are used to expand abroad. Research
shows that such exploitation works best in culturally similar countries as it fosters the process

5
of learning and knowledge development. Through domestic activities, firms can establish net-
work ties with international firms, first by exporting, then by foreign market subsidiaries and
finally by production abroad, foreign market entry is furthermore a gradual commitment of
resources. The internationalization process of firms is driven by their network ties as the pro-
pensity to move to contract based entry models with increasing knowledge abroad.
To summarize the different capabilities, that are crucial for Born Globals, innovation,
technology, and entrepreneurship play the most important role.

2.2 Drivers of Born Globals

Madsen and Servais (1997, p. 565) ask the question why the phenomenon of Born
Globals can actually happen and come to the conclusion that an increasing number of respective
companies can be attributed to at least three important factors:

1. changing market conditions

2. technological developments in the areas of production, transport and
communication
3. more sophisticated capabilities of people, including the entrepreneur/founder

Oviatt & McDougall (1994) on the other hand explain this phenomenon as a result of the
increasingly scope of cultural homogeneity, social change, and firm strategy. Accordingly, the
first two open international markets making the entry for foreign companies easier. Liberalized
international trade agreements and the technological progress finally gives them the opportunity
to interrelate with international customers, distributors, partners, and suppliers very easy
(McDougall & Oviatt, 2000) Here, the internet is an important key factor (Bell & Loane, 2010).
Knight and Cavusgil (2004) also determine globalization as the main economic driver for the
emergence of the Born Global phenomenon.
The growing number of niche markets leading consequently to product specialization enables
most companies to offer very specific goods and services that they have to sell in the
international market, simply because the demand within the domestic market base, even in
larger countries, is too small. Hence, entrepreneurs in high-tech markets may have to sell its
innovative products worldwide. Another aspect to consider is the fact that many industries are
characterized by global supply activities as well as the established networks crossing national
and market boundaries. New production processes due to technological advances enable small-
scale operations reducing costs barriers and making this product specialization even possible

6
(Madsen, Servais, 1997). All these factors, however, are interrelated and pull business to foreign
markets faster.

2.4 Critiques on Born Globals

Even although they made on of the earliest contributions to this topic, Welch &
Luostarinen (1988) concluded that such firms that internationalize upon inception are rare
incidents. This critique can be refused nowadays. The internet and the possibilities of a
connected and globalized world give businesses opportunities to expand internationally that the
did not exist in the time Welch & Loustarinen conducted their research. Oviatt & McDougall
(1997) support this hypothesis and emphasize the fact that current economic, social, and
technological changes challenge the implications of the traditional internationalization theories
giving companies multiple opportunities to expand internationally right after their
establishment. The international focus on this topic and the related articles mentioned in the
section before should be evidence enough to support this debilitation.
Knight et. al (2001) further stress that Born Globals are only a concept found in small,
isolated economies which do not have a domestic market large enough to serve exclusively and
taking place in knowledge-intensive industries making it seem to be a completely new concept
as it lacks sufficient evidence for generalization. But Chetty & Campbell-Hunt (2004) debilitate
this critique as they refer to several traditional industries where this concept can be found as
well.
The more interesting question nowadays is the one of relevance of the Born Global
approach to internationalization studies: "The current debate in the literature is whether born
global is a new concept or a rehash of an old phenomenon" (Chetty & Campbell-Hunt, 2004,
p. 57). ANZAM (2009) summarizes the existing literature to answer this question and criticizes
that it is too simple identify Born Globals as new form of export models when its establishments
is set at the point the first product sale overseas. Doing so, different standards are applied to
define the term Born Global compared to the traditional internationalization theories and all the
incremental efforts by traditional exporters in order to make such a sale possible are ignored.
This makes it impossible to compare the both of them as different standards for measurement
are applied. It can further be criticized that especially Born Globals are set in the Hi-Tech and
Information and Communication Technology (ICT) sectors that have high costs and a long lead
time concerning their Research & Development efforts before a product launch which is often
not considered adequately.
Finally, the discussion in the theoretical part of this paper already showed that the Born

7
Global approach still lacks a clear definition as well as cleat criteria further devaluating its
generalization.
Reviewing the literature, one comes across numerous articles dealing with Born Globals.
Nevertheless, many questions have been unanswered until now. The plurality of existing dif-
ferent assumptions and criteria to the define the term specifically since the 1990s underline the
fact that there is nothing more than a concept than a clearly shaped framework about this topic
yet. Accordingly, it is crucial to test the fundamental parameters of Born Globals mentioned
above and compare them to the traditional internationalization theories.

2. Methodology

This theoretical research follows a qualitative approach in form of a literature review

examining the existing secondary literature on Born Globals since the 1990s in order to to
investigate the hypotheses and goals of this paper. Hence, the Born Global approach is going
to be opposed to the traditional internationalization research areas: the Transaction Cost Theory,
the Eclectic Paradigm, and the Uppsala Model in order to point out similarities and contraries.

3. Literature Review

The theoretical part already showed that although there are many research areas about Born
Globals, this concept is still attached with many uncertainties calling for clarification. Hence,
the three traditional internationalization theories of the Transaction Cost Theory, the Eclectic
Paradigm, and the Uppsala Model are presented and opposed to the Born Global approach in
order to deal with current criticism presented in the theoretical part of this paper towards this
concept.

3.3 Born Global Approach VS. Transaction Cost Theory

For the purpose of internationalization studies, the multinational enterprises (MNE)

comes to the center of attention. Caves (1996, p. 1) defines a MNE as “an enterprise that
controls and manages production establishments – plants – located in at least two countries”.
The Transaction Cost Theory explains how specific transactions are organized in respective
institutional arrangements most efficiently and says, that multinational enterprises (MNEs)

8
exist because of information asymmetry and asset specificity (Hennart, 2010). Griffin & Pustay
(2015, p. 199) say that “Transaction costs are the costs of entering into a transaction, that is,
those connected with negotiating, monitoring, and enforcing a contract”. Both market
transaction costs as well as internal organization costs have to be considered in international
governance decisions on how to do business abroad (Hennart, 2010). Here, Williamson (1985)
further distinguishes between ex-ante and ex-post transaction costs separating between
activities to making a contract possible and the activities after that step that focusing on control
and adaption costs.
Institutional arrangements to organize interdependencies can be marked-based,
hierarchical process, or hybrids (equity joint ventures and contracts). The classical question
here is the one of make-or-buy: should a company perform an activity within its organization
or source it to a third party. Two basic organizing methods to deal with TCT are the price system
and hierarchy. The first method consists on rewarding the agents for their output with incentives
at market prices. The second method on the other hand, hierarchy, reduces incentives, as agents
are not rewarded by output but by behavior. It is important to stress that the transaction from
output-basis to behavior-basis would explain why firms can be more efficient than markets in
enforcing transactions in some cases due to less cheating. But on the other hand, when
employees get less incentive to work, this might lead to shirking. On the topic of agent’s
behavior, two ways to constrain it are pointed out: internal control (affinity with the goals) and
external control (direct observation or bureaucratic rules). Both options are costly depending
on a specific firm´s situation (Hennart, 2010). Especially in the internatioanl context, the
question of make-or-buy and TCT becomes interesting as transactions costs across borders
between two or more countries are more expensive than within the domestic boundaries (Peng,
2009).
The root of internalization theory are imperfections in intermediate product markets for
knowledge and raw materials (Rugman, 1981; Markusen, 1995). Hennart (2010) affirms that
TCT can predict which types of international interdependencies are likely to be internalized by
MNEs. Therefore, TCT can explain the existence of the most common types of MNEs.
Manufacturing facilities abroad are the most efficient way to exploit a firm´s knowledge as
there is the fundamental problem of information. Transfer within a firm is more efficient due to
less cheating. There is also the reputation case, where MNEs will be chosen over franchising
to organize international interdependencies, as reputation in one country is commonly valuable
in another as well and can be embedded into a trademark when counterfeiting can be controlled.
A similar approach can be applied concerning the topic of asset specifity: ther more specific an
asset is, there more costs will arise transferring it as such an asset is connected with a high a

9
degree of information exchange causing those costs. Therefore, a transaction within the firm is
recommended. The contrary counts for goods with low asset specifity: as they require relatively
low transaction costs, such assets can be transferred to a third party (Arnold, 2000).
Although Hennart (2010) explains the contributions of Transaction Cost Theory (TCT)
to International Businesses determining why multinational organizations even exist and gives
an overview about interdependencies between firms, markets, and cooperation, there are some
points that have to be viewed with critical concern. For example, some components of TCT
may influence company’s practice that can lead to false decision, therefore TCT should not be
applied blindly. Further specifications of markets, firms and sectors have to be considered more
in detail because of the uniqueness of each of them. Furthermore, there are only a few
alternative methods determined on how institutions can be organized between market and
hierarchy. Finally, the opportunism assumption is questionable as the transaction partners are
in a social relationship with each other. Hence, one could assume instead that it is in both parties
best interest to omit such opportunistic behavior in order not to put future business opportunities
at risk.
The question in the Transaction Cost Theory is the one of the institutional arrangement
and if a company should internalize the costs of going abroad or build cooperations with local
firms in order to establish their operations in a foreign country. But several researches point out
that Born Globals do not earn money abroad from their inception because they have the
resources to build FDI, but rather to build strategic alliances and network ties that can be
exploited (Oviatt & McDougall, 1994; Sharma & Blomstermo, 2003). Accordingly, the
question of the institutional arrangement answers itself.
Networks function by pair-wise relations between its members as well as their structures
providing channels to distribute knowledge. Network ties are firm-specific, difficult to imitate
and characterized by the three dimensions of: available information, timing, and referrals. This
can have an impact on the internationalization process as the same information is not available
to all competitors in a market, thus, it can be a critical competitive advantage when it is
delivered at the right time. Ties can be either strong or weak concerning their degree of the
amount of time, emotional intensity, intimacy, and reciprocity (high = strong, low = weak) with
weak ties connecting distant and otherwise disconnected firms. The result is that those firms
have knowledge of the international market before their first business activities abroad. The
input mode selection for foreign market is based on existing knowledge and knowledge
provided by their network ties (Sharma & Blomstermo, 2003).
To sum up the comparison between the Transaction Cost Theory and the Born Global
approach, it can be stated that the network ties identified by Sharma & Blomstermo (2003)

10
replace the decisions Born Globals have to make in their starting phase within the Transaction
Cost Theory. The new question proposed by the Born Global approach is not internalize costs
or source related activities out, but if to build either strong or weak network ties with global
partners.

3.4 Born Global Approach VS. Eclectic Paradigm

The Eclectic Paradigm deals with the costs connected to internationalization and foreign
direct investment (FDI) costs of a firm. Based on the assumption that institutions will prefer
internal transactions when they carry lower costs than transactions in the open market, it is a
useful framework for companies in order to determine if it is beneficial to pursue foreign direct
investment or not. It is also known as “OLI” framework, with the letters O, L, and I being
acronyms for the crucial advantages Dunning (1980) identified being ownership advantages,
location advantages, and internalization advantages that influence each other interdependently.
The OLI framework or Eclectic paradigm was developed by John H. Dunning and is a further
development of the internalization theory, since it includes those three advantage variables apart
from the structure of the organization. Later, he expanded his approach again by the influence
of institutions (Dunning & Lundan, 2008). Markusen (1995, p. 173) states that

If foreign multinational enterprises are exactly identical to domestic firms, they will not find it profitable
to enter the domestic market. After all, there are added costs of doing business in another country, including
communications and and transport costs, higher costs of stationing personnel abroad, barriers due to
language, customs, and being outside the local business and government networks. The multinational
enterprise must, therefore, arise due to the fact that it possesses some special advantage such as superior
technology or lower costs due to scale economics.

The most of the economic theories about international business have been asset-based
related, however most of the economic value today is coming from the creation and deployment
of specific advantages of the firms. Only activities that require unique skills and capabilities
tend to be internalized by firms. Other value added transactional activities are more likely to be
outsourced to high specified other firms that can offer intermediate inputs at a low cost. The
question here is make-or-buy (Dunning & Lundan, 2008).
Starting with the Ownership advantages that represent competitive advantages of a firm,
one can divide it further into the traditional asset advantages (Oa) like advanced technology or
superiror distribution, transaction advantages (Ot) containing a firm´s ability to exploit
transactional benefits while they reduce transaction costs, and institutional advantages (Oi). For
the last one, only very little is known about the mechanisms that would allow to add or
restructure the Oi, which comprise the institutional infrastructure of one firm (formal and

11
informal structures like culture or codes of conduct plus enforcement mechanisms).
Understanding this area has become important to comprehend the effects of the MNEs at home
and host countries, hence, understanding the numerous transfers that take place within the
external and internal network from the MNEs, may allow a rough comprehension of the
creation of new institutions (Dunning & Lundan, 2008, pp. 580 – 584). A firm with more
competitive ownership advantages than the firms in the foreign country rather actively pursues
FDI by itself than choosing any other entry mode (Rugman 2010).
The next advantage deals with „locational attractions (L) of alternative countries or
regions, for undertaking the value adding activities of MNEs“ (Dunning, 2000, p. 164).
Although there is evidence of the interface between national level institutions and economic
growth, there has not been much research about the role of MNEs in affecting these institutions
yet. The institutionally related location advantages of countries (Li) are highly situational and
differ both between developed and developing countries and furthermore among developing
countries themselves. But nonetheless, there influence on locational attractiveness is strong. In
general, companies are looking for the most beneficial possibility to combine their competitive
advantages with the local environment of the foreign country in order to establish FDI or not.
The balance between top down and bottom up incentive structures as well as that between
obligatory and voluntary enforcement mechanisms is more than strongly influenced by the
country specific Li variable, too. The form and quality of a country´s incentive structures are
likely to seriously impact on the quantity and quality of inbound and/or outbound MNE activity.
As institutional evolution is a slow, uncertain, and path dependent process that can be
influenced by the stability of the economy, property rights, law system, culture and etc., it is
likely that experimentation is crucial to achieve results in improving institutions. This leads to
differently designed but functionally equivalent institutions. The level of the country
institutions plays an important role in the attraction of MNE activities (Dunning & Lundan
2008, pp. 585 – 587).
The last factor is connected with the firm’s propensity to internalize cross-border
structural or endemic imperfections in the market, what is called internalization (I). Buckley &
Casson (2009, p. 1566) emphasize that “internalisation is a general principle that explains the
boundaries of organizations”. Here, the institution´s influence are easy to perceive by assessing
costs and benefits of exploiting models and ownership advantages. It can be perceived as a
reflection of the total sum of the make-or-buy decisions made by a firm. The MNE is thus
considered as a collection of value added activities. The costs of motivating agents within the
firm, are dependent on the exogenous and endogenous incentive structures and enforcement
mechanisms (Dunning & Lundan, 2008). When the advantage is clear and can be measured

12
against the connected costs appropriately, there is a tendency to internalize those costs instead
of receiving needed inputs from independent suppliers (Buckley & Casson, 2009).
Knight & Cavusgil (2004, p. 125-126) state for Born Globals that the “ability to
internationalize early and succeed in foreign markets is a function of the internal capabilities of
the firm”. Weerawardena et. al. (2007) further suggest that it is especially the the founders´
international entrepreneurial orientation determining the speed of a firm´s international
expansion activities. It is further interesting, that Vahlne & Johanson (2013) already developed
the Uppsala Model as an alternative to the Eclectic Paradigm as they criticize the OLI
framework only being relevant on the macro level but having only little relevance on the micro
level for specific firms. They further argue the importance of the location advantage (L) and
rather prefer the characteristics of business relationships via networks as it is the case for the
Born Global approach.
There might be similarities between the two approaches concerning the traditional
ownership asset advantages (Oa) of a firm enabling Born Globals to offer highly specialized
products. But the question of the locational (L) and internalization advantages (I) can be dealt
with again with the network ties suggested by Sharma & Blomstermo (2003). Contractor (2007,
p. 462) emphasizes, too, that Born Globals internationalize rapidly without having the time or
need to develop firm-specific internalized advantages in their domestic market:” Their
advantage rests on learning derived from abroad, from their ability to coordinate and arbitrage
across national borders, and from alliance network relationships”. Furthermore, the tendency
of Born Globals to serve a niche market is difficult to evaluate within the boundaries of the
Electic Paradigm.
To sum up the comparison between the Eclectic Paradigm and the Born Global approach,
it can be stated that that concept of Born Globals goes beyond the limitations of the OLI
framework, being able to the explain concepts on the micro-level whereas the Eclectic
Paradigm rather focuses on the macro-level.

3.5 Born Global Approach VS. Uppsala Model

Introduced in 1977, the Uppsala model is still the most frequently used theory in the area
of internationalization strategies nowadays. It was developed by Johanson & Vahlne (1977)
who have been updating it ever since its first introduction almost 40 years ago. It explains how
firms gradually intensify their activities abroad by intensifying their commitments in interering
international markets and distinguishes four different steps of entering those:

13
1. No regular export activities (sporadic export)
2. Exports via independent representatives (export mode)
3. Establishment of a foreign sales subsidiary
4. Foreign production/manufacturing (Johanson & Wiedersheim-Paul, 1975)

Following the model, companies usually start their activities in a domestic market in order
to gain experiences and acquire capabilities first to be able to compete internationally later on.
Usually, they do not expand abroad until they have a strong domestic market base. with
increased market knowledge and better control of resources in the domestic market. According
to the model, it is crucial for a firm to learn something about a specific market first (domestic
as well as foreign) until it intensifies its commitment and learning stages further. The first mode
of internationalization are exports from local manufacturing sites to agents in the targeted
foreign market. Such expansion by exports usually starts in a market that is mentally near. In
this context, mentally near means distance representing cultural distance, differences in
language, politics, geographic and the difficulty to acquire knowledge and information from
the market. Thus, the more similar the domestic and the foreign market are concerning those
attributes, the easier is the entry mode for an MNE in order to expand its activities. The more
experienced they become and the better resources they acquire, the more they expand to other
more distant markets. After exports, the process follows the same for sales subsidiaries and
foreign manufacturing plants. This gradual process leads back to the fact that
internationalization activities are a rather risky strategy of market expansion (Vahlne &
Johanson, 2013).
In their original work, Johanson & Vahlne (1977) stress that market knowledge as state
variable leads to the change variables commitment decisions and current activities as they,
again, lead to the state variable market commitment making knowledge and commitment the
two most important factors of this model. Hence, both state variables are interrelated as higher
market knowledge subsequently leads to higher market commitment. In 2013, the authors
updated the existing model including several modern phenomena and introduced the variables
of dynamic capabilities, inter-organizational processes, entrepreneurship, and network
positions and gives a theoretical framework on how to deal with uncertainty:

14
 Nã o é possív el exibir esta im agem no mo mento.

Fig. 1: The Uppsala model of MBE evolution (Vahlne & Johanson 2013, p. 200)
Still intended to be an alternative to the Eclectic paradigm, the there shaped term of
multinational enterprise (MNE) is re-shaped into multinational business enterprise (MBE) in
order to emphasize change and development processes over structure of production and
business relations with market actors over production investment: “We prefer to see the MNE,
as a business enterprise (MBE), a firm that has the capability to build, develop, and coordinate
value-creating multinational business network structures, involving both internal and external
actors” (Vahlne & Johanson 2013, p. 205) The incremental step-by-step-process of expansion
remains unmodified.
The actual literature emphasizes that Born Globals challenge the traditional
internationalization method suggested by the Uppsala Model (Hashai & Almor 2004). Although
both models are resource-oriented, the biggest differences in their assumptions probably lie
between the Uppsala Model and the Born Global approach: for the Uppsala Model, the
incremental step-by-step-process is crucial. On the other hand, there are Born Globals who
operate abroad upon inception, not following a suggested stages model, and without having
gained the knowledge and capabilities yet to be able to expand abroad as it is suggested by the
Uppsala Model making them “early adopters of internationalization” (Knight & Cavusgil,
2004, p. 124). Chetty & Campbell Hunt (2004, p. 60) describe the Born Global approach to be
“a more substantive contrast to the stages model” as such Born Global firms sometimes even
do not have any sales in their domestic market (Jolly et. al 1992; Oviatt & McDougall, 1994;
Knight & Cavusgil, 1996). It can be noted that the focus of Born Globals lies in building
microfoundations abroad that result in networks through which sales can happen. Here again,
they do not follow and incremental procedure as “key descriptors of born-global
internationalization […] [are] having near-simultaneous and thus rapid engagement with
multiple national markets” (Chetty & Campbell-Hunt, 2004, p. 61). The Uppsala Model as well

15
the Born Global approach stresses that international market knowledge is crucial in order to
establish foreign operations. The only difference in these two views lie within how this
international market knowledge is acquired: as the Uppsala Model is mainly based on
experiental learning and commitment building gaining market knowledge (Vahlne & Johanson,
2013), Born Globals receive it mainly by international networks and local cooperation partners
without having passed through these stages before (Sharma & Blomstermo, 2003).
Furthermore, the overall explanatory power of the Uppsala Model can be questioned
nowadays. Oviatt & McDougall (1994) already pointed out that frequently stage-skipping is
common for firms in their internationalization processes. Pandian & Sim (2002) for example
already revisited the Uppsala Model in the Asian context and found variations in the suggested
process, too. In that case, the Born Global approach can be one alternative draft to the Uppsala
Model in order to explain a firm´s internationalization behaviour.
To sum up the comparison between the Uppsala Model and the Born Global approach, it
can be stated that because of the differences between the two, there is enough evidence for the
justification of the Born Global approach as an own different concept. Especially because if
offers an explanatory framework for firm behaviour which is the Uppsala Model is not able to
explain.

4. Conclusion

This paper investigated the significance of Born Globals within the internationalization theory
framework on the basis of the existing secondary literature. Although there are concerns about
the topic, the result of this study is, that Born Globals matter.
First, a definition of the term Born Global, as well as capabilities of Born Global firms and
drivers for their existence were presented. The main result is that technology, innovation, and
entrepreneurship as well their international networks are criteria play an important role enabling
them to internationalize at such rapid pace. The presented criticism about the concept ought so
serve as basis for the later discussion and comparison to the other three internationalization
approaches.
There is still no consensus about criteria to define the term Born Global itself specifically and
many questions remain unanswered until now. The reason for these discrepancies may be
associated with the fact that the phenomenon of Born Globals still is rather new and not very
well defined area of research. Therefore, definitions and results vary between authors and
research approaches. Hence, it can be concluded that the though its existence for more than 20
years, the definition and framework of the Born Global approach are not fully shaped yet.

16
Nevertheless, opposing Born Globals against the traditional internationalization theories
underlined their right to exist. The comparison to the traditional internationalization revealed
interesting insights justifying the existence of Born Globals as an own concept as it goes beyond
the boundaries of the other models. Accordingly, the network view by Sharma & Blomstermo,
(2003) refuted some of the basic assumptions of the Transaction Cost Theory and the Eclectic
Paradigm. It has further been shown, that Born Globals do not follow the incremental stage
patterns suggested by the Uppsala Model.
As innovation, entrepreneurship, and technology are the crucial capabilities for a Born Global
firm, further research concerning their interrelation in order to a extract a business model would
be interesting. Furthermore, it is still unclear at what point companies stop being Born Globals
and if there are any boundaries to the concept. Finally, it would be interesting to examine the
risk and challenges connected to this internationalization approach. As the Uppsala Model was
a risk-avers version of internationalization, what is the Born Global approach? Which risks and
challenges actually occur and how can they be dealt with?

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