Venturing from Emerging Economies

• DOI: http://doi.org/10.1002/sej.1158
• Published date: 01 September 2013
• Author: Susanna Khavul,Yasuhiro Yamakawa,Mike W. Peng,David L. Deeds
• Date: 01 September 2013

VENTURING FROM EMERGING ECONOMIES

YASUHIRO YAMAKAWA,1SUSANNA KHAVUL,2,3* MIKE W. PENG,4and

DAVID L. DEEDS5

1Arthur Blank Center for Entrepreneurship, Babson College, Babson Park, Mas-

sachusetts, U.S.A.

2Department of Management, University of Texas at Arlington, Arlington, Texas,

U.S.A.

3Department of Management, London School of Economics, London, U.K.

4Jindal School of Management, University of Texas at Dallas, Richardson, Texas,

U.S.A.

5Opus College of Business, University of St. Thomas, Minneapolis, Minnesota,

U.S.A.

What drives new ventures to internationalize from emerging economies to developed econo-

mies? To answer this underexplored question, we bring together theory at the intersection of

international entrepreneurship and strategy in emerging economies. Focusing on intangible

resources, we theorize that international expansion of new ventures from emerging economies

is driven by their desire to enhance domestic reputation, to exploit their stocks of prior

knowledge, and to explore benefits of incoming knowledge flows. We find support for our

hypotheses using a cross-country sample of new ventures from two major emerging

economies—China and India. Copyright © 2013 Strategic Management Society.

INTRODUCTION

Internationalization of new ventures generates sig-

nificant research in entrepreneurship (Cumming

et al., 2009; McDougall and Oviatt, 2000). Simi-

larly, strategy research on emerging economies (EE)

is experiencing tremendous growth (Hoskisson

et al., forthcoming; Wright et al., 2005). However,

Yamakawa, Peng, and Deeds (2008) noted that the

intersection of the literature in international entre-

preneurship and strategic management of new ven-

tures from EE has received limited attention.

Although most EE-based ventures stay at home and

some choose to enter other EE markets, a nontrivial

proportion of new ventures from EE decide to inter-

nationalize into developed economies (DE). While

DE markets are potentially rewarding, international

expansion of new ventures from EE to DE is also

fraught with risks, some of which may threaten their

survival (Jones and Coviello, 2005; Sapienza et al.,

2006). In this study, we pick up where Yamakawa

et al. (2008) left off and endeavor to understand both

theoretically and empirically a crucial question:

Why do some new ventures from EE internationalize

to DE while others chose to enter other EE?

Surprisingly, despite the rapid expansion of both

international entrepreneurship research and strategy

literature focusing on EE, this question remains

underexplored. On the one hand, international entre-

preneurship research has focused new ventures

based in DE (Knight and Cavusgil, 2004;

McDougall and Oviatt, 2000) and has largely

ignored internationalization decisions that new ven-

tures in EE face (Wright et al., 2005; Yamakawa

et al., 2008). On the other hand, foreign entrants

into EE and domestic competitors within EE remain

at the heart of strategy research on EE. Here the

Keywords: emerging economies entrepreneurship; intangible

resources; stocks and flows of knowledge; China; India

*Correspondence to: Susanna Khavul, Department of Manage-

ment, University of Texas atArlington, Arlington, TX 76019,

U.S.A. E-mail: skhavul@uta.edu

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Strategic Entrepreneurship Journal

Strat. Entrepreneurship J., 7: 181–196 (2013)

Published online in Wiley Online Library (wileyonlinelibrary.com). DOI: 10.1002/sej.1158

Copyright © 2013 Strategic Management Society

analysis tends to deal with relatively large, estab-

lished, and publically visible corporations (Meyer

et al., 2009; Peng, 2012; Sun et al., 2012) to the

exclusion of newer and smaller firms based in EE

that seek to internationalize (Cardoza and Fornes,

2011; Yiu, Lau, and Bruton, 2007). Consequently,

theoretical explanations of what drives new ventures

in EE to take the plunge and internationalize into DE

remain elusive (Yamakawa et al., 2008). This is a

significant omission. Entrepreneurial start-ups in EE

face a different set of internationalization challenges

and potential rewards from those confronting either

established firms from EE or similar ventures from

DE. Thus, they need to be understood on their own

terms.

We propose that new ventures in EE see interna-

tionalization into DE as a two-pronged opportunity:

(1) to enhance reputation; and (2) to leverage prior

knowledge stocks as well as source new knowledge

flows. Our approach is based on a resources and

capabilities argument where reputation and knowl-

edge are two intangible resources that firms can

control. First, as an intangible resource, reputation

creates access to other resources critical for firm

growth and survival (Zimmerman and Zeitz, 2002).

A strong positive reputation among keystakeholders

has been shown to be critical to the growth and

survival of new ventures (Rindova and Petkova,

2005). Second, knowledge, also an intangible

resource (Mitchell et al., 2000), is a major determi-

nant of new capabilities and a source of competitive

advantage (Canals, 2000; DeCarolis and Deeds,

1999). Thus, we propose that a new venture’s deci-

sion to internationalize stems from the desire to

enhance reputational resources, to exploit existing

stocks of knowledge, and to benefit from inflows of

knowledge locally unavailable.

Our article builds on and extends prior work.

Yamakawa et al. (2008), the most prominent theo-

retical companion to this study, used a tripod of

theoretical perspectives (industry-based, resource-

based, and institution-based views) to build a broad

conceptual framework. Yamakawa et al. (2008) tar-

geted a theoretical gap in the literature and used a

qualitative theory-building approach to develop

propositions that explore the underlying logic

behind internationalization of new ventures from EE

to DE. However, Yamakawa et al. (2008) did not

present empirical evidence to substantiate their

claims. Here we go deeper. To show the effect of

intangible resources (reputation and knowledge) on

the decision to internationalize, we combine the

learning imperative (from the resource-based view)

with the quest for legitimacy (from the institution-

based view). In demonstrating the significance of

intangible resources to international expansion deci-

sions, we extend research on reputation (Rindova

and Petkova, 2005) and knowledge (Lu et al., 2010;

Su, Tsang, and Peng, 2009) to the entrepreneurial

context in EE.

To the best of our knowledge, our study repre-

sents one of the very first attempts to test a theo-

retical model that explains why new ventures

internationalize from EE to DE and not to other EE.

Prior studies have focused on the timing of interna-

tionalization, the process of internationalization,

and the outcomes of internationalization, but largely

in new ventures from DE (Bruneel, Yli-Renko, and

Clarysse, 2010; Fernhaber and Li, 2010). Increas-

ingly, research in entrepreneurship tries to explain

internationalization from EE (Khavul, Perez-

Nordtvedt, and Wood, 2010b; Wood et al., 2011;

Zhou, Barnes, and Lu, 2010), but the importance of

intangible resources in the decision to internation-

alize from EE to DE remains an open empirical

question. Thus, we extend prior empirical work on

entrepreneurial ventures in general and from EE in

particular. Using primary survey data from China

and India, two major EE, we also stretch the typical

geographic reach of research on new venture inter-

nationalization. In sum, we believe our work con-

tributes to an emerging and dynamic area of

scholarship on new ventures from EE, which is of

high importance to entrepreneurship research

(DeClercq et al., 2012; Jones, Coviello, and Tang,

2011).

THEORY AND HYPOTHESIS

DEVELOPMENT

Control of intangible resources as a strategic

construct for venturing from EE to DE

The resources and capabilities perspective sways

great influence across several domains in manage-

ment (Lockett, O’Shea, and Wright, 2008). In the

context of internationalization, the literature sug-

gests that firms go abroad to exploit tangible

resources that are important sources of advantage

for established firms but ones new ventures generally

lack (Ahlstrom et al., 2004; Brouthers, O’Donnell,

and Hadjimarcou, 2005; Meyer et al., 2009).

Although new ventures are short on tangible

182 Y. Yamakawa et al.

Copyright © 2013 Strategic Management Society Strat. Entrepreneurship J.,7: 181–196 (2013)

DOI: 10.1002/sej