Internationalization strategy choice for micro ...

IN DEGREE PROJECT INDUSTRIAL MANAGEMENT,SECOND CYCLE, 30 CREDITS

, STOCKHOLM SWEDEN 2018

Internationalization strategy choice for micro-multinationals: a development framework

GINÉS SÁNCHEZ

KTH ROYAL INSTITUTE OF TECHNOLOGYSCHOOL OF INDUSTRIAL ENGINEERING AND MANAGEMENT

Internationalization strategy choice for micro-multinationals: a development

framework

by

Ginés Sánchez

Master of Science Thesis TRITA-ITM-EX 2018:510

KTH Industrial Engineering and Management

Industrial Management

SE-100 44 STOCKHOLM

Internationaliseringsstrategi för mikro-multinationella företag: ett

utvecklingsstrategiskt ramverk

Ginés Sánchez

Examensarbete TRITA-ITM-EX 2018:510

KTH Industriell teknik och management

Industriell ekonomi och organisation

SE-100 44 STOCKHOLM

Master of Science Thesis TRITA-ITM-EX 2018:510

Internationalization strategy choice for micro-multinationals: a development framework

Ginés Sánchez

Approved

2018-06-14

Examiner

Bo Karlson

Supervisor

Kent Thorén

Commissioner

ChromaWay AB

Contact person

Henrik Hjelte

Abstract

Micro-multinational is a relatively new term and there are still very few studies about how micro-multinationals choose their foreign entry market modes when internationalizing. This thesis attempts to add new knowledge filling the gap between the internal resources of a company and the foreign entry market mode selected for its internationalization process. Furthermore, a systematic methodology that combines internal resources with the selection of the foreign entry market mode will be developed with the goal of aligning the competitive advantages of the company along its international structure.

The methodology that this research employs will show how to combine the internal resources of the case study company and its needs when internationalizing based on the characteristics of each foreign entry market mode. The first step of the methodology is determining the variables that categorize each foreign entry market mode that companies implement. Then, the application of the Resource-based View will show the possible competitive advantages of the case study company. Lastly, accounting for the requirements that the case study company has when internationalizing, the possible competitive advantages, derived from the Resource-based View, will be combined with the characteristics of each foreign entry market mode to determine effective recommendations for the case study company to implement in its internationalization strategy.

The results of this research show that when a company wants to enter into a foreign market, it should evaluate that decision based on its internal resources. Only then will the company be able to exploit its competitive advantages and be successful in the new market. The decision to internationalize is influenced by requirements such as the level of control, commitment, risk and flexibility that the parent company is willing to have in the new foreign market. Hence, these requirements must be taken into consideration carefully during the entire decision process.

Key-words Blockchain, Business Internationalization, Foreign Market Entry Modes, Micro-Multinationals, Resource-Based View, VRIO tool

Examensarbete TRITA-ITM-EX 2018:510

Internationaliseringsstrategi för mikro-multinationella företag: ett utvecklingsstrategiskt ramverk

Ginés Sánchez

Godkänt

2018-06-14Examinator

Bo KarlsonHandledare

Kent Thorén

Uppdragsgivare

ChromaWay AB

Kontaktperson

Henrik Hjelte

Sammanfattning

Micro-multinationals är en relativt ny term och det finns för tillfället få studier kring hur dessa företag ska bedriva sin utlandsexpansion när de internationaliserar verksamheten. Syftet med denna uppsats är att bidra med ny kunskap kring ämnet och medverka till att fylla kunskapsgapet som existerar i hur man kombinerar företagets interna resurser och valet av internationaliseringsstrategi. Vidare utvecklas en systematisk metodologi som kombinerar interna resurser med valet av internationaliseringsstrategi för att anpassa företagets konkurrensfördelar med dess internationaliseringsprocess.

Metodologin som används i denna rapport visar hur interna resurser hos företaget i den aktuella fallstudien kan kombineras med dess behov för internationalisering baserat på egenskaperna hos varje enskild typ av utlandsexpansion. Första steget i metodologin är att avgöra vilka variabler som karaktäriserar varje enskild strategi för utlandsexpansion som företag planerar att implementera. Nästa steg är att applicera en “Resource-based View” som visar de möjliga konkurrensfördelarna för företagen i fallstudien. Slutligen kombineras kraven som företagen har ställt för sin internationalisering samt de konkurrensfördelar som de visades ha enligt “esoruce-based view” med de olika typerna av utlandsexpansion som finns tillgängliga med syftet att avgöra lämpliga rekommendationer för fallstudieföretagen rörande hur de ska gå till väga i sin internationalisering av verksamheten.

Resultaten visar att när ett företag vill etablera sig på en utländsk marknad bör de evaluera beslutet med hänsyn till sina interna resurser. Först då kan företaget utnyttja sina konkurrensfördelar och bli framgångsrika på den nya marknaden. Beslutet av hur internationaliseringen ska gå till påverkas av krav som moderbolaget har för den nya marknaden såsom behov av kontroll, grad av åtagande, risk och flexibilitet. Dessa krav måste tas i noggrann beaktning under hela beslutsprocessen.

Nyckelord Blockchain, Business Internationalization, Utländska marknadsposter, Mikromultinationella, Resource-Based View, VRIO verktyg

AcknowledgementsSince I started this Master thesis, there have been several persons who I am very grateful to:

First, I would like to thank my supervisor Kent Thorén at the department of Industrial Eco-nomics and Management of KTH who has supported me throughout the whole research processproviding invaluable help and guidance when I needed it. This report would not be completedwithout your contribution.

Second, I would like to express my gratitude towards ChromaWay team, in especial to HenrikHjelte, CEO of ChromaWay, for the time, support and all the trust that you put on me, as well asfor considering me as one of you since the first day. It is a pleasure to work with all of you.

Also, I would like to express my appreciation to the interviewees for their time. Also, yourwillingness and helpfulness have been admirable. Thank you for the knowledge and experiencethat you have provided to me.

Last but not least, I would like to thank my family, especially my parents, for the endless sup-port and confidence in me. Without you this experience in Sweden would not have been possible.I cannot thank you enough.

Stockholm, June 2018

Ginés Sánchez NavarroDepartment of Industrial Economics and Management

Royal Institute of Technology

Contents

1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81.1 Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81.2 Purpose & Research Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91.3 Delimitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

2 Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112.1 Research Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112.2 Collection of data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

2.2.1 Primary data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122.2.1.1 Workshop with ChromaWay . . . . . . . . . . . . . . . . . . . . . 122.2.1.2 Interviews . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

2.2.2 Secondary data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

3 Literature & Theoretical Framework . . . . . . . . . . . . . . . . . . . . . . . . . . 133.1 International Entrepreneurship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133.2 Foreign market entry modes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

3.2.1 Direct Exporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153.2.2 Franchising & Licensing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163.2.3 Joint Ventures & Strategic Alliances . . . . . . . . . . . . . . . . . . . . . . 173.2.4 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183.2.5 Foreign market entry modes summary . . . . . . . . . . . . . . . . . . . . . 18

3.3 Micromultinationals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193.3.1 Types of micro-multinationals . . . . . . . . . . . . . . . . . . . . . . . . . . 203.3.2 mMNEs success characteristics . . . . . . . . . . . . . . . . . . . . . . . . . 213.3.3 Factors behind the decision to become a mMNE . . . . . . . . . . . . . . . 21

3.4 Internationalization methods and theories . . . . . . . . . . . . . . . . . . . . . . . 233.4.1 Transaction Cost Economics (TCE) . . . . . . . . . . . . . . . . . . . . . . 233.4.2 Eclectic Paradigm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 233.4.3 Institutional Theory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243.4.4 Social Capital/Network Theory . . . . . . . . . . . . . . . . . . . . . . . . . 243.4.5 New Theories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

3.5 The Resource Based View (RBV) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 253.5.1 What is a resource? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 253.5.2 Methodology framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

3.5.2.1 The VRIO framework . . . . . . . . . . . . . . . . . . . . . . . . . 283.6 Research model and chapter summary . . . . . . . . . . . . . . . . . . . . . . . . . 29

4 Case Presentation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 314.1 ChromaWay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

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4.1.1 Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 324.2 Company categorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 324.3 Workshop with ChromaWay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

5 Analysis and Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 355.1 Assessing heterogeneity and immobility . . . . . . . . . . . . . . . . . . . . . . . . 355.2 Assessing VRIO criteria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375.3 Research model application . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

5.3.1 Research model application - part 1 . . . . . . . . . . . . . . . . . . . . . . 405.3.2 Research model application - part 2 . . . . . . . . . . . . . . . . . . . . . . 415.3.3 Research model - analysis of results . . . . . . . . . . . . . . . . . . . . . . 41

5.4 Competitive advantages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

6 Discussions and conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 436.1 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

6.1.1 Research question 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 436.1.2 Research question 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

6.2 Managerial implications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 456.3 Future research, ethics and sustainability . . . . . . . . . . . . . . . . . . . . . . . 46

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

Appendices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

A Data gathering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

B Interviews questionnaire . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

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List of Figures

1.1 The position of the mMNE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

2.1 Research process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

3.1 Research areas of International Entrepreneurship . . . . . . . . . . . . . . . . . . . 143.2 Foreign entry modes summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193.3 Resource portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263.4 Resource-based view model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 283.5 VRIO tool . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

5.1 Case study implementation process . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

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List of Tables

3.1 The characteristics of different entry modes . . . . . . . . . . . . . . . . . . . . . . 153.2 Differences between joint ventures and strategic alliances . . . . . . . . . . . . . . . 173.3 Theoretical resources and capabilities of a firm . . . . . . . . . . . . . . . . . . . . 273.4 Research model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

4.1 ChromaWay resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

5.1 Step 1. Classification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 365.2 Summary RBV application (Step 1) . . . . . . . . . . . . . . . . . . . . . . . . . . 385.3 Step 2. Valuable, rare and inimitable classification . . . . . . . . . . . . . . . . . . 385.4 Foreign entry market modes summary . . . . . . . . . . . . . . . . . . . . . . . . . 405.5 Model implementation - part 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 415.6 Summary VRIO application (Step 2) . . . . . . . . . . . . . . . . . . . . . . . . . . 415.7 Model implementation - part 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 425.8 Competitive advantages of ChromaWay from the application of the research model 42

A.1 Data gathering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

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Nomenclature

List of Abbreviations

BG Born Global

C&I Constellation and Investment

CEO Chief Executive Officer

COO Chief Operations Officer

CTO Chief Technology Officer

IE International Entrepreneurship

IFA International Franchise Association

INV International New Ventures

IP Intellectual Property

IT Information Technology

JV Joint Venture

mMNE Micro-multinational

MNE Multinational Enterprise

OLI Ownership, Location and Internationalization

R&D Research and Development

RBV Resource-based View

RQ Research Question

SME Small- and medium-sized firm

SQL Structured Query Language

TCE Transaction Cost Economics

VRIO Valuable, Rare, Inimitable and Organized

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Chapter 1

Introduction

The main objective of this chapter is to establish a general overview for the creation of the thesisproject. A brief introduction of companies internationalization will set up the framework andcontext of the research. Furthermore, an explanation of blockchain technology will be carried outas ChromaWay, the company where I wrote this thesis project, bases its services on this disruptivetechnology. Finally, the purpose and research questions that this research wants to answer will bepresented.

1.1 Background

Thousands of years ago, the Phoenicians, Mesopotamians and the Greek established trade routesin the Mediterranean sea. Since then, commercial transaction have evolved constantly with newbusiness techniques providing a broad variety of methods for the exchange of goods, services andcapital.

In modern days, with the explosion of the Industrial Revolution, technology development cre-ated more efficient methods of production, new energy sources and new forms of transportation.Those improvements accelerated the exchange of resources between countries and encouraged thegrowth of international business around the globe. New organizational entities were born and thefirst multinational corporations (MNE) emerged.

Due to this history, we can agree with the definition of international business as a businesstransaction that crosses national boundaries. This simple definition includes private companies,governments or a mixture of the two. (Ajami and Goddard, 2014).

In the twenty-first century, international business exploded and more and more companiesexpanded across national borders and now their business relationships span the globe. This phe-nomenon is not only seen within large corporations which have important annual sales levels, butalso medium size companies and family-owned businesses are included in this field. In the lastdecades, companies have been dealing with the ups and downs of the global markets but the recentfinancial crisis have had a huge negative impact. Global markets and especially European marketsare still recovering from the financial crisis. There is a urgent need to renew the confidence of mar-kets participants that aim to set up stable markets again and find the path of growth and prosperity.

Coming from the literature of international business, international entrepreneurship (IE) has

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gained relevance over the years among scholars due to the globalization of the world economy.According to Oviatt and McDougall (2005a), "international entrepreneurship is the discovery, en-actment, evaluation, and exploitation of opportunities, across national borders, to create futuregoods and services".

International entrepreneurship is extremely connected to the development of new small- andmedium-sized firms (SMEs) that are growing internationally from inception. Figure 1.1 shows thatthere are different types of SMEs such as born globals (BG), international new ventures (INV),micro-multinationals (mMNEs) or born micro-multinationals due to a significant part of theirrevenues come from foreign markets. These classification considers three dimensions: (1) speed, sothat it reflects if the company goes abroad from inception; (2) commitment, so that it shows thelevel of commitment that it is required for the foreign entry mode implementation and; (3) size ofthe company, small and medium versus large multinationals.

Source: (Vanninen et al., 2016)

Figure 1.1: The position of the mMNE

Since the dot-com crash, these companies have integrated a culture of faster innovation andvirtual integration in order to survive in this new business competitive environment. Also, theirgrowth strategies provide lessons for many other organizations that seek early and rapid interna-tionalization.

Such an innovative culture leads to a better response to market changes that can only beachieved with a rapid iterations of the firm´s business model or market proposal. Therefore, theaim of this master thesis is to generate new knowledge about the different foreign market entrymodes that micro-multinationals can implement and how the choice of mode is influenced by theresources and capabilities of the firm that generate competitive advantages.

1.2 Purpose & Research Questions

In the last decades, a lot of research about SME internationalization strategies have been made.BG and INV gained the attention of the scholars and a lot of researches have been done since

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then. But, the term micro-multinational was born recently so there is still a lack of literature andresearch in this field.

The main purpose of this thesis is to study and add new knowledge about the different entrymarket mode choices that mMNEs can implement to leverage their competitive advantages whichare based on internal resources and capabilities. A case will be analyzed to find out how a soft-ware company can leverage its internal resources when selecting its internationalization strategy.Furthermore, it will set up the base for a future researches in other fields or with other businessmodels due to the framework and tools utilized in this thesis are general, so they can be used inother contexts.

The following research questions will be answered:

RQ1: What are the different entry modes that SMEs can use for becoming a mMNE?

RQ2: What would be the best market entry choice or choices for a software company startup?

1.3 Delimitations

Independently of the business models a SME may implement, this thesis is delimited to the studyof a software company with a classic business model. Ideally, the analysis of different businessmodel would be interesting in order to achieve more generalized results.

Another delimitation is that the case company, ChromaWay, is from Sweden. More researchabout companies from other countries would allow to do comparisons and see how the home coun-try influences the company in its internationalization.

Lastly, this research only takes into account internal resources of the company to make thecase and analyze the foreign market entry modes, but there are also other external factors thatinfluence the company when internationalizing.

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Chapter 2

Methodology

This chapter explains the methodologies utilized to answer the research questions stated in theprevious chapter and to realize the purpose of this study.

2.1 Research Process

Figure 2.1: Research process

The figure 2.1 illustrates the steps of this research process although there is more description asthe analysis progresses. Firstly, a main problem is introduced which led to a problem formulation.Secondly, the research questions are stated. Then, a literature and theoretical review will be con-ducted before the case presentation. Once the literature review is done and the case is presented,the theory will be implemented in order to analyze the case. Finally, the analytical results willform the basis for the conclusions and discussions.

The methodologies implemented in this study are categorized as qualitative research. Thesemethodologies are focused on process, understanding and meaning. The researcher is the primaryinstrument of data collection and analysis, the process is inductive and the product is descriptiveMerriam (2009).

In section 2.2.1, it is explained how the primary data is collected and also the different sourcesof information, mainly interviews with some heads of international growth and expansion fromSwedish startups and meetings with the management team of the case company. Then, in section2.2.2, it is described the secondary data sources of information used in this research and how theyare aligned with the primary data collected.

Once all the data was gathered, the main objective is to apply the theoretical models to theinformation collected to answer the research questions. So, pieces of information from interviews,

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observations and documents were combined with the theoretical framework in order to answer theresearch questions stated in section 1.3.

2.2 Collection of data

2.2.1 Primary data

In order to gather qualitative information, two different sources have been used (see appendix A).On the one hand, a workshop with ChromaWay was carried out to specify the stage of the companyand to analyze its internal resources and capabilities. Also, the participation in several meetingswas useful to understand the future intentions and expectations of the company that influencedthis research.

On the other hand, different interviews have been done to collect empirical examples fromChromaWay and other startups with similar business models and relevant opinions from expertsin this field.

2.2.1.1 Workshop with ChromaWay

The workshop (see section 4.1) was useful for knowing the tangible and intangible resources whichChromaWay posses. This is the first step of the research so, it is really important to think carefullyand not forget any important points during the process because it would influence the next steps.To collect all the possible resources of the firm, Henrik Hjelte, CEO of ChromaWay, was engagedin the workshop.

2.2.1.2 Interviews

According to Collis and Hussey (2014), qualitative interviews are one of the most usual methodsto get qualitative information. For the purpose of this thesis, semi-structured interview will beused (see appendix B) because it has a flexible structure of the questions. The interviews will lastbetween 30 - 40 minutes and they will be done in person or by a phone call.

Before starting the interview, the topic will be introduced and what are the outcomes expectedfrom the interview. The purpose of the interviews is to get insights from the experience of thecompany´s managers about how their companies are structured and how they faced that process.

2.2.2 Secondary data

Secondary data was needed to support the empirical data collected from interviewees and work-shops. This kind of data is collected throughout the research process but mainly at the beginning.Besides, these sources are articles, reports and even the web pages of companies. Therefore, thiswill allow not only to build an understandable reasoning for this thesis project, but also the readerwill be able to understand easily the final outcomes of this research and how they have beenachieved.

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Chapter 3

Literature & Theoretical Framework

This chapter covers the theory and literature that this research uses to answer the research ques-tions. It can be featured that there are two main branches, international entrepreneurship andinternationalization methods and theories, which set the principles for this research. Finally, thesetwo branches are combined in the research model that allows to answers to the stated researchquestions.

3.1 International Entrepreneurship

With the Internet as a game-changer, we have seen a tremendous evolution in business ecosystems.Not only the quality of products and services has increased but also the availability throughout theworld. With such a globalization of the world economy, the international entrepreneurship (IE)term has gained relevance over the years interrelated with international business and entrepreneur-ship. It started when Morrow (1988) defined international entrepreneurship as a technologicaladvances and cultural awareness that make untapped foreign markets accessible for new ventures.Soon after that, additional empirical studies by (McDougall, 1989) were conducted and, sincethen, the definition of IE has evolved. Oviatt and McDougall (1997) offer a definition excludinggovernments organizations. Then, a research by McDougall and Oviatt (2000) established inter-national entrepreneurship as a combination of innovative, proactive, and risk seeing behavior thatgoes beyond national boarders to create value in organizations. Other researchers such us Zaharaand George (2002) include corporate entrepreneurship into their definitions of IE. The scholarshave been studying the theory and some changes in the definition have been made to improve thepotential of the definition. Therefore:

"International entrepreneurship is the discovery, enactment, evaluation, and exploitation of op-portunities, across national borders, to create future goods and services" (Oviatt and McDougall,2005b).

Trying to categorize international entrepreneurship, some scholars say that IE is placed be-tween different disciplines in the academic field such as international business and entrepreneurship(Keupp and Gassmann, 2009). Others add strategic management as part of the disciplines thatcompound IE (Gubik and Wach, 2014; Wach, 2015). However, all the researches about IE weregrouped by Jones et al. (2011) into three major types of research: A) Entrepreneurial internation-alization, B) International Comparisons of Entrepreneurship and C) Comparative Entrepreneurialof Internationalization.

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Source: (Allen, 2016)

Figure 3.1: Research areas of International Entrepreneurship

As we can see in the image 3.1, these three different branches of research embrace several ar-eas. Entrepreneurial internationalization (Type A) mainly differs from International Comparisonsof Entrepreneurship (Type B) in its focus on internationalization whereas Type B analyses howentrepreneurial behavior differs by country and culture. In contrast, Comparative Entrepreneurialof Internationalization (Type C), which is the most recent field of research, examines and comparescross-border entrepreneurship across countries and cultures.

This thesis will focus on entrepreneurial internationalization (Type A) and more specifically onthe branch of Venture type which is the first thematic area to emerge in the IE literature. Venturetype research includes different terms such as International New Ventures (INV) defined as "abusiness organization that, from inception, seeks to derive significant competitive advantage fromthe use of resources and the sale of outputs in multiple countries" (McDougall, 1989). Anotherimportant term that appears in the Venture type area is Born-global (BG) which was introducedby Knight (1996). Born-globals are firms that from inception exploit opportunities in multiplecountries. However, the line between INV and BG is really unclear so it is possible to find someresearch that unify those terms.

The newest term that is part of the Venture type branch is micromultinational (mMNE). It wasintroduced by Dimitratos et al. (2003) as "a small- and medium-sized firm (SME) that controlsand manages value-added activities through constellation and investment (C&I) modes in morethan one country". Also, born mMNEs which are "resource-constraint SME that own or controlvalue-adding activities in two or more countries in less than three years after their foundation"(Dimitratos et al., 2003). C&I modes embrace high commitment methods to service foreign marketssuch as licensing, franchising, strategic alliances, joint ventures and subsidiaries. This new term,mMNE, along with the different foreign market entry modes will be the core of the developmentof this thesis so they will be explained with more details in the next sections.

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3.2 Foreign market entry modes

Human, structural/organizational and customer/relationship capital form the intellectual property(IP) assets that are the enablers of business strategy within a company. In order to protect anddefend the strategic position of the company in the different markets, IP assets management needsto be built and improved continuously. Furthermore, this will maximize shareholder value andallow for the creation of new markets, distribution channels and revenue streams (Sherman, 2011)

Organizational structure is key for international companies in order to manage their foreignactivities effectively (Anderson and Gatignon, 1986). So, firms can choose among different foreignmarkets entry modes, including exporting; contractual agreements such as licensing and franchis-ing; joint ventures; acquiring an existing company, and establishing a wholly-owned subsidiaryfrom scratch (Pan and David, 2000). The selection of the entry market mode is extremely impor-tant because it will determine the firm´s degree of resource commitment to the foreign market, therisks the firm will face in that new country, and the level of control the firm will be able to haveover its foreign activities (Hill et al., 1990).

According to Laufs and Schwens (2014), and opposed to large multinationals (MNEs), foreignmarket entry mode choice of small and medium-sized firms has specific characteristics. For SMEsit is difficult to find an entry mode that allows them to deal with that risk due to SMEs have anhigh level of sensitivity to external influences (Cheng and Yu, 2008). Also, the chosen entry modewill dictate the level of control over the foreign activities. In this context, control is determinedby the level of responsibility for operational and strategic decision making in the foreign country(Anderson and Gatignon, 1986).

With regard to (Hill et al., 1990), some entry modes require a large commitment of resourceswhile others allow resource commitment to be shared among partners (see table 3.1). So, the moreresources the firm commits, the greater the risk of losing valuable resources if the foreign marketengagement fails.

Entry modes Control ResourceCommitment

DisseminationRisk

Licensing Low Low HighJoint Venture Medium Medium MediumSubsidiary High High Low

Source: (Hill et al., 1990)

Table 3.1: The characteristics of different entry modes

In the next sections, the choices that a SME has to entry to a foreign market will be explained.Besides, the main advantages and disadvantages of each foreign entry mode will create a theoreticalframework that will serve to sustain all the future discussions and conclusions of this thesis.

3.2.1 Direct Exporting

Exporting is not considered as a C&I mode but it is interesting to take it into consideration tocompare it with C&I modes such as licensing, franchising, strategic alliances and joint ventures.

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Although more and more small- and medium-sized firms are setting up their internationaliza-tion strategy through C&I modes, exporting is still being well acknowledged when SMEs enter intoforeign markets as it is the most common path of internationalization (Mittelstaedt et al., 2003).

Exporting is considered as a low commitment internationalization mode (Melén and Nordman,2009). However, it allows firms to gain knowledge about their foreign markets so it reduces uncer-tainty if future direct investments are needed (Johanson and Vahlne, 1977). With this knowledgeof the market, firms could turn to high commitment modes as a protection of markets previouslyserved through exporting (Phillips McDougall et al., 1994).

3.2.2 Franchising & Licensing

According to the International Franchise Association (IFA), "franchising is simply a method forexpanding a business and distributing goods and services through a licensing relationship. In fran-chising, franchisors (a person or company that grants the license to a third party for the conductingof a business under their marks) not only specify the products and services that will be offered bythe franchisees (a person or company who is granted the license to do business under the trademarkand trade name by the franchisor), but also provide them with an operating system, brand andsupport".

As is suggested in Sherman (2011), when a firm chooses a franchise system, the decision istaken in consideration of the following reasons:

• The business wants to obtain operating efficiencies and economies of scale.

• The business wants to increase market share and build brand equity.

• Building and improving customer loyalty.

• More rapid market penetration with a relatively low cost.

• Using cooperative advertising and promotion to reach the targeted costumers more effectively.

• Sell products and services through a dedicated distributor network.

• Replace the need for internal personal with motivated owners.

All franchising agreements have three critical components: (1) Brand, (2) Ongoing support pro-vided by the franchisor to the franchisee and, (3) Operating system. Sometimes, the differencebetween franchising and licensing agreements is very small. So those critical components dictatethe final decision when doubts about what kind of agreement is more appropriate arise.

On the other hand, a license is a contract through which one party grants another permission touse its IP such as patents, trademarks, copyrights, designs or trade secrets without the transfer ofownership. The licensee compensates the licensor by paying a flat fee, royalties, or a combinationof the two.

Many licensing benefits, economic and strategic, are really close to franchising advantages. Forinstance, with both methods a more rapid market penetration can be achieved with less risk and

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cost. Also, these methods allow the parent company earning initial fees and ongoing royalty pay-ments thus, the capital that would be required for internal growth and expansion could be used inother areas of the company. Finally, another benefit that both methods share is that it is a wayfor building and improving customer loyalty.

Nevertheless, in comparison with franchising agreements, there are some disadvantages thatlicensing agreements suffer such as a lower ability to enforce quality control and standards, or adependence on the skills, abilities, and resources of the licensee.

3.2.3 Joint Ventures & Strategic Alliances

"Especially in periods of market or operational uncertainty, joint ventures can be used effectivelyas an alternative to a merger, acquisition or even organic growth" (Deloitte, 2010).

On the one hand, joint ventures "are typically structured as a partnership or as a newly formedand co-owned corporation (or limited liability company) in which two or more parties are broughttogether to achieve a series of strategic and financial objectives". On the other hand, strategicalliances "can be any number of collaborative working relationships in which no formal joint ventureentity is formed but rather two independent companies become interdependent by entering intoformal or informal agreement built on a platform of mutual objectives, strategy, risk or reward"(Sherman, 2011). The following table shows the key differences between joint ventures and strategicalliances:

Joint Ventures Strategic Alliances

Term Usually medium to long term Short term

Strategic Objective Often serves as a precursor of a merger More flexible and non-committal

Legal Agreement and Structure Actual legal entity formed Contractual drivers

Extent of commitment Shared equity Shared objectives

Capital resources Each party making a capital contribution No specific capital contributionof cash or intangible assets (may me sharing budgeting or even cross-investment)

Tax ramifications Possible double taxation unless No direct tax ramificationpass-through entities are utilized

Table 3.2: Differences between joint ventures and strategic alliances

In spite of the differences of the table above, joint ventures and strategic alliances have somebenefits in common:

• Develop a new domestic/international market

• Develop a new product or technology

• Combine complementary technology

• Pool resources to develop a production or distribution facility

• Acquire capital

• Execute a government contract

• Gain access to a new distribution channel or network or sales/marketing capabilities

In her study about organizational levels attributes of micromultinationals, Wa̧sowska (2017)argues that SMEs will increase their potential participating in international cooperation R&D us-ing equity-based entry modes such as joint ventures. It means that those firms can face the liability

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of smallness and foreignness by tapping into technological resources from foreign partners.

For instance, when the decision of implementing a joint venture is made, there are some chal-lenges that should be taken into consideration by every partner of the new entity. In accordance toDeloitte (2010), the previous identification and also a well executed preparation for the challengesthat will arise are critical for the potential success of the joint venture. Agreeing with (Kumarand Seth, 1998; Brechbühl, 2006) there are some mechanisms to control the structure of the jointventure and ensure an adequate implementation such as strategic alignment of the partners, directcontact between the executives from the parent company and the joint venture, the internal roleof the joint venture board of directors, training sessions for managers and meeting with the parentcompany and design of incentive plans.

Therefore, a well structured monitoring procedure that covers control, clarity of the purposeand how to manage people is really important for overcoming all the pitfalls that may arise duringthe setting up process of the joint venture and also during its life cycle (Deloitte, 2010).

3.2.4 Subsidiaries

Overall, the international SME literature is characterized by the study of the commitment, riskand control dimensions of the different market entry mode choices. The decision of entering into aforeign market by a whole-owned subsidiary is considered as a maximum level of commitment butit is one of the most riskier decision as well. One of the main convectional reason for opening asubsidiary is to gain visibility and reputation (Vanninen et al., 2016).

On the other hand, entry modes involve different levels of control over the foreign activities.In this context, control is determined by the level of responsibility for operational and strategicdecision making in the foreign country (Anderson and Gatignon, 1986) which is an importantdimension to take into account. For example, some researches about family-owned firms assert thatthose kind of firm are less willing to share control in their internationalization decisions (Fernándezand Nieto, 2006). Additionally to that, having a physical presence in key markets is importantfor marketing and customer-relationship reasons due to firms can co-operate more closely withtheir key clients. The global mindset and also often the given previous international experienceof the firm´s management team are a key characteristic for opening a subsidiary. Normally, thelack of knowledge about the new market is compensated by hiring local employees who have theknowledge about the local networks. Therefore, trust building between the old and new membersof the management is a prerequisite for efficient learning, creation and commitment decisions(Vanninen et al., 2016).

3.2.5 Foreign market entry modes summary

Based on the table 3.1, the figure 3.2 is a summary of the foreign market entry modes that afirm can implement when going abroad. It is categorized by four variables which are the level ofcommitment, control, risk and flexibility that a firm is willing to have in that new market. Also,understanding the previous theory, this summary adds a scale from 0 to 5 which is more objectivethan classifying the foreign market entry modes as "low", "medium" or "high".

Understanding the level of control as the level of responsibility for operational and strategicdecision. The level of commitment is the amount of resources that the parent firm invests in

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Figure 3.2: Foreign entry modes summary

the new market entry mode. Additionally, the level of risk increases at the same time that thecommitment level as the firm assumes a huge responsibility when it invests a great amount ofresources. Finally, the flexibility usually goes in the opposite way than the level of commitmentbecause when firms invest a lower amount of resources, that resources can be invested to achieveother objectives.

3.3 Micromultinationals

Traditionally, large internationalized firms were the only ones that used constellation and invest-ment (C&I) modes in their international activities. The term "multinational" was used especiallyfor those kind of firms. Nevertheless, SMEs started to service their international clients throughC&I modes. This attracted the attention of scholars and, consequently, the term of micromultina-tional (mMNE) was born. For example;

"Micromultinationals are small- and medium-sized firms that control and manage value-addedactivities through constellation and investment (C&I) modes in more than one country"(Dimitratoset al., 2003). In this definition, value-added makes reference to activities such as sales, marketing,R&D and production.

"Micromultinationals are small to medium sized enterprises that use higher commitment entrymodes beyond exporting"(Prashantham, 2011a).

Thus, mMNEs are smaller entrepreneurial firms that implement their international expansionthrough advanced (non-exporting) modes. That offers them some advantages such as a betterinternational customer service or a better way to collect direct feedback to exploit and serve thosenew markets with more efficiency. Therefore, this sets the basis of this new term which allows toestablish the differences between multinationals and other types of firms such as born-globals orinternational new ventures. According to (Dimitratos et al., 2003), micromultinationals differ frommultinationals in the following aspects:

• The "focal" firm of a mMNE does not need to be the owner of its international value-addedactivities. For mMNEs, such ownership may not be easy because of its limited amount of

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resources.

• Compared with multinationals, mMNE are likely to commit through higher degrees of net-working activities with small and large firms globally.

• mMNEs seemingly operate more in technological sectors such as software, telecommunica-tions and computer-related services.

Another important difference according to HSBC (2016) is that usually mMNEs have fewerlevels of decision makers than MNE as they typically have simpler organization structures. Thismeans that mMNEs are more agile than multinationals (MNEs) so they can take advantage of newopportunities more quickly.

A difference between born-globals and micromultinationals is that BGs focus on the speed ofinternationalization while mMNEs refer to the use of advanced modes of entry into foreign markets(Wa̧sowska, 2017). So, mMNEs are not defined by their time, speed or pace to internationalization.Furthermore, as SMEs, mMNEs face the "liability of foreignness" which becomes more complexas they also face the "liability of smallness" because they have limited resources in comparison tolarge corporations. Some scholars have focused their researches on the determinants that makemicromultinationals face and overcome those constraints. For instance, having access to the tech-nological resources of partners and participate in international networks can allow mMNEs toconfront the "liability of smallness and foreignness"(Wa̧sowska, 2017). Furthermore, risk-taking isother determinant that is correlated to a high probability to become a mMNE and overcome thoseconstraints (Dimitratos et al., 2014).

3.3.1 Types of micro-multinationals

In accordance to the study realized by Dimitratos et al. (2003), there are seven types of micro-multinationals depending on the objectives they want to achieve when expanding to new markets:

1. Network seekers: their international success is because of their access to core competencessuch as marketing or technological know-how achieved from their C&I modes.

2. Market hunters: the objective is to serve clients around the globe. Discovery and exploita-tion of new market opportunities and superior customer service are their priorities.

3. Flexibility pursuers: which wants to enter into new markets with flexible organizationalstructure. Remaining small is essential for SME managers who wants to retain control andflexibility in their firms and it can be done through C&I modes.

4. Resource trackers: are firms that seek to get low-cost inputs or high-quality resources indifferent countries.

5. Global market chasers: with the objective of attain economies of scale these firms under-stand the presence in lead international markets of their industries, and exploit this knowledgeto be successful internationally.

6. Learning seekers: these are companies that want to collect information about the foreignmarket through the implementation of C&I modes. This acquisition of knowledge allows theunderstanding of the idiosyncrasies of the international markets.

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7. Competition players: which takes into consideration the strategy of their competitionwhen going abroad. Thus, entering into foreign markets with C&I modes is related to theintention of following their key competitors.

Many mMNEs may be included in more than one type simultaneously. This is due to mMNEscan seek to fulfill many different objectives at the same time. For instance, a mMNE could want topursue new market opportunities while keeping the smallness of being a SME. So, it would fall intothe categories of "market hunters" and "flexibility pursuers" respectively. Therefore, the mMNEobjectives are mainly influenced by its internal resources.

3.3.2 mMNEs success characteristics

This new era of global alliances presents opportunities for superior performance across marketniches. In order to take advantage of those opportunities, SME managers should have a risk-takingpropensity and be determined when venturing in the global competitive marketplace (Dimitratoset al., 2014; Ratajczak-Mrozek, 2015). The following characteristics can be found in successfulmMNEs:

• Experience of the founders: the previous international experience of the founders or topmanagement brings better results because they usually know better what to do when thereare contingencies.

• Strong determination: the strong determination to become a international player in theirindustry is a vital component of all successful mMNEs.

• Human capital: recruitment and retention of highly skilled people is crucial for the successof the mMNE. Those managers and employees are needed in order to control and managethe value-added activities that the company creates through C&I modes in foreign mar-kets. Hence, creating appropriate reward systems to key employees with monetary andnon-monetary incentives is really important.

• Financial capital: the access to financial capital in such as foreign countries is a challengethat mMNEs have to face to grow internationally due to their "liability of foreignness".

• Networking capability: creating network alliances with competent partners in each coun-try is one of the most important things to succeed internationally. That brings new marketopportunities and also it allows to know more about the foreign market´s conditions.

• Strategy flexibility: sometimes there is a need to adapt between countries. Being flexi-ble and implementing selected C&I modes allow the company to adapt the strategy to theinternational markets.

3.3.3 Factors behind the decision to become a mMNE

Top management usually face the following questions at some point during the first years of thefoundation of their company: (a) when should we seek to go international? and/or (b) why notstay at home as long as possible?

According to the study made by Dimitratos et al. (2003), mMNEs need to develop and imple-ment their key resources and capabilities in order to solve, usually in an unique way, the needs of

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their customers. Also, another studies like (Ratajczak-Mrozek, 2015) or (London Business School,2008), where a dozen of high-technology companies located in Greater Cambridge Area Clusterwere analyzed, reveal some factors that help to answer why companies decide to become a mMNE:

• New market conditions: globalization brings a new set of networks. An effective useof networks allows the company to create an ecosystem of companies beyond its clients.Therefore, network development is crucial not only for international success, but also for theoverall international growth of the company.

• Technological advances: such a technological development in information, communica-tions and new business models using Internet like e-commerces, has allowed the creation andprofitability of C&I modes to expand internationally. (Also, it has reduced the cost of oldand traditional businesses).

• Customer service improvement: some companies need to have physical presence in itsclient´s country to remain competitive. Thus, it also improves the satisfaction of their highdemanding clients located overseas because it provides a better understanding of their homemarkets.

• Global recognition: although these companies are relatively small, they also recognize theimportance of being acknowledged internationally within their niche. This prompt them toexpand internationally during its early years.

• Smaller domestic markets: modern companies like software and hardware IP companiesimplement business models which need a huge volume of transactions to be profitable. So,the absence of a strong home market pushes high-technology companies to go internationalfrom their inception. For example, this is the case for Sweden.

Therefore, it seems that successful mMNEs use C&I modes to carry out their competitiveadvantages (which come from their internal resources) internationally. Key decisions, such as re-cruiting and retaining valuable people or locating source of capital are easier when C&I modes areused in such as international strategy.

The study about the different choices of modes of entry into foreign markets is important be-cause it is related to the control of the foreign activities and thus to performance (Dhanaraj, C.,& Beamish, 2003). Although studies about mMNEs are still scarce, there are some researches thatsuggest mMNEs leverage the potential of abroad opportunities following complex internationaliza-tion pathways modes rather than exporting (Ibeh et al., 2009). However, according with Covielloand Jones (2004) the selection of entry mode by a firm "is too complex and too broad in scope tobe accommodated by any one model or any one perspective". This means that when selecting theentry mode, mMNEs shall leverage its unique set of resources in order to focus on their competitiveadvantages. For this reason, the following sections will review the international business literatureof internationalization which embraces models that leverage the resources of the firm such us theResource-based View or Ownership, Location and Internationalization (OLI) model.

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3.4 Internationalization methods and theories

Research asserts that resource scarcity limits the ability of small and medium firms to implementmore advanced and committed modes of internationalization (Calof, 1994; Johanson and Vahlne,1977). Furthermore, the review made by Laufs and Schwens (2014) examines the extent to whichthe characteristic of SMEs such as lack of resources, sensitivity to external influences, ownershipstructure and management characteristics have been considered in SME entry mode research due,as these characteristics represent key aspects of firm´s decisions.

Regarding to Laufs and Schwens (2014), there are four theoretical frameworks that dominatethis field: Transaction Cost Economics (Williamson, 1985, 1991, 1998), the Electic Paradigm (Dun-ning, 1988), Institutional Theory (Li and Abiad, 1990; Scott, 1995), Social Capital Theory/NetworkTheory (James, 1990; Adler and Kwon, 2002).

3.4.1 Transaction Cost Economics (TCE)

TCE is the most used theoretical framework in researches about SMEs international entry modechoice (Brouthers and Hennart, 2007). TCE is based on three main causes: asset specificity, be-havioral and environmental uncertainty, and frequency creating market transaction and controlcosts. This theoretical framework supports that firms choose their entry mode in order to protectthemselves against risk opportunism (Williamson, 1985).

The studies that use TCE suggest that companies choose a certain organizational structure withthe objective to minimize controlling and monitoring costs (Laufs and Schwens, 2014). Besides,TCE asserts that foreign market entry mode choice depends on the degree of foreign investment´sasset specificity. That means they internalize transactions and implement high-control entry modesin circumstances in which the risk of opportunism is higher, whereas they implement a low-controlentry mode such as exporting if that risk is low. Making reference to the uncertainty cause, somestudies affirm that international experience have an impact as a mechanism which allows to reduceinternal uncertainty that limits the foreign entry market mode choice of firms (Laufs and Schwens,2014). The last cause, frequency creating market transaction and controlling costs, appears instudies such as (Erramilli and Rao, 1993) where TCE is used to examine how high-commitmententry modes allows SMEs to gain control over the host country activities.

3.4.2 Eclectic Paradigm

In the research made by Dunning (1988) it can be seen a combination of insights from resource-based, institutional and transactional cost theories. Based on the context where Laufs and Schwens(2014) agree with Dunning (1988), firms choose the most appropriate entry mode into an inter-national markets by the consideration of the OLI framework: ownership (O), location (L) and,internationalization (I).

Methodologies such as resource-based view (RBV) are used to find out the ownership advan-tages which are specific competitive advantages of the firms. These advantages must be unique andsustainable (Mahoney and Pandian, 1992). Location advantages, which refer to institutional theo-ries, are country-specific advantages of the international market. Internationalization advantages,which refers to transaction cost theories, come from the benefits a firm obtains by choosing high-commitment entry modes rather than internationalizing by the implementation of low-commitment

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entry modes such as exporting (Dunning, 1988).

Some scholars, using the OLI framework, affirm that SME´s perceptions about the risk in thehost country influence their entry mode choice. With high-commitment modes, those host countryrelated risk and contingencies can be internalized (Nakos and Brouthers, 2002). So, that is inaccordance with the conclusion that the level of ownership and locational advantages reinforce thepropensity of SME to choose high-commitments entry modes (Shi et al., 2001).

3.4.3 Institutional Theory

Institutional theory suggests that a firm must behave according to their country´s institutionalenvironment as it reflects the "rules of the game" (Brouthers and Hennart, 2007). Institutionaltheory suggests that a firm entering into a new market pursues legitimacy and acceptance byagreeing with the conditions of that new foreign market (Yiu and Makino, 2002).

Schwens et al. (2011) affirms that SME´s foreign market entry mode choice is influenced bythe challenges that arise from the host country context which impact the resource-base of the firm.However, institutional studies have demonstrated that firms which implement high-commitmententry modes improve their ability to deal with the institutional challenges (Brouthers and Nakos,2004).

3.4.4 Social Capital/Network Theory

In spite of the firm specific advantages, entry mode choice is also aligned with a firm´s network re-lationship (customers, suppliers, competitors...). Thus, social capability and network theory makesreference to the ability a firm has to acquire and exploit resources from its network (Chetty andAgndal, 2007). Moreover, social capital helps to reduce barriers to internationalization due to thereduction of external uncertainties associated with contractual hazards as social ties are based ontrust as Prashantham (2011b) confirms in his survey of 102 Indian software SMEs.

Other studies about this theoretical framework argue that not only SMEs leverage their part-ners´ resources in order to overcome their own lack of resources but also SMEs can use social capitalto learn about condition in the host country. That enables SMEs to choose high-commitment modeof entry into foreign markets (Ripollés et al., 2012; Prashantham, 2011b).

3.4.5 New Theories

Following the review of Laufs and Schwens (2014), it exhibits that most of the researchers choose amix of theories to study foreign market entry mode of SMEs. These authors argue the employmentof new theories such as learning theory, effectuation and upper echelons theory is needed to get abetter understanding on how SMEs face the decisions about foreign entry mode choice.

Learning theory (Easterby-Smith et al., 1999), according to Laufs and Schwens (2014), has thepotential to move forward the literature about SMEs foreign market entry mode. That means thatlearning theory can fill the gap about how firms acquire the knowledge needed to make the entrymode decision and also what kind of knowledge is required to do so. Furthermore, this theory canalso cover the actors who acquire this knowledge, how the new knowledge is integrated within thefirm and how to measure the effectiveness and efficiency of this learning process.

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Upper echelons theory (Hambrick, 2007) focuses on how SMEs´ top management influence SMEentry mode choice. Demographics, cognitions and values of top management are studied in orderto learn how they impact the key strategic decisions. Future researches might reveal insights abouthow CEOs‘ characteristics such as age, functional experience, overconfidence or self-efficiency canimpact the foreign market entry mode choice of SMEs (Reuber and Fischer, 1997).

Effectuation theory (Sarasvathy, 2001) is a suitable concept when the uncertainty factor of adecision is high such as entry into a foreign market (Harms and Schiele, 2012). Effectuation logicassumes that the future is unpredictable, so firms have to deal with uncertainties by relying onwhat they can control, instead of trying to predict the unpredictable (Mitchell et al., 2007).

Agreeing with Laufs and Schwens (2014), sometimes scholars interlink the theories depictedabove. So, some of the gaps in the literature of foreign market entry mode can be supported bydifferent theory frameworks. For the purpose of this study, the Electic Paradigm will be followedas a main guide. Specifically, because the resource-based view (RBV) will be used to find out theresources of the firm that can become into competitive advantages. In addition, other theories suchas upper echelons and effectuation theory will be used to categorized the case study company.

3.5 The Resource Based View (RBV)

Firm growth is defined as an increase of the firm size from one point to another (Penrose, 2009).Growth is important for the development of the firm and it allows firms to gain legitimacy in orderto success in the long term and thus, it reflects the value created by a firm (Nason and Wiklund,2018). Furthermore, firms are a collection of resources which are useful for developing products,services and strategies (Barney, 1991; Penrose, 2009). The RBV, coming from the eclectic paradigm(see section 3.4.2), will be used to find out the resources of the company that can become into acompetitive advantage. It classifies resources as tangible or intangible, but in order to be precisein such classification it is important to understand what kind of resources can be found in eachgroup.

3.5.1 What is a resource?

In accordance with (Galbreath, 2005), a resource is a factor which has the potential to contributeeconomic benefit to a firm.

Tangible resources are those factors that have financial or physical value and appear in thefirm´s balance sheet. On the other hand, intangible resources are those factors that are non-financial or non-physical so it is rare to see them in the firm´s balance sheet (Galbreath, 2005).Hall (1992) offers a method to classify intangible resources. He suggests that intangible resourcesbreak down into assets and skills or capabilities. As it is shown in the figure 3.3, if the resourceis something that the firm "does" it is a capability and if the resources is something that the firm"has" it is an asset.

To summarize the theoretical explanation and to support the figure 3.3, the table 3.3 wascreated to illustrate the possible resources and capabilities that any firm of any industry couldposses. Agreeing with (Del Valle Pérez, 2016), such classification is broken down as:

1. Tangible resources which include (a) financial assets and (b) physical assets.

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Source: (Galbreath, 2005)

Figure 3.3: Resource portfolio

2. Intangible resources that are assets which are classified as (a) human and (b) non-human:technological, organizational, cultural and reputation.

3. Intangible resources that are skills which allow the firm to exploit and combine their resources.

Tangible resources

Capital and liquidityInvestment capacityCapacity to raise equity

Financial

Borrowing capacity

Firm´s facilitiesStockProductive capacityFavorable manufacturing locations

Physical

Machinery and equipment

Intangible resources (assets)

Employee´s experience and capabilitiesTrust and loyaltyMotivation and commitmentManagerial and technical skills

Human

Firm´s specific practices and procedures

Effective strategic planning processDatabasesOrganizationalEffective evaluation and control systems

Trade secretsInnovative processesTechnologicalPatents, copyrights, trademarks

Willingness to change

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CulturalInnovation capacities

Brand nameReputation

Quality and reliability customer reputation

Intangible resources (skills)

Competences the firm employs to transfer inputs to outputsCapacity to combine tangible and intangible resources to attain a desired end

Table 3.3: Theoretical resources and capabilities of a firm

It is clear that the internal resources of the firm are not only the ones that influence managerswhen they have to come up with a foreign market entry mode. For instance, institutional theory(section 3.4.3) shows that the institutional environment of the new market also influence the choiceof the market entry mode. However, the internal resources of the firm are extremely related to thefactors behind the decision to become a mMNE (section 3.3.3).

3.5.2 Methodology framework

RBV theory emerged in strategic management but in the last decades, it is being implemented inentrepreneurship as well (Kellermanns et al., 2016). This perspective (RBV) argues that superiorperformance is the result of firm-specific resources and the exploitation of competitive advantages(Wernerfelt, 1984). RBV is based on VRIN resources that are (1) Valuable, such that they can beleveraged to increase customer value or cut cost; (2) Rare, such that competitors do not have accessto the same or similar resource; (3) Inimitable and (4) Non-substitutable. These resources becomecompetitive advantages that allow companies to exploit unique growth opportunities for superiorfirm performance. Firms with VRIN resources will be able to generate more value for customersthan firms with lack of VRIN resources (Barney, 1991; Peteraf and Barney, 2003). Conversely,firms without these valuable and inimitable set of resources will not be able to implement similargrowth strategies (Barney, 1991).

A new version of the RBV (Barney, 1995) suggests that companies must be efficiently organizedto be able to take advantage of their resources and achieve their full economic potential. Accord-ing to Barney and Mackey (2005), "organizational structure" is formed by the skills and resourcesused to implement strategies. Thus, managers have to bear in mind that it plays a pivotal rolein achieving superior performance. These skills and resources ("complementary resources") areimportant for building competitive advantages although they can be imitable.

The figure 3.4 represents the steps of the RBV model. On the one hand, it basically classifiesresources in two types: tangible resources and intangible resources.

On the other hand, the RBV also specifies that resources must be heterogeneous and immobile.Heterogeneous means in this context that the resources that a firm posses are different from otherfirms. Therefore, these resources allow firms to develop their own strategies which are not easyto copy by competitors. Furthermore, immobile resources means that resources do not move fromcompany to company, at least, in the short term. Intangible resources such as brand recognition,intellectual property or internal processes are usually immobile.

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Source: www.strategicmanagementinsight.com

Figure 3.4: Resource-based view model

However, a set of resources which are heterogeneous and immobile is not enough for a companythat wants to sustain its competitive advantage. So, in order to be able to sustain a competitiveadvantage, the VRIO framework asks the following question: "is a firm organized to exploit theseheterogeneous and immobile resources?".

3.5.2.1 The VRIO framework

VRIO is among the different tools that allow to analyze a firm competitive advantages. It wasdesigned by Barney (1995) as an improvement of his previous work (Barney, 1991). In addition tothe heterogeneity and immobility of a resource, it has to be valuable (V), rare (R), inimitable (I)and the firm has to be organized (O) to capture its value. The schema of the figure 3.5 shows thesteps of this tool:

• The first step is to know if a resource is valuable. That means the resource allows the firmto exploit opportunities or defend against threats. If the resource helps the firm to increasecustomer value (increasing differentiation or decreasing the price of the product/service) isalso considered as valuable.

• A resource categorized as a rare is a resource that only can be acquire by one or a fewcompanies. These resources are competitive advantages allowing the companies design andimplement different strategies.

• Inimitable means that a resource is costly to imitate at a reasonable price. When a resourceis hard to imitate is due to the following reasons: (1) historical conditions, the resource wasdeveloped over a long period of time; (2) casual ambiguity, when is difficult to identify the

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Source: www.managementmania.com

Figure 3.5: VRIO tool

exact resources that cause the competitive advantage and; (3) social complexity, the resourceswhich come from the culture of the firm.

• This last step makes reference to the internal organization of the firm. In order to maintainthe competitive advantages provided from the resources that have passed all the previoussteps, a firm must organize its management systems, policies, processes and culture. Onlythen, the firm would be ready to exploit its resources.

In order to overcome the "liability of foreignness and smallness", mMNEs need to haveaccess to unique intangible resources and/or capabilities. However, these resources do notneed to be possessed, but may be accessed by external partners (Wa̧sowska, 2017). The RBVhelps managers to figure out what set of resources can be an important basis for competi-tive advantages. So, the main point is that with the RBV a manager would have a betterunderstanding of whether or not the situation meets necessary conditions for a competitiveadvantage by analyzing the resource position of the firm (Peteraf, 1993).

3.6 Research model and chapter summary

On the one hand, this chapter starts with the IE theory (section 3.1) and the foreign market entrymodes (section 3.2). Further, it is the introduction to the new term, mMNE (section 3.3) that alsobelongs to one of the IE research branches (see figure 3.1). It is also explained how some foreignmarket entry modes from section 3.2 are key in the definition of mMNEs, those are called C&Imodes.

On the other hand, section 3.4 sets the basics of internationalization theory and thus, the reasonfor selecting the RBV (section 3.5) as the main method for developing this research. Given these

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two different branches coming from the literature, the following research model has been createdto combine them and answer the research questions stated in section 1.3:

Entry modes: Licensing Franchising Strategic Alliance Joint Venture Subsidiary

CompanyRequirements

Control Y/N Y/N Y/N Y/N Y/N

Commitment Y/N Y/N Y/N Y/N Y/N

Risk Y/N Y/N Y/N Y/N Y/N

Flexibility Y/N Y/N Y/N Y/N Y/N

CompanyResources

Resource 1 Y/N Y/N Y/N Y/N Y/N




Table 3.4: Research model

The first part of the table 3.4 (part 1) is about the requirements of the company. Those companyrequirements would be set up previously through a workshop or a meeting with the managementteam. Then, as each foreign entry market mode has a specific level of such requirements (see figure3.2), the comparative (yes/no) can be done. The foreign entry market modes that do not complywith all the requirements will not continue to the second part.

The second part of the table 3.4 (part 2) is about the resources that could become into compet-itive advantages of the company. To complete this part, the following question should be answered:is this foreign market entry mode suitable for this resource?. This is again a yes/no answer.

Finally, after this part, it would be possible to know what the best foreign entry market modesare and what resources could become into competitive advantages applying such foreign entrymarket modes.

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Chapter 4

Case Presentation

The main objective of this research is to assess what would be the best market entry choice orchoices for a software company startup? (RQ2). To do so, first it is needed to answer the RQ1:What are the different entry modes that SMEs can use for becoming a mMNE?

To answer these research questions, ChromaWay (see section 4.1) will serve as a case studybecause it is a software company that aim at becoming a mMNE.

This point, is where this thesis will add new knowledge to the literature. For SMEs like mMNEsand BGs, the organization of the firm in its first years is actually one of the most important keysfor success in the long term because they need to focus on what they are good at and not wastetheir limited resources. So, in order to leverage its internal resources and capabilities internation-ally, the firm needs to find out the foreign market entry modes that allow the exploitation andsustainability of such resources. Therefore, regarding the internationalization path of a firm, thisresearch will combine and asses the foreign market entry modes available for ChromaWay, and theorganization structure, management and control systems necessary to transform its resources intocompetitive advantages.

4.1 ChromaWay

ChromaWay is a blockchain technology company that works with both public and private sectors.The company was established in 2014 by Henrik Hjelte (CEO), Alex Mizrahi (CTO) and Or Perel-man (COO) and since then, ChromaWay has kept innovating and working on projects mainly inreal estate and finance industries. As blockchain pioneers, ChromaWay was part of the first projectto have a bank issue a currency in the Bitcoin Blockchain.

ChromaWay delivers advanced blockchain solutions in a secure way. Its blockchain software ischaracterized by being minimally disruptive, broadly compatible and with the scalability necessaryto meet enterprise requirements. ChromaWay main products are Postchain, Esplix and Tokentechnology.

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4.1.1 Products

• Postchain: is a consortium database that allows to share information between companiesand/or individuals in a secure and transparent way by using blockchain technology and workstogether with the most widely used database systems. Postchain is also a general frameworkthat allows to create applications on top of it. It is also well-tested since it is based on maturetechnology.

• Esplix: coordinates and verifies business agreements and business workflows by using smartcontracts and is compatible with Postchain. The different steps and who can make them aredefined in the smart contract, and all done steps are signed and committed on a blockchain.Furthermore, all actors are able to see the same information and have proof of all steps taken.If needed, these commitments should hold up as evidence in a court of law.

• Token technology: allows individuals to share money from different accounts without theneed to be part of the same entity or bank. It is one of the first examples that shows thatblockchain can be implemented in current industries.

The head quarters of ChromaWay are located in Stockholm (Sweden) but, ChromaWay´s clientsare around the globe. Therefore, in a near future, ChromaWay plans to grow internationally withpresence in different countries such as China and Australia.

4.2 Company categorization

ChromaWay is on its way to get all the characteristics that a successful mMNE should have (seesection 3.3.2). It has experienced founders with a strong determination to becoming a internationalplayer. Also, ChromaWay has great advisors and a is creating its network with partners around theglobe. Strategy flexibility is another characteristic that successful mMNEs have, and this researchwill provide ChromaWay the necessary information that will allow to adapt its strategy to theinternational markets.

In addition, ChromaWay will become a type of mMNE that mainly can be categorized atthe same time as: "market hunter" and "flexibility pursuer" (see section 3.3.1). That is becauseChromaWay serves clients around the globe and will enter into new foreign markets through C&Imodes.

4.3 Workshop with ChromaWay

The workshop with ChromaWay, with the engagement of Henrik Hjelte (see quotes below), is thefirst step to find out ChromaWay´s resources that, when choosing a suitable foreign market entrymode, can become into competitive advantages. The objective of this workshop is to write downall possible tangible and intangible resources of the company, see table 4.1. Therefore, the nextsteps of the process will be based on this table workshop.

Tangible resources

CapitalFinancial

Capacity to raise equity

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Table 4.1 continued from previous pageIntangible resources

Firm´s facilitiesFavorable locationPhysicalEquipment


Employees´ experience and capabilitiesTrust and loyaltyMotivation and commitmentManagerial and technical skills

Human

Firm´s spec practices and procedures

Innovative processesTechnological Patents, copyrights, trademarks (Software)

Risk propensity

Willingness to changeCultural Innovation capacities

Brand nameReputation

Quality and reliability with customers

Organizational Effective strategic planning

Uniqueness Category leader


Excellent product development capabilitiesInnovativeness in productsCorporate leadership and visionAbility to hire and maintain human capital

Table 4.1: ChromaWay resources

• Financial. Firm´s capacity to raise equity, like capital, it is classified as a tangible resourcedue to it is relatively easy to use the capital to purchase tangible stuff. "ChromaWay, likeany other startup in its early stage, has limited capital mainly coming from its early investorsand first projects. On the other hand, ChromaWay is in a sweet position due to we havegained the interest of investors thanks to the potential application of our technology. So, itis supposed to be easy to raise equity and be able to catch new opportunities".

• Physical. As stated in section 3.5.1, assets like office or equipment which appear in thebalance sheet of the firm are not usually a big differentiator for a company. Although, "fora startup is important to be located in an startup ecosystem. ChromaWay is a member ofSUP46 community".

• Human. ChromaWay´s founders are Blockchain pioneers with years of experience in ITcompanies and entrepreneurship. Not only the founders but also the rest of the team isreally committed and motivated with the vision of the company.

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• Technological. ChromaWay´s products are very innovative. Even, there is a patent pendingprocess for one of its products. "We are creating a new category of products which will spreadBlockchain technology through both private and public sectors".

• Cultural. Understanding the company culture as a "set of norms, beliefs, principles andways of behaving that together give each organization a distinctive character" (Pettigrew,1979). Thus, for an early stage startup, is really important to transmit that culture to everynew employee that the firm hires. "ChromaWay is a very dynamic startup but it is importantto create a good culture within the company since day one".

• Reputation. "From the beginning we have been working with banks and governments indifferent projects so it boosted our brand and reputation". "Although you are very good atmarketing, you need a reputation in order to get projects, investment and survive during thefirst years. In the Blockchain industry, it is extremely aligned with quality because there area lot of scams".

• Organizational.Although the environment of a startup is very dynamic, a strategic planningis needed to make the best use of every resource of the company. Someone needs to thinkabout the way things are being done and analyze if that is the best way to do so. Each areaof the company has to have a strategic plan which must be in the direction to the company´smission and vision because that is the only way to overcome pitfalls or whatever hard decisionthat needs to be made in order to keep progressing and achieving objectives.

• Uniqueness. It is quite related to reputation and quality of the products. "Creating anew category and being a category leader is what makes the difference. We are the first inconsortium databases category and the rest follow us in this new category".

• Capabilities. Every single company must have the ability to transform some inputs intooutputs and sell them, if not it would die. Furthermore, tech startup are characterized by itsdisruptive products that change the way to do business in any industry. So, it is importantto have a good procedure to develop the necessary product and features and, in order to so,"you need a good team with good skills that is able to make things happen".

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Chapter 5

Analysis and Results

This chapter is where the literature and theory from previous chapters is applied to the case study.Also, the process below is carried out and the analysis of the results obtained is conducted:

Figure 5.1: Case study implementation process

5.1 Assessing heterogeneity and immobility

After the Workshop with ChromaWay (see section 4.3) where the resources and capabilities of thecompany were written down, the table 5.1 shows, in a graphic way, the first step of the process.The tangible and intangible resources and capabilities are classified in accordance with the RBVas heterogeneous and immobile. Only those which comply with that previous categorization willgo through the next step of the process.

As it was explained in section 3.5.2, a resource is heterogeneous when it is different from whatother firms have. A resource or capability is immobile when it is really hard to move from companyto company, at least in the short term.

• Financial. The capital of a firm never could be categorized neither as heterogeneous orimmobile due to every firm posses its own amount of capital and it can be transfered from a

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Tangible resources Heterogeneous Immobile

Capital No NoFinancial Capacity to raise equity Yes Yes

Firm´s facilities No YesFavorable location No YesPhysicalEquipment No Yes

Intangible resources (assets) Heterogeneous Immobile

Employee´s experience and capabilities Yes YesTrust and loyalty No YesMotivation and commitment No NoManagerial and technical skills Yes Yes

Human

Firm´s specific practices and procedures Yes Yes

Innovative processes Yes YesTechnological Patents, copyrights, trademarks (Software) Yes Yes

Willingness to change No YesInnovation capacity No YesCulturalRisk propensity No Yes

Brand name Yes YesReputation Quality and reliability with customers Yes Yes

Organizational Effective strategic planning Yes Yes

Uniqueness Category leader Yes Yes

Intangible resources (skills) Heterogeneous Immobile

Excellent product development capabilities No YesInnovativeness in products Yes YesCorporate leadership and vision Yes YesAbility to hire and maintain human capital No Yes

Table 5.1: Step 1. Classification

company to another as an investment or a payment for a product or service. On the otherhand, the capacity to raise equity is categorized as heterogeneous and immobile because notevery firm has the attention of investors.

• Physical. A physical resource can not be a key element of any competitive advantage becausemostly it can easily be acquired in the market by the competitors so, firm´s facilities, favorablelocation and equipment are not heterogeneous but they are immobile.

• Human. On the one hand, employee´s experience and skills are heterogeneous due to thoseare intrinsic characteristics of each person that work in the company and also are consideredimmobile because firms tends to retain their most skilled employees. Practices and proceduresare specific in a firm so that is the reason of their heterogeneity and immobility.On the other hand, motivation and commitment can change depending on the situation ofthe company and each individual. However, trust and loyalty are difficult to change so thatis why they are categorized as an immobile.

• Technological. This is probably one of the most clear factors that transfer a competitiveadvantage to a firm. Patents, copyrights, trademarks and the process for creating them areunique to each company so this is the reason why they are heterogeneous and immobile.ChromaWay´s software are also unique and different to their competitors so it will be an

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important factor to take into account.

• Cultural.The culture of the firm can be a source of competitive advantages if the firm´sculture is consistent with the current competitive situation. Although the culture character-istics are specific and unique to a firm, every startup should create them, independently ofits sector, so that it is why they are not heterogeneous.

• Reputation. The intangible resources of this section will always be heterogeneous andimmobile due to they are intrinsic to the firm, independently they are in a positive or negativeway. For ChromaWay, this factor has especial relevance as it has a good reputation thanksto some projects with governments and banks.

• Organizational. The strategy of the company is always unique because each company hasits own set of resources and capabilities. In a perfect scenario where every company wouldhave the same resources, it would be easy to have the same strategy among the differentcompanies in each sector, but that is not the case.

• Uniqueness. Blockchain is a quite new technology with potential applications in practicallyevery sector both private and public. ChromaWay was the first who created "consortiumdatabases" category so it is a strategic movement which stands out the position of Chro-maWay among its competitors. Therefore, category leader is heterogeneous and immobilebecause it is in the DNA of ChromaWay.

• Organizational capabilities.Product development capabilities is the ability to build aproduct with the necessary features to solve the needs of the customers, so this is some-thing that every company must have. Innovativeness in products is the ability to createsomething totally new and this is something that not every company has. The previous plusthe leadership and vision of ChromaWay´s board of directors and advisor make up an im-portant characteristic which are heterogeneous and immobile. Finally, the ability to hire andmaintain human capital is very important as well but, it is a must for any firm that wants tosuccess in the long term. Without great employees who foster the company no matter howgreat the products, the vision or whatever are because the company will not succeed.

5.2 Assessing VRIO criteria

The table 5.2 is the result of the step 1 of the process. Both tangible and intangible resourcesof ChromaWay have been filtered as heterogeneous and/or immobile. Only those which possesan affirmative resolution to that classification can continue to this new step (step 2) where thoseresources and capabilities will be filtered again regarding aspects such as valuable, rarity and if itis easy to imitate.

Just as a reminder of section 3.5.2.1, a resource is valuable when it allows the firm to exploitopportunities or defend against threats. It is also valuable if it increases customer value whetheras a differentiator or decreasing the prices. A resource is rare when only a few companies canhave or acquire it. Finally, a resource is categorized as inimitable when it is costly to imitate ata reasonable price and it that could be due to the resource has been created over a long period oftime. Also it could be that it is difficult to know the cause of the resource or because it is due tothe culture of the company.

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Tangible resources

Financial Capacity to raise equity


Employee´s experience and capabilitiesManagerial and technical skillsHumanFirm´s specific practices and procedures

Innovative processesTechnological Patents, copyrights, trademarks (Software)

Brand nameReputation Quality and reliability with customers

Organizational Effective strategic planning



Innovativeness in productCorporate leadership and vision

Table 5.2: Summary RBV application (Step 1)

The table 5.3 shows graphically the results of the step 2. Actually, it shows the resources whichpass the filter (valuable, rare and inimitable) and continue to the next step 3 of the process.

Tangible resources Valuable Rare Inimitable

Financial Capacity to raise equity Yes Yes Yes

Intangible resources (assets) Valuable Rare Inimitable

Employee´s experience and capabilities Yes Yes YesManagerial and technical skills Yes No -HumanFirm´s specific practices and procedures Yes No Yes

Innovative processes Yes Yes NoTechnological Patents, copyrights, trademarks (Software) Yes Yes Yes

Brand name Yes Yes YesReputation Quality and reliability with customers Yes No -

Organizational Effective strategic planning Yes No -

Uniqueness Category leader Yes Yes Yes

Intangible resources (skills) Valuable Rare Inimitable

Innovativeness in product Yes No -Corporate leadership and vision Yes No -

Table 5.3: Step 2. Valuable, rare and inimitable classification

• Capacity to raise equity. This financial resource is valuable because once the firm has newequity, new opportunities will be available. It is rare because not every startup has investorswilling to sign a check. And, it is inimitable because there is no other similar company.

• Employee´s experience and capabilities. It is valuable because employees are the mostprecious resource and they are the reason why the company is able to keep building innovative

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products. It is both rare and inimitable because there is not too many experienced peoplewho know about Blockchain.

• Managerial and technical skills. This resource is important because it allows the companyworks properly, but every company should have this resource so it is not either rare norinimitable. Furthermore, it is a competitive parity.

• Firm´s specific practices and procedures. A resource which is valuable and rare butnot inimitable offers to the company a temporary competitive advantage. That is becausecompetitors will eventually copy successful practices and procedures.

• Innovative processes. Innovation should be always present in a startup and such innovativeprocesses as well. So, although those processes could vary among startups, normally theyare easy to copy and implement so that it is a competitive parity.

• Patents, copyright, trademark (Software). This is one of the most important resourcesthat a company can own. Generally, it is a pillar of the strategy because it is something thatcan not be copied by any competitor. So, at least, it is a temporary competitive advantage.

• Brand name. In such a new technology like Blockchain, the name and reputation of thefirm is extremely important because there is a lot of uncertainty and scam around it. So,keeping a good reputation will be key to success in the long term and that will bring newopportunities to the firm.

• Quality and reliability with customers. This is about having the customers happy whichinvolves solving their needs in a effective and fast way. In Blockchain world, there are a lot ofscam and unsuccessful projects. That is why customer reliability is very important in orderto success in the long term. Despite of the scam of this world, there are also good companieswith great projects that also have good customer service.

• Effective strategic planning. Strategy is really important for a company, it sets thedirection and how the company has to implement and use their resources and capabilitiesto get that desired position. However, companies with lack of strategic planning can alwaysthink about that or hire a consultant or a new employee to do so. This resource is reallyneeded but it can not be a competitive advantage by itself.

• Category leader. This resource is connected with brand name, software, employee´s capa-bilities and also with the capacity to raise equity. It practically embraces everything becauseit is in the DNA of ChromaWay so it has presence in every department of the company.Furthermore, due to its tremendous importance it should be categorized as a temporarycompetitive advantage.

• Innovativeness in products. Just like innovative processes, all the Blockchain startupsare creating new products and services. That means that every startup has the capacity tocreate something innovative.

• Corporate leadership and vision. This resource similar to effective strategic planning.It is very important that the managers of the company lead the rest of the team along thejourney to achieve the vision and mission of the company. Every company must have leaderswho believe in the purpose of the company and act as a guides to accomplish the objectives.

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5.3 Research model application

Section 3.6 explains the research model that is used to combine the foreign entry market modeswith the resources of the company that can become into competitive advantages. Therefore, inthis section is where the application of such research model to ChromaWay takes place.

Before the application of the research model, it is needed to know what are the requirementsof ChromaWay regarding the level of control, commitment, risk and flexibility. The solution forgathering that information was a meeting with ChromaWay´s management team. The outcomesare given in a scale from 1 to 5, being 1 the lowest level of a requirement and 5 the highest one:

• Level of control: ChromaWay wants to have high level of control over the decisions in thenew foreign market so, the interval accepted is from 3 to 5.

• Level of commitment: the company does not want to invest all of its resources in one foreignmarket. In this case, the interval accepted is from 2 to 4.

• Level of risk: the company does not consider the level of risk so that is why the interval goesfrom 1 to 5.

• Level of flexibility: ChromaWay needs to be able to implement different business model inthe foreign markets. Thus, the interval accepted is from 3 to 5.

5.3.1 Research model application - part 1

To complete the first part of the research model, the comparison between the previous requirementsof ChromaWay (section 5.3) and the table 5.4 is needed. This table 5.4 comes from figure 3.2,which is the classification of the different foreign market entry modes regarding the level of control,commitment, risk and flexibility that they provide.

Entry modes Export Licensing Franchising Strategic Alliance Joint Venture SubsidiaryControl 2 3 4 3 4 5

Commitment 1 2 3 3 3 5Risk 2 2 3 3 4 5

Flexibility 5 4 2 3 3 1

Table 5.4: Foreign entry market modes summary

Therefore, the set of requirements for both ChromaWay and the foreign market entry modesare the same thus, the comparison can be done and the first part of the table 5.5 can be completed:

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ChromaWayRequirements

Control Yes Yes Yes Yes Yes

Commitment Yes Yes Yes Yes No

Risk Yes Yes Yes Yes Yes

Flexibility Yes No Yes Yes No

ChromaWayResources

Resource 1 Y/N - Y/N Y/N -





Table 5.5: Model implementation - part 1

As it can be noticed, franchising and subsidiary do not comply with all the requirements ofChromaWay thus, they do not continue to the next step.

5.3.2 Research model application - part 2

Table 5.6 shows the result of the step 2 where the resources and capabilities of ChromaWay passedthrough the filter of VRIO tool except the last part, the "O" part, which is going to be discussedin this section.

ChromaWay´s resources

Financial Capacity to raise equity

Technological Software (IP)

Reputation Brand name

Human Employee´s experience and capabilities


Table 5.6: Summary VRIO application (Step 2)

To complete this part of the model the following question previously stated in the section 3.6needs to be answered: is this foreign market entry mode suitable for this resource?

5.3.3 Research model - analysis of results

The analysis of the results from the application of the research model to ChromaWay case are thefollowing ones:

1. The capacity to raise equity is not considered because it is not something that can be presentin the company for the long term. Although it could be determinant when selecting oneforeign market entry mode or another as it can improve the current commitment propensityof the company.

2. Licensing agreement and joint venture are the foreign market entry modes that have passedall the filters and are suitable for ChromaWay´s resources. With a licensing agreement,

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Variables

Control Yes Yes Yes Yes Yes

Commitment Yes Yes Yes Yes No

Risk Yes Yes Yes Yes Yes

Flexibility Yes No Yes Yes No

PossibleCompetitiveAdvantages

Capacity to raise equity - - - - -

Software (IP) Yes - Yes Yes -

Brand name Yes - No Yes -

Experience & capabilities Yes - Yes Yes -

Category leader Yes - No Yes -

Table 5.7: Model implementation - part 2

ChromaWay could have the total control over its IP, and could use its brand name to get someprofits. At the same time, it can keep developing and using the experience and capabilitiesof their employees when expanding its unique message around the globe. Choosing a jointventure as entry mode allows the same advantages of a licensing agreement but with morecommitment over the decisions made in the new venture created.

5.4 Competitive advantages

Once the application of the research model is done and the best foreign market entry mode optionsfor ChromaWay are known. The company, ChromaWay, should know that to ensure that theresources will become into competitive advantages (table 5.8), an adequate internal organizationis needed as well.

ChromaWay´s Competitive Advantages

Technological Software (IP)

Reputation Brand name

Human Employee´s experience and capabilities


Table 5.8: Competitive advantages of ChromaWay from the application of the research model

Therefore, whether implementing a licensing agreement or a JV (see section 3.2.2 and 3.2.3),some managerial requirements would be needed to adapt the internal organization of the companyand implement its competitive advantages within the new foreign markets. Then, all the processof the figure 5.1 will be successfully realized.

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Chapter 6

Discussions and conclusions

This chapter answers the two research questions outlined in Chapter 1, and provides the concludingremarks about this study.

In chapter 3, the first research question is answered by showing the possible foreign marketentry modes that a mMNE could implement. In chapter 4 ChromaWay, the company of the casestudy, is presented. Then, in chapter 5, the second research question was answered by applying theresearch model created. Finally, the managerial requirements needed to implement with successthe foreign market entry mode selected are discussed in this chapter.

6.1 Conclusions

The purpose of this research was to assess the best choices that a software mMNE has for enteringinto an new international market. Also, the model created illustrates how a firm can become amMNE when it needs to. In addition, this research illustrates how existing theories and modelscan be applied for the selection of a foreign market entry mode during the international expansionof a company.

6.1.1 Research question 1

In order to fulfill the purpose of this research, the research questions stated in Chapter 1 have beenanswered. The first question was:

RQ1: What are the different entry modes that SMEs can use for becoming a mMNE?

By conducting a literature review, it was possible to understand the unique characteristicsof mMNEs and answer the first research question. This also gave a way to distinguish mMNEsand BGs or INVs. For example, knowing that the main difference between mMNEs and BGs isthat mMNEs do not focus on the speed or pace to internationalization, but they rely on advancedmodes of entry into foreign markets. This means that, for example, a company could be consideredboth a BG and mMNE if it internationalizes from inception using an advanced entry mode. Thiscombination warrants the coining of a new term; the born-mMNE.

Therefore, the foreign market entry modes available to a mMNE are five: (1) licensing, (2) fran-chising, (3) strategic alliances, (4) joint ventures and, (5) wholly owned subsidiaries. Each of one

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have specific characteristics that make them more suitable depending on the firm´s requirementsfor control, commitment, risk and flexibility.

6.1.2 Research question 2

By applying the research model on ChromaWay which has been categorized as "market hunter"and "flexibility pursuer" (see section 4.2), the second research question was answered:

RQ2: What would be the best market entry choice or choices for a software company startup?

Having the results of the first research question, the next step was to find out what wouldbe the best choice for a software company. Thus, in order to solve this second research questionrigorously, the requirements of the company was analyzed (section 5.3).

The RBV along with the VRIO tool enabled the identification of the strategic resources of thecase firm, both tangible and intangible. For ChromaWay, the resources that passed through thefilters of the RBV and VRIO provide, if the company is structured to capture and sustain theirvalue, the competitive advantages which make the company different from its competitors.

The resources that passed through all the filters of the RBV also need to pass through the lastcriteria of the VRIO (the "O" of the VRIO). The company has to be organized in order to captureand sustain the value from such resources. At this point is where this thesis adds new knowledge tothe literature, selecting the best options for the international structure of the company and also howit should be managed internally to ensure a proper implementation of such internationalization.This way, a new term like mMNEs is conceptually combined with a traditional theory like the RBV.

There were five resources coming from the application of the RBV method: (1) Capacity toraise equity, (2) employee´s experience and capabilities, (3) software (IP), (4) brand name and,(5) category leadership. Then, with the implementation of the research model, those possiblecompetitive advantages were cross-examined with the different foreign entry market modes. Finally,the results showed that a licensing agreement or a joint venture would be the best choices whenentering into a foreign market and that the capacity to raise equity would not be a competitiveadvantage because it is not something that the company can sustain along its life cycle.

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6.2 Managerial implications

After the findings about what entry mode options a SME has to become a mMNE and the recom-mendation of the best choices for a software firm, it is time to draw the whole picture (see section5.4).

Given the results from the second research question, there are two possibilities: (1) licensingand (2) joint venture. For each of those options there are specific managerial requirements. Thoserequirements ensure that the operations of the business are conducted in an effective and efficientmanner and also allow that the resources of table 5.8 become into competitive advantages.

On the hand, if the foreign entry market mode selected is the licensing, one of the main tasksthat the parent company should do is the creation of a well-drafted license agreement (Sherman,2011). Besides, according to (Commission and Futures, 2003), the managerial requirements thatmanagers should take into account when licensing are classified as follow: supervision of the licens-ing process, segregation of duties and functions, personnel and training, information management,agreement compliance, audit, operational controls and risk management.

On the other hand, if the foreign market entry mode selected is the JV option, the procedureis more complex as there is a higher level of commitment involved and thus, more complexity.In order to have success when clarifying the purpose of the JV, having control procedures andmanaging people (see section 3.2.3), the following steps ensure a due diligence (Deloitte, 2010):

1. The vision: having a clear vision since the beginning is critical and it should be communi-cated properly and understood for all the partners involved.

2. Organizational governance: it covers the constitution of the board and the governancestructure. The establishment of the JV objectives, the framework for decision making andissue resolution are also set up.

3. Management team: in order to transmit the value of the JV to the stakeholders, themanagement team and the allocation of roles and responsibilities need to be created.

4. Parent company´s senior executive sponsorship: the executives of the parent companymust commit on a consistent and continued basis.

5. Changing times: in order to deal with changing circumstances over the life cycle of theJV, establishing a series of guiding principles will improve the likelihood of success.

6. Integration vs transformation: a good implemented business model will allow the JVworks effectively sooner which will drive the expectation of further success.

7. Managing people: retaining and motivating key employees is essential for the success ofthe JV and it requires an effective communications program.

8. Response to competitors and customers: the distractions caused by the new JV are achance for competitors. Thus, a focus on customer retention will be important during thesetting up process of the JV.

9. Exiting: it is also really important that the partners discuss the possible exit scenariosand look at the options. For instance, what should be the mechanisms if a party has theopportunity to buy the interest of the other party.

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6.3 Future research, ethics and sustainability

mMNEs is a relatively new term, that means that there is not much literature available abouthow SMEs become mMNEs and, what their motivations are and how they select their foreignmarket entry modes. Furthermore this research, and others like Wa̧sowska (2017), focus on somevariables but do not dig deep into them. Thus, further research is needed to refine the measuresof those variables (level of control, commitment, risk and flexibility) in order to understand theirimplications better.

Also, this research presents a case study for a Swedish software company but, although mMNEsare more common in the high-tech industry, mMNEs can be found in every sector. Therefore, newcase studies examining other business models would be interesting for future research to be ableto compare and asses the differences between business models. Lastly, the application of otheranalytical methods such as SWOT analysis rather than the RBV or VRIO tool are recommendedfor future studies, as well as the analysis of the selection of the foreign entry market modes inrelation to the external environment of firms.

When a company enters into a new foreign market, whether it is with a low commitment entrymarket mode such as licensing agreement or by creating a joint venture, there is always a nego-tiation process between the parties involved. For the success of the company in its expansion tonew markets, negotiation ethics need to be present not only during the negotiation processes, butalso during all the life cycle of the agreements created that would result in a trust reinforcementbetween the parties.

In addition to the long term success of the company in its expansion to new markets, a com-pany should follow some managerial requirements. Those requirements are used to ensure thesustainability of the foreign market entry mode selected and thus, the performance of the com-pany. According to (Deloitte, 2010), a company should focus on three main areas: clarity of thepurpose, control and how to manage people.

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Appendices

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Appendix A

Data gathering

Date Data collection type Data source Records

01/03/2018 Interview Head of Growth, Advertising Platform Tape and notes

20/03/2018 Interview Nick Larsson, Head of Growth and Partnerships Tape and notes

26/03/2018 Interview Investment Manager, Venture Capital Firm Tape and notes

04/03/2018 Observation and discussion Management team Notes




Table A.1: Data gathering

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Appendix B

Interviews questionnaire

All these following questions, which form the core part of the interview, were previously preparedbut not asked in every interview and additional questions were asked during the semi-structuredinterviews.

• How is the company structured internationally?

• Why do you have such a organizational structure?

• How do you choose the entry market mode?

• How do you select your partners?

• What are the control mechanisms over the different offices?

• How do you analyze the potential of the new markets?

• Does the strategy vary between the different countries?

• Did you have any barrier that stands out in the internationalization process?

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