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  • What Drives NewVentures toInternationalize fromEmerging to DevelopedEconomies?Yasuhiro YamakawaMike W. PengDavid L. Deeds

    The internationalization of new ventures from emerging economies to developed economiesremains an unfilled gap at the intersection of the literature between international entrepre-neurship and strategy in emerging economies. What drives some (but not all) new venturesfrom emerging economies to enter developed economies? We address this question bydeveloping a comprehensive framework based on the three leading perspectives onstrategyindustry-based, resource-based, and institution-based views. A series of propo-sitions are proposed to explore the underlying logic behind new ventures entrepreneurialentries from emerging to developed economies.

    Introduction

    In response to the rising theoretical, empirical, and practitioner interest, two streamsof research have grown rapidly in the recent literature: (1) international entrepreneurshipand (2) strategy in emerging economies (EE). However, such rapid development has leftmany gaps. International entrepreneurship research (McDougall & Oviatt, 2000; Oviatt& McDougall, 1994) to date has largely focused on new ventures based in developedeconomies (DE) and has not paid significant attention to new ventures based in EE.Strategy research on EE has mostly dealt with foreign entrants entering EE as well as firmscompeting domestically within EE (Hoskisson, Eden, Lau, & Wright, 2000). There isrelatively little research on the internationalization of firms based in EE (Luo & Tung,2007; Wright, Filatotchev, Hoskisson, & Peng 2005a).

    To the extent that limited research on the internationalization of firms based in EEexists, the focus has been on large firms, such as Brazils AmBev, Chinas Lenovo, IndiasTata, and Mexicos Cemexin other words, Cells 1 and 2 in Figure 1 (Child & Rodrigues,2005; Mathews, 2006; Tung, 2005; Business Week, 2006). Clearly, there is a gap in ourunderstanding on how small entrepreneurial firms based in EE internationalize (Cells 3

    Please send correspondence to: Mike W. Peng, tel.: (972) 883-2714; e-mail: [email protected]

    PTE &

    1042-2587 2008 byBaylor University

    59January, 2008

    mailto:[email protected]

  • and 4 in Figure 1). There is emerging evidence that some EE-based new ventures havebegun to internationalize and make their presence felt overseas. For example, of the top100 fastest growing Asia-Pacific-based firms (both large and small) identified by DeloitteTouche Tohmatsu (2006), 15 of them are new ventures based in EE that have internation-alized some of their operations by entering DE (Table 1). The top three such firms (rankedby growth rates) are CapitalBio (China), Spreadtrum Communications (China), and Syn-tronix (Taiwan), all founded during 20002001. While most scholars probably have neverheard of them, those interested in entrepreneurship and internationalization would befascinated by their astonishing three-year growth rates: 4229%, 1462%, and 1443%,respectively. If research on entrepreneurship and internationalization is to keep up withpractice, it seems imperative that at least some of our attention be devoted to thesecutting-edge cross-border entrepreneurial activities moving from EE to DE.

    This article partially fills this gap by developing a model of the internationalization ofentrepreneurial new ventures from EE venturing to DEthat is, Cell 4 in Figure 1. Wrightet al. (2005a) complain that there is virtually no research in Cell 4. This is understandable,because most EE research on foreign entries deals with firms from DE entering EE(Meyer, 2004; Ramamurti, 2004). Venturing from EE to DE is the other way around,which no doubt is tremendously challenging, especially for those that are recent newventures (Sapienza, Autio, George, & Zahra, 2006; Zhou, Tse, & Li, 2006). Yet, preciselybecause this route of internationalization is risky and challenging (Jones & Coviello,2005; Oviatt & McDougall, 1994), it presents potential room for the identification andexploitation of previously unexplored opportunities, which is a widely accepteddefinition of entrepreneurship (Hitt, Ireland, Camp, & Sexton, 2001, p. 480; Shane &Venkataraman, 2000).

    The level of internationalization examined here is beyond exporting. We focus onEE-based new ventures that engage in foreign direct investment (FDI) in DE, which is amore decisive strategic actionsome exporting may be sporadic exporting in responseto an occasional overseas order. There is some evidence that in the long run, FDI may bepotentially a more competitive way than exporting for operating in internationalmarkets (Lu & Beamish, 2001, p. 582). The World Investment Report (2006) highlightsthe changing role of EE in global FDI activities. The Report suggests that EE as a grouphave emerged as significant outward investors. As recently as 1990, only six countries inEE reported outward FDI stocks of more than $5 billion; however, by 2005, that thresholdhad been exceeded by 25 countries (UNCTAD, 2006). FDI outflow from EE has increasedfrom 3% (19781980 average) of the worlds total FDI outflow to over 17% ($133 billion)

    Figure 1

    Internationalization of Firms Based in Emerging Economies

    Emerging Economies Emerging Economies

    Cell 1:

    Cell 3:

    Cell 2:

    Cell 4:

    Our Focus

    Direction of Internationalization

    Firm Size

    Large

    Small

    Emerging Economies Developed Economies

    60 ENTREPRENEURSHIP THEORY and PRACTICE

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