FIRMS COMPETE IN INTERNATIONAL MARKETS

Firms Compete in International Markets

Firms Compete In International Markets

Introduction

Early-stage technology-based firms are confronted with the complexity of foreign markets and global competition from their earliest stages of development. Not only must technology entrepreneurs keep pace with ever-changing technology-based product offerings, but they must also simultaneously stay abreast of competitors and industry trends in multiple countries. We surveyed 75 small technology-based firms in Ontario to evaluate their international activities and try to explain both the intensity of their foreign sales (the percent of total sales coming from foreign sources), as well as the global diversity of the markets in which they operate (the number of major regional areas from which they derive revenue)

Discussion

Early-stage technology-based firms (ESTBFs) can play a number of important roles in any economy. Such firms can facilitate change within an industry by introducing both product and process innovations which force larger, more-established firms to rethink their technologies and operations (Doutriaux 1991) and (Knight 1989). In the process, ESTBFs can also provide societal value by helping to expand the tax base, strengthen national competitiveness and generate highly skilled jobs (Radosevich and Kassicieh 1993) and (Storey, Keasey, Watson and Wynarcyk 1987). Consequently, there is good reason to address the specific challenges of managing these types of organizations.

Despite a long tradition of research investigating the international activities of small and medium-sized firms (see Miesenbock 1988 for a comprehensive review), there have been relatively few empirical studies focusing specifically on small technology-based firms. This gap is important in that recent research has suggested that traditional theories of internationalization may not account for the special circumstances faced by such firms (Oviatt and McDougall 1994). Rather than evolving through a series of international stages, as is thought to be the case for many firms (Johanson and Vahlne 1977), ESTBFs are likely to encounter international pressures much earlier in their existence (Hordes et al. 1995) and (Litvak 1990).

Three interrelated conditions tend to draw ESTBFs into international expansion at an early stage in their development. The first condition is the tendency to operate within a narrowly-defined market niche. Firms operating in such product areas as wireless data communications, logistics software or marine sonar technologies (all industries represented in this study), are unlikely to be able to depend on a single country for a large enough market to profitably support their product offerings. These product areas are focused and specialized to the point of making international expansion a necessity to achieve sales growth.

The second condition propelling ESTBFs into early international expansion is high development costs. The fixed financial requirements necessary to sustain technology-intensive projects are very high. Such front-end costs could spell an early end to the viability of a small firm with limited resources unless it quickly achieves the necessary growth to support its initial outlays (Kobrin 1991) and (Ohmae 1990). Given the limited depth of the markets for most ESTBFs, the need for such growth is likely to make early internationalization a strategic necessity for ...