How international start-ups leverage networks

in their own backyard

Dr Shameen Prashantham

Background Insights from Doctoral Research (2002-5)

Background• Enabling role of technological knowledge

– Research on international entrepreneurship

• Facilitating role of market knowledge– Research on internationalization process

• Social capital as a key source– “Reliance on network relationships for

international growth” (Coviello & Munro 1997: 383)

Building the Knowledge Base

Social capital

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Leveraging networks proactivelyLeverage of network relationships

(e.g. for information)

Stock of network relationships

Low High

High Passive networker

16%

Effective networker

29%Low Non-

networker52%

Proactive networker

3%

Setting realistic expectationsSocial homogeneity

Geographic proximity

Bonding Bridging

Overseas Co-ethnic ties Mainstream ties

Local Other SMEs MNC subsidiaries

• Bonding ties trust presence• Bridging tiesnoveltygrowth

“…the value of local network relationships ought not to be overlooked. There may be a tendency to do so, however, in the context of internationalization…”

(Prashantham, 2008: 11)

Local networks overlooked?

Follow-up Research (2005-8)SME-MNC Links

Recognizing the OpportunityMotivation Rationale Example

Corporate citizenship

Perceived as responsible

IBM / Innovation

Technology evangelization

Greater sales Microsoft / ISV partners

Technology absorption

Enhanced innovation

EDS / Arnlea

Capability demonstration

Grow subsidiary mandate

Sun Microsystems / RFID start-ups

Spin-off support Providing a helping hand

Polaroid / Wide Blue

Overcoming the ObstaclesConcern Typical sentiments

Access “The problem is getting access to decision-makers”

Attention “Collaboration is no one’s day job”

Asymmetry “Unhappy doing business with small firms in the long term”

Acquisition “Big fish want control over the small fish”

Autonomy “The plug may be pulled at any time”

Facilitating Linkages

• Scottish Technology & Collaboration (STAC)– Social capital formation: overcoming barriers

• Architecting– Regional level e.g. what capabilities available

• Brokering– Interorganizational level e.g. IPR legal issues

• Coaching– Interpersonal level e.g. honest communication

Developing new products

• Contrasting cases of two STAC projects– Both seeking servicesproduct shift– Both working with Sun Microsystems– Both facilitated by STAC

• But differences– Proactive vs. reactive in alliance formation– Trust-based vs. distrustful interactions– Observable everyday activities vs. inaction

Cognitive social capital is key?

Learning new capabilities

• The successful STAC venture learned– Product development– Alliancing– Strategic decision making

• Complementary capabilities required– Building social capital: beyond bonding ties– Extracting value: informal routines, new tricks

Engaging proactively

Forming• Creating links to MNCs through local allies

• Building commitment: using the MNC’s strength against it

Consolidating• Capitalizing on points of advantage: Building options for growth

• Modularizing knowledge transfer to reduce vulnerability

Extending• Utilizing the MNC’s network to enhance scale and reach

• Building options for future growth: Ambiguity by design

Scotland Survey (Oct 2008)• 107 young, small firms*

– Average age ~10 years– Average size ~15 employees

• Scottish– Glasgow 26% Edinburgh 20%

• Sectors– Mostly IT-related; STAC database

*108 questionnaires returned but one incomplete so excluded from this analysis.

No MNC links 26MNC as supplier 51MNC as customer / 31strategic partner

Perceptions about Opportunities1. Seeking to make an impression

as a good corporate citizen locally 2.29

2. Instrumental in growing or forming the small business 2.39

3. Providing the platform technology that the small business uses 2.64

4. Seeking to absorb a new technology from the local company 3.91

5. Attempting to demonstrate a local capability to their global headquarters or the wider multinational enterprise 2.89

[1=Highly disagree; 5=Highly agree]

MNC motive 1MNC motive 2

MNC motive 3MNC motive 4

MNC motive 5

1.00

2.00

3.00

4.00

Perceptions about barriers1. The multinational enterprise

may have limited independence from its global headquarters 2.15

2. Large companies may not be interested in dealing with small businesses 3.36

3. Small businesses lack the time and resources for such relationships 2.84

4. Small Businesses and large firms do not have compatible systems 1.98

5. The large company may acquire the small business in the process 2.25

[1=Highly disagree; 5=Highly agree]

SME concern 1SME concern 2

SME concern 3SME concern 4

SME concern 5

1.00

2.00

3.00

4.00

Perceptions about ease of access1. With relative ease, by

making direct contact 2.672. Primarily through

independent public sector intermediaries (e.g. Scottish Enterprise) 2.14

3. Primarily through independent private sector intermediaries (e.g. external consultants) 2.64

4. Primarily by signing up to the multinational enterprises’ partnering programmes 1.18

[1=Highly disagree; 5=Highly agree]

SME access 1 SME access 2 SME access 3 SME access 4

1.00

2.00

3.00

4.00

Perceptions vs. BehavioursMNC link

(n=82)No link(n=25)

Perceived MNC motive: Seeking to absorb a new technology from the local company 3.91

3.78 4.48

Perceived barrier: Small businesses lack the time and resources for such relationships 2.84

2.69 3.40

Perceived ease-of-access: With relative ease, by making direct contact 2.67

2.98 1.72

• MNCs seen as interested in absorbing new technology (metanational idea)– But seen as a threat? So is there real engagement?

Dancing with Gorillas

• “It is not a choice. The question is: How do you learn to dance with the big gorilla…It is not to say that small firms cannot leverage big companies.

- C K PrahaladUniversity of Michigan