policy drivers of international entrepreneurship in europe

Vanessa Ratten Vanessa Ratten 11

‘‘Policy Drivers of International Policy Drivers of International Entrepreneurship in EuropeEntrepreneurship in Europe’’

Vanessa RattenVanessa Ratten

UniSA 16 March 2006UniSA 16 March 2006


Background to ResearchBackground to Research Collaboration with I. Welpe (Ludwig-Maximilians University, Germany), M. Han Collaboration with I. Welpe (Ludwig-Maximilians University, Germany), M. Han

(Ryerson University, Canada) and L. Dana (University of Canterbury, New Zealand)(Ryerson University, Canada) and L. Dana (University of Canterbury, New Zealand)

Ratten, V., I. Welpe and M. Han, (2005) Track Chairs for Entrepreneurship and Ratten, V., I. Welpe and M. Han, (2005) Track Chairs for Entrepreneurship and International Business track at the International Business track at the European Academy of ManagementEuropean Academy of Management

Han, M., V. Ratten and I. Welpe (2005) Workshop Coordinators ‘Developing Strategic Han, M., V. Ratten and I. Welpe (2005) Workshop Coordinators ‘Developing Strategic Entrepreneurship in Small Business’, Entrepreneurship in Small Business’, The United States Association for Small Business The United States Association for Small Business and Entrepreneurship (USASBE) 50th World Conference of the International Council and Entrepreneurship (USASBE) 50th World Conference of the International Council for Small Businessfor Small Business (ICSB) (ICSB)

Welpe, I., M. Han, V. Ratten, S. Zahra, L. Dana, and D. Grichnik, (2005) ‘International Welpe, I., M. Han, V. Ratten, S. Zahra, L. Dana, and D. Grichnik, (2005) ‘International Entrepreneurship: Developing the Field of Entrepreneurship and International Entrepreneurship: Developing the Field of Entrepreneurship and International Business’, Caucus, Business’, Caucus, Academy of ManagementAcademy of Management

Ratten, V., Welpe, I. and M. Han (2006) Guest Editors of a Special Issue on Ratten, V., Welpe, I. and M. Han (2006) Guest Editors of a Special Issue on International Entrepreneurship in EuropeInternational Entrepreneurship in Europe, International Journal of Small Business and , International Journal of Small Business and EntrepreneurshipEntrepreneurship

Dana, L., M. Han, V. Ratten and I. Welpe (Editors) (2006) Dana, L., M. Han, V. Ratten and I. Welpe (Editors) (2006) A Theory of A Theory of Internationalisation for European EntrepreneurshipInternationalisation for European Entrepreneurship, Edward Elgar, Edward Elgar


Outline of SeminarOutline of Seminar Literature on International Literature on International

EntrepreneurshipEntrepreneurship International Entrepreneurship in International Entrepreneurship in

EuropeEurope European Policy Perspectives European Policy Perspectives Implications Implications Future ResearchFuture Research


International EntrepreneurshipInternational Entrepreneurship Useful for multi-level unit of analysisUseful for multi-level unit of analysis

• Individuals in the firmIndividuals in the firm• OrganisationsOrganisations• Collaborative relationshipsCollaborative relationships

Definition “a combination of innovative, proactive and risk Definition “a combination of innovative, proactive and risk seeking behavior that crosses national borders and is seeking behavior that crosses national borders and is intended to create value in organisations” (McDougall and intended to create value in organisations” (McDougall and Oviatt, 2000:903)Oviatt, 2000:903)

Definition revised to focus on Definition revised to focus on opportunity recognitionopportunity recognition: “the : “the discovery, enactment, evaluation, and exploitation of discovery, enactment, evaluation, and exploitation of opportunities- across national borders-to create future opportunities- across national borders-to create future goods and services” (goods and services” (McDougall and Oviatt, 2003:7)McDougall and Oviatt, 2003:7)


International EntrepreneurshipInternational Entrepreneurship This research seeks to address the gap in the existing This research seeks to address the gap in the existing

literature literature • On comparative research on international entrepreneurship On comparative research on international entrepreneurship

(Coviello and Jones, 1994)(Coviello and Jones, 1994)• Need for more holistic theoretical perspectives to explain Need for more holistic theoretical perspectives to explain

international entrepreneurship (eg Dana, Etemad and Wright, international entrepreneurship (eg Dana, Etemad and Wright, 1999; McDougall, Shane and Oviatt, 2003)1999; McDougall, Shane and Oviatt, 2003)

Government is an important driver of international Government is an important driver of international entrepreneurship (Dimitratos and Jones, 2005)entrepreneurship (Dimitratos and Jones, 2005)

A contribution to international entrepreneurship is to A contribution to international entrepreneurship is to examine “the role of national and international institutional examine “the role of national and international institutional environments in the entrepreneurial decision making environments in the entrepreneurial decision making process” (Zahra, Korri and Yu, 2005 :137)process” (Zahra, Korri and Yu, 2005 :137)


Internationalisation TheoriesInternationalisation Theories Classic economic view of Classic economic view of

internationalisationinternationalisation• Based on theory of competitive advantageBased on theory of competitive advantage

Incremental processIncremental process• Eg Uppsala Model (Johanson and Wiedersheim-Eg Uppsala Model (Johanson and Wiedersheim-

Paul, 1975)Paul, 1975)• Stages model of internationalisation (eg Stages model of internationalisation (eg

Johanson and Vahlne, 1977; Buckley and Tesar, Johanson and Vahlne, 1977; Buckley and Tesar, 1977; Newbould, Buckley and Thurwell, 1978; 1977; Newbould, Buckley and Thurwell, 1978; Cavusgil, 1980, 1984; Bartlett and Ghoshal, Cavusgil, 1980, 1984; Bartlett and Ghoshal, 1989)1989)


Stages Model CriticismStages Model Criticism

• Assumes time taken as firm gains experience, accumulate Assumes time taken as firm gains experience, accumulate resources, develop managerial capabilities required for resources, develop managerial capabilities required for international operationsinternational operations

Hence small firms internationalise gradually in a controlled fashionHence small firms internationalise gradually in a controlled fashion

• Globalisation of markets (Levitt, 1983)Globalisation of markets (Levitt, 1983)

• Competition (Ohmae, 1989, 1990)Competition (Ohmae, 1989, 1990)

• Serendipitous encounters (Crick and Spence, 2005)Serendipitous encounters (Crick and Spence, 2005)

• Circumstances forcing small firms to deviate from stage modelCircumstances forcing small firms to deviate from stage model Eg economies of scale, high start up costs, small domestic Eg economies of scale, high start up costs, small domestic

markets, short product life cycle markets, short product life cycle (see international new venture/born global research eg Oviatt and (see international new venture/born global research eg Oviatt and

McDougall, 1999; Knight and Cavusgil, 1996)McDougall, 1999; Knight and Cavusgil, 1996)


Motives for InternationalisationMotives for Internationalisation EuropeEurope

• Internationalisation seldom seen as a competitive necessityInternationalisation seldom seen as a competitive necessity• Only expansionist optionOnly expansionist option

Traditional internationalisation theories focused mainly on large Traditional internationalisation theories focused mainly on large multinational corporations (Dana, Etemad and Wright, 1999a, multinational corporations (Dana, Etemad and Wright, 1999a, 1999b)1999b)

Until recentlyUntil recently• Firms who wished to avoid risks and uncertainties could refrain from Firms who wished to avoid risks and uncertainties could refrain from

expanding internationallyexpanding internationally

Liberalisation of trade protectionLiberalisation of trade protection• Small businesses now compete with international competitorsSmall businesses now compete with international competitors

Success of entrepreneursSuccess of entrepreneurs• Is their ability to become competitive across EuropeIs their ability to become competitive across Europe


Internationalisation Theory and Internationalisation Theory and Entrepreneurial BehaviourEntrepreneurial Behaviour

Current business environmentCurrent business environment• Time strategic weapon (Stalk and Hout, 1990)Time strategic weapon (Stalk and Hout, 1990)

Entrepreneurial behaviour does not always Entrepreneurial behaviour does not always follow stages approachfollow stages approach• Eg small, high tech firms rarely follow stage Eg small, high tech firms rarely follow stage

approach (Coviello and Martin, 1999)approach (Coviello and Martin, 1999)• Cross border activity of small firms is often Cross border activity of small firms is often

importing rather than exporting (Jones, 1999)importing rather than exporting (Jones, 1999)


Europe and SMEsEurope and SMEs International transactions were until International transactions were until

recently the realm of big companiesrecently the realm of big companies• Smaller businesses remaining local or regionalSmaller businesses remaining local or regional

Europe now is removing barriers to Europe now is removing barriers to internationalisationinternationalisation• Driven by expansionist policies of EUDriven by expansionist policies of EU

Definition of SMEs is less than 250 Definition of SMEs is less than 250 employees (European Commission)employees (European Commission)


Definition of SME- European Definition of SME- European ContextContext

Size of Size of EnterpriseEnterprise

Number of Number of EmployeesEmployees

Turnover Turnover (€/Year)(€/Year)

MicroMicro 0-90-9 0-2 million0-2 million

SmallSmall 10-5010-50 2-10 million2-10 million

MediumMedium 50-25050-250 10-50 10-50 millionmillion

LargeLarge More than More than 250250

More than More than 50 million50 million


Europe and SMEsEurope and SMEs European Charter for Small Enterprises European Charter for Small Enterprises

20002000• Emphasises importance of SMEsEmphasises importance of SMEs

EU- more than 99% of businesses are EU- more than 99% of businesses are SMEsSMEs• 2/3 total private employment (European 2/3 total private employment (European

Commission, 2004)Commission, 2004)• 37% of SMEs in EU engaged in 37% of SMEs in EU engaged in

internationalisationinternationalisation• 92% of all European enterprises have less than 92% of all European enterprises have less than

10 employees (micro enterprises)10 employees (micro enterprises)


Europe and SMEsEurope and SMEs SMEs hold a stable position in the economy SMEs hold a stable position in the economy

(European Commission, 2003)(European Commission, 2003)

International entrepreneurship is helpful to International entrepreneurship is helpful to understand how small business harnesses their understand how small business harnesses their entrepreneurial capabilities to internationaliseentrepreneurial capabilities to internationalise

Europe characterised by 2 trendsEurope characterised by 2 trends• Reduced importance of nation state as an influence of Reduced importance of nation state as an influence of

international businessinternational business• Decreased importance of the firm itself as principal unit Decreased importance of the firm itself as principal unit

of doing business (of doing business (Dana, Bajramovic and Wright, 2005Dana, Bajramovic and Wright, 2005 ) )


Europe Transforming Competitive Europe Transforming Competitive EnvironmentEnvironment

• Past- SMEs could stay domesticPast- SMEs could stay domestic

• Now- SMEs must achieve world-class Now- SMEs must achieve world-class efficiencies in order to survive, whether efficiencies in order to survive, whether or not they compete globallyor not they compete globally

No longer can afford to achieve No longer can afford to achieve internationalisation sequentiallyinternationalisation sequentially

SMEs expand by linking operations into SMEs expand by linking operations into value chain of large operationsvalue chain of large operations


Research on Entrepreneurship: Research on Entrepreneurship: Europe’s PositionEurope’s Position

Source: adapted from Fayolle, Kyro and Ulijn (2005)Source: adapted from Fayolle, Kyro and Ulijn (2005)

Time ScaleTime Scale 1818thth-20-20thth Centuries: Centuries: Toward Toward IndustrialisationIndustrialisation

1919thth-1970 -1970 IndustrialisationIndustrialisation

1970 Onwards1970 Onwards 2121stst Century Century

Europe's Europe's PositionPosition

Entrepreneurship Entrepreneurship was born in Europewas born in Europe

The impact of The impact of Europe declinesEurope declines

The re-emergence The re-emergence of a European viewof a European view

Europe as an equal Europe as an equal partner with partner with expanding partners expanding partners in different in different geographical areasgeographical areas

Geographical/Geographical/Cultural Cultural DominanceDominance

Western EuropeWestern Europe USAUSA USA, but with USA, but with European and European and global flavourglobal flavour

North America and North America and Europe with a Europe with a global viewglobal view


This ResearchThis Research Propose that international Propose that international

entrepreneurship is different in Europe entrepreneurship is different in Europe • DiverseDiverse• Different institutional factorsDifferent institutional factors• Market dynamismMarket dynamism

Countries in Europe have differentCountries in Europe have different• Size (population and land mass)Size (population and land mass)• Political structure (democratic, transition)Political structure (democratic, transition)• Culture (religion, work practices)Culture (religion, work practices)


PolicyPolicy European Commission ‘Green Paper European Commission ‘Green Paper

for Entrepreneurship’for Entrepreneurship’• The importance of increasing The importance of increasing

competitiveness for firms in the EU competitiveness for firms in the EU (European Commission, 2004)(European Commission, 2004)

• Recent enlargement of EU has meant Recent enlargement of EU has meant that European SMEs now compete more that European SMEs now compete more on a level playing field and are required on a level playing field and are required to become competitiveto become competitive


Government Influence Encouraging Government Influence Encouraging SME InternationalisationSME Internationalisation

ScotlandScotland• ‘‘Smart, Successful Scotland’Smart, Successful Scotland’

SpainSpain• Program Pipe (Plan Iniciacion Promocion Program Pipe (Plan Iniciacion Promocion

Exterior)Exterior)

FinlandFinland• Entrepreneurship policy programme by the Entrepreneurship policy programme by the

government 2003- increase support for SMEsgovernment 2003- increase support for SMEs


Government Influence Encouraging Government Influence Encouraging SME Internationalisation: New EU SME Internationalisation: New EU

MembersMembers SlovakiaSlovakia

• National Agency for the Development of SMEsNational Agency for the Development of SMEs

HungaryHungary• Legislative developmentsLegislative developments

Act on SMEs (Act XCV of 1999 on Small and Medium Sized Act on SMEs (Act XCV of 1999 on Small and Medium Sized Enterprises and the Promotion of their Development)Enterprises and the Promotion of their Development)

LatviaLatvia• Government funding is needed for SMEs as the existing Government funding is needed for SMEs as the existing

EU structural funds are insufficientEU structural funds are insufficient• 2004- basic guidelines of the SME development policy2004- basic guidelines of the SME development policy

Programme of Small and Medium Sized Enterprises of Programme of Small and Medium Sized Enterprises of LatviaLatvia


Government Influence Encouraging Government Influence Encouraging SME Internationalisation: SME Internationalisation:

InstitutionsInstitutions BulgariaBulgaria

• Institutions (government and private) can Institutions (government and private) can encourage SME internationalisation activity encourage SME internationalisation activity (Todorov and Kolarov, 2006)(Todorov and Kolarov, 2006)

MonacoMonaco• Prince Rainier ‘The Building Prince’ (Spence, Prince Rainier ‘The Building Prince’ (Spence,

2006)2006)• Government utilised tax incentives and Government utilised tax incentives and

programmes that encourage high value added programmes that encourage high value added SMEs to share risks (Spence, 2006)SMEs to share risks (Spence, 2006)


Government Influence Encouraging Government Influence Encouraging SME InternationalisationSME Internationalisation

LithuaniaLithuania• Remnants soviet system (Brige, 2006)Remnants soviet system (Brige, 2006)

UkraineUkraine• 1991 Ukrainian State Committee for 1991 Ukrainian State Committee for

(Creation of) Small Enterprises and (Creation of) Small Enterprises and EntrepreneurshipEntrepreneurship

• SMEs driving force of Orange Revolution SMEs driving force of Orange Revolution (Goldmann et al, 2006)(Goldmann et al, 2006)


Government Influence Encouraging Government Influence Encouraging SME Internationalisation: SME Internationalisation:

Knowledge Intensive Industries Knowledge Intensive Industries

SwedenSweden Highest number of biotech firms per capita Highest number of biotech firms per capita

in the world- necessitates international in the world- necessitates international outlook (Loftgren et al, 2006)outlook (Loftgren et al, 2006)

EstoniaEstonia• More SME internationalisation activity in More SME internationalisation activity in

information technology and information technology and biotechnology sector (Elenurm, 2006)biotechnology sector (Elenurm, 2006)


EducationEducation Some research: Negative relationship with international entrepreneurshipSome research: Negative relationship with international entrepreneurship

• MaltaMalta Entrepreneurship negatively associated with higher education qualifications (Entrepreneurship negatively associated with higher education qualifications (BaldacchinoBaldacchino, ,

2006)2006)

Most research supports: Positive relationship with international Most research supports: Positive relationship with international entrepreneurshipentrepreneurship• BelarusBelarus

Previous studies report 80% of interviewed business owners had higher education Previous studies report 80% of interviewed business owners had higher education qualifications (Smallbone et al, 1999; Welter et al, 2006)qualifications (Smallbone et al, 1999; Welter et al, 2006)

• LithuaniaLithuania Higher education level of entrepreneurs is 86% (Mockatis, 2006)Higher education level of entrepreneurs is 86% (Mockatis, 2006)

• SpainSpain Important policy initiative is to increase the level of education in entrepreneursImportant policy initiative is to increase the level of education in entrepreneurs As level of education was found to be a distinguishable characteristic between exporters As level of education was found to be a distinguishable characteristic between exporters

and non-exporters (Cruz et al, 2006)and non-exporters (Cruz et al, 2006)

Role of English as international business languageRole of English as international business language• ScandinaviaScandinavia• LatviaLatvia

Language English (Brige, 2006)Language English (Brige, 2006)


ImplicationsImplications• Some SMEs indirectly involved in international Some SMEs indirectly involved in international

activitiesactivities Eg alliancesEg alliances

• Value chainValue chain SMEs in Europe increasingly cannot be classified as SMEs in Europe increasingly cannot be classified as

being from one country as various countries involved being from one country as various countries involved in their businessin their business

• Underestimation of SME internationalisation Underestimation of SME internationalisation activityactivity

Ukraine- in transition economies sometimes small Ukraine- in transition economies sometimes small entrepreneurs are reluctant to report exporting entrepreneurs are reluctant to report exporting activities because of corruption and dangers from activities because of corruption and dangers from criminal networks (Goldmann et al, 2006)criminal networks (Goldmann et al, 2006)


ImplicationsImplications

Internationalisation as a learning process Internationalisation as a learning process (Yip, Biscarri and Monti, 2000)(Yip, Biscarri and Monti, 2000)• Learning influenced through experiential Learning influenced through experiential

knowledge (Eriksson et al, 1997)knowledge (Eriksson et al, 1997) Eg Market, institutional and international knowledgeEg Market, institutional and international knowledge

SMEs need to focus on building networks SMEs need to focus on building networks (Elenurm, 2004) and invest in learning (Elenurm, 2004) and invest in learning about foreign markets (Zahra et al, 2001)about foreign markets (Zahra et al, 2001)


Future ResearchFuture Research Role of social capital and human capital of Role of social capital and human capital of

an entrepreneur needs to be examined in an entrepreneur needs to be examined in more detail in relation to a SMEs more detail in relation to a SMEs internationalisation successinternationalisation success

How recent 10 new EU members have How recent 10 new EU members have affected internationalisation activities of affected internationalisation activities of SMEsSMEs

How international entrepreneurship How international entrepreneurship fostered in transition economies such as fostered in transition economies such as Hungary and BelarusHungary and Belarus


Thank you!Thank you!