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The development of a high-tech international new venture as a process of acting

A study of the lifespan of a venture in software business
Tuija Mainela
Department of International Business, University of Oulu, Oulu, Finland

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Elina Pernu
Department of Marketing, University of Oulu, Oulu, Finland, and

Vesa Puhakka
Department of Management, University of Oulu, Oulu, Finland
Abstract
Purpose The purpose of this research is to analyze the development of high-tech international new ventures as an acting process by individuals in relationship networks. Design/methodology/approach The study cross-fertilizes research on internationalization of international new ventures, opportunity development of entrepreneurs and innovation development in technology-based rms. A longitudinal case study on the development process of an international new venture operating in the software business is used as a base for analytical generalization and theory development. Findings The study illustrates events at three intertwined levels of acting on the development of an international new venture. It denes internal problem solving, external solution creation, opportunity selling and opportunity organizing as the behaviors driving the emergent, multi-level process and embedding the venture in various networks. Research limitations/implications Statistical generalization based on common patterns experienced by several rms was not sought in this study. Using the process research approach with event-based analysis, the study, however, provides an in-depth analysis of international new venture development through the actions of individuals at the level of key events. The methods for examining a complex development process over time can be utilized by other process researchers. Practical implications The complexity of building high-tech international new ventures is, to a great extent, due to the necessity of handling the process at three levels simultaneously and in connection with one another. Since international new ventures are often based on business opportunities that have a short window of opportunity, the timeline creates further challenges. Embedding the business into various resourcing, legitimizing and otherwise assisting networks is crucial. Originality/value The study provides an insight into the ways of acting in networks that intertwines the internationalization, opportunity and technology development with development of a high-tech international new venture. The study follows the development process in real time, something that is quite rare in previous international entrepreneurship research. Keywords International new ventures, High-tech, Networking, Process, Entrepreneurialism, New products, International business, Computer software Paper type Research paper

Journal of Small Business and Enterprise Development Vol. 18 No. 3, 2011 pp. 430-456 q Emerald Group Publishing Limited 1462-6004 DOI 10.1108/14626001111155655

Introduction High-tech business context has offered a fertile ground for international entrepreneurship research, because rms in high-tech industries often enter international markets faster than rms in more traditional industries (e.g. Bell, 1995; Jones, 1999; McDougall et al., 2003). By denition, high-tech rms produce products and services with advanced technologies in highly uncertain and technical environments (Burger-Helmchen, 2009). This often means that the rms are specialized, high quality producers of products with short life cycles and specialized niche markets scattered around the world (Bell, 1995; Crick and Spence, 2005; Madsen and Servais, 1997). Despite the often limited internal resources (Bell et al., 2003), the willingness to rely on external resources in the business networks creates opportunities to enter international markets (Coviello and Munro, 1995; Harris and Wheeler, 2005; Sharma and Blomstermo, 2003). The present study contributes to the international entrepreneurship research by combining research on internationalization of international new ventures, opportunity development of entrepreneurs and innovation development in technology-based rms. Internationalization, in general, is primarily a network-embedded process ( Johanson and Vahlne, 2009), and the network embeddedness of developments is emphasized in cases of young high-tech rms (Moen et al., 2004). For new entrepreneurial ventures, networks are an essential source of knowledge, nancing, legitimacy and assistance in opportunity development (Arenius and De Clercq, 2005; Elfring and Hulsink, 2003; Hoang and Antoncic, 2003). Moreover, technological innovation is often the reason for founding a high-tech rm in the rst place (Laanti et al., 2007), and innovation development is widely considered to be a network-based process (Ritter and nden, 2004; Storey and Dether, 1998). Therefore, in the development of high-tech Gemu international new ventures several network-based processes are actually intertwined. In network-based processes, then, the question is of actions and interactions of individuals over time (Buttriss and Wilkinson, 2006; Easton and Araujo, 1994). The eld of international entrepreneurship covers research ranging from internationalization strategies of international new ventures to entrepreneurial cultures in different countries, and to the analysis of product innovations and knowledge management (Oviatt and McDougall, 2005). The majority of international entrepreneurship research has focused on international market entries and patterns of internationalization by new rms (e.g., Madsen and Servais, 1997; Zucchella et al., 2007). Opportunity related processes have lately been taken to the core of international entrepreneurship (Oviatt and McDougall, 2005) and the number of studies using opportunity recognition perspective has grown (see Keupp and Gassmann, 2009). Still, the in-depth examinations are only a few (e.g. Chandra et al., 2009; Mainela and Puhakka, 2009). Furthermore, several studies see innovation that typically results to new products or services as a critical determinant of international new venture emergence (e.g. Knight and Cavusgil, 2004). In the end, there seems to be an agreement about international new venture emergence to be a multi-faceted process with several intertwined sub-processes but in which the developments in these three elements are the cornerstones (see Dimitratos and Plakoyiannaki, 2003; Etemad and Lee, 2003; Hisrich et al., 1996; Styles and Seymour, 2006). However, research covering the holistic development process over time at the level of individual acting is limited (see Buttriss and Wilkinson, 2006). The static comparative approach outperforms the dynamic approach in the international

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business research in general too (Matthews and Zander, 2007). Of the three intertwined processes, the process of opportunity development and the process of technology development as exposed to international or global inuences have seldom been examined in-depth. Research that would combine all three processes in a longitudinal examination is lacking (Coviello and Jones, 2004; Jones and Coviello, 2005). Claiming that the connections between these sub-processes are central to the overall development process we search for the generative mechanisms behind the process through analysis of the network acting by the involved individuals. Denition of the generative mechanisms is an inductive challenge for theory developing process scholars who aim to explain the patterning in the observed process, i.e. dene the drivers of the process (Pettigrew, 1997). In contrast to Coviello (2006), who examined the structures and patterns in international new venture networks, we focus on the events over the development of the venture and the related ways of acting in the relationship networks. Specically, we aim to nd out how high-technology international new ventures develop as network-acting based processes. In our efforts to dene the drivers of the development process, we rely on a longitudinal case study that covers the lifespan of an international new software venture. This particular venture has exceptional origins in a local advertising agency from where it develops into a high-tech international new venture. Since our examination covers the entire lifespan of the venture it allows us to acknowledge how the venture quickly develops from one type of a venture to another type making it difcult to categorize it as a certain kind of new venture (see Bell et al., 2001; Oviatt and McDougall, 1994; McDougall et al., 2003). The longitudinal examination also illustrates the co-existence of planned and unplanned strategies (Crick and Spence, 2005) in the rapid developments making the process as a whole primarily an emergent one. These issues call for further attention to the denition of international new ventures and the categorization of rms in the studies. Moreover, the study denes certain network-based behaviors of the involved individuals as the mechanisms that connect processes at different levels and generate the overall venture development process. The article is organized as follows. The next section builds an initial conceptual framework from the internationalization-, opportunity- and technology-centered angles. The third section introduces the research methodology. The fourth section provides, rst, a description of the development process of the case venture over time through specic events at the three process levels of analysis. Second, the events are analyzed in sequences that connect events at several levels allowing us to dene the ways of acting that are the drivers of the development process. We end with discussion on the contribution of the study to international entrepreneurship research, in general, and international new venture development research, in particular. Development of high-tech international new ventures Repeated calls for cross-fertilization across different research streams have been presented in international entrepreneurship research (Coviello and Jones, 2004; Oviatt and McDougall, 2005; Rialp et al., 2005). We utilize research on the roles of relationships in internationalization, research on entrepreneurial networking in opportunity development and research on technological development in innovation networks to understand the development of high-tech international new ventures.

Internationalization of rms and inter-rm networks The research on internationalization of rms has traditionally focused on the choice of entry and operation modes and choice of the target markets. The traditional models (e.g. Bilkey and Tesar, 1977; Johanson and Vahlne, 1977) have been developed based on the observation that rms usually start their operation in domestic markets, then enter psychically-close markets and, nally, other countries and continents. In a similarly gradual way, the operation strategy may develop from less committed indirect exports to operation modes requiring greater commitment, such as subsidiaries. The seminal article by Oviatt and McDougall (1994) has generated a rich research area on international new ventures, i.e. rms that soon after their inception look for sales and purchases from international markets. Especially, the internationalization of specialized technology companies has been noted to differ from the internationalization of companies in more mature industries (Bell, 1995; Sharma and Blomstermo, 2003). Specialized technology rms seem to have a strong intention to internationalize at inception and approximately by the third year operate in numerous markets and have growing international sales and dominant positions (Coviello and Munro, 1997). The rapid internationalization is, to a great extent, due to the effective use of networks and relationships in the business development (e.g. Coviello and Munro, 1995, 1997; Harris and Wheeler, 2005; Sharma and Blomstermo, 2003). As Johanson and Vahlne (2003, 2009) present, it is actually in networks, where new rms learn and can proceed in their internationalization process by using what they have learned. Relationships grow incrementally through interaction, and commitment to them develops through common experience. Typically, international new ventures have limited internationalization knowledge and international business experience (Laanti et al., 2007; Sharma and Blomstermo, 2003), but, instead, they have an internationally experienced entrepreneur (Andersson and Wictor, 2003; McDougall et al., 2003). This enables them to rely on the existing relationships of the entrepreneur in order to learn and create a kind of external internationalization knowledge instead of developing it internally (Johanson and Vahlne, 2003). The emphasized role of certain individuals is typical of high-tech companies (Burger-Helmchen, 2009). Functions for the existing relationships in the internationalizing rms had already been determined two decades ago (Johanson and Mattsson, 1988): they offer contacts to customers, help to nd partners and positions, and provide local market knowledge, initial credibility and access to distribution channels. Researchers have stressed the different purposes of inter-rm relationships in the internationalization process (Coviello, 2006; Harris and Wheeler, 2005). Relationships provide information on international opportunities and help to identify and become acquainted with the possible exchange partners, even to initiate unintentional internationalization (Ellis, 2000; Komulainen et al., 2006). The increased amount of knowledge, experience and commitment, and related network resources are the basis for learning that is required for internationalization (Eriksson et al., 1997). The international operations and networks evolve simultaneously and drive each other and the actions in international markets increase the ability and desire to discover new business opportunities (Eriksson et al., 1997; Johanson and Vahlne, 2009). Next, we take a closer look at an entrepreneurial process that focuses on the opportunity.

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Entrepreneurial opportunities and interpersonal networks Essential in the emergence of new international business is the creation of its strategic concept the business opportunity and the way to commercialize it (Eckhardt and Shane, 2003). Entrepreneurship can be dened as a process of creating new business, in which an opportunity is recognized and then turned into a form in which it creates economic value by using its own and others resources and interpersonal networks (e.g. Bygrave and Hofer, 1991; Gartner et al., 1992). Shane and Venkataraman (2000) dene an opportunity as a new means-ends relationship between goods, services, raw materials and organizing methods coming into existence as a long-term prot potential based on a recognized market position. The position should allow for competitiveness beyond the short run on the basis of offering products and services that are attractive, durable, and timely and add value to buyers and/or end users. The business opportunity is an artifact of a problem solving process that is, however, not possible to logically deduce due to the complexity of the information space. Thus, opportunity is merely a conglomeration of fragments that have to be made sense of while the situation is developing (Kirzner, 1997). Opportunity recognition has been seen as creation of a strategic business concept (e.g. Cooper, 1981), interpretation of market information to nd market gaps (e.g. Kaish and Gilad, 1991; Kirzner, 1979), organizing to launch a venture (e.g. Christensen et al., 1994; Herron and Sapienza, 1992) and as social dialogue to negotiate an idea to an opportunity (e.g. Krackhardt, 1995). In their inuential contribution, Ardichvili et al. (2003) saw opportunity development, recognition and evaluation intertwined in opportunity identication. The latest views have stressed both the rational and the intuitive parts of the phenomenon, and have started to use concepts of opportunity creation and effectuation (Alvarez and Barney, 2007) and opportunity development ( Johanson and Vahlne, 2009). We choose to use the concept of opportunity development that combines rational and intuitive behaviors, such as knowledge acquisition, competitive scanning, proactive searching, innovation and collective action (e.g. Kaish and Gilad, 1991; Sarasvathy et al., 2003; Shane and Venkataraman, 2000). At the core is strategic thinking, i.e., entrepreneurs thinking about the business situation and identifying possible new businesses (Ireland et al., 2003). This process is experience and network based; searching for something valuable not yet available to customers. Entrepreneurial strategy-making is, thus, about the entrepreneurs understanding of the markets, resources, people, themselves and their skills and motivations, and trying to read between the lines to see opportunities (see e.g. Covin and Slevin, 1991; Miller, 1987; Miller and Friesen, 1978). However, opportunity development is not only an individual process but takes place in a social dialogue (e.g. Elfring and Hulsink, 2003). Entrepreneurs need relationships to get information, resources and opinions about their ideas (Singh et al., 1999) and so infuse a vague situation with meaning (Sarasvathy and Kotha, 2001). In the venturing process, personal networks may provide the encouragement needed to push a committed entrepreneur forward (Johannisson, 1988). Typical of entrepreneurial behavior is nding a way to access resources (Stevenson and Jarillo, 1990), which is connected to acting as if behavior (Gartner et al., 1992) and bricolage (Baker and Nelson, 2005). It is a question of individuals who, in the development of opportunities, use resources controlled by their friends or acquaintances to make it look as if they had

a well-established business and a workable solution. Essentially, an entrepreneur is a network user who enacts the reality with other people ( Johannisson, 1988) to create new ways of doing business (Shane and Venkataraman, 2000). In sum, entrepreneurial opportunities are likely to constantly change as you go along. Decisions are quickly made without in-depth analyses, various partners are involved and potential customers met, even to sell solutions that do not yet exist. This needs ability to see surprises as parts of normal life and seek surprises because they move things to a new direction. Entrepreneurial opportunities in high-tech, in particular, involve combining technological diversity with market opportunities and continual development of technology according to customer needs (Park, 2005). Opportunity recognition and international new venture evolution are, thus, strongly linked with technological developments, which are discussed next. Innovation development and technological networks As Granstrand (1998) has noted, an increasing number of rms usually those referred to as technology based rely on technological innovation in the exploitation of business opportunities. Their competitive advantage is based on knowledge, technological skills and experience in new product development (Pla-Barber and Alegre, 2007). Their knowledge base is difcult to copy and dependent on the existing relationship network (Sharma and Blomstermo, 2003). Thus, the technology-centered process of international new venture emergence is focused on technological innovations (Narvekar and Jain, 2006; Pla-Barber and Alegre, 2007). Technology by denition is not an innovation, but innovation is created by combining technology and market need to create protable opportunity (Granstrand, 1998). Shane (2000), for example, demonstrates that just one technology can spawn multiple business opportunities for a rm. High-tech companies are typically designed to be effective and innovative and also their internationalization is built around technologically innovative products (e.g., Bell, 1995). The development and exploitation of technology is, therefore, one of the main concerns in the internationalization of high-tech rms ( Jones, 1999). As Jones (1999) notes, this may involve international technology transfers in the innovation process and augmentation of the technical resource base of the ventures over time. Ability to combine internal technological capabilities into the external technology environment is critical (Carayannis and Alexander, 2002; Granstrand, 1998). The rms aim for continuous product development through both internal research and development (R&D), leveraging the competences of partners and imitation of innovations of other rms (Knight and Cavusgil, 2004). Thus, an innovation process includes a number of intra-rm and inter-rm actors and requires co-operation between them (Calia et al., nden, 2004). Further 2007; Narvekar and Jain, 2006; Park, 2005; Ritter and Gemu challenges arise because of the often short windows of opportunity for exploiting new technologies in the high-technology context. In the end, the technological and networking capabilities of a rm affect innovation nden, 2004). A rm needs technological competence in order success (Ritter and Gemu to increase the value of its products and processes. In addition, a rm has to develop its networking capability to be able to connect with others in the market and allow technological interaction outside organizational borders. The performance not only depends on customer relationships, although, for example, skills to adapt to different

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customer demands are emphasized (Park, 2005). A range of different external partners, nden et al., with their unique resources, can play an important role in the process (Gemu 1996). In addition to assisting in the development of a new product, they can, for example, help to develop a rms business model (Calia et al., 2007). Thus, technology-based rms emphasize technological ideas and embed the innovation nden et al., development in the networks in their technological neighborhood (Gemu nden, 2004). 1996; Granstrand, 1998; Ritter and Gemu Initial conceptual framework for examination of international new venture development We provide above an overview to previous research on network-based internationalization, opportunity development and innovation development. These elements are inherent in the development of high-tech international new ventures. Some studies combine internationalization and opportunities (e.g. Chandra et al., 2009) and some internationalization and technological innovation (e.g. Knight and Cavusgil, 2004) noting the connectedness of these elements. We go further to study all three processes as separate but connected levels of analysis (see Figure 1) in order to dene the drivers of international new venture development over time. We dene the internationalization-centered process to consist of the events and actions related primarily to the entry to and operations in a foreign market. Basically, these events and actions develop the internationalizing rms international experience and internationalization knowledge that are to be manifested as actions of committing to international business operations (Eriksson et al., 1997; Johanson and Vahlne, 2003, 2009). The events and actions take place in the target foreign market or are directly related to the ways of organizing the operations there. They as well aim to position the new venture in relation to counterparts in the foreign inter-rm networks (Coviello and Munro, 1995; Johanson and Mattsson, 1988). The opportunity-centered process is dened to consist of the events and actions focused on the building of the business concept of the venture. Opportunity development involves both rational and intuitive search for information and both social and cognitive interpretation of information in order to recognize market gaps and to create strategic business concepts. Information search and strategic and

Figure 1. Three process levels of international new venture development

intuitive thinking focus on creating new combinations of an offering, resources and strategic mechanisms to realize the entrepreneurial idea, and construct a value proposition to the potential customers (Shane and Venkataraman, 2000). However, opportunity development is not a simple and organized internal process but a social dialogue (Shepherd and DeTienne, 2005). Through successive inclusion of trusted people and rationalization of actions in the personal networks, the entrepreneurs move from an opportunity to realization of the venture (Johannisson, 1988). The technology-centered process consists of the events and actions related to the conception of the technological promise on which the opportunity relies. The technological promise is manifested as initial ideas of new product or service concepts that are connected to innovative technological solutions. In their internationalization, technology-based rms are often challenged by quickly increasing demand, sophisticated customers, to whom the product is strategically important and therefore needs to be tailored, and volatile competitive markets (Moen et al., 2004). These features make network relationships important in the innovation process, which may aim to establishment of standards and rst mover advantages (Crick and Spence, nden et al., 1996). On the basis of this initial framework we search for the 2005; Gemu drivers of the development of high-tech international new ventures at three connected levels of the process. Methodology Process research on organizations has signicantly expanded over the last few decades, and this methodological tradition is followed here. In line with Pettigrew (1997) and Van de Ven and Poole (2005), we dene a process as a sequence of individual and collective events, actions and activities unfolding in context over time. Qualitative process research is especially appropriate for research that integrates several research streams for holistic understanding (Hoang and Antoncic, 2003). We apply a case study method, whereby qualitative and longitudinal data are used to create a deep understanding of a particular social setting (Dyer and Wilkins, 1991). Case study is an appropriate research strategy for process studies and provides an effective method for studying change (Borch and Arthur, 1995; Buttriss and Wilkinson, 2006; Dubois and rnroos, 2005). Gadde, 2002; Halinen and To We produce a longitudinal case study to trace the interrelatedness of events at different levels in the process of international new venture development. We have adopted the principles of realistic case research (Buttriss and Wilkinson, 2006; Easton, 2000; Tsoukas, 1989). The grounding principle of realistic research is that ontologically the world exists without human awareness of its existence (Buttriss and Wilkinson, 2006; Easton, 2000; Tsoukas, 1989). However, as we study social world, we epistemologically deny the possibility of law-like predictions because of the open, expansive and continuously changing nature of human behavior (Sandberg and Tsoukas, 2011; Tsoukas, 1989). That is why we are interested in the processes by which causal relationships come about, and not the causal relationships, as such. We do not test a priori dened theory but develop theory, manifested as generative mechanisms, through data-driven narrative mapping of behaviors embedded in events m and Swedberg, 1998; Sandberg and Tsoukas, 2011). over time (e.g. Hedstro Accordingly we aim at holistic and particularized causal explanation for the case in its specic context. Instead of law-like predictions, the interest is in the generative

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mechanisms, i.e. the underlying forces that generate and explain the associations between events in a given situation (Bhaskar, 1998; Tsoukas, 1989). Examining a case in its specic context allows creating understanding of the interaction of an event and its context. Data collection We examine the entire lifespan of an international new venture, which was legally established as an independent unit in November 2004 and ceased its operations in summer 2007. It operated in software business and served so-called continental system developers. The rm was a spin-off from a locally operating Finnish advertising agency. The software rm, however, had its main market in another continent, specically in the USA. Right from the beginning, the company set as its target to be seen as a local Silicon Valley rm. Although the choice of the target market can be seen quite special among European high tech rms, in general, in case of a software rm it corresponds with attempt to enter the main markets of the business. The selection of the venture under study was a result of an emergent process. Initially we searched for an international new venture whose management would allow us to follow it over time. The search started with interview of a representative of a local facilitation program that aimed to assist software rms to enter US markets. In the discussion was mentioned a couple of examples of ventures that had participated or were participating the program. One of the ventures sounded especially interesting because of its unusual origins and strong entrepreneurial enthusiasm. At the same time one of the researchers came across with the entrepreneur in another occasion and agreed to share the story of the venture. The venture had a few months earlier been spun off from an advertising agency and there were new challenges confronted by the entrepreneur. The ways of operating needed to be changed from a locally operating advertising service rm to an international software product rm operating in the US markets with intense global competition. We believed these characteristics of the venture make the case particularly revealing with respect to the drivers of international new venture development. We did four in-depth interviews over time with the founder and CEO of the software rm in March 2005, October 2005, January 2007, and August 2007. In addition, we interviewed two representatives of a business development program in October 2004 and March 2006. The program had a signicant effect on the emergence of this international new venture. The six interviews were all tape-recorded. In March and June 2006, we had two informal discussions with a US consultant who was a crucial partner to the rm and during autumn 2009 there were ve informal email communications between the CEO and the researchers related to the case rm. To ensure as good a t as possible between reality and the studied aspects, data were also collected from written sources (Easton, 2000). The secondary data included the web pages of the rm, its application documents to the business development program and an analysis, done by a US consultant, of the rms US activities from its ofcial establishment, to closing its rst two deals in the US market. In addition, 47 press releases and articles dealing with the rm were collected from newspapers, magazines and the internet. The secondary data were an important supplement to the interviews, because they helped to construct the case study narrative and track the chronology of the events and their contents. To ensure correct tracking of the process,

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the CEO of the venture read through the narrative twice during the research process. In June 2006 he provided written feedback, and in August 2010 we got both written feedback and had a half-hour interview on the basis of the nal narrative. Data analysis The aim of the analysis was to generate a well-grounded account of the process by using two sense-making strategies (Langley, 1999, see Buttriss and Wilkinson, 2006). We adopted a narrative strategy to construct a detailed story from the raw data and to prepare a chronology of events for further analysis. A visual mapping strategy was used to build on the narrative with a goal of making the changes from one level to another visible. These two strategies for decomposing the data allowed us to examine how events at one level were related to events at other levels and analyze the behaviors and networks behind the changes. We could incorporate order and timing of the events as critical elements of our understanding (see Hoang and Antoncic, 2003). Altogether 143 pages of the verbatim interview transcripts and 47 media articles formed the raw data of the analysis. From this data we, rstly, constructed a detailed description of the rms development; the story against which others can compare their experiences (Dyer and Wilkins, 1991). We considered the chronology of the events especially important as we wanted to understand what drives the developments over time. The resulting analytical report helped us to form a holistic view of the international new venture development revealing the venture development throughout time and the complexity of actor networks, market developments and ways of acting by the individuals. The CEO of the rm checked the narrative and complemented it with several important details. In search for the drivers of the process the possibility to see the events to take place at three different levels became clear but simultaneously the interconnectedness of them was highlighted. In the subsequent analysis, we dened 59 events at three levels during an approximately ve-year evolution of the rm (see Table I and Figure 2). We then went back to the original interview data to understand how the three levels are intertwined as one development process. We rstly searched for the basic nature of the events at each level, which meant that internationalization, opportunity and technology development were examined separately. However, in search for the generative mechanisms driving the process and the intertwining of the three levels, we concentrated on the behaviors and networks that were behind the connections of the sub-processes. For example, analysis of the moves from the technology development to business opportunity creation led us acknowledge the search for better customer service through internal development projects as a major behavioral mechanism. Case study of development of an international new venture in a software business The rm under study is a technologically innovative software rm that develops www-based applications, application development platforms and their user interfaces. The offering of the rm, a rich internet application toolkit, is based on two core technologies. One is a virtual browser that creates a virtual document object model as an interface between the real document object model and the application. It enables effective testing of browser compatibility of an application and removes problems of web browser breeds and versions. The second technology is an intelligent

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Business development process Internationalizationcentered process 2001-2002 9. Distributing plugin product via Macromedia Exchange-internet page 2003 10. Applying to business development program (GS) 13. Strategic training by GS 14. Training for international readiness by GS 2004 16. First nancial negotiations for US entry 18. Strategic training by the GS 19. Field trip to USA by GS 21. Contracts with US consultants, market validation documents 23. US market research 2005 29. Funding applications 30. Marketing strategy, competition analysis 32. Naming experienced board 33. Virtual ofce to Silicon Valley 34. Meeting US customers 43. Every second month visits in the USA

Table I. Empirical events at three levels of the international new venture development process Time 2006 46. Personnel to US ofce hired 53. From subsidiary to USA based independent rm 54. New CEO hired 55. Director of Global Sales hired 56. Dramatic change in competition; around 200 competitors 2007 58. CEO sold his shares 59. Firms software and employees shifted to another company (continued )

Time 1. Parent rm serving local customers 3. Notice of an emerging trend 4. Notice of lack of knowledge of Web 2.0 among customers 8. Preliminary testing of the idea with family and friends 11. Provision of new information to GS, showing commitment 12. Technological promise noted fascinating in GS 15. Denition of possible market of signicant size 31. Financing of US$ 1 mil. 35. Delivery agreement and letter of intent 37. Product pricing strategy developed 38. Denition of 80% of customers and ten competitors in USA 39. Licensing documents 42. Delivery to customers 36. R&D personnel hired 40. Alpha version of product 41. Intensive R&D phase 44. R&D as a priority 47. Joining OSCE foundation 48. Version 2.0 R&D begins 52. Beta version of open source product 57. Customers 45. Second nancing round; divided to OEM and e-customers e2 million 49. Strategy changed from licensing to open source model 50. Launch of open source product 51. Strategy changed from licensing to open source model

Business opportunitycentered process

Technology-centered process

2. Unavailability of developed Web 2.0 technologies noticed 5. New product concept developed: virtual browser 6. Dream Weaver plug-in 7. Macromedia certication

17. Notice that majority of customers are in Silicon Valley 20. Presentations to US consultants and experts 22. Financial negotiations in home country 24. Financing secured 25. Established ofcially 27. First product released 28. First Finnish customer 26. Virtual browser patent led

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Table I.

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Figure 2. Connections between the events at different levels of the development process

web-application structure that changes the way a web page operates, reduces web page loading times and makes their use more effective. Together, the technologies signicantly reduce the amount of written code in web pages and the data transferred in Internet to fraction compared to previous technology. The case narrative is presented in the following and summarized in Table I as the critical events at different levels of development. Empirical events along the international new venture development The idea generation behind the international new venture emergence can be seen to date back to as far as the end of the 1990s. In 1996, two university students interested in web technologies established a rm in Finland that developed to an advertising agency specialized in digital media. The advertising agency began to deal with ideas related to the case rm establishment soon after the business was started. In the beginning it was question of developing new web technology where understanding of the requirements was gained through trial and error. The technology was not really intentionally developed. Instead, the young entrepreneurs tried to create the best possible digital media solutions to their customers. Creative solutions and work for new innovations was encouraged as well a willingness to take a risk which, in turn, created good circumstances for developing something new. The projects for different local customers with varying needs guided the product development and the rich user interfaces were rst used in the advertising agency. Opportunity development was based on the realization of limitations in current technology and the development of own technology to solve the problems. A DreamWeaver plug-in was developed and it received Macromedia Approved Certication. It was the rst certication by the global software house awarded to a Finnish company. The entrepreneur started to communicate the emerging business idea based on the technology to his friends and family, who provided the rst test-bed and encouraged him to proceed. The plug-in product was in the end of 2002 distributed and sold through Macromedia Exchange internet pages, which was the very rst step in the international launch of the technology. Plug-in was originally developed for making rich user interfaces with DynAPI tool library, but since DynAPI had multiple problems especially when used with different browser versions, the Virtual Browser was invented. The Virtual Browser was a starting point for making an own tool library. In autumn 2003, the rm applied to a partly government nanced business development program, which aimed to aid software rms entry to the US markets. The program was lead by local representatives, but a core of it consisted of a six-person team of US consultants and managers. The rm was almost excluded from the program, since the business idea, with the rms background in an advertising agency, as well as the actual business concept were difcult to understand. However, the entrepreneurs enthusiasm and commitment and the technological promise, together with providing additional information, got the rm into the program. The rst phase in the program that was realized in December 2003 included so-called strategic training and creation of global readiness. In 2004, the rm had the rst nancing negotiations for the US entry. The early analyses showed that majority of potential customers were located around 100 miles from Silicon Valley. The second phase in the program included more specic strategic

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training. The entrepreneurs presented the business idea to a US consultant and expert team. They then participated in trainings and workshops held by the consultants, which forced them to think the business concept and effective communications with possible US partners. The rm made its rst trip to the USA. During the two-week trip the rm met the press, analysts, consultants and venture capitalists. In May 2004, the rm made cooperation agreements with two US consultants and got a market validation document, which concretized the elements of the market opportunity. In the summer, they had new nancing negotiations. Six business angels became interested in the opportunity and committed to invest in its development. In addition, the entrepreneur presented the venture idea to a leading national technology investor and other possible nanciers in an introduction program of the technology investor. Several venture capitalists expressed their interest and the national technology investor gave a conditional promise of investment. The advertising agency (parent rm) decided that they do not have resources to invest in the third phase of the training program. However, the contacts to the USA (e.g. to consultants) and the local program team were maintained. In summer 2004, the rm conducted market research in USA, which was funded with the help of The Funding Agency for Technology and Innovation. The rm got its rst customer in August 2004 and in October the rm was ofcially established as a daughter company of the advertising agency. The rst version of the product was released. In January 2005, the rm made further funding applications and, in February, it completed a market strategy, product positioning and a competitive analysis research. It received a seed nancing of US$1 million. During this nancing round all the legal connection between case rm and the advertising agency were cut off. A board of both Finnish and US managers and venture capitalists with strong international experience was hired for the new venture; they also acted as seed nancers for the rm. However, the entrepreneur was the only person working in the rm. He worked from the ofce of the advertising agency utilizing its infrastructure and services and also was the CEO of the advertising agency. Therefore, the rm was closer to a virtual organization. Still, it had its own web pages, ofce address and led patents for the main technologies. In April 2005, a US ofce was established. It was important for the rm to build a local presence in the USA and the US ofce was, therefore, called the head ofce. In reality, it was a virtual ofce with real address and rented call center services directing calls to home country. In practice, the rm was present in the market through the business trips of the entrepreneur and some members of the board of directors and through two US consultants who were working for the rm. Utilizing the US partners services was considered crucial, since they were also willing to open their contact networks to the rm. In summer 2005, the entrepreneur had customer appointments in the USA and got one delivery agreement and one letter of intent. The rm also hired product development personnel. At this stage, the rm had about ten competitors. The product pricing strategy was developed during the summer and the rst US customers were secured. The opportunity became a business. The Alpha version of the product was released in August and intensive product development began for rst two customer orders. In 2005, about 80 percent of the sales came from the USA and 20 percent came from local markets. The chief executive ofcer (CEO) and the some of the board members traveled to the USA every other month and had telephone conservations with the US customers between the trips.

In summer 2006, the rm received a second round of venture funding, 2 million Euros in total. It established an operational US Ofce in Silicon Valley and hired personnel there. In October, it joined the Open Source Collaborative Eclipse Foundation and launched an Open Source RIA Platform for AJAX-based rich internet applications. It had the beta version of an open source product. In November, the rm recruited new CEO and in December Vice President of Global Sales. In the beginning of 2007, the rm changed from a dual license business model to an Open Source business model. The rm had two primary customer groups: OEM-customers and e-customers. However, there was also a dramatic change in the competitive landscape, since the number of competitors was now estimated to be around 200. The founder sold his shares in February 2007 when selling the company became preferred option for investors. Eventually the software of the rm was branched to another company and the majority of the employees were hired by this company. The events at different levels of the overall process of international new venture emergence are summarized in Table I and their connections over time are shown in Figure 2. Network-based behaviors driving the business development process The idea here has been to show how the development process of a high-tech international new venture is actually composed of events at three different but intertwined levels. Technology centered process is primarily about technical innovations that are developed to new software products through several breeds and versions. The opportunity-centered process is about creating and changing the business concept of the rm and realization of the new business. The internationalization-centered process is about creating presence in the international target market. As a whole, the international new venture development is opportunity-centered meaning that events along the two other levels seem connected through events at the opportunity level. By further analysis of the data, especially the connections between the events, we could identify a repertoire of behaviors that drove the process and embedded the venture in various networks (see Figure 3).

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Figure 3. Behaviors driving network-embedded international new venture development

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The development of the international new venture can be seen to have started as interaction between technology development and opportunity development. These processes are connected through behaviors named internal problem solving and external solution-creation. Internal problem solving refers to behavior that connects technological innovation to entrepreneurial opportunity to the extent that certain element of the business concept is considered. Internal needs or, for example, limitations in the used technology in the focal rm act as an impulse for the creation of new innovation which is anticipated or at least hunched to be a basis for potential new business (see, for example, events 2-3). Problem solving is based on the rms internal technological development, although customer projects are a central development platform. Thus, this behavior is embedded in the close network of co-workers. It was the desire of the technological team to develop better tools than the existing ones for their own use and for better customer service:
The desire to not to compromise in usability and user experience has made us invent new means to get the work successfully done (CEO). We found out that it [the used product] doesnt work because of these compatibility problems. And it wasnt a great product. Thats why we made the virtual browser innovation, which removed compatibility problems, and this was the starting point for creating an own library [product], which eventually solved the compatibility problem (CEO).

The technology then received a macromedia certication, which led the entrepreneur to wonder if there was an opportunity to develop new business. He reected upon the idea through discussions with friends and family, who saw the importance of the technological innovation and the possible international markets. External solution creation centers on the needs of the customers that guide the development of technology. In the early stages of the case venture, the customers role in the solution creation was indirect, because they did not expect the kind of technology that was developed. Still, the link to the customer interface existed. In the later stages, when the rm had established customer relationships especially for the new venture, the external solution-creation was directly customer relationship embedded behavior. The customer-specic implementation (events 39-40) is one example of external solution-creation. Here, the realization of the entrepreneurial opportunity creates a need for a new technological solution. Another example of external solution-creation is the specic request from the customer to switch to the open source model. Changing the business concept created a need to develop the technology (events 50-52):
Well actually the message came from few customers, in the USA I mean, that have we considered the open source model, since they are now considering switching to it and that actually would mean that they, in order to use our product, should have this opportunity (CEO).

In the case rm, the early developments were driven by internal problem solving and external solution-creation behaviors. To enable the entry to the US markets, several stakeholders needed to be convinced about the feasibility of the opportunity exploitation. We call these behaviors opportunity selling. The entrepreneur rst tested the idea with his family and friends and after receiving support from them and from his peers, the entrepreneur applied to the business development program (events 8-10).

An interesting issue that followed next in the developments was the hesitation of the program team of consultants (events 10-11). Their hesitation was due to the exceptional background of the idea in a seemingly non-technical rm. However, this was overcome through the fascinating technological promise and the possible large markets for it:
We and the consultants were wondering how an advertising agency can make serious software product business. [The entrepreneur] gave some additional explanation, how he sees it [the business] and better crystallized the business idea [. . .] It was seen that the opportunity existed, and in a way the potential can easily be big (Development Program Manager).

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The nanciers and consultants also needed to be convinced, as seen in, for example, the events 20-21. From 2003 onward, the events focused for a while on the development of the opportunity in connection with the internationalization of the business and on securing resources for the new venture. These developments were strongly embedded in the US consultant network and nancing networks, which were the basis for business validation in the chosen markets. Establishing a virtual organization is also an example of opportunity-selling behavior. To convince the customers, the case rm needed to be actively involved in the markets, and virtual organization provided a way to attain this, as illustrated in the following quotation:
There is no other option than being involved in the global market [. . .] Virtual ofce provides the same service in all the infrastructures [. . .] I have the same system, the same programs, same communication possibilities irrespective of where I am (CEO).

The CEO saw that the credibility problems stemming from lack of presence could be avoided with different arrangements, such as having a virtual ofce space and investing in marketing actions (e.g. web pages, trade fair participations). The local presence was seen important for the credibility with customers but most of all to opportunity recognition and developing. The following citation describes how the CEO saw the challenges related to virtual model:
We didnt have problems with any of our customers on how the rm was organized, but on the other hand, many opportunities surely were not recognized because of the virtual phase (CEO).

Opportunity-organizing focuses on the denition of the business concept, target market and target customers, as well as the ways to realize the opportunity as an international business. In the case study, a crucial event, actually required by the nanciers, was the ofcial establishment of the venture as a subsidiary of the advertising agency. Simultaneously, a rst product version was released and the virtual headquarters established in the USA. The virtual organization is related to both opportunity-selling and opportunity-organizing behaviors. Virtual structures provided a way to create a presence in the market. This allowed the entrepreneur to act as if he had a well-established and an organized business:
[The software rm] was closer to a virtual organization than a real one. But the entrepreneur acted as if he had a well established rm (development program manager).

The international image of the rm was strengthened through the international board of directors. These actions were rst followed by customer meetings, which lead to the

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allocation of nancing. Internationalization and increased experience helped the rm to discover business opportunities and organize its business accordingly:
And then the US deal came actually through the fact that we were part of the training program and it made quite clear were the market is and how the market entry should be done (CEO).

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When the nancing and rst foothold in the US market was achieved, the rm could focus on product development and marketing strategy, especially with respect to pricing and competition. As a result, the business concept was focused on technology licensing (event 39). If we look at the latest developments, the three levels and the four behaviors are strongly intertwined. The intensive efforts in technology development led to the development of the products Alpha version, which was the basis for making the rst customer deal in the USA. Then, the rst customers released the second round of nancing. This enabled investing in establishment of a real subsidiary in the USA. At this point, the business concept was, again, reconsidered and as a result of R&D work, a Beta version of an open source product was developed and the opportunity organized as an open source concept. Meanwhile, the competition in the US market grew dramatically, which required changes in the opportunity organizing. The customers were divided into R&D- and e-commerce based partners. However, after analyzing the severe competitive situation, the rm was sold to a larger rm in the same eld of business. In conclusion, the international business of a new technology based venture evolves at three different levels. Along the process, the business concept changes (e.g. from technology product to technology licensing and to service-centered open source model), new technological innovations are developed (e.g. from non-existent web 2.0. technologies to Alpha and Beta versions) and ways of organizing in the international markets are changed (e.g. from virtual ofces to real subsidiaries). The changes are related to creating relationships through specic behaviors that emphasize different networks. Internal problem solving embeds the business in the closest network of co-workers, friends and family, and it emerges from the need of better tools for own work and for better customer service. External solution-creation embeds the business in the network of customers by focusing on customer needs as a basis for development of technology. Opportunity selling is especially directed towards consultants and nanciers, who need to buy the opportunity and support its exploitation in international markets. Through opportunity selling and opportunity organizing the business also becomes embedded in virtual networks. Furthermore, opportunity organizing is a response to customer and competitor networks as a whole. Conclusions We have studied the emergence of international new ventures by examining events and actions at three intertwined levels of the development process to create an understanding of the network-acting based process. The present research contributes to the research on international entrepreneurship in two particular ways. First, we responded to the demand for research with multi-disciplinary approaches and a balanced theoretical basis from international business and entrepreneurship angles (Coviello and Jones, 2004; Hoang and Antoncic, 2003; McDougall and Oviatt, 2000;

Rialp et al., 2005). Furthermore, we put forward a third angle, technological innovation development, which is especially important in analysis of international high-tech ventures (Jones, 1999). We showed that emergence of international new ventures is a process that strongly intertwines internationalization, opportunity development and technology development. The understanding of the development of high-tech international new ventures requires understanding the interaction between all three. The second type of calls for further international entrepreneurship research has concerned research on complex entrepreneurial internationalization behaviors over time (Coviello and Jones, 2004; see also Buttriss and Wilkinson, 2006; Rialp et al., 2005). We responded to this call through a longitudinal process research design that focused on events and actions over time. This approach allowed us to dene four specic behaviors, namely internal problem-solving, external solution-creation, opportunity selling and opportunity organizing as the primary drivers of the developments of international new ventures and their embeddedness in networks. We suggest that international new ventures can be approached by studying the behaviors of the involved individuals in the international networks as the generative mechanisms for the process dynamics (see Coviello and Jones, 2004). This is a direction of research seen as relevant by, for example, Moen et al. (2004) who called for attention to the inuence of individuals and their networks in internationalization of high-tech ventures. It is important to notice how the actions of the individuals push and pull rms forward in historically contingent and socially constructed processes. With respect to the analytical generalization in relation to previous research on high-tech international new ventures, the study emphasizes the rapid changes in markets that may initially be highly underdeveloped (Jones, 1999). Changes in the state of the market with respect to competition and inside the company with respect to the business concept and technology led to rapid, unplanned changes in companys strategy and several product strategies and revenue logics existed in turns and parallel to one another. The case study, thus, challenges the view of planned internationalization strategies in high-tech international new ventures and stable business models in software business, in inen, 2006). Internationalization of software rms is a particular (see Ojala and Tyrva process in which many lines of behavior depend on one another (Kuivalainen et al., 2006). Our framework focused on internationalization strategy, entrepreneurial opportunities and technology development as the cornerstones of the process. However, the empirical analysis brought also up, for example, marketing strategy and service development related issues that have been noted in previous research (e.g. McDougall et al., 2003). These could be seen to form alternative or additional sub-processes in the international new venture development. In terms of classications of international new ventures we best rely on Jones (1999) to call the venture a Rapid developer. Its development is characterized by quite complex rst events and rapid occurrence of subsequent events and the establishment of new links in its international operations. However, reliance on virtual ofces, informal cooperation agreements and individual representatives has not really been emphasized in previous venture classications. In terms of Oviatt and McDougalls (1994) classication we could claim our case rm to shift from geographically focused start-up towards global start-up during the process. The main issue is that the ventures tend to change their nature over time. Therefore, our research should also develop and rely on dynamic conceptualizations and avoid rigid classications.

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The importance of network relationships in decision making about the foreign entry modes and market choices of small software rms, in particular, has been emphasized (e.g. Coviello and Munro, 1997; Moen et al., 2004). The network embeddedness of the process is evident in our empirical study also. In this respect we go further to suggest the network-based behaviors of internal problem solving, external solution creation, opportunity selling and opportunity organizing to actually create the connections between the three sub-levels and that way drive the development process as a whole. These behaviors are related to different kinds of network relationships. In accordance with Bell et al. (2003) we note that internationalization is not linear or unidirectional but there are several sub-processes that inuence each other over time. We have, to a signicant extent, followed the research process suggested by Coviello and Jones (2004). In the theoretical construction, we identied commonly recognized elements of development processes in three research areas. In the empirical study, we deconstructed the internationalization process of the case rm into events and sequences that represent the reality and validated our interpretation through discussions with the entrepreneur. The reconstruction in our study meant constructing a meaning to the events and sequences through an analysis of the underlying network-embedded behaviors over time. Our results emphasize international entrepreneurial behaviors, the dynamic and episodic nature of the development of international new ventures, and the multitude of levels that are intertwined in the process. Furthermore, the study offers insight into how entrepreneurs and managers act in networks in order to learn and develop new capabilities for creating competitiveness in uncertain post-modern business environments (see Johanson and Vahlne, 2009). Similarly to Johanson and Vahlne (2009), we see opportunities as the key factors in business relationships and the basis for creating insidership in networks. From the managerial point of view, we argue that the complexity of building international new ventures is, to a great extent, due to the necessity of handling the process at three levels simultaneously and in connection to each other. Since international new ventures are often based on business opportunities that have a short window of opportunity the timeline creates further challenges. In quick realization of the entrepreneurial opportunity, embedding the business to various resourcing, legitimatizing and otherwise assisting networks is crucial. The network embedded behaviors are central to the recognition of prominent new innovations developed by the technology system, to the discovery of customer needs in markets, to the organization of resources and to transferring new businesses to international markets. Our results must be viewed in light of the studys limitations. With respect to the research process suggested by Coviello and Jones (2004), generalization based on common patterns experienced by several rms was not sought in this study. We can also question if the case examined was a case of successful or unsuccessful emergence of an international new venture. On the one hand, the rm made business deals in its main markets. On the other hand, the venture ceased its operations after only three years of existence as an independent rm. Still, the case provided us with an exceptional possibility to trace the various events along the ventures lifespan and theorize on the connections between the events and the forces behind the development process. However, it did not allow for denition of specic success factors of international new venture development. Although the study builds on quite an

exceptional data in terms of its longitudinal nature, use of multiple viewpoints and extensive secondary data, the number of in-depth interviews is limited to six and in addition to the CEO of the venture, two representatives of only one actor in the networks have been in-depth interviewed. These issues may limit the comprehensiveness of the case study. The overall quality of the case study has been secured through several actions suggested for case research (e.g. Dubois and Gadde, 2002; Easton, 2000). Data were collected over time; multiple sources of data and feedback from the CEO were used to secure t between interpretations and reality. Researcher triangulation was also realized throughout the data collection and analysis phases to avoid subjective judgment and increase the likelihood of surprising ndings. As we aimed at analytical generalization we built an initial conceptual framework from the previous research and compared the ndings to results of previous research. The reliability of the research process was improved by developing a case study database. The main ingredients of the database are the tapes of the interviews and the word-by-word transcripts of them and copies of the secondary data. The database includes the gradually built stories of the case as well. The basis for the interpretations and conclusions was also illustrated by direct citations from the interviews in the analysis section. In all, an endeavor has been made to describe the research procedures in such a detailed manner that it facilitates evaluation of the research process as a whole. According to Hoang and Antoncic (2003), in-depth qualitative research is the most appropriate method for creating new theoretical ideas for further research and those exist in the present study too. The ways entrepreneurs sequentially use internal problem solving, external solution creation, opportunity selling and opportunity organizing could be further studied. It would also be interesting to study if entrepreneurs have different patterns of network acting in order to discover and exploit different types of international business opportunities in different industries, regions or other dynamic situations. If we see international entrepreneurship as acting for new international opportunity creation (see Oviatt and McDougall, 2005) these behaviors could also be examined in existing, even large, organizations looking for renewal.
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