Conventional approaches call for a technology startup to gradually internationalize from local to home continent markets before entering the global market. Unfortunately, these conventional phased approaches take too long, cost too much, increase stakeholders’ risks, and waste the passion of many talented people who develop innovative products and services for startups.
While many founders talk about making their new technology firms global, they act as if the local market is the real home for their products and services. The reality is that only a few entrepreneurs invest in projects designed to use resources and sell products and services in multiple countries within the first three years of their technology firms’ life cycles.
There is a need for better approaches to launch and grow technology firms and better models that explain rapid internationalization of technology startups. Technology firms must enter the global market sooner and grow foreign sales faster. They must be global by design, not by emergence.
From inception, technology firms need to derive significant competitive advantages from the use of resources and sales to customers located in multiple countries as well as harness advances in science, technology, engineering and mathematics to exploit global market niches.
My previous blog post, The “born global” disruption, provided an overview of the born global approach to launching and growing technology firms. The born global approach is disruptive because it defies conventional phased approaches to internationalization and requires technology entrepreneurs and the organizations that support them to unlearn current routines.
The purpose of this blog post is to identify the factors that drive the rapid internationalization of technology startups. These factors define the things that a technology startup must do right to internationalize quickly. Public information on a sample of 17 technology firms that internationalized quickly was used to extract these factors.
Sample of technology born globals
There are various ways to characterize born globals. This is a topic for a separate post.
Faculty and graduate students associated with Carleton University’s Technology Innovation Management program recognize the importance of helping technology firms address the needs of global markets. They are particularly interested in supporting talented founders of new technology firms who wish to: i. aggressively develop and exploit a vision to internationalize from inception, and ii. create knowledge jobs in Canada’s Capital Region. For this purpose, the criteria used to include a technology firm in the sample denoted “technology born globals” were:
- Firm started exporting in the first 12 months after inception.
- Firm generated more than 50 percent of its total sales through foreign sales outside of its home continent three years after inception.
- Firm created more than six knowledge jobs three years after inception.
- Firm was born independently between 2002 and 2009 (e.g., startup was not a large company spinoff or a joint venture of large companies) and operated independently for three years after inception (i.e., was not acquired before three years).
The criteria above focused on two key dimensions of internationalization: Firm precocity (time before starting to export) and firm speed (percentage of foreign sales at a given age). It also focused on the number of knowledge jobs the technology firm is expected to create in the region.
Web searches identified 17 technology firms launched in 10 countries from 2002 to 2009 that met the criteria above. The firms in the “technology born global” sample were organized into eight types based on how technology captures value for the firm. These firms are:
1. Firm’s core technology comes from internal R&D or university research labs:
- Noja Power Switchgear: 2002; Australia; low and medium voltage technology switchgear products.
- Voltea: 2006; Netherlands; technology applications removes salts from water.
2. Specialized supplier produces complex engineering design in collaboration with customers and/or partners:
- 360 Cities s.r.o: 2007; Czech Republic; panoramic photography services.
- Canonical: 2004; UK; software customization and management of large groups of servers and desktops.
- Dewak: 2008; Colombia; help desk products and services.
- GoodData: 2007; Czech Republic; on-demand business intelligence dashboards.
- GPEG International: 2005; UK; design and manufacturer of displays that are bright, clear and easier to use.
- Tufin: 2005; Israel; network security products and solutions.
3. Service supplier makes capacity available for a fee:
- Dropbox: 2007; USA; file hosting service that offers cloud storage, file synchronization, and client software.
- Sproxil: 2008; USA; mobile product authentication solutions.
4. Firm’s technology comes from external sources over which the firm may have some, little or no influence:
- Mojang: 2009; Sweden; video games.
5. Firm uses Web to automate manual process:
- Groupon: 2008; USA; provides discounted gift certificates usable at local or national companies.
6. Firm uses Web to create new ways for people to interact:
- Conduit: 2005; Israel; enables publishers and users to interact via a browser.
- eToro: 2007; Cyprus; marketplace to trade currencies, commodities and indices online in a simple, transparent and enjoyable way.
- PapayaMobile: 2008; China; developers reach an estimated 50 million users across the globe quickly to improve their return on investment for Android and iOS game development.
7. Firm designs products for small companies that lever the Web:
- Zendesk: 2007; Denmark; manages customer service responses.
8. Firm designs products that lever the Web for enterprises:
- Atlassian: 2002; Australia; tools for programmers working on a code base.
Factors that drive rapid internationalization of technology startups
Publicly available information on the 17 firms in the sample was examined and the factors that drove their rapid internationalization were identified.
Our observations suggest that five factors drive rapid internationalization of a technology startup. The things that technology startups must get right to internationalize quickly are:
The technology startup must participate in projects that enable it to collaborate and experiment with large customers located in multiple regions and proactively locate customers and partners that depend on founders’ tacit knowledge.
The technology startup must offer differentiated and innovative products and services that cost-effectively solve similar problems faced by customers worldwide and integrate easily into their environments.
Entrepreneurs driving the technology startup must possess marketable tacit skills and favour a grow global-orientation over a control-orientation.
4. Channel programs
The technology startup’s channel programs must provide its partners with compelling value and all the resources required to promote its offer such as lead sharing, technical training, technical resources, incentives, and sales tools.
5. External integration
The startup’s product architecture and organizational systems must make it easy for external developers to integrate other devices, localization systems, and services with the startup’s offering.
Any of these five factors can prevent a technology startup from internationalizing quickly. A top priority for entrepreneurs and the organizations that support them should be to ensure that local technology startups acquire the knowledge and develop the skills required to go global at inception.
Existing models for the internationalization process do not properly explain the rapid internationalization of technology startups. It is difficult for entrepreneurs to know what their technology startups must get right to accelerate their internationalization. The five factors identified above provide a guide on what entrepreneurs of technology firms need to get right.
Tony Bailetti is director of the Institute for Technology Entrepreneurship and Commercialization at Carleton University. His research, teaching and community contributions support innovation for the purpose of generating revenue for young technology companies and developing the regional economy. He has published in Research Policy, IEEE Transactions on Engineering Management, Journal of Product Innovation Management, and R&D Management.