Micro-Multinational Essay ⋆ Business Essay Examples ⋆ EssayEmpire

A micro-multinational (mMNE) is a firm that, from birth or soon thereafter, controls and manages value-added activities in more than one country. Other common terms for the phenomenon of a rapidly internationalizing firm are international new venture, born global, global start-up, metanational downstairs, and infant multinational. The major differences between a micro-multinational and a large multinational enterprise (MNE) are firm size and age, and speed and choice of market internationalization. Micro-multinationals are, by definition, young and small—often classified by having 250 or fewer employees. Unlike most MNEs that embark on a staged, incremental process of internationalization to countries of geographic and psychic/cultural proximity, mMNEs’ international choices are influenced by market-efficiency and strategic asset (often physical and knowledge resources)–seeking factors.

A key distinction between mMNEs and other early internationalizing firms is that mMNEs tend to utilize more advanced service modes (beyond exports) in controlling and managing value-added activities around the world. Kevin Ibeh, Jeffrey Johnson, Pavlos Dimitratos, and Jonathan Slow report the following service model usage by Scottish MNEs: overseas office (42.6 percent), foreign subsidiary (29.9 percent), international joint venture (24 percent), overseas manufacturing (22.5 percent), international licensing (21.1 percent), and international franchising (4.9 percent).

There are increasing numbers of micro-multinationals starting in countries all over the world, and these firms play a key role in the growth and development of their home and host national economies. The growing numbers of mMNEs is attributed to factors related to the competitive environment, firm, and manager experience. First, a number of developed and developing country governments have established policies intended to assist the development of “home grown” MNEs. Second, the growing use of the internet and the dominance of companies such as Google, Yahoo, MSN, eBay, and Amazon makes it easy for micro-multinationals to reach potential customers all over the world. Third, although micro-multinationals can be found across all industry sectors, the highest potential mMNEs are found in but are most prevalent in fast-growing sectors that are knowledge based, such as software development. Fourth, across the world, individuals are gaining experience living in other countries. Increasing numbers of students pursue part or all of their degrees overseas and managers devote substantial time and energies to overseas projects. Through this experience, individuals gain knowledge about how to function and succeed in foreign markets and may also see viable opportunities for new businesses. For example, many of China’s micromultinationals are founded by “sea turtles”: Chinese nationals who studied and/or worked abroad, often in the United States, for many years before returning to China to start export-oriented firms.

Ben Oviatt and Tricia McDougall classify international new ventures on two dimensions: coordination of value-chain activities (few versus many) and the number of countries involved (few versus many). They identified four types of firms that export directly from near their incipience: export/import start-up, multinational trader, geographically focused startup, and global start-up. The export/import start-up and multinational trader firms are “new international market makers” that coordinate few activities across countries, most commonly systems and knowledge of inbound and outbound logistics to aid import and export. These firms’ advantage generally depends upon their ability to discover and act upon an imbalance of resources across countries, create new markets, and attract and maintain local business networks. Geographically focused start-ups focus on the specialized needs of a particular region and coordinate a range of activities beyond simple inbound and outbound logistics that often require socially complex networks with tacit knowledge. Global start-ups describes those firms that derive a significant competitive advantage from coordinating multiple activities across multiple countries. These firms are often the most time and resource-intensive to develop but can have the most sustainable long-term competitive advantages due to the inability of other firms to mimic their historically unique, casually ambiguous, and socially complex alliances.

Micro-multinationals face a number of barriers to entry, including a lack of financial, information, management, and intellectual property protection resources. In order to compete overseas, firms often require access to financial capital; however, new firms are generally less able to receive financing or access foreign collateral. Overseas operations often require new knowledge about legal, bureaucratic, and social structures, and new venture management may lack this expertise. Finally, overseas markets may not protect intellectual property rights. Small firms attempting to go overseas may not be able to protect against the theft of intellectual property while large firms’ greater credibility and ability to pursue retribution might limit their theft.

Given these obstacles, micro-multinational managers seek integration in key business networks. These collaborations can be formal or informal and enable the mMNE to acquire greater access to resources (including financial), learn new skills, gain legitimacy and control, guard property rights, and control transaction costs. Zoltan Acs, Siri Terjesen, and Colm O’Gorman describe how micro-multinationals often begin by pursuing an indirect path to internationalization using intermediaries to facilitate exports. Micromultinationals often internationalize by becoming one or more of the following: suppliers of foreign MNEs, licensors/franchisors of foreign brands, and alliance partners of foreign direct investors. Intermediaries include agents and distributors located at home or abroad or the local subsidiaries of multinational firms; they can help their clients overcome knowledge gaps and reduce uncertainties and risks associated with operating in foreign markets. Jolanda Hessels and Siri Terjesen’s study of Dutch SMEs reports that exporters were most likely to have an owner/manager that perceived an increased international presence of their domestic competitors, customers, and suppliers and an increased use of foreign suppliers. Micro-multinationals that exported directly were most likely to have owner/managers who perceived favorable home market access to knowledge and technology and reasonable production costs and government regulation.

Bibliography:

Dimitratos, J. E. Johnson, J. Slow, and S. Young, “Micro-Multinationals: New Types of Firms for the Global Competitive Landscape,” European Management Journal (v.21/2, 2003);
Hessels and S. Terjesen, “Direct and Indirect Internationalization by SMEs: A Test of Resource Dependency Theory and Institutional Theory,” Small Business Economics (Forthcoming); K. Ibeh, J. E. Johnson, P. Dimitratos, and J. Slow, “Micro-Multinationals: Some Preliminary Evidence on an Emergent ‘Star’ of the International Entrepreneurship Field,” Journal of International Entrepreneurship (v.2, 2004);
A. Knight and S. T. Cavusgil, “The Born Global Firm: A Challenge to Traditional Internationalization Theory,” in Export Internationalizing Research-Enrichment and Challenges: Advances in International Marketing, S. T. Cavusgil and T. K. Madsen, eds. (JAI Press, 1996);
M. Oviatt and P. P. McDougall, “Toward a Theory of International New Ventures,” Journal of International Business Studies (v.25/1, 1994);
Rialp, J. Rialp, and G. Knight, “The Phenomenon of Early Internationalizing Firms: What Do We Know After a Decade (1994–2004) of Scientific Inquiry?” International Business Review (v.14, 2005);
Terjesen, C. O’Gorman, and Z. Acs, “Intermediated Internationalization: Evidence From the Software Industry in Ireland and India,” Entrepreneurship & Regional Development (v.20/1, 2008).

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