Zahra.2005-A Theory of International New Ventures

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A Theory of International New Ventures: A Decade of ResearchAuthor(s): Shaker A. ZahraSource: Journal of International Business Studies, Vol. 36, No. 1 (Jan., 2005), pp. 20-28Published by: Palgrave Macmillan JournalsStable URL: http://www.jstor.org/stable/3875288

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journalfInternationalusinesstudies2005) 6,20-28? 2005 PalgraveMacmillan td. Allrights eserved 047-2506$30.00www.jibs.net

A t h e o r y o f international n e w ventures:d e c a d e o f research

ShakerA ZahraArthurM BlankCenter orEntrepreneurship,BabsonCollege,BabsonPark,USACorrespondence:Dr SAZahra,ArthurM BlankCenter forEntrepreneurship,BabsonCollege, BabsonPark,MA02457, USA.Tel: + 1 781 239 5014;Fax: + 1 781 239 4178;E-mail: [email protected]

Received: 7 April2003Revised: 12 August 2003Accepted:20 August 2003Online publicationdate: 23 December2004

AbstractOviattand McDougall'sJIBS rticleidentifiedand defined internationalnewventures(INVs)and theirprominentroleinthe global marketplace.Thearticlespurredworldwide nterest n INVsby raisingquestionsabout the validityandefficacy of existing theory, especially about the Uppsalaprocess model ofinternationalization. he article also laid an important heoretical oundationfor research nto international ntrepreneurshipIE),where youngerand well-establishedcompanies use their entrepreneurial ctivitiesto create value asthey internationalizeheiroperations.ThispaperreviewsOviatt and McDou-gall's original propositions,highlightingtheir importantcontributions o thefield.Thepaperalsohighlights he progressmade in researchusingOviattandMcDougall's ramework,he majordebates that persistabout the natureandrole of INVs, he sourceof theircompetitiveadvantages,and the keyissuestobe exploredin future research.Journal f International usiness tudies 2005) 36, 20-28.doi: 0. I057/palgrave.jibs.840018Keywords: nternationalewventures;lobal trategy;earningIntroductionThe publication of 'Toward A Theory of International NewVentures' (Oviatt and McDougall, 1994) 10 years ago attractedworldwide attention to the growing role of young firms in theglobal marketplace. While researchers have long recognized thevaluable contributions of SMEs o international trade (Cannon andWillis, 1981; Douglas et al., 1982), Oviatt and McDougall (1994)highlighted the importance of smaller and younger firms and theirdistinguishing characteristics that position them to internationa-lize quickly and createvalue for their founders and owners. Arguingthat international new ventures (INVs)have existed for years, butthat researchershave overlooked them as an important population,Oviatt and McDougall proceeded to discuss how these character-istics influence the way INVscompete on the global stage. Arguingthat existing theories do not explain the formation of INVs, Oviattand McDougall's views challenged and revised some existing andpowerful paradigms about the process of internationalization,especially the stage theory (Johanson and Vahlne, 1977).Oviatt and McDougall's (1994) framework and argumentsattracted a worldwide audience, resulting in several annualdoctoral consortia on international entrepreneurship (IE),specialissues of leading scholarly journals, several university-sponsoredworkshops, the publication of handbooks and edited volumes, a


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number of doctoral theses, numerous sessions inregular academic meetings, several book chapters,and MBA and doctoral seminars. This excitementattests to the importance of Oviatt and McDougall'sinsights, which have stimulated continued world-wide interest in the phenomena they clearlydefined and articulated over a decade ago.Research building on Oviatt and McDougall's(1994) framework has been carried out in theworld's six major continents, in advanced anddeveloping economies alike, under four labels:INVs, born globals, accelerated internationaliza-tion, and IE.Some of this research has been faithfulto Oviatt and McDougall's original arguments.Other researchers, however, have used other the-ories from entrepreneurship, strategy,and cognitivepsychology to refine and extend the originalframework.These extensions have been insightfuland informative, but nonetheless raise new ques-tions that require additional analysis and thought-ful study.Given the serious worldwide interest in Oviattand McDougall's framework, this article reviewsthis body of research, distilling and clarifying thecontribution of the original paper by Oviatt andMcDougall (1994). These contributions have beenseminal. Further,the article revisits several aspectsof the original paper that need re-examination inview of accumulating empirical findings. Recogni-tion of these issues will illuminate the boundariesof the frameworkthat Oviatt and McDougall haveproffered, and will also help future researchin thisarea. The review highlights the varied and impor-tant contributions of Oviatt and McDougall's(1994) paper.The INV phenomenonResearchershave noted the role of SMEsin inter-national trade, documenting their growing role intransferringknowledge and managerial skills in theglobal marketplace. One of the key reasons whyOviatt and McDougall's (1994) paper has receivedso much interest lies in their recognition of INVs asan important set of companies that have assumedgreater prominence in the world economy. Theydefined an INV as 'a business organization that,from inception, seeks to derive significant compe-titive advantage from the use of resources and thesale of output in multiple countries' (p. 49). Thus,age at internationalization is assumed to haveimportant implications for companies' successfulexpansion, survival and performance.

Focusing on age has proven to be a source ofcontroversy in the evolving literature on INVs. Tobe sure, Oviatt and McDougall noted the difficultyof defining the exact starting time of a newventure's existence because some ventures gothrough a long period of gestation before they areofficially launched. Variations in this gestationperiod can significantly influence the resourcesthat new ventures and entrepreneurs assemble(Reynolds and Miller, 1992). These variations alsoinfluence the clarity of the mission and vision thatguide a venture's strategic choices. Another thornyproblem with using age to define INVs is that somenew ventures are spun off by existing companies,having benefited from the resources and deeppockets of their parent corporations, includingtheir networks, established systems, and well-recognized names. Still, other new ventures arecreated through the restructuringof existing firms,as happened in the US throughout the 1990s andcontinue to occur today in other partsof the globe.These observations matter because theory wouldsuggest they can influence a firm's disposition totake the risks associated with internationalization,their capacity to assemble and deploy resources,and gain a competitive advantage. The evolution ofthe firm's mission and resource base are intimatelyrelated to managerial capacity, which, to someextent, is defined by the pre-launch experience.One of Oviatt and McDougall's key insights wasin drawing attention to the fact that new venturesdo not need to own their resources in order tointernationalize their operations, a widely acceptedview among entrepreneurship scholars (Stevensonand Gumpert, 1985). Entrepreneurial firms aredefined by their actions, not by the types ofresources they have or control. These entrepreneu-rial actions lie at the core of new ventures' ability todevelop ways to create value beyond their estab-lished and presumably resource-rich competitors.By highlighting the need to gain access to variousresources without actually owning them, Oviattand McDougall place greater emphasis on hownewventures compete in international markets. It isresourcefulness, not the mere amount or even typesof resources, that matters - a view consistent withHamel and Prahalad (1994). Accepting this viewshifts the emphasis to where and how INVs createvalue by developing and protecting their uniqueintangible assets (e.g., organizational cultures,relationships, and innovative abilities), especiallythose that enhance their entrepreneurial activitiesin foreign markets.

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A persistent source of concern about what con-stitutes an INV therefore centers on the relativeimportance of firm age vs entrepreneurship. Read-ing Oviatt and McDougall's (1994) paper, one getsthe impression that going international early in afirm's life cycle can bestow important and almostinstant advantages on the INV. These firms areoften unfettered with inertia that would limitestablished companies' ability to learn and developtheir operations (Oviatt and McDougall, 1994,1995). However, recently some researchers havecontested the assumption that older companies areunable to learn and adapt (Majumdar, 2000),asserting that these firms have resources and skillsthat would allow them to invest heavily in learn-ing, further setting the stage for effective adapta-tion. While this does not invalidate Oviatt andMcDougall's original propositions, it indicates thatthere are advantages (and disadvantages) to beingyoung. It is essential to recognize both sides of thecoin when thinking about the sources of competi-tive advantage that INVs create, and the extent towhich they are able to protect these advantagesfrom encroachment by other INVs and establishedcompanies.The question remains: Is it age that creates theadvantages associated with internationalization? Isit the firm's entrepreneurial activities that matter,as suggested by Zahra and George (2002b)? Sub-sequent papers clearly suggest that it is the actionsthat INVs undertake that appear to be a majorsource of competitive advantage (Oviatt andMcDougall, 1995; McDougall and Oviatt, 2000).Indeed, recognizing these issues, Oviatt andMcDougall (2000) have adopted a more genericdefinition, one that can apply equally well to bothINVs and established companies. This definitionfocuses more on the entrepreneurialualitiesof firms,rather than on their age at internationalization.Thus, whether one uses their original or reviseddefinition, the effect of age and organizational sizeon the competitive advantage that INVs derivefrom early internationalization remains an openquestion, as Oviatt and McDougall (1994) noted adecade ago. Logic would suggest that how firmscompete once they enter the global market arena isimportant, and perhaps the most decisive factor.Types of international new ventureOviatt and McDougall (1994, 52-54) used twodimensions to identify four types of INV: coordina-tion of value chain activities (few vs many) and thenumber of countries involved (few vs many).

Applying these two dimensions generated fourtypes: export/important start-ups, multinationaltrader,geographically focused start-ups,and globalstart-ups.Oviatt and McDougall used the literatureand logic to posit that these different INVs possessvery different types of competitive advantage.Using insights from research on entrepreneurship,Oviatt and McDougall (1994) demonstrated thatINVshave advantages of their own that allow themnot only to outsmart their rivals but also to quicklybuild a competitive advantage, one that can lead toprofitability and growth. These insights and argu-ments have responded to and extended Casson's(1982) early work, which suggested a need toconsider firms' entrepreneurial haracteristicswhendiscussing internationalization. Researchers havefollowed Oviatt and McDougall's (1994) suggestionby giving special attention to the characteristicsofentrepreneurial firms in theorizing about theirinternationalization decisions (Georgeet al., 2005).Having identified four INV types, Oviatt andMcDougall noted that these firms see their marketsquite differently from the way their well-estab-lished rivalsdo. INVsespouse different assumptionsand cognitions of the market and competition,possibly leading them to seek and identify differenttypes of new opportunity that they exploit differ-ently (Zahra et al., 2004). Though differences inthese assumptions and cognitions are not wellunderstood, the genesis of INVs' competitiveadvantages appears to lie in their founders' cogni-tions that allow them to quickly spot opportunitiesin international markets and develop new ways toexploit them.Reflecting on Oviatt and McDougall's (1994)paper, one can assume that they accept prevailingentrepreneurialviews that build on Kirzner(1973),where opportunities exist in the environment andsome entrepreneurs are more alert than others inspotting, recognizing, and exploiting these oppor-tunities. If this is the case, one can argue that thedefinition is limiting where it overlooks opportu-nities that might lie within the firm, as happens inthose ventures that capitalize on new processes orsystems that create products that are not differentfrom those that exist in the market. Yet, theseinternal processes might be the foundation of acompetitive advantage in global markets. In addi-tion, opportunities in the external environmentmight be the same for all firms, but organizationalform could be the source of the opportunities thatgive an INV its competitive advantage. Virtualinstant INVs are one example (Katz et al., 2003).

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These firms use Internet and other informationtechnology-based structures to go international,offering a range of services to their customers. Itwould appear prudent that future researchersrecognize that opportunities need not be foundonly in the INVs' external environment; the INVorganizational form itself could be a key source ofcompetitive advantage.While considerable attention has been given toother parts of Oviatt and McDougall's (1994)arguments, less attention has been devoted to thefour INV types they identified. Thus, we do notknow a great deal about the prevalence of INVsunder different combinations of industry, market,firm and entrepreneur-relatedconditions. Knowingthe prevalence of these firms can be useful inpredicting which types of INV are created underwhich conditions and in tracking the changes thatoccur in INVs over time, which offers a foundationfor understanding the differences in their financialperformance. This is a gap in the literature in thisarea, one that requires further research.An issue that requires close scrutiny is why somenew ventures opt to go international from incep-tion whereas many others opt to focus on theirdomestic markets. Oviatt and McDougall (1994)offer some useful clues by highlighting the priorexperiences of the founders as well as their inter-national experiences (pp. 45, 47, 52) and recogni-tion of international business opportunities (p. 47).McDougall et al.'s (2003) research shows that thelevel of an industry's global integration is alsoconducive to early internationalization. However,contrary to the authors' predictions, the effect oftechnological change and competitive intensity onearly internationalization was not significant. Cur-rently, we do not really know the relative impor-tance of these variables in making this criticaldecision. Information about the relative value ofdifferent sets of antecedent conditions could beuseful in theorizing about the different strategiesthat INVs use and the sources of competitiveadvantages that they might have.Oviatt and McDougall (1994) also invoke theentrepreneurship literature to suggest that entre-preneurs view risk and risk-return relationshipsquite differently from others. Research by Busenitzand Barney (1997) supports this observation. There-fore, there is a need to probe managerial cognitionand psychological dispositions as we examine thedeterminants of the decision to internationalize anew venture's operations at inception. These vari-ables significantly influence risk calculations and

therefore might determine how entrepreneursdefine and evaluate opportunities in internationalmarkets. Cognitive and psychological forces alsoinfluence entrepreneurs' ability to reconfigureresources in unique ways that bestow advantageon their INVs. They may also impact on the speedby which entrepreneurs and their new ventureslearn and adapt, determining the fate of INVs ininternational markets.Researchershave not examined the probability ofsurvival among the four INV types that Oviatt andMcDougall (1994) have identified. Consequently,we do not know whether these types are equallyviable, assuming effective fit with the generalconditions of the external environment. Whiletheory would suggest this should be the case,empirical testing and validation have not examinedthis important issue. We also know very littleabout the probability of survival among INVsrelative to other types of new venture or othertypes of organizational form. INVs usuallyexperience three types of liability. The first relatesto their newness and inexperience, which limitstheir access to resources and existing networks.Newness raises questions in the minds of otherstakeholders about INVs' credibility and potentialviability. The second liability stems from their size,as many INVs are small. This limits the slackresources of INVs and, as a result, their ability towithstand the challenges of internationalization.The third and final liability arises from the foreign-ness of INVs,which means that they have to workhard to overcome barriersto entry, build links totheir customers and suppliers, and gain the accep-tance of potential customers. Any of these liabilitiescan increase the risk of INVs' potential failure. Acombination of these three liabilities can furthermagnify this risk.Given the dynamism that characterizes interna-tional business environments, it is important topause and examine how often and in what ways thefour INVschange their strategic direction. It is alsoimportant to investigate the conditions that encou-rage INVs to do so, and to document the con-sequences of these changes for their survival andfinancial performance. For example, we need toknow more about the role of the top managementteam's experience, in terms both of maturity and oflearning, in triggering strategic changes amongINVs. Managers may (and often do) learn fromdealing with international issues, and therefore maysee opportunities to embark on strategic changes tobetter position their INVs. These questions have not



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been examined empirically in the literature (Zahraand George, 2002b). In fact, in one of the very fewempirical analyses conducted to date, McDougalland Oviatt (1996) report mixed findings on theimplications of strategic change for INVs' perfor-mance, which further reinforces the need for moreresearchin this area.

Finally, we do not know what becomes of thoseINVsthat survive and become established. Do theybecome similarto others in their industries?Do thepowerful institutional forces teach these firms tobecome like other firms in their industries?Do INVsretain their characterand cultures over time? Theseare interesting questions to ponder. It is hard toaccept that INVs that startedwith a different visionof the industry and market arena succumb toconventionalism by playing it safe. But, of course,we do not know how, how often, or in what waysINVs change.In retrospect,one areathat Oviatt and McDougall(1994, 1995) have overlooked is the role of theinstitutional environment and economic geogra-phy in building and sustaining INVs' competitiveadvantage. True, Oviatt and McDougall recognizethe various advantages associated with venturinginto different regions of the world. Reading their1994 paper, one gets the impression that entrepre-neurs can easily and quickly learn about opportu-nities that lie outside their home markets. Ofcourse, it is easier today to read about and under-stand the nature of opportunities that lie in foreignmarkets. It is also easier to locate facilities overseas.Yet it is easy to understate the subtle and profoundrole of national cultures, history and geography.These variables interact in important ways thatdefine the nature and magnitude of opportunitiesthat exist in a country or region. Learning aboutnational cultures is a challenging process thatmight require years of thoughtful study and first-hand interaction with those cultures. Understand-ing how history and geography are combined toshape the evolution of industries and norms ofcompetition is equally difficult and time consum-ing. Building relationships and gaining access toexisting networks can help to shorten and expediteINVs' learning. Hiring locals is another way ofgaining access to tacit knowledge about culturalnorms and their implications, contributing to INVs'ability to build and gain a competitive advantage.Obviously, these activities take time to complete,raising a question about the instant benefits thatINVs might gain by going abroad so early in theirlife cycles.

Looking into the role of culture, geography, andhistory suggests a need to better understand therole of managerial cognition in the definition ofINVs' identity, strategy, and organizational cul-tures. These cognitions evolve over time and shapemanagers' ability to see opportunities in foreignmarkets, influencing the various decisions to bemade and how they are executed (Palichand Bagby,1995; Mitchell et al., 2000). Given mountingevidence of the contributions of these cognitionsto the success and failure of INVs, McDougall andOviatt (2003) have emphasized the need to incor-porate this perspective in future research.Oviatt and McDougall (1994, 1995) rightly notethat there are a lot of well-trained professionalswho have had extensive experiences with interna-tional operations in other INVs or multinationalcompanies. These experiences are useful in assem-bling resources, gaining access to existing interna-tional networks, and configuring INVs'value chain.Shrader et al. (2000) further proffer that theseexperiences are valuable in making decisions aboutpotential tradeoffs that managers have to considerwhen designing their INVs' value chain. Research-ers (e.g., Reuberand Fischer, 1997) have identifiedother benefits of international experience, such asgaining access to strategic partners. This access isconducive to higher foreign sales.Two aspects of Oviatt and McDougall's argumentabout the value of international experiences arechallenging and require reflection. The first is theassumption that these experiences make managersmore aware of the challenges associated withconducting businesses on a global scale. Consistentwith this proposition, McDougall et al. (2003)empirically find that international experience isconducive to early internationalization. No doubtsome managers become aware of these issues andlearn a great deal about the international businessenvironment and how to structuretheir operationsto createvalue. Yet,not all learning is functional orbeneficial. Experience might induce rigidity asmanagers develop their own preferred ways ofdealing with the challenges of multinationality.Internationalization raises complex challenges, andsome managers respond to them by focusing on afew ways of doing things. If these mental shortcutsdevelop, then carrying these experiences forwardmight deprive INVs of a potentially rich source ofinnovativeness in their operations. Experimenta-tion is essential for INVs to discover the winningbusiness model and market recipe. Openness to thissort of experimentation is a must.



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Another concern about the role of past experi-ence is that multinational firms have their ownworld views: some are parochial and ethnocentricin their orientations, and instill these views in theirmanagers and employees. This type of learning canbe dysfunctional if carried forward into newlyestablished INVs. Under this scenario, foundingentrepreneurs would show little interest in under-standing the geographic mosaic that forms theirforeign markets.The above discussion makes a simple but impor-tant point. We need to recognize the factors thatcan limit INVs learning about their local culturesand markets. These factors might include: INVs'own repertoire of knowledge; the ethnocentricviews that their owners, managers and employeeshold about their markets and host countries; thephysical distance from the marketsentered; and theassumptions that founding entrepreneurs andother members of the top management team holdabout local cultures and markets.How and what do new ventures learn inthe global marketplace?A question that has been left unanswered in Oviattand McDougall's (1994) article is what happens toINVs once they go abroad. The traditional stagemodel (Johanson and Vahlne, 1977) had suggestedthat firms learn experientially as they penetrateforeign markets, amassing considerable knowledgethat allows them to assume greater risks in theirsubsequent moves. This learning makes it possiblefor companies to use higher order entry modes,which in turn give these firmsnew knowledge. Thisevolutionary stage model (Johanson and Vahlne,1977) was grounded in the experience of estab-lished companies and the way they measured risk-return relationships. In contrast, Oviatt andMcDougall have suggested that INVs bypass thesestages and enter foreign marketsusing higher orderentry modes. The stage model of internationaliza-tion also proffered that different modes of entryrequire certain skills and therefore influence theevolutionary trajectory of knowledge accumulationquite differently within INVs. Later research (Zahraet al., 2000) supported these two points, revealingthat new ventures often enter foreign markets usinghigher order modes of entry. Further, INVsappear to learn from foreign markets about newtechnological trends and competences, assumingthat senior managers give attention to integratingthe knowledge gained from foreign markets. Inturn, learning about the technological trends and

competences that exist in foreign markets canimprove INVs' future profitability and growth(Zahra et al., 2000). Thus, those INVs that enterinternational markets and learn about technologyappear to reap the benefits of their investments inthe form of higher profits and in opening upavenues for growth.The encouraging research findings just citedabove highlight the importance of Oviatt andMcDougall's original insights and reinforce theneed to examine how new ventures learn. INVsappear to differ in the extent of their learning, butthe sources of these variations arenot well defined.To fill this gap in the literature, future studies needto examine how and when these ventures learn.Further,we need to document what INVs learn inforeign markets. Learning is multifaceted, and wehave just begun to explore selected parts of thiscomplex construct. Social and market learningcould be important sources of technological learn-ing, and could serve as a key sourceof new and richknowledge enabling INVs to succeed in inter-national markets.Given the importance of learning for INVs'successful performance, it is essential to understandwhat and how these firms learn. For nstance, we donot know how INVs develop the absorptive capa-city to cultivate new capabilities that enable themto survive and even make a profit. Absorptivecapacity refers to INVs' ability to identify, value,select, and assimilate knowledge that exists in theirexternal environment and make use of it in theiroperations (Cohen and Levinthal, 1990; ZahraandGeorge, 2002a). Where does this capacity comefrom? How do inexperienced and resource-poorINVs develop this capacity? How do they decidewhich types of knowledge are relevant? Do differ-ent types of INV use different ways to build and usetheir absorptive capacity? Further, if knowledgeintegration (i.e., sharing and combining the knowl-edge obtained from external sources) is an impor-tant factor in harvesting the learning gains thatINVs achieve in their foreign markets, do differentINV types use different approaches in this process?Do they use different approaches in differentmarkets? Answering these questions can enrichour understanding of the foundations of INVs'competitive advantage, and can improve theorybuilding in this area. Likewise, recognition of theseissues can help to clarify the boundaries of theknowledge-based theory of the firm (Grant, 1996;Kogut and Zander, 1993), especially in the contextof INVs.



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Learning advantages of newnessOviatt and McDougall (1994) have also drawnattention to the potential advantages INVs thathave relative to their established competitors inlearning about markets and competition. Autio et al.(2000) built on this insight by arguing that thereare inherent 'learning advantages of newness'. Thisthesis rests on the assumption that INVs do notsuffer from the same inertial forces that stifleestablished firms' adaptation. INVs also haveorganic structures that transmit and assimilateinformation quickly and use it in their operations.With founder-owners in control, new knowledgedoes not have to struggle for management's atten-tion and acceptance. Autio et al.'s thesis is intui-tively appealing, and holds the promise of openingthe black box that appears to exist in theorizingabout the advantages that INVs might reap frominternationalization.The 'learning advantages of newness' thesis raisesquestions of its own. As just stated, do INVs havethe absorptive capacity needed to understand,appreciate, assimilate and exploit knowledge fromtheir new international environments? With theirskill base being so narrow, how do these firmsdevelop this capacity? How does this capacitychange as these firms' internationalization con-tinues? Do different INV types experience theseadvantages to the same extent? How enduring arethe learning advantages of newness? Clearly,theseand other questions require thoughtful analysis.Fundamentally, we need also to probe whether it isrealistic to assume that founders and owners ofINVs are able to and interested in learning. Someentrepreneurs are notoriously dogmatic in theirbeliefs and missionary in their zeal, raising aquestion about their willingness to reflect, under-stand and articulate what they have learned. Someentrepreneursarealso individualists, who work likelone wolves - not team builders. Consequently, wecannot reasonably assume that these people willencourage the knowledge-sharing and integrationnecessary to promote INVs' organizational learn-ing. Examining these issues is important because, asnoted, learning plays an important role in Oviattand McDougall's framework for early internationa-lization. This learning also has important implica-tions for the development and evolution ofcapabilities in INVs.Oviatt and McDougall (1994) remind us of thepivotal role of entrepreneurship in the creation andsuccess of INVs. It is interesting to note thatresearch using their framework has not linked

INVs' learning with these entrepreneurial activitiesthat occur in foreign markets. Knowledge gainedabout the markets, competition, suppliers andcustomers offers important clues about new oppor-tunities in foreign markets, new markets to enter,new systems to develop, new products to offer, andnew ways of organizing INVs' own operations.Oviatt and McDougall (2000) have revised theirviews of international entrepreneurship (IE) byhighlighting the qualities that make firms entre-preneurial. These qualities include innovativeness,proactiveness, and risktaking. Linking INVs' learn-ing in international markets to their entrepreneu-rial activities can help to clarify one source ofcompetitive advantage that INVs possess. This willalso allow us to establish whether Oviatt andMcDougall's four INV types vary in the ways theycapitalize on the link between learning and entre-preneurship. These analyses will also clarify howINVs balance the tension that arises between theneed for exploratory learning and the need forexploitative learning (March, 1991). Exploratorylearning focuses on acquiring new knowledge thatfalls beyond the INVs' current repertoire, whereasexploitative learning emphasizes improving whatthese firms know and making better use of theirexisting knowledge.The possibility that different types of INVbenefitdifferently from their learning in inducing andimproving different entrepreneurial activities sug-gests a need to examine the organizational culturalfoundations of these entrepreneurial activities.Overtime, different INVs areapt to develop specificand unique cultural norms that guide the deploy-ment of their resources, and to harvest the knowl-edge and skills of their employees in pursuit ofopportunities in foreign markets.Thus, it is reason-able to assume that these INVs benefit fromdifferent cultural variables in stimulating andexploiting entrepreneurial activities in interna-tional markets.

Dimitratos and Plakoyiannaki (2003) suggest thatan international entrepreneurial culture embodiessix dimensions. The first is the market orientation,which denotes a firm'sinterest in and commitmentto international activities. The second is thelearning orientation, which centers on gathering,interpreting and disseminating intelligence aboutforeign markets and the alertness to opportunitiesthat exist in these markets.The third is innovationpropensity, which refers to a firm's proclivity topursuenew ideas. The fourth is riskattitudes, whichrefersto a firm'swillingness and desire to undertake



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significant and risky resource commitments inpursuit of new opportunities in foreign markets.The fifth is networking orientation, which refers tothe extent to which a firm obtains resourcesthrough alliances, cooperative ventures, and otherformal and informal means of social embedded-ness. The sixth and final dimension is motivationorientation, which refers to the incentives andrewards that the firm allocates to promote anddirect its people and organization to explore andexploit opportunities in foreign markets.These six dimensions of international entrepre-neurial cultures (Dimitratos and Plakoyiannaki,2003) suggest several issues that require empiricalexamination. For example, it would be instructiveto explore the differences among the four INVtypesthat Oviatt and McDougall have identified alongthese six dimensions. Equally important, it wouldbe informative to link these six dimensions to INVs'pursuit of entrepreneurialopportunities in interna-tional markets. For instance, INVs that developdifferent cultural dimensions may see and pursuedifferent types of opportunity in their foreignmarkets. Organizational cultures shape the waymanagers and employees see their markets, custo-mers, and competition. It stands to reason, there-fore, that INVs with different cultural orientationsmight spot and pursue different types of opportu-nity. Evenwhen these firms identify the same set ofopportunities, they might vary in how they goabout creating value from them. A greater apprecia-tion of these issues can enrich our understanding ofthe antecedents of INVs' successful performance.By now, the INVs that Oviatt and McDougall(1994) have analyzed and used as examples in theirvarious publications have reached middle age,assuming they have survived the three liabilitiesof newness, smallness, and foreignness. Oviatt andMcDougall (1995) reportedthat some of these firmshad alreadyfailed. Still, it would be informative andexciting to trackthose INVsthat have survived, andto determine their fates. Such analyses would makeit useful to directly link Oviatt and McDougall'stheoretical predictions to actual firm behavior andoutcomes. Following and studying these firms canprovide rich insights into their cultures and how

ReferencesAutio, E., Sapienza, H.j.and Almeida,J.G.(2000) 'Effectsof ageat entry, knowledge intensity, and imitabilityon internationalgrowth', Academyof Management ournal 43(5): 909-1014.Busenitz, L.W. and Barney, J.B. (1997) 'Differences betweenentrepreneursand managersin largeorganizations:biases and

they influence their subsequent strategic (includingentrepreneurial) moves. There is a dearth ofempirical studies on the evolution of INVs,as mostprior research has focused on the founding andoperations of these firms.ConclusionThe publication of Oviatt and McDougall's 'TowardA Theory of International New Ventures'(1994) hasspurred worldwide interest in understanding thefactors that lead to the early internationalization ofyounger firms, how these ventures create andprotect their competitive advantages, and howINVsconfigure their value chain to attain flexibilitywhile building strong and profitable competitivepositions. The theory offered rich insights thatexplain the formation of INVs;other theories fail todo so (McDougall et al., 1994). While many of theoriginal arguments remain intact, researchershaveshown creativity in refining and extending Oviattand McDougall's framework. Researchers havebecome aware that internationalization is not aone-shot deal, and that there is considerable roomfor learning as INVs continue their operations.Researchershave used insights and theories fromcognitive psychology to understand how entrepre-neurs who found INVs recognize and redefine theopportunities they pursue. Incorporating insightsfrom economic geography and learning theoriescan help future researchersto address issues raisedabout the ability of INVsto retain their competitiveadvantages over time and bring some dynamisminto the analyses being conducted on the evolutionof these firms. Clearly, Oviatt and McDougall(1994) have started an important and influentialresearch stream, whose contributions have beeninsightful, powerful and varied.AcknowledgementsI acknowledge the financialsupport from the GlavinCenter for Global Management at Babson and theResearch Programfor Advanced Technology Policy(ProACT)f the Ministry f Tradeand Industry nd theNational Technology Agency of Finland, Tekes. I amgrateful to James C Hayton and Patricia H Zahra fortheir comments on earlier drafts.

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About the authorShakerA Zahrais at the Blank Center of Entrepre-neurship, Babson College, Babson Park,USA.Acceptedby ArieLewin,Editor n Chief, 18 December2003. Thispaperhas been with the authorfor one revision.

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Zahra.2005-A Theory of International New Ventures