International entrepreneurship and performance. What are the important factors in markets with high cultural distance?

In the modern competitive environment, characterized by globalization and major economic and financial instability, business strategies must be both rigorous and flexible in order to seize the opportunities that arise from continuously evolving international markets. Oviatt and McDougall (2005: 540) define international entrepreneurship as “the discovery, enactment, evaluation and exploitation of opportunities – across international borders – to create future goods and services”. According to the Kauffman Foundation studies, in the USA alone over 10 million adults are in the process of starting a business at any given time. Nonetheless, it is essential to find out the real factors that render internationalization successful, as more than half fail within the first four years (Timmons and Spinelli 2004). Several studies have highlighted that firms with an entrepreneurial orientation (EO) are inclined to be more successful (Lee and Peterson 2000). Lumpkin and Dess (1996) include risk-taking, proactiveness, autonomy, innovativeness and competitive aggressiveness in EO, however, the three most commonly researched components are risk-taking, proactiveness and innovation. According to Coviello and Jones (2004), international entrepreneurship entails risk-taking, proactive and innovative behaviours as it involves crossing national boundaries. Moreover, Kropp et al. (2006) state that once a business has been started, adaptability, creativity, support and innovation are critical to international success. For other scholars, international confrontation, especially for small and medium-sized firms (SMEs), is a challenge that forward-thinking firms can successfully deal with by leveraging on mobilization, and by sharing the resources of other actors. The development of activities on a transnational scale and the search for competitive advantages across borders requires businesses to adopt a collaborative approach involving national or international partners throughout all stages of the value chain. The value of the venture, therefore, stems from the combined actions of other actors in the network (Brito and Roseira 2005), which includes suppliers, subcontractors, agents, customers, but also municipalities, regions, organizations and institutions (Chen et al. 2004). Various studies have also shown that firms with a market orientation (MO), defined as firms focused on meeting customer’s needs and on understanding the competitive environment, are likely to be more successful than others (Narver and Slater 1990; Jaworski and Kohli 1993; Deshpande et al. 2000; Shoham et al. 2005). Notwithstanding the importance of market orientation, research into the MO of entrepreneurial business ventures is scarce (Kara et al. 2005). Furthermore, firms with a learning orientation (LO), referring to firms that learn from their successes and mistakes through experience, tend to be more successful (Hult et al. 1999; Baker and Sinkula 1999; Zahra et al. 2000). Some conceptual articles have discussed the importance of LO in entrepreneurial business ventures (Cope 2005; Harrison and Leitch 2005; Poltis 2005; Dutta and Crossan 2005; Lumpkin and Lichtenstein 2005), but limited empirical research exists on the impact of LO on international success. The relationships between success and each of the three above-mentioned orientations (EO, MO, LO) have generally been studied in isolation, while Kropp et al.’s (2006) study, developing a multi-construct framework, combines the effects of these three orientations on performance. Moreover, in the last two decades, the international entrepreneurship domain has been extensively developed by drawing on various theoretical perspectives such as international business, entrepreneurship, strategic management, network and marketing (Peiris et al. 2012). This growing body of knowledge has provided rich insights into entrepreneurial internationalization behaviour, but has also fragmented international entrepreneurship theory that now lacks a unifying theoretical direction (Keupp and Gassmann 2009; Coombs et al. 2009; Zahra and George 2002). According to Kropp et al. (2006: 506), “EO, MO, and LO can be viewed as resources, which potentially enhance the success of IEBVs”, and the various strands of the afore-mentioned literature on international entrepreneurship, we develop an interpretative model that expounds the elements that characterize successful internationalization. This interpretative model aims to outline the paths that firms can take to establish successful international business ventures in markets with high cultural distance, which often provide the best opportunities for future growth. In its construction, we place emphasis on themes not specifically highlighted in Kropp et al.’s (2006) model, namely, culture, cultural distance and the impact on business models, which we call culture orientation (CO). Indeed, the external environment and its impact are fundamental to firm internationalization since this continuously interacts as a moderator variable and as a driver of change (Jones and Coviello 2005). According to Peiris et al. (2012), culture is the key among influential environment factors. Furthermore, in terms of B to B markets focusing on people and relationships, Fang (2006) outlined that culture is always present in the background with a fundamental effect on the behaviour of those at the centre of business relationships. Several studies highlight that cultural aspects are critical in establishing business relationships and in enhancing and maintaining ongoing business (Usunier 1996; Hall 1976; Herbig 2000; Fletcher and Fang 2004). The novelty of the model we propose lies in linking EO, LO, MO, CO and firm performance by combining on one hand the evolutionary behaviour of entrepreneurs (from a company-centric to a relational-trustee approach), and on the other, the strategic market approach (from tout court product internationalization to strategy and marketing mix localization). The propositions for which we intend to provide support are: Proposition 1: The more the entrepreneur focuses on the relationship and on cooperation (including cultural elements and developing trust and interpersonal relationships), the greater the business performance will be. Proposition 2: The more the entrepreneur is oriented towards the market, and in particular, towards understanding the specific cultural elements of the market (not only the product but also the interactions and relationship), the greater firm performance will be. In support of the basic theoretical considerations, we present the results of a study on a group of Italian firms operating in China. The decision to concentrate on the Italian case was due to the limited availability of empirical studies focusing only on entry mode (Bontempi and Prodi 2009; Lu et al. 2011) or local sourcing (Tunisini et al. 2011). Second, analyzing the Italian case enabled us to examine the behaviour of small to medium-sized firms, which despite their limited size, are present and well known with distinguished brands or reputation in international consumer and B to B markets. Third, Italy is a country with high cultural distance to China and was chosen because its culture imposes a particular focus on relations and partnerships. These two elements are central to the model we propose (Hofstede 2001). The chapter is structured as follows. The first section introduces a brief literature review on culture and firm relations. The second section presents the specifications of the empirical model proposed. The third section illustrates the research objectives and methodology. The fourth section provides the empirical results in two parts: (a) business strategies, relations and performance (quantitative research results), and (b) business models and firm performance (results of the in-depth interviews). Finally, the conclusions and managerial implications are presented.