Eduardo do Amaral Kevin Walther
Master’s Thesis 30 credits
Department of Business Studies Uppsala University
Spring Semester of 2017
Date of Submission: 2017-05-30
An explorative study on small- sized game development firms from a born global perspective
Abstract
The existing literature provides a variety of drivers enabling rapid internationalization of born global firms. This explorative study with its inductive approach attempts to analyze to what extent born global theory can be used to understand internationalization in the context of small-sized game development firms. Five interviews of a qualitative nature are used to collect data from founders of firms in this under-researched context. The data collection process is based on an operationalization of concepts based on the three categories of founder, organizational and macro-environmental drivers. The findings show that the firms can be aligned to three different stages of their business development, from subcontracting, to game development, to self-publishing. Subcontractors are not born global, but game developers must develop games with global market potential. These firms are pushed to be international by the heavily globalized nature of their industry and digital nature of both the products and the distribution platforms. Founder and organizational factors do not drive the born global approach as much as the environment, but still play a role in explaining the business of these firms. Overall, the findings of this thesis may provide a guiding point for further research in this specific context of firms acting in an industry with immediate internationalization.
Keywords
Born global; Internationalization; Small-sized game development firms; Game development;
Digital distribution
Word count
17,487
Content
List of Figures ... I List of Tables ... I
1. Introduction ... 1
1.1. Background ... 1
1.2. Research question ... 2
1.3. Contribution... 2
2. Theory ... 3
2.1. Definition of born globals ... 3
2.2. Factors influencing accelerated internationalization ... 4
2.2.1. Founder-related factors ... 4
2.2.2. Organizational factors ... 5
2.2.3. Macro-environmental factors ... 7
2.3. Game development ... 9
2.3.1. Industry overview ... 9
2.3.2. Game development process ... 10
2.3.3. Internationalization of game developers... 11
2.4. Conceptual framework ... 12
3. Methodology ... 14
3.1. Research design ... 14
3.2. Operationalization ... 15
3.3. Data collection & sampling ... 17
3.4. Respondents... 18
3.5. Interview guide ... 19
3.6. Data analysis ... 20
3.7. Validity and Reliability ... 20
4. Findings ... 22
4.1. Classification of firms ... 22
4.3. Game developers ... 27
4.4. Self-publishing ... 29
4.5. Internationalization ... 31
4.5.1. Internationalization in terms of customers ... 31
4.5.2. Internationalization in terms of competition ... 33
5. Analysis ... 36
5.1. Introduction ... 36
5.2. Macro-environmental factors ... 36
5.2.1. Market internationalization ... 36
5.2.2. Technology ... 37
5.2.3. Global competition ... 38
5.3. Founder factors ... 39
5.3.1. Past international experience ... 39
5.3.2. Motivation and ambition ... 39
5.3.3. Global orientation ... 40
5.4. Organizational factors ... 41
5.4.1. Foreign market knowledge ... 41
5.4.2. Competences ... 42
5.4.3. Networks ... 43
6. Summary and concluding remarks ... 45
6.1. Conclusion ... 45
6.2. Contribution and future research ... 47
6.3. Limitations... 48
Bibliography ... 49
Appendix A: Interview guide ... 54
Appendix B: Coding ... 56
List of Figures
Figure 1: 7 Stages of Video Game Development (In reference to Johns (2006)) ... 10 Figure 2: Internationalization of born global framework in reference to Madsen & Servais (1997) .... 13 Figure 3: Three stages model (own illustration) ... 23
List of Tables
Table 1: Operationalization ... 17 Table 2: Overview of case firms ... 19
1. Introduction
1.1. Background
On the 18th of November 2011 the Swedish small-sized firm Mojang AB founded by Markus Persson released a sandbox video game after years of development. The game known as
„Minecraft‟ was a blockbuster and as of today has sold 122 million copies for multiple platforms. (Polygon, 2017) The game released almost simultaneously with „Call of Duty:
Modern Warfare 3‟ which is one of the most established video games franchises, owned by the Californian Software Publisher Activision-Blizzard. Whereas Mojang AB had nine employees at that time, 400-500 developers were working on Activision-Blizzard‟s „Call of Duty‟ game. Additionally Activision Blizzard had a $100 million marketing budget to promote their title which sold eventually 28.5 million copies. (Allabolag, 2017; Nichols, 2014; The Guardian, 2014) This comparison illustrates how the video games industry is an industry where small players can challenge or even beat incumbent and large video game developers even though the financial and human resources differ significantly.
Clearly „Minecraft‟ is an extraordinary example but it can be seen as an illustration of the successful emergence of small-sized game development firms in the global and fast growing industry of video games (McKinsey, 2015). Various successful games have been produced by Swedish small-sized game development firms - although the country is only the 26th biggest video games market in the world in terms of consumption. (Dataspelsbranchen, 2016;
Newzoo, 2017) Small local markets such as Sweden connote that firms have to adopt a global approach right from their beginning or shortly afterwards. Being present on the global market and therefore internationalizing rapidly seems to be a requirement to all kind of game developers. This type of rapid internationalization of international new ventures or born globals has gained attention as a subject in international business research e.g. Madsen and Servais (1997), Oviatt and McDougall (1994) and Weerawardena et al. (2007). Especially for small- and medium-sized firms the internet has enabled a rapid internationalization by providing alternatives to the physical market (Sinkovics et al., 2013). Academic studies such as Cunningham et al. (2012) about the specific context of small-sized game developers are rare. More specifically Ström & Ernkvist (2012) mention the lack of research on the internationalization process of creative industries such as the video games industry and suggest further scientific investigation.
Therefore, this paper is trying to address this gap and discuss born global theory under the very specific context of small-sized game development firms. In order to do so, this paper commences with a theoretical section that includes a critical literature review of born global theory and provides a framework on the drivers of a born global approach to internationalization based on current literature. The theory section will also contain a short overview and description of the game development process. In the findings section of this paper, we will discuss the specific context of small-sized game development firms based on a multiple case approach by interviewing various founders and CEOs. In the analysis section, we will draw the connection between our gained insights and the framework based on born global theory.
1.2. Research question
The purpose of this paper is to look at the phenomenon of born globals and their accelerated internationalization in the particular setting of small-sized game development firms. This leads us towards the following research question:
To what extent does born global theory explain the business of small-sized game development firms?
The aim of this paper is to investigate whether small-sized game development firms can be considered born global, based on the driving factors of rapid internationalization identified from previous research about small-sized firms. The framework that is derived from born global theory will provide a cornerstone for our data collection and analysis.
1.3. Contribution
This study examines the antecedents of internationalization in a rather young and little- researched industry. This will provide a better understanding of the small businesses acting in a global and fast-growing industry. Furthermore, this paper will enrich the field of international business due to the fact that there is little research on the internationalization process of the creative industry or video games industry as a sub-sector of that industry in particular – as e.g. pointed out by Ström & Ernkvist (2012) or Cunningham et al. (2012).
This paper will apply an explorative approach by drawing upon qualitative data. This will provide insights to a global, young and thriving industry of game developers and might provide a foundation for future research within that specific context.
2. Theory
2.1. Definition of born globals
The phenomenon of so-called born globals has been widely documented in the literature, albeit with different names. One such denomination is that of international new ventures (INV), defined as “business organizations that from inception, seek to derive significant competitive advantages from the use of resources and the sale of outputs in multiple countries‟‟ (Oviatt and McDougall, 1994: p. 49). This definition, along with the conceptual framework proposed by its authors, is widely used in the literature to define rapidly internationalizing firms (Autio et al., 2000; Knight and Cavusgil, 2004). A simpler and more concrete definition points to the requirement, that the firm operates in international markets from its inception as opposed to establishing a domestic presence before expanding internationally (Knight et al., 2004). In order to operationalize these definitions, various studies focused on time-based requirements of export speed, claiming that to be a born global the firm must earn more than a certain percentage of revenues from abroad within a few years from establishment, such as more than 25% in foreign revenues within 3 years (Andersson and Wictor, 2003).
However, these attempts to operationalize the concept have yielded a fragmented research field which can complicate the comparison and synthesis of findings (Rialp et al., 2005).
Instead of focusing on a narrow operationalization, Gabrielsson et al., (2008) propose a definition that instead focuses on some key descriptive characteristics of born globals. These are having a product with global market potential; entrepreneurially seeking accelerated internationalization; a global vision; presence in a high-tech industry; and being a start-up that is independent from any corporation or larger firm (Gabrielsson et al., 2008). Given this study‟s objective to understand whether the born global phenomenon is at play in this industry, simply identifying a set of characteristics pertaining to born globals and matching it to the case firms would yield a superficial answer. We instead look to the usual drivers behind the rapid internationalization of these small firms, taking a step back while also developing the mentioned key characteristics in the process.
A review of the literature reveals that there have been many attempts to conceptualize the wide-ranging factors that enable rapid internationalization of firms such as born globals (Jones et al., 2011). Madsen and Servais (1997) propose three aspects of research when
understanding born globals – founder, organization and environment. Founder factors are related to the background and characteristics of the founder such as previous international experience, personal ambitions and motivations to internationalize. Organizational factors are the competences, routines and governance structures of the firm that might affect internationalization. Environment factors are the macro-environmental trends of higher levels of technology, market internationalization and specialization. (Madsen and Servais, 1997) Even though the framework is slightly simplified and open-ended in comparison to many other conceptualizations, its research model serves well to organize the literature on factors causing rapid internationalization. We will follow the advice of Madsen and Servais (1997) and fill in the model with theoretical propositions from the literature with the objective of reinforcing and refining it.
2.2. Factors influencing accelerated internationalization
2.2.1. Founder-related factors
The inadequacy of traditional international business theories in addressing entrepreneurial firms such as born globals led to growing interest in integrating international business and entrepreneurship research fields. One of the most natural consequences of this merge was an increased focus on the role of the entrepreneur or group of entrepreneurs in defining the speed of internationalization of the firm. (McDougall and Oviatt, 2000) After all, the entrepreneurs represent the foundation upon which the firm is built, so it is reasonable to assume that they will influence the firm‟s internationalization. The starting point of the process of international entrepreneurship is a business opportunity that presents itself to the individual, who must perceive it and decide on whether to act on it or not (Mathews and Zander, 2007). The entrepreneur is therefore central to the process, and their subjective evaluation of the opportunity and its surrounding conditions mediates whether the internationalization will happen and if so, the speed of the process (Oviatt and McDougall, 2005). Understanding born global entrepreneurs can give clues to what drives them to create firms that are international at the outset.
If the history of the firm extends back to the history of the entrepreneur, traditional evolutionary models of internationalization and knowledge acquisition can be applied even to born globals (Madsen and Servais, 1997). There is widespread support in the literature for the claim that a founder with previous international experience positively influences the
likelihood of choosing a born global approach (Andersson and Wictor, 2003; Crick and Jones, 2000; Mathews and Zander, 2007). An entrepreneur who has incrementally gathered international experience has both knowledge of foreign markets and networks that can facilitate the internationalization process of a new firm, which in turn increases the motivation and ambition to internationalize (Madsen and Servais, 1997). Past international experience makes rapid internationalization more plausible and desirable to entrepreneurs.
From an entrepreneurial perspective, exploring the reasons why an individual starts their own business can lead to a better understanding of the essence of the firm and its orientations (Galloway and Mochrie, 2006). Despite the study being from another context of rural firms, it captures and operationalizes the motivations and ambitions of the entrepreneur, which was not done in Madsen and Servais (1997). The motivation of an individual to start a firm can be positive such as wanting to act on an opportunity or to work for oneself, or negative such as a lack of other employment or growth potential in previous jobs. The ambitions or aims of the entrepreneur can be personal such as to maintain a certain level of income or lifestyle, or more firm-focused such as to grow and expand the business or eventually sell the firm. (Galloway and Mochrie, 2006)
One strategy-focused characteristic of the founder that according to literature, should be present at the inception of a born global firm, is a global orientation. A global mindset has been defined as “the propensity of managers to engage in proactive and visionary behaviors in order to achieve strategic objectives in international markets” (Harveston et al., 2000:
p.92). A founder with a global orientation accepts the world as a large marketplace, and thus is open to cultural diversity and gives managerial attention to international affairs and markets (Kyvik et al., 2013). This is akin to a global vision (Gabrielsson et al., 2008), which has been said to be the starting point to a firm that is truly born global (Knight and Cavusgil, 2004).
There is support in the literature for a positive relationship between an entrepreneur with a global mindset and the internationalization behavior of small firms (Kyvik et al., 2013).
Indeed, it seems to be the most natural characteristic for a born global founder – that they think globally in terms of strategy and markets.
2.2.2. Organizational factors
At the organizational level the possession of valuable knowledge can enable firms to internationalize successfully. The Uppsala model describes the internationalization process of the firm as a process which is characterized by gradual acquisition, integration and especially
the use of knowledge about foreign markets and operations in order to increase commitments of the firm in foreign markets. The firm thereby overcomes its initial liability of foreignness which presents additional costs and difficulties of operating in a foreign market (Johanson and Vahlne, 1977). Knowledge is considered key to building an advantage in a foreign location (Oviatt and McDougall, 1994), and it has been suggested that market knowledge specifically acts as a moderator for the speed of internationalization (Oviatt and McDougall, 2005).
Having sufficient market knowledge upon founding determines the location and the agile internationalization strategy of born global firms (Spence and Crick, 2009). Especially in the case of knowledge-intensive industries, it is postulated that the mobility and flexibility of knowledge as a capability makes it possible to expand internationally at a much faster rate (Autio et al., 2000). It thus follows that if the firms possess knowledge and are knowledge- intensive, they are more able to be born global.
In addition to knowledge, it is natural to turn to the possession of particular competences to explain how firms are able to achieve rapid internationalization. It was argued by Madsen and Servais (1997) that born globals must have particularly narrow and well-cultivated competences that can be exploited to internationalize rapidly. There have been attempts at defining what competences are linked to the born global approach, with varying degrees of detail. Early on it was already claimed that competences in relation to the background of the founder, networks and knowledge enable the success of international entrepreneurs (McDougall et al., 1994). This combination of competences ensures that the organization is aware of routines to handle the challenges of internationalization, and can indeed be the core from which the company later evolves (Madsen and Servais, 1997; McDougall et al., 1994).
Born globals are usually small in size and entrepreneurial at heart, so they often need to supplement internal competences with external ones whenever that is necessary (Madsen and Servais, 1997). This is reflected in the attention given to capabilities revolving around networking to leverage external competences in the born global literature (Karra et al., 2008;
Knight and Cavusgil, 2004; Weerawardena et al., 2007). The balance between internal and external competences seems to be a natural part of being a born global firm.
Given the lack of resources usually experienced by born global firms (Gabrielsson and Pelkonen, 2008; Jones et al., 2011; Spence and Crick, 2009), networks are often a way to seek resources and competences that are required to achieve their business goals, including internationalization (Oviatt and McDougall, 1994). In a revised form of the Uppsala model, Johanson and Vahlne (2009) respond to the critical reviews of the original model and
recognize the business environment as a web of relationships, thus acknowledging the importance of relationships and networks for the process of internationalization. This revision also renders the model more applicable to new ventures and born global firms since they claim that these international activities usually do not span the globe in a significant way and thus are rather born regional with international activities (Johanson and Vahlne, 2009).
When discussing networks it is important to make a distinction between this more holistic business network approach to internationalization (Johanson and Vahlne, 2009) and the more functional approach of the use of networks to advance the internationalization objectives of the firm (Oviatt and McDougall, 1994). The former advances the understanding of internationalization by focusing on the overcoming of barriers represented by the liability of outsidership and establishing a strong insider position in business networks (Johanson and Vahlne, 2009). The latter posits a more direct approach of networks as facilitators rather than analyzing the internationalization processes from the business network perspective. For instance, it has been suggested that especially for the purpose of securing appropriate distribution channels, employing hybrid structures and partnerships are often a required strategy for rapid internationalization (Knight and Cavusgil, 2004; Madsen and Servais, 1997).
The use of networks for such purposes does not only affect the speed of internationalization but often the choice of foreign location as well, perhaps more so than the psychic distance to the host country (Oviatt and McDougall, 2005). Networks serve therefore as sources of opportunities and formal as well as informal contacts can be used to facilitate foreign market entry (Coviello and Munro, 1995). The use of connections to government agencies, local social networks and ties to local communities have been shown to act as catalysts for the internationalization process, speeding it up and mediating international performance (Zhou et al., 2007). Upon founding, the network of the firm is inherently small whereas the entrepreneur can bring an extensive network that has been built over long periods of time that can be used for more effective internationalization.
2.2.3. Macro-environmental factors
To study a born global firm with disregard to its environment would yield an incomplete picture of the driving forces behind the phenomenon. After having considered the founder and the firm in isolation, the environment in which the firm operates should be considered. To describe a firm‟s macro-environment in its entirety is a monumental affair, but certain
characteristics and conditions of what is called the global business environment are particularly important for the propensity of born global firms (Gabrielsson and Pelkonen, 2008; Madsen and Servais, 1997). The nature of this environment will be clarified as its qualities are described.
The degree of internationalization of the market in which the firm is situated has been suggested to affect its propensity to rapidly internationalize. Theoretical arguments suggest that an internationalized market presents existing international networks and resources which the firm can utilize, thus enabling more rapid internationalization (Madsen and Servais, 1997).
Furthermore, a market, and thereby a firm operating in it, is more likely to be more internationalized if the domestic market is relatively small in size in comparison to alternative foreign markets (Madsen and Servais, 1997). An industry that is highly internationalized, perhaps due to its small domestic market size, will encourage the birth of born globals, whereas in industries where serving local markets is a viable strategy, the born global approach might not be as necessary (Rasmussan et al., 2001). A major driving factor for born globals is therefore how global its industry already is.
Advancements in technology changed the global business environment and changed the face of global competition. The fact that these global markets exist enables greater specialization, leading to smaller-scale operations with niche target markets who in the past could not reach large enough markets to survive (Madsen and Servais, 1997). Niche strategies in turn enable smaller firms to avoid head-on competition with large MNCs who are able to target larger portions of the market (Knight et al., 2004). These global customers can be reached by global channels, established international logistics and improved information technology (Gabrielsson and Pelkonen, 2008). Digital technology therefore is an enabling force that makes accelerated internationalization possible, while competition on a global scale encourages firms to chase customers internationally and to prevent loss of market share to competitors (Oviatt and McDougall, 2005). According to Mathews and Zander (2007), the engagement with competitors is the last guiding principle in international entrepreneurial dynamics, largely shaping the pathway of resource deployment taken by a firm and therefore, whether it chooses to approach international markets or not. Indeed it can be claimed that the born global phenomenon therefore exists mainly because of the globalized competition and markets that compose the economic system of today (Chetty and Campbell-Hunt, 2004).
When the product itself can be digitally distributed as in the case of computer software, the
impact of these forces is amplified and born global theory shows promise in explaining the internationalization of such firms (Galimberti and Wazlawick, 2015).
2.3. Game development
2.3.1. Industry overview
What is now the global mass media industry of video games started out as a slightly accidental and minimal creation. In 1958 the US nuclear research scientist Wally Higginbotham created a game of tennis on an oscillating screen. His intention was to entertain visitors in his lab with this device. Higginbotham never patented his invention which also prevented his employer the U.S. government from owning the initial rights to this industry.
Higginbotham‟s invention is seen as the birthmark of the industry of home video games or simply “video games”. However, it wasn‟t until 1974 where the industry created its first real profits. It was the US company Atari who launched the „Pong Home system‟ in 1974 with the iconic game of „Pong‟ which was similar to Higginbotham‟s two-dimensional game of tennis.
Three years later in 1977 Atari launched a home entertainment system with the vital idea that independent developers could create their own games for this system. It was a further cornerstone in the history of the video games industry. (Nichols, 2014; Williamson, 2002) The industry had its rise and falls during the first two decades but since the mid-1990s, the industry is continuously growing in size and scope. In 2003 the industry reached a turnover of
$23.2 billion (Johns, 2006). In 2014 the global consumer spending for the video games industry reached $81.0 billion which is more than twice the size of global consumer spending for cinema entertainment within the same year. Moreover, the video games industry overtook the music industry in 2015 based on global consumer spending. (McKinsey, 2015; Nasdaq, 2016) PricewaterhouseCoopers (2014) is expecting consumer spending in video games industry to grow even further in the next years due to attractions of non-gamers through social and casual games and upcoming new features in the hardware market.
Since our study is looking at game developers we will mostly focus on the software side of the video games industry and thus ignore hardware or console producers. Based on this software perspective the industry can be categorized into six different types: Console games (29%), PC Games (27%), mobile games (27%), tablet games (10%), browser web games (5%) and handheld games (2%). The number in bracket indicates their market share based on global revenue in 2016. (Newzoo, 2016)
2.3.2. Game development process
The development of a game is a process with several stages and can differ depending on the platform and type of software produced. Williamson (2002) tried to conceptualize the process of game development whereas Johns (2006) further developed the concept to a model with seven particular stages (see figure 1).
Figure 1: 7 Stages of Video Game Development (In reference to Johns (2006))
Game developers are usually not in charge of all stages in this process. They are often in a contract-based relationship with publishers. Those publishers can be the right-holders of the game or an intellectual property (IP). In most cases, publishers take on the responsibility of financing, publishing and distribution. Usually, publishers choose which game developer(s) they want to work with and the developing firms get rewarded with royalties from the sales of the game. Developers have the incentive to deliver a superior product in order to increase their reputation for a future work on bigger titles or with a bigger publisher. (Williamson, 2002)
This process was the custom in the industry but has changed a lot in recent years. More recently the game development process has been affected and stirred up by digital platforms.
The most famous example of such a digital distribution platform is Valve‟s “Steam”. This platform allows PC users to purchase games and store them in a cloud-based virtual library.
Such online marketplaces like Steam not only influenced the purchase behavior of consumers but also significantly changed the process of game development. Game developers have through those platforms the possibility to develop games independently and outside of the publishers‟ distribution network and influence. (Nichols, 2014) Online marketplaces have also turned the video games industry into a “weight-less” economy with an almost cost-free reproduction and distribution of software. (Johns, 2006) We will analyze these changes in the game development process further in the analytical part of this paper.
Financing Development Production Publishing Distribution Retailing Consumption
2.3.3. Internationalization of game developers
The video games industry can be seen as a sub-sector of the creative industry. Typical for firms in the creative industry is the uncertainty and complexity of product attributes. This means that the relationship between product attributes and market acceptance is challenging to predict for producers. (Ström and Ernkvist, 2012) In other words, game developers must focus on commercial success without losing the focus on creativity and innovation. (Hotho and Champion, 2011)
Another challenge, especially for game developers that choose to work without a publisher, is the requirement to undertake rapid internationalization in order to succeed (Cunningham et al., 2012). Clearly the internet and the development of online marketplaces can support game developers to accomplish this. A study on small and medium-sized firms by Sinkovics et al.
(2013) concludes that the internet is a driver for such a rapid internationalization. The research concludes that the internet enhances the export performance and especially entrepreneurial firms can improve their overall performance through the internet by using it as a sales channel. However, the authors also highlight that firms are often relying too much on the internet. Therefore they might face the issue of generalizing their learning of foreign markets and online customers too much. Such a virtuality trap - as the authors call this phenomenon – might be the downside for game developers who are mostly relying on the internet or digital platforms as their sole distribution channel. Nevertheless, the alternative of distributing games digitally eliminates the production and distribution costs of the physical product, enabling higher profit margins and more accessibility to international markets (Marchand and Hennig-Thurau, 2013).
Also from a structural view, the industry of video games is extraordinary. In the early ages of the industry, video games started often as “garage production”. Since the late 1990s the industry grew in professionalism and organizational structure which brought up large studios with hundreds of employees and million dollar budgets for their game development. (Kröger et al., 2013) Despite this development there are numerous cases of small game developers that achieved success thanks to digital platforms as well as the rise of mobile gaming (Nichols, 2014).
Considering these specific circumstances of the industry regarding internationalization, we agree with Ström & Ernkvist (2012) that further research is needed in order to understand internationalization in this industry which they describe as an intersection between technology
and creative industries. We see it as necessary to adapt existing born global theories to the special circumstances of the video games industry. To do this, we will outline our conceptual framework, which we will base our analysis on, in the next section.
2.4. Conceptual framework
In order to conceptualize our field of study, we use the widely cited framework by Madsen and Servais (1997) as a foundation. The framework is complemented by considering further research on the factors influencing the internationalization of born global firms and choosing to focus on a few prevalent concepts within each factor category. This framework will support our exploration of what leads to a born global approach to internationalization by small-sized video game development firms.
Founder factors are based on the propositions by Madsen and Servais (1997) that previous international experience can lead to higher ambitions and motivations to internationalize, which is supported in the literature (Andersson and Wictor, 2003; Crick and Jones, 2000;
Mathews and Zander, 2007). To address the lack of operationalization of these ambitions and motivations in Madsen and Servais (1997), we use the factors suggested by Galloway and Mochrie (2006) to better understand the entrepreneurs‟ reasons for starting up their firm. The global orientation or mindset of the founder has also received attention as a predecessor to the creation of a born global firm (Knight and Cavusgil, 2004; Kyvik et al., 2013).
Organizational factors are refined from the original propositions that competences, routines and governance structures influence the internationalization of the firm (Madsen and Servais, 1997). The role of foreign market knowledge as a facilitator to rapid internationalization is considered (Johanson and Vahlne, 2009; Knight et al., 2004). The competence factor originally in Madsen and Servais (1997) is left as in the original model, open to interpretation and focusing on the equilibrium between internal and external competences. Business networks as tools to internationalization should be taken into account (Coviello and Munro, 1995; Johanson and Vahlne, 2009; Oviatt and McDougall, 2005), along with social networks as a catalyst for the internationalization process (Oviatt and McDougall, 1994; Zhou et al., 2007).
Finally, macro-environmental factors such as the levels of market internationalization, technology and specialization are in the foreground of other factors (Madsen & Servais, 1997). The mutually reinforcing factors of advanced technologies, increased specialization
and market internationalization can be traced to the macro trend of globalization (Gabrielsson and Pelkonen, 2008; Oviatt and McDougall, 2005; Rasmussan et al., 2001). These factors, coupled with global competition (Mathews and Zander, 2007), create a breeding ground for born globals.
Figure 2: Internationalization of born global framework in reference to Madsen & Servais (1997)
3. Methodology
3.1. Research design
As a natural first step to the research process, the literature on born globals was reviewed to find whether there are established factors driving the rapid internationalization of game developers. Despite the experienced success of small-sized game development firms in this creative and internet-enabled industry, it seemed that our context was under-researched and lacked theoretical foundation. Therefore the construction of hypotheses on established factors influencing this industry did not seem viable (Saunders et al., 2009) and an explorative and inductive approach seemed more appropriate. True exploration in a pure form of induction such as the traditional grounded theory approach by Corbin and Strauss (1990) was assessed as to be too extensive especially considering the time available for conducting this study. In addition to the purpose of exploring we aimed to be descriptive in a purposeful way.
Therefore, some guidance from the literature would facilitate our research process while still permitting the flexibility required when approaching this unexplored context. The principal intention was to look at the born global phenomenon in a new context, by focusing on small developers. The conceptual framework developed from the literature served as a guide for organization, analysis and especially discussion of data. It is therefore an inductive approach but conducted with the aid of the deductive element of a conceptual framework.
This is line with what could be described as an abductive approach to case research.
According to Gummesson (1999), most studies often adopt inductive or deductive logic in their initial stages, but mostly develop into abductive research as the study goes on. This approach can be described as navigating between the theoretical and empirical world more freely and accepting the interconnectedness of different elements of research (Dubois and Gadde, 2002). By relying more strongly on theory, the inductive process becomes more focused. The objective of research thus becomes “theory development rather than theory generation” (Dubois and Gadde, 2002: p.559), and the initial theoretical framework is gradually adjusted as it is put to test with data collection and interpretation. We intended to begin the research process of developing theoretical preconceptions by connecting them to the empirical world and guiding further empirical research. Overall, we intended to take a first step with this study towards a better understanding of small-sized game development firms and make connections to international business theory through the perspective of the born global phenomena.
In order to accomplish this purpose, a case study strategy enabled us to address factors behind the rapid internationalization of these firms more openly through in-depth investigation (Saunders et al., 2009). As argued by Yin (2003), using more than one case can strengthen the process by enabling comparison of findings across cases and improving replicability, and so a multiple-case study strategy was chosen. Case research stresses the importance of the context of the case (Dubois and Gadde, 2002; Dyer and Wilkins, 1991), so this seemed to fit with our intention to understand the context of our case companies and their little-investigated industry.
Given the research gap in this industry, qualitative methods yielded a greater level of detail about our cases, which was essential for our explorative purpose (Saunders et al., 2009).
Acknowledging that triangulation strengthens the substance of the study (Eisenhardt, 1989), multiple data collection methods were employed and data from primary sources were complemented by secondary data from industry reports, company material and news articles.
From a philosophical standpoint, our explorative approach and choice of methods lent themselves best to a more subjectivist position since the findings are largely about the perceptions and opinions of the interviewees (Saunders et al., 2009). We set out with the objective of discussing the businesses in relation to our operationalizations, without making it obvious that we were looking at the different drivers of born global internationalization. In other words, we wanted to see whether internationalization would naturally arise as a key aspect of these businesses from the perception of the founders. This was done to keep a certain degree of objectivity and refrain from imposing the connection between the discussed drivers and internationalization onto the founders.
3.2. Operationalization
The constructed conceptual framework highlighted and summarized the existing literature and gave clues to what direction the empirical investigation should take. Our purpose was to better understand the three factor categories of founder, organization and macro-environment. These categories each have a few concepts which are broken down into indicators according to previous conceptualizations in order to make their meaning clearer. Previous operationalizations were taken into account but most often for our case, indicators are based on theoretical arguments and are therefore broader in meaning. These indicators were then used to partially guide questions and to facilitate data analysis. A key aspect of our
operationalization is that we intended to bring the discussion to revolve around the development of a particular game or project of the interviewee‟s choice. With this approach, we tried to ensure that specific examples are discussed as opposed to purely conceptual perceptions. The questionnaire (see Appendix A) served as a point of departure with minor adaptations for each interviewee.
Subfactor Indicator Research Questions
Founder factors: 4
Past international experience
- Living, studying and working abroad
- Working in an international company
- Madsen and Servais (1997)
- Matthews and Zander (2007)
1,2
Ambition &
motivation
- Motivation to internationalize and to be an entrepreneur (personal reasons)
- Ambition to internationalize and to be an entrepreneur (objectives for the firm)
- Madsen and Servais (1997)
- Galloway & Mochrie (2006, p.5)
3
Global orientation - View of world as one
marketplace
- Attention given to international markets and internationalization
- Knight and Cavusgill (2004)
- Kyvik et al. (2013)
5, 6
Organizational factors
12
Foreign market knowledge
- If and how foreign markets are assessed prior to entering them
- Oviatt and McDougall (2005)
8
Competences - Balance between internal and
external competences
- Internal competences present within the firm
- External competences that are needed from outside
- Madsen & Servais (1997)
- McDougall et al.
(1994)
10
Networks - Roles and responsibilities of
external actors
- Networks as a tool for the business
- Oviatt and McDougall (2005) - Coviello and Munro
(1995)
- Zhou et al. (2007)
10,11,14
Macro-
environmental factors
Market
internationalization
- Share of industry revenue from foreign markets
- Relative size and importance of domestic market
- Madsen and Servais (1997)
- Chetty and Campbell-Hunt (2004)
- Rasmussan et al.
(2001)
5
Technology - Enabling role of technology
- Digital distribution platforms
- Madsen and Servais (1997)
- Oviatt and McDougall (2005)
11
Global competition - General perceptions of
competition in the industry - Basis of competition - Influence of competitors
- Oviatt and McDougall (2005) - Matthews and
Zander (2007)
7
Table 1: Operationalization
3.3. Data collection & sampling
In order to investigate a phenomenon or problem, it is essential to choose a particular research method. It lays in the deliberate choice of the authors to critically assess the advantages and disadvantages of various methods. (Ghauri and Gronhaug, 2010)
This research takes a first step towards the understanding of small game developers and aligning it with theory from an international business perspective. Due to such an explorative nature of our study, we have assessed a collection of data through individual semi-structured interviews as the most suitable approach - as suggested by Saunders et al. (2009). Moreover, the semi-structured interview approach granted a set of topics or questions that can be introduced in varied ways as deemed appropriate to the interview. This allowed the interviewee to answer and discuss topics using their own words and phrasing. (Ghauri and Gronhaug, 2010; Saunders et al., 2009)
In order to find respondents for our interview, we used a non-probability sample. This is in accordance with Mathews and Ross (2010) who suggest a non-probability sampling approach in order to explore a phenomenon in a qualitative research setting which is the case in our study.
We see the video games industry as an industry showing global vision from inception. In the selection of our data we ignored therefore the geographical location of the firms but moreover focused on having various small-sized game development firms belonging to different expected patterns or types of firms. We chose to focus on PC games and therefore looked for companies that had been involved in the development of games for this platform. This implied a closer examination of the potential case firms in the sample, which helped us gain a better overview of the different types of firms in the industry. Overall, our sample can for those reasons be described as a judgmental sample (Ghauri and Gronhaug, 2010; Rialp et al., 2005).
Our judgmental sample included 22 Swedish, three Brazilian and three Swiss game developers. We contacted all of them and eventually arranged to interview three Swedish, one Brazilian and one Swiss game developer. Our aim was to conduct the interviews in person.
However, due to the limited amount of time of the interviewees and the geographical distance, interviews by phone replaced in some cases the personal interviews. The interviews were audio-recorded in agreement with the interviewees and afterwards transcribed in order to facilitate data analysis and extract exact quotations. All of the respondents agreed on being quoted and their companies mentioned in this paper. In two particular cases, the interviewees requested to counter-check the quotes to ensure correct interpretation and thereafter gave their approval.
3.4. Respondents
A summarized overview of interviewed companies can be found in Table 2. Further elaborations and description of the companies will follow in the findings section of this paper.
Company Country of origin
Number of employees
Founded Discussed main project
Interviewee
Fablebit Sweden 1 2010 Battlefield 1
(contract work)
Mikael Säker (Owner & founder) Pixeldiet
Entertainment
Sweden 3 2011 Warhammer:
Endtimes - Vermintide (contract work)
Simon Lundmark (CEO & Co- founder)
Urban Games Switzerland 10 2013 Transport Fever Basil Weber (CEO
& Co-founder)
Fatshark Sweden 65 2007 Warhammer:
Endtimes - Vermintide
Martin Wahlund (CEO & Co- founder) Webcore
Games
Brazil 15 1999 My Night Job Fernando Chamis
(CEO & founder)
Table 2: Overview of case firms
3.5. Interview guide
Our interview questions were based on our conceptual framework presented above in the theory section. We opened each interview with questions about the respondents‟ prior experience within the gaming industry before founding a company and an open question about their motivation to start their own company. After those initial questions we tried to focus on a game or project that the firm was involved in and we perceived as significant for their firm history. The respondents were asked if they share our assessment or if they would like to shift the focus of our game- or project-specific questions. By going from broader questions to a more specific focus, we tried to establish our credibility and gain the interviewee‟s confidence in line with the recommendation of Saunders et al. (2009) to open a semi-structured interview. Further on we focused on additional open questions in order to cover all three main factors of our general framework as presented in the theory section above.
By doing some research on the companies prior to each interview we adapted some of the questions to fit the respondents. The gained insights from these interviews are presented in the findings section.
3.6. Data analysis
The interviews were conducted during March and April 2017. All of the interviews were recorded with the permission of the interviewees. Two of the five interviews were held in person in Stockholm and the three other interviews were conducted by phone. All of the interviews were transcribed in order to facilitate the data analysis process.
The gathered data was analyzed through a process of thematic analysis in which the raw data was studied in search of its principal themes and ideas. (Matthews and Ross, 2010) In a first step the transcripts were coded manually and afterwards they were transferred into a single spreadsheet. Each interviewee was assigned a color, so each code could be connected easily to the specific interviewee. For the next step the codes were organized and grouped into categories and sub-categories. The codes were extracted and grouped regardless of their fit to the conceptual framework. However, some of the categories were influenced by previous literature research and the categories of our framework. As recommended by Eisenhardt (1989) the whole process was iterative and codes were eventually re-coded and re-categorized as our focus became clearer. An extract of our coded spreadsheet can be found in Appendix B.
3.7. Validity and Reliability
We tried to increase the validity during the semi-structured interviews by clarifying the question when prompted and asking follow-up questions to explore the topics (Saunders et al., 2009). The interviewees varied in their experience in the industry and the amount of projects they have worked on, but all respondents provided valuable insights to our purpose. We emphasized the process of finding respondents that are relevant to our research question. In order to validate research this is a critical procedure. (Miles and Huberman, 1994) Another measurement taken was to ensure validity through triangulation with the use of alternative sources of data wherever possible (Saunders et al., 2009).
The generalizability of findings from qualitative research has to be considered carefully. The more applicable the findings of a research study are to other settings, the higher is the generalizability. (Saunders et al., 2009) Our research consists of five different interviews from five different companies, all of them founders of a game development firm. On the one hand this low number of interviews has practical reasons since it was difficult to find firm founders in our particular context who were willing to collaborate with us. On the other hand we were
aiming for comparing different cases in-depth and a high amount of case firms would have exceeded the scope of this thesis. We are aware of the lack of generalizability of our findings due to the specificity of our focus, but believe this is justified by the small amount of research that has been conducted in this context.
When it comes to semi-structured interviews a degree of standardization may reduce the reliability (Ghauri and Gronhaug, 2010). By showing transparency in our methodological choices and our process of arriving at the findings, we want to counterbalance that by ensuring that other researchers understand our process - as Saunders et. al (2009) suggest in terms of reliability. Moreover, our interview guide and our coding categories can be found in the appendix for the same reason. However, we are also aware that there might be alternative explanations to our findings that differ from the respondents‟ subjective reasoning. We tried to discuss the different topics without forcing their connections to internationalization, in order to ensure higher data quality and avoid interviewee bias.
In connection to the abductive approach to case research, we acknowledge the difficulties in addressing the credibility of an approach that mixes both deductive and inductive elements and runs the risk of being quasi-deductive testing of theory (Dubois and Gadde, 2002). To address this we strived to demonstrate coherence through description of the research process to the reader (Eisenhardt, 1989), thus showing not only what we learn but also how we learn as suggested by Dubois and Gadde (2002). This will help the credibility of the study and show the empirical process more clearly.
4. Findings
4.1. Classification of firms
The founders of the firms have varying levels of seniority and experience in the industry, but their background is similar in many ways. Before founding these firms, all of the founders had experience with programming, most often through formal education except in one of the cases where it was self-taught. While some had previous work experience in the gaming industry before founding, most had worked in unrelated industries, ranging from the finance sector to internet service providers. None of the founders had any international experience in the sense of living or working abroad before the formation of the firm. The founders were all programmers with an interest in games and all of them are either the founder or co-founder of the firm.
The size of the firms in terms of number of employees range from 1 to 15 which would be considered micro or small according to EU standards. Micro companies earned 2% of Swedish industry revenues in 2016, and small companies earned 6%. (Dataspelsbranchen, 2016) One firm is the outlier at currently 65 employees, which would be considered on the lower scale of a medium firm, which ranges from 50 to 250 employees (see Table 2). We decided however not to exclude this firm in our analysis due to the fact that they made the step into a medium sized firm recently and during the development of their latest title were still what would be considered as a small-sized according to this definition.
The firms are actors in the same industry since they all meddle with the overarching process of game development. A key similarity for these firms is that all of them have developed, are developing or want to develop and launch their own game. This lies behind an interesting pattern that places all five firms somewhere on the same continuum which is made up of three separate but often overlapping stages:
