Coordinate a Global Expansion

(1)

1

Coordinate a Global Expansion

A study of How Born Global Firms Control and Coordinate their Internationalisation Process

Master’s Thesis 30 credits

Department of Business Studies Uppsala University

Spring Semester of 2019

Date of Submission: 2019-05-29

Sofi Bondeson Nathalie Eliasson

Supervisor: Henrik Dellestrand

(2)

Acknowledgements

Writing this thesis has been a great experience since we began the journey in autumn 2018. It has sometimes been hard, but our passion for international business has only increased during this writing process. We are both looking forward to and have already been able to use the theoretical expertise we have gained at Uppsala University.

We would like to express our gratitude to our supervisor, Henrik Dellestrand, for challenging us since the very beginning. Your insights, encouragement and comments have been extremely valuable. Our appreciation also goes to our fellow students that have supported with helpful suggestions of improvements. Your help has been of significant value for this thesis. Finally, this thesis would not have been possible without our case company that opened their doors for us. All respondents have enthusiastically shared their thoughts and experiences of the topic. We are very inspired by your motivation of seeing this Born Global firm becoming a great MNC in the future.

You know who you are. Thank you and good luck in the future!

Sofi Bondeson & Nathalie Eliasson

(3)

Abstract

Purpose: The purpose of this study is to describe and increase the understanding of how Born Global firms control and coordinate their organisation during the internationalisation process. It also aims to examine how the use of control and coordination mechanisms may evolve over time during the internationalisation process.

Method: The study applies a qualitative research methodology and conducts a single case study with 14 semi-structured interviews. By studying the case firm’s entire lifetime, from the foundation to today’s operations, the study captures the whole internationalisation process of the firm.

Conclusions: The limited access to resources and the need for speed were found as the underlying motives for how Born Global firms control and coordinate their organisation during the internationalisation process. Activities that reduced the focus on the long-term goal and risked slowing down the internationalisation process were avoided until they were required. While formal coordination mechanisms were scarcely used, informal coordination mechanisms were found to be the most valuable source of steering the Born Global firm throughout the process. The use of formal control mechanisms was limited during the whole process.

Keywords: Born Globals, Coordination, Control Mechanisms, Internationalisation process

(4)

1. Introduction

Technology, multicultural development, and global financial markets drive worldwide demand and supply chains. Corporations are continuously engaged in foreign direct investment (FDI) activities and firms internationalise to target new markets and globalise their supply chains (UNCTAD, 2018). The internationalisation process entails risks and uncertainties and in the volatile environment, together with organisational growth, the quest for control and coordination of the organisation becomes evident (Schaaper, 2011; Bartlett & Ghoshal, 1987). Moreover, removals of regulations and political barriers for trading and investment over cross-borders enable new market opportunities, but also that firms have the possibility to internationalise overnight (Gabrielsson et al., 2008; Alexander & Korine, 2008). These factors have contributed to a change on the market in which not only multinational corporations have the possibility to internationalise, but also small and medium enterprises (Knight, 2001; Knight & Cavusgil, 2004; Axinn & Matthyssens, 2002).

Multinational corporations (MNC) are defined as corporations that engage in FDI and in some way control value-adding activities in more than one country (Dunning & Lundan, 2008). Small and medium enterprises (SME) are defined as enterprises consisting of up to 250 employees with a maximum annual turnover of 50 million euro (EC, 2015).

The internationalisation process of firms has been captured by Johanson and Vahlne (1977) in their Uppsala Internationalisation Process (IP) Model. They state that firms expand into foreign markets in an incremental way in order to gain knowledge that can be used in further expansions. The more knowledge the firm possesses about the market, the more managers can reduce their perceived risks and uncertainties, and the more they can commit to the market. Nevertheless, research has acknowledged a stream of SMEs that tend to internationalise from inception and with remarkable speed, rather than in a stepwise manner. These firms, also referred to as Born Global firms, tend to be high-performing and technology-intensive, and are spreading out in the world in a fast pace (Gabrielsson et al., 2008). Examples of these are; Spotify, Skype and Logitech, all originating from smaller home-markets and offer a niche product with a capability of scaling fast with a global mindset (Oviatt & McDougall, 1995; McDougall et al., 1994). During the last decade, researchers have put most of their focus on explaining what characteristics Born Globals have which enable

(8)

2

them to internationalise overnight, such as characteristics of the founder, their business model, or other facilitating factors (Knight & Cavusgil, 2004; Oviatt & McDougall, 1997).

However, being global at the inception does not guarantee a story of success. Certain resources and capabilities are required for firms to succeed in their internationalisation process (Gabrielsson et al., 2008). For instance, firms must deal with risks and act agile towards change in a globalised market where new, sustainable innovations and technologies are highly requested (Axinn &

Matthyssens, 2002). Furthermore, organisational leaders must hold tight onto their organisation to make sure that everyone is aligned and working towards the same goals across country borders. At the same time, subunits must act agile to change and be responsive to their local market needs. In volatile times as during the internationalisation process, control and coordination of the firm become one of the highest priorities on the agenda (e.g. Schaaper et al., 2011; O’Donnell, 2000;

Andersson et al., 2007). For instance, Schaaper et al., (2011) and Geringer and Hebert (1989) have defined control as the process in which one unit influences the behaviour and output of another unit by using authority, power and other bureaucratic, cultural and informal mechanisms. The purpose is to limit individual’s self-interest behaviour and to steer and encourage the organisation to work towards the pronounced policies (Cray, 1984). Coordination can be explained as any administrative tool used for promoting integration and connection among different subunits within the firm (Popadiuk & Bido, 2016; Martinez & Jarillo, 1989). The coordination processes are less time and cost consuming, less direct but are also seen as more long-term procedures (Cray, 1984).

While internationalisation is a process that comes with great advantages, it is also a complex and dynamic process holding risks and uncertainties that require a large number of resources (Johanson

& Vahlne, 2009). The internationalisation process also involves higher foreign exchange risks and entry into more complex business environments (Hurwitz et al., 2019). Meanwhile, it also stresses new questions for how to deal with control and coordination of new subunits (Schaaper et al., 2011;

Bartlett & Ghoshal, 1987). This is especially challenging for companies such as Born Global firms who are in their early expansion, without the given processes and routines for internationalisation in place (Knight & Cavusgil, 2004).

(9)

3

The research stream of control and coordination is rich in the International Business field, where the focus mainly has been to explain how large, already internationalised MNCs execute their international strategy (e.g. Gupta & Govindarajan, 1991; Schaaper et al., 2011; Yamin &

Sinkovics, 2006; Axinn & Matthyssens, 2002). The large MNCs businesses are bigger than some countries’ economies and they possess resources and structures not held by SMEs. Also, MNCs have experience of internationalising from earlier entries into foreign markets. One can question whether the way MNCs control and coordinate their organisations during the internationalisation process differs from SMEs, who do not possess either the resources nor the experience of MNCs.

However, there is a lack of research regarding how SMEs manage to control and coordinate their organisations during the internationalisation process and how they execute their strategy through the organisational structure and system of control and coordination mechanisms. Furthermore, research is limited regarding how the internationalisation process affects the use of control and coordination mechanisms and how it evolves over time. Born Global firms, who internationalise with remarkable speed, at or close to the establishment, somehow manage their internationalisation process. Since previous research has mainly looked into already internationalised firms, it is of high interest to study a firm that is internationalising at the current time. This leads us to our research question:

How do Born Global firms control and coordinate their organisation during the internationalisation process?

The purpose of this study is therefore to provide a deeper understanding of how Born Global firms control and coordinate their organisation during the internationalisation process. To bring in an extra dimension, the study will also look into whether their control and coordination mechanisms tend to change as the firm grows, from the firm’s foundation until today’s operations.

This study can contribute to enrichen the international business literature by providing new insights into how Born Global firms control and coordinate in their early internationalisation process. Based on the fact that this study aims to provide an understanding of how, rather than why firms control and coordinate in a specific way, we have chosen to use a behavioural perspective that can help in

(10)

4

providing an understanding of the behaviour of firms during the internationalisation process (Cyert

& March, 1963; Bilkey & Tesar, 1977).

Finally, in addressing this gap, an explicit qualitative case study will be conducted of one Born Global firm, who is in the middle of its internationalisation process, seeking to fulfil its global ambitions. The company operates in the manufacturing industry and for requested confidentiality, in the following we shall refer to the company as ‘the Firm’.

(11)

5

2. Theoretical Framework

2.1 Internationalisation of the firm

Within the behavioural perspective of the internationalisation models, the Uppsala IP model established by Johanson & Vahlne (1977) is one of the theories that has been given the most attention in the international business literature. The Uppsala IP model suggests that firms should enter incrementally, in an establishment chain, in order to reduce the risks that are associated with the internationalisation process. Johanson and Vahlne describe a pattern where firms internationalise towards markets that are not only geographically close, but also psychologically similar. The authors contribute with their explanation of psychic distance which entails differences between the home and host country, such as language, culture, political system and management styles, which disturb the information flow. The IP model describes market commitment and market knowledge as the main drivers in the internationalisation process, which decide further investments decisions and affect the way current activities are performed. In the process, the firm gets more involved in the market and thereby also gains knowledge of the foreign market. At the same time as the firm gains knowledge, the uncertainty of the market, which is stated as the main risk associated with the internationalisation process, decreases. When the risk decreases, the firm is more willing to invest even more, and the commitment increases (Johanson & Vahlne, 1977).

Nevertheless, the IP model has been criticised for being static and not taking the external environment into account. Due to the globalisation process in which advances in technology, communication and reduced trade barriers have taken place (e.g. Axinn & Matthyssens, 2002;

Gebauer et al., 2009; London & Hart, 2009), Johanson and Vahlne (2009) revisited the IP Model to be more focused on network and relations, rather than country specific challenges. The firm must overcome liability of outsidership and instead become an insider of the network by commitment and experiential knowledge. It refers to the fact that markets have been recognised as networks of relationships and this offers the potential for learning and building trust and commitment. Consequently, it has been questioned how the choice of entry mode can help the firm to speed up the internationalisation process (Brouthers & Brouthers, 2000; Morschett et al., 2010) and overcome liability of outsidership. By entering a new country through a joint venture (JV) or partnership, the firm can get access to network specific knowledge and overcome liability of

(12)

6

outsidership and psychic distance in a faster manner. This can be drawn to firms in their early internationalisation process who do not have the resources and capabilities of entering through greenfield. Also, earlier managerial experiences can help the firm speed up the internationalisation process and overcome psychic distance (Gabrielsson et al., 2008).

2.2. Born Global Firms

Due to the changes in the focus of the research within the international business field discussed above, a fairly new stream of research that is combining the international business and entrepreneurship literature has appeared, called International Entrepreneurship (McDougall &

Oviatt, 2000). Among the research of SMEs, this phenomenon of small, fast-growing companies that internationalise overnight has caught the interest of scholars. The phenomena of analysis have been entitled Born Globals, Global Start-ups, and International New Ventures in the literature (Knight & Cavusgil, 2004; Oviatt & McDougall, 1994; Sultan & Wong, 2011). Consistent with other scholars (e.g. Rennie, 1993; Oviatt & McDougall, 1994), Knight and Cavusgil (2004, p. 124) define the entrepreneurial and highly international Born Global firms, as “business organizations that, from or near their founding, seek superior international business performance from the application of knowledge-based resources to the sale of outputs in multiple countries”. Knight and Cavusgil’s definition of Born Globals will further on be used as definition in this study.

Prior research has identified several characteristics that are prominent among Born Global firms.

The major drivers of Born Globals have been acknowledged as the capabilities of human resources, including the inspirational founders, their exploitation of network, their target of niche markets as well as their ability to take advantage of technology development and new market conditions (Dow, 2017; Madsen & Servais, 1997; Gabrielsson et al., 2008). However, the quest for managerial action, control and coordination while internationalising in a fast pace have not yet been examined sufficiently.

(13)

7

2.2.1 The Internationalisation Process of the Born Global firm

While a lot of research has given much attention to Born Globals’ internationalisation process during the last decade, other research has questioned whether the Born Global firm is just another definition of SMEs with high international ambitions that either stagnate or become a MNC with time (Hennart, 2014; Johanson & Vahlne, 2009). However, it has been acknowledged that Born Globals’ commitment in internationalisation looks somewhat different from the traditional IP Model (e.g. Hurwitz et al., 2019; Gabrielsson et al., 2008).

As discussed earlier, the IP model describes an establishment chain that begins with export activities, and as the knowledge increases, the firm is willing to invest more, and the commitment intensifies. This loop runs until the firm is fully committed to the market (Johanson & Vahlne, 1977; 2009). In contrast, Born Globals consider the foreign market as places in which they can explore and create new knowledge and commit directly and secondly learn (Luostarinen &

Gabrielsson, 2006). The Born Global’s behaviour has been explained by its characteristics; global vision at inception, experienced founders and niche products (Gabrielsson et al., 2008). The Born Global often develops niche products where they take advantage of new technology and market possibilities. That indicates low competition and high demand. Due to lack of resources and experience, they work closely with its strategic partners, which they use to accelerate their internationalisation process. These characteristics often drive them towards global niche markets in foreign countries, almost from the establishment (Gabrielsson et al., 2008). It differs from traditional SMEs who can internationalise early, but do not have the effectiveness to achieve the acceleration and a high-performance rate on a global market from start (Gabrielsson et al., 2008;

Jones et al., 2011; Knight & Cavusgil, 2004).

(14)

8

2.3 Control & Coordination

The internationalisation entails organisational growth, both in numbers of employees and subunits.

But foremost, the activities become more dispersed across different locations and the task to ensure that the organisation is working towards the same goal becomes more complex (Andersson &

Forsgren, 1996). Synchronising the dispersed organisation is crucial for a successful implementation of the internationalisation strategy (Palmie´ et al., 2015; Andersson & Forsgren, 1996).

The primary role of coordination during the internationalisation process is to ensure that everyone is aligned and working towards the same goals (Andersson & Forsgren, 1996), while control is practised to verify that the organisation’s stakeholders are working accordingly (O’Donnell, 2000).

These processes and activities can be performed by different mechanisms and tools, both informal and formal. Martinez and Jarillo (1989, p. 490) describe coordination mechanisms as “any administrative tool for achieving integration among different units within an organisation, i.e. to align a number of dispersed and yet interdependent international activities”. Control mechanisms are sprung from the agency theory and are used to minimise self-interested behaviours and follow performance (O’Donnell, 2000).

The internationalisation process put pressure on the firm to be responsive and agile. At the same time, the cost for control and coordination increases, since more decisions have to be made due to the changing environment (Grant, 2016). Thereby, the balance between structure and flexibility is crucial, foremost for Born Globals who are characterised by scarcity of resources and an accelerated internationalisation process (Madsen & Servais, 1997). Coordination and control mechanisms entail both formal and informal instruments that both supplement each other, depending on the task (Martinez & Jarillo, 1989). Gupta and Govindarajan (1991) further argue that the mix between mechanisms should be decided by the level of interdependence, the knowledge flows and by the role of the subunit. Finally, it is the organisational strategy that decides the task, and the structure that facilitates the strategy.

The next sections will dig deeper into control and coordination mechanisms. The first section outlines an explanation of the internationalisation strategies, as it lays as the foundation for the way

(15)

9

firms choose to control and coordinate their organisations. The second section focuses on coordination mechanisms; firstly, formal mechanisms as structure and centralisation, formalisation and standardisation, and secondly, informal coordination mechanisms as socialisation and communication. The last section focuses on control mechanisms.

2.3.1 Internationalisation Strategy

Firms’ overall strategic direction sets the outline for their operations, their future growth and their management of subunits (Perlmutter, 1969; Bartlett & Ghoshal 1987, Taggart, 1998; O’Donnell, 2000). The overall strategy has been described as the link between the firm and the industry environment, whereas the business strategy entails how the resources and capabilities of the firm will be used within its environment (Mintzberg, 1992). What strategy and managerial approach the firm practices, will affect the different control mechanisms as well as the approach towards steering and coordinating its subunits. The managerial approach of the firm is also influenced by the industry and the overall strategy of the firm. Firms that compete on global efficiency and economies of scale and scope are often managed with another approach than firms competing on local responsiveness (Taggart, 1998).

Bartlett and Ghoshal (1987) captured the internationalisation strategies in its framework, containing four strategic postures; global, multinational, international, and the transnational. The strategies are decided upon (global) integration, (local) responsiveness, and exploiting learning, which all together underpin the transnational strategy (Brock & Hydle, 2017; Bartlett & Ghoshal, 1987; 1998). The industry that the firm is acting within is the main driving factor of a firm’s strategy where the quest for price and efficiency or the locally responsive solutions are most desirable. It has also been pointed out by Ghoshal and Nohria (1989) that subunits can be assigned different strategic roles when the firm implements its overall international strategy.

(16)

10 2.3.2 Coordination

2.3.2.1 Structure & Centralisation

“Structure follows strategy” goes Chandler’s (1962) famous notion. In general, research indicates that the organisational structure is decided by strategy, as the organisation should be designed to facilitate the strategy. However, when put in place, the structure and strategy are affecting each other both ways (Eva et al., 2018).

The structure of the organisation works as the organisational infrastructure, that forms the hierarchy levels, communication structure, reporting and levels of decision making. It also makes sure that information flows smoothly across the whole organisation (Egelhoff et al., 2013; Zander & Kogut, 1995; Galbraith et al., 2002). Put altogether, the structure facilitates the coordination of the organisation (Palmie´ et al., 2015). However, as strategy works as a link between the environment and the firm, the organisational structure should be able to follow uncertainties and fluctuations that occur in the firm’s environment (Egelhoff et al., 2013).

Centralisation is the degree by which decisions are taken at the upper level of management, while decentralisation means that such authority is distributed throughout lower levels of the organisation (Hanson et al., 2014). To exemplify, in firms characterised by high centralisation, even small matters must be decided by top management, while if the decision-making is dispersed throughout the organisation is more decentralised. In line with this reasoning, several studies have emphasised that in order for firms to reach high effectiveness when the environmental uncertainty is high, the degree of decentralisation should be greater (Gupta & Govindarajan, 1991; Eva et al., 2018).

2.3.2 Formalisation & Standardisation

As discussed above, due to the changing environment in the internationalisation process, the firm must find a balance between structure and flexibility. Other balancing factors are the firm’s level of formalisation and standardisation. They are embodied in the organisational structures and procedures, which in turn build the interrelations among subunits (Sayem et al., 2018). Martinez and Jarillo (1989, p. 491) define formalisation and standardisation as “the extent to which policies,

(17)

11

rules, job descriptions, etc. are written down in manuals and other documents, and procedures are established through standard routines”.

A high degree of formalisation means that rules and processes are more dominant in the organisation that tends to be higher when the firm’s strategy is less complex (Martinez & Jarillo, 1989). Formalisation and standardisation of procedures, job descriptions and rules facilitate order and stability. The need for formalisation and set practices becomes important, as they help the firm to keep alignment and ensure order (Eva et al., 2018). Written procedures and manuals help the firm to translate implicit knowledge to explicit knowledge, meaning that the knowledge is not tied to people. That can be advantageous in the internationalisation process as the scalability capabilities increase to accelerate and facilitate existing products, processes and services by reinforcing exploiters’ innovative features. However, the drawbacks are their negative impact on firms’

flexibility and spontaneity (Popadiuk & Bido, 2016). Eva et al., (2018) have pointed out that written rules and procedures are limiting the scope of empowerment and flexibility of the employees as they create a controlling function. Moreover, they are found to decrease the influence of leaders and empowerment of employees. That is contradictory to the Born Global characteristics, that relies heavily on its human resources, such as the inspiring founders (Eva et al., 2018). It has been questioned whether the use of written documentation is efficient. Codification of procedures and activities is a time-consuming activity, and it is questioned whether they are highly used or not (Hansen et al., 1999).

2.3.3 Socialisation & Communication

The more informal coordination mechanisms refer to socialisation and communication (Eva et al., 2018). They are used to coordinate the organisation by corporate culture, informal meetings and direct contact with managers (Martinez & Jarillo, 1989). Managers communicate the firm’s objectives and vision, how things should be done, and show where decision-making is taken place, that altogether incorporate the company culture (Martinez & Jarillo, 1989). It is performed as visits and transfer of managers, communication within facilities, and through training and development (Sayem et al., 2018). Informal coordination activities also occur through corporate meetings and conferences. Socialisation and communication are effective when implementing new, or complex strategies in order to inspire the organisation for change. However, it should be mentioned that

(18)

12

informal mechanisms are not a substitute, but rather a complement to formal coordination mechanisms. Furthermore, it can be rather costly in terms of time and effort by top management to use informal coordination (Martinez & Jarillo, 1989).

The desired result is not only to facilitate the cooperative behaviour between subunits that are internationally interdependent on each other, but also to induce the shared values and goals among all subunits (O’Donnell, 2000). During the internationalisation process, where the firm is set under hard pressure, and as the quest for steering all subunits towards the same direction while operating in several countries is high, socialisation and communication can be induced to steer the expanding organisation in the right direction. They require a greater coordination effort, and firms should therefore use both to grow. The strategy thus becomes more and more complex (Martinez & Jarillo, 1989).

2.3.4 Formal Control Mechanisms

Except for coordinating the whole organisation, the firm must deal with several complex trade-offs when developing the control strategy. Control mechanisms are sprung from the agency theory which is a principle that is used to explain the relationship between the agent and the principal, with the conception that the agent will always act in best self-interest (O’Donnell, 2000). The firm can use control mechanisms, such as monitoring, incentives and bureaucratic mechanisms to keep track of the organisation’s different subunits, performance and to limit the risks of engaging in self- interested behaviours (O’Donnell, 2000).

Shaan (1983) grouped the control mechanisms into positive and negative control mechanisms where positive mechanisms, such as monetary incentives, are used to encourage a certain behaviour. Negative mechanisms, such as, monitoring and HQ supervision are used to reduce a certain behaviour (Shann, 1983; Geringer & Hebert, 1989). The so-called negative mechanisms are useful when the firm wants to obtain information about the agent’s behaviour (O’Donnell, 2000). However, the downsides are the degree of empowerment that decreases and the resources the activity requires (Cray, 1984). Drawing back to Born Globals’ lack of resources and trust on human resources (Gabrielsson et al., 2008), it can be questioned how well these mechanisms fit this kind of firm. One of the traditional mechanism is monetary incentives, for instance bonus

(19)

13

systems, serve to align the goals of the principal and the agent. While monitoring means that the HQ is interested in information about the behaviour and decisions of the subunit manager, monetary incentives reward workers according to observable measures of effort, for example through bonuses, piece rates or stock options (Corgnet et al., 2018).

The effect of formal control mechanisms tends to diminish when the interdependence among the subunits is high (O’Donnell, 2000), also when the organisation’s strategy tends to become more complex. In that case, more informal control mechanisms can be used, such as shared values, that has been covered as socialisation and communication mechanisms (Martinez & Jarillo, 1989).

2.4 Summary of Theoretical Framework

The literature of control and coordination in international business research has mainly focused on MNCs that are internationalised firms with unlimited resources (e.g. Martinez & Jarillo, 1989;

Taggart, 1998; Andersson & Forsgren, 1996). However, in order to get to that stage of development, the firm must go through the internationalisation process. According to the traditional Uppsala IP Model, this process takes time and is filled with risks and uncertainties that need to be managed incrementally (Johanson & Vahlne, 1977). However, reviewing the research stream within control and coordination connected to the internationalisation process reveals that there is limited attention on the subject.

Managing an organisation comes with the question of how to ensure that all the units are in accordance with the overall goals, and are working accordingly (Cray, 1984). Thereby, this thesis aims to examine how the mechanisms are being used during an internationalisation process. The control and coordination mechanisms have been grouped into five categories; International Strategy, Structure & Centralisation, Formalisation & Standardisation, Socialisation &

Communication, and lastly, Formal Control Mechanisms.

Internationalisation is an ongoing and dynamic process that occurs in an ever-changing environment. The environment does not only include the firm and its external stakeholders, but also factors such as legislation and technology that can either prevent or enable firms’ development.

Research has considered Born Global firms to have the capability to use the environment and take

(20)

14

advantage of new technology and market opportunities (Gabrielsson et al., 2008; Madsen &

Servais, 1997). Still, the internationalisation process that consists of a dynamic loop of commitment and experiential knowledge (Johanson & Vahlne, 1977), stresses new questions for how to deal with control and coordination of new subunits (Bartlett & Ghoshal, 1987).

Tying back to the earlier reasoning, the research has acknowledged Born Global firms that manage to handle the internationalisation process in a more efficient and successful way than traditional firms (Madsen & Servais, 1997; Knight & Cavusgil, 2004). Therefore, it is necessary to examine how a firm, in the middle of its internationalisation process, is controlling and coordinating its organisation. The next section presents the methodological approach that have been used to get a deeper understanding of how Born Globals control and coordinate during this process. Because of the scarcity of research on the subject, an exploratory study will be used, in order to increase the understanding of the phenomena of Born Globals.

Figure 1. Model of the Theoretical Framework. Own construction.

(21)

15

3. Method

3.1 Research & Methodological Approach

The research on how smaller firms, such as Born Globals, set up their strategy and structure to control and coordinate their activities when internationalising is limited. Therefore, the aim was to provide new insights into how Born Globals control and coordinate their organisation during the internationalisation process. To provide a deeper understanding of the phenomenon, a qualitative approach was considered appropriate as it is less structured and more open-ended than a quantitative approach (Azungah, 2018). A qualitative approach was also considered suitable for this study as the consisting literature had mainly focused on control and coordination of multinational firms, and we wanted to provide an in-depth understanding of the phenomenon.

Consequently, an inductive reasoning was considered to be appropriate since the purpose was to generate new insights, rather than testing existing literature within the research area. Combining a qualitative research design with an inductive approach enabled a greater understanding of the phenomenon and facilitated our ability to answer a “how” question (Doz, 2011; (Ghauri &

Grønhaug, 2010).

3.2 Research Design & Strategy

Due to the rather inadequate and limited research area, a case study approach was well suited as it would allow for an in-depth research and enable us to provide a deep understanding of the phenomenon (Eisenhardt, 1989; Yin, 2009). The choice of a case study approach could further be motivated by its focus on providing an understanding of the dynamics in one single setting and which facilitates the ability to generate theory (Eisenhardt, 1989).

Furthermore, we decided that an explorative research approach would be most applicable to be able to observe, collect, and thereafter construct theoretical explanations (Ghauri & Grønhaug, 2010).

Before conducting the primary data, a literature review was carried out to both revise current literature within the chosen topic and to identify research gaps within the research area. It also facilitated the formulation of the study’s problem statement and interview guide. Finally, due to the dynamic research, a longitudinal research design was used to gather data from several data

(22)

16

points over the evolution of the firm’s internationalisation process (Miles et al., 1994). The process analysis focused on control and coordination in the study’s selected case firm.

3.2.1 Case study

To tackle the research question, the study ideally needed to gain an in-depth understanding of a Born Global firm in the middle of its internationalisation process. The study therefore focused on a current and real-life phenomenon (Yin, 1994). In order to gain a profound understanding of Born Globals’ control and coordination activities, a single-case study was considered the most suitable research design. The single-case study enabled rich and unique empirical data, but due to the study’s dynamic research question, the aim was to understand a process and development rather than a single event. The study covered the firm’s whole expansion process, from the founding until today’s operations as well as management’s further prospections. Using a single-case study was motivated by that it provided rich information about the research context and the processes being enacted. This design contributed to a broad set of data collection which is necessary when aiming to generate detailed findings, especially since the focus was on real-time events in current time (Saunders et al., 2009).

Furthermore, a combination of various data sources was used in order to strengthen the result’s confidence. This method is also acknowledged as a triangulation and was used through both primary and secondary data (Yin, 2009). While the primary data was collected through semi- structured interviews, secondary data came from written reports, visits at the factory outside the domestic market, internal documents and participation during meetings. Triangulation of multiple sources of data enabled us to better capture the underlying factors encouraging Born Globals to control and coordinate their firm in a specific way (Saunders et al., 2009).

Except for these reasons, there were also company related events that formed the choice of adopting a single case-study design. The chosen case company gave access to comprehensive information about a specific department outside their domestic market. This increased the possibilities for generating an in-depth understanding of the company’s behaviour during their internationalisation process and how they control and coordinate these activities. A multiple-case study would therefore

(23)

17

be less advantageous as we would have risked missing out on valuable and detailed information (Yin, 2013).

3.2.2 Sample Criteria

To fulfil the purpose of the study, the chosen case company needed to meet specific requirements.

For instance, one requirement was that the company would be able to give valuable insight of their use of control and coordination and that it met the criteria for being a Born Global firm according to Knight and Cavusgil’s (2004) definition. Thereafter, a set of criteria was formulated to identify an appropriate firm for investigation. The age should be between two to four years, the number of employees between 200-300, the firm should be internationalised into two to five countries, and key personnel should have previous international experience. In order to get access to data more easily, the firm should also be established in Sweden. As the purpose of the study was to explore an ongoing process, there was also a value of that the firm should be in the middle of its internationalisation process. In that way, questions could be asked about the respondents’ control and coordination that occurred in current time. Furthermore, as the Global Firm internationalises almost at or closely to its establishment, we aimed to seek for a firm that could give us access to data covering the whole lifetime of the firm until the writing today.

3.2.3 Case firm

Due to a confidentiality agreement, the studied object will hereby be acknowledged as ‘the Firm’.

Furthermore, departmental names and locations are exchanged with other names but with similar characteristics to make it authentic but not revealing.

The secondary data has laid as a foundation for gathering background information about the firm and have created a better understanding for their operations. The Firm is found in a manufacturing industry with high entry barriers. It targets a transitional market where the demand for the product is high due to its substitutional and enabling capabilities. The product itself is already established on the market and the characteristics of the product itself together with the Firm’s ambitions of automation and recycling requires much capital for research and development. The sourcing of material, manufacturing equipment and the production processes are of complex character.

Together with the high cost of raw material, the entry barriers are considered high and there are a

(24)

18

limited number of players on the market. What distinguish the Firm’s product from its competitors is an extensive focus on sustainability and recycling of the material, as well as automation and traceability. In addition, the greatest competition is located in Asia, while many of the potential customers are located on the European market, the Firm’s home market.

The founders of the firm had a strong previous experience of the product and the industry before starting the company. One of the founders is originally from Sweden and the second is born in Southern Europe. While having an international career in multinational corporations, they had both a globally established business network. They saw a market need in Europe and founded the Firm in Sweden 2,5 years ago and have attracted experts and talents from all over the world with their inspirational leadership, high ambitions and technical knowledge. At the time of writing, the Firm has 250 employees. The HQ is located in Stockholm. The Firm has one research and development office and one factory that are being built in Malmö. The Firm has one strategic office in Asia that was established to be closer to the market, suppliers and knowledge cluster, referred to as “Office Taiwan”. The “Business Unit” refers to a knowledge intensive unit that was established in order to meet customers demand for products further up in the value chain, located in Stockholm. The Business Unit established a factory in Eastern Europe as a joint venture (JV) and will be referred to as “JV Latvia”. The major project, the large factory, is located in Gothenburg. Thereby, the Firm has operating units in three different countries. Furthermore, the Firm has strategic partners, multinational customers and is gathering investments from venture capitalists both domestically and abroad. For further clarification, see Figure 2 for a timeline of critical events and Appendix 2 for a more detailed overview of the different subunits.

Figure 2, The Firm’s timeline, own construction.

(25)

19

In order to capture the full internationalisation process of the Firm, a timeline was created, building on the major events throughout the company’s history. We identified three milestones that seemed to have a greater impact on the internationalisation process. The time between these milestones was divided into phases. The milestones were: establishment of the office in Asia, the establishment of the Business Unit in Sweden and the establishment of the factory in Eastern Europe. Figure 2 presented above illustrates the phases and milestones. The timeline was created by the use of internal presentations and external information. Furthermore, as Born Global firms are growing quickly and execute with speed together with high global ambitions, we believed it would enrichen the thesis by capturing what the respondents think about the future. The future and unknown are captured in phase 4. The main reason to divide the process into phases was to ensure that we captured the whole process. It was furthermore used to structure the coding and analysis, from where we could analyse the development over time.

Phase 1. During the first year, the Firm grew from two to 100 employees. The Firm also developed its first product. Thanks to investors and strategic partners, the Firm completed the first financial funding round. On the 1-year celebration of the Firm, the environmental permits were signed, and the construction work started for the first factory in Malmö in the beginning of the Firm’s second year. In order to come closer to competitors and suppliers, the Firm established an office in Asia.

Phase 2. The Business Unit was established in order to meet customers’ demand for products further up in the value chain. The environmental permits for the factory in Gothenburg were accepted and the ground-breaking had started. The big financial funding round had started for the major factory in Gothenburg which meant a lot of focus on investors, banks and strategic partnerships. Additionally, the Business Unit had initiated and delivered upon customer projects and started co-developing with potential customers, both domestically and abroad.

Phase 3. During the data collection, the Firm was in phase 3 and had reached over 200 employees.

As the organisation grew in numbers, the offices started to spread out; some departments moved closer to the factory in Malmö, the Business Unit became more separated and seen as its own unit in Stockholm, with its own office as well as a factory in Latvia. In order to meet the increasing demand, the Business Unit’s factory was established during the fall in an Eastern European country.

(26)

20

Phase 4. During the data collection, the Firm’s development status was acknowledged to be responding to phase 3. Therefore, these findings are hypothetical, and answers rely on the respondents’ assumptions and visions.

3.2 Data Collection

In order to get a deeper understanding of the case company and to ensure that it met the requirements for being a Born Global firm, we initiated the study by gathering external secondary data about the case company on databases, their homepage, and other relevant sources of information. Once the firm was approved for being a Born Global, the data collection started off by studying secondary data emanated from internal documents such as operational agreements, government structure, archives and meeting agendas. This provided valuable insights prior to the start of the primary data collection. With the aim of conducting the study as thorough as possible, we spent five months studying the firm by participating in weekly meetings, reading reports and visiting different subunits. The Firm also invited us to participate in bi-weekly all-hands meetings during the whole study period. In doing so, we got valuable information as well as an increased understanding of the company’s operations, behaviours, and culture. In order to further increase the overall understanding of the company, one of us also had the opportunity to visit the newly set up department in Latvia three times. It has had a great impact on the understanding of the challenges that the Firm is facing, as well as how these impact the Firm’s need for control and coordination during their internationalisation process. These insights have also contributed with a better understanding of the firm, its subunits, teams and key individuals in a more profound way. The secondary data has provided a basis for the triangulation which has contributed with additional insights to answer our research question (Corley & Gioia, 2004).

The primary data was collected through semi-structured interviews with key individuals within the firm. The choice of semi-structured interviews was due to the exploratory approach and because of its ability to capture rich and detailed information (Bryman & Bell, 2015). The aim with semi- structured interview questions was to ask relatively broad key questions that were related to the study’s main theoretical concepts but at the same time leave space for elaboration of answers.

Structured interviews were excluded due to the risk of pushing the respondents into a specific direction and limit the ability to ask follow-up questions. Neither did we want to limit the

(27)

21

respondents’ answers as we were interested in capturing the respondents’ individual experiences within the company. Furthermore, unstructured interviews were avoided due to the risk of missing out on asking the most important questions for answering the study’s research question (Ghauri &

Grønhaug, 2010).

Before the examination of the primary data collection, the respondents were given an explanation of the topic and the purpose of the study. Due to the Firm’s confidentiality, anonymity was guaranteed, and all respondents were informed that no names would be revealed. Because each interview lasted for approximately 30-60 minutes, the respondents got the possibility to dig very deep into each topic by being allowed to speak freely, but also enabled us to ask several follow-up questions when needed. Asking broad questions also reduced the risk of misunderstandings and gave a better understanding of the context as the respondents could develop their answers. All interviews were recorded in accordance with the respondents to facilitate the transcriptions. Each interview was then transcribed directly after each interview in order to revise all answers, transform them into text and to facilitate the coding and analysis.

In order to get access to the most relevant respondents for the interviews, the Director of Industrialisation referred us to other key personnel that could be of interest for this study. This was important, as we aimed to study the whole lifetime of the Firm. We needed rich data that covered the whole process, from establishment until the day of writing. The respondents start day of employment, referred to the phases are noted in Table 1. By attending many of the daily operational meetings, we also got a better understanding and insight over time which could give the study an even more comprehensive view of the matter. While it was very unlikely that the sample would be representative for the population, it had the advantage of ensuring that all respondents were key individuals within the firm and that they could contribute with both in-depth answers and rich data during interviews (Bryman & Bell, 2015). The sample consisted of one single firm with 14 respondents.

(28)

22

Role Unit Start of

Employment Date Interview type

Length (Min)

CEO Latvia 2 2019-04-18 Face-to-face 45

President of Business Unit

Business Unit 1 2019-04-24 Face-to-face 60

Director of Industrialisation

Business Unit 2 2019-04-16 Face-to-face 60

Procurement Manager Business Unit 2 2019-04-24 Face-to-face 60 Operations Manager Business Unit 1 2019-04-11 Face-to-face 60 Project Manager Business Unit 3 2019-04-18 Face-to-face 60 Director of Strategy HQ Stockholm 1 2019-04-26 Face-to-face 45 Business Developer HQ Stockholm 1 2019-04-26 Face-to-face 60

Chief of Growth HQ Stockholm 1 2019-04-23 Face-to-face 45

Technical Account Manager

HQ Stockholm 2 2019-04-11 Face-to-face 60

Board member HQ Stockholm 1 2019-04-24 Face-to-face 30

HR Coordinator HQ Stockholm 1 2019-05-05 Face-to face 45

Senior Manager Automation

Malmö 1 2019-04-25 Face-to-face 45

Senior Project Manager Asian unit 1 2019-04-24 Screen 45

Table 1, List of respondents, Own Construction.

Due to the high number of non-native Swedish speakers among the respondents, the interview guide was only designed in English. All interviews were also conducted in English to get comprehensive and profound answers. During the gathering of primary data, the aim was to meet each respondent in face-to-face interviews. Except for achieving higher credibility, it would also provide deeper insights due to the ability to observe body language, facial expressions as well as other important aspects that would not be possible through other types of interviews (Saunders et al., 2009). However, one respondent was located in Asia, and the interview was therefore conducted via screen.

(29)

23

The interview guide was constructed to make sure that all important topics from the theory section were covered and that the right kind of data was obtained (See Appendix 1) (Mason, 2011). This interview guide was first used in a pilot study with two key individuals to make sure that the level of feasibility would be met and that the research instruments as a whole would function appropriately. A pilot study enabled us to make sure that all questions were clarified and could be adjusted beforehand before conducting the interviews. In this way, it was also possible to make sure that the right questions would be asked during the interviews (Dalen, 2008; Majid et al., 2017).

Later on, as the pilot study had been conducted, some of the interview questions were adjusted to be asked properly during the interviews. The interview guide was used as a support for the interviewers but enabled the respondents to answer freely. The theoretical framework laid the foundation of the design of the interview guide. Since, as we aimed to study the full internationalisation process up until today, we formulated additional questions to make sure we fully covered all four phases To exemplify; ‘Describe the use of XX in early days?’; ‘How did XX evolve when the Business Unit was established?’; ‘How do you use it today?’ ; and ’How do you think it will evolve in the future?’. Before formulating the interview questions, the theoretical framework was broken down into different themes to make sure that it would cover all necessary information needed for answering the research question (see Table 2.) (Saunders et al., 2009). All questions were constructed to be open-ended but contained sub-questions that would be asked if needed.

The initiating questions of the interviews were general, but necessary, and regarded the respondents’ background and roles within the Firm. The interview guide was then divided into six parts that covered all relevant sections in the theory to ensure that the research question would be answered properly. As mentioned before, after each interview were conducted, they were transcribed and summarised to ensure that no important information would be missed out.

(30)

24

Concept Research Questions

Born Globals Gabrielsson et al., (2008) Knight & Cavusgil (2004) Madsen & Servais (1997) Dow (2017)

3, 4, 5, 6

Internationalisation Johanson & Vahlne (1977) Johanson & Vahlne (2009) Gabrielsson et al., (2008) Brouthers & Brouthers (2000)

7, 8, 9

International Strategy Perlmutter (1969)

Bartlett & Ghoshal (1987) Taggart (1998)

10, 11, 12

Structure & Centralisation Perlmutter (1969)

Gupta & Govindarajan (1991) Egelhoff et al., (2013)

13, 14, 15

Formalisation & Standardisation Martinez & Jarillo (1989) Popadiuk & De S. Bido (2016)

16, 17

Socialisation & Communication Martinez and Jarillo (1989) Mintzberg (1979)

18, 19, 20, 21

Formal Control Mechanisms O’Donnell (2000) Corgnet et al., (2018)

Gupta & Govindarajan (1991)

22, 23, 24

Table 2, Operationalisation scheme, Own construction.

3.2.1 Coding & Analysis

In line with many qualitative studies, our coding and analysis was inspired by Gioia et al., (2013).

In congruence with the authors, we analysed our primary data in a systematic three-step way where the collected data was segmented into concepts, categories and finally patterns to generate new insights. Furthermore, in order to capture the whole internationalisation process up until present day, the data was also segmented into the four phases. Since each interview was recorded and transcribed, we could conduct the coding and analysis of the data. We began our coding and analysis by highlighting concepts and statements from the interviews that were put as first order concepts in our data processing model. We focused on collecting the most relevant concepts and statements for answering our research question. Once the initial coding was conducted, the

(31)

25

concepts and statements were put in different categories. This first step was conducted individually to ensure that the most relevant categories were identified. Once each one of us had identified the first order concepts, they were discussed and compared. Where opposite opinions occurred, we made a joint decision of either to keep it under the most relevant category or to exclude it.

Next, we engaged in axial coding which refers to a more open coding where we searched for similarities and differences among our categories to reduce the number to a more manageable number. It also facilitated assembling the data into second order themes. Thereafter, as the level of analysis in this thesis focuses on a process, we decided to analyse and categorise the data into the four identified phases. In order to do so, we started to group the coded data into the four phases.

We went through the transcripts and searched for patterns where the respondents had answered questions regarding specific times. Additionally, when they had mentioned specific events during the Firm’s lifetime, we could refer those to the four phases. This gave us another chance to be familiar with the collected data. This process can be seen in Table 4, where the empirical findings are conceptualised according to each phase. From that, we could start to see patterns of the aggregated themes within each phase. Finally, the second order themes were summarised into aggregated concepts, aligned with our theoretical framework (Gioia et al., 2013; Lincoln, 1985).

Our inductive analysis process is summarised in Figure 3. Using this methodological approach has enabled us to present a more transparent process of our way of analysing the data (Gioia et al., 2013). To summarise, we first grouped the data accordingly to the aggregated themes, and secondly, according to the identified four phases. This was thereafter summarised in our findings.

This process facilitated the discussion and analysis, as we could distinguish how the Firm used the control and coordinating mechanisms during each phase.

(32)

26

Figure 3. Model of analysis, own construction but inspired of Gioia et al., (2013).

(33)

27

4. Findings

In this chapter, empirical findings from interviews will be presented according to the chosen five dimensions of control and coordination, that are followed by the concepts that emerged during the content analysis and coding process. For clarification, the empirical findings are summarised in line with the four identified phases in Table 4 in the end of the finding section. Also, for further presentation of the empirical data, see Appendix 4.

4.1. International Strategy

Strategy is the underlying dimension that sets the ground for control and coordination and is influenced by the Firm’s environment, market and actors. It was driven by four concepts; Vision

& Mission, Integration versus Responsiveness, Network & Partnerships and Entry Mode. The empirical findings show that the internationalisation strategy was seen as an important motivational and inspiring factor, for how the Firm was controlling and coordinating the organisation.

Vision & Mission

All respondents were confident that the clear vision and mission were the strongest reasons that had kept the organisation working towards the same goals. They witnessed about a strong team spirit and a feeling of being a part of something big and important, in which they could make an impact. The results are constant for the lifetime of the Firm.

“The real mission or vision is to make the world greener and more sustainable. That in some way is something you can fall back on.” Technical Key Account, HQ

“It is not only what we will do, it is also to some extent how we do it. It is more value heavy words than in other companies I work with.” Board Member, HQ

The results from the employee survey from phase 2 and 3 that was presented to us during the culture focused day showed that the major drivers for the employees were connected to the vision, mission and overall goals. Respondents agreed that this will become a challenge as the Firm grows and are spread out on different locations. However, the question of how they will communicate the vision towards more employees becomes crucial.

“We need to communicate our vision and mission in an efficient way so that people joining after 500 employees have the same access to the founders’ thinking.” Chief of Growth, HQ

(34)

28 Integration

In order for the Firm to succeed with their mission, the respondents agreed that they must scale up production fast and take advantage of economies of scale, scope and learning. The respondents had no doubt that they will succeed and be able to deliver large scale to the market. Also, due to the dependency on partners and customers, the respondents further emphasised the importance of meeting the customers’ need.

“We will compete on scale further on, we must. But today, well, product development is expensive.” Project Manager, Business Unit.

“Go big or go home. And we really meant it. It was no idea of starting in a small scale. To be able to actually make an impact, we needed to compete on scale. We knew that from the start.” CEO, Latvia

Network

Due to the Firm’s research and development heavy activities and high production costs, the support from investors, strategic partners and customers were said to be crucial in order to succeed. The founders took advantage of their already established network in the industry and searched for suitable partners and investors. It was clear that the partners would still be an important part of the Firm’s expansion.

“As we are leaving the most vulnerable stage soon and start delivering, it will strengthen our position and we will be less dependent on them [partners]. But of course, they will be valuable for us.” Board Member, HQ

The primary reason to establish an office in Asia was to develop relationships with suppliers and manufacturers that the Firm was dependent on. The respondents described that it also worked as a recruitment strategy where people in Taiwan were recruited to HQ in Stockholm. In that sense, the multicultural aspects could help as a bridge of communicating and sharing the same values across the subunits.

“To procure this material and equipment we needed to discuss with them face to face. We needed to establish our company on the map, quickly, to achieve our goal.” Senior Project Manager, Taiwan

(35)

29 Entry mode

In order to meet customer needs, the Business Unit established a factory in Phase 3. It was launched as a JV consisting of the Firm and a foreign company. According to secondary data, the two parties had equally number of shares where the Firm had a majority in the supervisory board, owning the highest authority. The other part of the JV had previous experience of developing products similar to the Firm’s, which was expressed as one of the main reasons for using a JV. The other reason was capital as the other firm could, besides knowledge, also contribute financially to the factory.

The JV had a different organisational and governance structure than the Firm and was led by a local CEO.

“JV Latvia is a part of the Business Unit and provides a significant value of on-time deliveries, quality performance and cost-efficient products. As being a part of the Business Unit, we will be a significant part of the Firm’s success.” CEO, JV Latvia.

4.3. Structure & Centralisation

The empirical findings showed that the structure was not of great importance in the beginning, but as the organisation grew in numbers of employees, it became more important. Decision making was perceived as decentralised, where the employees felt empowered to take decisions.

Additionally, depending on the role of the subunit, the perception of autonomous steering differed.

The concepts are driven by Organisational Structure and Autonomy.

Organisational Structure

The organisational structure of the Firm was described as rather fluid at the beginning where the roles were not clearly defined. As the team grew in size, the workstreams started to become more differentiated.

“When we were 50 people, we implemented a new level of managers. We realised that everyone was reporting to top management and that led to that many questions were not solved fast enough.” Chief of Growth, HQ

In phase 2, a more explicit organisational chart was settled, with seven levels of managers. The Chief of Growth further described that the head office should not change the structure. Instead, each production site will grow in size and more directors on C-level will be needed.

Coordinate a Global Expansion