The traditional approach to internationalization of enterprises was that a company first grows solidly in its home market, and then starts exploring opportunities for expansion into new markets. A number of large multinationals have followed this path. However, today, a growing number of companies are venturing international from the start; their path to internationalization is much more rapid than the traditional one. These “born globals” are thought to be brought about by new market conditions, advances in technology and managerial change. While one may immediately assume that most of these “born globals” would be virtual economy players or technology firms, research appears to indicate that this trend is emerging in traditional sectors as well.
While “born globals” may be a new trend, entering international markets can be complex and costly. First, enterprises need to efficiently understand the true international market opportunities for their product / service. This includes conducting market research and obtaining market validation, adapting the product / service and marketing approach for the target market, understanding legal requirements and standards required, securing finance to cover these preparation activities as well as the initial entry into the foreign market, and much more. As described by an entrepreneur participating in infoDev’s internationalization pilot program: “One of the most difficult part of starting a venture is gaining credibility in the market. With little experience in the market and no prior deployment experience, the case for our venture was not easy to make. It takes a particular investor and stakeholders to gain the confidence enough to take the risk on such a venture. “
infoDev focuses on enabling the growth of early-stage enterprises across the developing world. infoDev has over time built up a significant global network of business enablers across the world. Business enablers are defined as organizations that provide early-stage growth-oriented enterprises with a holistic service offering to enable their growth. Given the apparent short-comings of traditional export and trade promotion agencies in promoting internationalization of early-stage enterprises, infoDev therefore set out to test whether business enablers could potentially play a key role in facilitating access to international markets for these entrepreneurs, and whether infoDev could play a meaningful role given its linkages with business enablers across the world.
In total, about 200 early-stage enterprises from more than 35 countries across Africa, Asia, Latin America, the Caribbean and Eastern Europe participated in these pilots. These were selected from a pool of more than 800.
The participating enterprises reported that they face the following challenges when trying to enter international markets:
1. Limited access to capital combined with the high costs of entering a foreign market
2. Lack of requisite managerial knowledge about what internationalization entails
3. Limited knowledge of overseas market opportunities, including industry expertise
4. Limited assistance available to overcome the above.
During 2010 – 2013, infoDev piloted four alternative approaches to enabling international market access for small – relatively early-stage - growth-oriented enterprises, leveraging business enablers. These pilots were made possible due to the financial contribution of the Ministry for Foreign Affairs of Finland. With a total budget of about US$1.4m, the following four approaches were tested:
· Co-incubation (Top20) -whereby 50 early-stage enterprises with international aspirations were selected out of an application pool of 700 sourced from business incubators. These were then convened and provided with exposure to angel investors. The top 20 enterprises were advised by international mentors and assisted by business incubators in their target markets;
· An internationalization challenge (VentureOutChallenge) – whereby 25 early stage mobile applications enterprises were selected out of an application pool of 110 sourced from business enablers. These were then advised by mentors over a six-month period, and the top 13 were convened for coaching and a pitching competition;
· Internationalization training workshops where about 40 business enablers (during infoDev’s 5th Global Forum in South Africa) and 18 internationally oriented early-stage enterprises (during an SME Internationalization workshop in India) were convened for peer-to-peer learning;
· Development of a new service line for business incubators to provide domestic early-stage enterprises with guidance and linkages to access markets abroad. This approach was tested with two business incubators, and with an initial pool of 10 companies.
While the scope and budget of the internationalization pilot activities varied, they shared the same overarching objective: to test if and how business enablers could be effectively leveraged to assist growth-oriented early-stage enterprises with entering international markets.
The Top20 pilot program ended in June 2013, the internationalization training workshops were held May and June 2013, the internationalization service pilots were completed in December 2013, and the VentureOutChallenge in February 2014. The data for this report was thus collected only 0-6 months upon completion of the pilots, and it is therefore still premature to assess the full “return on investment” of these pilot activities.
The results and lessons presented in this report focus primarily on those derived from the Top20 and the internationalization service pilots. infoDev will update this report with new data from the VentureOutChallenge and internationalization training workshops as soon as they become available. Nevertheless interesting results and lessons are already emerging.
Some of the businesses decided to do business together. I.e. as an outcome of the internationalization workshop in India, T-Files from Indonesia started planning expansion of her marine current power generator to the Philippines.
Out of the 32 enterprises that were either finalists in the Top20 or that participated in the internationalization services pilots: 16 enterprises acquired new clients; more than 63 business to business contracts were signed; 13 enterprises entered into strategic alliances with foreign organizations, including for the purpose of cooperation on technology; and 8 enterprises secured finance, with seed, equity and debt financing totaling about $36 million. The value of these outcomes in terms of revenue growth and job creation will only become evident in the next 12 month period, but within the pilot period itself, it appears that more than 550 new jobs were created.
At the level of business enablers, the primary outcome thus far is increased knowledge as to how a viable business model for internationalization service delivery can be delivered. Again the longer term impact of this increased knowledge on new or improved service delivery, and in turn the effect on the enterprises served will only be evident in a few months time.
Key insights include:
· In the process of carrying out these activities, it became clear that the benefits of international linkages for business growth extend beyond the narrow focus of export to or direct investment in a foreign market. In the process of exploring the potential for expansion to foreign markets, many of the entrepreneurs found new business partners and investors abroad. Business enablers should thus think about international markets broadly, from the perspective not only of customers, but also from the perspective of providing the entrepreneur with the capital, industry know-how and technology needed to increase the competitiveness and growth of the firm.
· Significant discussion emerged from these pilots concerning what makes an enterprise “internationalization ready.” As discussed above, entering international markets can be complex and costly, and the enterprise must be in a position where it takes calculated risk based on the knowledge of the foreign market, as well as the knowledge of the capacity of the firm. Some thinking emerged on whether it may be useful to develop a self-diagnostic for entrepreneurs that would ask core questions for entrepreneurs to seriously consider before taking the leap. While such an “internationalization readiness” tool may make a difference, it will by no means ensure success. It may however, as indeed was the case during the pilot, lead some entrepreneurs to rethink their international aspirations for now, avoid costly mistakes, and focus instead on strengthening weak aspects of the business.
· As is a key finding from business enablers worldwide, coaching and mentoring throughout the internationalization process was a critical need in all the pilots. Entrepreneurs do not always know what they do not know, and help from someone who can ask the right questions is critical. The level of hand-holding required exceeded expectations. Future similar programs should thus plan for appropriate time and resources being allocated to the coaching process.
· Beyond coaching and mentoring, areas where entrepreneurs frequently needed assistance was in quality management requirements/ standards in target markets and related product/ service customization, technology acquisition, market research and expert advice to understand market potential, as well as professional marketing materials in foreign languages for target markets
· While the pilots showed that the business enablers can play a key role in sourcing entrepreneurs with international potential, the Top20 pilot revealed difficulties with the concept of business incubators as effective serve providers for foreign early-stage enterprises. If a co-incubation scheme were to be tested again, more effort would need to be placed on assessing the readiness of the potential host incubator to provide the services needed. That being said, it is not clear that specialized competencies in the host incubator is needed. It may indeed be that a business enabler that effectively serves its domestic clientele would also be able to serve a foreign clientele quite effectively.
· On the basis of the Top20 experience, it was decided to focus the VentureOutChallenge on one sector only. This allowed for more meaningful interaction between the participating entrepreneurs. While Top20 enterprises did derive value from interacting with entrepreneurs in other sectors, it proved more effective for entrepreneurs in the same sector.
· An important value derived from having been selected as a Top20 enterprise was increased visibility and credibility. One of the participating mobile enterprises attributed its first contract with a telecom operator directly to the credibility the Top20 award gave his enterprise. Another entrepreneur, who is an education solutions provider reported that he was contacted by the Ministry of Education to serve as an advisory on its new “technology” curriculum committee, which later resulted in a government contract to supply public schools. In the words of one entrepreneur: “the award gave us legitimacy, confidence, and potential to target the regional and the global market.”
· The added value of the training workshops, which were all premised on a peer-to-peer learning approach, was the opportunity for entrepreneurs to explore B2B linkages amongst themselves, and others. The following quote from a participating entrepreneur exemplifies this “we were able to expand our network of connections at various levels, including with fellow entrepreneurs, venture capitalists, and financing organizations. We were able to share ideas, information and experiences and we discussed the challenges facing us and potential future cooperation with various parties.” This is also where infoDev’s primary value added emerged. These enablers and business would not have known each other without infoDev having leveraged its network to convene them.
· Finally, infoDev derived a range of lessons with regard to monitoring and evaluation of these types of programs.
The nature of the pilots, as well as the results and insights gained are discussed in further detail in the report. Short case studies are also available on 30 of the enterprises that participated in the internationalization pilots.