Building and Managing the International Entrepreneurial Firm
Handbook topic · Building and Managing the Entrepreneurial Firm — managing and growing entrepreneurial ventures in global markets through innovation
Once a venture exists, the hard part is building it into a firm that can compete abroad and keep competing. This week covers where an international new venture’s competitive advantage comes from, why founders and teams matter so much, how resource-poor firms use alternative governance and finance to grow, and what born global firms such as Airbnb and Uber teach us. The Món Huế case shows the other side: what happens when growth outruns quality control, cash and management.
The big question
How can a small, new venture with few resources of its own build an advantage abroad, and keep it while it grows?
By the end of this week you can
- Explain five ways international new ventures (INVs) build and sustain competitive advantage when operating internationally.
- Evaluate founders and entrepreneurial teams using the INV founder competencies and research on top management teams.
- Explain the triple liability of INVs and how licensing, franchising and networks help them mobilise resources they do not own.
- Compare sources of funding for entrepreneurial internationalisation and match them to a venture’s stage and risk profile.
- Describe born global firms and use six parameters to analyse fast-internationalising ventures, including platform businesses.
- Diagnose why rapid expansion can destroy an advantage, using the Món Huế case.
Building and sustaining competitive advantage abroad
Going international can create an advantage, but foreign markets are also where competition is toughest. This section explains where an INV’s advantage comes from and why it must be actively defended.
The factors that let a firm produce goods or services better or more cheaply than its rivals, so that it wins more sales or earns better margins than they do.
Zucchella, Hagen and Serapio (2018) put competitive advantage at the heart of business success. To succeed internationally, a firm needs strategies that both secure and sustain it.
For an international new venture (INV), being international can itself be a source of advantage. The catch is that operating across borders also brings a much higher level of competition: foreign markets contain sophisticated customers and more diverse, often more advanced, products. So the useful question is not only “what is our advantage?” but “how will we keep it when rivals abroad are stronger than at home?”
Five mechanisms through which operating internationally can strengthen, rather than only test, a young firm’s competitive position.
Intense competition and demanding foreign customers force the venture to improve its products and processes. Exposure to new technologies and industry ecosystems lets it access or accumulate resources it lacked at home.
Selling in several countries raises sales volume, so fixed costs such as R&D are recovered over more units. This lifts profitability, the capacity to innovate and competitiveness.
Example — Airbnb and Uber push this to the extreme: homes and cars are supplied by users, so a new city adds few fixed costs.
Offering products or services that are clearly distinct from what local rivals provide.
Example — Airbnb met the old need for somewhere to stay in a completely new way; the Copenhagen study calls differentiation its single most important strategy.
International activity opens access to partners and networks that bring resources, knowledge and customers.
Example — Airbnb acquired the German competitor Accoleo, which let it enter the German market aggressively.
Entering a new market first lets the business build brand presence and a customer base before competitors arrive (Week 6 tutorial).
Example — Airbnb entered Russia early to discourage copycat rivals, ahead of more obviously lucrative markets.
Uber had first-mover advantage in the USA, where its rival Lyft struggled for traction. In China the position was reversed: Uber arrived after Didi Kuaidi and, according to its CEO, was losing over USD 1 billion a year there. Always pair an advantage with how it will be sustained, and where it will not work.
Founders and entrepreneurial teams
In a young, resource-poor INV, the most valuable and hardest-to-copy resources are usually people: the founders, their team and the networks they bring with them.
For small, young and resource-constrained INVs, resources reside mainly in the human and social capital of the start-up. In the early stages it is the founders and their wider social and business networks that provide the valuable, difficult-to-imitate resources on which competitive advantage rests. Outside parties that provide important services and resources are key as well (Zucchella, Hagen and Serapio, 2018).
This is why investors look so hard at founders, and why your own report should say who will run the venture and what they bring.
Five founder characteristics that make an INV more likely to spot international opportunities and act on them.
An international entrepreneurial orientation, usually built through international business experience or education.
Example — Uber’s founders had already built internet businesses serving users across countries: Kalanick with Scour and Red Swoosh, Camp with StumbleUpon.
This combination makes founders alert to international opportunities and ready to exploit them.
Example — Chesky and Gebbia quit their jobs before they had a firm idea, then kept Airbnb alive by selling election-themed cereal boxes.
The ability to learn quickly about unfamiliar markets, customers and ways of managing.
Example — Chesky lived for months in homes rented through Airbnb and repeatedly asked leading executives for advice, “going to the source”.
Knowledge of different institutional and cultural environments, which lets the founder work across them.
The ability to form social and business networks that can be used and built upon during internationalisation.
Example — The study argues that Airbnb’s founders drew on the international experience of their first investor, Paul Graham, and the Y Combinator team.
A group of individuals responsible for the strategic decision making and operations of a new venture. It can be seen as the venture’s first top management team (TMT).
What the research on entrepreneurial teams says
- Most new ventures are created by a team rather than by a single entrepreneur.
- Firms founded by a team are more likely to survive and to achieve greater growth than firms started by individuals.
- International experience in the top management team is linked to greater internationalisation and higher profitability.
- The team’s composition, its diversity and size, can shape the firm’s culture, innovation, profitability and internationalisation path.
“Cofounders are for a startup what location is for real estate. You can change anything about a house except where it is. In a startup you can change your idea easily, but changing your cofounders is hard.”
The Copenhagen study found that none of Airbnb’s founders had experience of international operations, which the literature treats as vital. They made up for it through investors, advisers and aggressive learning. When a founder lacks international experience, do not stop there: show how the gap is filled.
State who does what, which of the five competencies each person brings, and which gaps you will fill through advisers, partners or hires. Evidence of a capable team strengthens both the Business idea and Reasoning criteria.
Alternative governance: growing with resources you do not own
INVs own only a small share of the resources they need to succeed and expand abroad. Alternative governance is how they gain access to, and keep control over, the resources they lack.
Because INVs are short of resources, they rely on alternative structures and ways of mobilising resources and controlling their vital assets (Oviatt and McDougall, 1994, in Zucchella, Hagen and Serapio, 2018). You met this in Week 1 as the second of the four elements of a sustainable INV: scarcity pushes the venture to find other ways of managing crucial assets than owning them.
The pressure comes from three disadvantages that stack on top of each other, known as the triple liability.
Three disadvantages that an INV faces at once, and that alternative governance structures are designed to offset.
A new firm has no track record, reputation or tested routines, so customers, suppliers and lenders find it harder to trust.
Example — Large banks told Fin Gourmet that, as a two-year-old business, it was too risky to lend to.
A small firm has few resources of its own, little bargaining power and a small base over which to spread fixed costs.
Abroad, the firm is an outsider: it lacks local knowledge, relationships and familiarity with local institutions and culture.
Example — Uber met taxi-driver protests, attempts by authorities to shut it down and lawsuits close to everywhere it launched; in France its general director was arrested.
Alternative modes of mobilising resources
- A firm with proprietary rights lets another firm make its product in return for royalties or other fees (Week 7).
- Reaches new markets quickly without large capital investment.
- Risk: loss of control over quality, damage to reputation, and a licensee who becomes a competitor.
- Independent franchisees use the franchisor’s trademark, business model and operating systems for a fee or royalty (Week 7).
- Lower investment and operating costs for expansion, and franchisees bring local knowledge (Week 7).
- Risk: keeping quality and brand standards consistent across many locations.
- Resources come through relationships with partners, suppliers, customers and contacts.
- Governed by social, informal control through trust and moral obligation instead of formal contracts (Zucchella, Hagen and Serapio, 2018).
- Cheap and flexible, but only as strong as the trust behind it.
Governance is also internal: who decides, and how founders keep control of culture and quality as headcount and locations multiply. The two platform cases show contrasting designs, both built for speed.
| Mechanism | Airbnb | Uber |
|---|---|---|
| Culture and hiring | Chesky interviewed around the first 200 employees himself, then personally trained the interviewers and added culture questions to hiring. | Stated core values (“be an owner, not a renter”, “take big bold bets”, “the best idea wins”); hires experienced locals who understand each market. |
| Structure | Small cross-functional teams take ideas from concept to a data-backed test. | Each city is run by a small, self-driven local team under a country manager, acting like a start-up. |
| Quality control | Hosts and guests rate each other, so poor supply loses bookings. | Driver name, photo and rating shown before pick-up; GPS tracking; in-app payment at standard prices. |
| Pace | Opened offices rapidly from 2011, then slowed international expansion around 2013 to build a sustainable organisation. | Grows as large as possible, as fast as possible, in each city so that regulators cannot ignore it. |
Details as reported in the Copenhagen Business School case chapters (Kongsbak and Vendler, n.d.).
Licensing, franchising and networks let a small firm grow with other people’s resources, but quality and brand then depend on people it does not directly manage. Airbnb and Uber built rating and tracking systems to keep control at scale; the Món Huế case shows what happens without such controls.
The brief asks how your Ashoka venture could internationalise as an SME, with entry mode and partners. Justify the choice by the liability it reduces (for example, a local partner to offset foreignness) and the control it gives up. The same reasoning supports the entry strategy and networks sections of the Individual Report.
Finance: the lifeblood of the international venture
Finance is the lifeblood of every company, and for international ventures it is particularly critical. The right financial decisions shape the venture’s development, growth and ability to sustain its advantage (Zucchella, Hagen and Serapio, 2018).
Week 6 sets out the menu of funding sources; Week 9 covers entrepreneurial financing in depth. The aim here is to know the options, their trade-offs, and why a venture’s funding needs change as it grows.
The tutorial reading, a Kauffman Foundation report (Hwang, Desai and Baird, 2019), adds a reality check from US data: most entrepreneurs never use banks or venture capital at start-up, and access to capital is uneven.
| Source | What it is | Advantages | Disadvantages |
|---|---|---|---|
| Bootstrapping and personal savings | The founder’s own money and effort, keeping costs low. | No debt and no loss of ownership; the most common start-up source. | Limited amounts; the founder carries the personal risk; growth can be slow. |
| Family and friends | Informal loans or investment from people who know the founder. | Fast and flexible, based on trust. | Usually small amounts; can strain personal relationships. |
| Retained earnings | Profits reinvested in the business. | Keeps full control; nothing to repay. | Only available once the venture is profitable; limits speed. |
| Bank loans | Debt repaid with interest; the bank does not usually manage the business. | The founder keeps ownership and control. | Banks prefer stable, less uncertain businesses, so young firms are often judged too risky. |
| Equity: business angels and venture capital | Investors take an ownership stake. Angels invest personal funds, usually smaller amounts and earlier; VCs invest larger sums in high-risk, high-reward firms. | Substantial capital; VCs may also add management support, strategy and networks. | Loss of ownership and control, pressure for high returns, and only a small minority of ventures qualify. |
| Crowdfunding and peer-to-peer lending | Money raised online from many people, each giving a small amount; donation, reward, debt or equity based. | Direct access to a wide pool of backers at lower cost; can reach a more diverse set of founders. | Often smaller sums; platform fees vary; still a new mechanism. |
| Revenue-based investing | Investors receive a percentage of revenue over time until an agreed return is reached. | Fits firms too risky for banks but not high-growth enough for VC; suits founders who want to stay independent rather than sell the company. | Repayments can start before growth arrives; not appropriate for every venture. |
Sources listed in Mini-Lecture 6.2 and the Week 6 tutorial, plus revenue-based investing from Hwang, Desai and Baird (2019). The advantages and disadvantages of bank loans, equity, crowdfunding and revenue-based investing follow that report; the other rows are plain-English summaries.
Raising finance by asking a large number of people each for a small amount of money.
Bank loan versus venture capital
- The entrepreneur keeps ownership.
- The bank usually plays no role in daily management.
- The bank seeks repayment with interest, so it favours stable business models.
- The VC takes an equity stake as a condition of funding.
- The VC may play an active role, adding strategy, networks and expertise.
- The VC seeks extraordinarily high returns, often through an IPO or acquisition, so it favours high-risk, high-reward ventures.
What the Kauffman report adds
- In the 2016 US Annual Survey of Entrepreneurs, the top start-up sources were personal or family savings (64.4%), bank loans (16.5%) and personal credit cards (9.1%). Venture capital was used by only 0.5%.
- At least 83% of new businesses did not use bank loans or venture capital at start-up.
- Access to capital is shaped by factors unrelated to the quality of the business, such as geography, gender, race and wealth.
- “Capital entrepreneurs” are building alternatives: revenue-based investing, entrepreneur redemption, online lending, crowdfunding and blockchain.
- Capital can bring more than money: a donated kiln told Emily Reinhardt that someone believed in her.
Ask what the money is for (equipment, capacity, market entry, surviving a price war) and what the venture can offer in return (repayment, ownership, a revenue share). Fin Gourmet’s lesson: repayments work better once the capital has had time to create hires and revenue.
The brief requires a funding plan with estimated amounts (angels, VC, crowdfunding, platforms). Choose sources that fit your venture’s stage and risk, say what each amount pays for, and name one disadvantage you will manage. Keep to sources taught in the module and use Week 9 for the detail.
Born globals and the new platform-based born globals
Some firms do not build a home base before going abroad. A Copenhagen Business School study shows how platform ventures such as Airbnb and Uber have pushed this pattern further than earlier research expected.
A firm that, from inception, seeks to derive competitive advantage through the use of its resources and the sale of its outputs in multiple countries. Also called global start-ups, international new ventures or instant internationals.
The term “born global” was first used by McKinsey consultant Michael Rennie in 1993, in a survey for the Australian Manufacturing Council. Of the 300 companies studied, 75% internationalised only after an average of 27 years, with about 20% of sales from exports. The remaining quarter internationalised on average two years after founding and made around 75% of their sales abroad (Rennie, 1993).
Kongsbak and Vendler (n.d.) reviewed the born global research and then tested it against Airbnb and Uber. Their question: how do platform-based born globals in the sharing economy differ from the born globals described in the literature?
Stages approach versus born global
- Build a solid domestic base first.
- Enter foreign markets gradually, increasing commitment as knowledge of the market grows.
- Well-planned steps are meant to lower the risk of internationalisation.
- International vision from inception.
- Skips stages and may enter distant or very different markets early.
- Lower perception of risk; learns aggressively and tolerates initial failure better (Chetty and Campbell-Hunt, 2004).
A review of the born global literature identifies six parameters that shape a born global company. Together they make a ready-made structure for analysing any fast-internationalising venture.
International experience, global vision, proactivity and a low perception of risk speed up early internationalisation. The founder’s knowledge is an intangible resource competitors cannot copy.
Example — Uber’s founders had built international internet firms; Airbnb’s borrowed experience from investors.
A unique, superior or technologically innovative product that scales easily into foreign markets. A niche too small at home pushes the firm abroad.
Example — For Airbnb and Uber the value lies in the users, not in the product itself.
Flexible structures and a culture of learning and knowledge sharing let the firm adapt to each market. What often restrains it is a lack of resources.
Example — Airbnb’s small cross-functional teams; Uber’s self-driven city teams.
High-growth and knowledge-intensive industries, liberalising markets and better communication technology favour early internationalisation.
Example — Airbnb and Uber broke this pattern by entering stagnant, regulated industries and rethinking them.
Research favours a clear differentiation or focus strategy and tailoring marketing to each market; cost leadership is seen as unsuitable for young firms (Knight and Cavusgil, 2005).
Example — The platforms combined differentiation with low prices because users supply the homes and cars.
Born globals skip stages and enter markets rapidly, learning as they go. Early internationalisers often outperform firms that wait.
Example — Airbnb and Uber raced to be first because network effects reward the platform that gathers users first.
What is new about platform-based born globals
- Value lies in users. Once enough users join, a positive network effect makes the platform very hard for competitors to break into.
- First-mover advantage becomes decisive, because a product that is easy to copy is protected mainly by its user base.
- Experience can come from investors. International know-how no longer has to sit with the founders.
- Scaling is cheap. Supply comes from users’ existing homes and cars, which attracts investors and very large funding rounds.
- “Internationalise first, think later.” Establish presence fast, then build the sustainable organisation.
The study stresses that rapid, low-cost scaling works because platforms have almost no linear costs: each new city needs little more than a small team. A restaurant chain, manufacturer or service SME adds rent, staff and stock with every new location. For them, speed without control is the Món Huế story, not the Airbnb story.
Learning Diary: if you classify your Ashoka venture as international entrepreneurship, the born global definition helps you argue why. Individual Report: state whether your venture will internationalise gradually or as a born global, and justify the choice against the six parameters.
Growing without breaking: managing rapid expansion
Growth is the goal, but growth also multiplies every weakness. This section pulls the week together into a practical way to scale without losing quality, cash or control.
Choudary (2015), cited in the Copenhagen study, names four factors that shape the value a business delivers: value creation, value consumption, quality control and scaling value creation. The study calls quality control the most important of the four for Airbnb; quality control and scaling are also the two that fast growth tests hardest.
A venture has to add supply, whether homes, drivers or restaurants, without lowering the quality customers experience. Otherwise the advantage that attracted customers is spent faster than it is rebuilt.
Two ways of scaling quality
- Early listings were of lower quality; Airbnb then invested heavily in a curation system where hosts and guests rate each other.
- Poor supply loses bookings automatically, so supply can grow without ruining quality.
- Good experiences spread by word of mouth, bringing more guests and then more hosts.
- Quality depended on a central-kitchen system: food was prepared centrally, frozen, transported, stored, defrosted, reheated and plated at each outlet.
- A former manager noted that if central-kitchen quality was not maintained, quality at multiple branches could also be affected.
- Customers complained of slow service, missed orders, inconsistent food, and high prices for dishes traditionally seen as affordable.
A growth-readiness check before opening the next outlet or market
- 1Re-test demand
Is there evidence that customers want more outlets or a new market? Revisit product/service and target market feasibility (Week 5).
- 2Check that the advantage travels
Which mechanism (learning, scale, differentiation, networks, first mover) will still hold at the next location?
- 3Design quality control
Decide how quality will be measured and corrected in every new unit: ratings, training, inspection or trusted partners.
- 4Choose the governance mode
Own, license, franchise or partner; weigh speed against control and the triple liability.
- 5Fund the step, not the dream
Match fixed commitments such as rent to realistic revenue, and choose a funding source whose repayment timing fits (financial feasibility).
- 6Stretch the team and systems
Make sure management capacity, hiring and culture can cope with the new size (organisational feasibility).
When your Individual Report proposes expansion, explain how quality, cash and management will keep up, not only how fast you will grow. Showing how these elements of the business come together is what the Reasoning criterion looks for.
Tutorial activities
Case study 1: the entrepreneur’s access to capital
Read Lula’s Story: Selling Kentucky Blue Snapper (page 23) and Emily Reinhardt’s Story: A Main Street Entrepreneur (page 30) in the Kauffman Foundation report Access to Capital for Entrepreneurs (Hwang, Desai and Baird, 2019).
- 1.What types of funding sources are described in the case studies?
- 2.What are the advantages and disadvantages of each?
- 3.Why was funding necessary at the stage these businesses were at?
Case study 2: Airbnb, disrupting the hotel industry
Read the Airbnb case (pages 32–68 of A New Era of Born Global Companies, Copenhagen Business School).
- 1.What was unique about Airbnb that gave it a competitive edge in the industry?
- 2.Investors prefer to invest in teams rather than ideas (Week 5). Relate this to the initial USD 20,000 investment Airbnb received and explain the attributes of the founders that made the team successful.
Case study 3: Uber, disrupting the taxi industry
Read the Uber case (pages 69–103 of A New Era of Born Global Companies, Copenhagen Business School).
- 1.Using the types of innovation from the Week 1 tutorial, identify the kind of innovation at play in Uber. Explain why it cannot be one of the others.
- 2.Finance is the lifeblood of many companies. What role did finance play in ensuring Uber’s continued operation?
- 3.In your opinion, did the entrepreneurial and international experience of the founders play any role in its success?
Case study 4: Món Huế, from rapid growth to widespread closure
Read the Món Huế case. Analyse it with Week 6 theory (competitive advantage, governance, quality control while scaling, finance, planned international expansion), and use Week 5 feasibility analysis for questions 3 and 4. Questions 1–5 come from the case; questions 6 and 7 are added here to link it to Week 6 theory.
- 1.What were the main causes of Món Huế’s decline and failure? Which cause do you think was the most important?
- 2.How might Món Huế have assessed customer demand before opening so many additional outlets?
- 3.Before continuing its expansion, how should Món Huế have conducted a feasibility analysis in terms of product/service feasibility, industry/target market feasibility, organisational feasibility and financial feasibility?
- 4.If the company had conducted a more comprehensive feasibility analysis, do you think it would have expanded at the same scale and speed? Why or why not?
- 5.If you had been a manager at Món Huế before the rapid expansion, how would you have adjusted the company’s expansion strategy?
- 6.Which sources of competitive advantage did Món Huế have in 2016–2017, and why were they not sustained?
- 7.Given its domestic difficulties, assess its plan to expand into Japan, South Korea, Singapore, Hong Kong, China, Malaysia and the Philippines, using the triple liability and alternative governance modes.
Apply Week 6 to your Learning Diary venture
Week 6 is when the Learning Diary brief is discussed and COIL teams submit a one-page profile of their chosen Ashoka Fellow venture. Watch the Learning Diary video guide on the module page, then test your chosen venture against this week’s ideas.
- 1.Which founder competencies does your Ashoka Fellow show? What is your evidence for each?
- 2.Which parts of the triple liability would the venture face in the new market you have named?
- 3.Which entry mode and partners would reduce those liabilities, and what control would the venture give up?
- 4.How is the venture funded today, and what would internationalisation require?
Cases
Key terms
- Competitive advantage
- Factors that let a firm produce goods or services better or more cheaply than rivals, winning more sales or better margins.
- Learning by exporting
- Improving products, processes and resources through exposure to demanding foreign customers, new technologies and industry ecosystems.
- Economies of scale (scale effect)
- Higher international sales volumes spread fixed costs such as R&D, raising profitability and the capacity to innovate.
- First-mover advantage
- The benefit of entering a market first: building brand presence and a customer base before competitors arrive.
- Global mindset
- An international entrepreneurial orientation, usually from international business experience or education, that makes founders look beyond home.
- Institutional bridging capability
- A founder’s knowledge of different institutional and cultural environments, enabling the firm to work across them.
- Entrepreneurial team
- The group responsible for a new venture’s strategic decisions and operations; effectively its first top management team.
- Triple liability
- The combined liabilities of newness, smallness and foreignness that INVs face (Oviatt and McDougall, 1994).
- Alternative governance structures
- Ways of accessing and controlling resources without owning them, such as licensing, franchising and networks.
- Network governance
- Control of partners’ behaviour through trust and moral obligation (social, informal control) rather than formal contracts.
- Bootstrapping
- Funding a venture from the founder’s own resources and effort while keeping costs low.
- Crowdfunding
- Raising finance by asking a large number of people each for a small amount of money, mostly online.
- Revenue-based investing
- Finance repaid as a percentage of revenue over time until investors receive an agreed return.
- Born global
- A firm that from inception seeks competitive advantage from its resources and sales in multiple countries.
Check your understanding
According to Zucchella, Hagen and Serapio (2018), what does it mean for an INV to “learn by exporting”?
Flashcards
References and sources
As cited in the module materials. Check each against the original before using it in an assignment.
- Chetty, S. and Campbell-Hunt, C. (2004) ‘A strategic approach to internationalization: a traditional versus a “born-global” approach’, Journal of International Marketing, 12(1), pp. 57–81.
- Choudary, S. (2015) Platform Scale: How an Emerging Business Model Helps Startups Build Large Empires with Minimum Investment. Platform Thinking Labs Pte. Ltd.
- Hwang, V., Desai, S. and Baird, R. (2019) Access to Capital for Entrepreneurs: Removing Barriers. Kansas City: Ewing Marion Kauffman Foundation.
- Knight, G. and Cavusgil, S.T. (2005) ‘A taxonomy of born global firms’, Management International Review, 45(3), pp. 15–35.
- Kongsbak, P.A.S. and Vendler, C.B. (n.d.) A New Era of Born Global Companies: Disruption by Platform-based Born Global Companies in the Sharing Economy. Master’s thesis. Copenhagen Business School.
- Oviatt, B.M. and McDougall, P.P. (1994) ‘Toward a theory of international new ventures’, Journal of International Business Studies, 25(1), pp. 45–64.
- Rennie, M. (1993) ‘Born global’, McKinsey Quarterly, 4, pp. 45–52.
- Zucchella, A., Hagen, B. and Serapio, M.G. (2018) International Entrepreneurship. Cheltenham: Edward Elgar.
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