Article Review

The Effects of Early Internationalization on performance outcomes in young international ventures: The Mediating Role of Marketing Capabilities - Lianxi Zhou, Aiqi Wu, and Bradley R. Barnes

Submitted by:
Paridhi Sharma PGDM Communications Roll no. 28

The Article targets the gap that exists in terms of the effect of the time at which an entrepreneurial venture undergoes internationalization on the organizational capabilities and the respective performance outcomes. The article aims at covering the above mentioned gap by looking into the level to which an early international exposure helps young entrepreneurial firms to gather marketing related acumen which further can be used to achieve rapid success. The article gives utmost importance to Marketing Capability as it is believed to play an important role in venture internationalization. It is believed that the development of market specific knowledge and capabilities is an important aspect to the learning curve that a young entrepreneurial firm or venture undergoes as such. Here when the mention of Marketing Capabilities is done, it is based on the notion of the ability of a firm to learn about its market environment in such a way that it is able to use the gained acumen towards successful understanding of external market changes in an efficient manner that exercises a component of quick responsiveness. This, by further extension, provides a greater competitive advantage to the firm. The article talks about The Liability of Outsidership. This can be understood with respect to an example comprising of the entry of a foreign player into any market. The players existing in the said market can be considered the part of a group. The said foreign entity or player is then an outsider to the group. For it to find success in its venture, it requires to find a place in the group. It can be said that there exist two major ways for it to do so. First could be that the foreign entity be acquainted with any member of the group who, in turn, may be able to ease the movement of the foreign entity into the group. The second way can be considered in a situation where in the foreign party is not familiar with any of the domestic players. In such a situation, the foreign player takes steps to get acquainted with any of the domestic players. The understanding formulated from the article is that being an outsider proves to be a liability as it can restrain learning among the young entrepreneurial firms and affect the way in which they learn market specific knowledge which will result in rapid international expansion. The effect of marketing capabilities of an entrepreneurial firm on its performance becomes more important and standing when the market scenario moves from emerging economies

to developed countries. Thus it is stated that the effect of the type of economy is also a factor that counts. The article gives points both for and against the LAN or Learning Advantages of Newness. The LAN theory suggests that the firms that are in the initial stage or are younger have a better degree of learning flexibility that is a result of less dependence. These firms, as compared to the ones that undergo internationalization at a later stage, are less constrained by existing routines and other contingencies that might prove to be a hindrance in their learning in new markets. So then the basic idea behind LAN can be broken down to the simple idea that the sooner a firm involves itself in cross border activities, the sooner it learns and grows with its foreign operations. Having said that, the initial statement that was made, now stands to be evaluated as such. The validity of LAN is put under scrutiny and is backed by certain researches wherein the relationship between the venture age at the time of internationalization and sales growth of the firm is not significant. LAN has been highlighted finally as a tool that gives the importance of timing of foreign market entry but is inconclusive when keeping performance outcomes under perspective. The given article discusses the research done on the mediating role of marketing capabilities in contributing to international growth among new ventures that have undergone internationalization. When discussing marketing capabilities, it is essential that a definition be provided with respect to which the scope of the research is defined. The article effectively defines the notion behind the marketing capabilities. It says that the said notion is a firms ability to learn about its marketing environment and to utiliz e this knowledge to direct its efforts towards the changes occurring in the external market scenario effectively and in a rapid fashion. Also necessary to note here is that the article also puts forth the point that firm specific marketing capabilities are adept in identifying and portraying the ability of a firm to link market based processes to financial performance. Having discussed that, it can be said that the article captures two major points: 1. The marketing capabilities are driven by the time and pace at which it enters the international market.

2. The type of International market (emerging economy or a developed country) also plays a role in determining the relationship between marketing capabilities and growth in the international market. The statement that the managers play an important role in the international growth is elaborated well. It stands without question that the entrepreneurial orientation and a positive global mindset of the manager are important factors leading to rapid international growth of any internationalized firm. These firms seem to have a striking difference when compared to the older and larger firms in terms of the time of entry into the foreign markets and the attitudinal commitment towards internationalization. A greater effort put into learning about foreign markets leads to a better understanding of the market, better assimilation of knowledge regarding the same and ultimately towards further increase in the level of internationalization. Thus it can be seen as a cycle of efforts and its effects. The article discusses the significance of the type of International market and stresses on the point that the ventures from emerging market economies are likely to face different challenges and come across different growth opportunities when entering the two kinds of markets. Emerging market firms are ones that push hard to enter into the developed markets so as to increase their value and tap resources and skills so as to increase their level of global competitiveness. These firms are those that are quite often affected by the drawbacks of their economy being an emerging one as opposed to the developed economies. Emerging economy firms face cultural issues, scarcity of resources and often highly regulated political environment. Thus the point put forth in the article falls in place perfectly when considering the aggressive push of such firms into the developed economies, as the developed economies provide an environment of tremendous opportunity for growth and high levels of international growth. In such a case, marketing capabilities are seen to play a pivotal role in the betterment of performance of the firms. The Research Model for the hypothesis focuses on young international firms in China, which is the world's largest and fastest-growing emerging market. The young firms in China have started expanding rapidly into international markets. However, compared with young firms in developed economies, most Chinese firms lack key resources and knowledge. However, young international firms can overcome such deficiencies in their international expansion by

enhancing their marketing capabilities. Thus, the selection of China in this respect is a useful and apt criterion to test the propositions given in theory in the article. The two criteria for selection of the firms were: 1. International firms i.e. a significant amount of their turnover was internationally acquired. 2. Privately owned. Valid data was obtained from a total of 159 firms. As seen, the response rate is low, only 26.5%. The research findings provide support for the mediating role of the marketing capabilities in determining the impact of early internationalization on the international growth of young business ventures. The research has also done well to provide support to the importance of the commitment of the senior management to foreign markets as a contributing factor to the development of marketing capabilities. Another important finding is that a new ventures marketing capabilities are a better catalyst for the operation of the firm in developed economies rather than the emerging economies. Thus, in a nutshell, the article successfully establishes that a ventures acquired knowledge when converted to apt marketing capabilities enables it to successfully get ingrained into the new market environment. The article has been able to provide a map of sorts to a certain extent, for managers who wish to move towards exports and international marketing opportunities. The article also underlines the fact that the nature of emerging markets is more dynamic and prone to changes when compared with the developed economies. Thus the process of internationalization needs to be done keeping in mind this aspect. The aspect that may be a negative one could be the restricted nature of the sample which considered only young entrepreneurial firms based in China. Thus generalizing the findings to other economies that might vary from that of China might lead to inaccuracies.