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Going Global: Why Startups Shouldn't Shy Away From International Expansion

Going Global: Why Startups Shouldn't Shy Away From International Expansion
Credit: Minerva Studios/Shutterstock

When starting a new business, you shouldn't be afraid to expand internationally early on, new research argues. A study recently published in the journal Group & Organization Management found that startups that decide to operate overseas don't face any larger challenges than new businesses that focus on building their brand only in the U.S., or wait to expand globally until they are more established.

"Many new firms remain domestic, regional, and even local," the study's authors wrote. "Increasingly, however, digital marketplaces and social media provide even the youngest firms opportunities to operate on a global scale."

Maija Renko, an associate professor at the University of Illinois at Chicago and the study's lead author, said the main thesis of the study is that being new and nimble can actually aid, not hinder, in internationalization.

"Connectivity of people and businesses across national borders keeps on increasing, and with that, international opportunities are becoming ever more present for new companies, as well as old," Renko said in a statement. "The mechanisms are, if anything, stronger today than five years ago."

The researchers discovered that the ingenuity, toughness and adaptability of today's entrepreneurs can create advantages that offset the risks of conducting business abroad. [See Related Story: Language Translation: What Global Companies Should Know]

The study's authors looked at four specific areas that were once thought to be disadvantageous for new companies: organizational learning, dealing with coordination costs of organizing, building social networks, and positioning the firm in a market. They found that the newness of a company can actually turn these areas into advantages.

For example, they discovered that, in terms of learning, a new firm’s organizational flexibility and inherent commitment to learning may offset the risks of going global.

"The learning capabilities inherent to newness help overcome one key liability of foreignness: need to learn about new markets, customers, processes, and cultures," the study's authors wrote.

The researchers also suggest that, while building a network of customers may be a difficult task overseas, it's no more problematic than it is domestically. "(International startups) face the challenge of finding customers, and convincing international customers to buy may not be that much more challenging than winning domestic customers for a new firm," the study's authors wrote.

Easier access to digital marketplaces, social media and new international networks are other key influences encouraging entrepreneurs to expand to foreign markets.

The study's authors came to their conclusions after examining earlier studies on the internationalization of new firms and reviewing quantitative studies published between 2005 and 2013 in entrepreneurship and management journals. From that they were able to develop a conceptual model of how and why some new firms internationalize from the start.

The study was co-authored by Rodney Shrader, a professor at the University of Illinois at Chicago; Sumit Kundu, a professor at Florida International University; Alan Carsrud, a visiting research professor at Abo Akademi University in Finland; and Annaleena Parhankangas, an assistant professor at the University of Illinois at Chicago.

Chad Brooks

Chad Brooks is a Chicago-based writer and editor with nearly 20 years in media. A 1998 journalism graduate of Indiana University, Chad began his career with Business News Daily in 2011 as a freelance writer. In 2014, he joined the staff full time as a senior writer. Before Business News Daily, Chad spent nearly a decade as a staff reporter for the Daily Herald in suburban Chicago, covering a wide array of topics including local and state government, crime, the legal system and education. Chad has also worked on the other side of the media industry, promoting small businesses throughout the United States for two years in a public relations role. His first book, How to Start a Home-Based App Development Business, was published in 2014. He lives with his wife and daughter in the Chicago suburbs.