Study Background 32

Growing numbers of entrepreneurial firms engage in international trade, venturing into realms once ruled exclusively by large multinational corporations. Agile and innovative, these firms target niche markets to capitalise on promising opportunities created by rapid technological advancements, converging global demand, and interconnected economies (Knight & Cavusgil, 2004; Oviatt & McDougall, 1994; Ruzzier, Hisrich, & Antoncic, 2006). International entrepreneurship (IE) research explores these dynamics using theoretical insights from the entrepreneurship and international business literatures. Oviatt and McDougall (2005, p. 540) define international entrepreneurship as “the discovery, enactment, evaluation and exploitation of opportunities-across national borders-to create future goods and services”2

How researchers interpret the phrase ‘across national borders’ reflects their disciplinary legacy and directs the flow of enquiry towards either cross-border or cross-national entrepreneurship (Hessels, 2008; Terjesen et al., 2010). According to Terjesen, Acs, and Audretsch (2010), cross-border entrepreneurship research is primarily undertaken by international business scholars and explores the international activities of entrepreneurial firms. Jones, Coviello, and Tang (2011) refer to this branch of IE research as “entrepreneurial internationalisation” or “Type A”.3 On the other hand, cross-national entrepreneurship research is primarily undertaken by entrepreneurship scholars and explores how entrepreneurial behaviour varies by country (Hessels, 2008). Jones et al. (2011) refer to this IE research stream as “comparative international entrepreneurship” or “Type B”.

An emerging area of IE research is positioned at the nexus of these two research streams and explores cross-national differences on cross-border internationalisation. Research into this area addresses Zahra and George’s (2002) core, yet unanswered question in IE research, namely: “What contextual factors influence the extent and scope of entrepreneurial firm’s internationalisation”? Jones et al. (2011) refer to this emerging IE research

2 _{Italics added}

stream as “comparative entrepreneurial internationalisation” or simply “Type C”. These authors proclaim this nexus to be a fertile research area into what they call “the crux” of international entrepreneurship; however, studies are rare and rather eclectic. In their review of 323 IE studies, Jones et al. (2011) reference only four studies exploring environmental influences on comparative entrepreneurial internationalisation. These scholars suggest future research should apply an institutional theoretical lens to explore why and how international entrepreneurship differs across countries and cultures.

This study asks how institutional and economic conditions are related to levels of internationalisation on innovative entrepreneurial firms. This research objective requires amalgamation of knowledge from both international entrepreneurship streams. Findings from the cross-border stream provide three insights into factors influencing internationalisation. First, innovation matters. Innovation often acts as a catalyst to form entrepreneurial firms and serves as a prerequisite for entrepreneurial internationalisation (Hessels, 2008; Jones et al., 2011; Knight & Cavusgil, 2004; Oviatt & McDougall, 1994). Second, globalisation opens avenues for innovative entrepreneurial firms to access and serve international niche markets (Bloodgood et al., 1996; Knight, 2000). Third, to succeed in international markets, innovative entrepreneurial firms need to develop and leverage networks (Chetty & Blankenburg Holm, 2000; Coviello, 2006; Johanson & Mattsson, 1988; Oviatt & McDougall, 1994). According to Johanson and Valhne (2009), internationalisation is simply a by-product of attempting to strengthen the firm’s position within established business networks or to cultivate new ones.4 However, contextual factors (e.g., network partner’s location and industry levels of global integration) direct the entrepreneurial firm’s international orientation (Schweizer, Vahlne, & Johanson, 2010).

Findings from the cross-national research stream confirm country-level factors influence the development of specific types of entrepreneurship. Core to this idea, is the understanding that different types of entrepreneurship exist and that not all entrepreneurship types have offerings suitable for international

4 _{See Johanson and Kao, 2010 for a review of literature taking a network theory approach to} explore the process of internationalisation.

markets. Comparative entrepreneurship research finds both institutional and economic forces influence the type of entrepreneurship for a specific country (Baumol, 1990; Bowen & De Clercq, 2008). Laws and regulations establish the framework conditions that indirectly shape entrepreneurial efforts. These formal institutions influence entrepreneurial motivations (Hessels, van Gelderen, & Thurik, 2008), innovation aspirations (Hessels et al., 2008; Koellinger, 2008; Szirmai, Naudé, & Goedhuy, 2011), and export orientations (De Clercq et al., 2008). Business norms and cultural beliefs also influence entrepreneurship quality (Stephan & Uhlaner, 2010), innovation frequency (Dakhli & De Clercq, 2004; Kaasa, 2009; Luk et al., 2008), and network collaboration (Arenius & De Clercq, 2005; De Clercq, Danis, & Dakhli, 2010; Klyver et al., 2008). These informal institutions influence complex relationships between the country’s economic development level and the predominant entrepreneurship type (Bosma & Levie, 2009; Szirmai et al., 2011). Although entrepreneurship occurs at all levels of economic development, the type of entrepreneurship and subsequent impact on the economy differs (Baumol, Litan, & Schramm, 2007). In summary, extant research highlights institutional and economic forces’ influences on entrepreneurship.

Innovation features prominently in both international entrepreneurship research streams. Innovative offerings create international growth opportunities for firms (Bloodgood, et al., 1996; Chetty & Campbell-Hunt, 2003; Knight & Cavusgil, 2004). However, institutional and economic environments may either create or hinder innovative opportunities for entrepreneurial firms (Baumol, 1990; Hessels et al., 2008; Shane, 1992). Further investigation of the activities of innovative entrepreneurial firms across countries will help to pinpoint contextual factors that influence internationalisation strategies and will highlight the conditions moving firms from casual engagement to major investments in international markets.

This study seeks to understand how a country’s institutional and economic environment influences the proportion of Innovative International Entrepreneurship (IIE). Defined as the percentage of firms who engage with foreign customers out of the country’s total percentage of innovative

entrepreneurial firms, IIE recognises innovation’s importance for international markets. The proportion of IIE can be subdivided into latent, moderate, or substantial. Latent IIE describes domestic innovators. Moderate IIE represents innovative entrepreneurial firms with up to a quarter of their customers located in foreign markets. Substantial IIE represents innovative entrepreneurial firms with more than a quarter of their customers located internationally.

Presentation of the study is organised in the following manner. Section 2.3 introduces the conceptual foundations of institutional theory and the literature’s relevance to the allocation of entrepreneurial endeavours within a country. Under this theoretical framework, findings from both international entrepreneurship research streams combine to develop the conceptual model and hypotheses in Section 2.4. Section 2.5 describes the data and the research methodology. Sections 2.6 and 2.7 provide a summary of the empirical analysis. The limitations and future research opportunities are presented in Section 2.8, managerial and policy implications in Section 2.9 and Section 2.10 concludes.

2.3 Theoretical Framework