Driving Internationalization Through Digital Business Models

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UNIVERSITY OF EASTERN FINLAND Faculty of Social Sciences And Business Studies Business School

DRIVING INTERNATIONLIZATION THROUGH DIGITAL BUSINESS MODELS

Master Thesis International Business and Sales Management Rushanka Thejani Dissanayaka, 300501 (rushdiss@uef.fi)

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ACKNOWLEDGMENTS

This master thesis was conducted as a part of project on “Internationalization of Digital Firms” of International Business and Sales Management Department at University of Eastern Finland. It was written during the spring 2021 starting from early autumn 2020 and I hereby acknowledged several people for their support and encouragement towards this thesis. First, I would like to thank you Professor Irina Mihailova, my supervisor who gives me tremendous support through valuable advices and insights, she contributed from the beginning to finalizing the study. Then all company representatives who managed to take part in this study. Next I gratefully acknowledge “Suomen Ulkomaankaupan Edistämisrahaston Säätiö” who offered me valuable grant for this thesis project.

Finally, I would like to thank my husband and friends for their respected comments, support and patience for last 8 months.

You are all truly motivated me towards the successful of this project!

Rushanka Dissanayaka 28.04.2021

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ABSTRACT

UNIVERSITY OF EASTERN FINLAND Faculty

Faculty of Social Sciences and Business Studies

Department Business School Author

Rushanka Thejani Dissanayaka

Supervisor

Dr. Sc. (Econ.) Irina Mihailova Title

DRIVING INTERNATIONALIZATION THROUGH DIGITAL BUSINESS MODELS Main subject

International Business and Sales Management

Level Master

Date April 2021

Number of pages 102

Globalization has become widely spreading topic in the business context over two decades’

while gain special attention with the emergence of internet based firms. Therefore, digitalization and internationalization have considered as one of the most important components of business operations. Today, every firm’s vision is to enter foreign markets from its inception or soon after. However, required actions for expanding early and rapidly to international markets may not be always clear as strategies are varying. Although this topic has been well documented, only limited studies have been carried out from a business model perspective. Hence, this study designed to investigate the impact of role of the business model on internationalization speed and scope.

This study examines the factors affecting rapid internationalization of born globals, the business model concept and digital firm’s internationalization in detailed manner. In addition, theoretical part provides the analytical framework for an empirical study. This thesis used multiple case study approaches of five small and medium scale Finnish born digital firms. The empirical part contributes to the existing literature by strengthening its existing findings and providing new insights. It shows the importance of how different aspects of the business model and internationalization performance of case firms.

Accordingly, this master thesis comprises with interesting findings. Firstly, it is suggested that digital elements of the business model allow firms to operate online presence and led rapid internationalization. Then the degree of customization and localization, scalability and replicability and novelty are key features of the business model that can accelerate internationalization of born digital firms. In addition, it was also found that B2C business models are growing faster than B2B/B2G models due to their specific features and marketing aspects.

Moreover, strategic focus market aspect led firms’ faster internationalization.

Key words : Born global, business model, digital firms, customer centric value creation

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This introduction chapter aimed at understanding about full picture of the master thesis. The background of the research will be highlighted the importance of the topic and need for this research. Then the research gaps and problems will be discussed. After that the research objectives and the research questions will follow. Finally, the structure of this thesis will be presented.

1.1 Background of the research

The digital transformation is one of the catchy words of today's business world. Developing technologies have extremely improved the way we do business than in previous days. In today's business world, most of the companies are fully digitalized or even part digitalized. This shows that digital entrepreneurship has gathered significant attention from every country due to the remarkable success of several digital startups. This rapid change can be witnessed everywhere in the business environment. This because of at least partly due to technology-related changes in the marketplace. The question remains why we use technology in our business. This is mainly due to making it possible to be more cost-efficient and effective, making it easier to serve customers better, and it enabling completely new business models as platform business, cloud-based business, Artificial Intelligence (AI) and so on.

In this respect, today’s most companies mark their presence in multiple locations. Thus companies able to confirm their existence to the customers by developing a competitive advantage by being first-movers. In other words, instead of focusing on developing sales in the domestic market, some other firms recognize the global market as one place, and focus on foreign market development independently from their home market. As a result, those companies expanding their business to foreign markets right away from the beginning or soon after as a crucial part of their business strategy.

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Previous literature focuses on how some companies enter into foreign markets rapidly while others are still trapped in the domestic region or very few markets. Several factors have been identified as drivers of rapid internationalization of a company that largely depend on the owner/manager’s specific skills including the ability to speak many foreign languages, experiences abroad, and international education (Evangelista, 2005). Such authors like Zhang, Tansuhaj and McCullough (2009) in the same opinion that more successful internationalization depends on superior international entrepreneurial capability. On the other hand, some authors have a different view that growth of foreign sales largely depend on the networks (Coviello & Munro, 1995; Sharma &

Blomstermo, 2003; Loane & Bell, 2006). Nevertheless, Knight and Kim (2009) recognized the company’s international business competences as an influential factors for rapid internationalization.

However, Hennart (2014) argue differently that rapid international development heavily depends on what type of products or services a company sells, to whom those sell, and how? or in other words how firms create value, capture value, and deliver value to its customers. Here the author realized the concept of the business model and its impact on early internationalization of INVs/BGs and he argues that;

"Rather than focus on the resources and capabilities of managers, a more promising approach would be to research the specific characteristics of business models that lead to fast internationalization" (Hennart, 2014, p.132).

Hence, in today’s dynamic and turbulent environment, the importance of the business model is emerging than in the traditional business era where assets are recognized as most important. The evolution of the concept of business models begins with the idea to attract investments to showcase and analyze its value creation propositions, how to generate revenue and thereby making profits.

Even though different scholars identified this area as most emerging, still they are unable to provide a unified definition for a business model rather than exploring different views as they own.

The notable factor is although studies have been carried out different perspectives by several researchers whilst authors like Amit, Zott and Teece (2010) largely contributed.

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The main reason why I have selected this topic was my interest in understanding the impact of digitalization on businesses and how technological affordances help digital firms to enter international markets in comparison to those firms which operations are less relying on digital elements. Understandably, digital-enabled technologies play a pivotal role in these firms when attracting international markets easily especially for digital firms that more focus on assets-light internationalization. Another factor that appears from existing literature, is the importance of the business model which represents a new and emerging area needing further research. The review of the studies to date shows that there is a lack of studies concerning BM and internationalization.

The notable factor that digital technologies can be accommodating in business models, and it drastically changes the way of doing business.

In order to identify the importance of the business model concerning a firm’s internationalization, an analytical framework was developed focuses on how born-digital firms use BM to their internationalization performance. The theoretical framework of this Master’s thesis is based on a concept where business models and internationalization outcome i.e speed and scope with the underline theory that BM is one of the crucial factors for rapid internationalization of firms apart from several other factors. Accordingly, the research problem guiding this study as “How business models affect the speed and scope of internationalization of a born-digital company?”. To find a concrete answer for this objective, business models of Finland based digital ventures will be closely examined and use that evidences to prove the assumption of firm’s business model has positive impact on early and rapid internationalization.

Therefore, this master thesis designed to understand the importance of business model for faster internationalization. Furthermore, this shows the need for research to identify and obtain detailed information about specific characteristics and mechanisms of business models that influences faster internationalization of INVs/BGs (Hennart, 2014 & Bouncken et al., 2015) and also the importance of studying the adaptation of business model in a foreign operation (Bohnsack et al., 2020).

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9 1.2 Research gap and problems

Even though the internationalization of INV and BGs field is rather rich and well documented (Rialp-Criado et al., 2010) there are only a few studies have been carried on digital firm’s internationalization (Vadana et al., 2019; Mongahan et al., 2020). The notable factor here is the rise of digital products and services. As per World Bank (2020) there are approximately 4.66 billion people uses the internet which represent about 60 percent of the world population and the number is steadily increasing. This seems the importance of mobile technology allow users to access the internet from anywhere in the world. As a result, more and more digital good providers are coming into the play and those digital firms are uses digital technologies to internationalizing their operations earlier and faster compare to non-digital firms (Gabrielsson & Pelkonen, 2008).

Therefore, it is realized that digitalization helps firms to faster internationalization and the importance of digital goods and services providers. Although digital firm’s internationalization considered as one of the emerging areas in today’s business world, still few studies have been carried out on that specific topic (Wentrup, 2016). For instance, Vadana et al. (2019) discussed digital value chain impact on internationalization and Monaghan et al. (2020) argue that technological affordance of a company may impact on internationalization of digital firms.

Among several factors for rapid internationalization i.e networking capabilities, entrepreneur or owner specific factors, international competence, etc., few other scholars also recognized that the business model is another important factor for a company to go international markets easily and faster. Accordingly, Hennart (2014) argues that a firm can internationalize quite faster and effortlessly rather than traditional firms simply based on the structure and special characteristics of the business model. Specifically, the author here highlights the important point that BGs/INVs enjoy benefits compare to traditional firms where digital technologies enables them sell their products to niche markets, lowering entry barriers, and reducing adaptation costs. As a result, those firms take relatively shorter period to enter into international markets.

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However, with the rapid development of information technology BM drastically changed to adjust with those technologies. In this respect, few authors touched this topic in different ways whereas recent developments of business models innovation in respect to creating value in e-business (Amit

& Zott, 2001: 2010; Zott, Amit, & Massa, 2011). Moreover, recently some other authors specifically open the debate about defining BM in the digital business world (Al-debei, 2008) and discovering digital BM in traditional industries (Remane et al., 2017).

However, my understanding was still there being lack of studies on how those digital business models impact on internationalization outcomes except few master thesis which studied about BM and internationalization speed. Therefore, the importance of studying BM and the internationalization outcome of a digital firm has recognized. When analyzing previous literature in this field, it is notable that there are several studies consider in business model innovation, but not specifically about the internationalization. Therefore, the main aspect of this thesis to study how business models affect internationalization outcomes of digital firms concerning speed and scope and cover above described theoretical gap. Therefore, the focus of this study is to analyze a broader perspective on how business model influences the speed and scope of internationalization.

Hence, basically answers the question “does a BM depicts its internationalization speed and scope of a company”.

In this thesis, Hennart’s (2014) assumption of a positive relationship between business models and rapid internationalization will be tested by empirical evidence on Finnish digital ventures.

Therefore, this study aims to look at the case company’s business models and figure out whether there is evidence on possibility of a company’s international expansion behavior in foreign markets using their current BM. In more detail, the identification of key BM features and mechanisms and how those characteristics shaping the internationalization outcomes.

The potential cases inarguably from emerging industries in the pandemic situation i.e digital education and gaming. With the high time of Covid situation, the education system has been drastically shifted to digital environment in everywhere in the world. Hence, the importance of digital education platforms has drastically increasing. As how, the overall market size for e- learning is projected to grow to 370 billon USD by 2026 (Statista, 2020). On the other hand,

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EdTech sector of Finland is rapidly growing by witnessing that increasing number of start-ups geared up during last few years. Another interesting industry for this study was gaming ventures based in Finland. This is also emerging industry that people moved to playing online games because of restrictions forced on outdoor games due to the pandemic situation. Understandably, this is one of the rapidly growing industries in Finland as many as 40% start-ups established in last two years to become one of the most active and rapidly expanding video game industries in the world (finland.fi).

Hence, this study will focus on the understanding of BM features and mechanisms that largely influence the internationalization speed and scope of a digital company when entering into foreign markets and thereby international expansion.

1.3 Research objectives and questions

The analysis of the business model of five Finnish digital firms were the main objective of this thesis and to examine whether a business model defines and explains the speed and scope of a company’s internationalization. Firstly, case firms have been thoroughly analyzed with the existing literature to obtain relevant evidence about theoretical approaches in this study including factors affecting internationalization outcomes, business model concepts, and digital firm internationalization. Then to recognize how a company shapes its internationalization speed and scope based on its business model features.

The research problem of this study will be addressed by focusing on the following main research question How business models affect the speed and scope of internationalization of a born- digital company? and two sub-questions:

Sub- RQ1- What are key business models’ features and mechanisms that enable internationalization?

Sub- RQ2 - How do business models’ features and mechanisms shape the speed and scope of internationalization?

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12 1.4 Research structure

The structure of the thesis can be identified as follows. First introduction part covers the research background, research gap and the research problems where it describes the importance of conducting the study concerning the business model perspective. Then the research objectives and the research questions and lastly structure of this report.

The second chapter starts with a literature review to discuss relevant thesis around the topic of business model and internationalization. This section consists of mainly five parts where the first part discusses INV, BGs, and then factors affecting internationalization speed and scope. Here the discussion around the most important factors affecting to rapid internationalization including networks, entrepreneur-specific factors, international business competence and digital competence. Then the business model literature will continue from the third topic begins with discussion about the BM concept, its definitions, and why BM important for a company and, features of digital BM and its impact on internationalization outcomes. The fourth part continues to discuss digital firms and how digital firm’s internationalization happens with respect to previous studies. Finally, the theoretical framework presents the study framework of this master thesis for an empirical part.

The third chapter contribute to discuss methodology and it explains how this study reach the research problems and the questions. The qualitative research method is the chosen method for this master thesis and the justification will be presented in more detail. Then the research design will discuss about the multiple case study method and how and why case firms were selected. The data collection and analysis part explain about how data was collected and analysis accordingly to probe the research question. Finally, trustworthiness and validity of this study will be discussed in detailed manner.

The empirical data analysis consists of five Finnish digital firms and the analysis of its business model. This chapter aims to explain the business model features that influences internationalization of case firms in respect to different aspects of business model i.e. value creation and delivery aspect, value capture aspect, novelty and efficiency. Therefore, in-depth analysis of case studies

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was discussed to identify key features of case firm’s business model which is named as A, B, C, D and E. This chapter also analysis the digital elements of the business model using VISOR framework for digital business models.

Then the main findings of this study will be presented in the discussion chapter and the conclusion chapter conclude both theoretical and management implications. Overall, this study intends to provide a positive contribution towards academic and business domain. The main idea for this study to cover the theoretical gap discussed above and contributes how business model of a born digital firm uses to enter multiple foreign markets early and rapidly. The main findings will be helpful for managers to identify key features and mechanism of business model in relation to internationalization and try to reinforce them in their internationalization strategy.

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2. LITERATURE REVIEW

This chapter examined the key theories and concepts of the business model and internationalization. The concept of born global firms (BGFs), factors affecting to rapid internationalization, the business model and digital firm’s internationalization, and theoretical framework of this study will be discussed.

Initially, the concepts of international new ventures, born globals, and reborn globals and their internationalization characteristics are discussed. Then the discussion moves on to identify factors affecting internationalization outcomes in terms of speed and scope especially concerning digital firms. Then next part contributes to the identification of the business model concept, definitions, and digital business models. The fourth chapter examines the digital firms and their internationalization process and finally, discussion of previous literature and building of theoretical framework using literature review will be discussed.

2.1 Born globals, international new ventures and born again

In order to begins the discussion of theories related to driving internationalization through business models, the concepts of INV and BGs should be identified to get understand how those characteristics help them to achieve faster internationalization rather than traditional firms.

Therefore, the new international business concept called "born global" has been emerged and its defined as firms who have an idea to expand operations into foreign markets from the inception or soon after. The BG literature is rich and extensive where numerous studies have been carried out by several authors. As of now, many authors have explored the BG internationalization concept, and studies still going on to make this area stronger and richer.

In the recent studies, scholars identified a relatively significant number of firms that are not following the traditional internationalization theories i.e. Uppsala stage model. Whereas those firms aim to expand their operations into international markets from the birth or establishment.

Previous literature has identified this concept as "a firm that from its inception pursue a vision of becoming global and globalize rapidly without any preceding long term domestic or internationalization period" (Oviatt & McDougall, 1994; Gabrielsson & Kirpalani, 2004).

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The theory of born global (BG) has become one of the emerging concepts in the international business area at the beginning of the 1990s with the rapid development of internet-based firms.

Accordingly, Oviatt and McDougall (1994) claimed that although "born global" and "international new venture" are two concepts still those firms have shared similar kind of characteristics. For instance, INVs are type of a "business organizations that from inception seek to derive significant competitive advantage from the use of resources and the sale of outputs in multiple countries" and BGs are defined as firms that internationalize their operations from birth or soon after. Therefore, authors considered both types as one common type.

However, the most distinctive factor of BGFs from traditional firms is that owner/entrepreneurs see the world as one market place rather than serving one domestic market. On the other hand, many scholars suggested the born global firms as tech-oriented small firms that expanding to foreign markets soon after the establishment (Bell, 1995; Preece et al., 1998; Falay et al., 2007 &

Gabrielsson et al., 2008). Also previous studies evident the importance of born globals firms in both developed countries and emerging economies like India, China. In contrast to BGFs, the new concept called born-again global firms have been identified recently where established firms dedicated for internationalization who are previously focused only on developing domestic markets (Bell et al., 2003).

Moreover, there are new concepts including true-born globals and born-internationals are emerged.

In this respect, born international firms mainly concentrating on low distance markets. Contrast, true born globals aiming to expand their operations into both low and high distance markets.

(Kuivalainen et al., 2007). Even though, different names used for BGFs, the notable point here is those firms challenge the traditional internationalization theories with their unique internationalization patterns.

Hence, it is interesting to study why those INVs/BGFs are making foreign sales quickly when compared to traditional firms. Therefore, from the next chapter onwards reader can get understand what kind of factors speed up the international performance of the above discussed new type of firms and how those factors shaping internationalization.

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2.2 Factors affecting internationalization speed and scope

Due to the phenomenal importance of born global concept and their typical internationalization patterns led researchers to study drivers or influential factors of rapid internationalization especially in terms of their precocity and speed (Nayyar & Bantel, 1994; Ancona et al., 2001).

Although, there are numerous studies have been conducted proving theoretical and practical aspects, this area is still rather fragmented. While different names used in the of born global literature, two important characteristics of born global firms can be identified which distinguish from the traditional Internationalizers, namely speed and the scope of internationalization.

Concerning internationalization speed, it can be defined either as the period between the founded year and first international market entry and the period between first international market entry and the subsequent market entries (Cao & Ma, 2009).

The second criterion is the scope of internationalization which describes as number of export markets entered by the firms (Crick, 2009) or geographical expansion of the firm's operations. This may vary from case to case since it depends on how successful a firm can expand geographically.

On the other hand, the proportion of sales coming from foreign markets are further criteria to identify BGFs. When analysing BG literature, several authors have defined BGs in different manner. The first-ever definition of BGs is defined by McKinsey and Company (1993) and Rennie (1993) as firms commenced exports only after two years of establishment or 76% of total sales coming through foreign markets within 14 years of age. The same idea of starting exports within two years of founded year and quarter of revenue should be from foreign markets is to be fulfilled to classified as BGFs claimed by Knight and Cavusgil (2004).

As discussed earlier, BGs or rapid internationalizes can be identified as a way of speed and scope.

Therefore, plenty of academics tend to investigate and explain the kind of factors affecting rapid internationalization due to the popularity of the BG concept. For example, some authors identified key factors as competitive advantages, innovativeness, networking capabilities, and financially sound of the firm, besides the owner/manager vision and their knowledge (Laanti et al., 2007).

Also, some other factors like business strategy, network, and entrepreneurial orientation or international business mind-set of the founder are main drivers for rapid internationalization (Cao

& Ma, 2009). Moreover, scholars have also focused on how capable of gaining the right resources

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at the right time for rapid internationalization whereby special attention on the social capital of the entrepreneur and the team (Coviello, 2006; Gabrielsson & Sepulveda, 2013).

According to Preece, Miles, and Baetz (1998) industry specific factors may influence the early internationalization. For instance, if a firm belonging to high-tech sector, those firms may start early internationalizing more than traditional firms. However, there are also evidence that can be seen in the previous studies that authors shift their attention from industry-specific factors to entrepreneur specific factors as drivers of early internationalization. Regarding this perspective, firm international expansion is an important function that describes the internal capabilities of firms (McDougall et al., 1994; Zahra, Ireland, & Hitt, 2000; Autio, Sapienza, & Almeida 2000).

Accordingly, internal factors including financial resources, organizational capabilities, knowledge, and other physical assets act as key drivers for rapid internationalization especially for a large and established firm which are also act as barriers for entry for small firms. On the other hand, Oviatt and McDougall (2005) suggest that entrepreneur international knowledge and networks are heavily determining the internationalization speed that authors recognized as the mediating forces.

However, for this study, I use BG and INV literature to analyse which factors mostly affecting internationalization speed and scope especially concerning digital companies because this thesis is based on digital ventures. Out of several factors, the main important factors are described in a detailed manner from the next chapters onwards to get understand the reader which factors influence the rapid internationalization of digital firms. Here, this study focuses to discuss few concepts but is considered as crucial factors including networking, entrepreneurial specific factors, international business competence and digital competence on their internationalization outcomes.

on the other hand, this study was not intended to deal with some other factors such as business/location-specific factors, assets or resources, competitive advantages, etc. since mostly those factors related to non-digital firm's internationalization than digital firms.

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18 Networks

No matter firm is traditional or digital, networking capabilities play a crucial role in international development. Even though, this study field relatively important there are not many studies concerning BGs internationalization through networks except few important studies (Rasmussan et al., 2001; Sharma & Blomstermo, 2003; Freeman et al., 2006; Mort & Weerawardena, 2006;

Zhou et al., 2007; Freeman et al., 2010). On the other hand, Coviello and Munro, 1997; Sharma and Blomstermo, 2003; Loane and Bell, 2006 explained as "growth takes place through the extension of the firm's network through investment in network positions and development of network relationships”. Also, previous studies (Crick & Jones, 2000; Yli-Renko et al., 2002) argue founders personal contacts and business networks are pivotal for faster internationalization.

Therefore, networks seem to be vital for born global firms but few have been studied on how these networks influence especially for digital firms. In the study of Cao and Ma (2009) argue that the role of networks strongly correlated with the rapid internationalization of a firm. Several authors have pointed out even niche firms can be a leader among their market segment as a result of strong networking capabilities (Simon, 1986; Calof, 1994; Kohn, 1997; Gomes-Casseres, 1997) and those firms expand their operations into broad geographic scope with precocity. The main reason can be identified as these firms use social and business networks in expansion. Hence, Johanson and Vahalne (1990) highlights the importance of establishing entrepreneurs and management social networks especially in the early and intense international expansion of a firm.

Concerning the previous literature on networking and globalization, it has a long history of Johanson and Mattsson (1998), "Network theory", Coviello and Munro (1995), "Networking for international market development" through to the latest studies of Koch and Windsperger (2017),

"Seeing through the network". These studies almost explain how those network capabilities utilize to rapid internationalization. For instance, Koch and Windsperger (2017) argues that firms can use the network as value creation in the digital economy. Even though number of studies limited in the BG literature in respect to networking, the recent studies have been indicated that networking is a pivotal factor for knowledge acquisition (Loane & Bell, 2006; Gabrielsson et al., 2008) especially for digital platforms (ex: Uber, LinkedIn, Airbnb) to leverage network effects for viral growth (Choudar et al., 2016). Few other studies also discuss the numerous benefits of using networks of born global companies. For instances, the firm may use networks when entering in to

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and developing foreign markets (Bell, 1995; Coviello & Munro, 1995; Evangelista, 2005). In addition, acquire the financial resources for new markets and products development (Coviello &

Munro, 1997), for gain access to lack of resources for a firm. Hence, it is assumed that networks pivotal for creating competitive advantages for a firm (Coviello & Cox, 2006).

Accordingly, Madsen and Servais (1997) discussed in their study how a firm achieves internationalization through networks as how to establish relationships in new countries. Here, the authors argue that networks can be established in two ways. First firm can develop relationships through those networks already known to the firm and the second way is that develop new networks through integrating existing relationships. These types of relationships are supposed to be individual level, business level or government level, or a combination of them. Therefore, different kind of relationships serves in different ways. In this respect, we can identify different types of networks including local and foreign networks (business networks) which is known as formal networks, then personal networks (non-business networks), or in other words informal networks and intermediary networks through intermediates (or agents) and social network relationships through professional ties. For example, those social networks are more professional (LinkedIn) than personal ties (Facebook).

Types of networks and internationalization

The previous literature identified that international networks largely determine the internationalization, but on the other hand, local networks are also playing a pivotal role as a forcing factor for small firms' internationalization (Maccarini, Scabini, & Zucchella, 2003).

According to well known "Network Approach" of Johanson and Mattsson (1988) argue that if firms already establish a strong position in foreign networks those relationships can act as a bridge to new market areas. Moreover, they pointed out business networks are more flexible than other types which can be uses to respond quickly and proactively with the rapid changes in the local and foreign market environment. As well as several other studies have supported the opinion that these international networks drive start-up firms to enter into foreign target markets easily rather than those who don't have enough network capabilities. Furthermore, Freeman et al. (2010) and Rialp- Criado et al. (2010) suggest the increasing relevance of global networks and alliances are pushing forces for small firms for seeking rapid international expansion.

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Another category is family and friend relationships which are generally known as personal (non- business) or informal networks. Many scholars stated those personal networks play a crucial factor in international market expansion among the entrepreneurs. For instance, those networking capabilities of the entrepreneur can replace with limited internal and external resources of SMEs (Havnes, 2003). Nevertheless, Toften and Hammervoll (2011) argue that developing networks and relationships are vital for SMEs. Therefore, the degree of internationalization of the firms is mostly defined by the firm's ability to develop and establishing networks. Moreover, few studies explained that SMEs utilize their personal or informal networks to grow opportunities and face the risks and challenges of internationalization. (Batjargal, 2003; Johanson & Vahlne, 2003; Chetty &

Campbell-Hunt, 2004).

Then another type of network is intermediary networks can be connecting buyers and sellers so that relationship works through the third party (Oviatt & McDougall, 2005). These relationships considered as indirect ties where a third person (agent) acts as an intermediate between the firm and the buyer. This type of relationship is useful when small firms lacking with networking capabilities in foreign markets. The study of Oviatt and McDougall (2005) states that these intermediate as "broker" who provide the link between buyer and the seller. In respect to intermediary relationships, local government also plays an important role where providing networking and internationalizing support for local companies with potential foreign markets. For instance, Business Finland act as a public actor that provides financing and foreign market area expertise for Finnish firms in various stages of internationalization. Also, FiBAN, a non-profit organization who provides support for Finnish firm’s internationalization. This is one of the effective ways of networking for born globals who have limited or zero networking capabilities in unknown markets.

On the other hand, social networks are more useful for early internationalization for SMEs, since personal networks might not provide reliable information all time when compared to professional ties (Goerzen, 2007). However, different authors have many views of social networks and internationalization speed as some argue that internationalization speed depends on how capable firms connected themselves with global communities (Gassmann & Keupp, 2007) whereas some others stated that sometimes it may negatively affect internationalization speed with having larger and extended social networks (Zhou et al., 2007). Nevertheless, those networks considered as quite

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trusted and allow owner to acquire knowledge on international markets (Peng & Heath, 1996).

Accordingly, Zhou et al. (2007) those social networks are positively benefited to accelerate the internationalization and lead to obtaining better performance in foreign markets. The authors highlighted three benefits of having social networks. For instance, those networks help firm to gain information about international market opportunities, get assistance and experiential learning, and also obtain trust and solidarity referrals.

However, in this digital era network effects are most visible in platform business than entrepreneur's social and business networks. Can you ever imagine Uber start operation without owning a single car and Airbnb start the business without even a single room? But, those businesses are valued in trillions today. The reason is the power of the platform and its network effects. Positive network effects are the main driver for value creation and competitive advantage of the platform business (Choudar et al., 2016). Therefore, it is understandable that digital platforms leverage network effects (Monaghan et al., 2020) to grow in foreign markets. This idea is not new or only for digital firms, because networks are relatively important to both traditional and non-traditional firms. The reason is that platform is consisting of a both domestic market, and foreign markets portfolio of users. Therefore, network effects are considered as key factor in the rapid internationalization of digital firms.

Moreover, there are numerous studies in this area explored how networks influences internationalization speed and intensity (Zhou, Wu, & Lou, 2007; Dimitratos, Plakoyiannaki, &

Pitsoulaki, 2010). However, the relationship between networks and internationalization scope received less attention on how firms enter into multiple foreign markets through networks.

However, Felzensztein et al. (2015) highlighted that firms are mainly focus on multiple foreign markets as they utilize both formal and informal networks. Those studies show that networks can help firms expand to more foreign markets as part of their internationalization strategy (Coviello, 2006; Jack, 2008; Dimitratos et al., 2010). Moreover, the studies of Zahra (2005) and Dimitratos et al (2010) explain that building a large range of networks helps the rapid internationalization of SMEs and at the same time enter into multiple markets.

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Nevertheless, Oviatt and McDougall (2005) propose three factors that influence the speed of internationalization. First, they argue that the strength of network ties is important as strong network ties are more durable, trust and need emotional investments whereas weak ties require fewer investments but yet friendly. Second, the size of the network which has both positive and negative impact on internationalization. The third factor is overall density of the network also important for rapid internationalization.

Furthermore, Oviatt and McDougall (2005) also propose three outcomes of having the direct or indirect cross-border ties influence the speed of venture internationalization positively. First, the authors argue that a firm can initially enter into foreign markets with high speed if the owner/manager has established both formal and informal networks once they discover an opportunity. Vice versa, internationalization speed might be slower if those ties are not established yet. Secondly, if the entrepreneur has a large network that leads to faster internationalization with the possibility to enter into more international markets. The third point here the author's highlight that is, strong cross- border networks provide support for internationalization since successful business operations mostly depend on the reliable interaction between the different actors in multiple foreign countries. Therefore, it is clear that established networks helps entrepreneurs to internationalize rapidly rather than those with no or low networking capabilities (Oviatt &

McDougall, 2005).

Entrepreneur specific factors

As described in the previous section, an entrepreneur's networking capability may lead to rapid internationalization. Hence, the entrepreneur plays a key role in business in an internationalization context as well as in terms of creating ideas to set up a business. In this respect the importance of an entrepreneur has been dealt in many studies that entrepreneur's international mind set, networks, capabilities, and experiences have a positive relationship with the international development of a company (Cao & Ma, 2009). The study of Morris and Lewis (1995) focuses on develop personal characteristics that leads to internationalization since there is a strong relationship with those characteristics with internationalization of SMEs. In this respect, authors refer that entrepreneur needs to develop such personal characteristics as having education and working in foreign countries, rich travelling history in multiple countries, foreign birth, multilingual (Simmonds &

Smith, 1968; Ditch, Kondo, Koglmayr, & Muller, 1984). For instance, people who lived abroad

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have a more export-orientated mind than others who don't live. Reuber and Fischer (1993) argue that although small firm in size move forward towards rapid internationalization if the top- managers have relevant international experience and those firms quickly adopt the multiple markets than their competitive firms. These capabilities can be considered as one of their main competitive advantages when approaching international markets.

But on the other hand, although the entrepreneur has all kinds of capabilities, it is important to identify their resource constraints (Laanti et al., 2007) especially in the initial stages of BGs (Gabrielsson et al., 2008). Yet, if entrepreneur has prepared with relevant qualities such as past experience, foreign education, foreign languages knowledge, and sufficient competencies may influence the internationalization speed and scope of the firms. Here the main idea is that prior experience about international markets supports entrepreneur to acquire experiential knowledge about international markets (Johanson & Vahlne, 1977).

In the study of Cao and Ma (2009) among plenty of factors affecting to fast internationalization of BGFs, entrepreneurs international experience is more significant when entering into foreign markets. These experiences include establishment of personal and business contacts abroad to get reliable information about foreign markets opportunities specially in the start-up stage. Moreover, network-specific factors as discussed in earlier section, is crucial for speed, precocity and niche positioning. In this respect, some entrepreneurs who found interesting companies like Airbnb, Uber, and Spotify continued to work through their capabilities which led succeeded in internationally and achieve rapid growth.

Entrepreneur and networking

Another aspect of entrepreneur-specific factors about internationalization is the networking capabilities of the entrepreneur/owner which is already discussed in the earlier section. However, it is important to discuss this area specifically with internationalization speed and scope.

International entrepreneurship has gathered special attention in the international business field as some authors highlighted the importance of size of the network towards internationalization. For instance, when entrepreneur has larger network leads to diverse internationalization (Coviello, 2006). The interesting finding is a firm with smaller teams (less than 3 people) do not have diverse networks hence few opportunities to expand their operations to outside the cluster but on the other

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hand, a firm with larger teams (more than three people) have more diverse networks whereby expand globally instead of serving domestic market (Felzensztein et al., 2015). The underline meaning of this finding is firms with larger teams use their networking abilities and led the owner to use those networks and information in foreign markets that hamper to expand to many regions.

On the other hand, Coviello (2006) argues that new firms do not necessity to follow gradual internationalization process if they can utilize their networks to grow as age doesn’t define the performance in international markets.

Furthermore, previous studies highlighted how entrepreneurial factors drive internationalization speed. For instance, innovative firms are expanding internationally quickly because technology play vital role in their internationalization process (Nassimbeni, 2001; Weerawardena et al., 2007;

Golovko & Valentini, 2011). The same idea is proved by Ramos et al. (2011) that technology supports in internationalization speed where by attracting external resources. On the hand, entrepreneurial behaviour in respect to opportunity-seeking accelerating the internationalization.

For instance, entrepreneur capabilities for identify opportunities in international markets, quick adaptation and establishment of relationship seen as influential factors for faster internationalization (Mort & Weerawardena, 2006; Karra et al., 2008).

The entrepreneur more likely to utilize their previous business experience to seeking new foreign markets. The ability of identification of risks in foreign markets, owner's international orientation, having international vision from the inception, and there by building connections (Ruzzier et al., 2006; Perks & Hughes, 2008) also act as enables for internationalization speed since the entrepreneur is central role for building and sustaining networks.

International business competence

Apart from networking and entrepreneur's international orientation in respect to rapid internationalization, some other authors also explored several other reasons. Accordingly, some authors explained how firms internationalize faster than others even without enough resources (Knight & Cavusgil, 2004; Gassmann & Keupp, 2007; Laanti et al., 2007). They argue that those firms primarily develop critical capabilities for early and accelerated internationalization. For example, the innovation, market access, distribution channels, and finances. The same idea is supported by Knight and Kim (2009) who argue that international business competence is key

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factor for rapid internationalization which consists of “international orientation, international marketing skills, international innovativeness, and international market orientation”. All those factors are considered as significant and act as positive contributors towards international performance of SMEs.

Therefore, it is understandable that firm's internal capabilities and competencies heavily contributed towards the succeed in international markets (Zahra, Ireland, & Hitt, 2000; Knight &

Cavusgil, 2004; Wu, Sinkovics, Cavusgil, & Roath, 2007). In this respect, firm has to develop appropriate internal capabilities to succeed in foreign markets than its competitors. According to Autio et al. (2000) those SME's avoid domestic orientation and adopt an international mind-set instead where they understand the global market as firm's market, embedding the culture and international business.

In the present scenario, international business competence is considered as a multidimensional concept that describes SMEs should develop a plenty of those competencies to carry out business in international markets more efficiently and effectively. These competencies include acquire of intangible assets, adopt to cultural changes but not limited to learning about international environment and culture and also lead entire organization towards new changes.

The reason why firms need to develop international business competence is those factors affecting internationalization outcome especially firms who see world as a single market place instead of trapped in domestic markets. According to Knight and Cavusgil (2004) firms who have a strong international vision, those who tend to develop unique competencies aimed at achieve foreign market goals, and all their activities, processes, decision-making work towards attracting new markets abroad thereby enhancing firm's performance. Also firm should develop specific competence which is inimitable and matchless by the competitors (Barney, 1991) to maximize their utility in the foreign markets. Those competencies can be marketing skills, innovativeness, financing capabilities. On the other hand, even a firm does not possess enough tangible resources those competencies helpful to succeed internationally (Kim & Knight, 2009).

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26 Digital competence

Apart from the above discussed factors for rapid internationalization of firms, there are other factors can be identified especially in the digital era. For instance, the emergence of digital technologies, the importance of digital firm’s internationalization has increased in today’ business world. In this respect, it is important to understand the key competencies and capabilities of a digital firm that shaping the internationalization process.

Because of digital firms functioning solely through digital marketplaces, digital firms must develop critical competencies to manage their sales digitally, to make available their digital products in multiple international markets through internet (Brouthers et al., 2016). For digital companies, networking capabilities also important factor for coordinate cross –border transactions such as virtual networking (Bharadwaj et al., 2013) to attract new foreign markets and the users.

On the other hand, since digital business models obsolete very rapidly (Amit & Zott, 2001) it is requiring to develop innovative capabilities to face challenges in fast-phased environment (Demil

& Lecocq, 2010; Chesbrough, 2010). This includes doing changes within the organization and the business model itself.

In addition, in the latest study of Cahen and Borini (2020) about international digital competence (IDC), the authors argue that “cross-cultural programming skills, global virtual networks, cross- border digital monetizing adaptability, and international business model reconfiguration” as four dimension of IDC that considered as critical to digital firms. Therefore, the right possession of IDC enables digital companies to expand internationally through an online presence even without building physical presence in foreign markets. Moreover, internet is facilitated faster internationalization by lowering entry barriers including dropping distribution costs, inventory costs, enhance pricing flexibility, and allowing firms to do sales through e-commerce (Samiee, 1998; Gabrielsson & Gabrielsson, 2011).

Therefore, digital companies must improve and holds digital competencies to develop their international sales and identify new opportunities in across borders by utilizing advanced technologies (Chen & Kamal, 2016).

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27 2.3 Business model concept and its definitions

Although business model concept is not new to the international business context, it has recently gained extensive popularity among the researchers and the managers as a helpful tool to understand how to create value, capture value and deliver value (Zott, Amit, & Massa, 2011). However, the concept of business model goes beyond a few decades ago that companies used to pitch their ideas and attract funding especially for internet enabled firms (ex: .com firms). At present, all kinds of companies in every industry recognize the importance of business model hence, the popularity of the concept is increased. However, existing scholars were not able to provide a unified and clear definition to define the business model as plenty of researchers use different terminologies in their perspectives. However, the ultimate idea of researchers about the business model is more or less identical.

In this respect, Teece (2010, p. 172) provided a meaningful definition for business model and what it comprises of "the essence of a business model is in defining how the enterprise delivers value to customers, entices customers to pay for value, and converts those payments to profit".

Accordingly, Zott & Amit (2007) see BM as a helping tool for both start-ups and mature companies, whereby business model supports to take fundamental management decisions. But on the other hand ventures who are in the early stages can design the business idea more easily.

Therefore, the business model is a useful tool to have a better understand about firm’s value creation, delivering and capturing aspects (Osterwalder & Pigneur, 2010).

Simply, BM designing is a systematic process of how firm achieves long-term goals while delivering valuable products and services. A business model looks at several parts and bits of a business and how they come together and it is also about how a company generates money.

According to Magretta (2002) a good BM is defining how a company earn revenue, deliver value to customers, and cost management. A key point here is the business model as useful lens for every firm more than a statement of how "value is created and captured".

The authors like Osterwalder and Pigneur (2005) and Richardson (2008) propose a three main elements of a business model including value proposition (product or service and target customer

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segments) the value creation and delivery which includes key activities, resources, channels, partners and technology of business model and the value capture that describe firm’s revenue and cost streams, new market opportunities and growth model (Figure 1).

Figure 1: A Conceptual Business Model Framework (Based on Osterwalder & Pigneur, 2005 and Richardson, 2008)

Concerning previous literature in respect to business models, the majority of authors talked about value aspects of business model. For example, Anderson et al. (2006) defined BM as how values exchanged between the participants, Kallio et al. (2006) express as firm’s ability to create value by coordinating different actors and Rajala and Westerlund (2005) see BM as a way of creating value for customer. Moreover, many other scholars explained the business model in terms value creation aspect (Osterwalder et al., 2005; Zott, Amit, & Massa, 2011; Ritala et al., 2014).

Therefore, those statements suggest that firms use their BM as a way of creating, delivering and capturing value to end customers.

Even though authors have recognized BM as an instrument for value capture such authors like Magretta (2002) argue that business model cannot help manager to capture value because BM doesn’t help added value to the business or in other words how firm offer totally different value proposition. But on the other hand, scholars like Amit & Zott are in the different opinion from the Magretta that they believe BM definitely able to capture value by considering and careful design aimed to creating added value. Therefore, the disagreement between authors about these statements, confuses the reader on common emphasis of how business model added value.

On the other hand, plenty of authors have been carried out studies in this regard and express their opinions on BM, but still clear-cut definition is not available to identify what is exactly BM and what features or characteristics included in it. After investigating number of business model frameworks, Shafer et al. (2005) developed generally acceptable framework (figure 2) by using existing business model definitions which were discovered by previous scholars (for example the authors evaluated the 12 definitions and 42 business model elements). As a result, the author

Value Proposition Value Creation & Delivery Value Capture

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discovered a model with four groups namely strategic choices, creating value, capturing value, and the value network.

Figure 2 : Components of Shafer's business model affinity diagram (based on Shafer et al., 2005)

Therefore, Shafer et al. (2005) pointed out their study of "The Power of Business Models", although managers aware the importance of BM, still they are confused about how business models work and to explaining the rationality of BM in their own business. This model explains what components actually constitutes in a BM and how business models are used in an effective way.

The question arises why a business model important for a company. As mentioned earlier, BM used to pitch the business idea to attract investments. However, in today's business world every

Strategic Choices

Customer (Target Market, Scope) Value Proposition Capabilities/Competencies Revenue/Pricing Competitors

Output (Offering) Strategy Branding

Differentiation Mission

Create Value

Resources/Assets Processes/Activities

Capture Value

Cost Financial Aspects

Profit

Value Network/ Deliver Value

Suppliers

Customer Information

Customer Relationship

s Information Flows

Product/Service Flows

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company has BM which reflects the entire idea of the existence of a business and where should they want to go. Therefore, the importance of BM is increasing more than in previous days.

The importance of the business model

Apart from several other factors influencing the rapid internationalization, an emerging concept of business model is found from the BG's internationalization (Hennart, 2014; Bouncken et al., 2015).

Many scholars have identified the importance of a business model for a company to thrive in the multiple markets as Rask (2014) and Kraus et al (2019) states that business model innovation influences the rapid internationalization. Therefore, the role of the business model in respect to internationalization is a newer and emerging concept in the international business literature.

Hence, this chapter uses to identify the importance of BM and digital BM elements concerning the internationalization outcome of the firm.

For instance, Magretta (2002) argues that a good business model is vital to every organization no matter it is new player or well-known one. This statement indicates that a firm need to have a workable business model to achieve its long-term objectives. Magretta (2002) further argues that BM should design to get solutions for how do company makes money and how to deliver values to customers at a suitable cost. Also, the author argues that a “good business model begins with an insight into human motivations and ends in a rich stream of profits” (Magretta, 2002).

Concerning the business model strategy of a company with their internationalization performance, digitalization plays a vital role as to how digitization has a potential impact on deciding internationalization strategy for a company such as timing, pace, entry mode, foreign market scope, and also the ﬁrms' ability to manage the outsidership and the liabilities of foreignness. A competitive strategy of a company explains how do your company performs over your rivals. For example, if all companies have the same set of strategies no company will survive in the long-run.

Therefore, every company should have its own business model that can be converted into a strategy in order to succeed in the local and the international markets (Magretta, 2002) for an example. On the other hand, having a good BM is not enough but it should replicate the changes in internal and external environmental factors.

However, with the rapid development of digital business everywhere in the world, digital business managers have big responsibility to develop BM to acquire appropriate information and adopt

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those digital technologies in their BM which has become a necessity than a choice (Remane et al., 2017). This explains why BM concept has gained widespread importance with the emerging IT- centred companies (Osterwalder et al., 2005).

For this reason, the existing business model designs do not sufficient enough to accommodate above characteristics, and the most of business model frameworks belonging to the traditional businesses (ex; the BM canvas by Osterwalder & Pigneur, 2010). However, El Sawy and Pereira (2013) incorporated digital BM characteristics fit into their VISOR framework which is specifically develop for digital business models.

Features of digital business models and impact on internationalization

According to Veit et al. (2014) a business model can be defined as digital one if digital elements play a vital role in the value dimensions. Therefore, distinguish characteristics of the digital business model from the traditional BM is digital elements leverage in the business model. The specific characteristics of digital business models are discussed by Remane et al. (2017) in their study. First, digital products and services can be re-produced at zero marginal cost compare to non-digital products (ex: applications in smart phones), and increasing the value as many as users join the platform (social media platforms i.e FB, IG, Twitter) (Shapiro & Varian, 1999). The second characteristics is digital business created value within the firm and sell it to customers where value can be defined when uses the product (Vargo & Lusch, 2008). Third characteristic is digital BM solely rely upon digital platforms (Iansiti & Levien, 2004).

In this VISOR framework (figure 3) for digital business model define what characteristics should include in the business model especially in digital firms. For instance, value proposition identify value and maximize the customer’s willingness to pay. Interface refers to user experiences of product or service usage. Then the service platform define how value network operate to deliver created value to its end users. Organizing model is relationship between different actors in the ecosystem and finally, the revenue model determines how to generate value, cost structure and maximizing profit.

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Figure 3 : VISOR Framework for digital business models (based on El Sawy & Pereira, 2013)

Accordingly, there are various types of digital business models are used by the companies including hidden revenue generation model, e-commerce model, freemium model, subscription- based model, two-sided marketplace model, etc. Hence, the digital business models leverage the digital elements to improve several aspects of the organization. For instance, digital elements help to identify how customers interact, how value creation is derived, and how monetization happens, etc. Therefore, organizations require to adopt those technologies to succeed in their business domains as well as business processes. On the other hand, technology supports companies to competitive position in the both domestically and globally whereby enhancing their ability to

Value proposition for target customer (why customer willing to pay for a specific

product)

Revenue/cost model (distribution of revenue and the costs among the eco-system participants) among the ecosystem

participants.

Interface (user experience of the products and services)

.

Organizing models (interaction between actors

of the platform)

Service platforms (products and services delivery

platform)

Driving Internationalization Through Digital Business Models

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