34 th EIBA Annual Conference Tallinn, December 2008 Internationalization of entrepreneurial start-ups in a transition environment Jerzy Cieślik Eugene Kaciak Kozminski University, Poland Brock University, Canada

2 Objectives Examine the speed of internationalization of entrepreneurial start-ups in Poland during 1989 – 2003 transition period. Two dimensions of speed are investigated: 1. Export Readiness – time distance between company establishment and the first export sale 2. Export dynamics – export growth over time

Methodological issues in the management and IB research in the CEE region  Weak empirical base  Strong Western focus  Lack of indigenous context, particularly the impact of radical systemic change after

Our approach Advancing indigenous, context-sensitive research on transition economies First establish facts, trends, and patterns (inductive approach) Formulate research questions relevant to a particular context Statistical longitudinal analysis based on large micro data set of approx. 60,000 exporters during Assess the explanatory power of established theories Seek for alternative concepts or extensions of existing models 4

Transition and Polish exports: A microeconomic perspective

Exporting start- ups in the Polish manufacturing sector 1989 – 2003 Category Number of firms % of the total number of firms % of the export turnover Instant Exporters8, Quick Exporters5, Late Exporters4, TOTAL18,

Key findings derived from the statistical analysis – Step I  Subsidiaries of MNCs – powerful, dynamic players in the internationalization process under transition  Sizeable private sector under communism playing marginal role  New entrepreneurial start-ups becoming exporters immediately after foundation  Late exporters quite rare and insignificant 7

Searching for theoretical explanations  Limited explanatory power of the above patterns by the existing management and IB theories  Extension of Shapero’s model of entrepreneurial event (1982) combined with Jones & Coviello (2005) internationalization behavioural process model yields promising results - analysis not included in this paper 8

Key empirical findings on export growth - Step II  Polish exporters are highly diversified in terms of export growth rates  Majority remained marginal exporters in terms of transaction volume  Only 5.5% of firms were high-growth exporters, contributing 27 % of the total export volume (annual growth rate over 20% in constant prices) 10

Methodology  We hypothesize that high-growth exporting firms are those with a long term-international expansion strategy. This strategy is reflected in:  a strong commitment towards internationalization and  building managerial capacity, which is necessary for the implementation of the said strategy.  We used hierarchical linear regression to test our hypotheses and regressed growth in annual export sales against the control and independent variables 11

Hypotheses Commitment to international expansion Hypothesis 1: The time distance between company formation and first export sale is negatively associated with export growth rate. Hypothesis 2: Time distance between launching export sales and reaching annual export volume exceeding minimum threshold is negatively associated with export growth rate. Hypotheses 3: Use of corporate legal vehicles is positively associated with export growth rate. Building managerial capac ity Hypothesis 4: The number of setback years relative to the total export horizon is negatively associated with export growth rate. Hypothesis 5: High volatility of export sales is negatively associated with export growth rate. 12

Key results  All three hypotheses relating to the commitment to international expansion have been confirmed  As to the remaining two hypotheses addressing managerial capacity issues, the regression analysis brought mixed results:  High-growth exporters were more efficient in avoiding temporary setbacks in absolute volumes of export turnover  At the same time, they were confronted with higher volatility of growth rates over time compared to their slow-growing counterparts.  The latter finding may lead to the conclusion that volatility in growth rates represents a major and still unresolved management bottleneck among Polish high-growth exporters. 13

Initital policy recommendations The finding that a newly established firm becomes an exporter predominantly during the initial phase calls for significant adjustments in export promotion programs: 1. Rather than providing support for smaller existing firms, the relevant measures to enhance international orientation should be focused on those entrepreneurs who plan to start a new business or are at an early stage of the formation process. 2.This can be accomplished, inter alia, by expanding the international business and entrepreneurship courses in various educational programs aimed at fostering entrepreneurial activities. 14

Concluding remarks  Longitudinal analysis based on large data set useful  Revealing context-specific trends and processes  Formulating valid research questions  Obvious limitations – large number of firms but narrow scope of availabla data  Remedy: dataset used as „research springboard”  Targeted case studies and questionnaire surveys 15

16 Questions & Answers Discussion