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Cooperation with multinational companies hampers internationalization of co-located start-ups

Prof. Dr. Suleika Bort studied the influence of multinational companies on the internationalization behaviour of co-located start-ups – with publication in an international top-journal

To enter international markets is - for many start-ups and small- to medium-sized enterprises (SMEs) – a step which is often associated with major challenges due to resource constrains. Large Multinational companies (MNCs) in contrast usually have a greater understanding of how to enter and compete in foreign markets. Researchers from Chemnitz, Mannheim and Tel Aviv have investigated how this understanding impacts the internationalization behavior of co-located start-ups.

In her study, entitled “The influence of MNCs on international alliance formation behavior of co-located start-ups”, Prof. Dr. Suleika Bort from the Chair of Organization and International Management, along with colleagues Barak Aharonson (Tel Aviv University) and Prof. Dr. Michael Woywode (University of Mannheim), investigated how and under what circumstances the internationalization of start-ups and KMUs is influenced by cooperation with MNCs. The article recently appeared in the renowned international journal “Organization Science”.

Generating knowledge via learning by proximity

“We examined the conditions under which MNCs serve as role models for start-ups and KMUs,” explains Prof. Dr. Bort. This process is also referred to as “learning by observing others” – a process where an observer learns from the actions and consequences of a role model, rather than results from their own experiences. “Learning observing others”, means, for example, observing the behavior of other firms that are located in close proximity. Yet, the precise conditions of this learning processes and what kind of firms serve as potential role models are unclear. “The aim of our research is to study how start-ups can learn from observing other firms – in our case MNCs” says Bort.

Practical knowledge via interviews with industry experts and companies

The international research team studied the actions of 960 German biotech start-ups within 19 German biotech industry clusters. To do so, they compiled data from a variety of sources, including the yearbooks from the German biotech industry. The researchers then identified active biotech companies as well as domestic and foreign MNCs that are located in Germany. The German Commercial Register (Deutsche Handelsregister) as well as press releases and news articles were also used to identify the cooperations and to determine various legal aspects of the start-ups, such as founding, mergers, acquisitions and locations.

The research also includes expert opinions and practical expertise – as a part of the study, interviews with industry experts and companies in the biotech sector also took place. “This allowed us to better understand not only the motivations, but also the challenges, that play a crucial role in the internationalization of start-ups,” says Bort.

Internationalization is not always supported by MNCs

The study reveals that cooperating with co-located MNCs does not always result in accelerating the internationalization behavior of start-ups and KMUs. Smaller companies often see cooperation with multinational firms as a replacement for their own internationalization – and thus they tend to stay away from a direct expansion of their entrepreneurial activities beyond national borders.

In addition, the researchers are investigating other factors that might influence this phenomenon, such as how strong the MNCs are in regard to their research spending, and whether different results arise depending on the firms being headquartered in Germany or abroad.

The location of the MNC is crucial

Overall, the study shows that the internationalization behaviour of start-ups and KMUs is not only influenced by other start-ups and KMUs, but also MNCs in the region. Start-ups can use experience and knowledge from other nearby organisations. This can help promote behaviour that impacts the formation of international alliances. Yet, this relationship depends on whether the MNC is domestic or foreign. Thus, there are different effects how firms learn by observing other firms.

The researchers were quite surprised by one result: The more the large MNC and the small co-located start-up work together, the lower the chance that the start-up will internationalize via the formation of international alliances. “Start-ups should therefore carefully consider how many MNCs they are cooperating with,” explains Bort. “They must be prepared for the fact that this could hamper their own direct internationalization behavior.” This applies as well to cooperation with foreign MNCs: Cooperation with foreign MNCs means that start-ups give less direct effort to internationalization.

Publication: Aharonson, B., Bort, S., Woywode, M. (2020). The Influence of Multinational Corporations on International Alliance Formation Behavior of Colocated Start-Ups. Organization Science, https://doi.org/10.1287/orsc.2019.1315

For further information, please contact Prof. Dr. Suleika Bort from the Professorship of Organization and International Management, Phone 0371 531-34906, E-mail suleika.bort@wirtschaft.tu-chemnitz.de.

(Author: Julia Henkel / Translation: Jeffrey Karnitz)

Mario Steinebach
10.03.2020

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