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Weekly UpdatesOther common barriers to entrepreneurial firm internationalization are the perceived financial and political risks (Bhattacharya and Wheatley, 2006; Lu and Beamish, 2001; Rothaermel et al., 2006). "Perception of opportunity" and "social legitimacy," as measured in the GEM research (Reynolds et al., 2000), may be viewed as the flip side of the "perceived risk" factor examined in this study. Indeed, people's feelings regarding the availability of opportunity (i.e., a sense that the reward will be worth the risk) is most likely related to their perspectives regarding the riskiness of venturing (i.e., a sense that the reward is not sufficient to offset the risk). Further, GEM's "social legitimacy" construct speaks to the "personal" or "social" risks confronted by nascent entrepreneurs. Therefore, entrepreneurs who do not sense an opportunity in a foreign market (or perceive inordinate risk in the venture or to their social status) will be unlikely to expand internationally.
Recent research suggests that internationalizing SMEs have higher risk tolerances than non-internationalizing SMEs (DeClercq et al., 2005) and these tolerances are associated with the ownership positions of the firm's top management team (Arbaugh et al, 2005; George et al., 2005). Since differences in national culture often exert significant influences on potentially risky activities related to entrepreneurship (Steensma et al., 2000; Zahra and George, 2002), it is likely that such differences may influence firms to perceive these markets as risky and therefore discourage internationalization (Rothaermel et al., 2006). These arguments suggest the following hypothesis:
Hypothesis 2: The entry barriers of knowledge differences, cultural differences, and perceived risk will be negatively associated with an entrepreneurial firm's degree of internationalization.
METHODS
Sample
This study used data from the 2001 International Survey of Entrepreneurs. This survey was co-developed by the Kauffman Foundation, Ernst & Young LLP, and the Entrepreneur Of The Year[R] Institute (the study's second and third authors were affiliated with the Kauffman Foundation when these data were collected). While each country is given some latitude with the specific procedures it follows and the criteria it utilizes in selecting its respective Entrepreneurs Of The Year[R], all nominees are carefully screened and all financial statements are audited for veracity. Ernst & Young's Entrepreneur Of The Year[R] finalists may nominate themselves for this award or be nominated by others. Either way, the information included in their nomination packet (including personal background and company financial information) is first verified by Ernst & Young, and then vetted through personal interviews and at least two rounds of evaluation by former winners serving as judges. On the surface, there appear to be differences in the judging criteria of the various countries (e.g., in this sample, the French seem to favor profits, while the Germans prefer sales growth). Yet the end result is an impressive cohort containing founders and/or CEOs of arguably the most innovative and admired companies in the world. Having risen to the top of a highly competitive field of nominees through a rigorous and independent selection process, they and their companies would unquestionably be considered "entrepreneurial" by the casual observer. Personal characteristics and situations are factored into the judging process, but firm performance is critical to being named "Entrepreneur Of The Year."
The authors recognize that a sample frame featuring Entrepreneur Of The Year[R] finalists is unusual in the entrepreneurship literature. These subjects are certainly an elite group, and using them begs questions regarding range restriction and relevance. However, there are compelling reasons to investigate the perceptions of proven entrepreneurs. Further, certain features of the Ernst & Young[R] selection process make this particular group an ideal subject pool for this research. The Entrepreneur Of The Year[R] awards program is a highly structured international endeavor. Although the competition included no countries from South America, and only one each from Asia (India) and Africa (South Africa), it was a high-profile enterprise in seventeen nations. Thus, it provides a convenient means for reaching a multi-national sample of entrepreneurs who might otherwise be impossible to investigate.
More importantly, the selection of this sample is justified from a theoretical perspective. All firm-level, empirical, entrepreneurship research must explain why its subjects should be considered "entrepreneurial." However, samples utilized to date in entrepreneurship research are based most often on convenience factors such as size, age or industry--characteristics that are not theoretically linked to entrepreneurial orientation (Carland et al., 1984; Davidsson, 2005; Ireland et al., 2001). The qualities of innovation and growth orientation, on the other hand, are widely accepted in the literature as key distinguishing features of true entrepreneurship. The purpose of the Entrepreneur Of The Year[R] awards program, now nearly two decades old, is to nominate and recognize innovative, growth-oriented entrepreneurs and their firms. It provides a means for independently validating the entrepreneurial orientation of the firms included in this research. It also ensures the veracity of the financial data reported by the interviewees. As a result, the advantage of this sample is that it is not a narrowly defined list resulting from the application of a single criterion. Rather, it represents the gestalt of entrepreneurs themselves who are attempting to identify and select the best from among themselves. Therefore, we can say with confidence that Entrepreneur Of The Year[R] finalists are indeed "entrepreneurs" and that the performance measures utilized in this research are accurate. Finally, we argue that the imperfections inherent in the sample frame are ultimately not detrimental to the research. Since the purpose of the study is to test an accepted instrument across multiple countries, the sample need not be representative within each country. Rather, all that is required in a study such as this is that the sample be theoretically defensible and consistently derived across contexts. This sample clearly satisfies these two criteria.
Measures
Our dependent variable was the extent to which the firm's operations were internationalized. Since some international business researchers have expressed that a multi-dimensional measure of internationalization captures a firm's international orientation more completely than the single-item foreign sales/total sales ratio (George et al., 2005; Reuber and Fischer, 1997; Sullivan, 1994), we used the mean of three items to develop our measure of firm internationalization: the foreign sales/total sales ratio, the firm's percentage of total capital placed outside their headquarters' country, and the firm's percentage of employees permanently located outside their headquarters' country (e.g., Tallman and Li, 1996). The reliability alpha of these items was .79.
To test the domestic success argument, we used firm performance as a predictor variable. Consistent with previous international entrepreneurship research (Baird et al., 1994; Gilbert et al., 2006; Preece et al., 1999), we captured firm performance by growth in sales and value created, measuring percentage sales growth and the change in the firm's net worth over the three most recent years.
Our measures for entry barriers were twelve survey items based upon the characteristics identified by the GEM studies that deterred international expansion. These characteristics included culture and language differences, availability of qualified employees, economic instability, access to investment, and lack of potential partners. Factor analysis revealed three factors: knowledge differences (six items, coefficient alpha = .79), cultural differences (six items, coefficient alpha = .80), and perceived risk (three items, coefficient alpha = .81).
We controlled for effects related to industry and the firm's size,
age, ownership, and location. Since the use of the Standard Industrial Code (SIC) is applicable only to firms in the U.S., we measured industry sector using nine different categories as follows: (1) Information Technology/Software, (2) Manufacturing, (3) Construction, (4) Telecommunications Services, (5) Entertainment, (6) Financial Services/Insurance, (7) Retail, (8) Wholesale Trade, and (9) Other. We created dummy codes (1, 0) for each of these categories, leaving "Other" with a "0" designation. To account for conditions at the beginning of the study period, firm age and the firm's number of employees at the beginning of the study was used as a measure of the firm's size (Chandler and Hanks, 1994). Since recent research suggests that the involvement of outside investors encourages the internationalization of entrepreneurial firms (George et al., 2005), we also created a dummy variable to identify whether a firm was publicly held. Finally, we controlled for effects related to country location by creating a dummy variable that compared North American firms with the rest of the sample.
Normality for this study's variables was established by evaluating the data distributions for skewness and kurtosis. Based on the results of these tests, measures for sales, net worth, and number of employees were adjusted with a 10% winsorization. This process replaces outlying ratios with values from the tenth and ninetieth percentiles of the sample population (Kennedy et al., 1992). It is favored over other techniques because it allows observations to be retained in the database and accounts for negative numbers. A variable was winsorized whenever its skewness or kurtosis was greater than 3.0.
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