How do small software firms use their networks for international expansion?
Small firms need to determine when and how to expand internationally, particularly in the global, fast-growing technology sector. Now considered a classic article, this research examines how network relationships influence the small firm’s approach to internationalization. The focus is on software developers.
What you need to know:
Small software firms should understand and then use their network of relationships to quickly expand internationally. Early ties to larger firms typically influence later choices regarding what markets to enter and how to do so. However, as the small firm gains international experience, they may become more independent, managing their own growth through network expansion. Alternatively, an initial large firm relationship may continue to influence growth in a different way. Although it might provide development funding, some large firm ties will also restrict network development and slow market expansion.
What did the researchers do?
Nicole Coviello and Hugh Munro asked:
- how does the internationalization process of small software firms affect their choice of foreign market and mode of entry; and
- how do network relationships influence these choices?
The pair studied four young software firms in New Zealand to determine their findings.
What did the researchers find?
Small software firms can expand very rapidly, becoming established internationally within as little as three years. To do so, they use multiple and different modes of entry at once, leveraging their network of larger firm relationships. As the small firm’s experience grows, their relationships expand and evolve, potentially leading to a richer international experience and wider market expansion.
As international experience is gained, the small firm can become more independent and take over their internationalization efforts directly (rather than piggy-backing on larger firms). In this situation, the firm typically generates new network relationships which can lead to further organic growth or to acquisition by a firm within or near their network.
Alternatively, a larger firm from their early network may exert control over the small firm, restricting their growth by limiting network expansion.
How can you use this research?
Managers of small firms can use this research to improve their understanding of their global network to determine when and how to internationalize. They should manage their network relationships by better understanding the benefits and risks associated with partnering with other, particularly larger, firms.
Want to know more?
Article citation: Coviello, N., Munro, H. (1997). Network Relationships and the Internationalisation Process of Small Software Firms. International Business Review, 6, 4, pp. 361-386.