Intangible assets in the process of internationalization

Vast majority of studies on the influence of structural assets on internationalization employs R&D intensity in modeling the potential impact. Teixeira and Coimbra [2014] studied how R&D intensity and patents registered influence the speed of internationalization on the sample of Portuguese university spin-offs (USOs) from different manufacturing firms. Study revealed that high R&D-intensive USOs perform low pace of internationalization, what stays strongly in contradiction to the theory of born globals/INVs. Possible explanation is the structure of R&D financing in the case of USOs, as these entities tend to spend many years on publicly financed/subsidized R&D activities before they decide to enter the market with their products [Pettersen and Tobiassen, 2012]. Long technology development and commercialization cycle leads to slow pace of internationalization and combining with the low sales levels leads to high R&D intensity ratios, thus providing bias results. Moreover, the authors found no link between number of registered patents and internationalization speed. However, Filatotchev and Piesse [2009], using a longitudinal, multi-industry, and multi-country data set (four European nations: UK, France, Germany, and Italy) found that the level of accumulated intangible assets fosters the R&D intensity (measured by the R&D expenditures as a percentage of sales) which in turn positively influences export intensity (international sales/total sales). Study was conducted on the sample of newly listed firms and the link was analyzed with regard to post-flotation R&D expenses. In this sense, findings support a capability-based view of internationalization [Autio et al., 2000; Sapienza et al., 2006], which indicates that internationalization decisions of newly listed firms (aimed at expanding their growth potential) are driven, ceteris paribus, by their ability to invest in knowledge development and innovation. The authors also found that R&D and export orientation have a combined effect on firms’ growth on the basis of mutually enforcing phenomenon. Similarly Li et al. [2012] on the sample of US small technology-based enterprises (STEs) found a significantly positive linear impact of R&D expenditures on the early internationalization of STEs. Same conclusions were driven by Rodríguez and Nieto [2015] who found that R&D expenditures are positively linked with export intensity (export revenue/total sales) of Spanish knowledge-intensive business services firms. Operationalizing R&D intensity as R&D spending/sales ratio and expanding the model by innovation output (as forms of innovation according to Oslo Manual) were conducted by Cieślik and Michałek [2018] who on the sample of Visegrad countries stated that not only R&D spending positively affects the probability of exporting but it also affects the emergence of process innovations. However, what is interesting, product, management, and marketing innovations appeared not to be significant in terms of export likelihood in the studied sample. Valuable approach was performed by Altomonte et al. [2013] who using a large sample of firms from developed Europe countries studied how R&D financial incentives and R&D-related tax allowances impact the probability to export. The authors found that innovative firms (ones that benefited from R&D incentives and/or R&D tax allowances) are more probable to internationalize, although in a non-monotonic manner (the effect of innovation tends to decrease once the firm is already involved in three or more foreign activities). Moreover, internationalization intensity is dependent upon the level of innovation intensity, which is the greatest around the median quintile (0.33) of innovation intensity.

Study referring to the more general technology capture was conducted by Éltető and Udvari [2018] on the sample of Hungarian SMEs. Based on the questionnaires, the authors found that technological development is an important facilitator in the process of internationalization. Similarly, Danik et al. [2016] stated that innovativeness is one of the most important reasons for setting up the born global firm.

Concerning other forms of structural capital, the resource-based view considers brand image as a significant intangible asset which leads to competitive advantage of the firm [Wernerfelt, 1984]. In this view, firms should invest in promotion and brand recognition of customers. Li et al. [2012] studied the role of advertising spending in the process of early internationalization on the sample of US STEs. However, the authors did not find significant correlation. The study by Panda and Reddy [2016] on the sample of Indian banks revealed as well that advertisement and branding expenses were negatively correlated with all the measures of internationalization (in this particular case, due to industry-specific features operationalized as international advances intensity, international borrowing intensity, and number of countries served). It should be then understood that the less banks spend on branding and advertisement the greater their level of internationalization.

Panda and Reddy [2016] studied the impact of human capital (measured as the number of employees) on the internationalization (operationalized as international advances intensity, international borrowing intensity, and number of countries served) of Indian public and private banks. The authors found that human capital positively impacts the international advances intensity and number of countries served. However, due to the studied industry-specific features (banks as knowledge-intensive services) this result should be treated with cautious, as intellectual capital was simply operationalized as the number of employees. However, as suggested by Sveiby [1997] and Stewart [1999] not all employees possess knowledge and skills of equal strategic importance for the firm and thus they should not be classified as human capital. Cieślik and Michałek [2018] found that the share of tertiary education graduates in productive employment is positively related to the probability of exporting. In terms of export intensity, Éltető and Udvari [2018] on the sample of Hungarian SMEs found that language skills enhance successful internationalization. Using the sample of Spanish SMFEs, Almodóvar et al. [2016] investigated how R&D Staff ratio and weighted average education level impacts the internationalization (export intensity). The authors found that there is a S-curve association that implies that in the case of employee education a positive effect is generally observed on internationalization with the negative influence in the second stage that may be explained by the temporary effect of the liability of outsidership, when time and efforts are needed for adaptation. Moreover, with regard to the S-curve association between R&D Staff and internationalization it was observed that low and high human asset quality levels foster, while medium hinders the process of internationalization. This phenomenon may be explained in a way that having more R&D Staff is not effective due to limited management capabilities especially in smaller, entrepreneurial companies (SMFEs) and thus trade-off must occur between monitoring employees working on innovations versus active in international market.

The role of human capital in the process of internationalization was also studied by Onkelinx et al. [2016] on the sample of Belgian manufacturing SMEs. The authors analyzed the impact of education and wage levels of the employees on two possible paths of internationalization: accelerated (associated with born globals) and gradual (typical for Uppsala model). It turned out that only in the case of rapid internationalization investments in human capital positively influence export intensity. However, the positive impact is observed up to a point, after which additional investments are negatively associated with internationalization, thus the findings suggest a curvilinear (inverted U) association between the level of human capital and the firm’s export intensity. As stated earlier, in the case of gradual path of internationalization, a significant association between the accumulation of employee human capital and internationalization was not observed which can be explained in a way that gradual internationalization enables firms to gather knowledge learn from their past experiences and utilize it during the next market entered. In this sense, gradual internationalizers do not pursue a strategy of hiring highly educated, experienced, and productive employees. They rather tend to maintain their level of human capital.

Brambilla et al. [2012] on the sample of Argentinian manufacturing firms indicated that companies trading with high-income countries hired greater numbers of skilled workers and paid them higher average salaries than other exporters (to non-high-income countries) and domestic firms.

Baier-Fuentes et al. [2018] studied the role of university or postgraduate education, entrepreneurial experience, and risk perception in the process of rapid internationalization among the Spanish and Chilean entrepreneurs. The authors found that in both contexts, entrepreneurs who have obtained a university or postgraduate education are more likely to rapidly internationalize their companies (similar to previous studies). Concerning the impact of entrepreneurial experience, the results were significant neither for Spain nor for Chile. In terms of risk perception, only the Chilean entrepreneurs provide evidence on the link between less fear of failure and rapid international activity. No such relation was observed for Spanish entrepreneurs. Arte [2017] analyzed the role of international, entrepreneurial, and industry experience in the process of internationalization. With the help of direct interviews with Indian firms, the author showed that international experience (measured as entrepreneurs living in foreign countries) was found to be an important factor for most firms in taking the decision to internationalize. International experience provided entrepreneurs with practical market knowledge and helped them in identifying key business opportunities. In turn, industry experience appeared to be significant for most of the studied firms. The author also observed that market and technological knowledge are key drivers of new ventures internationalization what is in line with the learning perspective of internationalization [Barkema and Vermeulen, 1998]. The role of firm founders’ previous experience was confirmed as important enhancer of establishing a born global firm by the study of Danik et al. [2016] on the sample of Polish companies.

Lafuente et al. [2015] studied how managerial studies, labor experience, presence of an entrepreneurial team perceived risk influence probability of export entry and export sustainability. Based on the sample of Romanian SMEs, the authors stated that likelihood of export entry is only statistically significant by completion of management studies and existence of entrepreneurial team, whereas probability of export sustainability is influenced only by labor experience. Perceived risk appeared not to be statistically important neither in the case of export entry nor in export sustainability. In contrary, Teixeira and Coimbra [2014] stated that the founders’ entrepreneur’s education (technology-related skills) affect positively and significantly the pace of internationalization (measured as the time lag between the founding of the firm and the firm’s first international operations). The authors concluded that there is no relation between experience of the founding team and speed of internationalization. However, Li et al. [2012] indicated that the impact of international experience has inverted U-shaped relationship with early internationalization which suggests that small and inexperienced STEs tend to internationalize earlier than their relatively larger and more experienced counterparts. In this sense, the authors argued that in contrary to general belief, larger companies do not internationalize more intensively than the small ones and less experienced. Although this finding is interesting, it must be stressed that such phenomenon may apply only to high-tech industries which markets are more dynamic and experience greater risks due to more frequent technological disruptions. In this sense, smaller firms are more flexible and thus more effective in conducting rapid actions in response to market opportunities and threats.

Hitt et al. [2006] on the sample of largest US law firms found that the level of human capital (operationalized by three measures: quality of law school attended by partners, average experience of the partners in a focal firm, and total partner experience in the legal field averaged across the partners in the focal firm) is positively related to the degree of internationalization in the form of FDI. Moreover, the authors stated that corporate client relational capital (measured by number of large corporate clients, international diversity of these clients, and the continuity of the relationships) serves as a base for internationalization when a firm has strong human capital.

Case studies provided by Bell and Cooper [2015] showed that Canadian SMEs used eagerly relational assets (by utilizing trade and third-party networks in home country), not only to accumulate market and internationalization knowledge but also to (a) shorten the time needed to gain knowledge and experiences and access and deepen market penetration; (b) overcome psychic distance, risk, and limited resource obstacles; (c) influence selection of foreign market, and (d) leapfrog internationalization stages. The significance of knowledge on the foreign market was proved as important enhancer of the export intensity by the study of Éltető and Udvari [2018] on the sample of Hungarian SMEs. Knowledge of foreign markets was proved by Danik et al. [2016] on the sample of Polish SMEs to be a crucial determinant of establishing a born global firm.

Li et al. [2012] investigated if alliances with business partners may foster the process of early internationalization (sample of US STEs). The authors did not find statistical significance. However, Hitt et al. [2006] on the sample of largest US law firms stated that corporate client relational capital (measured by number of large corporate clients, international diversity of these clients, and the continuity of the relationships) serves as a base for internationalization when a firm has strong human capital. However, second studied type of relational asset (foreign government client relational capital, operationalized as the total yearly compensation received from these governments) appeared to be a strong driver for internationalization. This can be explained in a way that while providing services to foreign governments in firm home country, the company gather knowledge on the (foreign) client’s country, culture, and market opportunities abroad. In this way, an information transfer is observed. Moreover, since already existing cooperation with foreign official entity firm’s reputation, especially in the home markets of the governments represented, becomes stronger, the market entry becomes theoretically easier [Ellis, 2000]. Rodríguez and Nieto [2015] found that cooperation between studied firms and other companies or institutions is positively linked with export intensity (export revenue/total sales) in the context of Spanish knowledge-intensive business services firms. Similarly, Baier-Fuentes et al. [2018] found that among the Spanish and Chilean companies, entrepreneurs’ interpersonal networks, entrepreneurial teams, and business angels’ involvement foster the likelihood of rapid internationalization of the firms, however only in the Spanish context. Interesting conclusion was driven by Danik et al. [2016] who observed that in the case of the majority of studied firms the networking activities did not begin immediately right after establishing born global firm, but some years later.

Jardon and Molodchik [2017] studied the impact of intellectual capital components on different stages of internationalization with regard to Uppsala model (stage 1—passive exports, stage 2—exports, stage 3—integrated exports, stage 4—internationalized, stage 5—integrated internationalized, and stage 6—multinationalized) on the sample of Russian firms from different manufacturing industries. In terms of relational capital (operationalized by five different types of cooperation), the study showed a positive influence on all stages of internationalization. These findings stress the importance of cooperation activities in the first line as determinant of internationalization. However, this conclusion may be valid only in the studied context, as Russian firms often have to overcome intercultural barriers existing between Eastern and Western mentalities [Bengoa and Kaufmann, 2015].

Some studies also analyze the role of accounting values of intangible assets and its impact on internationalization. Mohr and Batsakis [2014] found that the ratio of book values of intangible assets to total assets is positively correlated with the speed of internationalization measured as the average number of foreign outlets divided by the number of years since the firm’s first international expansion. In addition, the authors also observed that international experience depth (total number of years a firm has operated in each different foreign country) and breadth (total number of foreign countries in which the MNE has established at least one outlet) positively affect internationalization speed as well. Moisés et al. [2014] on the broad sample of firms from 80 countries found that intangible assets (operationalized as Tobin’s q) are more important for the internationalization process (share of export in total sales) of the born globals than for the Uppsala firms.