Effectuation and Networking of Internationalizing SMEs

Abstract

This paper explores previously discarded phenomena in the internationalization process literature, namely the non-predictive logic of foreign market entry, and employs effectuation theory to examine how small and medium-sized enterprises (SMEs) network during internationalization. It integrates effectuation theory with the revisited Uppsala internationalization process model to understand the unintentional aspect of networking by internationalizing SMEs. The research design is a multiple-case study approach. The findings show how entrepreneurs network with interested partners, instead of carefully selecting international partners according to predefined network goals. Entrepreneurs who network effectually enter markets wherever an opportunity emerges, and commit to network relations that increase their means. Network relations become an integrating point for effectuation theory from entrepreneurship research and the revised Uppsala model from international business. This bridge between the two areas suggests some implications for network research in International Entrepreneurship.

Full text

1 23
Management International Review
Journal of International Business
ISSN 0938-8249
Manag Int Rev
DOI 10.1007/s11575-015-0251-x
Effectuation and Networking of
Internationalizing SMEs
Tamara Galkina & Sylvie Chetty

1 23
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RESEARCH ARTICLE
Effectuation and Networking of Internationalizing
SMEs
Tamara Galkina
1
•Sylvie Chetty
2,3
Received: 31 March 2014 / Revised: 25 February 2015 / Accepted: 26 March 2015
Springer-Verlag Berlin Heidelberg 2015
Abstract This paper explores previously discarded phenomena in the interna-
tionalization process literature, namely the non-predictive logic of foreign market
entry, and employs effectuation theory to examine how small and medium-sized
enterprises (SMEs) network during internationalization. It integrates effectuation
theory with the revisited Uppsala internationalization process model to understand
the unintentional aspect of networking by internationalizing SMEs. The research
design is a multiple-case study approach. The findings show how entrepreneurs
network with interested partners, instead of carefully selecting international partners
according to predefined network goals. Entrepreneurs who network effectually enter
markets wherever an opportunity emerges, and commit to network relations that
increase their means. Network relations become an integrating point for effectuation
theory from entrepreneurship research and the revised Uppsala model from inter-
national business. This bridge between the two areas suggests some implications for
network research in International Entrepreneurship.
Keywords International SMEs Internationalization Effectuation Networks 
International entrepreneurship
&Tamara Galkina
tamara.galkina@hanken.fi
1
Hanken School of Economics, Management and Organization, Vaasa, Finland
2
Centre for Entrepreneurship, University of Otago, Dunedin, New Zealand
3
Research Associate Department of Business Studies, Uppsala University, Uppsala, Sweden
123
Manag Int Rev
DOI 10.1007/s11575-015-0251-x
Author's personal copy

1 Introduction
A large stream of research in International Entrepreneurship (IE) focuses on the
importance of network relations for the successful foreign expansion of small and
medium enterprises, or SMEs (e.g., Chetty and Blankenburg Holm 2000;
McDougall and Oviatt 2000; Young et al. 2003; Jones et al. 2011). Numerous
scholars suggest that networks provide internationalizing firms with various tangible
and intangible resources (e.g., Coviello and Munro 1997; Oviatt and McDougall
1994; Manolova et al. 2010). The strategic thinking behind this resource-based view
of networks implies that partner selection follows the country choice, and is made as
a purposeful response to the objective information gathered with regard to foreign
network structures. The stream of literature on international partner selection also
shows that internationalizing new ventures strategically choose foreign partners
according to their portfolios, fit to the firm (Varis et al. 2005), and knowledge about
local consumers, competitors, and networks (Lu and Beamish 2001).
In contrast, another stream of research provides evidence that the internation-
alization process often lacks strategic orientation (Frishammar and Andersson
2009). The rationale is that decision-making is done under conditions of uncertainty
and goal ambiguity (Gabrielsson and Gabrielsson 2013) and the relationship
component makes this process difficult to predict (e.g., Lee and Brasch 1978; Brown
and Cook 1990; Ellis 2000; Ellis and Pecotich 2001). In employing predictive
rationality concepts, these studies do not go beyond simply admitting the existence
of this phenomenon and describing it in terms of ‘‘boldness in decision making’’
(Moen and Servais 2002, p. 59), ‘‘chance,’’ ‘‘serendipity,’’ ‘‘coincidence’’ (Meyer
and Skak 2002), ‘‘random,’’ ‘‘opportunistic,’’ ‘‘non-systematic,’’ or ‘‘ad-hoc’’
internationalization treated as a ‘‘deviant case’’ and an ‘‘anomaly’’ (Ellis 2000). As
evidence of such internationalization mounts, it cannot be dismissed as abnormal,
and it is important to find new explanations to understand the phenomenon.
Our main objective in this paper is to examine networking under uncertainty
during the internationalization process by integrating the Uppsala model of
internationalization (Johanson and Vahlne 2009) with effectuation (Sarasvathy
2001,2008). The two main research questions are: how do entrepreneurs make
decisions about networking under conditions of uncertainty while they are entering
foreign markets? Why do entrepreneurs commit to specific network relationships
when entering foreign markets?
Effectuation theory, with its focus on non-goal driven logic, improvisation and
leveraging contingencies (Sarasvathy 2001,2008), has great potential to explain the
unintentional aspect of networking by internationalizing SMEs (Bhowmick 2008;
Mainela and Puhakka 2009; Gabrielsson and Gabrielsson 2013; Kalinic et al. 2014;
Sarasvathy et al. 2014). In order to explore the abovementioned ‘‘anomalies’’,
effectuation logic provides a new lens to examine how SMEs employ networks
during their internationalization. The effectuation approach, which helps to
understand the decision-making logic under uncertainty, has been developing
steadily within entrepreneurship theory during the past decade. It provides an
alternative logic of reasoning to predictive rationality. Instead of the goal-oriented
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reasoning of causal rationality, effectuation suggests a means-driven logic that goes
beyond predicting an uncertain future (Sarasvathy 2001). Put simply, entrepreneurs
using causation logic have a pre-determined goal and select resources to attain these
goals. Conversely, those using effectuation logic start with a given set of resources,
and then collaborate with willing partners to increase these resources to co-create
goals. Thus, entrepreneurs using causation start with a goal (planned strategy), while
those using effectuation start with their means and then create their goal
(improvisation and exploiting contingencies).
We chose Johanson and Vahlne’s (2009) revisited Uppsala model as the main
theory of internationalization process for this paper because of the central role of
business networks. They consider internationalization as an outcome of a firm’s
attempts to develop its positioning within a network. We build on emerging research
that links effectuation and the internationalization process, especially the work of
scholars who developed the original work for these two streams of literature,
namely Schweizer et al. (2010) and Sarasvathy et al. (2014). Since effectuation and
the revisited Uppsala model are rooted in behavioral theory (March 1991; March
and Simon 1958; Simon 1959), the concepts of partnership, networks and
commitments are central in both theories. These are the key concepts that we
elaborate on to develop new insights on networking during the internationalization
process.
This study contributes to the IE literature in three areas. First, it considers the
phenomenon of internationalization as an entrepreneurial process. This perspective
allows for combining the Uppsala model from International Business with the
effectuation theory from Entrepreneurship, which conceptually advances the IE
domain. While the Uppsala model explains the internationalization process at the
firm level, effectuation theory helps to understand internationalization process at the
level of decision-making of an individual entrepreneur. Integrating the two theories
responds to a call for ‘‘fresh ideas and questions that might extend the understanding
of IE as a phenomenon, and incorporate perspectives from other disciplines’’ (Jones
and Nummela 2008, p. 350). Second, our study contributes to a very embryonic
stream in effectuation research that explores effectuation principles in an
internationalization context (Laaksonen et al. 2010; Andersson 2011; Harms and
Schiele 2012; Kalinic et al. 2014). It does so by showing how entrepreneurs use and
expand the ‘who I know’ (networks) aspect of their means in foreign markets. Third,
we contribute to network research in IE by deepening our understanding regarding
the dynamics of entrepreneurial networking as a process, and by the means of
qualitative methodology (Hoang and Antoncic 2003; Slotte-Kock and Coviello
2010; Jack 2010).
Regarding the structure of this paper, the next section outlines the theoretical
framework for this research. Later, the methodological section provides details on
the multiple-case study approach employed. This is followed by a discussion on the
findings from the cases. Finally, the article ends with conclusions and implications,
and provides directions for future networks research in IE.
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2 Theoretical Background
2.1 Network Approach in International Entrepreneurship
The network approach to the internationalization of SMEs is recognized as one of
the most established theoretical foundations of the IE field (Young et al. 2003;
Keupp and Gassmann 2009; Jones et al. 2011). In this paper, IE is defined as ‘‘a
combination of innovative, proactive, and risk-seeking behavior that crosses
national borders and is intended to create value in organizations’’ (McDougall and
Oviatt 2000, p. 903).
From the perspective of the resource-based view, different types of relation are
essential for the foreign expansion of small firms that often lack, and often do not
own, their foreign assets (Oviatt and McDougall 1994; Dimitratos and Plakoyian-
naki 2003; Madsen and Servais 1997; Agndal and Chetty 2007). Thus, networks
help to obtain financial resources, new capabilities, and knowledge about foreign
market and institutional structures (Yeung 2002; Wright and Dana 2003, p. 142;
Keupp and Gassmann 2009, p. 616). In addition, network relations serve as
governance mechanisms that secure international transactions through trust and
moral obligations (Oviatt and McDougall 1994; Etemad 2004). However, network
relations (both foreign and domestic) may also inhibit internationalization efforts
and result in high risks, network rigidity, liabilities, and negative effects on a firm’s
development (Coviello and Munro 1997; Mort and Weerawardena 2006, p. 567;
Sasi and Arenius 2008).
Overall, the network view of SMEs’ internationalization does not focus on
foreign market entry mode selection and decision-making. Instead, it looks at the
character and number of business relations, and indicates the importance of their
coordination, development, and the building of cooperative relations with network
actors (Axelsson and Johanson 1992; Blankenburg Holm 1995; Blankenburg Holm
et al. 1996; Nakos and Brouthers 2002). In addition, the network approach has
instigated significant changes to one of the most influential theoretical foundations
in international business, known as the Uppsala internationalization process model
(Johanson and Vahlne 1977).
2.2 Network Concept in the Revisited Uppsala Model
In the initial Uppsala model, Johanson and Vahlne (1977) focus on market
knowledge and market commitment. The rationale is that as firms acquire more
knowledge of foreign markets they commit more resources to those markets. Firms
initially start internationalizing in countries that have close psychic proximity and
then gradually, as they acquire market knowledge, they progress towards more
distant markets. The mode that firms use in internationalization also progresses
towards greater resource commitment. Firms start with ad hoc exports, then replace
this with their own sales subsidiary and, eventually, foreign direct manufacturing.
In their later work, Johanson and Vahlne (2003, p. 93) acknowledge the
increasing role of network relations in the internationalization process. They
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maintain that a network perspective on internationalization deals only with the
managerial problems of building and developing relations with network actors;
therefore, it is nothing but ‘‘a general expansion of a business firm.’’ Entry barriers
are not associated with country-specific borders but are related to the establishment
of new contacts and their exploitation (Wright and Dana 2003). Furthermore, in the
revisited Uppsala model, Johanson and Vahlne (2009) show that barriers to
internationalization no longer deal with the psychic distance and liability of
foreignness, but are associated with the network position in a foreign market and the
liability of outsidership. Internationalization is the process of embedding into a
corresponding network structure of a foreign market and acquiring an insider
position. As Johanson and Vahlne (2009, p. 1411) state, ‘‘insidership in relevant
network(s) is necessary for successful internationalization, and so by the same token
there is liability of outsidership.’’ They propose that the greater the psychic distance
of a new market, the more difficult it is to create new relationships because of the
liability of outsidership. Hence, partners inside the new market will provide firms
with the opportunity to become insiders.
The underlying logic of the revisited Uppsala model is bounded rationality
(Johanson and Vahlne 2009, p. 1412), which is the opposite of mathematical
rationality as optimization. It implies that an individual’s abilities to make optimal
or, at least, satisfactory decisions is limited by the cognitive limitations of their
minds, environmental conditions of information isotropy, and the lack of resources
(Simon 1959,1991). According to Gigerenzer and Selten (2002), bounded
rationality builds on ‘‘satisficing,’’ or the process of searching for satisfactory
alternatives through non-optimizing procedures, and through aspiration adaptation
based on the goal vector and qualitative expectations relating to the direction of
change. In the decision-making process, bounded-rationality agents tend to employ
solutions that were successful in the past and avoid solutions that failed (March
1981).
Building on this logic, the following features of network relations in the revisited
Uppsala model are highlighted. First, according to Johanson and Vahlne (2009,
p. 1425), trust in network relations is important for the internationalization process
because it helps in acquiring an insider position in a foreign network. They indicate
that ‘‘a sense of trust implies an ability to predict another’s behaviour’’ and supposes
positive intentions (p. 1417). However, building trust is not perceived as a goal in
international business networks; it is rather a lubricant for other activities inside
these networks. Second, while network outsidership is the root of uncertainty, the
authors state that their new model is not supposed to be treated as one of uncertainty
avoidance (p. 1418); rather, they suggest that uncertainty should be overcome by
creating new relations, strengthening existing ones, building trust in them, and
learning about partners (pp. 1411, 1423). Third, although bounded rationality
accepts unintended strategies, the revisited Uppsala model mentions network
coordination. As stated by Johanson and Vahlne (2009, pp. 1416, 1426):
‘‘international business network coordination will become an increasingly important
phenomenon with strong implications for firm-specific advantage as well as for
internationalization.’’ This coordination is achieved by beneficial network position,
which becomes the key aspect of the revisited Uppsala model. However, this differs
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from the concept of network position from a strategic network view. Instead of
linking network position with structures of relations that are purposefully arranged
according to desired resource flows (Jarillo 1988,1995), it relates just to the results
of previous business activities and commitments of the firm, or its management.
Hence, network position is viewed as an outcome of a firm’s activities and not as a
goal.
2.3 Network Concept in the Effectuation Approach
Sarasvathy (2001) terms causation as the rational and predictive logic of reasoning,
which is opposed to what is termed effectuation, or non-predictive logic. Causation
and effectuation are the constitutive parts of entrepreneurial reasoning, and they are
constantly present in all entrepreneurial activities (Sarasvathy 2001,2008). In this
dichotomy, ‘‘causation processes take a particular effect as given and focus on
selecting between means to create that effect. Effectuation processes take a set of
means as given and focus on selecting between possible effects that can be created
with that set of means’’ (Sarasvathy 2001, p. 245). Effectuation theory is based on
five principles: means-driven instead of goal-driven action; leveraging contingen-
cies instead of exploiting pre-existing knowledge; affordable loss instead of
counting expected returns; partnership instead of competitive analysis; and
controlling the uncertain future instead of predicting it (Sarasvathy 2001,2008).
Effectuation is not positioned as a ‘‘better’’ logic of reasoning, but as being more
applicable in situations of uncertainty and when dealing with spheres of human
action (Sarasvathy 2001, p. 249), such as networks. In this paper we focus only on
one effectuation principle, the principle of partnership instead of competitive
analysis, as a display of effectual logic in the networking of internationalizing SMEs
(see e.g., Wiltbank et al. 2009 who also focuses on one effectual principle of
affordable loss).
The network relations of entrepreneurs represent one of the central aspects of the
effectual process. Entrepreneurial relations represent the starting point for effectual
action because they constitute the ‘‘Who I know?’’ part of the means set.
Furthermore, they are essential for the effectual process to unfold because of its
underlying principle of partnership and commitments rather than competitive
analysis (Sarasvathy 2001; Read et al. 2009a). Instead of conducting extensive and
expensive research of preselected markets, effectual entrepreneurs work jointly with
all interested stakeholders, ‘‘be they early partners, customers, suppliers, profes-
sional advisors, employees, or local communities’’ (Sarasvathy and Venkataraman
2011, p. 126). Through these interactions, they co-create the structure of a new
venture and define what markets to enter or what new market to create (Sarasvathy
2001, p. 252; Read and Sarasvathy 2005; Dew et al. 2011).
Effectuation scholars introduce the notion of effectual networks, which are
composed of various stakeholders, such as customers and distributors, who are
committed to creating the new venture and sharing risks (Sarasvathy and Dew
2005,p.542;Readetal.2009b, p. 574). Instead of having a specific goal to drive
their partner selection, entrepreneurs network with all and any interested actors to
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increase their means for opportunity discovery (Wiltbank et al. 2006, p. 992, 2009,
p. 117). It differs from the causal process of partner selection: ‘‘in effectuation,
clear goals do not drive the stakeholder selection process—i.e., the goals of the
new venture or the predicted features of the opportunity do not drive who comes
on board. Instead, who comes on board drives what the goals of the enterprise will
be’’ (Sarasvathy and Dew 2008: 729). Sarasvathy and Dew (2005,p.548)indicate
that effectuation as a characteristic of entrepreneurial relations prevails during the
early stages of venture development, whereas later on, effectual networks become
more goal-oriented as they grow and include more partners and available
resources.
The non-predictive nature of effectual relations provides an opportunity to
present several implications with regard to their characteristics. First, trust as a risk-
taking behavior built on expectations about partners and as a mechanism to avoid
opportunism (Mayer et al. 1995, p. 712) changes its nature in effectual networks.
‘‘Theoretically speaking, effectual logic does not require any particular assumption
about trust ex ante’’ (Sarasvathy and Dew 2008, p. 734); however, ex post trust can
be found in effectual networks empirically. Although effectual entrepreneurs do not
act according to the given end state of their future network, they have a general
aspiration to build workable relations and seek to shape and re-shape the future
behaviors of other stakeholders. Effectuators act under conditions of information
deficit and cannot determine whether interested stakeholders can be trusted.
Consequently, they follow the ‘‘intelligent altruism’’ principle and invest in
relationships something they can afford to lose. This process is consistent with that
of trust building.
Second, effectuation approach acknowledges the high level of uncertainty in
effectual networks due to their unstructured nature and undefined goals (Sarasvathy
2001; Sarasvathy and Dew 2005). In general, effectual entrepreneurs act under the
conditions of high environmental uncertainty, but try to leverage it in order to
produce unexpected results and thus new opportunities (Sarasvathy 2001,2008).
Although effectuators take advantage of contingencies, they try to control
uncertainty through network commitments. Thus, the effectual entrepreneur ‘‘uses
pre-commitments to reduce uncertainty, minimize costs of experimentation and
maintain flexibility’’ (Chandler et al. 2011, pp. 386–387).
Third, through the chain of effectual commitments, stakeholders form an
effectual network (Sarasvathy and Dew 2005, p. 542; Wiltbank et al. 2009, p. 120;
Read et al. 2009b, p. 583; Chandler et al. 2011). This network is flexible to change
but cannot be fully coordinated because entrepreneurs cannot know the motives of
other actors (Sarasvathy and Dew 2005, p. 557). Although the effectuator ‘‘seeks to
influence and shape the future, including the future behavior of other stakeholders’’
(Sarasvathy and Dew 2008, p. 729), coordination of stakeholder relations takes the
form of co-creation (Sarasvathy and Dew 2005, p. 557; Wiltbank et al. 2009)
through self-selection and intelligent altruism, which are the organic mechanisms of
effectual network formation (Dew and Sarasvathy 2007, p. 275; Sarasvathy and
Dew 2008, p. 729).
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2.4 Comparison of Network Concept in the Revisited Uppsala
Internationalization Process Model and Effectuation Approach
In order to achieve theoretical rigor when combining different theories, it is
essential to establish complementarity and examine the ‘‘interactive effects’’ of
these theories (Bello and Kostova 2012, p. 541). Therefore, this section focuses on
outlining commonalities and differences in the assumptions about network relations
of the revisited Uppsala model and effectuation. Schweizer et al. (2010) argue that
internationalization resembles the entrepreneurial process, and subsequently
develop the synthesized Effectual Uppsala model that brings together effectuation
and IE (Sarasvathy et al. 2014). Johanson and Vahlne (2009) indicate that the
revisited Uppsala model is consistent with the entrepreneurial theory of effec-
tuation. They argue that ‘‘the effectuation process has much in common with our
internationalization process model including similar environmental characteristics,
a limited number of available options, incremental development, and an emphasis
on cooperative strategies’’ (Johanson and Vahlne 2009, p. 1423). Furthermore, both
the revisited Uppsala model and effectuation theory build on the process-based
view. For the former, it is a non-deterministic process of foreign expansion
(Johanson and Vahlne 2009, p. 1412); for the latter, it is the entrepreneurial process
of creating a new venture (Read et al. 2009a, p. 4).
While Sarasvathy et al. (2014, p. 80) acknowledge several similarities; they
identify two critical differences between the Uppsala Effectuation model (Sch-
weizer et al. 2010) and the effectuation model, as follows:
First, the effectual process involves several cycles of interactions between
stakeholders. Second, opportunities are not taken as given or exogenous to the
process in effectuation …[emphasizing] the impact that stakeholder self-
selection in the effectual process has on the formulation of new ends. These
new ends then constrain and enable future courses of action available for the
new venture and its internationalization process. We believe that using a state-
variable or change-variable framework [refer to Schweizer et al. 2010 model]
precludes a non-teleological depiction of the process. Put more simply, when
we view the world through the lens of state or change variables, we eliminate
room in the model for purpose (i.e., teleology) and how that evolves and
changes over time. (p. 80)
Our paper identifies several commonalities and differences in the two theories
and, in particular, in their understanding of network relations. First, internation-
alization resembles the entrepreneurial process and is related to risk taking,
opportunity creation, and exploitation (Schweizer et al. 2010; Sarasvathy et al.
2014). Similarly, Jones and Coviello (2005, p. 284) state that internationalization is
an entrepreneurial process; this makes causation and effectuation relevant to
analyzing firms’ internationalization processes (Harms and Schiele 2012). Interna-
tionalization and effectuation share a common problem space because they both
include Knightian uncertainty (‘‘it is impossible to calculate probabilities for future
consequences’’), goal ambiguity (‘‘preferences are neither given nor well ordered’’),
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and environmental isotropy (‘‘it is not clear what elements of the environment to
pay attention to and what to ignore’’) (Sarasvathy 2008, p. 70).
Second, according to Johanson and Vahlne (2009, p. 1425), the international-
ization process starts with knowledge and a firm’s relations. Similarly, the
effectuation process starts with means, including ‘‘what I am,’’ ‘‘what I know,’’ and
‘‘who I know;’’ in which the ‘‘what I know’’ component of an effectuator’s means
relates to knowledge and ‘‘who I know’’ implies network relations (Sarasvathy
2001, p. 253; Wiltbank et al. 2009, p. 991; Read et al. 2009a, p. 4). Thus, the two
theories have almost similar starting points. It can also be seen that the ‘‘who I
know’’ aspect of the entrepreneurial set of means is similar to the concept of
network position employed in the revisited Uppsala model. However, there are
some differences that need to be pointed out. While Johanson and Vahlne (2009)
discuss the concept of network position mainly from the business network
perspective at the firm level, ‘‘who I know’’ in effectuation theory includes three
levels: (a) the individual level in the form of social networks; (b) the firm level in
the form of organizational resources; and, (c) the level of the economy in the form
of socio-political institutions (Sarasvathy 2001, pp. 250, 253). Hence, Sarasvathy’s
‘‘who I know’’ component of effectual means is a broader concept than that of the
firm’s network position.
Third, both theories emphasize the critical role of commitments in network
relations. Thus, in the revisited Uppsala model, mutual commitment is defined as
‘‘the product of the size of the investment times its degree of inflexibility’’
(Johanson and Vahlne 2009, p. 1412). Commitments are important for the learning
process and accumulating knowledge about foreign markets. In effectuation theory,
commitments among stakeholders are also central to the effectuation process; they
represent the building blocks of the effectual networks (Sarasvathy 2008, p. 109).
However, in the revisited Uppsala model, commitments lead to building trust and
avoiding opportunistic behavior (Johanson and Vahlne 2009, p. 1414). In turn, as
shown earlier, effectuation theory sees trust as a theoretically irrelevant concept
(Sarasvathy and Dew 2003,2008, p. 734) and the mechanism of intelligent altruism
in effectual commitments ‘‘eradicates the need to overcome opportunism by merely
making it irrelevant to the creation of new markets’’ (Sarasvathy 2008, p. 119).
Although pre-commitments help to control uncertainty, they are used to create more
space to leverage contingencies and experimentation (Chandler et al. 2011,
pp. 386–387).
Fourth, both the revisited Uppsala model and effectuation consider opportunity
development through networks to be the main trigger of the process. According to
Johanson and Vahlne (2009, p. 1420), however, opportunities are both discovered
and created. This means that some exist in the outer environment, waiting to be
discovered and exploited. In effectuation, opportunities are only created and, more
specifically, co-created by any and all interested stakeholders because nothing in the
environment is given as exogenous (Sarasvathy 2008, p. 73; Wiltbank et al. 2009;
Dew et al. 2009; Read et al. 2009a). Furthermore, while the Uppsala model
mentions opportunity discovery and creation at the firm level, effectuation
highlights opportunity creation at the level of an individual entrepreneur.
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Our comparison shows that despite some differences the revisited Uppsala model
and the effectuation approach have much in common in understanding network
relations (see Table 1). Thus, effectuation can complement the revisited Uppsala
model and help to explain the above stated anomalies in SMEs’ foreign expansion.
The integration of the two models can help to capture both networking and
opportunity development during the early phases of internationalization by SMEs. It
also fulfills the need to bring more entrepreneurial theories to strengthen IE research
(Jones et al. 2011).
3 Methodology
Qualitative methodology is coherent with the inductive and exploratory course of
this study, which uses the theory of effectuation as a foundation to address a
research gap in internationalization theory (Gummesson 2000; Denzin and Lincoln
2000; Pratt 2009). Since effectuation has been recognized as a nascent theory (Perry
et al. 2011), qualitative methodology is appropriate for this stage of the theory
development (Edmondson and McManus 2007). Similarly, the case study approach
has been applied in other studies applying effectuation principles to the interna-
tionalization process (Schweizer et al. 2010; Gabrielsson and Gabrielsson 2013;
Kalinic et al. 2014; Sarasvathy et al. 2014).
An exploratory multiple-case study approach has been employed, which is a
relevant choice for several reasons. Case study strategy gives a certain meaning to
Table 1 A comparison of networks as used in the revisited Uppsala internationalization process model
and the effectuation approach
Networks in the revisited Uppsala model
(Johanson and Vahlne 2009)
Networks in the effectuation approach
(Sarasvathy 2001,2008)
Problem
space
Uncertainty, lack of resources and
information
Knightian uncertainty, goal ambiguity, and
environmental isotropy
Type of
model
Emphasis on process; state and change Emphasis on process; expanding cycle of
resources and converging cycle of
constraints
Commitments Commitments are important in the
network-building process and learning
about foreign markets
Commitments are the building blocks of
effectual networks; they help to control
uncertainty and leverage contingencies
Opportunities Opportunities are both discovered and
created through networks at the firm
level
Opportunities are not given as exogenous
but are created and co-created together
with other stakeholders at the level of an
individual entrepreneur
Trust Building trust in relations is one of the key
issues in internationalization
Getting involved with ‘‘who I know’’
presumes some ex ante trust; ex post
trust can be found empirically
Uncertainty Building new relations and strengthening
existing ones help to reduce uncertainty
caused by outsidership
Uncertainty is controlled by pre-
commitments
Coordination Network relations can be coordinated Network coordination through co-creation
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the phenomenon because it introduces local context and situational constraints (Yin
2004; Stake 1995). Attention to detail, nuance, and interdependency provides a
holistic perspective on the phenomenon being studied, and reveals a comprehensive
picture of its nature in totality (Yin 1981,2004; Verschuren 2003). In addition, it is
a strong methodological strategy for the research of sparsely investigated issues and
theory development (Eisenhardt 1989; Marshall and Rossman 1999; Jensen and
Rodgers 2001; Remenyi et al. 2002; Eisenhardt and Graebner 2007). The nature of
this research is inductive as it does not intend to test any new propositions or
hypotheses, but rather aims to extend the extant theory of effectuation.
Since information from multiple sources provides a more comprehensive and
detailed understanding without chance associations (Yin 1994, p. 45; Stake 1995,
p. 4), this study is based on seven cases of SMEs from Finland that have established
international operations. The selection of seven firms falls within Eisenhardt’s
(1989) suggestion for the appropriate number of cases, which is between four and
ten, because it is enough for analytical generalization without creating an unwieldy
volume of data (Yin 1994; Patton 1990). While the context of this study is the
internationalization process of Finnish firms to Russia, during the interviews they
mentioned their entry and expansion into other foreign markets. Since Russia is a
turbulent foreign market filled with uncertainty, it provides the opportunity to
capture the phenomenon of effectuation during the internationalization process.
Furthermore, there is a dearth of studies on SME entry into the Russian market so
this study makes a useful contribution to the literature. Consistent with Pettigrew
(1990), Eisenhardt and Graebner (2007) and Eisenhardt (1989, p. 537), selecting
extreme cases for theoretical insight makes the phenomenon of interest ‘‘transpar-
ently observable’’.
Replication logic and purposeful sampling was employed to select the case
studies, which means that the cases were selected for a specific reason and have a
special significance in the study (Yin 1994; Stake 1995, p. 4). The criteria for
selecting the case firms were SMEs with less than 250 employees, which is a
definition in the European Union (European Commission 2003, p. 5), international
operations, and willingness to participate in the research. After examining the
internet profiles of several companies, ten firms were invited to participate that were
considered to be suitable for this study, with seven of them agreeing.
In order to avoid the bias of only observing effectual logic in networking during
the internationalization of the selected firms, general questions were asked first
regarding relationship establishment in the internationalization process, with
effectual networking being focused upon later in the interviews. For instance,
effectual networking was revealed from the stories about spontaneous and
unintended partnership. In total, seventeen semi-structured interviews were
conducted with the founders and/or managers responsible for internationalization
from these seven firms. During data analysis, which began during the interview
process, all firms provided evidence of employing effectual logic of networking
during internationalization to some extent (see Table 2).
This multiple-case study involved semi-structured interviews with an interview
protocol employed for guidance. The topics covered in the interviews related to
networking activities and their impact on the internationalization process. Each
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interview lasted between 60 and 90 min, was recorded, and later transcribed. In
order to avoid validity problems related to multiple fieldworkers and separating data
collection from data coding (Miles 1979), data collection and interview transcribing
has been done by one person, one of the authors of this article. Informants were
made aware they were being recorded. Those who wanted to know the questions
before the interview were sent them via e-mail, together with a general description
of the project. During the interviews, some respondents wanted to draw diagrams of
their network relations in order to provide more illustrative information. These
drawings were later used to organize and analyze the data.
To ensure the reliability of responses during interviews, some techniques
proposed by Huber and Power (1985) were employed. In addition to primary
sources of information, secondary sources in the data collection process were
included. These contained general information about the individuals to be
interviewed, the history of their companies, core businesses and products, and
their main clients and suppliers, which were found from the companies’ websites,
industry-associated websites, and other available press releases. This information
was used to both prepare for the interviews and to validate the information obtained
during the interviews (Cassell and Symon 1994). Data triangulation was achieved
by comparing information obtained during the interviews with information from the
secondary sources. For example, in case F5 we used the company’s brochures and
their internal Power Point presentations to check the content of business relations
that the respondent described in the interview. The interview transcripts, and
drawings that respondents produced during the interviews, were combined with the
Table 2 A profile of the firms in this study
Firm’s industry Year of
firm’s
inception
Year of initial
internationalization
Number
of
employees
Number
of
foreign
markets
Mode of
internationalization
F1. Software for optical
reader
2006 2007 130 21 Subsidiaries
Sales offices
F2. Turnkey luxury
interiors for the cruise
ship industry and
architectural buildings
1987 2008 90 1 Sales office
F3. Facilitation and
corporate training
2003 2007 7 5 Subsidiaries
One joint venture
F4. Fashion garments
and accessories
2005 2010 5 1 Sales office
F5. Supplier of
equipment and
coating technology
2005 2007 60 25 Subsidiaries
Sales offices
F6. Business consulting 1993 2007 24 1 Subsidiary
F7. Design of climbing
equipment
2004 2005 2 14 Official
representatives
and dealers
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secondary evidence to produce a detailed description of the entrepreneurs’
networks. The findings were validated through the feedback to the research sites
(Miles 1979); the interview transcripts were sent back to the respondents for
additional verification to confirm the accuracy of the information. Furthermore,
some of the relevant findings from this study were exposed to questioning when
presented at different industry seminars.
During data analysis, the accuracy of interpretations was checked by other
independent scholars in the related field through presentation and discussion of the
preliminarily findings at research seminars. The data analysis included within-case
and cross-case displays, field notes, matrixes, tables, and networks in order to find
patterns and themes in the data (Miles and Huberman 1994). The analysis initially
included identifying the key themes in the literature, which were refined and revised
against the emerging data. During the analysis process these key themes were given
descriptive codes, which were searched for in the transcripts and secondary data and
were as follows; networking processes, logic, trust, risk and uncertainty, and
coordination. The next section presents the results of this analysis.
4 Case Studies
4.1 F1
F1 is a small firm from Finland founded in 2006. It produces special software for
optical readers, which use mobile phones/devices to add any electronic information
or systems to printed products and to electronic information on screens. At the time
of data collection, it had 100 people employed in the home country and 30 abroad.
The internationalization process for the firm started immediately after start-up;
nowadays, it is operating in more than 20 countries. The following narratives from
the interview with the founder of F1 illustrate the firm’s internationalization and
networking during this process.
When asked about how the firm started, the answer was: ‘‘I cannot say that there
was something started. I don’t feel that something started …there was no first
country. No, we don’t work that way. We’ve never targeted any country, we’ve
never chosen any strategic issue, we’ve never focused. We don’t try to build a
highway up to the top of the mountain and then buy a Mercedes and drive to the top.
It happened because we had some contacts in some places; life brought us there…’’
He explained the importance of ‘‘who you know’’ and the means-driven approach
to entering Russia as follows: ‘‘We entered Russia without making the effort we
should have made. The contacts that brought us there were outside; these key people
are not directly there. We started in Lithuania, and those people in Lithuania
happened to have close relations with our Russian partners. So, they brought us to
that sector…The main point is that we never intentionally, strategically planned
that: ‘Now we should establish subsidiary in Moscow,’ ‘Now we should go
Ekaterinburg, St. Petersburg,’ no…The subjective side of business is more
important. We need to find people, not companies, not structures.’’
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Networking with unknown partners involves a coexistence of adventure and
uncertainty, and being open to unexpected opportunities: ‘‘And I would not call this
networking risky. I see more fun! It is fun but without stressing the entertainment
side. It is very serious. You can only trust your partner later when you have worked
together and know the reason for your partnership. But in the beginning there is no
real trust, maybe only on some general level.’’
4.2 F2
F2 is a Finnish SME that produces turnkey luxury interiors for the cruise ship
industry and architectural buildings. It was founded in 1987, and its solutions find
application in luxury sea liners, shopping areas, business centers, hotels and
restaurants. F2 employs 50–90 workers and uses subcontractors. In 2009, the annual
turnover of the firm was 11 million Euros. At the time of the interview, F2 had
expanded only to Russia.
The following narratives are from the interview with the business manager
responsible for Russian markets. They illustrate the means-driven approach to
networking during internationalization to Russia, i.e. ‘‘what I know,’’ ‘‘who I
know,’’ networking processes and trust-building. In addition, they illustrate the
importance of a wide network in creating new opportunities: ‘‘We did not conduct
any market research before making the decision to enter Russia. I know so many
Finnish firms that have already started their business in Russia and we have a very
close connection with them. Everybody knows something which you don’t know,
and you don’t realize that this is important, but sooner or later you do. If you have a
wide network it is like fishing: something always comes up. This is the net and in
this net I use a lot of my intuition because there are many unplanned things. Every
time when I have, let’s say, a feeling that a person can be interesting for business I
just go and say ‘Hello, I’m from Finland. What are you doing? What is your
business?’ And if there is something, it might be a connection.’’
The following narrative shows that by networking with all and any interested
stakeholders, entrepreneurs place new relations into the stock of their means that
can be activated in the future. It takes time to learn about ‘‘who you know’’, and this
leads to uncertainty about how the relationship will develop: ‘‘I don’t think this kind
of connection can be risky because you don’t open all the cards in the beginning.
There are no right or wrong persons; they are just connections which may be useful
someday…Someday something will be very useful and bring an opportunity…You
cannot fail because you cannot know in advance which is the right connection and
which is not. Of course, you need to have some level of trust to connect with
potential partners. But it is not like you know them for a long time.’’
F2 illustrates the challenges of coordination in balancing causal and effectual
networking, as the entrepreneur explains: ‘‘I try to coordinate my networking
somehow. I have a very big list, companies, people, happenings, events. This is
what I plan. Of course, it is normal to plan but the more you plan the more things
change. I don’t have clear plans about my network, I just have a vision.’’
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4.3 F3
F3 is a small Finnish company founded in 2003. Through meetings and workshops,
it provides training and facilitating services for various companies and teams
wishing to enhance their competences, creativity, team commitment and problem-
solving skills. Currently, F3’s team has nine people, four of whom work outside
Finland. The company has its branches in five countries. One of the founders of F3
shares some thoughts about the company’s internationalization and foreign
networking. The following narrative shows how the entrepreneur was open to
unexpected relationships, and thereby discovered opportunities through networks:
‘‘For us, people came first. The geographical destination was the second thing. We
actually had many contacts coming to us and asking about doing business together.
Our first country was Germany. We didn’t specifically plan to go there. We actually
had some contacts in Berlin, but we met them at a conference in Moscow. We
started with having fun at that conference and drinking together. And then they got
interested in expanding their business model, and they wanted to start business with
us. This was not a strategic planning…to choose the country and then network
there…We have a very spontaneous type of network…We’re a very spontaneous
company, very spontaneous people, we’re not organized, and perhaps we’re not a
very good company. Commitment becomes a big challenge in these spontaneous
relations…because nobody is forced to join and stay; there is so much freedom, no
clear goal and no expectations. There is only vision of what we can possibly do
together and motivation…This requires an open mind, transparency and willingness
to share.’’
Another founder of F3 also shares his thoughts about the difficulties of
international networking and building trust in relationships: ‘‘It is hard to say
whether our networking activities are planned. Things just happen. I don’t see much
of risk in it. The only thing is that this networking with whoever is interested takes
so much of my time. Sometimes I want to get rid of my contacts…and you need to
establish trustful relations with them, it takes time and emotional energy. Of course,
there is some professional trust in the beginning. Then you just hope to build
personal trust to keep on working together.’’
4.4 F4
F4 is a small Finnish firm founded in 2005. It designs and produces headwear,
scarves and accessories. The products are made in different parts of Europe and
finalized in Finland. Currently, the team has six people, four of whom are partners
owning shares of the firm, while the other two are hired trainees. While F4 has a
wide network, it has to actively maintain these relationships to retain them in the
hopes they may eventually be of use. The firm has a sales subsidiary in Russia.
Their expansion into Russia was not planned, but was rather a vague intention. It
is a current trend for Finnish firms to expand into Russia as the two countries share a
border. As one of the founders of F4 states: ‘‘We never did any market research
about textile and design industry there. There was no strategic decision. Through a
third person, we got one guy who was looking for an internship so we employed
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him. It happened that he had a Russian background; he spoke Russian and had
connections through his family with key people in the Russian textile industry and
some trade associations. Once he started at F4, we began to think that through him
we could find some opportunities in the Russian market. But all this internation-
alization started unexpectedly, only because of this guy.’’
The following narrative illustrates the effectual and causal nature of networking:
‘‘We have developed a strategic list of potential clients and retailers, and we try to
network according to this list. But often finding good partners is a matter of
intuition: it is a matter of feeling. Things go in a really unpredictable way. I really
don’t know how they go…It is complete chaos…Things roll like a snowball;
nothing is clear at this point…Things just happen, we don’t plan them. It is hard to
trust your potential partners in this situation. But we have kind of general trust in
people, so we are optimistic about them even before we have any business together.
More trustful relations develop when you have an established relation, you commit
to it, and others just trust you more.’’
4.5 F5
F5, founded in 2005 in Finland, is a supplier of equipment and coating technology
for global markets. It develops applications and equipment for clean-tech and
renewable energy fields, especially in glass, solar and emerging thin film markets. It
also offers complete coating services. By the time of the interview, F5 had sales
offices in 25 countries and employed 60 people. Below are excerpts from the
interview with Marketing Manager Russia of F5, who is also responsible for
internationalization activities. He shows that networking during internationalization
often does not have any goal, and that relationships develop organically: ‘‘We are
not really active in expanding our network anyhow in a conscious way. The network
expands because we just do things. We do not say ‘OK, now we’re directing to
London or somewhere else’. It is somehow very natural. Our existing connections
bring new connections; some of them are not active, but we use them when needed.
For example, I have a good contact with one person from my previous job; by
accident his father happened to be one of the inventors of the coating technology
that we are using now in F5. So, his father knew all the key people in Zelenograd
Science Park in Russia. So, it was kind of luck that we knew that person; through
him we brought our business to Russia. Also, a lot of trust comes from these
personal relations.’’
The interviewee also mentions that unexpected relationships can bring new
opportunities, and causal and effectual networking is intertwined with more goal-
driven partnerships: ‘‘When F5 decided to expand to Russia, I developed a network
plan that contained the key organizations and people to contact, and the main
exhibitions and network events [in which] to participate. This was strategic. But
every day there is something spontaneous, there are many surprises. You never
know where connections may come from. Today, we have a very good connection
with St-Petersburg State University. We sell our equipment there, but we never
planned it. We have it because of the recommendation of one professor. Also,
probably the reason why we are quite successful in Russia is that our company got
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good publicity there. And it was also very unexpected and unplanned. Once, the
head of Rosnanotech, A. Chubais visited Finland and decided to come to our
company. I mean, we never planned to have a contact with such a ‘high’ person; it
opened many doors for us.’’
4.6 F6
F6 is unique in our sample because it is a Finnish consulting firm within a Research
Institute. Formed in 1993, it provides consulting services for project businesses in
sectors such as energy, shipbuilding, pulp and paper, and telecommunications.
Currently, F6 employs 24 people. In 2007, F6 established a separate unit in St.
Petersburg, Russia. One of the founders of F6 explains they used both planned and
unplanned networking, and were open to unexpected outcomes from these relations:
‘‘You do not always know where a situation will take you but you realize it is
important to be there in order to let things develop when possibilities for networking
and business might be created. You should not plan too much. Often surprising
things happen that create new possibilities you could not predict. It requires
improvisation and an open mind.’’
Another project manager from F6 describes how the internationalizing firm
networked by using means-driven logic and starting with ‘‘who do we know.’’ The
narrative also illustrates that the firm had an insider position in the network. ‘‘Before
F6 decided to expand to Russia, it already had a very extensive network of Russian
experts. These contacts were from both [the] academic world and from different
industries and projects. So, it was quite [a] natural decision to open an office in St.
Petersburg. People were already there; it was a question of just a legal establishment
and bureaucratic work. This existing network was very trustworthy in itself and
helped a lot in gaining some trust.’’
While the firm initially used effectuation to enter Russia, when it became
established it engaged in more causal networking strategies. In addition, effectual
networking allowed the spontaneous creation of new opportunities as the following
narrative illustrates: ‘‘Since F6 now has an office in St. Petersburg, and as things got
into their routines, we have more planned networking. But before it was not like
that: nothing was defined. Many positive things were happening ad hoc. When you
have a good network that works well it might be even better to have things
unplanned. The greatest value this network provides is flexibility. If you have
trustworthy partners and experienced people you can always have nice ideas and are
not afraid to share them. That is very important. If someone has an idea, he or she
can ask another person, have a meeting or call someone ad hoc and discuss. Most of
the best opportunities come unplanned. This network gives the possibility to seize
these opportunities and that’s very valuable.’’
4.7 F7
F7 was founded in 2004 in Espoo, Finland. The company designs, produces and
sells a motorized climbing wall that scrolls down as it climbed, allowing climbers to
practice in small spaces. The company currently has its own offices in USA and
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Poland, and has official dealers in 14 other countries. The company founder tells the
story of F7’s networking during its internationalization. F7 did not conduct any prior
market research; rather, internationalization was spontaneous and driven by
unintended networking: ‘‘I have to say that so far I haven’t even focused so much
on internationalization. My main focus has always been on how to improve the
product. When I started F7, I presented my business idea to different investors at
different events that the business incubator organized. We got some funding to
develop the first prototype. And later Discovery Channel chose our product to make
the film about it; they picked us up from many firms that were in that business
incubator. It was great luck, we never planned that. After that film that was
broadcast all over the world we got [such] good publicity! We got something [like]
200 contacts from different countries; they just called me and wanted to purchase
the product. I was in contact with all of those who were interested. We just
discussed, improvised a lot, and made the thing so to say ‘on a way’. This industry
develops very fast, and you need to bring your message very fast. So, I don’t really
have time to hide anything or think if I really trust a person or not. Of course, there
is trust on [a] general level. But if someone is interested in our product and wants to
buy it, it does not harm me! It’s a trust intuition…just a feeling, a basic skill. I don’t
have any business education, so everything was new for me. And it is hard to plan
the internationalization and select the countries when partners find you themselves.
For instance, in [the] case of Russia I didn’t strategically choose the dealers; they
were just enthusiastic and called me. Of course I [now] plan some networking; I
attend different industry events and exhibitions. But this happens now; before it was
a chaos.’’
The following narrative illustrates the process of networking with all and any
interested stakeholders, and the need for openness to unexpected relations: ‘‘I would
say that I network everywhere and with everybody. One good example…I was at
one night club last Sunday; there was a friend of a friend who works in a company
that arranges different shows and concerts worldwide. We talked, I showed him a
small video on my phone about our climbing equipment and he got interested
because it can be used for leisure activities. I am meeting him …next week. Let’s
see if we have anything. So, you never know when you open your mouth and say
something to a person you don’t know; maybe you have a good idea, maybe not.’’
Table 3summarizes the main findings from the case studies.
5 Analysis and Discussion
The case studies show that in general firms’ networking activities are crucial for
internationalization, and that the whole process of foreign expansion was driven by
network relations. Specifically, the effectual logic of networking influences
decision-making in the internationalization process. In some cases, respondents
find it difficult to specify the exact point in time when the firm made a decision to
internationalize, and how the actual foreign expansion started, because it is an
organic process of the firms’ development. Networking effectually is a conscious
choice made by the entrepreneurs, and in preference to networking strategically and
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Table 3 A summary of the main findings from the cases
Commitments Opportunities Trust Uncertainty Coordination
F1 Commitment to existing relations led
to entry into new foreign markets
Relations in one foreign
market brought
opportunities in another
foreign market
Trustworthy relations
appeared over time when the
goal of relations become
clear
Uncertainty was seen as a
‘fun’ part of doing business
Networking is unplanned
and spontaneous; organic
development of networks
F2 Commitments in domestic network
expanded the ‘Who I know’ and
‘What I know’ parts of effectual
means that triggered
internationalization
Relations provided a pool
of unexpected
opportunities
There was generally trust, but
not with one particular
relation
The general context of
networking was under
uncertainty
There are certain efforts to
coordinate network
relations, but the
unintended aspect of
networking is accepted
F3 Commitment comes from each
partner’s motivation to do business
together, even though the end goal
of this business is not clear
‘Networking with whoever
is interested’; network
brought opportunities
without the
entrepreneur’s effort
During internationalization,
professional trust
transformed to personal trust
Networking was generally
uncertain because it did not
have specific goals
Networking is spontaneous
and uncoordinated
F4 Commitment to a relationship
allowed them to recognize their
potential for internationalization
growth
A single relationship
brought unexpected
internationalization
opportunities
Trust exists on a general level;
commitment to existing
relationships helps to
develop further trustworthy
relationships
Networking was uncertain
and was compared with
chaos and snowball effect
Network coordination is
balanced with
uncoordinated intuitive
networking
F5 Commitment to a relationship
provided information for
internationalization growth
Unexpected
internationalization
opportunities may come
from a single relationship
Trust comes when
relationships are informal
and personalized
Networking was uncertain
because it was spontaneous
and brought surprises
Networking activities are
undirected; accidental
connections
F6 Commitment to existing domestic
relationships increased F6’s means
to enter a new foreign market
Effectual networking
allowed for creation of
new opportunities
New trustworthy relationships
developed from the existing
network
Some networking activities
should be unplanned to give
room for contingencies that,
in turn, provide
opportunities
Planned and coordinated
networking activities are
combined with improvised
and spontaneous ones
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Table 3 A summary of the main findings from the cases
Commitments Opportunities Trust Uncertainty Coordination
F7 Lacks
commitment
to specific
relationships
Unplanned networking
‘everywhere and with everyone’
creates room for more
opportunities
Trust exists on a general level; trust is an
intuitive feeling; trust is not in question
when a new relationship is being
established
Networking is
uncertain and
chaotic; it requires
improvisation
Coordination of relations was
generally impossible because many
partners initiated the contact with
F7 first
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systematically. The process of networking itself is not purely strategically driven by
a predefined network goal or written as a plan, but is also more effectual. Newly
established contacts are added to the existing ‘who I know?’ part of effectual means,
and subsequently used for further networking. It is considered the best way to
provide room for opportunity during the early internationalization phases. This
evidence supports the argument that effectual partnering differs from serendipitous
networking and coincidental meeting of people at random.
In our cases, the entrepreneurs do not influence their network relations at the
early stages of internationalization, as they feel such coordination of networking
activities would restrict potential internationalization. They do not consider whether
they have a position inside or outside the network, or determine which foreign
network structures their firms could fit into. In some instances, it is a conscious
choice not to control and influence the network in order to allow the other partners
to bring unexpected opportunities and co-create new combinations. However, the
state of high uncertainty is not perpetual for entrepreneurs. Later in the
internationalization process, the coordination of network relations becomes more
important, which makes effectual principles of internationalization consistent with
the revisited Uppsala model.
On the one hand, the data show that during the internationalization process,
effectuators experiment a lot and engage in mutually beneficial activities, which
results in building trust. Hence, although effectuation does not require trust ex ante
(Sarasvathy and Dew 2008), ex post trust is a natural outcome of development of
new foreign networks. On the other hand, the entrepreneurs extensively used the
‘‘who I know’’ part of their entrepreneurial means for further international
networking. Therefore, this inclusion of ‘‘who I know’’ presumes that they also had
some ex ante trust. The presence of trust in effectual networking is consistent with
the revisited Uppsala model (Johanson and Vahlne 2009), which acknowledges the
important role of trust in relations during internationalization.
The above narratives show that in many cases the entrepreneurs do not try to
reduce network uncertainty by gathering information on foreign market structures
and potential partners, and by developing trustworthy relations before engaging in a
deal. During the internationalization process they are consciously open to
unexpected relations. Some entrepreneurs are even excited about new relations,
see much fun in spontaneous contacts and perceive them not as negative factors but
as a chance to benefit from surprise and exploit new opportunities. For example,
entrepreneurs from firm F4 who mentioned uncertainty in networking reveal how
commitment to a new partner who was introduced to them by a third party allowed
them to recognize surprising new opportunities for internationalization (see
narrative and Table 3). Careful selection and culling of relations according to a
pre-determined goal would limit the ‘stock’ of available means and decrease
opportunities. Effectuators, however, use commitments and their existing relations
with ‘‘who they know’’ in order to control uncertainty. Yet developing these
commitments can be challenging because the outcomes of partnership (and the
whole process of international expansion) are not defined. In F4, for instance,
entrepreneurs said how hard it was to commit to new partners without established
trust and any track of record doing business together (see narrative and Table 3). In
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effectuation research, such commitments are called effectual commitments meaning
that partners commit not to some predefined result of this partnership but to the
variety of unknown different effects from this relation (Sarasvathy 2008). This
finding is consistent with the revisited Uppsala model (Johanson and Vahlne 2009),
which states that firms create new relations and maintain existing ones in order to
decrease the uncertainty of internationalization. We use this discussion to develop
the following proposition:
P1: SMEs are more likely to reduce uncertainty during foreign market entry
by using effectuation than causation logic, and commit to their relationships to
increase their means and create opportunities.
The case illustrations describe internationalization as a non-focused, natural and
intuitive process. Instead of following a predefined plan to expand to specific
countries, the case firms were driven by existing and establishing network relations.
The entrepreneurs did not strategically select a country, conduct market research,
investigate foreign network structures, and network with specific people according
to a specific network goal. Consistent with Sarasvathy (2001,2008), they
established relations with all interested actors in order to maximize the set of
available means, and to increase the variety of possible outcomes. For example, firm
F3 mentions ‘networking with whoever is interested’, and F7 comments about
networking; ‘everywhere and with everybody’ (see narrative and Table 3). The case
firms selected markets primarily based on their networks, and geographical direction
was a secondary concern. The entrepreneurs were more likely to be driven by ‘‘who
I know’’ rather than questions of ‘‘where to expand?’’ and ‘‘what entry mode to
choose?’’ In other words, their approach to internationalization was a ‘‘people first,
country second’’ principle. Hence, we develop the following proposition:
P2: Foreign market entry of SMEs are more likely to be based on
opportunities that emerge through effectual networking, rather than a pre-
determined goal to target a specific country for its particular characteristics,
such as location advantages or institutional environment.
As the above cases show, the firms do not adhere to a purely effectual logic of
networking. In line with findings from Sarasvathy’s studies (2001,2008), effectual
partnering is balanced with more goal-driven relationship establishment, and is
employed more often in situations of high uncertainty. When the situation allows for
some degree of prediction, the entrepreneurs apply more causal logic to networking
and strategically plan relationship establishment. For instance, the interviewee from
firm F5 presented a plan of network actions for foreign expansion that was
coordinated with other strategies. This networking was very goal-oriented and
strategic, and was recognized as causal action in this study. The evidence from the
other firms also shows that effectual and causal logics of networking are not present
in their pure types empirically, but are constantly intertwined and balanced.
In addition, this study demonstrates that effectual networking processes not only
influence internationalization, but also display their own specific attributes in the
context of foreign expansion. For instance, firms F2 and F6 do not represent a new
venture type of firm, but show evidence of effectual networking during their
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internationalization stage. As the profiles of these firms show, the effectual logic of
networking not only dominates during the early stages of venture development, as
suggested by Sarasvathy and Dew (2005, p. 548), but also during the later stages of
growth through internationalization. While our firms face uncertainty during the
early stages of venture development they also experience uncertainty during the
early stages of internationalization when networking had no specific goals and
occurred spontaneously (see narratives and Table 3). Hence, we develop the
following proposition:
P3: The effectual logic of networking is more likely to occur in any conditions
of uncertainty throughout the SMEs growth, such as entering a new network
during foreign market entry, rather than only being used during the early
stages of new venture development.
6 Conclusions, Contributions, and Directions for Future Research
By combining the effectuation approach (Sarasvathy 2001) and internationalization
process theory (Johanson and Vahlne 2009) through the central concept of
networks, this paper examines the unintentional side of internationalization, which
has been regarded in the extant literature as an anomaly. The concept of networks is
an essential bridging point between the two theories because of their importance in
both entrepreneurship and internationalization (Sarasvathy et al. 2014: 79). It has
been well documented in IE literature that entrepreneurial firms lacking resources
find them through their networks (Blankenburg Holm et al. 1996; Chetty and
Agndal 2007). In our research, this represents the ‘‘who I know’’ aspect of
entrepreneurial means, and the principle of partnership instead of competitive
analysis in effectuation. Employing the effectuation approach, this study focuses on
SME networks at the entrepreneur level, and shows how uncertainty can be
exploited to enter foreign markets successfully. The findings show international-
ization opportunities occurring through effectual logic because of how, and with
whom, entrepreneurs formed networks, rather than their having predefined
internationalization goals. Consistent with Johanson and Vahlne (2003), the
internationalization process of effectual entrepreneurs is relationship-driven.
Expansion into international markets is related to the entrepreneur’s connected
networks, and the firm’s subsequent internationalization is related to its network
development.
In line with effectuation, our findings show that effectually formed network
relations influence the internationalization decision and determine which foreign
markets the firm enters, rather than vice versa. This confirms that effectuation
focuses on partnerships to make internationalization possible. Entrepreneurs are not
constrained by a lack of knowledge regarding markets or networks, but keep an
open mind to pursue opportunities to increase their means to internationalize. Firms
enter markets wherever they recognize an opportunity to commit to a network
relationship that will increase their means. This is similar to Johanson and Vahlne’s
view (2003,2009) that firms acquire knowledge through their relationships, which
Effectuation and Networking of Internationalizing SMEs
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subsequently enables them to enter new foreign markets where they can form new
relationships that serve as a base to enter other foreign markets. Entrepreneurs that
use effectuation rarely use traditional market research and planning, but value little
opportunities that ignite incremental path creation. An additional contribution to
theory building is that internationalizing firms do not follow purely effectual
networking strategies. Rather, they are balanced with causal strategies that are more
applicable in the early and uncertain stages of foreign market entry. Later, when
firms become established in foreign network structures, or when the situation allows
for some degree of prediction, causal decisions prevail. Hence, in this study
effectuation as a characteristic of entrepreneurial action (networking) exists as a
matter of degree, rather than a category diametrically opposed to causation, which is
consistent with previous research (Perry et al. 2011; Harms and Schiele 2012).
Integrating effectuation and the revisited Uppsala model through the network
concept offers several contributions. First, beyond the revisited Uppsala model
(Johanson and Vahlne 2009), effectuation theory helps to understand the
entrepreneurial and non-goal oriented side of internationalization at the level of
individual decision-making. Hence, it contributes to the IE literature by explaining
previously discarded phenomena of unintended internationalization that were
considered to be outliers. Second, this paper adds to the emerging effectuation
research that bring effectual principles into the context of internationalization
(Schweizer et al. 2010; Harms and Schiele 2012; Sarasvathy et al. 2014).
Consequently, it transfers effectuation theory beyond the domain of entrepreneur-
ship into international business (IB), which in turn develops the IE area. While
previous efforts to combine the revisited Uppsala model with the effectuation
process model (Schweizer et al. 2010; Sarasvathy et al. 2014) covered all facets of
the models, our study presents a narrower integration by focusing deeply on the
process of networking during internationalization. For instance, Sarasvathy et al.
(2014: 80) point to the two major differences between the models (the several cycles
of interaction with stakeholders and the non-exogenous nature of opportunities for
effectuation). Our study, meanwhile, highlights commonalities and differences by
concentrating on the network constructs of commitments, opportunities, trust,
uncertainty, and coordination (see Table 1). This focus on networking leads to the
third important contribution of our research. We provide a timely response to shift
the focus from the static picture of networks towards the dynamic process of
forming networks (Hoang and Antoncic 2003; Slotte-Kock and Coviello 2010; Jack
2010).
Our integration of effectuation approach and the revisited Uppsala model also
suggests several implications for network research in IE, regarding (1) theory
development, (2) unit of analysis, and (3) methodology. First, the potential of the
effectuation approach to explain the phenomenon of internationalization through
networks needs to be developed further. This paper shows that effectual networking
strategies are constantly balanced with the causal ones, which provides interesting
implications for international partner selection research. Scholars could examine
how strategic selection of international partners is intertwined with effectual non-
goal-oriented networking, and what factors influence the adherence to either of the
networking strategies (e.g., turbulent or stable markets; emerging or established
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industry; high or low psychic distance; mode of entry). They could also address
whether the effectual networking behavior of entrepreneurs differs depending on
their culture, and the culture of the host country where they internationalize. In
addition, they could examine whether there is a difference in effectual networking
behavior between domestic and international entrepreneurs. Furthermore, although
effectuation theory has been derived from a sample of expert entrepreneurs, it
focuses on decision-making through ‘‘improvisation, exploitation of contingencies,
and market creation through alliances and partnership’’ (Gabrielsson and
Gabrielsson 2013: 1358), and this can be observed in any kind of firm regardless
of their newness, size and foreignness. In this regard, effectuation principles have
been confirmed in established multinational corporations and non-for-profit
organizations at the managerial level (Blekman 2011). This shows that effectuation
has great potential to extend IE research further by broadening its domain to include
all kinds of firms regardless of their size and age (Giamartino et al. 1993; Coviello
and Jones 2004; Zucchella and Scabini 2007; Keupp and Gassmann 2009).
Second, bringing effectuation into internationalization through networks research
highlights the central role of an individual entrepreneur as a unit of analysis.
Effectuation is a very actor-centric phenomenon because it is based on identity,
knowledge and the personal relations of an entrepreneur who is the main proactive
agent of change (Sarasvathy 2001). For instance, the famous think-aloud verbal
protocols were conducted on expert entrepreneurs where an individual entrepreneur
served as a unit of analysis (Sarasvathy 2008). Network studies in IE, in turn, follow
more diverse traditions from entrepreneurship focusing on individual entrepreneurs
as a unit of analysis (Dodd and Patra 2002), and from the business network literature
focusing on organizations, dyads or nets of actors (Halinen and To
¨rnroos 1998).
Therefore, we propose that future studies on entrepreneurial networking during
internationalization could concentrate on individual entrepreneurs as the unit of
analysis. This approach is consistent with both effectuation research and the
business network tradition because entrepreneur’s networks at the individual level
often overlap with the networks of their ventures at the organizational level (Hite
and Hesterley 2001).
Third, by converging effectuation and the revisited Uppsala model this study
displays the complexity of networking in the internationalization context. To avoid
missing all the nuances of this process, we suggest scholars follow a qualitative
research strategy, for example a comparative case study or in-depth case study. This
strategy would capture the dynamic nature of effectuation unfolding through
internationalization, and explore the changes in the network relations of interna-
tional entrepreneurs. It would thereby add to the empirical qualitative studies on
effectuation that are lacking in this area, and advance effectuation research (Perry
et al. 2011). Additionally, it would respond to numerous calls for more qualitative
process-based studies on entrepreneurial networks (Hoang and Antoncic 2003;
Slotte-Kock and Coviello 2010; Venkataraman et al. 2012).
Finally, our paper has several practical implications. Effectuation logic shows
that since networks are unmanageable, they should be left alone to allow numerous
opportunities to appear for the firm. A contribution for entrepreneurs is that they
should encourage this organic development of networks rather than constrain it
Effectuation and Networking of Internationalizing SMEs
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through structured networks. In particular, networks in early internationalizing
entrepreneurial firms need not necessarily be planned, structured, and coordinated.
In addition, entrepreneurs could reconsider how they deal with a lack of knowledge
and uncertainty avoidance by applying an affordable loss approach. Hence, in their
rush to internationalize to benefit from windows of opportunity, managers need to
think in terms of co-creation with partners to increase their means and share
affordable loss. Entrepreneurs need not feel inadequate because they lack a goal-
oriented business plan. Equally, the contribution for policymakers who provide
funding opportunities for entrepreneurial firms is that they need not place huge
emphasis on goal-oriented business plans, but should incorporate the means-driven
approach. Policymakers need to consider alternative business models used in
entrepreneurial firms, and their ability to acquire resources through these networks
to co-create opportunities.
7 Limitations
We acknowledge that the theory of effectuation is still in its infancy and needs to
take several steps forward in order to gain conceptual and empirical rigor (Perry
et al. 2011). Consequently, the drawback of this research is the reliance on certain
effectuation concepts that have not been fully developed and tested, such as the
concepts of effectual alliance and pre-commitments. Nevertheless, this underde-
veloped status of certain effectuation concepts provides an opportunity for this study
to make theoretical advancement by combining effectuation theory with the
revisited Uppsala model. Since our paper focuses on examining one construct
(networks), future research could examine other central constructs that are included
in these two theories, such as opportunities and knowledge.
In addition, the results of this research and its interpretations are based on
qualitative case studies, which follow the principle of analytical, not statistical,
generalization. Scholars who adhere to the positivist and post-positivist research
paradigms may consider this to be a limitation. Therefore, the robustness and
generalization of the present research can be tested by developing a questionnaire
and conducting a quantitative survey so that statistical generalizations could be
made. This quantitative survey could be conducted in various national and cultural
contexts.
Acknowledgments The authors are grateful to Jan Johanson, Jan-Erik Vahlne, Saras Sarasvathy,
Benjamin Oviatt, Patricia McDougall, Cecilia Pahlberg, Igor Kalinic, Tuija Mainela, Vesa Puhakka and
Anita Juho for their comments on earlier drafts of this manuscript. Special gratitude goes to Alex Frost
from Comword and Charles Campbell for checking the language in this paper.
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