Global Entrepreneurship - Lecture 5 Notes

Business Clusters, Virtual Teams, Networks and Diaspora Entrepreneurship

Question 1 Breakdown

  • Task: Analyze an FT article.
    • Identify concepts, theories, ideas, and entrepreneurial characteristics discussed in lectures and seminars (33% of the mark).
    • Select three identified items and explain your understanding based on lecture/seminar definitions (33% of the mark).
    • Synthesize the three defined terms, showing how they interact to promote entrepreneurial theory and practice (34% of the mark).

Abstract Analysis

  • Discuss how a provided abstract:
    • Explains points using concepts/theories (from lectures) and practical examples (from lectures and seminars).
    • Differs or contradicts lectures/seminars/reading, referencing concepts/theories and practical examples.

Main Features of Clusters

  • High proportion of small and very small firms.
  • Geographical clustering of firms.
  • Firms specialized in various stages of production; intense specialisation.
  • Dense social and economic networks.
  • Blend of competition and cooperation.
  • Rapid, informal diffusion of information, ideas, and know-how.
  • Adaptability and flexibility.

Examples of Clusters by Location and Industry

  • Seattle: Aircraft equipment and design, boat and ship building, metal fabrication.
  • Oregon: Electrical measuring equipment, woodworking equipment, logging and lumber supplies.
  • Wisconsin/Iowa/Illinois: Agricultural equipment.
  • Boise: Sawmills.
  • Minneapolis: Cardiovascular equipment and services.
  • Western Michigan: Office and institutional furniture.
  • Michigan: Clocks.
  • Detroit: Auto equipment and parts.
  • Boston: Mutual funds, biotechnology, software and networking, venture capital.
  • Providence: Jewelry, marine equipment.
  • Western Massachusetts: Polymers, farm machinery.
  • Las Vegas: Amusements and casinos, small airlines.
  • Phoenix: Helicopters, semiconductors, electronic testing labs, optics.
  • Omaha: Telemarketing, hotel reservations, credit card processing.
  • Wichita: Light aircraft, farm equipment.
  • Warsaw, Indiana: Orthopedic devices.
  • Cleveland/Louisville: Paints and coatings.
  • Nashville/Rochester: Imaging equipment.
  • Hartford: Insurance.
  • New York City: Financial services, advertising, publishing, multimedia.
  • Dallas: Real estate development.
  • Carlsbad: Golf equipment.
  • Louisville: Hospital management.
  • Dalton, Georgia: Carpets.
  • Pittsburgh: Advanced materials, energy.
  • Baton Rouge/New Orleans: Specialty foods.
  • Los Angeles area: Defense and aerospace, entertainment.
  • Silicon Valley: Microelectronics, biotechnology, venture capital.
  • Colorado: Computer-integrated systems and programming, engineering services, mining and oil and gas exploration.
  • Southeastern Texas/Louisiana: Chemicals.
  • Pennsylvania/New Jersey: Pharmaceuticals.
  • North Carolina: Household furniture, synthetic fibers, hosiery.
  • Southern Florida: Health technology, computers.

The Cambridge Region Cluster

  • Rapid growth since the 1960s.
  • In 1998, there were 800 high-tech firms (manufacturing & services) with 27,000 employees around the University of Cambridge.
  • Today, there are 5000 firms, 61,000 employees, and £15.5bn in total revenue.
  • Regional collective learning occurs.
  • Active entrepreneur and firm spin-offs, inter-firm and organization networking, and a local labor market exist.
  • Local firms participate in global and national innovation networks (intra-region & extra-region), research collaboration, and labor market processes.
  • Regional collective learning is complemented by bringing supplementary technological and managerial expertise from ‘global pipelines’.

Silicon Valley

  • Located in the San Francisco Bay Area, North California, USA.
  • Named for the vast number of firms producing the silicon chip.
  • Silicon is the basic raw material for the production of semiconductors.

Silicon Valley - Hype

  • Three ground-breaking technologies developed:
    • Integrated circuit
    • Micro-processors
    • Personal Computer (PC)
  • More than 250,000 employees in ICT-related industries.
  • Silicon Valley began inventing and innovating on transistors, radio-waves, televisions, radios, and military electronics.

Silicon Valley - Critical Factors for Success

  • Birth dated back to the 1950s, rapid growth in the 1970s.
  • Three interconnected factors and two key persons:
    • Technologically and economically oriented university (Stanford University).
    • Electro-technical enterprises (e.g., Hewlett Packard).
    • Military and aeronautics institutions and bases with high semiconductor product demand.
    • Fred Terman (Stanford University Vice President): promoted spin-off enterprises.
    • Bill Shockley (Nobel-prize-winning inventor of the transistor).

Stanford Industrial Park

  • Post-WWII: increased demand for university education.
  • Fred Terman creates the Stanford Industrial Park.
    • Terman was the Vice-Chancellor of the Engineering School.
    • The University rents facilities and land to high-tech firms.
    • Examples: Varian Associates, H.P., Kodak, General Electric, Lockheed.
  • Innovation drives the university to secure funding from the US government and the Army.
  • Stanford patents innovations, licenses them, and reinvests profits in R&D.

Pioneers

  • Varian Associates: first company to create electromagnetic waves.
    • Commissioned to develop military radars.
  • Hewlett Packard subsidizes postgraduate fees for employees to acquire a master’s degree from Stanford.
  • Companies in the research park collaborate with the US Ministry of Defence on military and high-tech projects.
  • Quote from Frederic Terman: "When we set out to create a community of technical scholars in Silicon Valley, there wasn't much here and the rest of the world looked awfully big. Now a lot of the rest of the world is here”.

Portugal Business Clusters

  • Viana de Castelo: Cotton textiles, Leather
  • Bragança: Wine
  • Braga: Casual shoes
  • Vila Real: Dairy
  • Porto: Clothing
  • Aveiro: Automotive components, Clothing
  • Viseu: Dress shoes, Red wine
  • Guarda: Cork stoppers, Wool textiles
  • Coimbra: Ceramic tiles
  • Leiria: Pulp and paper, Plastic molds
  • Castelo Branco: Clothing, Pine wood furniture
  • Santarem: Fruit
  • Portalegre: Sheep and goats
  • Lisbon: Clothing, Tourism
  • Setúbal: Leather
  • Évora: Automotive, Cork-transformed products, Ornamental stone, Red wine
  • Beja: Tourism, Horticulture
  • Faro: Cork agglomerates, Tourism

Benefits of Clusters (Porter, 1998)

  • Allows each member to benefit as if it had greater scale or as if it had joined with others without sacrificing its flexibility.
  • New companies grow in existing clusters rather than in isolated locations.
  • Individuals perceive market opportunities and customer needs more easily.
  • Skilled workforce, needed skills, know-how, and assets are already available.
  • Entrepreneurs exploit networks, relationships, and collaborations with other enterprises and research centers.
  • Entrepreneurs are driven more by enthusiasm than profits; relentless innovation; imagination and flexible working.

Benefits of Clusters - Positive Feedback Loop

  • New business creation is affected by a positive feedback loop.
  • As the cluster develops and prospers, opportunities and competitive resources emerge, which benefit all members.
  • Information, creativity, and entrepreneurial talent are available for reinvestment.
  • Workforce mobility, talent recruitment, and spin-offs are inherent.
  • Entrepreneurs leave larger companies or universities to start their own companies (spin-offs) to exploit market opportunities, new technologies, and innovations.

Competitive Advantages of Clusters for Start-ups

  • Focused in terms of business, competencies, and resource destination.
    • One product/service, single part of the production cycle or value chain.
  • Develop capabilities and relationships for quick and appropriate problem-solving.
  • Aided advantageously by collective resources otherwise inaccessible.
  • Work in a stimulating environment enriched by competitive pressure, rivalry, information, and examples.
    • Understand mutual benefits from research and innovation collaboration.
  • Work in a context of trust where even smaller producers feel protected and respected by the community.

Network Influences

  • Networking is a powerful tool for the entrepreneur.
  • Networks help founders of international new ventures/born-globals identify international business opportunities.
  • Rapid and dispersed involvement in foreign markets is linked to opportunities emerging from a network of relationships.
  • Networks have more influence on founders’ country choices than psychic distance.
  • Networks help entrepreneurs identify international opportunities, establish credibility, and lead to strategic alliances/cooperative strategies.
  • Entrepreneurs use established cross-border network links to explore where and how quickly to exploit opportunities in foreign locations.

Three Key Aspects of Networks Affecting Internationalization Speed

  • Strength of network ties

    • Strong ties:
      • Durable, involve emotional investment, trust, reliability.
      • Number rarely exceeds 20, often 5-10.
      • Not the most important for internationalization.
    • Weak ties:
      • Relationships with customers, suppliers, others; friendly and business-like.
      • Far more numerous and grow quickly.
      • Especially important to maintain with brokers (‘middlemen’ who establish ties between actors).
      • Positively and significantly impact internationalization speed.

  • Size of the network

    • Larger networks are associated with faster venture internationalization and more rapid increases in country scope.

  • Density of network

    • Sparse networks:
      • Good at gathering new information.
      • Believed to produce new information better than dense networks.
    • Dense networks:
      • Useful when trust and reciprocity are vital.
      • Trust is stronger in a dense network due to penalties for opportunistic behavior.
      • Provide relatively efficient support for internationalization.

From Networks to Virtual Teams

  • Virtual collaboration with multiple locations.
    • Makes use of knowledge and skills of people around the world.
    • Faster & cost-effective technology makes connectivity easy and effective.
  • Caution: not a complete replacement for face-to-face communication.
    • Difficulties in reading nonverbal cues.
    • Timing of communication can be complicated.
    • Misunderstanding the message.
  • Needs:
    • Take time to create bonds and trust between virtual teams.
    • Establish guidelines to overcome language and cultural barriers.
    • Ensure everyone feels free to ask for clarification.
    • Set the expectations, the decision-making process, and disagreement methods.
    • Set clear agenda and follow-up action plans for each meeting.

Diaspora Networks and Entrepreneurship

  • Diaspora: ethnically defined community outside the country of origin.
  • Aspects defining density and usefulness:
    • Definition of origin (country; region; city; village).
    • Living proximity in the host country (specific cities, neighborhoods).
    • Shared language and extent of use.
    • Shared religion and influence on social norms, values, and behaviors.
    • Economic relationships of diaspora network members and level of intra-network support.
    • Level of inequality and power distance among members.

What Diaspora Networks Offer Ethnic Entrepreneurs

  • Social integration in the new environment.
  • Information and market knowledge.
  • Economic support.
  • Markets for ethnic ventures.
  • But also:
    • Pressure to support the network.
    • Requirement to source from other ethnic entrepreneurs.
    • Limitation to expansion and growth prospects if unable to attract customers outside the diaspora community.

Food for Thought

  • What advantages can a cluster offer to an international entrepreneurial start-up?
  • What types of network support does a technology-intensive international new venture require?

Reading

  • Sarika, P. & Mitra, J. (2023) Chapters 7, 8 and 9
  • Porter, M.E. 1998. Clusters and the new economics of competition. Harvard Business Review. 76 (6): 77–90.