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Management International ReviewJournal of International Business ISSN 0938-8249 Manag Int RevDOI 10.1007/s11575-014-0209-4

Internationalisation for Survival: The Caseof New Ventures

Francisco Puig, Miguel González-Loureiro & Pervez N. Ghauri

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RESEARCH ARTICLE

Internationalisation for Survival: The Case of NewVentures

Francisco Puig • Miguel Gonzalez-Loureiro •

Pervez N. Ghauri

Received: 27 July 2012 / Revised: 22 March 2014 / Accepted: 28 April 2014

� Springer-Verlag Berlin Heidelberg 2014

Abstract The aim is to deepen our understanding about the internationalisation–

survival relationship in the case of new ventures in traditional manufacturing sec-

tors. Hypotheses were tested through Cox’s proportional hazard regressions on a

sample of 3,350 firms aged 10 years or less, from the textile-clothing and footwear

industry in Spain. A vast majority of new ventures that were both established and

closed down over that time are purely domestic firms. That means, a firm increases

its likelihood of survival when it becomes international. The highest failure risk

relates to those new ventures which are territorially agglomerated and are domes-

tically oriented. Internationalisation is an unconditional strategy for surviving in the

case of new manufacturing ventures. In addition, location and efficiency in the

activity both matter when operating in international markets. Statistical tests show

that an interactive effect of agglomeration and internationalisation exists, while no

support for the interaction between age and internationalisation is found. Future

research should investigate the trade-off between growth and survival forces to

determine the optimum moment to go international and to characterise the strategic

choices followed by those new ventures that survive longest.

Keywords Survival � Internationalisation � Traditional manufacturing sector �New ventures

F. Puig (&)

University of Valencia, Valencia, Spain

e-mail: francisco.puig@uv.es

M. Gonzalez-Loureiro

University of Vigo, Vigo, Spain

P. N. Ghauri

King’s College, London, UK

P. N. Ghauri

University of Vaasa, Vaasa, Finland

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DOI 10.1007/s11575-014-0209-4

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1 Introduction

The current economic climate has brought internationalisation to the fore as a key

strategy for surviving, particularly in traditional manufacturing sectors such as the

textile and footwear industry (Coucke and Sleuwaegen 2008). This industry has

suffered from a dramatic increase in rivalry and competence stemming from a

global tendency towards deregulation of international markets (Scott 2006;

Abecassis-Moedas 2007). This has meant a constant decline in competitiveness in

this sector in developed economies that, according to Eurostat data, has caused a

contraction in their output and jobs of an average of around 15–22 % in the EU over

the period 2004–2009 (Puig and Marques 2010).

Globalisation is considered to benefit firms in their competitive efforts, search for

optimum locations and efficiencies (Buckley and Ghauri 2004). However, new

manufacturing ventures usually see globalisation as a threat, bearing in mind that

quite often these firms operate mainly in domestic markets and have fewer resources

than multinationals. This calls for research on how traditional manufacturing sectors

may compete and survive in this fierce competitive context (Jones and Hayes 2004).

The entrepreneurship literature on the survival of new ventures suggests that

entrepreneur education, the availability of financial resources, the institutional-

business frame, and macroeconomic conditions at the time of establishment are key

factors to be considered (Holmes et al. 2010). Researchers in the international

business field have analysed the strategic decisions made by new ventures

concerning market selection or the geographical scope of their actions and the effect

of these on performance (Sapienza et al. 2006; Giovannetti et al. 2011). However,

how and to what extent internationalisation affects the performance of new ventures

is still inconclusive.

Meta-analysis by Bausch and Krist (2007) suggested that disagreement in the

internationalisation–performance relationship is rooted in a type of context

dependence, calling for research on the identification of moderators rather than

principles or generalisations. In the case of traditional manufacturing ventures,

other key factors should also be considered, such as location and activity (Puig

et al. 2009), and the performance analysed should include survival and failure

rates (Mudambi and Zahra 2007).Thus, the aim of this study is to analyse the

internationalisation–survival relationship in the context of new ventures from a

traditional manufacturing sector. The remainder of the paper is organised as

follows. First the rationale for the hypotheses is introduced. Then the sample

selection and statistical methods are described. Findings are discussed and

conclusions in terms of theory and practice are drawn, which point to some

avenues for future research.

2 Literature on the Internationalisation–Survival Relationship

A search of some keywords was conducted in the Social Sciences Citation Index

(SSCI) and in Scopus databases to check the dynamics of the internationalisation–

survival relationship throughout the literature. The search included the expression

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[‘‘international*’’ and ‘‘surviv*’’] in article titles, keywords and abstracts. The

initial list was screened to select only business-related literature. For the period

1956–2012,1 SSCI returned 466 results (281 since 1992) and Scopus 155 (150

since 1992). Articles not dealing with the topic directly were excluded from the

analysis, such as articles on the survival of central banks and similar topics.

Research dealing with survival and internationalisation has been conducted for

different types of international enterprises, ranging from multinational corporations

(MNCs) and their subsidiaries (Delios and Beamish 2001; Lu and Beamish 2006;

Coucke and Sleuwaegen 2008) to international joint ventures (Lu and Hebert 2005;

Meschi and Riccio 2008), new ventures (Mudambi and Zahra 2007; Chen et al.

2009; Zou et al. 2010), large enterprises, exporter plants and franchisees

(Mascarenhas 1997; Bernard and Jensen 1999; Thomas et al. 2007; Kalnins

2005), to small and medium-sized enterprises (SMEs) (Lu and Beamish 2001;

Westhead et al. 2001; Lee et al. 2012).

Two trends for the period considered and the activity sectors for the samples

are detected. First, many articles use a longitudinal sample in discussing the

effects of both age and cohort (Lu and Beamish 2006; Thomas et al. 2007;

Dhanaraj and Beamish 2009; Manolova et al. 2010). Second, high-tech or

technology-based sectors are often selected in empirical articles (Giarratana and

Torrisi 2010; Coeurderoy et al. 2012; Khalid and Larimo 2012). The study by

Bernard and Jensen (1999) dealing with exporter plants is a notable exception.

Nevertheless, control variables related to the sector a firm belongs to are usually

split into several different categories in longitudinal samples, thus presenting

mixed findings. This problem may be rooted in the typical classification of sectors

and the lack of differences between them: industrial activities are frequently quite

similar in terms of survival, but are essentially different with regard to services

(Westhead et al. 2001; Giovannetti et al. 2011). This may lead unsatisfactory

statistical results because of the lack of robust differences among the sectors

analysed. In addition, a firm may change its sector of activity at any time during

the period analysed. This might induce some noise in the results when using

multi-sectoral samples.

The methodology for empirical tests also deserves attention to identify the best

method for delivering robust results. Methods include logit/probit regressions

(Mudambi and Zahra 2007; Coucke and Sleuwaegen 2008; Schueffel et al. 2011;

Lee et al. 2012), Cox’s proportional hazard (Lu and Hebert 2005; Meschi and

Riccio 2008; Giovannetti et al. 2011), multivariate regression (Chen et al. 2009;

Manolova et al. 2010), and structural equation models (Zou et al. 2010; Khalid

and Larimo 2012). The method should take into consideration how events occur

over time. Cox’s regression is one of the best choices for this because it is a

duration model, while other approaches fail to consider time in the model.

1 The longitudinal data show increasing relevance for internationalisation and survival in the last

20 years, particularly since 2007. In previous periods, an average of *8–10 papers each year were

published. After 2007, the average number increased to 25–30 papers per year, with the highest number in

2010, when 40 were published.

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3 The Research Model: Rationale for Hypotheses

The rationale for hypotheses on the survival of a new venture in relation to

internationalisation is now introduced on the basis of an in-depth literature review.

3.1 Effect of Internationalisation on the Survival of New Ventures

How and to what extent internationalisation affects the performance of new ventures

are some of the most controversial issues in the literature. To deal with these issues,

arguments for and against the hypothesis that internationalisation increases the

survival rate of new ventures are introduced. Then arguments for this hypothesis in

the particular case of manufacturing industries are provided.

Theoretically, two opposing forces act when a new firm tries to position itself in

international markets: growth and survival (Sapienza et al. 2006). New ventures that

are seeking to grow may propose international markets as an alternative to take

advantage of their higher growth rate according to the experience curve. This is

critical for several types of industries and contexts, and in particular for traditional

manufacturing industries, which are suffering from high failure rates across Europe.

Ursic and Czinkota (1984) claimed that experience curve effects are key in

explaining the international activities of younger firms. This is mainly because

internationalisation is frequently the only alternative available to ventures to reach a

relevant size to be able to take advantage of scale economies. Therefore, younger

ventures can utilize their higher growth capability and increase their size via

international activities, which will lead to greater production volume (Lu and

Beamish 2001). However, they are also exposed to a greater risk of failure because

of liabilities in terms of their newness, foreignness and outsidership (Stinchcombe

1965; Zaheer and Mosakowski 1997; Johanson and Vahlne 2009).

New ventures from traditional industries can expect that internationalisation will

increase their survival likelihood. The hypercompetitive environment pushes them

to seek new markets (for either selling or sourcing) outside the domestic

environment (Buckley and Ghauri 2004; Coucke and Sleuwaegen 2008). A new

manufacturing venture that engages in internationalisation diversifies and enlarges

its markets and reduces its dependency on the evolution of the domestic market

(Zahra et al. 2000).

McDougall et al. (2003) and Westhead et al. (2001) found that exporters grew

more than non-exporters. McDougall and Oviatt (1996) and Mudambi and Zahra

(2007) found that international new ventures (INVs) suffer no performance penalties

in comparison to their purely domestic counterparts. Coeurderoy et al. (2012) found

that new ventures with both high and low exposure to export sales significantly

improved their survival likelihood, while those following a ‘‘stuck in the middle’’

international strategy showed the poorest survival rates. Those authors claim that

the latter strategy is more perilous because those ventures need to make decision on

how to distribute their limited resources between the international and the domestic

markets, which leads to a risk of having unclear priorities. By contrast, those with a

more focused market strategy (i.e. high and low exposure to exports) have a clearer

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vision of where to direct their efforts. Therefore a clear commitment strategy

relative to domestic and international markets seems to be critical for survival.

Connections between inward and outward sales were also considered in previous

research exporting and importing by SMEs (Welch and Luostarinen 1993;

Korhonen et al. 1996; Freeman and Cavusgil 2007). In the case of importers,

international sourcing offers opportunities to compare different goods and prices so

that the best choice can be selected (Lye and Hamilton 2001). An importer will have

advantages in terms of higher availability of offers to make comparisons, so a new

manufacturing venture will have a higher likelihood of survival than a non-importer

counterpart (Wagner 2012).

In summary, empirical arguments for the internationalisation effect point to high

dependence on methodological-related issues. Therefore, for the specific case of

INVs in traditional manufacturing, we claim that being an international venture is

better than being a purely domestic firm. Accordingly, we formulate our first

hypothesis as follows:

Hypothesis 1: The internationalisation of a new manufacturing venture

decreases its failure risk.

3.2 Effect of Age on the Internationalisation–Survival Relationship

The existence of a critical period between inception of a new venture and its entry to

international markets is implicit throughout the literature on this field. How

organisational age affects INV survival or failure is another key theoretical issue for

discussion. A theoretical proposal made by Sapienza et al. (2006) is that the timing

of internationalisation matters. They proposed that the younger a firm is on initiation

of the internationalisation process, the greater is the positive effect on growth, but

the greater is the negative impact on survival.

From another perspective, there is also an implicit non-linear relationship, as well

as some contradictions, regarding the born global (BG) phenomenon. BG INVs

challenge the more general claim by entering multiple international markets at a

high speed from a very early age (Knight and Cavusgil 1996; Moen and Servais

2002). Virtually all BG studies have been conducted for high-tech industries (Rialp

et al. 2005), so there is a lack of theory about whether and how this BG pattern

could be successfully applied by new ventures established in traditional manufac-

turing industries and competing in low-tech industries.

In the case of SMEs, the liabilities of newness and foreignness on inception may

nullify the advantage of their higher learning capabilities (Lee et al. 2012). Carr

et al. (2010) found that the age of a firm positively impacts higher survival rates in

international markets and that among surviving internationalised ventures, younger

firms show higher short-term growth rates than their older counterparts. Schueffel

et al. (2011) suggested similar relationships in terms of the moderating effect of firm

age on survival and growth when entering international markets. Bausch and Krist

(2007) found that firm age has a strong impact on the proportion of performance

variance that can be attributed to internationalisation.

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At inception, the liability of newness creates hurdles for internationalisation of

new ventures. However, internationalisation should be undertaken not too long after

establishment, otherwise inertia will hinder successful internationalisation (Sapien-

za et al. 2006). This assumption points to a need for organisational unlearning of

routines that, although useful for the internal market, are not suitable for the

internationalisation challenge. Prashantham and Young (2011) pointed out the need

for unlearning and relearning in the case of rapid internationalisers in implementing

client strategies. Furthermore, Coeurderoy et al. (2012) proposed that older firms

with more accumulated expertise in international markets will have higher survival

likelihood than their counterparts that have accumulated less valuable knowledge.

De Clercq et al. (2005) suggested that the international learning effort of a firm is

positively associated with the degree of internationalisation. Zettinig and Benson-

Rea (2008) suggested a similar implicit idea in their ‘free from routines’ assertion in

which they merged two viewpoints: the superior ability for adaptation of new firms

and the increasing experience-based routines they gain over time. Although both are

counterpoised forces, inertia is crucial for understanding the optimal timing of entry.

Therefore, our second hypothesis is introduced as follows:

Hypothesis 2: The longer the time period between inception and internation-

alisation of a new manufacturing venture, the higher is its failure risk.

3.3 Effect of Location on the Internationalisation–Survival Relationship

Throughout the literature investigated for this study, the effect of location on the

internationalisation–survival relationship arises as one of the less researched topics,

although there are some papers that consider each issue separately (Pla-Barber and

Puig 2009; Wennberg and Lindqvist 2010; Keen and Etemad 2012).

In manufacturing industries, location is particularly relevant in two situations:

(a) when the firm is concentrated in a geographical agglomeration, shaping an

industrial cluster; and (b) when the cluster is in a declining or mature stage. In this

situation, negative spillovers can be expected (Potter and Watts 2011).

The explanation for this unfavourable impact may lie in the competitive

dynamics of agglomerated areas (Staber 2001). Firms within such an area are highly

interconnected and they compete by cooperating (called ‘‘co-opetition’’ by

proponents of game theory; Brandenburger and Nalebuff 1996). Hence, the risk

of co-failure would be higher when the agglomeration enters a declining stage (Scott

2006). Therefore, firms are forced to search for a niche in international markets to

survive in a globalised and extremely competitive environment (Puig et al. 2009).

From an international business viewpoint, it can be inferred that firms located in

agglomerations compete with each other for scarce resources. Since overall sales

steadily decrease in a declining agglomeration, new ventures find no support for

input–output relationships. Exporters thus search for new selling markets outside the

agglomeration while avoiding low-cost strategies imposed by the ecology of the

agglomeration (Staber 2001). According to Abecassis-Moedas (2007) and Coucke

and Sleuwaegen (2008), clustered manufacturing INVs can be expected to survive

better than their purely domestic counterparts. This is because the latter will be

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forced to follow low-cost strategies, while the former will find different options

internationally. Moreover, importers will benefit from buying internationally and

seizing the above mentioned low-cost strategies imposed within the agglomeration,

where competition is becoming increasingly stronger (Pla-Barber and Puig 2009).

Therefore, higher survival rates can be expected among importers of components

than among purely domestic ventures.

However, in the current globalised context, it is not clear if new manufacturing

firms that are domestic and not clustered will survive better than their internation-

alised counterparts. Delgado et al. (2010) argued that an isolated new firm could find

higher business opportunities than an agglomerated one because of crowding out or

displacement effects in the clustered area. Thus, new entrepreneurs will prefer a

non-agglomerated location when the cluster is in a declining stage because

opportunities are higher outside such areas. Sorenson and Audia (2000) showed that

among 5,119 shoe manufacturing plants in the USA, higher failure rates were found

for plants located in concentrated regions. Wennberg and Lindqvist (2010) cited

controversial results from prior research, which led them to conclude that the effect

of agglomeration on the creation and survival of new firms depends highly on the

level of aggregation–agglomeration and the type of industry analysed.

To summarise, when domestic markets show signs of stagnation, the ecology of a

cluster is a negative factor for purely domestic firms, whereas INVs located in the

agglomeration will have higher prospects of finding new business opportunities.

Hence, we propose our third hypothesis as follows:

Hypothesis 3: New manufacturing ventures located in geographical agglom-

erations and operating in international markets have a lower failure risk than

their purely domestic counterparts.

3.4 Effect of Activity on the Internationalisation–Survival Relationship

According to Abecassis-Moedas (2007) and Puig and Marques (2010), several

factors influence success in traditional manufacturing sectors. From a strategic

perspective, implementation of a business model2 is a relevant factor. However, a

transition from local to international is not easy, even for more competitive and

efficient new firms. This is because such a process needs time and a considerable

amount of dedicated resources (Prange and Verdier 2011).

In the initial stages of the process, the key decision is how to enter the

international arena. The new firm may have to adapt its business model to meet the

needs of this new market, so the firm might modify some routines to suit the new

conditions (Sapienza et al. 2006). This is perhaps a critical point since Khalid and

Larimo (2012) found that, short after the initial entry, the efficiency of the firms in

their sample decreased. This decline occur at times, mainly because the new

routines are normally still under development and the organisation is following a

2 Similar to Morris et al. (2006), we use business models to explain firms according to their competitive

characteristics. According to Zott et al. (2011), this can be defined as the way a firm does business. This

affects the organisational structure, location and subsector decisions, the degree of vertical integration

(make or buy), and size, among others.

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new learning curve. Thus, it is likely that time is required for unlearning–relearning

of less useful routines inherited from its domestic experience (Prashantham and

Young 2011). This weakens the venture in the short term, so it becomes more

vulnerable (Khalid and Larimo 2012; Ruigrok and Wagner 2003; Ruigrok et al.

2007). For instance, Wagner (2012) found that exporters, importers, and two-way

traders were significantly more productive when they were purely domestic firms

than shortly after their first entry to international markets. This implies that ventures

seeking to enter the international market must be efficiently managed before their

first entry, because otherwise the performance penalty they suffer afterwards may

lead to failure.

Nevertheless, resource-based approaches emphasise that it is not a question of

total size but how much of those scarce resources allow a firm to be efficient

(Sapienza et al. 2006). Hence INVs should allocate more or fewer resources to one

or other market (domestic vs. international) depending on market expectations and

profitability. If there is a certain level of underutilisation of assets, then an efficient

INV can benefit from new business opportunities by increasing production and

making full use of its idle capacity (Shrader et al. 2000).

Under this assumption, when comparing efficient international and purely

domestic manufacturing firms, it can be expected that the survival likelihood will be

higher for the former. This is mainly because having developed the required

combination of exploitative and explorative capabilities on first entry, such firms are

more alert to taking advantage of new business opportunities. We can hence propose

our fourth hypothesis as follows:

Hypothesis 4: New manufacturing ventures that are efficient and operate in

international markets will have a lower failure risk than efficient new ventures

that only operate in domestic markets.

4 Methodology and Procedures

The criteria and the rationale for selecting the population and variables for our

empirical tests are related to venture type and activity and the statistical technique

used, explained as follows.

4.1 Rationale for Sample Selection

We selected the Spanish textile and footwear industry3 for this study. This sector

and geographical area were chosen for three main reasons: (1) the changes and

challenges facing this type of manufacturers in their activities stemming from

increased international competitors, which are relevant to virtually all traditional

manufacturing industries in developed Western economies; (2) the significant albeit

declining contribution of this sector to the Spanish industrial economy (6.2 % of

3 NACE-93 rev.1 codes 17.1–17.7, 18.2 and 19.3.

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industrial GDP in 2000, 3.8 % in 20084 and over 145,000 employees); and (3) the

historical trend to agglomerate territorially in clusters in this industry.

The sample is comprised of new manufacturing ventures established from January

1, 2002 to December 31, 2011. These dates were selected for two main reasons. First,

all the firms established in this period that become international can be termed INVs5

(B10 years). Second, this period includes the start of significant openness to

worldwide competition agreements in this market. In addition, 2011 was the last

available full year on the date of sample collection (April 2012), thus a decade back

from the end of 2011 was set as a requisite to obtain an appropriate time series.

Statistical information was gathered from the SABI6 database. The initial number

of firms in our sample was 3,618. A final number of 3,350 firms was achieved after

excluding firms for which there were irregular data or a mistake in the information

(e.g., if required data were missing, such as establishment date or date of status

change, or if any contradictory values were present).

4.2 Variables and Statistical Methods

4.2.1 Variables

We define five variables (three continuous and two dummies) categorised as

dependent or independent. The dependent variable is survival time (ST). The

independent variables are internationalisation (INT), activity (EFF), age (YOUTH),

and location (AGG).

Survival time (ST) Although initial research on the internationalisation effect used

financial values and profitability (Chiao et al. 2006), subsequent studies encouraged

the use of indicators less sensitive to market oscillations (Mudambi and Zahra

2007). Therefore, we used the survival time calculated as the firm’s status

(censorship) on December 31, 2011, as follows:

• Active firm = (December 31, 2011) - (establishment date).

• Non-active firm = (date of status change) - (establishment date).

Internationalisation (INT) This is a dummy variable that can take a value of 0 for no

international activity or 1 for any international activity (export or/and import).7 This

categorisation has been used by several authors in this type of research (Westhead

4 Last available official data from the Spanish National Institute of Statistics (INE) (accessed 21 July,

2012).5 In the literature there is no consensus on the age that defines ‘‘new internationalised firms’’. For

example, following Oviatt and McDougall’s definition of INV (1994), Zahra et al. (2000) included

ventures aged 6 or less years, while Bantel (1998) used 12 years.6 The SABI database is provided by Bureau Van Dijk and Informa. It provides data from the Official

Commercial Register and additional information such as establishment date, date of status change (active,

non-active) and international activity. It is widely used in research on Spanish manufacturing firms (Puig

et al. 2009).7 Note that data provided by the SABI database refer to the last year available. It was not possible to

obtain any information on possible discontinuities in international activity or the starting date for

international activity for each firm.

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et al. 2001; Coucke and Sleuwaegen 2008; Schueffel et al. 2011). According to

Hypothesis 1, becoming international is a better choice than remaining as a purely

domestic new venture. This is why we use of INT as a dummy variable to compare

survival between international and purely domestic ventures. We should acknowl-

edge that this measure, although useful for the purposes of our study, offers only

limited information regarding the degree of internationalisation.

Age (YOUTH) This is the year of establishment of new ventures and is a proxy for

cumulative experience. A firm that is close to failure is expected to dramatically

decrease their assets and employees (Jovanovic 1982; Manjon-Antolın and Arauzo-

Carod 2008), thus it seems more suitable to consider age rather than other variables

(e.g., size) to analyse the internationalisation–survival relationship. This variable

only takes values between 2001 and 2010. The higher the value of this variable, the

younger is the firm. Thus, for clearer interpretability of the results, we call this

variable YOUTH. We use it to test Hypothesis 2 regarding the effect of age on the

internationalisation–survival relationship.

Location (AGG) This is a density or proximity indicator of the location of firms

within the territory (Staber 2001; Cromley and Hanink 2012). As there are no

thresholds commonly accepted for defining an agglomeration (O’Donoghue and

Gleave 2004), for our discussion we define and categorise a specialisation

coefficient (SC) as a dummy variable: 1 = agglomerated (SC [ 1.4) and 0 = non-

agglomerated (SC B 1.4), as used by other authors (Puig et al. 2009).8 This means

that an agglomerated area that specialises in textile and footwear manufacture is a

location where the number of employees working in this industry [1.4 times the

average for that industry in Spain. This operationalisation resulted in two categories:

new ventures established and located in an agglomerated area and those located in

an area with a low agglomerated profile in this industry. We use this variable to

check the validity of Hypothesis 3.

Efficiency (EFF) This continuous variable reflects the level of efficiency in activity

(competitiveness) by fitting the business model of a firm to the environmental

conditions. We use a proxy indicator, the average return on assets (ROA), following

Bausch and Krist (2007). This is calculated as the ratio of the percentage of

operating profit to total assets. This variable is used to test Hypothesis 4 in

continuous terms, that is, how much the failure risk changes when ROA varies.

4.2.2 Statistical Methods

The main purpose of this study is to predict and estimate the failure risk for new

ventures. Thus, we used proportional Cox’s hazard rate regression (Cox 1972), as it

8 We have the limitation that the data are aggregated at provincial level (and are not specific or at the

municipal level). If a province exhibits SC = 1.4 for the textile and footwear industry, this means that the

degree of concentration for this manufacturing industry is 1.4 times the overall Spanish average.

Municipal or individual SCs may vary over time, leading to changes in the national average. However, in

aggregate form, the fact of being agglomerated (SC [ 1.4) or not (SC B 1.4) does not change

substantially over time. Therefore, a dichotomous codification in terms of 0 (non-agglomerated) or 1

(agglomerated) is closer to reality at the present time.

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is increasingly used in management and internationalisation research (Fuentelsaz

et al. 2004; Holmes et al. 2010).

Following Audretsch and Mahmood (1995) and Holmes et al. (2010), this

regression is based on a number of observations of different variables at points in

time t1, t2, …, tn[ T, where T is a random variable (discrete or continuous). The use

of this type of regression allows estimation of the likelihood that the event ‘‘failure’’

will occur in the next period. In this case, ‘‘failure’’ is cessation, settlement, or

closure of the new venture. As this process may have started at different moments in

time, the random variable T takes a cumulative probability or a distribution

function:

F tð Þ ¼Z t

0

f sð Þds ¼ PrðT � tÞ F tð Þ ¼Z t

0

f sð Þds ¼ PrðT � tÞ; ð1Þ

where f(t) is the distribution function of continuous likelihood. Therefore, the

survival function is

S tð Þ ¼ 1� F tð Þ ¼ PrðT [ tÞ: ð2ÞThe (hazard) rate at which the event occurs after time t (t ? Dt), provided that it

lasts at least up to time t, is

k tð Þ ¼ limD!0

Prðt� T\t þ DtjT � tÞDt

� �¼ lim

D!0

F t þ Dtð Þ � FðtÞDtSðtÞ

� �¼ f ðtÞ

SðtÞ ; ð3Þ

Hence, in this study (k) is the vector of parameters estimated to measure the

effect of the independent variables (INT, EFF, YOUTH and AGG) on the likelihood

of failure (a new venture that ceases). Cox’s proportional hazard function uses a

maximum verisimilitude, for which the expression hi (t) for new venture i at time t is

given by

hi tð Þ ¼ h t; xið Þ ¼ h0 tð Þexpðx0ibÞ; ð4Þ

where h0(t) represents the likelihood function for conditional failure provided that

the new venture survives up to time t from an arbitrary time 0. The xi vector

comprises the explanatory variables for the ith new venture and b is the vector of

unknown parameters that must be estimated. A negative coefficient or a hazard rate

of \1 for a variable indicates that the hazard for variable decreases, so the corre-

sponding likelihood of survival increases.9

We should clarify that this technique does not measure the relationship between

the matrix of variables and the survival likelihood in terms of cause and effect, but

rather in terms of probability. Cox’s regression estimates the probability of an

event occurring (e.g., cessation of a new venture) provided that it has not

happened up to a certain time, in relation to a set of sample characteristics.

Therefore, it is largely based on differences in the variables between cases in

9 For instance, in the case of the variable YOUTH, if the beta coefficient is positive, then it will mean that

the younger a new venture, the higher its failure risk and vice versa.

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which the event occurs (firm survival) and cases in which it does not happen (firm

survival).The Wald step-forward method was used. This tests the significance of

the introduction of a variable in the regression model based on a score statistic

using a Chi square test. The null hypothesis for this test is that the coefficient for

each independent variable is equal to zero.

5 Findings and Discussion

An initial descriptive analysis of the variables is conducted. Table 1 lists the main

characteristics of the final sample. A significant number of new ventures failed

(23 %) and this rate was higher among purely domestic firms (24 vs. 15 %). It is

also noteworthy that the vast majority of surviving new ventures are in international

and non-agglomerated subgroups (85 and 81 %, respectively), in agreement with

our hypotheses. These new ventures can be categorized as type I according to Oviatt

and McDougall (1994), corresponding exporters and/or importers to/from a very

limited scope of foreign markets.

Table 2 lists the descriptive statistics and correlations between independent

variables. The negative effect of efficiency (mean -6.02) is remarkable and clearly

indicates the difficult times experienced by these new ventures over the last decade.

We must highlight that no multi-collinearity problems were detected, because the

correlation coefficients are non significant or close to zero. None of the factors for

inflation of variance (VIF) exceeded 1.00. Correlations between independent

variables with low levels of significance have been included in similar investiga-

tions (Lu and Hebert 2005) and the authors found no estimation problems provided

that VIFs were low.

Table 1 Sample characteristics

Total actives (n = 2,583; 77 %) Total no-actives (n = 767; 23 %)

Survival time (days) 2,276 2,190

INT (firms)

No 2,251 (76 %) 709 (24 %)

Yes 332 (85 %) 58 (15 %)

EFF (% ROA) -13.2 % -25.7 %

Youth (mean) 6.67 years 8.47 years

AGG (firms)

No 1,247 (81 %) 286 (19 %)

Yes 1,336 (73 %) 481(27 %)

International (n = 390) Purely domestic (n = 2,960)

Survival time (ST) 2,323 days 2,248 days

EFF -9.7 % -16.8 %

Youth 7.11 years 7.07 years

AGG (firms)

No 178 (11.6 %) 1,355 (88.4 %)

Yes 212 (11.7 %) 1,605 (88.3 %)

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Table 3 lists Cox’s regression results for comparison of direct effects on the

survival of new ventures. The coefficient estimation for each variable, the

standard error, the Wald statistic (score for each variable in the model), the

coefficient significance, and the exponential of the estimated coefficient (i.e.,

the effect of each variable on the risk of failure) are included. Survival time is

part of the dependent variable, along with a change in state (failure or survival).

Note that the reference categories for the dummy variables INT and AGG are

non-internationalised (NO-INT) and non-agglomerated ventures (NO-AGG),

respectively. The change in log-likelihood is included as a measure of the

goodness of the fit.

The results show that all the variables have a significant direct effect on survival,

and their sign is also as expected. The level of the indicator (-2log-likelihood) is

acceptable.10

The overall finding is that internationalisation (INT) and better adjustment to the

competitive environment (higher EFF) both decrease the failure risk for new

ventures. By contrast, youth and agglomeration increase the failure risk.

In particular, the negative coefficient b for the internationalisation variable (INT,

-0.567) can be understood as follows. The failure risk for a new venture is lower

(decreases) when competing in international markets than when acting as a purely

domestic firm. Furthermore, the exponential coefficient is less than one and hence

the failure risk for an INV is 43.3 % lower (1 - 0.567) than for a purely domestic

counterpart. Figure 1 demonstrates this finding in a graphical manner. In the graphic

on the right, there is a higher negative gradient for cumulative survival for purely

domestic firms (lower line) in comparison to INVs (upper line), which clearly

exhibit a less steep survival gradient over the full period. The main cause of the

longer survival for these INVs compared to their purely domestic counterparts could

Table 2 Means and correlations

Mean INT EFF Youth AGG

INT 0.12 –

EFF -6.02 0.040* –

Youth 4.92 -0.004 0.012 –

AGG 0.54 0.001 0.064** 0.023 –

ST 2,276 0.028* 0.034** -0.860** -0.058**

* p \ 0.1; ** p \ 0.05

10 Although there are no thresholds for this indicator, the lower its value, the better is the adjustment

(Storer and Crowley 1985). Values in previous studies that used Cox’s regression range from 117.75 to

1,355.77 (Lu and Hebert 2005; Lu and Beamish 2006; Thomas et al. 2007; Meschi and Riccio 2008;

Dhanaraj and Beamish 2009; Giovannetti et al. 2011). Other criteria such as Akaike’s AIC indicator

penalise the number of parameters estimated, multiplying it by two. The AIC obtained for a Cox

regression is not comparable with other parametric models such as Weibull, log-logistic, and log-normal,

because the events used in a Cox regression are failures within risk pools, conditional on the time at

which failure occurred, whereas parametric methods use actual survival times. In addition, the log-

likelihood indicator is very sensitive to the number of events and penalises large numbers of events in a

given sample. Thus, unfortunately it cannot be compared among studies with different numbers of

parameters (covariates) and events (Storer and Crowley 1985).

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not be identified from the variables included in the single database used in our

analysis. However, our results show that internationalisation at an early stage of a

new venture in a manufacturing industry is better than remaining purely domestic.

This evidence is in line with assumptions claiming that internationalisation helps

new ventures to survive (Autio et al. 2000; Lee et al. 2012). The fact that other

investigations find the opposite may imply that this effect is context-dependent,

particularly in the case of traditional manufacturing sectors.11 This finding is also of

particular interest for small open economies (SMOPECs), since INVs in our

investigation exhibited higher survival rates, which may lead to higher chances for

growth. Future investigations should explore to what extent this effect has a similar

impact on SMOPECs. Figure 1 shows the cumulative survival ratios for the full

sample (left) and a breakdown by international activity (no–yes, on the right).

The key underlying question is to what extent the positive relationship between

internationalisation and survival is moderated by other variables. To explore this

issue, a new test was conducted in which indirect effects were included to determine

the sign and extent of these effects in combination. Thus, we included the

interaction effects INT 9 EFF and INT 9 YOUTH in the model, as well as

INT 9 AGG.12 The first two interaction effects are computed multiplicatively (EFF

and YOUTH are continuous variables), but the third involves a two-dimensional

matrix (qualitative variable) resulting in four categories according to the interna-

tionalisation (yes or no) and agglomerated location (yes or no) options. For

simplicity, an internationalised and non-agglomerated venture (INT 9 NO-AGG,

[1,0]) was defined as the reference category.

The results of the second test are included in Table 4. The goodness of fit

measures show that this model also has excellent explanatory capacity. Moreover,

according to the Wald step-forward method, which is based on the significance of

Table 3 Main effects on the risk of failure

b SE Wald Sig. Exp(b)

INT -0.567 0.138 16.791 0.000 0.567

EFF -0.002 0.000 32.774 0.000 0.998

Youth 0.119 0.028 17.813 0.000 1.127

AGG 0.470 0.076 38.280 0.000 1.601

-2 3 log-likelihood = 10.721.85; Chi square = 100.457

11 Parallel to this analysis, mean differences were compared to provide additional evidence of the lower

likelihood of failure for INVs than for their purely domestic counterparts. Parametric (t test for two

independent samples) and non-parametric tests (Mann–Whitney U test and Kolmogorov–Smirnov Z test)

were conducted. First, international propensity is higher among surviving firms (all tests significant at

p \ 0.050). Second, survival time is also higher among international than among non-international new

ventures (p \ 0.05).12 It should be mentioned that INT and AGG are categorical variables. If included along with the

interactive effects, then the method would result in near-perfect linear dependence and hence the model

would hardly converge. This trade-off between main and interaction effects is usually a limitation in the

case of categorical variables. Therefore, only interactions of INT with EFF and AGG were included. If

INT 9 YOUTH had been included, the method would also result in near-perfect linear dependence

because of the limited values that YOUTH can take (natural numbers between 2001 and 2010).

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parameters, indicates that all the variables except INT 9 YOUTH should be

included, and their signs are all as expected. This lends support to acceptance of

Hypothesis 1: internationalisation of a new venture decreases its failure risk.

Moreover, the exponent for the INT 9 EFF coefficient decreases to 0.995. It is

noteworthy that efficiency alone has a very limited impact on decreasing the failure

risk, while its interaction with internationalisation increases its positive impact on a

lesser risk. In others words, the likelihood of survival increases when internation-

alisation interacts with efficiency (an increase in unit efficiency i = on interna-

tionalisation of a new venture leads to a 5 % decrease in failure risk).13 This

supports acceptance of Hypothesis 4.

For the four internationalisation–agglomeration (INT 9 AGG) groups, three are

significant and their signs are as expected. Figure 2 shows that internationalised and

non-agglomerated new ventures have the lowest failure risk, while purely domestic

and agglomerated firms have the highest risk (b = 1.091). Moreover, the failure risk

is nearly three times higher in the latter case [exp(b) = 2.978]. In other words, the

worst combination is agglomerated and non-internationalised new ventures. For

comparison over a fixed duration (e.g. 3,000 days), they exhibit a cumulated

survival likelihood of roughly 56 % for the initial number of new ventures. Non-

agglomerated and non-international firms are next, with a survival rate of 70 % for

3,000 days. The survival rate for agglomerated and international ventures is 74 %,

which is only slightly higher than the previous one and explains their lack of

significance in the Cox regression. The highest survival rate is observed for

international and non-agglomerated ventures (82 %). Internationalisation seems to

be the best choice for new ventures in traditional manufacturing industries, since

INVs outperformed the other two categories in terms of cumulative survival

likelihood. This supports acceptance of Hypothesis 3 concerning the effect of

location on the internationalisation–survival relationship.

Nevertheless, the Wald method rejected inclusion of the INT 9 YOUTH

interaction because it generated linear dependency with YOUTH and the categorical

Fig. 1 Survival functions for all the sample (left) and breakdown by international activity

13 Additional tests of mean differences between international and purely domestic new ventures

reinforced this result. On average, efficiency was higher among INVs (parametric and non-parametric

tests significant at p \ 0.010).

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variable INT (and hence is not included in Table 4). Thus, there is no empirical

evidence for Hypothesis 2, which proposes that the longer the time between

inception and internationalisation for a new manufacturing venture, the higher is its

failure risk.

This result may have two relevant implications. First, there is a possible inverse

collinearity relationship between organisational age and failure risk (B = 0.119,

Sig. = 0.000) or, as Fig. 1 shows, the time at which a difference in survival

likelihood between international and purely domestic new ventures emerges is

approximately 1,000 days (*3 years). Second, it is possible that over a time span of

10 years, the effect of youth is not significant enough to support Hypothesis 2.

Table 4 Interactive effects on the risk of failure

b SE Wald Sig. Exp(b)

Youth 0.117 0.028 17.135 0.000 1.124

EFF -0.002 0.000 22.464 0.000 0.998

INT 9 EFF -0.005 0.001 18.880 0.000 0.995

INT 9 AGG 58.987 0.000

INT 9 AGG (INT, AGG) (1,1) 0.423 0.275 2.368 0.124 1.526

INT 9 AGG (No INT, No AGG) (0,0) 0.616 0.230 7.150 0.007 1.851

INT 9 AGG (No INT, AGG) (0,1) 1.091 0.227 23.160 0.000 2.978

-2 9 log-likelihood = 10,711.27; Chi square = 129.671

Fig. 2 Breakdown of survival function by indirect effects

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Future research should explore whether a longer analysis interval would lend

support to a U-shaped relationship between internationalisation time and survival.

In any case, the two tests for estimating and predicting the direct and indirect

effects on survival both support the assumption that internationalisation of a new

manufacturing venture decreases its failure risk. In addition, efficiency in the use of

scarce resources and location in a cluster both moderate this effect in a positive way,

because INVs in an agglomerated area outperform their purely domestic counter-

parts. These results are consistent with earlier studies (Coucke and Sleuwaegen

2008; Pla-Barber and Puig 2009). The lack of significance of the moderating effect

of age on the internationalisation–survival relationship is in part agreement with

results reported by Westhead et al. (2001), Zou et al. (2010), and Schueffel et al.

(2011). This implies that in the short and medium term (in our case during the 10

first years), age has only a very weak impact on the internationalisation–survival

relationship.

The results indicate that in the current globalised context, new manufacturing

ventures have to define a business model the effectively combines the resources

available to a firm and the markets in which it operates with its objectives for

growth and survival. Younger firms can survive in domestic operation if they

implement niche strategies focused on high-value activities (Jones and Hayes 2004;

Abecassis-Moedas 2007), and later they can grow in the international marketplace.

In this way they can acquire capabilities that will enable them to reduce the potential

severe costs of the process that may lead to failure (Autio et al. 2000). However, if a

new venture is located in a cluster, it has to operate early and in a more committed

way in the international market to reduce its risk of domestic co-failure.

6 Conclusions and Future Research

The aim of this study was an empirical analysis of the internationalisation–

performance relationship for new ventures established within a traditional

manufacturing sector. This is an interesting issue because these sectors are currently

suffering from high rates of firm failure across advanced economies, and a literature

search revealed that the number of papers on this topic is increasing.

Within this framework, our analysis focused on the survival of new ventures in the

traditional manufacturing sector of textiles and footwear. Further evidence is

provided for two critical issues: whether the internationalisation of new manufac-

turing ventures has an impact on their survival, and whether this impact is moderated

by key variables for the ventures, such as age, location, and activity efficiency.

The results show that internationalisation has a positive impact on the survival of

new ventures in a traditional manufacturing sector: new ventures operating in

international markets have higher survival rates than their purely domestic

counterparts. Moreover, this effect is moderated by efficiency in terms of activity

and location: (a) internationalisation increases the survival likelihood among more

efficient new ventures that operate in an international market; and (b) internation-

alisation significantly reduces the failure risk among firms located in an

agglomeration area. With regard to age, it cannot be concluded from the results

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that internationalisation decreases the failure risk for younger ventures, although

age might be a significant risk in the long run because of the effect of inertial forces

on organisational behaviour in the long term.

The academic contribution of the study shows that the first strategic decision

regarding market scope matters in the life of a new manufacturing venture: the

internationalisation decision has an impact on growth but also carries significant

risks. This research provides interesting insights for the identification of possible

trajectory patterns that would enable firms to quickly reduce their liabilities in terms

of both newness and foreignness when competing in international markets.

The managerial contribution of the study supports the proposition that the

combination of location, efficiency, and an internationalisation strategy emphasises

the need for specialisation on high-value activities and niche strategies in foreign

markets, as these open new business prospects. Managers of new ventures should

jointly evaluate strategic alternatives concerning internationalisation and location in

an agglomerated area in the country of origin, instead of considering them as

independent decisions, from the very early stages of the venture.

From the viewpoint of public systems that support internationalisation, policies

to increase the survival rate of SMEs in traditional manufacturing industries should

include discrimination between efficiency and location in preliminary assessments.

Thus, public institutions, besides merely financing the internationalisation of any

firm (reactive policies), should first focus on detecting which firms are ready to go

international, and second on supporting the internationalisation of ventures that

have proven to be among the most competitive (proactive policies). This argument

is underpinned by evidence that the most competitive ventures will already have

overcome the ‘‘natural selection’’ test of a start-up situation, and thus will respond to

any incentive more effectively. Analysis of the business model and its fit to the

respective international market could be a starting point.

The limitation of the study sample to new ventures established within a time span

of 10 years precluded testing of whether a trade-off exists between growth and

survival. However, it can be inferred that in the long term, the liabilities of newness

and of foreignness are overcome. Then, higher rates of growth can be achieved as

higher prospects arise is international markets for new firms in mature manufac-

turing sectors. Therefore, a critical decision for this type of new manufacturing

venture is selecting the right time for internationalisation. In policy terms, perhaps it

is not a question of fostering new venture start-up, but of boosting the

internationalisation process for relatively young ventures instead.

Acknowledgements The authors thank the editor and reviewers for valuable comments in the revision

of this paper. This investigation was supported by the Research Project GV2011-025 of the Generalitat

Valenciana (Spain).

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