The Role of Home Country Demand in the Internationalization of New Ventures
58 Pages Posted: 22 Mar 2015
Date Written: January 15, 2015
International new ventures (INVs) have been documented to exist all around the world, but the literature is silent on the frequency of such companies in different countries. We contend that the propensity of new ventures to internationalize by forming international partnerships is higher in small-domestic demand countries because they have a greater motivation given their limited local demand. After discussing the methodological challenges in testing this hypothesis, we do such a test by studying alliances in the health segment of the biotech industry in relatively small-domestic demand countries (Australia, Israel, Taiwan) and by comparing the results with five large-domestic demand countries (UK, Germany, France, US, and Japan). We find that young firms in the countries with lower domestic demand are at least 3 times more likely to enter into international partnerships than their counterparts in countries with greater domestic demand. We further demonstrate that this difference can primarily be explained by the difference in the size of domestic healthcare markets rather than other underlying opportunity structure related factors.
Keywords: International New Ventures, Internationalization, small versus large demand countries, young biotechnology firms, international partnerships, business development partnerships
JEL Classification: L24, L26, L65, M13, M16
Suggested Citation: Suggested Citation