What do pizza delivery, unarmed guards, and metallization on compact discs have in common? They all represent businesses founded outside the U.S. that illustrate some of the enduring realities each international entrepreneur grapples with every day, according to Harvard Business School professor Walter Kuemmerle.
These realities include the importance of local context and the need to adhere to a global perspective on opportunities and access to resources.
These same issues provide fascinating research fodder for the course he teaches to Harvard Business School students as a second-year MBA elective: International Entrepreneurial Finance. As he explained in a presentation to other HBS professors during the Faculty Research Symposium on May 20, the research project has led him to examine in detail twenty-nine sites that cover twenty countries. Yet many questions remain open and demand to be examined, he said.
International entrepreneurial finance, or IEF for short, is like 3-D chess compared to the two-dimensional chess of entrepreneurial finance, quipped HBS professor William Sahlman, who offered introductory remarks at the session. The international element adds a layer of complexity that is astonishing, said Sahlman.
The International Context
According to Kuemmerle, there is one central question guiding his IEF research: how do entrepreneurial managers, and those who finance them, make sensible resource acquisition and investment decisions in an international context? It's an important question, given the rise of entrepreneurship around the globe over the last fifteen years, he said. His project complements the growing body of academic literature in three separate areas: international business (which is mainly focused on large multinational firms), international finance, and entrepreneurship.
An increasing number of entrepreneurial firms go abroad much earlier in their lives than ever before in recent business history.
— Walter Kuemmerle
The twenty-nine sites he has studied range from start-ups to entrepreneurial buyouts, from seemingly low-tech operations like pizza delivery to what he termed technologically-intensive ones, such as CD metallization and products for cell phones. All twenty-nine sites are closely linked to their country context. They also represent a variety of deal structures and business models. Kuemmerle's research is comparative in nature, but is also cross-border. "An increasing number of entrepreneurial firms go abroad much earlier in their lives than ever before in recent business history," he explained.
Singulus, a Germany-based CD metallization manufacturing company, captured his interest because it offered a path to learning and teaching about the assessment of opportunities, deal structuring, and incentives. (Metallization refers to a thin layer of metal that covers the CDs before information can be laid on them.)
The entrepreneur who started Singulus—essentially founding a new company on an existing technology—was fifty-three years old. According to Kuemmerle, it was "a path of no return." The entrepreneur was a senior manager at a prominent Germany company with three children in university. As Kuemmerle described in a teaching note that accompanies his course, should the entrepreneur have failed at Singulus it was unlikely that he could have bounced back to his former position or commanded a salary that was similar to the comfortable one he'd left behind.
As it turned out, this business story had a happy ending. Singulus was a success. The entrepreneur created a personal fortune of about $40 million. "More importantly," said Kuemmerle, Singulus established 60 percent of world market share in CD metallization.
Another company he studied, Jinwoong, the world's largest manufacturer of camping equipment and outdoor gear, exemplifies what can happen if an entrepreneur doesn't have a global perspective on access to resources. Its customers include Wal-Mart, Kmart, and Target; it has 60 percent market share in the U.S. But, like many Korean firms, Jinwoong financed itself with lots of debt from Korean banks. "The Asian financial crisis in 1997-98 almost broke its neck," observed Kuemmerle. For him, Jinwoong also exemplifies what an entrepreneur can do to rescue a company by restructuring when such an exogenous shock occurs. Unlike many around the world, Jinwoong managed to successfully navigate a changing context.
There are three central ideas that have evolved from IEF, said Kuemmerle. In his words, they are:
- Local context matters for the frequency and form of entrepreneurial activity.
- A global perspective on opportunities by the entrepreneur enhances the performance of the entrepreneurial venture.
- A global perspective on access to resources enhances the quality of deal structure for entrepreneurial ventures and thus the likelihood of venture survival, particularly in tough times when cash is tight.
"Taken comprehensively, the argument here is that if you want to be successful as an entrepreneur, it is important to have a detailed understanding of the local context, but also to have a perspective on opportunities and resources globally," he said.
A number of open questions remain, however. In terms of the importance of local context, he asked, which aspects of local context matter most? And are there patterns of entrepreneurial success despite a less-than-favorable context? A global perspective on opportunities is also fraught with questions. "How should entrepreneurs frame international expansion decisions? How does international expansion of start-up firms differ from established multinational firms? How does the overconfidence bias (in which entrepreneurs overestimate their own abilities) work in cross-border settings?" As for resources, Kuemmerle also wonders about the interaction between product-market strategy and financing strategy. His research asks how a global perspective on resource access has an impact on fundraising strategies and deal terms.
These are among the research questions that will continue to occupy Kuemmerle and his MBA students in the future.