A Real Options Perspective on Pattern, Process, and Outcomes of Entrepreneurial Internationalization

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Especially in this era of de-globalization, uncertainty plays a major role in both entrepreneurial and internationalization processes. Yet, prior international entrepreneurship (IE) and international business (IB) literature has not fully accounted for the nature of high and changing levels of host country uncertainty when predicting firms’ entrepreneurial internationalization patterns and outcomes. By applying real options theory (ROT), we re-conceptualize firms’ entrepreneurial internationalization pattern, process, and outcomes as the results of active uncertainty leveraging in the face of high and changing levels of host country institutional and economic uncertainty. Utilizing a representative sample of 680 U.S. new international firms that exported to 115 different host countries between the year 2009 and 2019, we find that host country uncertainty positively relates to firms’ choice of “real option” entry (i.e., low initial investment combined with high collaboration). In contrast to the predictions of Transaction Cost Economic (TCE) approaches to internationalization, a ROT approach enables firms to achieve relatively faster entry, enter more distant destinations, and allows flexibility to exit markets over time. More importantly, we discovered firms using such “real options” entry strategies can mitigate the negative performance impact of host country uncertainty.