A Real Options Reasoning Perspective on Uncertainty in Entrepreneurs’ Internationalization Decisions

Abstract

Uncertainty plays an essential role in both entrepreneurial and internationalization decision-making processes. International entrepreneurs often face greater levels and varieties of uncertainty when making foreign market entry decisions. Yet, existing Entrepreneurship and International Entrepreneurship (IE) literature lack theoretical explanations on the role of uncertainty in entrepreneurs’ internationalization decision-making. Although both literatures treat uncertainty as precursor to entrepreneurial activities, in general they view uncertainty as the roadblock for substantial entrepreneurial commitment such as entrepreneurial internationalization. This does not adequately account for the fact that international entrepreneurs constantly face uncertainty and, thus, they often must embrace uncertainties rather than avoid or ignore them. By applying real options reasoning (ROR), we re-examine the role of uncertainty in entrepreneurs’ internationalization decision making process and propose an uncertainty leveraging perspective. We employed a 2 by 2 randomized between and within-subjects mixed design experiment on a representative sample of 181 U.S. international entrepreneurs. The findings suggest that entrepreneurs mostly align their thinking with ROR to leverage changing level of uncertainty by strategically bundle level of investment commitment and local relations development. This work contributes to entrepreneurship literature on uncertainty, further unpacks the micro-foundations, and establish the boundary conditions of real options reasoning (ROR).