The Effect of Internationalisation on the Rate of Growth of High-Tech Start-Ups: Evidence for the UK and Germany

Abstract

Much attention in empirical research on entrepreneurship has been devoted to the growth and survival of young enterprises. Economic policy-makers too are increasingly attempting to improve the climate for the genesis and growth of new businesses. Arguably, this is due to a widespread belief of the large potential for job creation by successful, new businesses. More recently, the rapid internationalisation of high-tech start-ups has generated increasing attention. It is argued that a global markets presence is essential for a high-tech firm’s long term success, including its ability to reap acceptable profits from innovation. Case study evidence suggests that early internationalisation contributes to success in high-tech markets. The step from home to foreign markets is often associated with increased growth prospects. 70 percent of UK firms (and 60 percent of German firms) in our sample of high-tech start-ups consider the potential of foreign markets for long-term company growth as their main motive for international business activities. Exploitation of the potential of foreign markets appears especially important for young firms acting in technological niches with typically short product life cycles.They often have to recover considerable initial R&D expenses and investments in human/capital assets in relatively short periods of time. Invariably, international business activities are more costly and time consuming for a small firm than the alternative of exclusively serving a local or national home market. A perverse result of rapid internationalisation is that it may initially actually retard firm growth. Therefore, the growth-enhancing effects of international business activities may be seen as ambiguous — at least in the short run