Which Way to Grow? Startup Internationalization and Innovation in Latin America and Europe

Abstract

Internationalization and innovation are both critical strategies for growth-oriented startups. Whereas high uncertainty and unique learning challenges in emerging markets such as Latin America make the respective startups set their preference on internationalization, and only thereafter on innovation, in developed markets like Europe internationalization and innovation are more and more regarded as “vicious circle”, reinforcing each other. This suggests that the institutional context of firms shapes the priorities set on innovation and internationalization, and the relationship of the two strategies. In this paper, we investigate potential tradeoffs between internationalization and innovation in Latin America and Europe by having a closer look at the legal business context in a startups home country. Our paper contributes to the literature on international and strategic entrepreneurship and the institutional context startups face in their home countries. Relying on proprietary data of a globally operating European ICT corporation that is listed at the EUROSTOXX 50 index, we analyze the strategic choices between internationalization and innovation in an unbalanced panel of 359 (336) ICT startups and 1,613 (1,422) observations from seven Latin American countries and five European countries during the years 2014-2016. Our findings suggest that the legal business context in a startup’s home country influences the likelihood of startup internationalization.