International opportunity identification by entrepreneurs: the process and cognitive determinants.

• Author: Muzychenko, Olga
• Position: Report

1. INTRODUCTION

   The broad research problem explored in this research study is "How do entrepreneurs identify business opportunities internationally?" More specifically, the aim of this study is to investigate (1) the process of international opportunity identification (IOI) by entrepreneurs and (2) an entrepreneur's cognitive properties and cognitive activities instrumental to successful IOI.

   Opportunity identification (OI) is defined in this study based on Christensen et al. (1989) as perceiving the potential for new profit and committing to exploit this potential either through starting up a new venture or by considerably improving an existing venture. The scope of the current research does not include opportunity exploitation.

   Neither entrepreneurship nor international entrepreneurship (IE) literatures provide a definition of international opportunity, however international business (IB) research sees it as "the chance to conduct exchange with new foreign partners (e.g., customers, distributors, licensees, franchisees, contract manufacturers, joint venture partners, etc.)" (Ellis, 2008, p. 2). This study adopts the definition by Ellis (2008).

   IOI is an important initial step in commencing or increasing the scope of international operations of a firm. Existing theories of internationalisation of a firm take this step for granted. IE focuses on 'opportunity' in a cross border context (Oviatt & McDougall, 2005). However, to date there is a paucity of research available on the topic of IOI, probably due to some existing methodological gaps in the field and under-utilising the individual entrepreneur as the unit of analysis (Westhead, 2005; Zahra, 2005). This is despite wide recognition that the individual entrepreneur is the defining force behind a decision to internationalise and the subsequent performance levels of a venture (Andersson, 2000; Jones & Coviello, 2005; Madsen & Servais, 1997; Zahra, 2005). One of the suggested avenues to gain a better insight into the process of IOI at the individual level and to further probe the entrepreneur's sense-making mechanisms and behavioural drivers, such as entrepreneurial intent, motivations, mindset, perceptions and self-efficacy (SE) (Zahra, 2005; Zahra et al., 2005). Extant IE literature contains scarce empirical evidence in relation to the process of IOI and an entrepreneur's sensemaking, and the currently study aim to narrowing this existing gap in the literature.

   Oviatt & McDougall (2005) criticised IE studies for demonstrating either a lack of knowledge of IB theories and research, or unfamiliarity with entrepreneurship scholarship. This research leverages both disciplines. The 'opportunity' theme is central in the mainstream entrepreneurship literature because the ability to identify business opportunities distinguishes entrepreneurs from nonentrepreneurs (Shane & Venkataraman, 2000). The theoretical foundations of this study are further derived from IE and IB literature on internationalisation of SMEs and international new ventures.

   The paper consists of four parts. A literature review discusses relevant studies from the mainstream entrepreneurship, IE and IB disciplines. Then the paper describes methodology for this study. The next part presents results and discussion. The final part provides conclusions and suggests directions for further research.

2. LITERATURE REVIEW

   "Why, when and how do some people and not others discover and exploit ... opportunities?" (Shane & Venkataraman, 2000, p. 218) still remain the three major questions in entrepreneurship research. This paper intends to address the 'why' and the 'how' parts of this question in the context of internationalisation of an entrepreneurial venture. In the mainstream entrepreneurship literature a number of studies have attempted to find answers to these questions by exploring the discovery and exploitation of opportunities from different perspectives. This literature review discusses extant process models and cognitive studies of OIgrounded in mainstream entrepreneurship. Because the study of IOIis in its infancy, the literature review incorporates studies from the international business discipline that looked, form different perspectives, on the role of an individual entrepreneur in internationalisation of a venture.

   2.1 Process models of opportunity identification

   Process models answer the "How?" question posed by Shane & Venkataraman (2000) as they clarify what tasks the individual entrepreneur undertakes to identify an opportunity, and in what sequence (Muzychenko, 2008).

   Long & McMullan (1984) created a four elements map of the OI process: 'pre-vision', 'point of vision', 'opportunity elaboration' and 'commitment/decision to proceed'. The pre-vision stage is concerned with making a significant conscious effort in preparing one's mind to grasp and, subsequently, appropriate opportunities. This is achieved by gaining knowledge and experience through conducive activities such as study of venture subjects, job selection, moonlight venturing and entrepreneurial lifestyle (Vesper, 1980). Vision is the "aha!" experience when a new venture possibility is recognised. Elaboration involves developing the recognised concept and taking a critical look at it. Possible gaps and potential problems are identified and the fit between the concept and accessible resources is assessed. Creative re-conceptualisation of the initial idea may lead to commitment and a decision to proceed with the venture.

   On the premise that identifying opportunities is primarily a creative activity, Lumpkin et al. (2001) have borrowed a creativity model framework from the psychology literature and extrapolated this framework into the domain of entrepreneurship. They have synthesised available OI research into a comprehensive model consisting of five elements. These elements are: preparation (developing conscious interest in a particular field and sensitivity to the issues and problems within it); incubation (subconsciously and intuitively considering options); insight (conscious awareness of the new concept); evaluation (analysing viability of insights and their value for launching a venture); and elaboration (actualising the creative insight) (Lumpkin et al., 2001).

   Lindsay & Craig (2002) have suggested a different, three-stage process model of identifying opportunities. During the first stage of opportunity search/development, an initial idea is advanced toward a business concept. This stage appears to include the same entrepreneurial activities and outcomes as the preparation and incubation stages of the model by Lumpkin et al. (2001). In the second stage, the opportunity is recognised and the entrepreneur gains insight into the commercial value of an idea or of turning an idea into a business concept (Bhave, 1994; Hills & Shrader, 1998). The second stage includes a normative phase concerned with answering the question, "Is this an opportunity?" and an individualised fit phase during which the individual entrepreneur decides if this opportunity is for him/her (Lindsay & Craig, 2002). Finally, in the third stage, the opportunity is evaluated. The entrepreneur verifies previously collected information about a given opportunity and makes a final commitment based on the congruence between assessed risk level and expected returns (Lindsay & Craig, 2002). This is somewhat similar to Shane's (2003) approach in describing an individual's response to opportunity as two distinct activities: discovery and the decision to exploit/exploitation.

   Hills & Lumpkin (1997) established that the multistage process of OI is not sensitive to differences in industry specific contexts, however no study has so far explored the validity of this finding in the context of IOI activity, something this study intends to accomplish.

   In summary, although there are some differences between the process models, they all share important similarities. They emphasise the multistage nature of OI; identify some tasks and behaviours pertinent to particular stages of the process;highlight the intentional and planned nature of the process; and pinpoint the significance of certain cognitive activities. This is a valuable contribution to understanding more about OI. It provides a platform for identifying the entrepreneurial tasks concomitant with different stages of the process and offers a broad understanding of the entrepreneurial activities and behaviours that pertain to these tasks. However, factors that influence the entrepreneur's task efficacy remain uncovered.

   Theories of internationalisation of a firm, including the process (e.g., Johanson & Vahlne, 1977) and international new ventures (e.g., Oviatt & McDougall, 2005) theories deal with exploitation of international opportunities by firm on the assumption that OIstep has already occurred. Therefore, no coherent process framework of IOIexists in the international business literature. A number of authors stress the role of serendipity in the internationalisation of entrepreneurial ventures and identifying international opportunities. Spence & Crick (2006) based on their comparative study of internationalisation of Canadian and UK high-tech SMEs, confirm that serendipity is a catalyst for internationalisation of entrepreneurial ventures; however, its importance should not be overstated. These authors argue that recognition and exploitation of opportunities that arose from serendipitous events was made possible because entrepreneurs identified and exploited these events and made their own luck by having all the ingredients of internationalisation ready at the time. Further, although in the context of change of internationalisation mode by entrepreneurial ventures rather than IOI, Chetty & Agndal (2007) established a serendipity role of the social capital. Case-study based research by Casulli (2009) of IOIby Scottish firms concluded also acknowledges the role of serendipity in this process. In her view...