The impact of the entrepreneus social networks on performance of the firms during the early state of internationalization

THE IMPACT OF THE ENTREPRENEUR’S SOCIAL NETWORKS ON THE PERFORMANCE OF THE FIRM DURING THE EARLY STAGES OF INTERNATIONALIZATION Muhammad Muzahidul Islam Patowary, Taha Javaid, Le Thi Bao Quynh, Prisca Thiru School of Business, Engineering and Science, Halmstad University, Halmstad, Sweden ABSTRACT Purpose – In entrepreneurship literature network has been considered as an important factor behind the success of INVs, though much importance has been given to business networks while overlooking the impact of social networks This paper aims to investigate the impact of the entrepreneur’s social network on the performance of the firm during the initial stages of internationalization maintaining a balanced consideration between the bright side and dark side of the impact Design/methodology/approach - This paper employs a qualitative approach Secondary sources of data were used as a case company from Navid Ghannad’s (2013) dissertation work named ‘Polaris’ was selected Findings - The utilization of the entrepreneur’s personal or social networks in the early stages of internationalization has been evident from both an academic and practical perspective in this paper During the early stages of internationalization, entrepreneurs get considerable benefits from their personal and social networks in terms of market knowledge, ease of access to resources and business networks, etc while faces challenges regarding conflict of interests, lack of capabilities of the network, and untrusted ties Originality/value – This study suggests that during the early stage of internationalization, entrepreneurs may take advantage of their social or personal networks in exploring market potentials, however, they should be aware of the untrusted and incapable ties to ensure the expected performance of the firm Keywords - social network, performance, internationalization, INVs Electronic copy available at: https://ssrn.com/abstract=3643607 INTRODUCTION The importance of networks in the context of internationalization has been emphasized by many researchers (Andersson & Wictor, 2003; Autio, 2005; Oviatt & McDougall, 2003, Sharma & Blomstermo, 2003) The network is considered to enrich social capital for INVs and a resource that was originally affiliated with the nascent entrepreneurship (Davidsson & Honig, 2003), accordingly enables the entrepreneurial firm’s growth While the network has long been considered to be fundamental for SMEs to achieve international growth (Johansson & Mattson, 1988; Coviello & Munro, 1997; Hadley & Wilson, 2003), much of the literature has focused on the business networks and overlooked the importance of social networks These two types of networks differ in their scopes: while social networks include all relationships of the entrepreneur with others in the society (Burt, 1992), business networks consist of only the relationships between firms (Ellis, 2011) Putting more focus on business networks may narrow the scope of analysis of the effect of the network on a firm’s internationalization because social networks incorporate a wide range of relationships such as friends, relatives, classmates, etc., in general, all the relationships that matter to the entrepreneur Among studies that emphasize the significance of social networks to the firm’s internationalization (Coviello & Cox, 2006; Lu, 2010); the most focus was on the positive influence of social networks on internationalization, there are just a few studies that have highlighted the detrimental effects of social networks on internationalization efforts (Coviello & Munro, 1997) It can be seen that very little attention has been paid to the adverse effects of an entrepreneur’s social network which subsequently may end up with the failure of the entrepreneurial firm in international markets Since the entrepreneur’s social networks play an important role in the early stages of internationalization of entrepreneurial firms, this paper aims to maintain a balance consideration between the social networks’ effect on both of its bright and dark side Therefore, the research question of this paper is: “How the entrepreneur’s social networks influence the performance of the firm during the early stages of internationalization? ” Electronic copy available at: https://ssrn.com/abstract=3643607 LITERATURE REVIEW 2.1 Internationalization theories Business and economic exchanges or transactions across the nation has been a practice for centuries (Morgan & Katsikeas,1997) and business organizations nowadays see themselves as an intrinsic part of the global economy In the quest to explain cross-national commercial activities, international business and firm’s eagerness to harness the benefits from international trade the academic stream of international business (IB) was established and has been developed as a vast empirical domain (Morgan & Katsikeas,1997; Knight & Liesch,2016) Smith (1954) and Ohlina (1933) are the pioneers who first described the firm's intentions behind the exchange of goods and services across borders ( Martynoga & Jankowska, 2017) and they elaborated on the impact and benefits of international trade; hence the idea foreign expansion can be tracked as the factors of transformation from a local small business entity to an international venture 2.1.1 Uppsala Internationalization Model The most discussed and widely accepted model of internationalization has been developed by Uppsala School (e.g Johanson and Vahlne, 1977; Johanson and Wiedersheim-Paul, 1975) In this model, internationalization has been seen as a gradual and sequential development of firms’ commitment and investments over time, and four distinct forms of internationalization have been identified by Johanson and Wiedersheim-Paul (1975) namely - no regular export activities; export activities via independent representatives or agents; the establishment of an overseas subsidiary; and overseas production/manufacturing units Along with the incremental commitment, the selection of markets to enter is another important factor in this theory as authors discussed the pattern of market selection (Farooqi & Miog, R, 2012) Firms initially feel comfortable to go into foreign markets that are closer in psychic terms or less psychically distant due to difficulty in understanding the markets, however, the firms would eventually target markets that were further away in psychic distance terms as they have more knowledge of the market and greater control of resources (Vahlne & Wiedersheim-Paul, 1973) The model also describes the interdependence of market knowledge and market commitment using a model of the positive correlation between market knowledge and commitment decisions, as Electronic copy available at: https://ssrn.com/abstract=3643607 well to emphasize the sequential development of market activities and its positive correlation to market commitment Figure 1: Uppsala model, state and change aspects (Johanson and Vahlne, 1977) From the above state and change model, we can see that as the firm gains experience and increase knowledge, and which influence its decision to increase market commitment Now, as the firm's commitment level shifted in an upward level, it stimulates more learning Hence to develop knowledge is crucial to a firm's internationalization and especially that knowledge that grows out of experience in current operations is decisive in the learning process (Johanson and Vahlne, 2009) 2.1.2 Network theories of Internationalization Networks are identified as an influential factor in a firm’s internationalization journey (Coviello, 2006); thus, a firm’s internationalization has been widely examined through its network perspective and in this process, less emphasis was given to the knowledge about the foreign market, compared to the network relationship that the firm is part of (Laufs and Schwens, 2014) According to this approach, cooperation rather than competition among firms is better for their development, as they can combine and share their resources and expertise efficiently (Johanson and Mattsson, 1988) and the firm doesn’t have to commit substantial physical resources and still be an important international player Network models of internationalization describe the process of internationalization of firms as the establishment and nourishment of networks and interdependencies among different parties in different markets (Ratajczak-Mrozek, 2012) hence, by establishing cooperation, performing joint actions, and mutually adapting resources, each party creates its network of relations which in turn are connected to the networks of other entities that are beneficial for all Electronic copy available at: https://ssrn.com/abstract=3643607 Along with the role of networks in the internationalization of SME (Hanell & Ghauri, 2015; Johanson & Vahlne, 2009; Wilkinson, Mattsson, & Easton, 2000), other dynamics such as types of networks (Aldrich, 1999), the impact of networks on the pace of internationalization (Oviatt & McDougall, 2005) also got significant space in academics According to Chandra and Wilkinson (2017, p 692) “Relationships and networks affect firm internationalization in two main ways: they affect international opportunity recognition (discovery, creation, and actualization) and a firm’s ability to develop and exploit international market opportunities” 2.1.3 Business Network Incorporated Uppsala Model With the change of perspective regarding the business environment from a neoclassical market with many suppliers and buyers to a web of relationships and networks, Johanson and Vahlne realized the need of incorporating business networks as a crucial element in the internationalization model ( Johanson & Vahlne, 2009) In the new model, Johanson and Vahlne have described internationalization as a process of creating and utilizing the multitiered network (Farooqi & Miog, 2012) Keeping the basic structure unchanged, “recognition of opportunities” and “knowledge” were added as an opportunity in the market is the main driver of the internationalization process, and relationships or networks can develop knowledge, trust, and commitment (Johanson & Vahlne, 2009) 2.1.4 Innovation Related Models of Internationalization Innovation refers to the transformation of creative ideas into new products and services and or processes of production and distribution that can create a sustainable competitive advantage for the firm (Kyläheiko, Jantunen, Puumalainen, Saarenketo & Tuppura, 2011) The main argument underlying the innovation models of internationalization that every stage of internationalization is considered as innovation (Farooqi & Miog, 2012) 2.1.5 Born Globals Stage theories of internationalization cannot explain a new generation of firms named Born globals; those focus on internationalization from the very beginning of operation (Rasmussen & Madsen, 2002) With the accelerated globalization contributed by advancement in communication through the internet in the early 1980s, growing evidence of early internationalization and born globals was experienced (Cavusgil & Knight, 2015) The concept of born globals has been presented by Rennie based on an Australian study (Andersson & Electronic copy available at: https://ssrn.com/abstract=3643607 Wictor, 2003) While discussing born globals researchers has identified mainly three types of factors that have contributed to the emergence of this type of firms – a) unique resources that enable them to offer in the international market, b) non-equity modes of entry and c) rapid innovation in communication and transportation (Hennart, 2014) Andersson (2011) has analyzed born globals internationalization process and entrepreneur’s decision-making process using the theory of effectuation which shows that entrepreneur’s prior competencies and abilities and networks are crucial factors influencing success in the early stage of internationalization 2.2 Network, social networks and the role of social networks toward entrepreneurial firm’s internationalization 2.2.1 Network Theory Network theory is one of the methods that interpret and assist in understanding systems that consist of relationships between several subjects (Kalso, 2018) It is usually used in many different areas of studies such as economics, the internet, ecosystems, and others All these different actors will form the fundamentals for entrepreneurial networking and will create obstructions and opportunities which are significant for the entrepreneurial process (Prell, 2012) Social network theory is connected to entrepreneurship with the inspiration of Birley (1986), Aldrich & Zimmer (1986), and Johannison (1988) In the network theory, there are two main basic classes: the ties and the nodes Nodes imply different actors, which are represented as people, groups, organizations, or businesses Therefore, ties are the connections that nodes have established with each other They will determine whether the relationships are strong, weak, or absent, and therefore give better insight into the influence of the network (Brass and Halgin, 2012) To be more precise, in a graphic presentation, the outcome is to connect the dots, which represent individual players through different ties creating a universal network (Borgatti and Foster, 2003) Networks have significant structural functions such as who interacts with whom as well as the nature of the connections among individuals (Fleisher, 2005) Those functions define the type of each network, and its structure and size An entrepreneur needs to obtain support from his surroundings to be able to have another vision of certain situations (Brass and Halgin, 2012) Therefore, by increasing your network size, more information will be shared to develop a Electronic copy available at: https://ssrn.com/abstract=3643607 business successfully It takes time for any entrepreneur to build a trusted personal network Information can be used against, and this might lead to failure 2.3 Social and Business Networks Networks are assessed by the following main factors: the nature of their members, the nature of links between them, and the dependence of the links (Wasserman & Faust, 1998) Networks are divided into two types: social networks and business networks A social network is a range of people, mostly family members and friends of the entrepreneur interacting and helping each other towards the success of the business especially in the early and critical stages (Gurung, 2013) The connection between members of social networks can differ in closeness or strength and results in different exploitations of business opportunities (Jackson & Young, 2016) The closeness of those relationships can be used in social networks to find business-related knowledge, attain strategic information, share ideas, and establish new business contacts A Business network is determined as a set of connected exchange relationships in which one relationship has some influence on another (Cook & Emerson, 1978) The different players in this specific network are people or organizations that influence someone's career, business, or project A business network is complicated due to its structure that comprises several actors and various links (Halinen & Tornroos, 2005) Moreover, those links can be directly and indirectly connected (Jackson & Young, 2016) Social networks are influenced by business networks, as well as business networks are influenced by social networks, which can result in an exchange of knowledge (Jackson & Young, 2016) 2.4 The network of Strong and Weak Ties Empirical findings argue that to understand the strengths of social networks, it is of great importance to analyze Granvotter's (1973) model of strengths of ties In the light of Granovetter, strong social ties are a relationship between two individuals that can extend someone's network far beyond someone's normal reach Strong ties are referred to as friends and weak ties as acquaintances (Granovetter, 1973) It is essential to understand that strong and weak ties are crucial for the process to achieve specific opportunities To begin with, a strong tie is someone people know well, where trust is built, Electronic copy available at: https://ssrn.com/abstract=3643607 and where people share the same information A weak tie is a more fragile relationship, where two people share different interests and possess new relevant information However, the weak ties are crucial since they will be mutually beneficial for each other and they will encourage to share information across different groups (Granovetter, 1973) There are business connections that the entrepreneur meets in the entrepreneurial phase This will allow new opportunities for new start-up businesses, new job opportunities, network clusters, and many other areas that an entrepreneur needs to reach, for a more central network position (Burt, 2011) It is of great importance to maintain those relationships because weak ties will also be more critical towards the personal work instead of a friend who will mostly support you as an entrepreneur (Rost, 2011) Entrepreneurs who possess only a few weak ties will lack essential information and will be too dependent on their friends and family (Granovetter, 1973) 2.5 Social Networks Social networks are often perceived by individual entrepreneurs than by companies (Ozgen & Baron, 1990; Ellis, 2011) In the context of entrepreneurship literature, social networks are defined as “a collection of individuals who may or may not be known to each other and who, in some way contribute something to the entrepreneur, either passively, reactively or proactively whether specifically elicited or not” (Gilmore & Carson, 1999, p.31) Social networks are also characterized as a web of personal connections and relationships that are to be utilized for securing favors in personal and/or organizational action (Granovetter, 1985; Burt, 1992) Social networks have been considered as the most important network resources during the early stages of internationalization (Adler & Kwon, 2002) because they stimulate the entrepreneurs to recognize new business opportunities in international markets (Shirokova & McDougallCovin, 2012) Opportunity exploration is initiated by individuals, not firms (Aldrich & Zimmer, 1986; Singh, 2000); consequently, the flow of information exchange during the early stages of internationalization happens by the force of interpersonal network, not interorganizational network (Ellis, 2011) In the context of organizational settings, social networks may comprise social relationships among individuals within the structure of business relationships or strategic alliances (Bjorkman & Kock, 1995); however, in this paper, we make a focus only on personal relations concerning geographical, social, or institutional space (Hitt, 2002) Chen (1994) affirmed that such social networks at the individual level are mostly portrayed and built upon goodwill and trust Many researchers also considered the importance Electronic copy available at: https://ssrn.com/abstract=3643607 of trust in an international transaction (Axelsson & Johansson, 1992) Shirokova and McDougall-Covin (2012) also asserted that personal relationships that lead to internationalization could not be built without trust and commitment from both parties A few studies have emphasized that social networks contribute to shaping the foundation of which business linkages are developed across the borders (Chen & Chen, 1998; Chen, 2003) Liesch (2002) pointed out that setting up and preserving social relationships is a crucial part of the internationalization process considering both outcomes and inputs into the process As an outcome, it is critical for the entrepreneurial firm to enhance social relationships, especially in foreign markets (such as guanxi in the Chinese market, kankei in Japan, immak in Korea, or blat in Russia) to get valuable information benefit (Ellis, 2000) As input, applying useful information about social networks impact positively the firm’s performance in international markets (Liesch & Knight, 1999) This will be illustrated more in part 2.3 2.6 The role of social networks toward entrepreneurial firm’s internationalization Shirokova and McDougall-Covin (2012) confirmed that social networks act as a core in facilitating all aspects of the entrepreneurship process, including internationalization Mainela (2002) argued that social networks inescapably attached to the business practice of both domestic and international markets as they were built up around the action of the people who act on behalf of the organization Johansson and Vahlne (2003) affirmed that an entrepreneur’s network can strongly influence the internationalization path of the firm, especially in the early stages of internationalization Coviello and Munro (1997) also raised the awareness that one important factor that contributes to the entrepreneur’s decision to choose the location is their social networks Social networks play an important role in the internationalization process as they provide guidelines to the new business opportunities (Aldrich & Zimmer,1986) in the international marketplace, the mobilization of resources (Stuart & Sorenson, 2005), and access to tacit knowledge (Sorenson & Audia, 2000) Coviello & Cox (2006) also affirmed that social networks can provide tangible resources such as financial capital and intangible resources such as knowledge about foreign markets (Lu, 2010) to the entrepreneurial firm Some researchers contended that without prior foreign market knowledge, the firm faces difficulties during the process of internationalization (Oviatt & McDougall, 2005) Zhou, Wu, and Luo (2007) considered social networks as the mediating role between internationalization and firm performance in the context of born-global SMEs; which was illustrated in three main benefits: Electronic copy available at: https://ssrn.com/abstract=3643607 (1) knowledge of foreign market opportunities (2) advice and experiential learning, and (3) referral trust and solidarity Besides, social networks have been considered as an important means to promote new business activities and influence the firms’ strategic choices and performance (Batjargal, 2003) Throughout international transactions, social networks play a fundamental role in proceeding economic exchange and the entrepreneurs are likely to devote substantial time to expand such networks (Dannis, 2010) Kiss and Danis (2010) asserted that social networks provide rich and trusted sources of appropriate information that satisfy the institutional voids and help entrepreneurs understand more about new markets Many researchers agreed that such social ties are critical to the firm’s survival and growth in international markets (Lloyd-Reason, 2005; Peng & Luo, 2000) Social networks are additionally added as a critical factor that accelerates the speed of internationalization Oviatt and McDougall (2005) stated that social networks are moderating forces including knowledge and network influence to push up the speed of internationalization Utilizing the entrepreneur’s social networks, the firm improve the access to market knowledge (Arenius, 2005), get an acquaintance to the newness and foreignness through business relationship learning (Johansson & Vahlne, 2003), meanwhile screen and evaluate potential exchange partners (Ellis, 2000); therefore the firm strengthens competitive advantage (Greeve, 2006) and improves overall firm performance (Arenius, 2005; Johanson & Vahlne, 2003) Oviatt and McDougal et al., (2005) asserted that trust-based personal connections and referral can also form the key capabilities of the firms regard to the fast and flexible response to international markets Because of that, the firm reduces the information redundancy and overcomes the knowledge barriers, therefore makes progress in business operation and improves the transactional cost as well (Zhou, Wu & Luo, 2007) Social networks researchers tended to examine the strength of social relationships in terms of positive relationships, it is important to extend the understanding of those social ties to include negative relationships (Labianca & Brass, 2006) Research in social network tradition also pointed out the individual’s social network provides the individual both opportunities and constraints in approaching valuable resources including trust, knowledge, information, power, social and political support (Borgatti & Foster, 2003; Brass, 2004) Some studies asserted that social networks can have some detrimental effects on internationalization efforts such as Electronic copy available at: https://ssrn.com/abstract=3643607 (Jaworski & Kohli, 1993) Non-financial indicators are subjective in nature like the satisfaction one derives from the good financial performance or strategic performance Studies done in the past on international performance have mostly emphasized financial and non-financial measures (Child and Yan, 2003), without paying any heed to strategic aspects to measure performance Cavusgil and Zou (1994) are of the view that measuring performance only in terms of sales, the return of investment, and profit neglects the ultimate strategic goals of the entrepreneurial firm, like balancing out the competitive pressure and establishing their footprints in foreign markets As going international is itself a strategic and an economic act of an entrepreneur, it requires a strategic aspect of internationalization performance together with financial (Cavusgil and Zou 1994) According to Jeong (2016), the social network which has its bases on close relationships with family and friends creates a positive impact on internationalization performance There was an in-depth study done by Zhou et al., (2007) where he found that different informal social networks in different countries (i.e “guanxi” in China, “immak” in Korea, “blat” in Russia, and “kankei” in Japan) play a crucial role in internationalization and performance of entrepreneurial ventures Further, the study pointed out that these informal social networks have positive influences on profitability, exports, and sales of the ventures in the early stages of internationalization These close relationships with acquaintances play a mediating role between internationalization and performance (Zhou et al., 2007) By using home-based networks entrepreneurial ventures get to know about the opportunities in foreign markets, get advice and experiential learning, and sense of solidarity (Zhou et al., 2007), which definitely plays a positive role in increasing exports (sales) and profits, giving financial performance satisfaction, and achieving the strategic goals Thus, internationalization performance is dependent on how effectively the entrepreneur uses his web of personal connections and relationships 11 Electronic copy available at: https://ssrn.com/abstract=3643607 METHODOLOGY Qualitative collection of data and analysis has been used to collect secondary data because as far as the quality of data is concerned, secondary data has the upper hand when compared with its counterpart, primary data (Saunders, Lewis, & Thornhill, 2009) This accentuates that the approach we utilized is exploratory in terms of nature (Patton, 1999) Moreover, secondary saves a lot of time, is not expensive to get, and most importantly the data is collected quickly A qualitative approach was preferred to collect data, as it is an effective way of “finding out what others feel and think about their worlds” (Rubin & Rubin, 1995) This approach leads to “fine-grained” understanding regarding the experiences or events by exploring these in detail and then giving out logical reasoning (Lechnner & Dowling, 2003) Qualitative data is descriptive in nature and has nothing to with statistics and numerics This data collection technique produces insights into and helps to clarify, the social dynamics within which an individual operates (Atherton & Hannon, 2000) To find the occurrences of things qualitative research is preferred (Creswell, 2009) Owing to these things qualitative research is the right approach to be employed to figure out how entrepreneurs’ social networks play a part in internationalization performance in the early phase of internationalization, including the downside of social networks We selected one of the companies from Navid Ghannad’s (2013) dissertation work named ‘Polaris’, as we were very interested in finding out the impact of an entrepreneur’s social network on a firm’s performance in the early phase of internationalization We searched for secondary data from where we found inferences for the impact and importance of the personal network in internationalization performance The aim of the search here was also to highlight the dark side of social networks which is mostly overlooked as compared to the positive impacts of social networks To gather the right articles, exclusion, and inclusion criteria were developed where the focus was on the entrepreneur’s personal and social network peerreviewed papers English was the language of publication and where the text had full access A search was done for the articles that included words like a social network, performance, internationalization, advantages, and disadvantages of social networks, and foreign ventures Databases like Google Scholar, Emerald, and ABI Inform were used which gave an accumulated result of around 31000 articles with the keywords Then we narrowed down the articles to the ones concerning only entrepreneur’s social networks and internationalization performance which made the figure plunge From these left-over articles, we utilized the ones 12 Electronic copy available at: https://ssrn.com/abstract=3643607 that were especially focusing on the early stage of internationalization So, the final sample of articles that we found most relevant was around 20 EMPIRICAL DATA Polaris AB and Staffan Preutz Staffan Preutz founded Polaris optic AB in 1979 with his friend Lars Karbin It is a privatelyowned niche optical company located in Northern Sweden Polaris optic concentrates on selling and manufacturing high-quality rimless eyewear The overall turnover is around 70 million SEK Almost 93% of the total revenue is generated in foreign markets, such as England, Germany, and Japan Staffan started working at his father's store at the age of ten, where he developed a sense of aesthetics His highly developed interest in design and his experience with different optical lenses were his motivation to find new material and new ways of production when it comes to rimless eyewear His main goal was for Polaris to go international as soon as possible The driving force for the idea of internationalization was Staffan’s passion for traveling the world and meeting new people His immediate source of influence was his family where he built his trade expertise by working at his father's shop From here, he also got to interact with other industry players and got a view of how the industry was faring The friends he made during the hitchhiking experience also changed his view of life and explains he still maintains the connections to date These friends gave him the courage to go international He was able to improve his English, learn about different cultures, as well as learn how to deal with different nationalities Polaris' board was made up of Staffan's close friends as well as friends of friends Lars Karbin, was a childhood friend and later a future associate with whom they together started Polaris He was good in numbers and thus complemented Staffan in running the business Rolf Black was a friend to both Lars and Staffan His excellent education and connections were a great asset to the company, especially in its early years Erick Rosen – a friend of Rolf He had good networks as well as the experience of selling exclusive products in foreign markets Arne Andersson – a friend of Staffan, also an experienced optician A significant part of Preutz's business network was established by attending trade shows in different parts of the world Customers of the manufacturers during his travels gave him feedback that they could buy his collection if he started a manufacturing facility of his own This motivated him even more to start his venture Some of the countries ventured into were 13 Electronic copy available at: https://ssrn.com/abstract=3643607 as a result of established connections between the opticians and Polaris, mostly made at annual trade shows Entry into most of the foreign markets was majorly through personal connections and networks such as family, friends, friends of friends, acquaintances, and people he met in different forums who later became useful links in countries of interest Entry into the USA The first market entered into, the USA, was the result of a network Staffan had met at a tradeshow in Milano, and subsequently, Polaris made a special collection for his chain stores in the US Former customers who Staffan had met while working at his father’s shop later became agents in the US market (though not successful) However, through their social circles, they introduced Staffan to Meg who turned out to be a great part of Polaris’ success in the US Germany Polaris entered the German market through a connection Staffan had made during his working days in Luleå Fritz, a German optician who was living in Sweden at the time, moved back to Germany and capitalized on the demand for Polaris glasses he had seen They formed a joint partnership which led to great success in the German market France The French connection who was selling Polaris eyewear in the US had a friend who was interested in selling the same in France Staffan made a special collection for the French market and later the same distributor became an agent for Polaris in France Friend of a friend (weak ties) United Kingdom Staffan’s sister’s husband was the first CEO in the UK this was a personal network of the immediate family The UK chain remains one of the most successful Polaris’ markets to date Australia During a vacation in Australia, Staffan met a Swedish family that owned a manufacturing plant outside Brisbane He then used this network to later establish a subsidiary in Australia which unfortunately did not function so well 14 Electronic copy available at: https://ssrn.com/abstract=3643607 ANALYSIS This paper is primarily concerned with answering the question: How the entrepreneur’s social networks influence the performance of the firm during the early stages of internationalization? From the empirical data gathered about Polaris, we can see it is a company that internationalized quite early or from inception The entrepreneur and CEO of Polaris (Staffan Preutz) majorly used his networks to venture into international markets, whether those relationships may or may not connect directly to him in the beginning but eventually contribute to the entrepreneurial firm’s business in foreign markets proactively As addressed in the literature reviews from Coviello and Munro (1997) that social networks are one important factor that stimulates the entrepreneur to decide the location to go international The countries that Polaris ventured into were as a result of established connections between the opticians and Polaris, mostly made at annual trade shows Entry into most of the foreign markets was majorly through personal connections and networks such as family, friends, friends of friends, acquaintances, and people Staffan met in different forums who later became useful links in countries of interest For example, in the USA market, Staffan was introduced by his former customers who later became agents in the US market to Meg who eventually became Polaris’ representative in the US and contribute to the advancement in the US market In the UK, the family ties which is Staffan’s sister’s husband made him decide to expand the business to the country Most of the international markets that Polaris has expanded are rooted in the social relationships of Staffan; nowadays, the company exports to a wide range of countries including different parts of the world such as Europe, the Middle East, North and South America, Asia, and Australia This in turn makes an echo to the moderating forces’ role of social networks on the firm’s speed of internationalization (Oviatt & McDougall, 2005) As mentioned in the theories, social networks provide guidelines to new business opportunities (Aldrich & Zimmer, 1986) and access to tacit knowledge (Sorenson & Audia, 2000), overcome the barrier of cultural and legal differences Staffan’s first effort to expand the business to the US market encountered problems with the US government since optical glasses are considered a medical product and required to be approved by the Federal Drug Administration (FDA) By being introduced to Meg, a former flight attendant at American Airlines, Staffan got support from her lawyer which later solved all the problems about laws and regulations required to establish a subsidiary in the market By that, the firm was supported to get acquainted with the newness and foreignness through business relationship learning (Johansson & Vahlne, 2003) 15 Electronic copy available at: https://ssrn.com/abstract=3643607 This also can be seen in other markets whereby Polaris keep learning more about the unique features of each market and improve their performance The performance of Polaris Group during 1991-2011 can be reflected from the firm’s turnover that has increased 240% from 29 MSEK in 1991 to 68 MSEK in 2011 The internationalization path of Polaris has been modified to adapt to each market, for example, they have strong demand in Japan and the USA which are considered the two most successful markets, on the other hand, the business has not gone smoothly in Australia and France market which ended up closing several stores This indicates the influence of social networks on the firm strategic choices and performance (Batjargal, 2003) The failure in several markets while going internationalization accentuated the adverse effect of social networks that may collapse the firm’s reputation and damage the firm’s performance (Coviello & Munro et al., 1997) and international growth (Sepulveda & Gabrielsson et al., 2013) Although the US market has become one of the most successful markets to Polaris, it also witnessed the loss by involving a wrong tie which resulted in financial loss Brass and Halgin ( 2012) described networks using ties and nodes For Polaris, some of the nodes in Staffan’s network are linked together to form ties For example, the French distributor in the US (node) introduced him to another distributor in France (node) who opened up the market for Polaris in France These two nodes joined together to form a tie The UK market also had different nodes as different people (Staffan’s sister, her husband, Staffan, a family friend) owned shares in the company Since social networks are characterized by interactions (Gurung, 2013) and based on the concept of weak and strong ties, which emphasizes the level of strength in a relationship between two individuals (Granvotter, 1973) Staffan’s strong ties included his family and childhood friends such as Lars, Rolf, Erik, Arne, and his sister They helped him in the early growth of the company by advising him and even being part of the board His weak ties came from trade shows, vacations, opticians in foreign markets, and recommendations from his strong ties Some of the weak ties proved to be more relevant in the internationalization journey later on in the long run It can be assumed that entrepreneurial networks are the foundation for the successful identification of opportunities (Hills, Lumpkin, and Singh, 1997) Hills et al., (1997), moreover, argue that an entrepreneur with a big network that consists of different ties will get more information on relevant topics to identify new opportunities than people with limited network ties This exchange of information is not mainly based on whether it is a strong 16 Electronic copy available at: https://ssrn.com/abstract=3643607 or a weak tie, but mostly on the additional value, both individuals get through this network concerning business opportunities On the downside, sometimes social personal networks can create conflicts due to the relationship aspect which can strain professionalism Staffan had a big fallout with Lars which led to his resignation Arne Andersson also resigned from the board and Rolf considered resigning but held back because of his friendship with Staffan The conflict between Fritz and his girlfriend, who was a shareholder in the German joint venture forced Polaris to buy her shares In the UK, the CEO (husband to Staffan’s sister) had to be bought out after their relationship ended and Staffan could not continue to business with him This reflects the negative side of social networks mentioned in the literature reviewed part from Labianca and Brass (2006), Borgatti and Foster (2003), and Brass (2004) that said the individual’s social network can also bring constraints in approaching valuable resources including trust, knowledge, information, power, social support Failure in maintaining personal relationships from Polaris case from different reasons such as untrusted, incapable ties, etc resulted in financial loss and even legal involvement which prove strongly that unreliable contact can collapse the firm’s reputation and damage the firm’s performance (Coviello & Munro et al., 1997) as well as its international growth (Sepulveda & Gabrielsson et al., 2013) This can be both a pro and as it facilitates entry in the short-term but create problems in the long-run CONCLUSION Throughout the discussion, the utilization of an entrepreneur’s personal or social networks in the early stages of internationalization has been evident from both an academic and practical perspective During the early stages, the social network has proved itself to be one of the most important resources that stimulate entrepreneurs to recognize new business opportunities and to access tacit knowledge in foreign markets Social networks as a critical factor did accelerate the speed of the firm internationalization The entrepreneur actively makes use of the social relationships to decide on the locations to go international and this accordingly affects the range of foreign markets and the speed of going international of the firm On the contrary, the entrepreneurs also encountered different challenges rooted in social networks which are the conflict of interest, lack of capability of the network or the untrusted ties, etc The study has made it clear that social networks around the globe, whether it is “guanxi” in China, “blat” in Russia, or the informal relationships of a Swedish entrepreneur play a crucial role in the firm's international performance, in the early phase of internationalization These close informal 17 Electronic copy available at: https://ssrn.com/abstract=3643607 relationships which make up social networks enable entrepreneurs to utilize these embedded linkages with their partners to gain economic gains (Cavusgil and Zou 1994), but these can be detrimental also if the contacts are not trustworthy and reliable, which ultimately hampers the firm’s performance (Coviello & Munro, 1997) Bringing out the dark side of social networks have several implications for entrepreneurs and small-medium sized enterprises Although during the early stages of internationalization, the opportunity exploration is initiated by individuals, not firms and the entrepreneurs’ social networks are the most important resources to the entrepreneurial firm; the performance of the firm is the final destination where it can be marked as success or failure Therefore, it is important to make a balanced consideration between social and business networks, not to blindly depend on the entrepreneur’s relationships which have the risk of failures because of untrusted, incapable ties Furthermore, the performance of internationalization seems to be mostly focused and accessed based on the sales figures and financial performance (financial indicators) but not the strategic performance (non-financial indicators) This study aims to indicate there should be a clear strategic vision of the entrepreneurial firm before embarking on international markets, for the firm to make a better decision while choosing markets to enter and to take appropriate initiative on the firm’s internationalization 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