Ties that bind: ethnic ties and new venture internationalization

Abstract

We develop a nuanced perspective of the influence of social capital on the internationalization of new ventures, drawing from cluster studies in economic geography and migration studies in economic sociology. It is well understood that social ties influence the internationalization trajectory of new ventures. However, economic geography suggests that whether a firm is located within a cluster or not can have a significant impact on its networking behaviour. In a similar vein, studies on global migration suggest ethnicity plays a significant role in how people build social capital to gain tacit information and legitimacy across borders. We integrate these dimensions into the study of international entrepreneurship, and attempt to distinguish between the roles of ethnic and non-ethnic ties in new venture internationalization. Using survey data from 102 Indian software new ventures, we find a puzzling observation: While ventures outside clusters build more ethnic ties, it is ventures within clusters that are able to leverage such relationships for international growth. Furthermore, non-ethnic ties are found to be more significant for international growth than are ethnic ties. We follow up the quantitative analysis with an in-depth qualitative study to provide additional explanations. We discuss the implication of these findings for both theory and practice, and propose further research to explore the interaction of diaspora and network effects on new venture internationalization.