A conceptualization of e-risk perceptions and the offline-online risk trade-off for small firm internationalization

With growing competitive pressures, companies are increasingly deploying the Internet (Porter, 2001) as strategic option of performance enhancement. With the Internet representing a potentially fluid and boundary-less medium (Lim et al. 2004), this deployment takes place not only in domestic but also in international markets. The adoption of the Internet appears to be particularly important for smaller firms. They are naturally poorer in terms of resource-endowment than large MNEs (Welsh and White, 1981) and the Internet promises a fast-track and time-compressed option for international expansion (Sinkovics and Penz, 2005; Yamin and Sinkovics, 2006). However, as international business deals with a multitude of contingencies in its environment progressive expansion comes at a price and is increasingly risky (Shrader, Oviatt, and Phillips McDougall, 2000). Internet reliance and the deployment of information and communication technologies (ICT) may implicate ‘ambiguous’ effects (Jean, 2007). The virtual analogue to traditional physical exchange is not riskfree but exposes firms to an array of related risks (Scott, 2004; Viehland, 2001; Wat, Ngai, and Cheng, 2005). While some of these risks are only relevant in the online context, others have their origins in the traditional international business environment. Even though many risks belonging to the latter category are deemed less relevant for companies predominantly doing business in cyberspace, they need to be carefully examined as they might still affect these companies in a different and/or in a less visible way. Understanding international risk in both its traditional and virtual form is thus crucial. While the conscious and controlled handling of risks may represent an important source of sustainable competitive advantage in terms of the resource based view (Barney, 1991), the lack of a thorough risk assessment and of the weighing of the offline-online risk trade-off can not only deprive a business of future profits but might also lead to complete business failure. However, the development of an international e-risk framework is not only relevant from a small firm survival and prosperity perspective, it also contributes to conceptual and theoretical development of international business and international entrepreneurship thinking, as the concept of risk occupies a pivotal theoretical position in both domains. Thus, this chapter pursues two objectives. First, it aims at investigating how traditional international risks take effect in the online context based on Brouthers’s (1995) empirically tested risk dimensions taking a first step towards the construction of an international e-risk framework. Second, it endeavours to explain the risk trade-off between offline and online internationalization for small firms that give preference to a more virtualized market entrysolution rather than to traditional market entry. The structure of the chapter is as follows: The first section introduces the international e-risk framework. The second section discusses the role of risk perceptions in online market entry mode decisions by proposing a simple model based on the internalization constituent of Dunning’s eclectic (OLI) framework. The section concludes by considering limitations and implications for future research.