Zaby · Internationalization of High-Technology Firms

Management International Review

Herausgeber I Editors:

Prof. Dr. Klaus Macharzina Universitat Hohenheim, Stuttgart

Prof. Dr. Martin K. Welge Universitat Dortmund

Prof. Dr. Michael Kutschker Universitat Eichstatt, Ingolstadt

Prof. Dr. Johann Engelhard Universitat Bamberg

In der mir-Edition werden wichtige Ergebnisse der wissenschaftlichen Forschung sowie Werke erfahrener Praktiker auf dem Gebiet des internationalen Managements veroffent­licht.

The series mir-Edition includes excellent academic contributions and experiential works of distinguished international managers.

Andreas M. Zaby

Internationalization of High-Technology Firms

Cases from Biotechnology and Multimedia

Dr. Andreas M. Zaby war wissenschaftlicher Mitarbeiter am Lehrstuhl filr Internationales Management an der Universitlit Jena. Heute ist er Consultant bei Bain & Company in Miinchen.

Dr. Andreas M. Zaby was senior lecturer at the Department of International Management at Jena University. Today he works as Consultant for Bain & Company in Munich.

Die Deutsche Bibliothek - CIP-Einheitsaufnahme

Zaby, Andreas M. : Internationalization of High-Technology firms : cases from biotechnology and multimedia I Andreas M. Zaby. - Wiesbaden : Gabler, 1999

(mir-Edition) Zugl.: Jena, Univ., Diss., 1999

ISBN 978-3-409-11568-1 ISBN 978-3-663-01079-1 (eBook) DOI 10.1007/978-3-663-01079-1

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Vorwort

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v

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VI

Klaus Macharzina, Martin K. Welge,

Michael Kutschker, Johann Engelhard

Foreword

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Klaus Macharzina, Martin K. Welge,

Michael Kutschker, Johann Engelhard

VII

Preface

International Management research has arrived at a turning point. There has been

a proliferation of empirical studies that examine the impact of internationalization

in mature industries. These studies are an outgrowth of the structure-conduct­

performance paradigm that was shaped by J. Bain. But what happens if we shift

our focus of interest from mature to emerging industries - especially to high­

technology industries? How do the patterns of internationalization change

compared to the standard case? Is conduct still determined by industry structure?

Or does the opposite hold true? Is internationalization a driving force of industry

structures? Which role do the activities of individual firms play?

These are only a few of the questions that are discussed in this study. The starting

point is marked by case study analyses of four enterprises from the biotechnology

and multimedia industries. Even on a stand-alone basis these case studies are

extraordinarily interesting as they depict industry developments that are, indeed,

changing our lives. From a management perspective the cases also highlight the

necessity of firmly grasping technological contexts in order to generate valid

findings.

Most importantly, however, Andreas Zaby succeeds in using the case studies not

only for demonstrating the limitations of existing internationalization theory. By

integrating the latest thinking in the fields of evolutionary organization theory

and economic geography he also develops novel perspectives that have the

potential to give new direction to wide areas of internationalization research.

This study analyzes case study firms that are headquartered in Germany or were

headquartered in Germany before their main offices were moved abroad in an

effort to increase internationalization. Undoubtedly, the German or European

perspective represents an important extension of the American perspective that

has dominated research on International Management. However, it must be taken

into account that the weak locational factors which have characterized the

German situation - as well as the situation in many other European countries -

from the early 90s until today have or may have influenced internationalization

results or - in other words - the results of the research on internationalization.

Therefore, the generalization of the research findings towards a general theory of

IX

internationalization of firms in high-technology environments needs to be

pursued cautiously. Nevertheless, the theoretical perspectives developed by Zaby

represent a solid basis on which a broad range of further studies can now build

upon.

I hope that this book reaches the wide audience that it deserves.

DODO ZU KNYPHAUSEN-AUFSESS

X

to my parents

Acknowledgments

I am deeply indebted to a number of individuals and organizations for their

advice, support, and - no less important - substantial opposition throughout this

research.

First and foremost, I would like to express my sincere appreciation and gratitude

to my academic teacher Dodo zu Knyphausen-AufseB who, throughout the years,

has been much more than a thesis advisor. Your counsel and guidance as well as

your continuous and unflagging interest in the project has greatly stimulated my

work. Assisting you in setting up the first ever chair of International Management

in Jena has been a highly rewarding challenge for me. With your profound

knowledge of the state-of-the-art of our discipline, your unwavering 'feeling' for

new avenues of research, your uncompromising academic standards, and your

continued personal generosity and support, you have been a true mentor. I cannot

imagine where I could have learned more.

Support for this study has been almost as international as the firms studied. In the

U.S. I would like to thank Richard Nelson of Columbia University for his early

suggestion that a case study approach would be the most appropriate format for

this kind of an exploratory study and Walter Ktimmerle of the Harvard Business

School for emphasizing how rich and detailed case write-ups can act as important

contributions to international management research. My understanding of the

biotechnology and multimedia industries has greatly benefited from the insights I

gained through repeated discussions at Harvard with Gary Pisano, David Yoffie,

and David Collis, three superb experts in these fields. To all five I would like to

express my gratitude for their typical American 'open doors' and for taking the

time to discuss my project with me, despite their busy schedules.

In Stockholm I had the great opportunity to present my dissertation proposal to a

panel of distinguished scholars at the doctoral tutorial of the 22nd annual ElBA

conference in 1996. I wish to acknowledge the benefits of criticism that I

received there from Jean-Francais Hennart of the University of Illinois, Stephen

Young of the University of Strathclyde, Yves Doz of INSEAD, and especially

from John Dunning of Rutgers University and the University of Reading whose

detailed comments on my proposal resulted in some substantial improvements.

xm

Back in Germany there are so many who have helped me that it seems impossible

to mention all - but the least I can do is try. I would like to thank Kurt-Dieter

Koschmieder of the Friedrich-Schiller-Universitat Jena and Michael Dowling of

the Universitat Regensburg for joining my thesis committee, Stephan Diekmann

of the Institut ftir Molekulare Biotechnologie for introducing me to the workings

of the biotechnology industry, and Henrik Sattler of the Friedrich-Schiller­

Universitat Jena for his constructive criticism of the proposal. Furthermore, I

would like to thank Gerlinde Steinborn, the secretary of the chair of International

Management, for her invaluable support and her great sense of humor, all fellow

doctoral students for the critical inputs during our seminars, and especially Maria

Rumpf, my colleague at the chair of International Management, for her advice

and for cheering me up during the periods of frustration that appear to be an

inevitable part of writing a doctoral dissertation.

This study would not have been possible without the collaboration of four high­

technology companies: Bayer AG, Siemens AG, Qiagen N.V., and Dataware

Technologies, Inc .. I am grateful for the time that so many of the executives set

aside for being interviewed, for the knowledge they shared with me, and the trust

they put in my work. I sincerely hope that the results of the study let them view

their efforts as 'good investments'. In observance of an old tradition, I

acknowledge my full responsibility for the study, its conclusions, and its

weaknesses.

This year the Friedrich-Schiller-Universitat Jena commemorates its origins 450

years ago. This institution has been an important incubator for the emerging high­

technology optical industry during the 191h century and was closely associated

with such famous entrepreneurs as Carl ZeiB and Ernst Abbe. I feel deeply

honored to have been able to witness the resurrection of the fine tradition of

research and teaching in economics and business administration at this university

and to offer my contribution. After 40 years of decay, the students, the faculty,

and the administration have, in just a few years, achieved an impressive

turnaround. This should instill a sense of pride in all who have been associated

with the effort.

ANDREAS M. ZABY

XN

Table of contents

1. Introduction ....................................................................................................... !

2. Case studies of internationalization in emerging high-technology

industries ..................................................................................•......•...........•... 13

2.1 Research methodology ................................................................................ 14

2.2 The emerging biotechnology industry ........................................................ 24

2.2.1 Building industry context ..................................................................... 26

2.2.2 Bayer AG ............................................................................................. 43

2.2.3 Qiagen N. V. ......................................................................................... 62

2.2.4 Within-case analyses ........................................................................... 77

2.3 The emerging multimedia industry ............................................................. 86

2.3.1 Building industry context ..................................................................... 87

2.3.2 Siemens AG ................. ~ ...................................................................... 101

2.3.3 Dataware Technologies, Inc .............................................................. 119

2.3.4 Within-case analyses ......................................................................... 134

2.4 Building a set of tentative hypotheses: Cross-case and cross-industry

analyses and case replication for enhanced external validity .................. 142

3. Theoretical perspectives of internationalization in emerging high­

technology industries - toward the industry life-cycle model of

internatioalization ....................................................................................... 163

3.1 Confronting extant internationalization theories with the case

findings .................................................................................................... 164

3.1.1 Content-oriented internationalization theories ................................. 166

3.1.2 Stage models of internationalization ................................................. 174

3.1.3 Organizational models for multinational enterprises ....................... 186

XV

3.2 A discussion of the contribution of evolutionary industry

emergence theory .................................................................................... 192

3.2.1 The industry life-cycle ....................................................................... 194

3.2.2 Creative destruction and internationalization theory ....................... 202

3.2.3 Industrial infrastructure and institutions: The social systems

perspective ........................................................................................ 209

3.3 Some thoughts on the contribution of economic geography .................... 218

3.3.1 Comparative advantage through national institutional

environments .................................................................................... 220

3.3.2 Economies of regional agglomeration and their effects on

internationalization ........................................................................... 228

3.3.3 An empirical location analysis of contractual knowledge-sourcing

agreements by German pharmaceutical companies in the USA ...... 246

3.4 The industry life-cycle model of internationalization .............................. 257

3.4.1 Constructing a new approach: The merger of internationalization,

evolutionary industry emergence, and economic geography ........... 258

3.4.2 Revisiting the tentative hypotheses .................................................... 273

3.4.3 Implications for management and policy .......................................... 281

4. Concluding remarks and directions for further research ........................ 287

References ......................................................................................................... 295

Appendix ........................................................................................................... 321

List of interviews and affiliations of interviewees ......................................... 321

XVI

List of figures

Chapter2

Figure 2-1: Research outline ........................................................................................................ 24

Figure 2-2: rDNA technology ....................................................................................................... 28

Figure 2-3: Mabs technology ........................................................................................................ 29

Figure 2-4: Biotechnology industry value chain for human health care ...................................... 36

Figure 2-5: Bayer AG organization .............................................................................................. 44

Figure 2-6: Development of Qiagen' s revenues and net income (loss) ....................................... 63

Figure 2-7: Pre-IPO equity structure ............................................................................................ 73

Figure 2-8: Emergence of the multimedia industry through digital convergence ........................ 88

Figure 2-9: Networked multimedia applications in the residential and business

segments .................................................................................................................... 91

Figure 2-10: The multimedia industry value chain: Industry segments and

subsegments ............................................................................................................... 93

Figure 2-11: Siemens AG organization ........................................................................................ 103

Figure 2-12: ON group organization ............................................................................................ 107

Figure 2-13: The ON group's location on the multimedia value chain ........................................ l08

Figure 2-14: Standardization bodies and forums for the multimedia network

infrastructure ............................................................................................................ 110

Figure 2-15: Development ofDataware Technologies' revenues and net

income (loss) ............................................................................................................ 120

Figure 2-16: Dataware Technologies' location on the multimedia value chain ........................... 123

Figure 2-17: Overview of Data ware Technologies' mergers and acquisitions ............................ 132

Chapter3

Figure 3-1: The dynamics of innovation in the industry life-cycle ............................................ 198

Figure 3-2: International distribution of collaborative biotechnology agreements of

German pharmaceutical companies ......................................................................... 251

Figure 3-3: Geographical distribution of collaborative biotechnology agreements of

German pharmaceutical companies in the U.S ....................................................... 252

Figure 3-4: Geographical clusters of the location of U.S. partners in collaborative

biotechnology agreements with German pharmaceutical companies ...................... 253

Figure 3-5: The industry life-cycle's influence on internationalization motives ....................... 267

Figure 3-6: The main tenets of the industry life-cycle model of internationalization ................ 271

Figure 3-7: Classified summary of the tentative hypotheses ...................................................... 274

XVII

List of acronyms

ADR

ADSL

AG

AIDS

ARAMIS

ATM

BASF

BIO

BMBF

BMFT

BMWi

BN

American depository receipt

asynchronous digital subscriber line

Aktien Gesellschaft [corporation]

acquired immune deficiency syndrome

airline real-time application for maintenance information systems

asynchronous transfer mode

Badische Anilin und Soda Fabriken

Biotechnology Industry Organization

Bundesministerium ftir Bildung, Wissenschaft, Forschung und Technologie [Federal Ministry of Education, Science, Research, and Technology]

Bundesministerium ftir Forschung und Technologie [Federal Ministry of Research and Technology]

Bundesministerium ftir Wirtschaft [Federal Ministry of Commerce]

broadband networks

BTU-Programm Beteiligungskapital ftir kleine Technologieuntemehmen-Programm [venture capital program for small technology-oriented enterprises]

CA

CACS

CAMS

CATV

CD-ROM

CEO

CFO

CGI

cGMP

CIU

COM

Corp.

CRO

cscw CSI

DAVIC

DBF

Dill

Dipl.-Ing.

Dipl.-Kfm.

DM

DNA

DVD-ROM

e.g.

EASDAQ

California

cable access communication system

CoAxiom management system

cable television

compact disk - read only memory

chief executive officer

chief financial officer

common graphical interface

current good manufacturing practices

customer interface unit

European Commission

corporation

clinical research organization

computer-supported collaborative working

carrier scale intemetworking

digital audio visual interoperability council

dedicated biotechnology firm

Deutsche Industrievereinigung Biotechnologie [German Biotechnology Industry Association]

Diplom-Ingenieur [Master of Engineering]

Diplom-Kaufmann [Master of Business Administration]

Deutsche Mark

deoxyribonucleic acid

digital video disc-read only memory

for example

European association of securities dealers automated quotation

XIX

E-commerce

ed.

Ed.

ELlS CO

EU

EWSD

FDA

FDI

GIF

GmbH

HFC

HIU

HTML

HTTP

i.e.

Inc.

IP

IPM

IPO

ISDN

ISP

IETF

JPEG

LAN LDC

Ltd.

M&A

M.B.A.

M.I.T.

MA

mdg.org

MGH

MIPS

MNC

MNE

MPEG

MPOA

N.V.

NAICS

NASDAQ

NATO

NBF NIH

XX

electronic commerce

Edition

Editor

entrepreneurial life science company

European Union

elektronisches Wahlsystem digital [electronic dialing system digital)

Food and Drug Administration

foreign direct investment

graphic interchange format

Gesellschaft mit beschrankter Haftung [limited liability company)

hybrid fiber coaxial

headend interface unit

hypertext markup language

hypertext transport protocol

that is

incorporated

Internet protocol

internationalization process model

initial public offering

integrated services digital network

internet service provider

Internet engineering task force

joint photographic expert group

local area network

less developed country

public limited liability company

mergers and acquisitions

Master of Business Administration

Massachusetts Institute of Technology

Massachusetts

Multimedia Development Group Organization

Massachusetts general hospital

millions of instructions per second

multinational corporation

multinational enterprises

moving pictures expert group

multiprotocol-over-ATM

naamloze vennootschap [corporation)

North American industry classification system

national association of securities dealers automated quotation

North Atlantic Treaty Organization

new biotechnology firm

National Institutes of Health

NMP OECD

OEM

OLI

ON

OTA

OTC

PC

PCR

PDF

PNNI

POTS

PPL

PTT

R&D

RACE

RBOC

rDNA

RNA

S.A.

SCR

SDH

SEC

SGML

SIC

SMAC

SS7

TAB

TDM

TKG

TNF

TV

U.K.

u.s. UCBerkeley

UCSF

UNCTAD

URL

VBU

VCR

VHS

nuclear matrix protein

Organization for Economic Cooperation and Development

original equipment manufacturer

ownership-, location-, and internalization-advantages

Offentliche Kommunikationsnetze [public communication networks]

Office of Technology Assessment

over-the-counter

personal computer

polymerase chain reaction

portable document format

private network to network interface

plain old telephone system

Pharmaceutical Proteins Limited

Post, Telephone, and Telegraph

research and development

research and development of advanced communications technologies in Europe

regional Bell operating company

recombinant deoxyribonucleic acid

ribonucleic acid

societe anonyme [corporation]

Siemens corporate research center

synchronous digital hierarchy

security and exchange commission

standard generalized markup language

standard industrial classification

suppliers and manufacturers in autornative collaboration

signaling system 7

Btiro ftir Technikfolgenabschlitzung beim Deutschen Bundestag [Office for Technology Assessment at the German Bundestag]

time division multiplexing

Telekommunikationsgesetz [telecommunications act]

tumor necrosis factor

television

United Kingdom

United States

University of California Berkeley

University of California San Francisco

United Nations Conference on Trade and Development

uniform resource locator

Vereinigung deutscher Biotechnologieunternehmen [Association of German Biotechnology Enterprises]

video cassette recorder

video home system

XXI

Vol.

VRML

WAN

WTO

www

XXII

volume

virtual reality modeling language

wide area network

World Trade Organization

world wide web