FergHen17.3.fm

International Review of Entrepreneurship, Article #1607, 17(3): pp. 257-280.

The Long-Run Performance of Born

Globals in Computing: The Role of Digital

Platforms

Shon Ferguson

Research Institute of Industrial Economics (IFN), Stockholm, Sweden & Swedish University of

Agricultural Sciences (SLU), Uppsala, Sweden

Magnus Henrekson

Research Institute of Industrial Economics (IFN), Stockholm, Sweden

Abstract: Using data on all Swedish startups in the computing sector founded 2007–2015, we find

a systematic positive relationship between the propensity of a computing firm to reach customers

globally via digital platforms and its long-run employment growth relative to domestic-oriented

computing firms. We also find positive, yet weaker, evidence that born globals in computing grow

faster in terms of sales or value added. Our analysis also indicates that very few computing firms fit

the profile of born globals; only 15% of the 250 largest computing employers in 2015 were born

globals. Moreover, only 1.5% of computing startups founded 2007–2015 were computer game

publishers, which arguably have the highest propensity to be born global. Thus, although we find

positive born global effects at the firm level, policymakers must be aware that encouraging more

born globals need not necessarily lead to large benefits for the overall economy.

JEL Codes: F14, F23, L25, M13.

Keywords: born globals, computing industry, exporting, firm growth, globalization, job creation.

Acknowledgement: We thank Victor Ahlqvist, Enrico Deiaco and Joacim Tåg for useful comments

and suggestions on an earlier version of this study. Financial assistance from the Marianne and

Marcus Wallenberg Foundation is gratefully acknowledged. We would also like to thank Karl-

Adam Bonniers Stiftelse for stirring our interest in this topic and for financing an initial pilot study.

1. Introduction

The rising dominance of the service sector in general, and the computing sector in

particular, marks one of the most significant economic transformations of our

1. Shon Ferguson. Research Institute of Industrial Economics (IFN), P.O. Box 55665, SE-102 15

Stockholm, Sweden. Tel:+46 8 665 4500. Email: sh[email protected] & Swedish University

of Agricultural Sciences (SLU), P.O. Box 7070, SE-750 07 Uppsala, Sweden.

2. Magnus Henrekson (corresponding author). Research Institute of Industrial Economics (IFN),

P.O. Box 55665, SE-102 15 Stockholm, Sweden. E-mail: magnus.h[email protected]. Tel: +46

8 665 4500

258 The Long-Run Performance of Born Globals in Computing

time. Policymakers have thus become interested in encouraging the proliferation

of high-tech startups in order to promote economic growth and boost job creation.

This has led many countries to adopt policies that assist high-tech small and

medium-sized enterprises (SMEs) with an internationally oriented product to

expand. The goal of these policies has been to create successful fast-

internationalizing firms, which are often referred to as born globals.

Born globals are defined as startups that quickly and successfully engage in

multiple foreign exports without first establishing a strong customer base in the

domestic market.

The ability of these firms to circumvent a lengthier

internationalization process has caught the attention of many governments.

For

example, in 2016 the Swedish government published an export strategy that

specifically emphasized the importance of encouraging born global firms. In the

strategy document it is stated that: “There are many successful examples of

Swedish companies that have been international from the start, but there could be

even more of these so-called born globals.”

Many of the most prominent examples of born globals are found in

computing. In Sweden, for example, the most prominent examples of born globals

include Skype, Spotify and Mojang (developer of Minecraft). However, there is a

dearth of empirical studies that take stock of the number and size of born globals

in the computing sector and evaluate whether internationally oriented startups

outperform their domestic-oriented peers in the long run. Many governments

around the world actively support computing startups via business incubator

programs (UBI Global 2018), making the choice of supporting domestically

oriented versus internationally oriented startups with government subsidies an

important policy question.

In this analysis, we exploit the fact that some computing services suffer less

from export barriers than others, and thus firms that specialize in such digital

products have a more natural inclination to quickly expand sales globally. We

thus identify born globals in this study according to whether their line of business

sells its product on a digital platform directly to customers. The ability to engage

directly with customers via computer-mediated transactions has allowed for the

emergence of small and export-intensive firms in certain industries (Varian

2010). Selling a digital product online entails a fixed production cost, but the

marginal cost of production is nearly zero, which allows firms to scale up quickly.

Kudina et al. (2008) and Cannone and Ughetto (2014) find that born globals are

typically characterized by a production process that is easily scalable. Rapid

internationalization may provide a first-mover advantage for these firms (Bell et

al. 2003), allow them to diversify risks (Almor 2011), provide the firm with a

3. The term born globals was first coined in a report by McKinsey (Rennie 1993) to describe

enterprises that are able to quickly and successfully engage in foreign exports.

4. Initiatives to promote born global firms currently exist in, inter alia, Japan, South Korea, China,

the Netherlands, Brazil, and Canada (Growth Analysis 2016).

5. Government Communication 2015/16:48, “Regeringens exportstrategi”.

International Review of Entrepreneurship, Article #1607, 17(3) 259

competitive edge (Oviatt and McDougall 1994) and provide positive learning

effects (Andersson and Lööf 2009).

Our analysis is based on highly detailed firm-level register data for Sweden,

a small and open economy with a thriving computing sector. In the first part of

the analysis we manually inspect the websites of the most successful computing

firms in Sweden in order to inform us about the segments of the industry with the

highest propensity to be born global. We thus focus on the top-250 computing

firms in Sweden according to employment in 2015, the most recent year in our

dataset. The data indicate that only 15% of these firms fit the profile of born

globals according to the international nature of their product and distribution

system, while the remaining 85% are either foreign-owned affiliates, spinouts

from existing Swedish firms, or other types of computing startups with a domestic

orientation. Among the top-250 firms, computer game publishers tend to fit the

definition of born globals, while computer consulting firms overwhelmingly fit

the definition of domestic-oriented firms. These results suggest that some

segments of the computing industry are more likely to be born global than others.

The notion that some industries have higher born global propensity than others is

intuitive, and we are not the first in the literature to make this distinction. Kudina

et al. (2008), for example, point out that high-tech companies are “particularly

prone to the born-global effect”.

In the second part of the analysis we compare the employment growth of the

entire population of startup computer game and computer consulting startups in

the Swedish data founded 2007–2015. We argue that the online nature of

computer game distribution implies that computer game makers have a higher

propensity to become born globals compared to computer consulting firms. We

find that employment among computer game startups outpaced employment

growth at computer consulting firms. We also find that computer game firms are

initially smaller than computer consulting firms in terms of sales, and it takes four

years before they are significantly larger than computer consulting firms in terms

of sales. In addition, we find that only a small number of workers in the

computing sector are employed by computer game firms, so employment growth

is higher in this sector, but the level of employment is relatively low in aggregate.

Our results thus suggest that promoting born globals may not be the most

6. Our emphasis on technology-driven born globals differs from theories that focus on the

favorable performance of born globals due to their adaptability as young firms (Autio et al.

2000; Johanson and Vahlne 1977; Figueira-de-Lemos et al. 2011; Casillas and Moreno-

Menéndez 2014). Some authors argue that born global management strategies may lead to

slower growth or exit due to increased risk (Bonaccorsi 1992; Knight and Cavusgil 2004;

Luostarinen and Gabrielsson 2006), and that firms that are quick to expand internationally face

a disadvantage of “foreignness” (Zaheer and Mosakowski 1997; Rugman and Verbeke 2007)

and “newness” (Stinchcombe and March 1965; Zahra 2005; Sleuwaegen and Onkelinx 2014).

Finally, Andersson and Wictor (2003), Oviatt and McDougall (2005), Sapienza et al. (2006)

and Carr et al. (2010) posit that young firms are particularly constrained with respect to

management competencies and other resources, which can make rapid internationalization

risky.

260 The Long-Run Performance of Born Globals in Computing

effective policy since they are relatively small contributors to output and

employment. Our results also indicate that foreign-owned affiliates, spinouts and

domestic-oriented enterprises such as computer consulting firms play an

important role among the top employers in the computing sector in Sweden.

We contribute to a small and growing literature in the fields of

entrepreneurship economics and international business that study the causes and

consequences of born globals’ export-intensive strategy (Knight and Cavusgil

1996, 2004).

Research on born globals has mainly focused on documenting their

characteristics and understanding the underlying trends that give rise to these

types of firms (Moen and Servais 2002).

Most analyses of born globals are based

on surveys and case studies, which often focus on a highly selective group of

successful born globals that may not be fully reflective of the behavior of born

globals in general. Cavusgil and Knight (2015) and Zander et al. (2015) have thus

called for a more rigorous approach to study born globals, namely using

longitudinal data spanning all firms in order to obtain a proper control group of

other startups.

Our study also contributes to a new literature on “born global industries”

where all firms in a sector are born global. The literature includes studies on

microelectronics (Aspelund et al., 2018) and offshore wind power (Lovdal and

Aspelund, 2012), but the case of the computing industry has not been studied in

this context.

By identifying potential born globals at the industry level according to the

industry’s propensity to be born global, we distinguish ourselves from the many

studies that identify born globals in the data based on export performance early in

the firm’s life.

Such “ex post” identification of born globals suffers from

spurious correlation, as it is unclear whether long-run outcomes are caused by the

early internationalization itself, or if both early internationalization and long-run

success are driven by the firms’ innate features, which predate firms’ export

decisions.

Our approach to identifying born globals is in line with the most

common qualitative definition of born globals in the literature, namely as

“business organizations that, from or near their founding, seek superior

7. These studies found that born globals are typically innovation-intensive (Andersson and

Wictor 2003; Cavusgil and Knight 2015) and human capital-intensive (Knight 2001;

McDougall et al. 1994, 2003; Melén and Nordman 2007; Kaur and Sandhu 2013).

8. Studies using the quantitative definition include Kuivalainen et al. (2007), Hashai (2011),

Sleuwaegen and Onkelinx (2014), Sui and Baum (2014), Choquette et al. (2017), Garcia-

Garcia et al. (2017), Ferguson et al. (2019) and Braunerhjelm and Halldin (2019). The

quantitative definition of born globals is usually defined along two dimensions: the degree of

export intensity (exports as a share of total sales must exceed a certain value) and the age of

the firm at which this export intensity criteria is met. In the literature, numerous definitions

have been applied (see, e.g., Braunerhjelm and Halldin 2019; Gabrielsson and Kirpalani 2004;

Oviatt and McDougall 1994; Rennie 1993), such as export activity within 2–10 years and a

minimum export share of total sales ranging between 20 to 80 percent.

9. It is a well-established empirical fact in the international economics literature that more

productive firms tend to self-select into trade (Bernard and Wagner 1997; Bernard and Jensen

1999, Mayer and Ottaviano 2008).

International Review of Entrepreneurship, Article #1607, 17(3) 261

international business performance from the application of knowledge-based

resources to the sale of outputs in multiple countries” (Knight and Cavusgil 2004,

p. 124).

It is thus the aspiration to sell products in international markets that

defines born globals, not necessarily their future exporting success. We thus

argue that the very nature of the computer game industry implies that all Swedish

computer game startups since 2007 had the global market in mind upon founding.

Knight and Liesch (2016) recently point out in a review of the born global

literature that an ex post quantitative definition, such as the 25% three-year rule,

is arbitrary. They also note that an export intensity threshold is highly sensitive to

country size, making cross-country comparisons difficult.

Our identification of potential born globals using a highly detailed industry

classification does not require data on each firm’s exports of services. We apply

this approach to the Swedish data, where services export data would otherwise be

inadequate to identify born globals, and our methodology could be applied in any

country where services export data on startups are lacking. The lack of detailed

data on service exports in almost all countries has discouraged comprehensive

empirical analyses of born globals in the service sector in general. Data on trade

in goods is gathered by the customs authorities at the point when goods cross the

national border. Firm-level data on trade in services must instead be collected via

surveys, which often only cover larger firms. Other strategies therefore have to be

used if one wants to study service exports among startups in the vast majority of

countries.

As a result, the few existing empirical studies of born globals using

firm-level register data have focused on manufacturing, where detailed export

data on the entire population of manufacturing firms are available (Choquette et

al. 2017; Ferguson et al. 2019; Braunerhjelm and Halldin 2019). To the best of

our knowledge, we are the first to study born globals in computing using firm-

level register data, which cover the universe of firms in a particular country and

sector. Given the rapid growth of service-based startups and trade in services, our

study fills an important void in the literature.

The rest of the paper is organized as follows. An overview of the historical

growth in services exports is described in Section 2. The incidence of born globals

among the top-250 Swedish computing firms is given in Section 3. Data sources,

descriptive statistics and our regression methodology are provided in Section 4.

The regression results are presented and discussed in Section 5. Conclusions

follow in Section 6.

10. Cavusgil and Knight (2015, p. 4) paraphrase their original definition as “entrepreneurial

startups that, from or near their founding, seek to derive a substantial proportion of their

revenue from the sale of products in international markets.” Similarly, Oviatt and McDougall

(1994, p. 49) define an International New Venture as “a business organization that, from

inception, seeks to derive significant comparative advantage from the sale of outputs in

multiple countries.”

11. A notable exception is Germany, which collects services trade data for all firms with total

annual transactions in excess of EUR 12,500.

262 The Long-Run Performance of Born Globals in Computing

2. Growth of Services Exports

The growth of service exports is a global phenomenon. Table 1 presents exports

of goods and services as a percentage of GDP in Sweden, Finland, Germany, the

United Kingdom and the United States in the years 1998, 2007 (the year before

the financial crisis) and 2016. The table shows that services exports have grown

substantially as a share of GDP between 1998 and 2016; its share has roughly

doubled during this period. In Sweden, roughly one third of exports consists of

services, and services exports are even more important after adjusting for the

import content of exports in goods versus services. 38% of Swedish goods exports

consist of imported inputs, which implies that the value added from exports of

goods in 2016 equaled 18% of GDP ((1 – 0.38) x 29.4 = 18.2).

In contrast, the

import content of service exports is only 16%, which implies that the value added

from exports of services from Sweden in 2016 equaled 12% of GDP ((1 – 0.16) x

14.0 = 11.9). Thus, the contribution of services exports to Swedish GDP in 2016

was 40% of the total contribution of exports.

Another striking observation that can be made is that goods exports dropped

sharply in Sweden and Finland after the financial crisis, while goods exports have

returned to pre-crisis levels in Germany, the United Kingdom and the United

States. In contrast, the service exports share has increased by between 20 and 33%

in all five countries. These facts highlight the importance of studying service

exports.

Table 1: Exports of goods and services as a percentage of GDP in Sweden, Finland, Germany, the

United Kingdom, and the United States, 1998, 2007 and 2016.

12. We use the measures of “Domestic value added share of gross exports” in agriculture, hunting,

forestry, fishing and industry (NACE Rev. 1.1 1-41) and services (NACE Rev. 1.1 50-95) for

2014, the most recent estimate from the OECD Trade in Value Added (TiVA) database.

1998 2007 2016

Sweden Goods 32.9 37.0 29.4

Services 6.6 11.0 14.0

Total 39.5 48.0 43.4

Finland Goods 31.6 34.8 24.5

Services 6.0 9.2 11.1

Total 37.6 44.0 35.6

Germany Goods 22.9 36.9 37.9

Services 3.8 6.1 8.1

Total 26.7 43.0 46.0

International Review of Entrepreneurship, Article #1607, 17(3) 263

Source: OECD, authors’ calculations.

3. Born Globals Among the Top-250 Swedish Computing Firms

We first identify the number of born global firms among the top-250 firms in the

“Computer and related services” sector, based on their employment in 2015.

We use annual data covering the universe of Swedish firms between 1998 and

2015 from the IFN Corporate Database. This data, based on register data from

Statistics Sweden, includes detailed accounting records collected from tax

returns, including employment, sales and value added. The data also include

information on ownership that allows us to determine if the firm belongs to a

Swedish company group or is an affiliate of a foreign-owned firm.

Born globals are characterized by an ability to overcome the initial barriers

and risks that are associated with entry into foreign markets without first

establishing a strong home market presence. In contrast, conventional firms build

up a customer base in the domestic market and then gradually expand

internationally under a more traditional internationalization process (Bilkey and

Tesar 1977; Cavusgil 1980; Johanson and Vahlne 1977).

With the qualitative definitions of born globals of Oviatt and McDougall

(1994) and Knight and Cavusgil (2004) in mind, we use the name of each firm

among the 250 largest employers in order to find their website and determine

whether it fits the profile of a born global firm in the context of computing. We

identify firms as born global according to five criteria: 1) they are not spinouts of

existing Swedish conglomerates, 2) they are not foreign-owned affiliates in their

first year of operation, 3) they sell to consumers using an online distribution and

United Kingdom Goods 16.6 14.5 15.4

Services 7.1 10.4 12.9

Total 23.7 24.9 28.3

United States Goods 7.4 8.0 7.8

Services 2.9 3.4 4.0

Total 10.3 11.4 11.9

13. The “Computer and related services” sector corresponds to NACE Rev 1.1 division 72. We use

NACE Rev 1.1 when studying the top-250 firms because it captures all computer-related

activities. In contrast, computing activities in the more recently introduced NACE Rev 2

classification are spread across three divisions: “Publishing activities” (58), “Computer

programming, consultancy and related activities” (62) and “Information service activities”

(63), which all include several non-computer industries. Using the older industry classification

allows us to identify the industry of firms upon founding as far back as 1998 in the data. We

use the NACE Rev 2 industry classification and focus on startups founded from 2007 onward

in the regression analysis in the next section because NACE Rev. 2 is more detailed and allows

us to identify computer game startups in the data.

264 The Long-Run Performance of Born Globals in Computing

payment system, 4) they have an English-language website, and 5) they sell a

product with a clear international market (i.e., computer games, apps, cloud

services). Among the top-250 employers in the computing sector in 2015 we find

that 37 firms fit the profile of born globals.

While excluding spinouts and foreign-owned firms is intuitive, the latter three

criteria for identifying born globals deserve more motivation. An online

distribution and payment system reduces transaction costs for domestic and

international customers alike. Knight and Cavusgil (2004) posit that the

widespread diffusion of the internet makes internationalization a more viable and

cost-effective option. Gabrielsson and Gabrielsson (2011) find that internet-based

sales channels are more common for born globals that sell to consumers instead

of firms. An English-language website is a must for firms targeting an

international audience. In contrast, a Swedish-language website would be highly

suggestive of a firm that is targeting Swedish customers only. Finally, selling a

product with a clear international market (such as computer games) is crucial for

selling to customers globally. A Swedish startup with a product or service tailored

to the domestic market would clearly not be a born global.

Among the top-250 employers in 2015 there are a large number of firms that

do not fit the profile of born globals. 94 firms implement business software

solutions for other firms. These firms are not as internationally oriented as the

born globals, as they often install customized digital business solutions on-site

and have a primarily Swedish customer base. Their websites are often exclusively

in Swedish. Some of these firms may have an international presence, but all of

these firms have a clear focus on the Swedish market. We thus define these

businesses as domestic-oriented firms. Another 48 firms began in Sweden as

foreign-owned affiliates and are therefore not classified as born globals. In

addition, 55 firms began as spinouts from existing Swedish conglomerates, and

are not classified as born globals. Born globals are startups by definition and are

thus not established as a spinout of an existing firm.

Finally, 16 firms could not

be categorized into any of these four groups. Overall, only 15% of the top-250

firms fit the profile of born globals.

The evolution of the average employment per calendar year for born globals,

domestic-oriented firms, foreign-owned affiliates and spinouts among the 250

computing firms with the highest 2015 employment is illustrated in Figure 1. The

majority of these firms were founded after 1998, and average employment was

relatively low and similar across groups in the late 1990s. Employment among

foreign-owned affiliates grew the fastest compared to other types of firms

between 2000 and 2005, then grew at a slower pace between 2006 and 2015.

Average employment growth among born globals was similar to spinouts during

the 1998–2015 period, which was lower than foreign-owned firms but higher than

domestic-oriented firms. Overall, Figure 1 suggests that successful foreign-

14. This is an important difference compared to many international new ventures that begin life as

spinouts (Oviatt and McDougall 1994).

International Review of Entrepreneurship, Article #1607, 17(3) 265

owned affiliates have contributed more to employment than successful born

globals in recent years. These results also suggest that born globals had a

considerable size and growth advantage compared to domestic-oriented firms

between 2007 and 2015. This aspect will be studied more rigorously in the next

section.

The breakdown of born globals by industry among the top-250 firms is given

in Table 2. Computer game publishers among the top-250 2015 employers are

few, but overwhelmingly belong to the born global category. Other software

publishing firms are also few in number and split evenly between the born global

and domestic-oriented category. 20 of the 37 born globals are classified as

computer programming firms, although there are nearly twice as many computer

programming firms that are domestic-oriented. Finally, very few computer

consultancy firms fit our definition of computing born globals. While there are 45

computer consultancy firms among the top-250 2015 employers, only seven

qualify as born globals. These results suggest that computer game publishers are

the most likely to be born global, while computer consulting firms are more likely

to be domestic-oriented and thereby well-suited to act as a control group. Other

software publishing and computer programming firms share characteristics of

both born globals and domestic-oriented firms.

Figure 1: Average employment per year among the 250 computing firms with highest employment

in 2015: export-oriented firms, domestic-oriented firms, foreign-owned affiliates and spinouts.

266 The Long-Run Performance of Born Globals in Computing

Table 2: Number of born global and domestic-oriented firms by industry class among the 250

computing firms with highest employment in 2015.

Notes: Sample based on firms included in Figure 1. Includes only industry classes that report at least

one born global firm. Domestic-oriented firms also found in four other industry classes.

4. Regression Methodology

The analysis of the top-250 computing firms revealed that certain categories of

business have a higher predisposition to be born globals than others. We use this

insight in our firm-level regression analysis by comparing the performance of

computing startups according to their industry class. In this section we describe

the firm-level data, provide some descriptive statistics and explain our regression

methodology.

4.1. Data Description

We use firm-level register data covering all computing startups founded 2007–

2015 in the IFN Corporate Database. The analysis focuses on the following

NACE Rev. 2 classes: “Publishing of computer games” (58.21), “Other software

publishing” (58.29), “Computer programming activities” (62.01) and “Computer

consultancy activities” (62.02). Firm accounting variables such as sales, value

added and the number of employees, as well as capital (fixed assets) and labor

costs, are derived directly from firms’ tax returns.

Descriptive statistics are presented in Table 3, where we report the sample

averages for the firm size measures under various sample restrictions. Table 3

highlights the fact that newly created firms in computing tend to be small, with

less than four employees on average in the unrestricted sample. Removing

foreign-owned firms and spinouts leaves the sample averages largely unchanged

for the outcome variables and average labor costs, but removing spinouts

increases the capital–value added ratio.

NACE Rev. 2 class Number of firms

Born global Domestic-oriented

Publishing of computer games 5 1

Other software publishing 3 3

Computer programming activities 20 38

Computer consultancy activities 7 38

Data processing, hosting and related activities 1 3

Web portals 1 4

International Review of Entrepreneurship, Article #1607, 17(3) 267

Table 3: Descriptive statistics, Swedish computer game, computer consulting, other software and

programming firms founded 2007–2015.

Notes: Sample based on firms included in Tables 4–6. Sample restriction criteria use information

for the year that the firm is founded.

The number of firms included in the analysis for each age cohort using the

full set of sample restrictions is illustrated in Figure 2. The analysis includes 134

computer game startups, 3,597 computer consulting startups, 490 startups

producing other software and 4,211 programming startups. Note that computer

game startups thus only make up 1.5% of all startups in the computing sector. The

number of firms in the analysis decreases with firm age, which is due to a

combination of exits and truncation due to the fact that we only observe firms

until 2015, regardless of age. Figure 2 suggests that exit rates are similar across

the different types of computing businesses.

Figure 2: Number of firms by firm age: Swedish computer game, computer consulting, other

software and programming firms founded 2007–2015.

Variable (Averages)

restriction

+ add firm

controls

+ not foreign

owned

+ remove

spinouts

+<50

employees

+<20

employees

Employees 3.6 3.5 3.2 2.9 2.8 2.7

Sales (million SEK) 4.0 4.5 4.0 3.6 3.6 3.4

Value added

(million SEK)

2.9 2.7 2.5 2.2 2.2 2.1

Capital–value added ratio 0.10 0.12 0.43 0.36 0.36

Average labor costs

(thousand SEK)

486 480 472 474 474

268 The Long-Run Performance of Born Globals in Computing

Figure 3: Average employment by firm age: Swedish computer game, computer consulting, other

software and programming firms founded 2007–2015.

The average number of employees by firm age among born globals (i.e., firms

in the computer games industry), computer consulting firms, other software firms

and programming firms in the data is presented in Figure 3. The figure suggests

that all types of firms start with approximately two employees on average upon

founding. Computer game publishers grow faster in terms of employment,

reaching about 13 employees for firms that reach the age of eight years. Other

software and programming firms employ an average of between six and seven

employees at the age of eight, while computer consulting firms grow most slowly

in terms of employment, with just more than five employees on average among

the oldest firms in the analysis.

The average sales and value added among born globals (i.e., startups in the

computer games industry), other exporters (other software and programming

industries) and non-exporting firms (computer consulting) under our final sample

are presented in Figures 4 and 5, respectively. Our final sample corresponds to

the sample after imposing the same restrictions in column (6) of Table 4 but

includes firms of all ages. We find that computer game publishers initially grow

faster than other types of startups in terms of sales and value added, but computer

consulting firms nearly catch up by the time they are eight years old. The decrease

in sales and value added for computer game publishers older than four is caused

primarily by Mojang, a highly successful computer game startup founded in

2010.

The fact that older startups are not present in the data for all years

15. Mojang’s accounting period was exceptionally long (18 months) in 2014–2015. In the analysis,

we accrue 2/3 of their sales and value added to the 2014 accounting period, and 1/3 to the 2015

accounting period.

International Review of Entrepreneurship, Article #1607, 17(3) 269

underscores the importance of controlling for calendar year in the regression

analysis.

Figure 4: Average sales by firm age: Swedish computer game, computer consulting, other software

and programming firms founded 2007–2015.

Note: USD 1 SEK 8.

Figure 5: Average value added by firm age: Swedish computer game, computer consulting, other

software and programming firms founded 2007–2015.

≈

270 The Long-Run Performance of Born Globals in Computing

4.2. Empirical Approach

We test whether five-year-old computer game publishers founded 2007–2015 are

larger than computer consulting firms. We perform a cross-section regression

analysis at the firm level using OLS, which takes the following form:

log(Size

i,age=5

) = + (BornGlobal

) + (Controls

i,age=1

) +

(1)

where Size

i,age=5

is the size proxy for firm i in the year where it turns five years

old. We regress equation (1) separately using employees, sales and value added

as measures of firm size. The main explanatory variable of interest is the born

global indicator variable, BornGlobal

, which equals one if firm i’s main activity

is “Publishing of computer games” and takes a value of zero if its main activity is

“Computer consultancy activities”. Controls

i,age=1

denotes firm-level controls

for capital intensity and labor costs per worker, both measured when the firm is

one year old. Controlling for firm-level capital intensity and labor costs per

worker ensures that our results are not being driven by more primitive underlying

firm-level characteristics. We include a set of calendar year indicators,

, which

control for the impact of year-specific factors on firm size, such as the business

cycle.

Since we log the firm size measures, a positive point estimate for the industry

indicator variable indicates that computer game publishers are (e

– 1) x 100

percent larger in size compared to computer consulting firms. Logging removes

the small fraction of observations with non-positive employment, sales or value

added, and results in slightly different numbers of observations in the regressions

depending on the outcome variable of interest. The null hypothesis is that there is

no size difference in terms of employment, sales or value added between the two

industry types.

5. Regression Results

Our estimations of the size premium of five-year-old computer game publishers

compared to computer consulting firms are presented in Table 4.

Panels A, B and C in Table 4 present the results using logged employees, sales

and value added, respectively, as measures of firm size. In column (1) we estimate

the size premium associated with born globals without any sample restrictions. In

column (2) we control for firm-level capital intensity and labor costs per worker.

In column (3) we have removed firms that are foreign-owned in order to ensure

that our results are not driven by foreign-owned affiliates. We define firms as

16. The same regression model will also be used below to estimate any differences in the three

outcome measures between computer consulting firms and other software publishers and

programming firms, respectively.

βγ

International Review of Entrepreneurship, Article #1607, 17(3) 271

foreign-owned if they are formally owned by a foreign company group, or if their

name includes the words “Sweden” (in English or Swedish) or the word

“Europe”. In column (4) we estimate the size premium of born globals after also

removing spinouts. A firm is defined as a spinout if its employment is less than

50% of its company group’s total employment upon inception, which removes

firms belonging to larger company groups. In columns (5) and (6) we present the

regression results after further restricting the sample to include only firms with

less than 50 employees and 20 employees in their first year, respectively. We

impose the employment restrictions in order to further ensure that our analysis is

focused on true startups.

Table 4: Regression results, computer game publishers versus computer consulting firms,

age=5.

Notes: Capital intensity and average labor costs at age=1 and calendar year fixed effects included

in all specifications. Robust standard errors in parentheses. *** p<0.01, ** p<0.05, * p<0.1.

Panel A: log(employees)

restriction

+ firm

controls

+ remove foreign

owned

+ remove

spinouts

+ <50

employees

+ <20

employees

(1) (2) (3) (4) (5) (6)

BornGlobal

1.012***

(0.307)

1.262***

(0.319)

1.066***

(0.294)

0.915***

(0.252)

0.926***

(0.253)

0.933***

(0.252)

N 949 853 786 751 714 712

0.041 0.056 0.045 0.038 0.040 0.040

Panel B: log(sales)

restriction

+ firm

controls

+ remove foreign

owned

+ remove

spinouts

+ <50

employees

+ <20

employees

BornGlobal

0.284

(0.439)

0.771*

(0.449)

0.989**

(0.389)

0.828**

(0.364)

0.857**

(0.381)

0.865**

(0.381)

N 1,121 918 843 806 766 764

0.009 0.065 0.063 0.052 0.056 0.054

Panel C: log(value added)

restriction

+ firm

controls

+ remove foreign

owned

+ remove

spinouts

+ <50

employees

+ <20

employees

BornGlobal

0.463

(0.545)

1.114**

(0.505)

0.823

(0.500)

0.544

(0.457)

0.553

(0.460)

0.560

(0.462)

N 717 643 593 567 538 536

0.004 0.096 0.078 0.061 0.063 0.061

272 The Long-Run Performance of Born Globals in Computing

Panel A of Table 4 presents the results for employment. In column (1), prior

to adding firm-level controls and removing foreign-owned firms or spinouts, we

find a large and statistically significant employment premium associated with

computer game publishers. This employment premium persists after adding firm-

level controls in column (2), removing foreign-owned firms in column (3), and

removing spinouts from the analysis in column (4). The point estimate for

BornGlobal

continues to be statistically significant and stable in magnitude when

we also remove firms with unusually high employment in their first year in

columns (5) and (6). The point estimate for BornGlobal

in column (6) implies

that the number of employees among five-year-old computer game publishers is

154% ((e

0.933

– 1) x 100 154) higher than similarly aged computer consulting

firms on average.

In Panel B we find a statistically significant size premium in terms of sales

once firm-level controls are added, which is robust to applying the full set of

sample restrictions. The point estimate in column (6) of Panel B suggests that

sales among computer game publishers is 138% ((e

0.865

– 1) x 100 138) higher

than computer consulting firms at the age of five. However, in Panel C we find

evidence of a statistically significant size premium in terms of value added only

in column (2). Overall, the results of Table 4 suggest that computer game startups

have a clear size advantage relative to computer consulting startups in terms of

employment, but less clearly so in terms of value added.

In Tables 5 and 6 we present the regression results when software firms and

programming firms are defined as the born global group, respectively. In Table 5,

the odd-numbered columns report the point estimates for the BornGlobal

indicator variable when no sample restrictions are applied, while firm-level

controls are added and foreign-owned firms, spinouts, and firms with 20

employees or more at founding are excluded from the sample in the even-

numbered columns (corresponding to the full set of restrictions used in column

(6) of Table 4). We find that software firms are characterized by a statistically

significant size difference in terms of employment, which is robust to excluding

foreign-owned firms and spinouts. The point estimate in column (2) implies that

the number of employees among five-year-old software publishers is 32% ((e

0.275

– 1) x 100 32) higher than similarly aged computer consulting firms on average.

Software firms display no size advantage in terms of sales regardless of whether

the full set of controls and restrictions are applied. Finally, we find a significant

size advantage in terms of value added, which implies that value added of

software publishers is 43% ((e

0.359

– 1) x 100 43) higher than similarly aged

computer consulting firms on average at the age of five.

The results for programming firms in Table 6 reveal a statistically significant

size premium in terms of employment, but not in terms of sales or value added.

The point estimate for BornGlobal

in column (2) implies that the number of

employees among five-year-old programming firms is 10% ((e

0.092

– 1) x 100

10) higher than similarly aged computer consulting firms on average.

≈

International Review of Entrepreneurship, Article #1607, 17(3) 273

Table 5: Regression results, other software publishers versus computer consulting firms, age=5.

Notes: Same sample restrictions as column (6) in Table 4. Capital intensity and average labor costs

at age=1 and calendar year fixed effects included in all specifications. Robust standard errors in

parentheses. *** p<0.01, ** p<0.05, * p<0.1.

Table 6: Regression results, programming firms versus computer consulting firms, age=5.

Notes: Column (2) uses same sample restrictions as column (6) in Table 4. Capital intensity and

average labor costs at age=1 and calendar year fixed effects included in all specifications. Robust

standard errors in parentheses. *** p<0.01, ** p<0.05, * p<0.1.

Overall, we find a systematic positive relationship between the propensity of

a computing firm to be born global and its size premium relative to computer

consulting firms at the age of five. Computer game firms, which arguably have

the highest predisposition to become born globals, are characterized by the largest

size premium in terms of employment (154 percent). Other software publishers

and programming firms, which are less inclined to become born globals

compared to computer game publishers, have a correspondingly lower size

premium in terms of employment at 32% and 10%, respectively. We find mixed

log(employees) log(sales) log(value added)

(1) (2) (3) (4) (5) (6)

BornGlobal

0.290***

(0.0976)

0.275***

(0.106)

0.0899

(0.164)

0.135

(0.177)

0.257*

(0.150)

0.359**

(0.153)

Sample

restrictions

None All None All None All

1,076 791 1,270 852 812 596

0.024 0.025 0.006 0.060 0.006 0.081

log(employees) log(sales) log(value added)

(1) (2) (3) (4) (5) (6)

BornGlobal

0.0937**

(0.0431)

0.0924**

(0.0462)

- 0.0248

(0.0758)

0.0794

(0.0818)

0.0118

(0.0705)

0.0751

(0.0738)

Sample

restrictions

None All None All None All

2,171 1,603 2,611 1,731 1,658 1,222

0.014 0.020 0.006 0.068 0.001 0.081

274 The Long-Run Performance of Born Globals in Computing

evidence for a computing born global size premium in terms of sales or value

added.

Our results differ from studies of manufacturing born globals by

Braunerhjelm and Halldin (2019) and Choquette et al. (2017), which find larger

size premia in terms of sales than in terms of employment. Ferguson et al. (2019)

find no size premium in terms of employment and small and weakly significant

size premia in terms of sales and value added among manufacturing firms. In the

context of manufacturing, Ferguson et al. (2019) argue that the weakly positive

result for sales and value added among manufacturing firms may be due to the

presence of economies of scale in production, whereby export growth leads to

higher output among born globals but does not result in a corresponding increase

in employment in these firms. In the context of computing, however, many

software and programming startups are characterized by low sales and value

added in early years.

In Figure 6 we present the results of the regression analysis by firm age. The

results are based on regression equation (1), and each column illustrates the point

estimate for the BornGlobal

indicator variable and the corresponding 95%

confidence interval within each firm age cohort.

The first column illustrates the

regression results when the dependent variable is logged employment the year the

firm is founded (age=0), the second column illustrates the results in the following

year (age=1), and so forth. We perform separate regressions for each age group in

our data up to eight years after birth. We perform these regressions by firm age in

order to confirm that our results for the cohort of five-year-old firms are robust to

varying the time horizon of our analysis. The gradient of these point estimates

over firms’ lifespans is also informative regarding the relative growth in

employment, sales and value added for born globals versus other exporting firms

in the long run.

Panel A of Figure 6 reports the regression results by firm age for computer

game, other software and programming firms when firm-level employment is the

dependent variable. We find that employment among computer game publishers

is statistically significantly higher for all age cohorts, and the size premium for

computer game publishers grows over their lifespan, from a 60% premium upon

founding ((e

0.467

– 1) x 100 60), to a 243% premium at the age of seven ((e

1.234

– 1) x 100 243). Other software firms are characterized by a positive size

premium until they reach the age of six, whereupon their size premium

diminishes. The employment advantage of programming firms is statistically

significant until the firms reach the age of six, but the effects are small.

Panel B of Figure 6 reports the regression results by firm age when firm-level

sales is the dependent variable. The results indicate that computer game, other

software and programming firms are smaller than computer consulting firms in

terms of sales at inception, but sales grow over their lifespans. Computer game

17. The sample used in Figure 6 imposes the same sample restrictions as column (6) of Table 4 for

each age group.

≈

International Review of Entrepreneurship, Article #1607, 17(3) 275

publishers overtake computer consulting firms at the age of two, but their size

advantage in terms of sales is not statistically significant until they reach the age

of four. Other software firms display a negative size advantage until they are three

years old, and no statistically significant size advantage in later years.

Programming firms begin life with the smallest size disadvantage but their low

subsequent sales growth entails that they do not overtake computer consulting

firms at any point over the eight-year age horizon that we study.

Figure 6: Difference in employment, sales and value added by firm age: computer game publishers,

other software publishers and programming firms versus computer consulting firms.

Panel A: Employment

Computer games Other software Programming

Age

Panel B: Sales

Computer games Other software Programming

Age

276 The Long-Run Performance of Born Globals in Computing

Panel C: Value Added

Computer games Other software Programming

Panel C of Figure 6 reports the regression results by firm age when value

added is the outcome variable. Computer game publishers begin life at par with

computer consulting firms in terms of value added, and then grow over their

lifespan. However, we find evidence of a statistically significant difference in

value added among computer game publishers only for firms aged two, three, six

and seven. Other software firms begin life with significantly lower value added

compared to computer consulting firms, and the low and erratic growth in value

added implies that we find a statistically significant size advantage in terms of

value added at age three and five among these firms. Finally, programming firms

also begin life with a size disadvantage, and their low growth leads does not lead

to a statistically significant size advantage in terms of value added.

6. Conclusion

Promoting the emergence and growth of born globals in the computing sector is

seen in many circles as a desirable policy goal. We have analyzed whether

computing startups within industries with a high propensity to be born globals are

characterized by higher employment, sales and value added in the long run. We

study this question using detailed firm-level data on the universe of Swedish

computing startups founded 2007–2015, which allows us to follow computing

startups for a period of up to eight years.

Overall, our results suggest a systematic relationship between an industry’s

propensity to be born global and its long-run employment compared to our control

group of computer consulting firms (which were shown to be more often

domestically oriented). We find the largest size and growth advantage among

computer game publishers, which were shown to have the strongest propensity to

become born globals. However, a corresponding size advantage in terms of sales

takes several years to materialize, and the long-run size premium in terms of value

International Review of Entrepreneurship, Article #1607, 17(3) 277

added is highly unstable (yet positive overall). Other software publishers and

programming firms exhibit a modest size advantage over computer consulting

firms in terms of employment, but not in terms of sales or value added. Finally,

our results suggest that a born global export strategy is practiced by a small

number of Swedish computing firms; only 15% of the 250 largest employers in

computing were identified as born globals. Moreover, a mere 1.5% of all

computing startups were computer game publishers, which arguably have the

highest propensity to be born global. Policymakers must therefore be aware that

encouraging more born globals need not necessarily lead to large benefits for the

overall economy.

Our use of a qualitative definition of born globals that is independent of the

firms’ later performance may be seen by some as a limitation of the analysis, but

we argue that it is useful in ensuring that the investigation does not only focus on

successful exporters but also on those firms that seek to be global from the outset

but do not succeed. A qualitative definition is potentially a useful approach to

studying born globals using register data in industries where export data is

lacking. Another potential weakness of the study is our definition of the entire set

of computer game startups since 2007 as born global in their entirety. However,

we argue that the digitalized distribution of computer game sales implies that all

of these firms had the global market in mind upon founding, and this is therefore

another example of a “born global industry”. We hope that our study encourages

future work on not only the methodological issues related to evaluating born

globals’ performance, but also the broader implications of born globals for

aggregate employment.

278 The Long-Run Performance of Born Globals in Computing

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