International New Ventures from an Emerging Economy: Legitimacy Deficits

Capability upgrading represents a vital yet challenging imperative for emerging economy INVs (Zhou et al., Reference Zhou, Barnes and Lu2010). The desirability and difficulty associated with such capability building stem from the same root cause: legitimacy deficits (Pant & Ramachandran, Reference Pant and Ramachandran2012). Legitimacy is ‘a generalized perception or assumption that the actions of an entity are desirable, proper, or appropriate within some socially constructed system of norms, values, beliefs, and definitions’ (Suchman, Reference Suchman1995: 574). Following from Meyer and Rowan's (Reference Meyer and Rowan1977) depiction of organizations acting to gain legitimacy in accordance with existing institutions, much of the legitimacy literature treats organizations as actors acting to legitimate themselves. In their comprehensive review of the legitimacy literature, Suddaby, Bitektine, and Haack (Reference Suddaby, Bitektine and Haack2017) distinguish between three research streams.

The first is termed the legitimacy-as-property perspective (e.g., Zimmerman & Zeitz, Reference Zimmerman and Zeitz2002: 45), according to which ‘legitimacy is a thing – that is, a property, a resource or a capacity of an entity’; the focus is on the legitimacy owner. The second is termed the legitimacy-as-process perspective (e.g., Suddaby & Greenwood, Reference Suddaby and Greenwood2005), focusing on an interaction process between multiple actors (chiefly organizations) that produce legitimation outcomes; the focus is on change agents. The third, which is termed the legitimacy-as-perception perspective (e.g., Bitektine, Reference Bitektine2011), ‘sees legitimacy as a cross-level process of perceptions, judgments of appropriateness, and actions that occur in interactions between the collective and the individual’ (Suddaby et al., Reference Suddaby, Bitektine and Haack2017: 45); the focus is on legitimacy evaluation. In other words, legitimacy ‘lies in the eye of the beholder’ (Ashforth & Gibbs, Reference Ashforth and Gibbs1990).

A virtue of the legitimacy-as-perception perspective is that it builds upon and incorporates aspects of the other two views. Suddaby et al. (Reference Suddaby, Bitektine and Haack2017: 463) observe: ‘This approach [legitimacy as perception] retains the notion of legitimacy as a property, but…uses the metaphor of property as taste, assessment, or judgment of the appropriateness of an organizational product, practice, or characteristic’. Furthermore, they note: ‘This approach also retains the understanding of legitimacy as process, but focuses their attention on processes of making judgments’. As such, the legitimacy-as-perception view offers a holistic yet focused way of thinking about legitimacy for our purposes.

The legitimacy-as-perception view focuses attention on the perceptions of audiences. These perceptions, in turn, can be influenced by the network ties of the focal actor since the company one keeps signals strategic intent and capability (Khoury, Junkunc, & Deeds, Reference Khoury, Junkunc and Deeds2013). Thus, network ties can be an important source of social capital that enhances the perception of a new venture's legitimacy (Shane & Cable, Reference Shane and Cable2002). In applying the legitimacy-as-perception view, we distinguish between internal and external legitimacy pertaining to internal and external audiences – employees and exchange partners (chiefly customers), respectively (Drori & Honig, Reference Drori and Honig2013; Fisher, Kuratko, Bloodgood, & Hornsby, Reference Fisher, Kuratko, Bloodgood and Hornsby2017). Highly relevant to the internal-external distinction, Podolny (Reference Podolny2001) offers an insightful perspective on how reducing uncertainty can enhance the legitimacy of a new venture by distinguishing between egocentric (i.e., the focal actor's) uncertainty and altercentric (i.e., prospective exchange partners’) uncertainty regarding the quality of the focal actor.

Cross-border legitimacy

In the context of INVs, a third form of legitimacy worth paying attention to is cross-border legitimacy. While gaining some degree of internal and external legitimacy in the domestic market is a useful start, this does not directly translate into cross-border success. As noted, INVs suffer not only from the liability of newness (therefore internal and external legitimacy deficits in the domestic market) but also the liability of foreignness (Mudambi & Zahra, Reference Mudambi and Zahra2007). When a new venture from an emerging economy seeks business overseas on the basis of intellectual property, its legitimacy deficits are exacerbated owing to negative country-of-origin perceptions associated with a weaker institutional environment (Ciravegna, Lopez, & Kundu, Reference Ciravegna, Lopez and Kundu2014; Madhok & Keyhani, Reference Madhok and Keyhani2012; Nanda & Khanna, Reference Nanda and Khanna2010). Cross-border legitimacy, both internal and (especially) external, is not easy to achieve. Attracting talented people in foreign markets to enhance internal cross-border legitimacy is challenging. Also crucial is external cross-border legitimacy vis-à-vis prospective customers in foreign markets.

Figure 1 summarizes the above typology of legitimacy. A question that remains is how new ventures in emerging economies – which are typically scarce in human capital and innovative companies – build these forms of legitimacy? A useful network-based conceptualization, which incorporates ties with both individuals and collectives, is proffered by Lorenzen and Mudambi's (Reference Lorenzen and Mudambi2013) connectivity perspective, which we turn to next.

Figure 1. Types of legitimacy for INVs.

People- and Pipeline-based Connectivity in Emerging Economies

Combining perspectives from network theory and economic geography, Lorenzen and Mudambi (Reference Lorenzen and Mudambi2013) formulated a theory of cluster connectivity to explain how emerging economy clusters attempt to catch up with their advanced economy counterparts. Their insightful conceptualization synthesizes the role of individual- and organization-based ties in assisting emerging economy firms to upgrade their capabilities and catch up with their advanced economy counterparts. The organization-based ties are termed ‘pipelines’ while the individual-based ties are referred to as ‘personal ties’.

People within pipelines

However, before we proceed with our theory-building effort, we add a further category of tie by bringing together the preceding two concepts: people within pipelines. Here we refer to the prospect of an INV coopting expatriate managers, from the country of origin of the focal venture, working abroad for a large MNE. Thus, distinct from returnees who are now resident in the focal venture's domestic milieu, these individuals’ locations are outside of the focal venture's home market. This creates the possibility that emerging economy-based entrepreneurs could build on an initial local tie with an MNE subsidiary to cultivate ties with coethinic managers working in that MNE's headquarters or other foreign subsidiaries – who thus manifest brain circulation rather than brain drain (Saxenian, Reference Saxenian2005, Reference Saxenian2006). Coethnic managers may extend support to a promising new venture due to altruistic motivations (Portes, Reference Portes1998) and the prospect of receiving kudos for identifying external sources of complementary innovation (Doz, Santos, & Williamson, Reference Doz, Santos and Williamson2001).

We summarize the above typology of network connectivity in Figure 2 below. The two parts of the Background section – on legitimacy types and forms of network connectivity available in emerging economy clusters like Bangalore – provide the building blocks of our theorizing. In the next section we identify how individual- and organization-based ties influence, separately and in concert, the legitimacy of INVs from emerging economies as they undertake ‘steps to speed up the upgrading process’ in emerging economies (Lorenzen & Mudambi, Reference Lorenzen and Mudambi2013: 522).

NB. The constructs in the three shaded boxes are our focus.

Figure 2. Types of network connectivity

Leveraging People-based Connectivity for Internal Legitimacy

Based on the premise that capability upgrading represents an uphill task for aspiring INVs from emerging economies, the key to addressing the internal legitimacy challenge is to attract appropriate human capital into the venture. But of course, this is a chicken-and-egg problem in an emerging economy context: such human capital typically does not exist in abundance within the domestic milieu in which a new venture is founded. The challenge is thus somehow attracting human capital from elsewhere which can translate into internal legitimacy through the reduction of what Podolny (Reference Podolny2001) refers to as ego-centric uncertainty.

As Lorenzen and Mudambi (Reference Lorenzen and Mudambi2013) have insightfully pointed out, diaspora networks can be extremely valuable in yielding returnees who become key personnel in ventures with high aspirations, as has been seen time and again in economies such as China (e.g., Filatotchev, Liu, Buck, & Wright, Reference Filatotchev, Liu, Buck and Wright2009) and India (e.g., Pruthi, Reference Pruthi2014). (Of course, once an individual is hired by the focal venture then he or she ceases to be an external tie.) The point is that personal relationship-based connectivity can be an important source of key employees who, when attracted to join the firm, help to uplift internal legitimacy. That said, returnees do not add uniformly high levels of value in terms of enhancing the internal legitimacy of ventures in an emerging economy that seek capability upgrading. Two factors are vital in determining the efficacy of a returnee in adding valuable human capital, and thereby internal legitimacy, to an aspiring INV in an emerging economy: competence and motivation.

In relation to competence, returnees have differing storylines with differential impacts in terms of their value-add with regard to human capital. In some cases, individuals leave the mother country for graduate studies and return straightaway; their impact in terms of injecting human capital might be relatively light. In other cases, an individual may be transferred overseas on a work assignment and return thereafter; they too can likely add some value upon their return, but the magnitude may be limited if the tenure overseas was not substantial (Armanios, Eesley, Li, & Eisenhardt, Reference Armanios, Eesley, Li and Eisenhardt2017; Filatotchev et al., Reference Filatotchev, Liu, Buck and Wright2009). Perhaps the most potent returnees are those who combine both education and work experience overseas, in particular in an advanced economy setting. It is not uncommon for such individuals to return in the first instance on an MNE expatriate assignment (Choudhury, Reference Choudhury2016) and then end up setting up a venture (Pruthi, Reference Pruthi2014); the latter can be considered an emerging economy variant of ‘spinout entrepreneurship’ (Klepper & Sleeper, Reference Klepper and Sleeper2005).^[Footnote ^3]

In relation to motivation, some returnees are better able than others at bridging their social identities vis-à-vis their mother country (e.g., China or India) and their adopted country (e.g., US or UK), and are intrinsically motivated to be involved in such economic activity. Drawing upon Kane and Levina (Reference Kane and Levina2017), we expect that returnees who are more emotionally comfortable with being reconnected with their mother country – without losing out on their acquired identity as members of their adopted home – are more likely to be committed to ventures that they found or join upon return. This in turn will make them more credible to the venture's internal audience than returnees who seem aloof and disconnected from the mother country. Additionally, returnees could also have career-related incentives to benefit from opportunities in their emerging economy of origin (Saxenian, Reference Saxenian2006).

Given sufficient competence and incentives, returnees with relevant experience of a given knowledge-intensive domain in another more advanced setting can provide a much needed fillip to the capability upgrading process of an emerging economy new venture (Armanios et al., Reference Armanios, Eesley, Li and Eisenhardt2017). This, in turn, helps reduce egocentric uncertainty, resulting in greater self-belief and ultimately internal legitimacy. Synthesizing, we suggest:

Leveraging Pipeline-based Connectivity for External Legitimacy

For an emerging economy venture, the mere fact of possessing valuable human capital through returnees occupying key positions in a new venture – and therefore a reduction in internal legitimacy deficits – does not of itself directly translate into external legitimacy. For this, the burden remains on the new venture to make other suitable signals of capability (Khoury et al., Reference Khoury, Junkunc and Deeds2013). While access to leadership with relevant experience is a great asset, that of itself may be insufficient to convince exchange partners, especially prospective enterprise customers. Even if the new venture has confidence in its ability and knows what it is doing, convincing an external party to do business with it will be difficult.

These concerns would be magnified for emerging economy firms that have typically undertaken lower value activities in a global value chain but are now seeking to upgrade (Mudambi, Reference Mudambi2008). Despite the cluster's efforts at playing catchup, external actors are likely to take time to favorably alter their perceptions of the capabilities of indigenous actors (Goerzen, Reference Goerzen2017). Simply put, emerging economy-based new ventures seeking to internationalize on the basis of upgraded capabilities face the significant challenge of gaining external legitimacy through the reduction of what Podolny (Reference Podolny2001) refers to as alter-centric uncertainty.

Becoming associated with a well-known strategic partner (Baum, Calabrese, & Silverman, Reference Baum, Calabrese and Silverman2000; Stuart, Hoang, & Hybels, Reference Stuart, Hoang and Hybels1999) is one solution that translates into external legitimacy, via reflected glory or a halo effect. But again, a chicken-and-egg problem exists in emerging economies: these settings are unlikely to possess credible local companies to coopt as partners since the technology giants that emerge (e.g., Infosys in India or Xiaomi in China) are typically regarded highly for process or business model innovation, but not quite as much for genuine breakthrough product innovation.

In this regard, ties to foreign MNE subsidiaries in the domestic milieu (e.g., IBM China or Microsoft India) can be valuable; as Lorenzen and Mudambi (Reference Lorenzen, Mudambi, Archibugi and Fillpetti2015) note, in emerging economies ‘pipelines are typically brought in by foreign MNEs and operated by local subsidiaries’. Foreign MNEs like IBM and Microsoft have unambiguously strong technological credentials that local emerging economy firms typically lack. External audiences are therefore likely to harbor positive feelings (i.e., altercentric uncertainty reduces) when a new venture partners with these organizations. As Stuart et al. (Reference Stuart, Hoang and Hybels1999: 315) note,

Of course, gaining a partnering opportunity with the likes of an IBM or Microsoft in the first place does not come easy. It would be necessary for the new venture to be able to signal its capability and compatibility. The former is greatly facilitated by access to strong human capital, an important source of which, as discussed in Insight 1 above, is the pool of returnees from the overseas diaspora. The latter can be achieved through, for instance, adopting the platform technology of the MNE in question when building its own productized offering. Also, attracting the attention of an MNE subsidiary in an emerging economy is more likely to occur in high-reputation subnational locations such as the Bangalore software cluster or the Zhongguancun high-tech district of Beijing which have been dubbed the Silicon Valley of India and China, respectively.

To illustrate in the specific case of the software industry, MNE ties could potentially offer a fast-track route to enhancing the acceptability of its offering to prospective customers if the venture utilizes platform technologies of a large MNE such as Microsoft, IBM or SAP as building blocks for its software product (Gawer, Reference Gawer2014). For these large MNEs, there is a vested interest in gaining new adopters of their platform technologies since there is a clear revenue payoff in that every time the adopter (the venture) sells a license of its software the MNE gains revenue for the bundled license of the underlying technology. Moreover, such subsidiaries may also be keen to augment their own competences in the process (Cantwell & Mudambi, Reference Cantwell and Mudambi2011).

Thus, we argue:

Mutual Reinforcement Between Internal and External Legitimacy

Internal and external legitimacy are likely to be mutually reinforcing. As competent individuals are attracted to the venture, thereby enhancing internal legitimacy, it is also more likely to attract the interest of large strategic partners or customers because of the greater potential prowess of the firm (Baum et al., Reference Baum, Calabrese and Silverman2000; Stuart et al., Reference Stuart, Hoang and Hybels1999). That is, with high-quality people on board, prospective strategic partners and customers will view the venture as being more capable of delivering on its offering, especially in knowledge-intensive sectors (e.g., software and biotech) in which firms are heavily reliant on the extent and quality of their human capital (Dirks & Ferrin, Reference Dirks and Ferrin2002; Drori & Honig, Reference Drori and Honig2013). Moreover, a prospective MNE partner may view the venture as more attractive because having a returnee at the helm may facilitate smoother relationship management since he or she is used to dealing with that MNE's home market context (Prashantham & Birkinshaw, Reference Prashantham and Birkinshaw2008).

Attracting such large strategic partners, in turn, leads to kudos (external legitimacy) which in turn makes it easier to attract good people (Rao et al., Reference Rao, Chandy and Prabhu2008). This is because gaining well-known strategic partners acts as a signal of quality that makes prospective hires more inclined to join it (Stuart, Reference Stuart1998). This is particularly important in an emerging economy context, where both high-quality firms and high-quality personnel (especially those with experience and aspirations of pursuing intellectual property) are a scarce resource (Prashantham & Dhanaraj, Reference Prashantham and Dhanaraj2015). In sum, as ego-centric uncertainty reduces, it is more plausible for the venture to dampen alter-centric uncertainty, and as alter-centric uncertainty declines it becomes possible to further reduce ego-centric uncertainty. Thus, we suggest:

Leveraging People Within Pipelines for Cross-border Legitimacy

Pipeline-based ties with MNE subsidiaries based in the INV's home market – such as a Bangalore-based INV's tie with Microsoft India – hold the attraction of potentially connecting the focal INV to international markets (Terjesen et al., Reference Terjesen, O'Gorman and Acs2008). However, such potential is not automatically realized (Prashantham & Birkinshaw, Reference Prashantham and Birkinshaw2008). People within the pipeline (e.g., Indian managers working for Microsoft in the US) are likely to be critical for lubricating these pathways to international markets for the focal new venture by facilitating boundary-spanning (Schotter, Mudambi, Doz, & Gaur, Reference Schotter, Mudambi, Doz and Gaur2017). They have not only the opportunity and ability to help the focal INV, but also in some cases the (altruistic) motivation (Portes, Reference Portes1998). Thus, an aspiring INV that has forged a tie with a foreign MNE subsidiary in its (i.e., the venture's) home market may seek to extend that tie from a single- to a multi-country one.

To achieve this transformation, the focal new venture would likely have to form additional ties with the MNE headquarters or other subsidiaries outside of the venture's home market (Johanson & Vahlne, Reference Johanson and Vahlne2009; Prashantham & Birkinshaw, Reference Prashantham and Birkinshaw2008). Such ties could lead to working alongside the salesforce of that MNE's various subsidiaries or forging ties with its channel partners in foreign markets. However, it would be difficult for an emerging economy-based venture to develop such ties as an unknown entity without a proven track record or strong country of origin. Of great value, then, to an aspiring INV in this situation would be internal champions within the MNE helping it to build cross-border ties to headquarters and other units. Viewed from this boundary-spanning angle, a potential source of cross-border legitimacy is ‘people within pipelines’.

This is not to suggest, however, that all coethnic managers are always willing to help. As Kane and Levina (Reference Kane and Levina2017: 543) observe, ‘Having the capability to span boundaries is not sufficient because boundary spanning requires practical actions…individuals must be inclined to engage’. They point out that overseas-based coethnics are more likely to be efficacious boundary-spanners vis-à-vis their country of origin when they embrace, rather than distance themselves from, the social identity of their home culture. Also, we are not suggesting that the focal venture will be the recipient of any unfair advantages but rather that the easier rapport that coethnics typically share may help lubricate the tie with the MNE. Their familiarity with local conditions helps them to make good judgements in picking potential winners worth championing and, as internal champions, they are well-placed to channelize resources to the new venture, thereby increasing the odds of their success (and justify the support that they have provided). By championing the venture's cause, these coethnic managers can enable its boundary-spanning within the wider MNE network. Hence, we suggest:

Vulnerabilities for INVs Leveraging People and Pipeline Connectivity

It is important to complete the picture by noting that leveraging people and pipelines is not a guaranteed path to success. There are certain vulnerabilities associated with this internationalization pathway, which reflect the ‘dark side’ of networks. Putnam and Goss (Reference Putnam, Goss and Putnam2002: 8) point out that ‘although the phrase “social capital” has a felicitous ring to it, we must take care to consider its potential vices, or even just the possibility that virtuous forms can have unintended consequences that are not socially desirable’. We highlight two vulnerabilities that INVs face when they leverage people- and pipeline-based connectivity: overembeddedness and malfeasance. The former relates to uncritically cooperative behaviors and the latter to overly conflictual behaviors.

First, in relation to the prospect of overembeddedness, Uzzi (Reference Uzzi1997: 57) notes, ‘The same processes by which the embeddedness creates a requisite fit with the current environment can paradoxically reduce an organization's ability to react’. It is conceivable that an INV becomes overembedded through overreliance on a small set of people- or pipeline-based ties that reduce the opportunity set it pursues or limits creativity by fostering groupthink. That is, the INV could end up becoming overly narrow in terms of aligning with a single worldview to the detriment of being able to pursue a wide set of opportunities due to key personnel's cognitive limitations or bias. Or this could also mean that over time only a limited range of strategic options are explored each time, to avoid rocking the boat with existing partners, thus stifling the INV's capacity to creatively explore other possibilities. As Hitt, Lee, and Yucel (Reference Hitt, Lee and Yucel2002: 357) point out, social capital may be unhelpfully ‘sticky’ in that ‘ties within one network may forestall ties in other networks’. In the long run this could have a highly limiting effect on the firm's growth prospects.

Second, in relation to the prospect of malfeasance (i.e., wrongdoing), the power asymmetry between an INV and large MNE partner, heightened in an emerging economy setting (Prashantham & Dhanaraj, Reference Prashantham and Dhanaraj2015), means that INVs could be vulnerable to being exploited. More powerful actors tend to appropriate the lion's share of the value created (Alvarez & Barney, Reference Alvarez and Barney2001), and the INV's significance could diminish over time relative to the MNE. Furthermore, while an INV's partnership with an MNE is typically predicated on the former developing offerings that are complementary to that of the latter (Vandaie & Zaheer, Reference Vandaie and Zaheer2014), there is no guarantee that the MNE will not encroach upon the INV's space. Thus, today's complementors can become tomorrow's competitors. Concerns of malfeasance are evident in phrases describing MNE-INV engagement such as ‘swimming with sharks’ (Katila et al., Reference Katila, Rosenberger and Eisenhardt2008) and ‘dancing with gorillas’ (Prashantham & Birkinshaw, Reference Prashantham and Birkinshaw2008).

Synthesizing, we suggest:

The Case of Skelta

Leveraging people within pipelines for cross-border legitimacy

While the above represented good progress, the ultimate goal of Skelta was to gain significant international revenues. Gaining one or two domestic clients was considered important to be able to have reference customers, but beyond that the venture saw a far bigger opportunity in advanced Western economies. However, being taken seriously in those locations would be daunting. Skelta sought to tap coethnic managers within Microsoft.

Skelta's top managers took advantage of the burgeoning cadre of influential Microsoft executives of Indian origin. In some cases, they could leverage ties with individuals who had been transferred from the Bangalore operations to Microsoft headquarters in Redmond, US. In other cases, these were Microsoft managers based overseas (typically in the US) within relevant product teams. It was relatively easy to build rapport because of their cultural affinity. Also, the Microsoft managers of Indian origin were intrigued by Skelta's efforts to create compelling intellectual property, a relative rarity in India, and were inclined to be supportive.

Such individuals proved to be especially helpful in supporting Skelta's efforts to lobby Microsoft headquarters to establish – and then include it within – a partner program for overseas ventures. This tangible outcome was a major source of cross-border legitimacy as Skelta was now able to make certain sales visits in the US with a Microsoft manager in tow. Furthermore, through these expanded ties within the MNE, Skelta was able to establish partnerships with distributors that were fellow-partners of Microsoft in markets across Western Europe and Asia. As it expanded internationally, Skelta grew at a rapid clip to become a leading niche player in the embeddable business process management space; 80% of its revenues accrued from international markets. We provide a depiction of the case of Skelta in Figure 4.

Note: The left hand side depicts INV's domestic milieu and the right hand side a stylized internationa market. The focal venture's internal and external environments are below and above, respectively. The small circles represent individuals and the rectangles represent organizations. Thegrey rectangles represent the focal INV (domestic and international operations) while the white rectangles represent an MNE partner (subsidiary and headquarters). For parsimony, we don't depict vulnerabilities (Insight 5).

Figure 4. Skelta: Illustration of an INV from Bangalore.

Did Skelta face the vulnerabilities of over embeddedness and malfeasance? Interestingly, within about five years of close engagement with Microsoft, Shah and his team did begin to consider how they could ensure that they were not overly dependent on Microsoft. However, shortly thereafter the venture was acquired by Invensys, a large company that itself worked closely with Microsoft. Thus, the potential vulnerabilities did not quite play out, but the top managers had become cognizant of these possibilities.

Boundary Condition: Emerging Economy Context – A China-India Comparison

Given the heterogeneity among emerging economies (Ramamurti, Reference Ramamurti2012), it is useful to consider whether the Bangalore experience applies to other emerging economies, by briefly considering another successful partnership between a new venture and Microsoft – in Beijing, China. While the Indian software industry faces several challenges of an emerging economy such as limitations in scientific know-how (Krishnan & Prashantham, Reference Krishnan and Prashantham2018), it also has certain distinguishing features vis-a-vis other emerging economies such as China. For instance, the size of the domestic market is generally considered to be small, whereas Chinese software firms primarily cater to a large home market. Also, the role of the government is not as pervasive as in China, and as a result there is rather less access to state support and infrastructure. Finally, India has fewer restrictions compared to China's ‘great firewall’.^[Footnote ^6]

The Chinese new venture we describe briefly, Gridsum,^[Footnote ^7] was founded in the Zhongguancun high-tech district of Beijing, by a Tsinghua University alumnus who, as a student, had interned at the Zhongguancun-located Microsoft research facility, which had been a recipient of strong support from the Chinese government. This exposure influenced an early decision to develop Gridsum's offerings based on Microsoft's platform technologies. As in the Indian case, attracting credible individuals to reduce egocentric uncertainty was important, and the founder successfully attracted a few returnees to join his team, including one individual who became the Chief Marketing Officer.

Furthermore, the association with Microsoft did yield valuable external legitimacy. It helped that Gridsum made an early positive impression on the giant MNE by applying its own technology to help Microsoft China solve an online marketing challenge. Gridsum's tie with Microsoft moved to a new level when it became the first Chinese start-up to be invited to join an elite partnering program of Microsoft, reserved for its 100 most innovative start-up partners, worldwide. Soon afterwards Gridsum received funding from Steamboat Ventures, an international firm, following an introduction made by Microsoft.

In terms of transforming the local tie with Microsoft into a global one, corporate managers in Microsoft's US offices did begin to take notice of this Chinese start-up, especially as China had been identified as a key market for its new technologies. A high-profile event in Beijing was arranged in which then Microsoft CEO Steve Ballmer showcased Gridsum's innovation. However, when we consider the internationalization outcomes of the venture, we find a stark contrast with Skelta: despite these accolades and its long-standing technology alliance with Microsoft, Gridsum does not undertake any business outside of China. Thus, whereas Skelta went on to span global boundaries within the MNE network to gain 80% of its revenue from overseas, Gridsum remained wholly focused on the Chinese domestic market despite its internationalization aspirations.

Why were Skelta's internationalization outcomes different from those of Gridsum? Access to people and pipelines was not dissimilar between the two cases and contributed to internal and external legitimacy. Rather, the main difference seems to be in relation to cross-border legitimacy, and it would appear that local context may be a boundary condition for the extent of a venture's access to ‘people within pipelines’. A top manager of Gridsum attributed their lack of success in international markets to a paucity of coethnic (China-origin) senior managers in Microsoft's headquarters, and envied the access that Indian ventures had to India-origin managers. According to him, although a large number of Chinese-origin engineers worked for Microsoft in the US, when it came to senior managers they were vastly outnumbered by Indian-origin ones. (Microsoft's cloud business division was then headed by Satya Nadela, who went on to become CEO.) Thus, even assuming an inclination to help other coethnics (Kane & Levina, Reference Kane and Levina2017; Roberts & Beamish, Reference Roberts and Beamish2017), the abundance of people within pipelines – i.e. the connectedness or sheer number of connections (Lorenzen & Mudambi, Reference Lorenzen and Mudambi2015) – may be a boundary condition for Insight 4.