A staple of Econ 101 is that the building blocks of the economy are the four factors of production — land, which stands for all natural resources; labor, people’s effort and talent; capital, productive assets like forklifts in a factory; and entrepreneurship, managerial skills that combine the other three factors to launch and grow businesses.
As someone who studies global business, I’ve always been intrigued by the fact that three of these four factors of production are heavily globalized, while one is still intensely local.
Land and capital are both seamlessly global. Consider commodities markets like oil or coal, or that physical land itself is becoming a global commodity, with Arab nations and Chinese firms leasing large swaths of agricultural land in Africa and elsewhere.
Similarly, the financial markets are borderless, with capital chasing investment opportunities without regard to location.
The labor market is also somewhat global — consider how immigration has reshaped labor markets or how global executive mobility marks the human resources profile of many multinational companies.
The one exception is entrepreneurship, especially if we focus on startups. This factor of production is still locally embedded.
Nature of startups
Most startups begin with a focus on domestic customers, usually without any thought of foreign markets until the business is established.
This is understandable, because the startup process draws heavily upon personal networks and resources. Initial support may come from family and friends. The first customer may well be next door, and employees and professional partners are co-located.
The task of launching a business and guiding it through its initial years is a daunting one, and the local embeddedness reflects the entrepreneur’s personal challenge and resource set.
Giving way to globalization
There is some evidence, however, that this last holdout is beginning to give way to the forces of globalization.
Some U.S. startups are “born global,” working with overseas customers and suppliers from day one. U.S. venture capital is increasingly finding its way to promising startups overseas.
If the startup “app” was created and perfected in Silicon Valley, policymakers in many other parts of the world are successfully “downloading” it to create their own versions of Silicon Valley.
Israel, for example, has been so successful at nurturing technology startups that it has been called Startup Nation. U.S.-style incubators and accelerators are springing up all over the world, in China, India, Chile and beyond.
Connecting US entrepreneurs
The globalization of entrepreneurship is especially important for U.S. entrepreneurs, educators and policymakers.
The forces of demography and development favor overseas growth markets, with the developed markets of the West facing a slow-growth future. This implies that we need to connect our entrepreneurs to growth markets overseas, embedding them in those global markets from the start.
Secondly, launching and nurturing agile startups will call for entrepreneurs to use the world’s best inputs and resources, even if they are not local. In that sense, global venturing needs to be the new watchword in entrepreneurship. It is incumbent upon the business schools of the future to make this a top priority.
Ravi Madhavan is a professor of Business Administration and Alcoa Foundation International Faculty Fellow, Director of the International Business Center, at the Joseph M. Katz Graduate School of Business, University of Pittsburgh.