Internationalizing Entrepreneurs: Bridging Real Options Reasoning and Affordable Loss Logics

2015

Richard Hunt Yue Song

Drawing upon the theories of real options and affordable loss, this study examines why and how internationalizing entrepreneurs willingly and rationally contend with extreme uncertainty in the pursuit of new market opportunities. Through a transaction-level longitudinal analysis of 1,040 small lumber exporters from 52 countries, we develop and test a framework wherein entrepreneurs pair affordable loss logics (ALL) with real options reasoning (ROR) to internationalize more quickly and profitably than those who employ either or neither. Our study informs the ongoing debate among scholars regarding the applicability and suitability of ROR to strategic direction setting by entrepreneurs. By explicating the mechanisms through which export-minded entrepreneurs capture the value-enhancing benefits of uncertainty, we contribute to the literature on international new market entry and reinvigorate efforts to apply ROR to the sequential decision- making that uniquely characterizes opportunity exploration among entrepreneurs under conditions of irreducible uncertainty.

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