Why Digital Firms May Struggle to Go Global

Why It Matters 

Popular narratives suggest that digital firms are inherently “born-global”. But new research cautions against this narrative, suggesting that barriers to international growth emerge when digital firms integrate non-digital elements into their business models. 

Key Takeaways 

• A strategic trade-off: Although integrating non-digital capabilities into the business model may allow digital firms to differentiate themselves from local competitors, this strategy can pose a barrier for their internationalgrowth. 

• The challenge is especially severe when such digital firms struggle to gain traction in the local market. 

• Managers should carefully balance the need for local value creation with aspirations for global scalability when designing digital business models. 

Digital Firms Differ in Business Models  

Popular narratives suggest that digital firms enjoy a natural advantage when expanding across international borders. This narrative emerges from the notion that digital assets such as software, algorithms and databases can be scaled globally with marginal costs. 

Yet not all digital firms are built the same. 

Researchers from Nanyang Technological University and The Hang Seng University of Hong Kong introduce the concept of digital dampening: the extent to which a digital firm integrates non-digital elements into its business model. While these business model innovations may improve value creation for the local market, these design choices can also make international expansion more difficult. 

Consider smartphone apps. Some apps, such as native calculators or wallpapers, are almost entirely digital. Yet, others rely heavily on physical activities and infrastructures. Food delivery, logistics and transport apps, for example, depend on drivers, warehouses, delivery networks and local service providers. These non-digital elements create additional complexity in international scaling. 

The study challenges the popular assumption that all "born-digital" firms are always well-designed for global growth. 

Unintended Consequence of Non-Digital Integrations 

The researchers argue that integrating offline elements can create an unexpected trade-off. 

On one hand, physical services may help digital firms differentiate themselves and better serve customers in the local market. On the other, these same features can become barriers when firms attempt to replicate their business model abroad. 

Expanding internationally often requires adapting to different regulations, infrastructure systems, customer expectations and business partners. For a digital firm that depends heavily on local physical operations, these adjustments can be costly and resource-intensive. Many app developers operate with limited resources and management capacity. Faced with the challenge of adapting complex offline operations for foreign markets, they may choose to focus on their domestic market instead. In effect, the very features that help a company compete locally can reduce its ability to scale globally. 

Evidence from China's App Market 

To test this idea, the researchers analysed 33,878 smartphone apps from more than 25,000 Chinese vendors listed on Tencent's app marketplace. 

China provides a unique setting because of the country's internet regulations. Since Google Play is unavailable in Mainland China, a Chinese app's presence on Google Play serves as a clear indicator of internationalisation. 

The researchers combined topic modelling with generative artificial intelligence (GenAI) to assess the level of digital dampening in each app. They examined app descriptions and identified how strongly each business model depended on non-digital activities. 

The results were striking. 

Apps with higher levels of digital dampening were significantly less likely to appear on Google Play. A one-standard-deviation increase in digital dampening was associated with a 35.6 per cent reduction in the likelihood of international multihoming. 

The effect was even stronger among apps that were already underperforming in their domestic market. Apps with relatively weak download numbers were particularly unlikely to pursue international growth when their business models relied heavily on offline components. 

Further, the researchers also found that among the Tencent apps that did list on Google Play, those with higher digital dampening attracted fewer downloads and lower user ratings, which signals that they also sufferedweaker performance internationally. 

Business Implications 

For digital firms, the findings highlight an important strategic consideration: the importance of business model design. Although adding physical services, logistics or other offline innovations may strengthen a firm's differentiation in its home market, these design decisions can also reduce flexibility in international expansion. 

Business leaders should therefore consider the long-term implications of business model design. Firms that aspire to global growth may benefit from preserving the scalability that makes digital businesses attractive in the first place. 

As digital technology continues to reshape the future of industry, understanding the trade-offs between local value creation and global scalability forms an important aspect of firms’ growth strategies. 

Authors and sources 

Authors: Siddharth Natarajan (Nanyang Technological University), Qingwei Li (The Hang Seng University of Hong Kong), Seung Ho Park (The Hang Seng University of Hong Kong) 

Original article: Journal of International Business Studies (2026)