Small and Medium Size Enterprise Internationalisation 11 Chapter Small and Medium Size Enterprise Internationalisation

Chapter Learning Objectives Patterns of SME internationalisation The characteristics of SMEs and how their internationalisation differs from large firm internationalisation The role of the Internet in SME internationalisation Why SMEs internatinalise How ‘born global’ firms differ from gradually globalising firms Factors driving the accelerated internationalisation of born global firms

Global Perspective There is No Single Pathway to Enter the Global Market Incremental market knowledge gained through international networks facilitates ‘gradual globalising’. ‘Born global’ firms and their accelerated market entry are viewed as exemplar performers among SMEs. ‘Born again globals’ Issues to be addressed include: What do we need to understand about small firms attempts to internationalise. Do they differ from their large counterparts. How can small firms and their operational characteristics be better managed.

What is an SME? Criteria used to identify a small business include: Owner/manager operated. Has most capital supplied by owner. Is owned by one or a few persons often in partnership structure. Is independent of external financial and managerial control. Has a relatively small share of its particular market. There is a marked increase in the SME sector’s importance from median low-income country to median high-income country. To foster growth governments need to improve access to financing, information infrastructure and international markets.

Firm Size and Employment / GDP Share

What is an SME? (cont.) Regulations and institutionalised bureaucracy have the effect of discouraging the establishment of entrepreneurial small firms and impeding the growth of established firms. The formation of ‘clusters’ can lead to low-cost training, marketing and research as well as providing information on new technology and markets. Governments provide a range of support activities such as assistance with: Export insurance Participation in foreign exhibitions and trade fairs Preparation and circulation in foreign countries of marketing tools in foreign language.

The Internet and SME Exporting Internet provides a level playing ground for SMEs by removing barriers for exporting. Investments needed to use the Internet as an export marketing tool are: Financial resources for the development and implementation of company websites. Ongoing investment to cover running costs, maintenance and upgrading. Human resources to manage the integration of the Internet.

Marketing Functions Replaced by the Internet (the e-business Model) Level 1: the brochure or publishing level (one-way communication) Level 2: the manual or database level (simple interaction) Level 3: the e-commerce and personalisation level (complex interaction) It is not necessary to enter stage 3 to operate successfully.

Strategic Alliances and Income Generation The Internet can be used in two ways: To construct or digitalise its own business. To take advantage of existing websites. Internet works for SMEs because of: Cost savings for the business. Meeting customer needs for service. Searching and researching. The ability to aggregate small segments and access niches.

Why Do SMEs Internationalise? Small economy small market effects Saturated local market effects To find a niche that can be exploited Internationalisation is defined as the process by which firms increase their awareness of the direct and indirect influence of international transactions on their future and conduct transactions with other countries.

Schematic Depictions of Push, Pull and Mediating Forces in the Internationalisation Process

The Stage Models of Internationalisation Four distinctive stages of entering an international market: Stage 1: No regular export activities Stage 2: Export via independent representatives (agents) Stage 3: Establishment of an overseas sales subsidiary Stage 4: Overseas production/manufacturing units Overseas markets expose firms to a new set of challenges most important of which is the lack of international knowledge Objective knowledge Experiential knowledge General knowledge Market-specific knowledge

Uppsala Model of Firm Internationalisation

Born Global Firm Internationalisation Born global firms enter global markets with knowledge-intensive cutting-edge products sometimes bypassing domestic markets. Born globals typically begin exporting less than two years after the foundation of the firm. Key characteristics of born globals: Leading exemplars of successful international SMEs. Occur in most major trading countries and across industry sectors. Pervasive innovation in all processes of business. Directly enter global markets with highly innovative products. Provide understanding of means to overcome resource constraints.

A Dynamic Capability Model of a Born Global Firm

Born Global Firm Internationalisation (cont.) Owner/manager profile is characterised by: International entrepreneurial orientation A geocentric or global mindset Significant prior international exposure A learning orientation Learning capabilities Market-focused learning capability Internally focused learning capability Networking capability

Born Global Firm Internationalisation (cont.) Marketing capability captures the firm’s capacity to formulate effective marketing mix strategies that are critical to identify and access international opportunities. Knowledge-intensive and cutting-edge products. Accelerated internationalisation is the most appropriate measure of performance.

Summary SME internationalisation has attracted attention as a unique field of interest. Interest primarily driven by SMEs’ contribution to national economies. Failure of SMEs in the early stage can be attributed to ‘resource poverty.’ ‘Born global’ firms are exemplars that challenge the conventional wisdom that firms internationalise in incremental stages. A good understanding of factors driving born global firms will help policy planners develop policies to facilitate SME internationalisation.