Globalisation is a major current buzzword which constitutes one of the most significant and dominating developments of the post-second World War era (Brinkman and Brinkman 2002). The term "globalisation" has numerous connotations (Roukis, 2006) as different industries, sectors and disciplines perceive and interpret the term globalisation in different ways. Roukis (2006) added that some people define the term as a new stage in economic development or as a consumption of international trade that began in the 15th Century or as a colonial domination and empire by the great powers, particularly the USA in the 21st Century. There is apparently no agreed on consensus-conception of globalisation appearing in literatures. The multiplicity of different concepts that are offered in literature is also manifested in an ambiguity of analysis and theory. Evidence in support of this lack of consensus is readily revealed in the many alternative conceptions of globalisation which appear in the literature. The definitional nature, empirical character and ultimate significance of interdependence and globalisation, are all matters of considerable controversy and confusion (Jones, 1995).
Get your grade
or your money back
using our Essay Writing Service!
The definition as to what globalisation stands for appears to entail a basic schism in the literature. Globalisation on one hand is seen negatively and at times almost demonically as being dominated by Western economy and cultural interests over the rest of the world, specifically third world countries which are categorized as the continuation of inequality between the rich and poor countries. However, on the other hand globalisation in seen as a triumphalist light as the penetration of capitalism into every corner of the world, bringing with it the possibility for countries to participate in the benefits international labour and market economy, (Holton, 1998, Gilpin, 2000, Brinkman and Brinkman, 2002). In addition to this there has been many attempts at specific definitions of globalisation interrelated to integration, interdependence, and internationalisation and so on.
Financial scholars such as Walker and Fox (1999), define globalisation in international finance as the global integration of the financial markets. Redding (1999) defines globalisation as the increasing integration between the markets for goods, services and capital and at the same time the breakdown of borders. Briadant (2002) asserts that apart from the opening of world trade, globalisation has also helped in developing things such as advanced communication, financial markets, multinational companies as well as the ability to move persons, goods, capital and ideas, not forgetting infections and diseases.
Economists see globalisation as the integration and inter-connectedness of world economy (Neuland en Hough, 1999), movements of capital and goods as a result of factors of production and goods (Gill, 2000; Govindarajan and Gupta, 2006; Redding, 1999). thus
From the many point of views put forward by the above authors it can be explained that globalisation is the breakdown of borders between countries governments' international organisation such as the North American Free Trade Agreement (NAFTA) the economy and communities such as European Community. Globalisation can also be defined as the liberation and openness of markets particularly through the elimination of barriers to trade in goods and services such as Multi-National Corporations (MNC) and cross border alliances in the form of joint ventures, international mergers and acquisitions. It can also be deduced from the above literature that globalisation is the development of an integrated international financial markets and the International Organisation for Standardization (ISO) and World Trade Organisation (WTO). Drucker (1995) stated that the interrelationships of the above communities have enhanced the participation in the world economy and have become the key to domestic growth and prosperity.Drivers of Globalisation
The motivations or drivers of globalisation have been categorised in various ways including push and pull factors (Alexander, 1997), proactive and reactive drivers (Wrigley et al, 2005) and internal and external drivers (Hutchinson et al, 2007, Vida and Fairhurst, 1998). Evans, Bridson, Byrom and Medway (2008) asserts that push and reactive drivers relates to the negative aspects of the domestic market while pull and proactive drivers are linked to attractive aspects of either the retail offer or foreign markets.
International Business expert, Yip (1992) stated that it is not simply the case that industries are global or not global, rather that they can be global in some respects and not in others. Yip argued that to achieve the benefits of globalisation, the managers need to recognise when industry conditions provide the opportunity to use global levers. Yip indentified four drivers which determine the nature and extent of globalisation in an industry. As illustrated below, the drivers are categorised as market drivers, cost drivers, government drivers and competitive drivers.Market Drivers
Always on Time
Marked to Standard
According to Campbell et al (2002), the degree of globalisation of a market will depend upon at least four factors: homogeneous needs where customers in different countries share the same need or want for a product dependent upon cultural, economic, climate, legal and other similarities and differences. Some examples include consumer electronics such as Sony and Panasonic, food and beverages such as Coca-Cola and McDonald's illustrates converging customer needs in certain markets.
The push driver approach suggests that due to limitations on sales expansion in domestic markets firms seeks additional sales abroad. Wall and Rees (2004) added that finding new market abroad may help extend the maturity stage of the product life-cycle particularly when domestic markets have reached saturation point for a product. According to the traditional model assumption of the Uppsala Model of internationalisation, firms begin with a purely domestic focus and then in response to saturation in the domestic market or unsolicited interest from foreign markets begin gradually to expand (Nordstorm and Vahlne 1994). This means that once firms exhaust all their opportunities for growth in the domestic markets, they then pursue international expansion. Finding a new market abroad may help extend the maturity stage of the product lifecycle (Wall and Rees, 2004).
However, some international theorists have challenged this assumption of the Uppsala model that the pull and proactive drivers approach have shifted the focus to the possible attractive characteristics of foreign markets which promises higher potential for sales expansion (Alexander, 1997; Evans et al, 2000; Evans and Mavondo, 2002). This means that firms will see international expansion irrespective of the potential of their domestic market. The homogeneous set of consumers is arguably the most fundamental driver of globalisation resulting in less scope and motivation for sellers to differentiate prices and product features by the geographical location of customers. This then allows firms to leverage the benefits of economies of scale in the design and production of products.Cost drivers
As already stated above the driver for globalisation is the presence of economies of scale in which firms believe that average cost will decline as output increases, therefore expanding sales to new and existing becomes more attractive (Globerman et al 2001). Economies of scale allow firms to capitalize on their cost savings either through a low-cost strategy or by maintaining a market price strategy which permits them to reap significantly higher margins than their competitors (Hu and Griffith, 1997) as a result gaining competitive advantage (Zekoa, 2003). The synergies obtained through coordination of activities among firms across different geographic areas can result in profit including economies of scale and scope and learning. Alexander and Myers (2000) suggested that technological innovation may act as drivers of entering international markets as this provides innovators with the competitive advantage of pioneers in a new segment. This may serve as an opportunity to develop and integrate learning skills and or survive by learning to adapt to a new environment. Palmer and Quinn (2005) emphasized that if companies can develop such capabilities they can increase their sales in international markets and consequently their overall sales.Competitive Drivers
Facing increased competition pressures in their home markets, many firms are internationalising in an attempt to enhance their performance (Harveston, Kedia and Francis, 1999). In addition competition is becoming globalised in many industries, therefore business units have to respond to competitive pressures by leveraging their competitive position across markets, and by seeking integrated operation. Increasingly consumers in different parts of the world tend to demand the same products and the same preferences as already been analysed in the market drivers. Levitt, (1983) disagree, however, arguing that an effective global strategy requires not a single approach such as product standardization but a bag of many tricks. Bag of many tricks may include exploiting economies of scale as analysed above through global volume, taking a pre-emptive position through quick and large capital investments, and managing interdependencies to achieve synergy across different activities.Government Drivers
Beside the above mentioned drivers are favourable trade policies, compatible technical standards and common marketing regulations. The worldwide movement by governments to reduce trade barriers (Child et al, 2001) through the removal of tariffs to imports and exports is probably the most significant driving force behind the acceleration of cross-border businesses. Alongside these is the liberation of international capital movements and investments together which has contributed to the promotion and the acceleration of cross-border businesses. One important factor of this is the creation of more open and freer economies as a result of the ending of the closed economies of for example, the Eastern Europe and the relaxation of the Chinese economy.
This Essay is
a Student's Work
This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.Examples of our work
To identify and explore the possible challenges firms face when they venture into globalisation.Transferring resource advantage
It has been established that the environment in a new country will differ from a firm's home country owing to variations in physical characteristics such as geography and climate, people, and institutions such as government, businesses, religion, language, wealth and culture among others (Tallman 1992; Prahalad and Lieberthal, 1998 and Ghemawat, 2001). Tallman, 1992 and Hu, 1995, explained that when competitors and customers differ across countries, a resource that supported a firm's advantage in one country the firm might lose that ability to support that advantage in a new country. This advantageous nature of resources may disappear upon transfer to a new country when the resource is not rare in the new country or when local competitors have imitated or substituted that resource (Cuervo-Cazurra et al, 2007).
This is true, for example, when Wal-Mart achieved advantage based on low-cost strategy in the United States this was not a source of advantage when transferred to Germany. In Germany, Wal-Mart faced competition from well established rivals such as Aldi and Lidl who had already used or imitated Wal-Mart's low-cost strategy (Economist 2004 and Business Week 2004). Teece et al (1997) argued that even if the transfer is successful changes in customer preferences or among competitors within the industry can lead to obsolesce of the advantage provided by a resource. The inability to transfer resource advantage is likely to happen when managers do not have as much knowledge about a new market as they do about their home market and therefore may misjudge the transfer of advantage abroad.Transferring Value
Another difficulty that may exist is when the advantageous nature of the resource disappears upon transfer. This is likely to happen if value transferred cannot be used by clients in a new country because they do not need it or do not pay for the products or services generated with the resources (Cuervo-Cazurra et al, 2007). Differences in cultural norms could play a significant part in this. For example, in countries with weaker protection of such things as property rights, software or music, firms may be unable to benefit from their innovations because customers copy programs or songs and piracy is not prosecuted. It could be asked why firms choose to enter a country when such conditions exist. According to Rick (2000), this could be a fault on the part of the firm not doing adequate up-front planning or it could be that the firm or management overestimated the value they can potentially create in that new country.Environmental Events
A growing body of research in the field of international diversion has identified a range of factors that impede the process of internationalisation for SMEs. Burt et al (2003) and Evans et al (2008) asserts that those factors that impede on SMEs internationalisation could be categorised as, market failure that is risk and stability of the foreign market and higher levels of target market uncertainty, competitive failure which involves the under-performance of the firm operation in comparison to competitors. Also the inability to transfer operating practices and approaches to the foreign market and total business failure which results from the difficulties in the home market can also cause firms to fail in any given market (Johannson, 2006).Cultural factors
The environment in which a firm expand into is governed by set of norms and rules that constrain human behaviour such as culture, language, religion and the political, legal and economic systems (North 1990).
Cultural distances are specifically important contributors to firm failure and decline in sales (Etgar and Rachman-Moore, 2008). Such distances can negatively impact on international firm as a result of lack of fit as well as cultural proximity which can be explained as the differences between the domestic and targeted market cultures and the differences between the needs and preferences of the customer population in the target market compared to those of the domestic market with which the firm is familiar with. Disregarding such differences in culture may lead firms to make inappropriate strategic and tactical decisions in the new markets as a result lose sales (Rach-Moore 2008). This is because when a firm moves into a new country it may lack the complementary resources such as understanding, relationships and social capital needed for dealing with other entities prevailing rules of behaviour (Calhoun 2002, Zaheer, 2002). For example, a firm may have difficulty interacting with its clients which may keep some of its customers away. Give a better example.
Firms also operate in foreign markets with organisational structures based on cooperation with local partners who may be franchisees, joint ventures or investment partners. As a result cultural differences between the managers of the international chain and local partners may generate conflicts which may increase costs of global operation.Internal factors
It has often been showed that the attitudes and orientations of the management of the firm may also contribute or lead to firm failure in specific international markets. Lack of management's vision, will and ability to respond effectively and make the necessary adjustments to reverse the spiral of decline elicited by external factors (Mellahi et al, 2002) also contribute the challenges faced by firms. Another contributing factor to failure include managerial rigidity, over-confidence and egotism, impetuous decision-making and other negative personal characteristics of managers may lead firms to business failure (Mellahi et al, 2002 and Cuervo-Cazurra et al, 2007).
Routines embedded in technical and managerial systems supported by values and norms prevailing in the original context could be incompatible with the characteristics of the host country's environment causing failure (Cuervo-Cazurra et al, 2007). This is likely to happen when managers do not have as much knowledge about a new market as they do about their home market, therefore they may misjudge the transfer of advantage abroad. International market failures could also be characterized by manager's lack of necessary core competencies and low quality managerial skills which could lead to the selection of inappropriate target country or wrong mode of entry (Johannsson, 2006). Adding to these, failures to develop tools and capacities to learn to absorb knowledge and adjust operations as required poses problems for SMEs (Palmer and Quinn, 2005, and Ramaswamy, 1992).
With firms operating in geographically distant markets requires to deal with additional transportation, communication and coordination and complexity (Tallman and Li, 1996). Therefore the firm needs spare resource capacity and may have to stretch its existing resources so thinly that they become ineffective and this can be explained in SME firms. This could be that the firm has few managers and no member of the board with international experience and this could extend to the entire company as experienced by Lincoln Electric (Hastings, 1999)Political factors
Another challenge faced by firms who internationalise may be political factor especially governmental factor. According to Cuerro-Cazurra et al (2007) nationality is something that is common to multiple firms and as such some countries may have an aversion to firms from specific countries. Discrimination could be in a form of reneging on previous contracts or nationalizing investments, particularly when there are weak protections against this (Heinsz and Williamson, 1999) or can occur in countries considered to have low political risk. This can also occur when only domestic companies are eligible for benefits such as subsidies or preferential purchase contracts (Zaheer, 1995 and Mezias 2002). The aftermath of this could lead to lower revenues when foreign firms are constrained in their operations or to higher costs of operation when foreign firms are excluded from subsidies and to outright losses when foreign firms have investments expropriated (Cuerro-Cazurra et al 2007). Sometimes difficulties tend to decrease over time and with experience, however with political issues such as these disadvantages could increase sometimes abruptly as the political environment changes.
To analyse whether there is an impact of globalisation on SMEs, negative and or positive factors.
According to Nummela, Loane and Bell (2006) the number of small firms operating internationally has been growing, slowly but steadily. Nearly simultaneously, global markets offer an abundance of opportunities for SMEs (Gradzol et al 2005).
Research surrounding firm internationalisation has emphasised that the pursuit of foreign expansion is primarily concerned with the organisation of overseas operations and the various costs and benefits associated with each foreign market entry (Pinho, 2007).
Internationalisation can enhance a firm's managerial skills and capabilities, help firms to better facilitate the use of resources and give it a greater degree of flexibility for undertaking diversified business risks (Katsikeas and Skarmeas, 2003). Operating in overseas markets may allow a firm to benefit from international competition and increase its involvement in foreign markets thereby becoming a stronger player in its home market (Lages and Montgomery 2004). Katsikeas and Skarmeas, 2003, Lenidou et al 1998) added that at the domestic level internationalisation promotes socio-economic development, generates foreign exchange, increases employment opportunities and reduces the national deficit. In addition internationalisation generates social prosperity and assists national industries to boost productivity.
The opening of new markets as mentioned in the drivers comes with specific difficulties for SMEs (Hutchinson et al 2005). The most significant problem concerning internationalisation of SMEs is often seen in the lack of specific resources (Gemser et al 2004). In order to respond to the increased pressures by the globalisation processes and benefit from global market opportunities, SMEs have begun facing challenges such as transforming themselves to stay competitive and survive as well as increasing their individual competitiveness. Also, due to their limitation to take advantage of synergy effects created by entering into cooperative relations with other SMEs and related partner institutions is seen as another challenge.
Root (1994) asserts that a foreign market entry mode is an institutional arrangement that facilitates a company's resources such as products, management and people into a foreign country. Therefore owing to their lack of experience, skills and know-how SMEs need to be very cautious in the choice of a specific entry mode, for example. Some of the negative impacts of globalisation on SMEs are as follows:Managerial Specific characteristics
Most SMEs lack sufficient resources when they want to enter into global markets (Christensen and Lindmark, 1993; Kaufmann, 1994). When a firm enters foreign markets a variety of risks can endanger its progress towards internationalisation. A number of authors have addressed this issue as the relationship between market specific knowledge, acquired mainly through effective operational experience in a foreign market and the firm's internationalisation process (Reuber and Fischer, 1997). Lack of market specific knowledge, knowledge about existing technology, manufacturing processes, machinery and marketing as well as knowledge of buyers and suppliers, hardware resources such as machinery, buildings and equipment generates uncertainty and great threats for SMEs and heightens decision-makers' perception risk when becoming internationalised. SMEs are mostly plagued by a general problem of inadequate expertise and skills at several levels such as managerial, supervisory, and production employees (Malecki and Velhoen (1993). They added that workforce in these firms are often under-educated, under-trained and under-skilled.Foreign Environmental factors
The contingency model for determining mode of market entry performance includes the risks involved in doing business in foreign markets. Foreign market may present firms with transactional risks such as unstable economic, legal and political systems creating high-investment risk environments thereby discouraging their predisposition towards international commitment (Agarwal and Ramaswani, 1992). Risks involved in operating in foreign markets include general management's uncertainty about the political system of a country, operation and control risks.
Another problem is once a financial commitment has been made a firm may find it difficult to safeguard its investments especially in rapidly changing environments (Nakos and Brouthers 2002).Ownership factors
Another form of risk is ownership risk which is seen as management's uncertainty about governmental actions in a foreign market which may affect the ownership of the firm. According to Prahalad and Hamel (1990), firms entering foreign markets should be guided by its ability to exploit its own competitive advantages. Prahald and Hamel (1990) added by arguing that although the ownership advantage dimension is firm-specific and linked to the intangible assets such as technology, innovation, patents and licenses not all of these are internationally transferable.
Consequently, entry into foreign markets is often too risky for SMEs and at the same time the disproportionately high minimum investment reduces the possibilities of access to foreign markets. In view of the smaller budgets of SMEs investments for things such as building up appropriate language skills and market intelligence for the foreign market represent disproportionately high burdens, whereas for MNEs it is already common to internationalise by employing systematic structures supported by large resources (Tuma, 1998).Location factor
One major advantage of globalisation is the availability of a wider market for a firm's product or service (Dunning, 1993), and an opportunity to reduce cost by locating in low cast labour countries to enhance business performance (Hall et al, 2004). As already stated in the drivers of globalisation, international expansion allows a firm to service existing customers or acquire new customers within that market. Gaining new customers can provide additional sales possibilities for a firm (Ikechi and Sivakumar, 1998).
By being present in a foreign country, a firm may be able to offer its foreign customers with standardized products which may help reduce cost, be able to provide customer service as well as improve quality. Furthermore, the firm may be able to achieve a foothold over its competitors resulting in the expansion of sales domestically.
However, this carries that some firms may be have to deal such factors as political instability, economic situations, foreign exchange and or social environments as mentioned above in environmental factors. While domestic firms may face some of these difficulties, foreign exchange risk can be argued as unique to firms as they cannot do away with, as a result places firms at a disadvantage (Julien et al 1994).
Another challenge likely to be faced by all kinds of foreign firms can be pointed at political instability where problems such as expropriation, trade controls, currency restrictions, new regulations and unexpected changes in labour and tax laws, may find firms in a situation as profitable operation may be a difficult task to undertake (Dunning, 1993; Erramilli, Agarwal and Kim, 1997). Although location advantage may be available to all firms not every firm can benefit from it (Eramilli et al 1997). This is because location advantage may only be useful in if a firm possess ownership advantage. As a result of this high financial mode of entry will be preferred in high growth markets (Pan and Tse 2000, Kwon and Konopa 1993). It may be argued that to enjoy complete owner as well as acquire greater share of the potential market a firm my invest heavily with its resources, rather than share that potential success with its competitors or with another firm in for example, a joint venture or mergers (Agarwal and Ramaswami, 1992). By investing in a high potential market, a firm may likely benefit from scale economies and may likely attract the host country's government to promote foreign investment, (Agarwal and Ramaswami, 1992). Brouthers and Werner (1996) found that the impact of globalisation in terms of market growth is similar to that found for multinational companies.Psychic distance
According to the Uppsala model the main reason for this great uncertainty in the internationalisation process is the psychic distance, that may be defined as the manifold differences between the home country and the foreign country. These differences may have a negative influence on the flow of information that range from language barriers and cultural misunderstandings, to different levels of industrial development. The psychic distance is regarded as a decisive disruptive factor in terms of internationalisation besides the geographic distance which is seen as a significant barrier for internationalisation (Broecker and Rohweder, 1990).
Compared to larger firms, SMEs are generally unable to face increases in international trade and competition due to their limited resources. As a result of their lower productivity many have found it difficult to compete. Also given their limited resources they have found it more difficult benefit from the removal of tariff barriers. However, one of the main drivers and benefits of globalisation is the reduction of tariff barriers. As a result this has become one of the strategies for SMEs survival and development and also a way to adapt to world competition. The removal of market restrictions on foreign businesses has opened up businesses to the forces of global competition (Julien et al, 1994). This can be seen as an advantage as it has opened up to businesses more consumers to improve sales, however, on the contrary it has also hyper-competition in the global economy as well as increase in consumer tastes, expectations and even greater demand for quality, service and price.
Arguably the pressures generated by globalisation have been reported as forcing more and more SMEs to ensure their own survival by methodically improving their businesses to gain competitive advantage. The opening up of national borders provides firms with market opportunities, thus allowing them to build a global presence and grow, consequently, enjoy a larger scale of operations (Gradzol et al, 2005 and Hall et al, 2004). However, with this come plenty of restrictions and competitive pressures on international trade. Some pressures include distance barriers, the smallness of some markets, differences in cultures affecting customer tastes and perceptions, and a number of undetectable barriers, both regional and national, created by country policies aimed at protecting national production and companies.
For SMEs operating in global markets without being able to face worldwide competition because of low productivity, the increasing trend towards the collapse of tariff barriers may lead to firm closure. Those SMEs with this difficulty may be tempted to relocate their businesses in order to escape competitive pressures due to their inability to adapt therefore they may stagnate or even decline. According to Julien et al (1994), the result of globalisation in the development of competitive capacity may enable SMEs already in international markets to increase their processes or help those looking or in the process of doing so. Moini, (1992), argued that this indirectly favour firms working as subcontractors for other firms. Also the cost of internationalisation may be high, therefore for SMEs with low investment may go international by partnering with foreign companies which may mean loss of full ownership and control. (Look for all the references).To analyse reasons why SMEs participate in globalisation and some do not
In recent times a combination of factors such as growing market liberation and the use of efficient communication technology and transportation have greatly improved internationalisation opportunities for SMEs (Knight, 2001; Lu and Beamish, 2001). Size, according to Bonaccorsi, 1992, Calof, 1994 and Wolff and Pett, 2000 is not a restriction as it has been recorded that some firms are even born global or become international just a few years after being set up (Autio et al 2000 and Zahra et al, 2000). However for many SMEs it remains difficult to expand to international markets.
According to Alexander and Quinn (2001), it has been argued that smaller businesses have greater potential in international markets than larger firms weighed down by organisational preconceptions. Evidence of this stems from exporting, marketing and international business and entrepreneurship literatures which demonstrated that small firms are active players in the international arena (Kohn, 1997). Another evidence is that successful exporter does not have to be a big exporter (Bonacorsi, 1992, Reuber and Fischer, 1997, Coviello and McAulley, 1999) and that SMEs have the potential to focus resources and efforts narrowly enough as their export-effective larger counterparts (Ali and Swiercz, 1991, Wolff and Pett, 2000).
Therefore, if SMEs can expand internationally and be successful, then why do some not participate in international trade?
As already stated in the introduction of this research, the only characteristics that identify differences between SMEs and larger firms are not only physical size which is employees, sales turnover and premises, but also in terms of managerial, financial and operating characteristics. Limited financial, operational, logistical and learning resources have been shown to be barriers inhibiting international development of SMEs. However, Leondious, (1995), Morgan and Katsikeas, (1997), argued that SMEs with international operations have overcome such barriers to expansion stimulated by competitive strategies of differentiation and driven by entrepreneurial vision and networks.
Therefore, why do some participate and some of those who participate fail.Information
According to Westhead et al (2001) small firms often encounter information obstacles, lacking the business skills or personnel to assemble and interpret information on international expansion. Therefore owing to the inability of SMEs to accumulate all necessary resources some firms may acquire strategically relevant information for internationalisation using external information sources. Holmund and Kock, (1998), and Terziovki (2003), stated that external assistance may include hiring new managerial talent experienced in international business or communicate with experts outside the company. Crick and Czinkota (1994) found that exporting firms were largely unaware of government programmes available for assisting international activity in the UK. Therefore it can be argued that despite the potential market information and contacts available from government bodies, many SMEs with limited knowledge are unaware of opportunities in foreign markets.
Firm's resource characteristicsInternational development
Traditional models of internationalisation such as the Uppsala model suggest that firms exhibit an evolutionary progression in an incremental manner. Hutchinson et al (2006) stated firms begin by exporting by targeting close countries to their home country. Through confidence and experience firms commit greater resources and then target countries distant from the home country. However these traditional models have been challenged as it seems to suggest the presence of deterministic and mechanistic path by which firms implementing an international strategy must follow. Ibeh (2003) and Rundh (2001) added that SME internationalisation studies have taken account of the randomness and complexities involved in the internationalisation process which may cause some SMEs to leapfrog stages or enter markets that are distant from the domestic market. Piercy (1982) also added that international expansion for SMEs is actually a process of change. Therefore it can be said that SME international expansion is neither determined nor systematic.
Bell et al (2001), asserts that SMEs are faced with a selection of entry mode which facilitate rapid expansion and the bypassing of the various stages in the expansion process. Firms leaning towards the expansion stage can choose between various market entry modes for foreign markets depending on the amount of resource commitment available, degree of risk, potential for returns and degree of control required. According to Benito and Welch, (1994), SMEs have limited range of international entry modes to choose from, a narrower operational base from which new international activities can be taken.
There are four international development strategies companies could implement its expansion process: Greenfield, Mergers and Acquisitions, Joint Ventures or Strategic Alliances. Sternquist (1997) states that licensing offers inexpensive yet fast track international expansion, however, it may not be appropriate for small firms with distinct assets. Franchising is less costly and risky than joint ventures or acquisition but it is not a straightforward option for small firms (Alexander and Quinn, 2001). This is because smaller firms are less likely to be successful in attracting potential franchisees compared to more established franchisers that have well-known brands, (Alon, 2001). Quinn (1999) also argued that the restrictive effects of small size in terms of support, provision and the limited resources to control and monitor diverse international operations, may become highly significant over time as the international network expands.Management and Risk Taking
Antecedent to and driver of SME internationalisation is the experience and orientation of the owner-manager or entrepreneur of the firm. Management has a strong effect upon SMEs both at the initial decision stage to expand and the continuation of the strategy into international markets (Nakos et al, 1998). Management has also been sighted as been responsible for the mode, direction and speed with which a company moves along the international path (Leonidou et al 1998), as well as being responsible for the interplay of decisions involving foreign market knowledge and commitment (Holmund and Kock, 1998; and Anderson, 2000). Top management attitudes play an important part in shaping the international involvement of their companies. Management's perception regarding opportunities and barriers to international expansion, managerial beliefs about the firm's competitive advantage, and their readiness to expand moulds the attitudes of the firm. Management perceptions guide decision-making and it is doubtful that decisions for growth in foreign markets will be made unless, owner or entrepreneur exhibits positive views with respect to opportunities and potential barriers involved in international expansion (Vida 2000).
Research studies by Vida (2000) showed some reinforcement that lack of experience as well as ethnocentric attitudes of management often leads to reactive approach to internationalisation and to an underestimation of the potential obstacles in the process. SMEs with diverse management know-how may be able to undertake more promising competitive strategies and opportunities in foreign markets than their larger counterparts (Westhead, 2001). Hutchinson et al (2006) threw more light on this stating that, it is the acquired know-how formed by management from travelling and living abroad that exposes the firm to foreign cultures allowing the accumulation of greater experiential knowledge of market characteristics and competition across the globe. The know-how and acquired experience by management has been found to be critical to achieving a successful international presence (Williams, 1991).
Personality characteristics of owner-manager and the export involvement of SMEs are very evident in small companies (Halikias and Panayotopoulou (2003). Pellegrini (1994) added that entrepreneurial creativeness and willingness to take risks within senior management is a crucial element in the international decision-making of small companies. Williams (1992) and Vida (2000) agreed to the importance of management attitudes toward risk, in terms of making a positive decision to enter new foreign markets. Examples of risk taking attitudes of owners and management with true entrepreneurial qualities operating internationally are Body Shop, Virgin and Wal-Mart. Chetty and Campbell-Hunt (2003) also added that the success of internationalisation can lie in the determination, drive and willingness by management to take risks. Where resource deficiencies could hinder expansion, the innovation, risk-taking, pro-activeness of management are qualities that despite the odds can enable successful development of the firm abroad (Fillis, 2001).
Holmund and Kock, (1998) and Mughan et al, (2004), stated that, if there are any gaps in market knowledge, SMEs lacking the appropriate resources required for international business might consider hiring new managerial talent experienced in international business or obtain assistance from consulting companies that can offer such expertise. Vida et al (2000) added that those SMEs who form business contacts and relationships with other firms may overcome insufficient know-how and formal training in international business.
Therefore it can be argued that SME international expansion is not only driven by the accessibility of resources, but by the competence and vision of management.Impact to ownership
According to Thomsen and Pederson, (2000) ownership type can influence corporate strategy and performance of a firm because it is related to different degrees of risk aversion and the firm's resource endowment. For example, La Porta et al (1999) stated that in most continental European counties such as Germany and Spain and other non-Anglo Saxon world enterprises are controlled by their founders or by members of the founder's family, or other financial and non-financial firms. Family ownership in theory should confer specific competitive advantages (Poza 2004) such as long-term orientation, flexibility, speedy decision-making and family culture as a source of pride and commitment (Zahra 2003 and Poza 2004) though they also have their own particular problems that limit the access of family firms to the resources and capabilities needed for the internationalisation process. The division of business and personal objectives often becomes blurred in family firms (Davis and Tagiuri, 1991). A high proportion of the owner's wealth and many times, wealth of the family itself is invested in the business and as family investments are not diversified, family firms could be risk-averse. Harris et al (1994) showed that family firms generally show weaker growth because owners may be reluctant to lose control of their business. According to Fernandez (2006), it is difficult for family firms to amass the resources needed to sustain a competitive advantage that can be exploited through internationalisation. Adding to this, internationalisation requires the implementation of more complex structures and formal controls as well as decentralised system however, owners may see this as a loss of control.
Conflict of interest may also arise where management decisions are counterproductive for the firm but beneficial for family members. For example, they may have low level of qualified staff; employ family members for managerial positions, although they may be insufficiently qualified or lack international experience. Aside the conflict of interest and loss of control there also exists the loss of interest in issuing shares because it brings the entry of new shareholders and the consequent of control (Morck, 1996). Therefore they avoid sources of funding which comes with control, and their possibilities for growth is dependent on funds generated internally. It can be argued that SMEs owned by families may not be highly involved in international markets.To examine how SMEs may survive the advent of globalisation
Globalisation as already explained at the beginning of this literature refers the management of firm's operation on a global scale. It is also characterised by the growing integration of world's economy as national economies become integrated into one single global economy. This economic integration comes with global competition as well as opportunities. As a result it has been advised by researchers in this field that companies including SMEs respond to this an increasingly faster pace (Pleitner, 2002). The intensifying competition of global markets, economic integration and trade liberalisation is witnessed by firms especially SMEs as forcing them to begin outward international activities which is being backed by academics, practitioners and researchers as a key factor for their future growth, profitability, competitive advantage and even survival. Factors such as increased competition, ceaseless turbulence, change and uncertainty have forced organisations to embrace innovation as an integral part of their corporate strategy (Keskin, 2006). According to Keskin, (2006) innovation has become the name of the game for competition in the twenty-first century. Therefore in keeping pace with international competition firms of all sizes are challenged to improve and innovate their products and processes constantly (Ernesto et al 2005). Wong and Aspinwall (2005) also added that the primary factor of organisational competitiveness has shifted from physical and tangible resources to knowledge. For SMEs to improve their responsiveness to global market competition they need to develop capabilities in external knowledge acquisition (Liao et al 2003), and learning-by-doing is the most effective mode of knowledge acquisition (Oyeyinka and Lal, 2006). Wiklund and Shepard, (2003) and Liu et al (2004) also added that knowledge-based resources are positively linked to SMEs performance.Innovation
Innovation has long been considered to be important to the success of small firms (Fiol, 1996). For example, it has been shown to stimulate venture growth (Wolff and Pett 2006) as well as provide key sources of competitive advantage where economies of scale are absent (Lewis et al, 2002). Innovation has been defined by a number of practitioners and researchers as an idea, processes or object that an organisation regards as new (Bhaskaran 2006). Adding to this definition, Dibrell, Davis and Craig (2008), argued that the newness attached to an innovation depends on how one perceives what classifies innovation to be. Success in innovation requires strong managerial support and resource commitment. Firm performance is created as a result of the existence of synergy because doing more of one thing increases the returns of another (Huang and Llu 2005).
It is suggested through substantial evidence that employment of appropriate strategy of innovation may be essential in translating strategies, for example, innovation into enhanced firm performance (Ray, Muhanna and Barney, 2005; Sakaguchi, Nocovich and Dibrell, 2004). However, investment in IT does not stimulate firm performance through productivity and growth as resource commitment may distract from short-run profitability (Johannessen, Olaisen and Olsen, 1999). Craig, Cassar and Moores (2006) agreed by arguing that innovation is likely to influence organisational structures and systems. Adding to this, Blumentritt and Danis, (2006) argued that successful implementation will require significant systematic changes in a firm to promote risk as innovation entails considerable risk-taking as well as some degree of flexibility in its organisational structure. Flexible organisational structure and change for successful implementation of innovation according to Mintzberg (1979) include open channels of communication, decentralized and informal decision making together with and flexible processes and procedures.
For a sustained innovation, SMEs must incorporate this into their strategies by making available, resources for new products, providing collaborative structures and processes to solve problems creatively, and connecting innovations with existing businesses (Bhaskaran, 2006). These results also suggest that IT offers firms a competitive competency which assists firms in differentiating themselves in the market place through innovation.Knowledge and Learning
Freel (1999) identified the major skills gaps that impede successful innovation in SMEs as technical skills in the workforce, managerial competency and poor marketing skills. One way for SMEs to become more innovative is by exploiting on their employee's ability to innovate (Jong and Hartog, 2007). An organisation that depends solely on its top managers to innovate is described by Katz (1964) as a very fragile social system, because work has become more knowledge-based and less rigidly defined (Jong and Hartog, 2007). Therefore, involving employees in generating ideas to create new and better products, services and work processes this can help improve business performance (Axtell et al, 2000; Unsworth and Parker, 2003 and Smith 2002).
Organisational learning has been noted to have impacted in attaining organisational success through innovation by many practitioners and academics. Such innovation is central to well-known management principles including, total quality management, continuous improvement schemes, Kaizen, corporate venturing (McLoughlin and Ehigie and Akpan, 2004, Imai, 1986 and Elfring, 2003).
For long-term success, organisations should be able to learn continuously, to leverage from the knowledge they capture, to apply it to reality and to increase innovation knowledge (Liedtka, 1999). In order to leverage knowledge-based resources throughout the organisation, the firm should promote the organisational learning (Tetrick and Da Silva, 2003). This could be done through for example, training and development, such as work-based learning which are generally used to promote organisational learning aiming to enhance the firm's knowledge capital. The process of effective organisational learning could reflect on the consequences of their behaviours and actions, obtaining insights from the environment where they operate, to understand and hence to interpret the meaning and react to it in more accurate approaches (Jones et al, 2003). This also helps the firm to have at their disposal the most up-to-date explicit knowledge in their different expertise areas. Above all this could help develop barriers to imitability, as it could originate some difficulties for other firms to recreate what truly produces the firm's competitive advantage.Forming clusters and networks with other organisation
Challenges faced by SMEs can be summarized as firstly, transforming themselves and increasing their individual competitiveness (Fassoula, 2006) and secondly, due to their limited size to take advantage of synergy effects by entering into cooperative relations with other SMEs and related partner institutions (Karaev, Koh, Szamosi, 2007). One way of overcoming size limitations is through clustering which has been recognized as an important instrument for improving SMEs productivity, innovativeness and overall competition. The United Nations Industrial Development Organisation (2009) defined clusters as the agglomerations of interconnected companies and associated institutions producing similar or related goods or services supported by a range of dedicated institutions. Clusters may include suppliers down to regular buyers, exporters or distributers, government institutions, providers of business service; and agencies that support product development, production processes, and providing information on technology and marketing for example, new market and designs as well as vocational training (Tambunan, 2005).
Porter (2000) also proposed that a cluster is a group of interconnected enterprises and proximate institutions in a particular field, linked by commonality. Clustering can encourage an enhanced division of labour among firms with physical proximity among numerous competing producers thereby encouraging innovation (Porter, 2000). SME difficulties include achieving scale economies comprising of internal functions such as training, market intelligence, logistics and innovation in technology. These difficulties may also prevent the achievement of a specialized and effective division of labour which is core to business performance. Research shows that firms that involved themselves in clustering or networking were able to overcome their market environment difficulties. For example, through clustering which focused on high-volume, high-metal and precision engineering activity in the South Yorkshire (Waverley) has attracted Boeing and other businesses as buyers to the area. Due to local, regional and European funding Waverley is now the largest manufacturing cluster in Yorkshire and the Humber, generating £5 billion per annum according to BIS, (2009).
The benefits of clustering are that problems such as size, production processes, market information and marketing techniques, risks involved with demand fluctuations can be addressed to improve firm's competitive position. Through a cooperation of firms in a cluster, partaking firms may take advantage of external economies such as the presence of suppliers, components, skilled workers of associated firms (Tambunan, 2005). Adding to this clustering may also attract many traders to buy and sell products to distant markets (Humprey and Schmitz 1995).
Porter (1990) identified clustering in two ways: either through vertical that is buyer/supplier formed by firms and industries or horizontal relationships with the main players such as with their customers. Porter (1990) added that this helps create awareness of rivals as well as promote innovativeness and competiton.
Individual firms can gain collective efficiency and business links with less cost or no difficulties. Clustering creates does create internal links such as marketing, distribution, procurement of materials and training for workers inside the cluster. External networks that is business relations are also created inside the cluster such as suppliers and business service providers (Tambunan, 2005 and Ceglie and Dini, 1999). As already analysed above, SMEs lacks market knowledge and clusters is known to provide some form of learning and education where firms can exchange ideas, expand their business knowledge through associated firms in an attempt to improve product quality, as well as gain profitable market segments (Payne, 2000).
However, according to Tambunan (2005), not all private organisations are interested in supporting clusters due to facts such as firms producing locally or supplying stagnated markets. Crick and Czinkota (1994) found that in the UK firms were unaware of government supports available for assisting firm internationalisation. Adding to this Westhead et al (2001) argued that despite the potential market information and contacts from government agencies many SMEs who need support as a result of limited information are unaware of opportunities in foreign markets.