Internets role in the internationalization of SMEs

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"Every now and then, a new technology comes along that is so profound, so powerful, so universal that its impact changes everything" (Gerstner, 1995). This prediction has proved to be true to some extent. E-business has modified the idea of both small and large firms and the prospective of the Internet and the World Wide Web (WWW) has gained a lot of importance as business-related market and mediums (Ramsey et al., 2003). In this new shifting environment which has increased customers' needs about speed, comparability and price, information and communication technologies (ICTs) are now being used to create more effective business strategies (Wymbs, 2000). E-business is generally defined as the "SMEs gateway to global business and markets...." (Liikanen, 2001) which is very good choice and has given the enormous promotion and support is provided by governments to enhance the growth. It is increasingly speculated that the SMEs will capture the global markets, sell to the international customers and will be able to compete with large businesses. However, according to the researchers the acceptance of ICTs differs according to the size of the firm, exporting calibre and consciousness of benefits, type of customers and its obligation by large trading partners (Poon and Swatman, 1999). Therefore, there are major barriers for SMEs to go online which include the strategic admiration of the dynamics of the web and the growth of potential to manage the information communications for e-business (Tetteh and Burn, 2001). In today's spirited atmosphere, there is a need to identify and understand the factors that force the international performance of any firm (Kuivalainen et al., 2004). So, the purpose of this study is to find out the motives for internationalization of SMEs through Internet and the challenges faced by SMEs during the adoption of e-business strategies.

Globalization of SMEs:

The increasing involvement of SMEs in the international activities is attracting more and more researchers, policy makers and practitioners to study into the matter (Lu and Beamish, 2001). The inherent risks of international activities make small enterprises more sensitive and SMEs suffer from internal factors related to the shortage of financial, managerial and information resources need to avoid the indecision and the risk involved in enterprising activities on a foreign market (Dunning, 1981). Nevertheless, size cannot be termed as a barrier to the internationalization of SMEs (Coviello and McAuley, 1999). In fact, SMEs are expected to try international growth which has rewards of the control and utilization of control, exclusive and sustainable resources and abilities (Piscitello and Sgobbi, 2004). Smaller businesses are provided with new tools and opportunities to expand their presence in foreign markets as both exporters and producers with the wordiness of Internet applications. SMEs can get rid of some of their past limitations against larger businesses with the adoption of these opportunities (Piscitello and Sgobbi, 2004). Therefore, the entrepreneurs have to cope with a new competitive framework due to increase of the international competitive pressure and the diffusion of Internet as an alternative communications channel (Zaher and Manrakhan, 2002).

These days, there is an increasing review on literature specifically looking at SMEs and their use of ICT (Hashim, 2009). Within the particular reality of an SME, e-business may have an important role as it allows the integration of different stages of a firm. ICTs and Internet facilitate the new options and may result to strengthen the relationships and ease the flow of information and knowledge. However, there is a huge gap between the ICTs at the base of e-business and the traditional background of the entrepreneurs. Conventionally, the skills and knowledge were a lot implicit and embodied into the products where as the communication through networks needs sharing explicit and codified information. On one hand, the knowledge of the entrepreneur is decisive on converting operative perceptions into product and process improvements and on the other hand, e-business lays stress on planning operational, cognitive and communication processes (Enright and Ffowcs-Williams, 2000). Therefore, to reform the intra-firm relationships with the implementation of Internet-based applications is based two distinct features (Piscitello and Sgobbi, 2004):

Cultural and technical background of the entrepreneur: Old and conservative entrepreneurs are more attached to traditional communication and information sources where as new firms are more towards adding new information paths to the traditional ones

Codified communications between the supply-chains: There will be less interest of supporting inter-firm communications through Internet if the rooted non-codified knowledge within the product is higher.

E-business has another important role in reforming the relationships between the firms and their external equivalents because it allows the firms to go beyond their competitive advantage across the limits and deal with with the complementary forces produced by globalization processes (Rullani et al., 2000). The local nature of traditional firms is reinforced by the Internet and ICTs as it supports the commercial rather than direct internationalization. In other words, the internationalization of both production activities and exports carried out by SMEs is affected by the Internet-based applications (Zaher and Manrakhan, 2002). However, the advantage of e-business is obvious in case of international trade because SMEs still suffer from the shortage of financial and managerial resources when it comes to Foreign Direct Investments (FDIs). Moreover, ICTs and Internet are still unsuitable supports when the development and distribution of product-rooted tacit knowledge is required because it is hard to codify and convey. This is the main reason for some authors to stress that Internet may not affect the core competencies of SMEs to expand in abroad through FDIs (Peterson et al., 2000).

Influences on small firm e-business adoption decisions:

Everything has changed since the evolution of Internet in this world. The Internet is now considered to be a fundamental business tool and this is true because of frequently increasing trade levels (Chrysostome and Rossom, 2009). The majority of small and medium sized enterprises globally now believe that e-commerce has become a reasonable reality for them. These days, dual systems are used by the SMEs as their operations (Moini and Tesar, 2005). SMEs today rely on conventional business practices such as the use of sales force, processes of supplying and promotion. At the same time, many SMEs are repeatedly drawn into the new world of worldwide commerce which facilitates them to promote their products globally rather than locally by placing their websites on the Internet (Samiee, 1998). In order to justify this point we first need to know the internal and external pressures on small firm decision-makers as they think e-business. It has now been proved that small firm entrepreneurs have different goals for their business out of which some are stick to the reasonably realistic objectives such as growth and competitive advantage (MacGregor and Vrazalic, 2007) and others are limited to keep their firm small in order to focus on family or their liking of way of life, pleasure, entertainment, independence, continued existence and steadiness (Galloway and Mochrie, 2005). If the family members are on managerial positions in the firm, they can manipulate the business objectives and the decisions to adopt e-business (Butler et al., 2007).

However, in some small firms e-business knowledge and use of the Internet has been found to present the motion for adoption of e-business (Galloway and Mochrie, 2005). There can be a positive or negative influence on adoption of e-business which depends on the ability, awareness and perceptive of the small firms' business objectives and needs according to some e-business advisors and experts (Martin and Matlay, 2003). The influence of these external parties also depend on whether they are ready to help the small firms to learn about the e-business and to build up the potential to take on e-business (Kelliher and Henderson, 2006; Xu et al., 2007). However, the failure to fulfil these roles by the external parties usually results in annoyance and disappointment with the experts and with the e-business itself (Al-Qirim, 2005). Now let us look at some of the internal and external factors in detail as under:

Internal Factors:

SMEs managerial insights, firm features such as size and resource accessibility and good relationships which have trust between the trading partners are some of the internal factors (Lanz, 2002; Chan and Swatman, 2000). The growing affect of the Internet and e-commerce on the market operations is expected by the top management of the most SMEs but some think that the required individual needs are not well served by their company websites and may not be useful for their general marketing and sales requirements (Moini and Tesar, 2005). According to some SME managers, the adoption of technology can be a never ending phenomenon and results in more and more expenses (Estrin et al., 2003). Executives in the SMEs feel that it is unaffordable to adopt advanced technologies and most often the smaller firms are compelled by larger and powerful firms to adopt these technologies (Benbasat et al., 1993). Some firm features such as size and the availability of resources are the other important internal factors. According to the researchers, the larger SMEs are able to invest in intranets and extranets because it depends upon the total number of employees whereas the smaller SMEs cannot afford these technologies (Windrum and de Berranger, 2003).

However, it is argued that the smaller firms are much better at gaining advantages over the large firms because of the development of their personal relationships with the customers, their ability to customize the orders according to the customers' needs and their capability to target the smaller markets more easily (White, 1998).

External Factors:

The different environmental factors such as the organization of the market and the amount of attention, the character of e-commerce technologies adopted by other partners and the competitors in the industry come under the external factors (Kern and Willcocks, 2002; Benbasat et al., 1993). The other most important external factors such as firm's suppliers and customers, national infrastructure issues, for example, the technological capability, access to the communications network, the government support and the terms of government policies and schemes can also affect the adoption of the e-commerce (Timmers, 2000).

The other important factors which act as the barriers for the internationalization of SMEs through the Internet are discussed as under:

Knowledge acquisition and development:

An iterative phenomenon throughout the e-business adoption is the acquirement of market intelligence which is linked to the target markets, market places and technologies and its conversion into the required information. However, the firms have not obtained such knowledge and thus lack the knowledge base on which the e-business adoption process is based. Actually, the firms have the tendency to ignore and not make the most of their traditional market-oriented actions during the adoption of e-business (Jones, Hecker and Holland, 2003).

Lack of Vision:

Many firms are limited to the perceptions inherited from their past and therefore lack their view of the future (Sawhney and Zabin, 2001). Small firms tend to undervalue the need for planning before the adoption of e-business and also find it hard to carry on with dual viewpoints of traditional and e-commerce as discussed before (Chaston et al., 2001). The firms are stuck to the "stay-in-business" schemes with a lack of inspiration and are reluctant to switch from their conventional activities to the e-mail and information exploration capabilities (Sawhney and Zabin, 2001, pp 32).

Dependency on the third parties:

Generally, the firms are heavily dependent on the external Internet Service Providers (ISPs) in order to implement and integrate the e-commerce along with using their own knowledge of current needs of their customers. During the discussion with different ISPs, it is generally clear that they don't have the skills and desire to provide with the right set of information. Thus the opportunity of value proposal which is derived from the input of customer no more existed and the present worth of the firm is also destroyed (Jones, Hecker and Holland, 2003).


This paper has shown the impact of the Internet on the internationalization process of SMEs. It has taken into consideration the internal and external factors which were identified by the researchers previously to affect the internationalization of SMEs through the Internet. Some of the managers in SMEs want their companies to be impressive to their customers so a website is just a nice thing to have while some SME managers are still to acquire more knowledge of e-commerce. However, the researchers, policy makers, service providers and academics should understand SMEs and their needs in order to attain larger e-commerce adoption (Hashim, 2009).