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Over the past two decades, small and medium sized enterprises (SMEs) have been increasingly affected by internationalisation. Indeed, globalisation has begun to break down the barriers that segmented local business opportunities and firms from their international counterparts (Levitt, 1983; Fraser & Oppenheim, 1997). Nowadays, SMEs have to face both local and international competition, which results in an additional pressure on the company to keep making profit. Nonetheless the idea of internationalisation is not always the result of externals factors but also an opportunity to exploit internal strengths in overseas markets.
This topic has been widely approached from a number of different points of view (e.g. Calof, 1993; Campbell, 1996), however it seems unclear whether or not SMEs entrepreneurs should be sceptical regarding the internationalisation process. It is quite impossible to know if a SME is going to success on the international scene, for this reason, these ones tend to fear this new phenomenon which they do not fully understand (Jones & Wheeler, 2004). On the other hand, it has become difficult for them to avoid globalisation effects by taking refuge in their own domestic markets (Etemad, 1999). Consequently, they are now faced with the dilemma of overcoming the challenges, threats and barriers associated with internationalising operations (Crick & Chaudhry, 2000) or staying local with the risk of failing to compete with bigger companies in the same market.
This essay tends to show and critically assess the dilemma which face small and medium sized enterprises regarding internationalisation, first, by showing the different barriers and threats SMEs can encounter throughout the various stages of the internationalisation process, and second, the benefits of overcoming theses difficulties and going international.
Prior to the internationalisation process comes the initial decision of going global and under which circumstances this one will be taken. Most of the time, SMEs are forced to cope with an increasing competition from multinational enterprises (MNEs), yet this process can also result from internal motivations. This is a critical point of the discussion as drivers to internationalise will strongly affect the managerial attitude throughout the SMEs stages of international development.
Proactive and Reactive Factors
Brahim Allali (2002) has explored the notion of proactive and reactive stimulus on the decision to internationalise. Reactive factors include: competitive pressures, small and saturated domestic markets and overproduction/excess capacity, whereas proactive factors include: profit and growth goals, managerial urge, foreign market opportunity, technology competence and economies of scale. It has been considered that SME internationalising on a reactive basis (i.e. external pressure) might not have the success of one having carefully taken the decision on a proactive basis.
Young (2007) has also suggested that motivation, proactive or reactive, comes from the level of knowledge of the company. Traditional firms seem to internationalise on a reactive basis, following the Uppsala model with a gradual pace unlike knowledge-intensive firms which internationalise on a proactive basis, by targeting leading markets with a rapid pace.
This approach was based on the work of McDougall and Oviatt (1991) who demonstrates that knowledge-intensive SMEs could greatly benefit from international expansion thanks to the association with local partners (Etemad, Wright & Dana 2001) by focusing on narrow market segments.
From the arguments above, we can see that the perception of the internationalisation process will highly rely on the initial drivers. From a proactive point of view, PMEs entrepreneurs have no reason to fear this development as this one is intended. However, on a reactive basis, the additional pressure can compromise the internationalisation process by not giving enough time to establish a solid strategy and overcome the following barriers.
Perceived and Actual Barriers to Internationalisation
In reviewing the literature on barriers affecting SMEs internationalisation, studies have identified perceived or actual barriers and threats (Morgan & Katsikeas, 1998). Even if they play an equal role on the entrepreneur's decision (i.e. as this one is often unable to differentiate them), identifying these issues can greatly affect the dilemma which face SMEs and prove irrelevant assumptions and fears with regards to the internationalisation process.
For instance, a lack of management skills (Edmunds & Khoury, 1986) is often considered as an actual barrier, however this is assumed by the management team without any external evaluation and can be proven irrelevant in certain situations. Limited demand on foreign markets is also a factor that leads to confusion as it depends from the research undertaken beforehand (Groke & Kreidle, 1967). This one might not have been deep enough or can even suffer from a lack of financial and human resources, in any case it's very unlikely that we will know for sure what the demand will be.
Consequently these examples lead to the identification of actual barriers which are the real challenges SMEs have to face. Raising finance appears to be the most common actual factor (Bilkey & Tesar, 1977), followed by the lack of trade connections and information on foreign markets (Tesar & Tarleton, 1982).
Financial resources are often an important handicap for SMEs (McNaughton & Bell, 2000) as international expansion requires a large amount of funds and knowledge of international markets (Eriksson & Johanson, 1997). These resources help the company to reduce risk and costs related to the internationalisation. Because of this lack of resources, "SMEs are more dependent on institutional and financial actors when expanding internationally" (Bell, 1997; Spence, 2003).
The most important and lacking resources for SMEs internationalisation are knowledge of foreign markets (Sharma & Blomstermo, 2003), what's more there is no easy way for entrepreneurs to acquire experience except being present in these markets (Eriksson, 1997). SMEs can however use their existing business relationships to access these resources, i.e. foreign markets knowledge (Jones, 1999). This remains one of the first barriers that restrain SMEs for going international.
Success and fail factors become operative only when brought to the attention of the entrepreneur (Misenbock, 1988), i.e. the person making the strategic decisions of the PME. This results in a misrepresentation of the risks involved in the internationalisation process which can be associated with the fear of not taking into account a critical element of the internationalisation process.
Moreover, studies have shown that the SMEs managerial attitudes are strongly influenced by the SME owner as this one is generally engaged in making the decisions for the company (Shaver & Scott, 1991). Consequently, the perception of the owner regarding internationalisation will strongly affect the marketing decisions of the firm.
Swedish researchers (Johanson & Weidersheim-Paul, 1975; Joahanson & Vahlne, 1990) have explored the concept of internationalisation by studying Swedish manufacturing SMEs in their international expansion. This model, referred as "Stage Theory of Internationalization" or "Uppsala Theory", aims to describe the internationalisation as an incremental process and predicts two majors aspect.
The geographical factor as SMEs tend to develop by first expanding in foreign countries with close "psychic distance" (Stöttinger & Schegelmilch, 1998) to prevent and control the risk of their expansion. The knowledge factor as they will gradually accumulate experience to enter markets with a greater "psychic distance".
This model has been criticised on many aspects, however it remains a solid basis on how SMEs should face challenges one by one instead of trying a quick and global expansion. The past decade has brought new opportunities to erase this "psychic distance", for instance, international exhibitions gather MNEs and SMEs from all around the world and aim to encourage international business opportunities.
International Exhibitions and Trade Fairs represent the perfect example of the dilemma SMEs face in the internationalisation process, yet it seems that this notion has not been explored deep enough. In many industries exhibiting abroad is generally the first step and the fastest way to meet new customers, get knowledge of foreign markets and monitor the competition.
The costs involved by this operation are really expansive, even more for SMEs. As they already lacking financial resource, the decision should be taken carefully. A number of questions come up such as: where to exhibit? what investment the company is ready to make?
These questions lead us back to the first barrier, knowledge. Making the wrong decision could lead the SME to a critical financial situation, nevertheless not making a decision could be even worse in the long term. Visiting the exhibition first would be one of the easiest solutions to take the market's temperature and see whether the company could have its place among the international competition. The ability to seize these opportunities greatly depends from the level of awareness of the management team.
We cannot say for sure what will happen to SMEs willing to internationalise as the types of barriers and threats vary between sizes of SMEs (O'Rourke, 1985). Simpson (1973) has also explored the concept of managerial apathy when firms do not internationalise influenced by perceptions that may not be so relevant in reality.
The fear thus relies on assumptions (i.e. perceived barriers), actual barriers and most importantly on a lack of knowledge and awareness of SMEs management teams. As much as they can lose from this process, the second part will demonstrate that PMEs can benefit from a number of facilities which greatly increase their chances of successful international expansion.
"The barriers to international business that historically favoured large firms with the requisite resources have been lowered substantially" (Pett, Francis, Wolff, 2004).
There are a number of factors that have dramatically eased the internationalisation and contribute to the success of international entrepreneurship strategies. Technological advances, falling international trade barriers and governments policies have led to a much more convenient environment that facilitate the adoption of change.
Network theory of internationalisation
Unlike the Uppsala model, the network approach describes the internationalisation as a process of discovering new markets and opportunites by establishing relationships with foreign actors (Kayhat, 2004). This model is essentially observed following a proactive motivation to internationalise. These networks provide information and market knowledge to both parties, which results in a better confidence with regards to the internationalisation process. As the knowledge is one of the most common barriers, networks play a key role while making international expansion decisions (Casper, 2007).
What's more, Julien (2005) has described the positive repercussions of such networks on the SME international development. They would more particularly compensate the lack of resources and market knowledge. Starting from a proactive motivation, this model is a more optimistic view of the international market access for SMEs. It also highlights the benefits of anticipating external pressures by going toward the process of internationalisation and getting enough information to reach the prerequisites of international competitiveness.
PMEs should carefully study this point as establishing personalised relationships are one of the SMEs greatest strength. With regards to the concrete benefits of such a strategy, networks bring also to the company long-term stability, sales and exportations. It particularly goes hand to hand with another SME strength, the ability to react quasi spontaneously to market variations, new trends, threats and opportunities.
Establishing networks is all the same not the only way to get foreign market knowledge, the past two decades have been marked by fascinating technological advances especially in terms of communication.