The Importance Of The Internationalization Phenomenon Commerce Essay

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This paper makes a critical review of two academic journals on the subject of SME's Small and Medium enterprises, the first is "SME retailer internationalisation: case study evidence from British retailers" written by Karise Hutchinson and Barry Quinn of University of Ulster, and Nicholas Alexander from the University of Wales, their journal was published by the International Marketing Review in 2006 (Vol. 23 No. 1). The second journal is "the internationalization and performance of SME'S written by Jane W. Lu and Paul W. Beamish from the University of Western Ontario and National University of Singapore respectively. Their journal was published by Strategic Management Journal in2001 (Vol.22). Hutchinson et al (2006) the study was set out to build a theoretical insights from the literature on the barriers, stimulants, drivers, facilitators, process, and market entry strategy of retail SME internationalisation. While the Lu and Beamish(2001) study explore the effects of internationalization, strategy employed (SMEs) on firm performance.


Both study on SME's highlighted the importance of the internationalization phenomenon and how it has capture interest of researchers in strategic management, international business and entrepreneurship they express that the study will continued to gain further momentum in years to come. Lu and Beamish(2001) contend that international managers are concerned with strategies adopted by SME's that lead to higher performance and how their firm can again competitive advantage form expanding geographically they address these by exploring the performance implications of various internationalization strategies used by SMEs. Citing Reynolds (1997) exporting and foreign direct investment FDI as the most common, they further explore the joint effect of exporting and FDI strategies on performance of SME'S. Finally their finding shows a negative moderating effect between FDI and performance.

Hutchinson et al (2006)their study explores SME internationalisation in retail industry, contending that retail SMEs can expand internationally and successfully and highlighting the key differences between large and small retail firms in terms of their barriers and incentives to international development; operating characteristics; management and financial worth pointing that barriers inhibiting SMEs internationalization includes limited logistical, financial, operational and learning resources. Citing Katsikeas(1997) according to them different strategies can be adopted to overcome this barriers to expansion by competitive strategies of differentiation, and driven by entrepreneurial vision and networks.

Lu and Beamish(2001) study acknowledged that in the pursuit of higher return on resources and growth SMEs are bound to adopt a geographic expansion strategy to pursue new opportunities by leveraging their core competences across internationals market Zahra et al (2000). Two distinct avenues of internationalization of SMEs according to Lu and Beamish (2001) are exporting and FDI.

Exporting according to them is a stepping-stone effect for future international expansion because SMEs often time lack the financial resources, to undertake FDI. Exporting provides SMEs with fast access to foreign markets, with little capital investment required it provides opportunity to gain valuable international experience. SMEs internationalization by FDI enables a firm to leverage location-based advantages, such as competitively priced labour force, access to critical resources, development of new knowledge and capabilities. It requires a greater level of resource commitment than exporting and is more difficult to reverse, at the very beginning of an SMEs internationalization performance might decline as SMEs are subject to the liability of foreignness and may have to pay some 'tuition' in terms of profits for their mistakes these liabilities will however reduced as the SME's business accumulate experience.

Hutchinson et al (2006) cited that Internationalisation involves a high degree of risk and SMEs have limited resources to cope with the downside of foreign expansion summarising the challenges of SME's internationalization has strategic, operational, informational and process-based restrictions. As a result SME's have a limited range of entry modes for internationalization stating the key one as export others are licensing, in-store concessions, franchising, joint ventures, and partly or wholly owned direct investments they went further to explain that there exist some export stimuli that allow SMEs to overcome the barriers to internationalization namely international strategy, entrepreneurial vision/experience, firm networks and external assistance. Hutchinson et al (2006) proposed that SMEs should operate as a market "nicher" with differentiated and unique products to narrowly defined market segment, to successfully gain competitive advantage through product differentiation they argued that retail SMEs must be less marketing-orientated and more market-orientated when considering internationalisation activity. Using Michmann and Mazze, (2001) they identify the seven levels an which product differentiation can occur as product features; product mix; linkages between functions; location; timing; reputation; and alliances with other firms.

Hutchinson et al (2006) in their study were able to argue the Importance of entrepreneur/manager has driver of SME internationalisation stating that they hold important influence upon the strategic orientation, management structure, resource orientation, growth orientation, reward philosophy and entrepreneurial culture of a firm they further state that the vision direction and ultimate competitive advantage of an internationalizing SME's in international markets is directly related to the characteristics of the decision-maker.

Lu and Beamish(2001) study as pointed out alliances as one important

means of overcoming resource and capability deficiencies of successful SMEs internationalization they state the important of alliances as minimization of transaction costs; help increased market power; shared risks and provide better access to key resources such as capital and information however Lu and Beamish(2001) also point out some potential problems of alliances as goal conflicts, lack of trust, cultural differences, and disputes over control power. Internationals alliances by SME can take three forms, partner SME's in host country or SME's from the home country or form a third country.

Points of differences and similarities between Lu and Beamish(2001) and Hutchinson et al (2006) studies on SME's internationalisation

Both papers as earlier stated supports the idea of SME's internationalization phenomenon, there research was able to identify that there are some challenge faced by SME's when taking the strategic decision of internationalize. Both studies agreed that the most preferred internationalisation strategy for SME's is Exporting and their choice of this is inform by the recognition that SME's has limited financial capabilities. Both papers also agree that FDI is also an expansion strategy for SME's to internationalize stating the this method has its own advantages and this advantages

Hutchinson et al (2006) study did not stick to the two point view of SME's internationalization strategy of export and FDI as proposed by Lu and Beamish(2001) they expanded the options to include licensing, in-store concessions, franchising, joint ventures, and partly or wholly owned direct investments Hutchinson et al (2006) also focus their study on suggesting solutions to the challenges faced when SME's choose to internationalize listing some export stimuli that allow SMEs to overcome internationalization barriers and suggesting the concept of product differentiation as a means for gaining competitive advantage.

Furthermore both studies deviated in the point of importance of alliances and entrepreneur/manager. Hutchinson et al (2006) argue that SME's internationalization success his greatly influenced by the capabilities of the decision-maker because of the strong influence that they hold on strategic orientation and vision direction while Lu and Beamish(2001) argue that alliances is the most important means of overcoming resource and capability deficiencies of successful SME's internationalization because it share risks and provide access to capital and information on the host country market environment.


Lu and Beamish(2001) has provided a supportive argument in their study that exporting and FDI is potentially a more competitive way for SME's to internationalize and Hutchinson et al (2006) as pointed out that taking advantage of export stimuli and operating based on product differentiation focusing less on marketing-orientated and more market-orientated will lead to successful SME's internationalization.