Internationalisation of SMEs: Challenges and Barriers
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Published: Mon, 12 Mar 2018
Small and Medium Enterprises (SMEs) are becoming more important in today’s international markets. (Oviatt and McDougall,1994, 1999). The internationalisation of SME’s can be expected to increase further due to the economy of the world becoming further harmonised with continued declines in government imposed barriers and advances in technology (Lu, Jane W, and Paul W Beamish, 2001). In 2013 there was an estimated 4.9 million private sector businesses in the UK which is an increase of 102,000 compared to that of 2012. SME’s account for over half of employment, 53.9%, and almost half of the turnover in the UK private sector, 48.1%. (Department for Business Innovations and Skills, 2013). Hence, showing that SME’s are still growing and are an integral part of the UK’s economy.
Through SME’s, this essay will discuss and critically analyse the process of creating (pre start up) and managing a new venture (post start up). It will begin with considering issues relating to the entrepreneur, and examine the challenges that they are faced with when starting up a business idea, the opportunity, and the innovation. The problems with managing a new venture are then inspected.
In French, the term entrepreneur means someone who “undertakes”, for example someone who undertakes a significant project or activity. It later came to be used to identify individuals who accelerated economic progress by finding new and better ways of doing things. The French economist most associated with giving the name is Jean Baptiste Say who was quoted saying “The entrepreneur shifts economic resources out of an area of lower and into an area of higher productivity and greater yield”. Entrepreneurs create value (Dees, J Gregory, 1998).
The sources of entrepreneurship are studied by researchers in a wide range of disciplines, the study varies per discipline. For example, an economist would look at mainly socio economic variables, whereas psychologists would look at the personality traits of the entrepreneurs to see which ones were more integral to that of an entrepreneur (Fritsch, Michael, and Alina Rusakova, 2010). The Big Five model of personality provides a framework for analysing the relationship between personality traits and the tendency to become an entrepreneur. The five dimensions of this personality model are: Extraversion, Emotional Stability, Agreeableness, Conscientiousness, and Openness to Experience (Barrick, Murray R, and Michael K Mount, 1991). Zhao and Seibert (2006) investigated the personality characteristics of business founders in comparison to dependently employed managers. They found that self employed individuals are different from managers on the dimensions of openness to experience, conscientiousness, neuroticism, and agreeableness (Zhao, Hao, and Scott E Seibert, 2006). Schmitt-Rodermund states that early entrepreneurial interest is related to elevated levels of openness to experience, extraversion, and conscientiousness (Schmitt-Rodermund, Eva, 2004). Although these relationships show a correlation between single personality traits and entrepreneurship, the effect of personality characteristics for entrepreneurship is still not entirely clear (Rauch, Andreas, and Michael Frese 2007).
A main motivation for entrepreneurship is the need for freedom. Stepping into self employment means becoming your own boss and a need for autonomy as a non financial value becomes an important part of the entrepreneurs career choice, despite a potential decrease in income (Fritsch, Michael, and Alina Rusakova, 2010). The Croson and Minniti (2011) model shows that newly self employed individuals are willing to accept a lower income in exchange for the psychological benefits that come with self employment (Croson, David C, and Maria Minniti 2012). This is similar to self determination theory in that autonomy leads to well being and explains why autonomy in the workplace might be a compensator for higher incomes in a position that involves less freedom (Deci, Edward, and Richard M Ryan, 2008).
Entrepreneurial opportunities can arise from from structural gaps in the market or from business transformations, for example – the genesis of an internet company. The entrepreneurial opportunity itself, consists of a business idea and its potential. The business idea is then formed into a business plan which is the foundation for creating a company and exploiting the gap in the marketplace (Volkmann, Christine K, Kim Oliver Tokarski, and Marc Grünhagen 2010).
The term “opportunity” seems to be a central part of many definitions of entrepreneurship. It relates to Say’s notion of shifting resources to a higher area. An opportunity, therefore, means an opportunity to create value in some way. Entrepreneurs have a mind-set that sees the possibilities rather than the problems created by change such as technological advances. The entrepreneur always looks for change, responds to it, and exploits it as an opportunity (Dees, J Gregory 1998). However, Peter Drucker, a management consultant, educator, and author, says that “not every small business is entrepreneurial or represents entrepreneurship”. An example of this would be a “husband and wife who open a delicatessen or a mexican restaurant in the american suburb”. There is nothing specifically innovative or change oriented in this (Drucker, Peter Ferdinand 1995). He also claims that entrepreneurship does not require a profit motive. Further backing up the Crosson and Minniti (2010) model. With social entrepreneurs, the social mission is central and mission related impact becomes the central criterion, not the creation of wealth. For social entrepreneurs the money is not important, it is the actual outcome of their work that they strive for. However, with business entrepreneurs, the income of money is a way of measuring the creation of value. Business entrepreneurs are subject to market discipline. If they do not shift resources to become more economically functional then they tend to be driven out of business (Dees, J Gregory 1998).
The challenges involved in starting a new venture, as well as the characteristic uncertainty and the lack of resources and stability that have led some researchers to view survival as the focused dimension of success (Van de Den 1984), are authentic in the social field. Furthermore, given the difficulty of measuring the performance of firms they use multiple measures of performance. The criteria of success of social ventures are determined as follows: 1. The level to which the venture achieves its set goals, 2. the ability of the venture to ensure continuity and sustainability by acquiring resources necessary to maintain the objectives, and 3. the level of resources that are available to maintain the ventures growth and expansion (Sharir, Moshe, and Miri Lerner, 2006).
A large field study was carried out between 1999 and 2001 on the process of initiating and establishing social ventures (Sharir, Moshe, and Miri Lerner, 2006). Of the social ventures, it was deduced into fifteen variables that determined their success. These include: Previous experience – this involved checking the history of the entrepreneur for previous expertise in the venture area. Total dedication – The time that was invested in the development by the entrepreneur, the investment of the entrepreneur’s private resources. Support from family and friends – this was measured by the amount of involvement that was made by the friends and family of the entrepreneur. Acceptance of the idea of the venture in the public’s eyes – the public’s awareness of the issue. The primary social network – examined the activities that were involved in assisting the venture to acquire needed capital and support in the establishment stage. Support from public sector agencies – yes or no. Funding received from foundations – support received by foundations for three or more years. Support received from another non profit organisation – whether it acquired capital, received support, or was integrated within an older organisation. The amount of budget at the establishment stage – fifty thousand dollars was acquired at the establishment stage. Composition of the staff at the establishment stage – The number of staff members and their jobs as salaried or part time, and also the distribution of workload between them. Governing board performance – the involvement of board members in planning, decision making, personal financial investment, and expanding the social network. The planned expansion and stabilisation of the venture’s social network – the actions taken by the entrepreneur in this way. Preliminary planning – the preparation of a business plan or detailed planning involving environmental aspects, staffing and budgeting. Long term cooperation with another organisation – cooperation with another organisation for at least three years. Market test of the venture’s service – charging fees for receipt of selected services or obtaining long term contracts from public agencies. Eight of the fifteen variables were found to contribute to the success of the social venture (Sharir, Moshe, and Miri Lerner, 2006).
Business mortality rates suggest that discontinuous rates of start ups can be as high as seventy percent in the first five years, although this depends on the specific industry in question. Within a new venture, the main problem arises due to a lack of organisational structure and a lack of a specific set of roles, tasks, and capabilities. Therefore the founders of the company must use what little resources they have to address the issues involved. Thus taking up management time. Moreover, the inclusion of structure and teachings of new roles, tasks, and capabilities within the company can cause inefficiency and may lead to worry, and conflict among the members. However, there is one way in which new ventures have an advantage over older businesses. They are able to form a business plan without being restricted because of the decisions that have been made in the companies’ past. They are also not liable to aging. Older ventures suffer from processes such as routinisation and standardisation which makes them reluctant to transform their company in the face of change (Gruber, Marc, and Joachim Henkel 2006).
There are three stages that can be applied to the growth of a company once the initial start up procedure has finished. These are: early development, (rapid) development, and sustained growth. In the early development stage, the entrepreneur must strengthen the structures laid out at the foundation stage. They must also aim confidently at successful market establishment. Within this stage the growth of the company is determined by the strategies and implementation of those strategies into business operations. During the rapid development stage, the main strengths and strategic advantages of the business must be capitalised on and created. Frequent changes to structures such as communication, leadership, information, and communication are also required for rapid growth. New resources might need to be acquired or existing ones, redistributed to account for the new demands. In order for a company to achieve sustained growth, it must be planned using growth strategies established by the founders of the company (Volkmann, Christine K, Kim Oliver Tokarski, and Marc Grünhagen 2010).
To summarise, SME’s are still a major part of the economy and they are constantly expanding. Entrepreneurs are the people responsible for the stable growth of SME’s and their innovative minds will ensure that technology advances. Psychologists believe that entrepreneurs have different personality traits than normal people which helps them to strive more and become more confident when setting out to achieve their goals. There are two different types of entrepreneur, the social entrepreneurs and the business entrepreneurs. The social entrepreneurs seek pleasure in getting their idea known to the world whereas business entrepreneurs always look for ways to gain wealth. Due to the entrepreneurs ability to seek out gaps in the market, the world will become a more comfortable place to live in with innovations that will make lives easier. Entrepreneurs do not enjoy the restrictions of a workplace and this leads them to becoming their own boss, however, they must face the challenges that entails with starting up a business. Such as the resources, organisational structure, and growth.
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