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Emerging Markets Finance and Trade

ISSN: 1540-496X (Print) 1558-0938 (Online) Journal homepage: http://www.tandfonline.com/loi/mree20

International Competitiveness of Small andMedium-Sized Enterprises: Peru, a Latin-AmericanEmerging Market

Jesús C. Peña-Vinces, Lourdes Casanova, Jorge Guillen & David Urbano

To cite this article: Jesús C. Peña-Vinces, Lourdes Casanova, Jorge Guillen & David Urbano(2017) International Competitiveness of Small and Medium-Sized Enterprises: Peru, a Latin-American Emerging Market, Emerging Markets Finance and Trade, 53:1, 150-169, DOI:10.1080/1540496X.2016.1156525

To link to this article: http://dx.doi.org/10.1080/1540496X.2016.1156525

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International Competitiveness of Small and Medium-SizedEnterprises: Peru, a Latin-American Emerging MarketJesús C. Peña-Vinces 1, Lourdes Casanova2, Jorge Guillen3, and David Urbano 4

1College of Economics and Business, Department of Business Management and Marketing, Universityof Seville, Seville, Spain; 2Samuel C. Johnson Graduate School of Management, Cornell University,Ithaca, New York, USA; 3ESAN Graduate School of Business, Lima, Perú; 4Business EconomicsDepartment, Autonomous University of Barcelona, Barcelona, Spain

ABSTRACT: Our research studies the international competitiveness of small- and medium-sized enter-prises (SMEs) in an emerging Latin-American country. Using a sample of 100 SMEs in Peru, we find thatfirms compete abroad with standardized products, which are conditioned by the host-country markets,human capital, and industry cooperation. However, the results show that the age and size of the firm arenot determining factors in competing overseas. Our findings open a new agenda for policymakers wheninterpreting how they should promote and support Latin-American SMEs.

KEY WORDS: emerging country, firm competitiveness, industry cooperation, Latin America, local/interna-tional environment, Peru, SMEs, standardized products

Many researchers have studied the international competitiveness of enterprises (Cho, Leem, and Shin 2008;Coviello, Pervez, and Martin 1998; Elenurm 2007; Fahy 2002; Moon and Lee 2004). The vast majority ofthese studies have been carried out in highly industrialized countries (e.g., Japan, the USA, the UK, andGermany). However, very few studies have been conducted with a research focus on the economies ofdeveloping countries, such as those in Latin America. Numerous authors have suggested that research basedon developed or highly industrialized countries cannot necessarily be applied to emerging countries(Cuervo-Cazurra, Martin de Holan, and Sanz 2014; Peña-Vinces and Urbano 2014) as the economic situationof such countries is rather different, and many of them are undergoing consolidation (Casanova and Kassum2014; Peña-Vinces, Cepeda, and Chin 2012; Peña-Vinces and Delgado-Marquez 2013). There has been arecent increase in research considering multinational enterprises (MNEs) located in Latin America as a topicof study (Cuervo-Cazurra 2008; Cuervo-Cazurra, Martin de Holan, and Sanz 2014; Peña-Vinces, Cepeda,and Chin 2012; Peña-Vinces and Delgado-Márquez 2013). Previous studies carried out with a focus on LatinAmerica have addressed aspects related to modes of entry, natural markets, natural resources, and valuechains (Casanova 2009; Arze and Svensson 1997; Peña-Vinces, Cepeda, and Chin 2012; Peña-Vinces andDelgado-Márquez 2013; Sánchez-Chiappe and Poratelli 2011). However, such studies have not addressed theinternational competitiveness of small- and medium-sized enterprises (SMEs). In other words, they have notdepicted a holistic view of how Latin-American SMEs compete in foreign markets. As some authors havepointed out, there is limited information on Latin-American enterprises and it would be interesting toundertake further research in those emerging countries (Cuervo-Cazurra, Martin de Holan, and Sanz 2014;Peña-Vinces and Delgado-Márquez 2013). Therefore, our study evaluates if the factors influencing thecompetitiveness of firms that operate from advanced economies are the same for the SMEs of an emergingmarket (Peru).

The significance of considering SMEs in Peru is that such companies operate in an identicalenvironment to their Latin-American counterparts (e.g., Colombia, Peru, and Chile). The Peruvianbusiness environment is chaotic and rather insecure from the perspective of foreign direct

Address correspondence to Jesús C. Peña-Vinces, College of Economics and Business, Department ofBusiness Management and Marketing, University of Seville, Av. Ramón y Cajal nº 1, 41018 Seville, Spain.E-mail: jesuspvinces@us.es

Emerging Markets Finance & Trade, 53:150–169, 2017Copyright © Taylor & Francis Group, LLCISSN: 1540-496X print/1558-0938 onlineDOI: 10.1080/1540496X.2016.1156525

investment (FDI). A change in the political regime in many cases also implies an adjustment of therules of the game for businesses, which are then translated to national industry, making it unstableto do business. Moreover, there is manifest corruption within public institutions in Peru. Informalbusinesses (e.g., run from home), defined as firms not registered in the public institutions of thestate, are also a serious problem as they in effect account for 72% of total industry (Díaz 2014).Terrorism in Peru persists, as indeed it does in Colombia. Furthermore, the sequestration ofbusinesspersons is common in Peru.

Peru’s exports are primarily based on raw materials, thus making it difficult for firms to obtainadvantage from the effect of innovation in their supply chains. According to the World Bank’s (2015)statistics, only around 15% of total exports in the last decade were high-technology exports. Thisconfirms that most Latin-American exports are of traditional products that are intensive in labor andthe use of natural resources. Furthermore, some high-tech firms have serious difficulty findingqualified human capital. The characteristics described here are only a few examples the environmentin which Peruvian SMEs operate; there are many more aspects, but they are not the subject of thisstudy.

This study aims to contribute toward the theory of internationalization, helping to understandhow Latin-American SMEs compete in world markets, in other words, the types of products(global/standardized) with which the firms of a Latin-American emerging market are competingabroad. Currently, Peru is reinforcing its position as an emerging market economy. According tothe Bloomberg (2014) global emerging markets report, Peru was in 7th place out of the 22 topemerging markets in the world. To test our research model, we used a sample of 100 SMEs inPeru. The statistical analysis was carried out with partial least squares structural equationmodeling methodology. Our study provides clear implications for both CEOs and governments,particularly in other Latin-American emerging economies, helping in the design of state publicpolicy.

After this brief introduction, the article is structured as follows: First, we develop a theoreticalframework proposing the research hypotheses. Second, we detail the methodology of the empiricalanalysis. Then the results are discussed, and finally the conclusions and future research lines arepresented.

Conceptual Framework

The concept of the international competitiveness of a firm refers to a company’s ability to achievemore superior performance than its competitors in the global arena (Cerrato and Depperu 2011;Filatotchev, Isachenkova, and Mickiewicz 2007) in terms of market share, increased exports, andgreater profit margins, which may result when firms do business overseas (Cerrato and Depperu 2011;Zeng et al. 2008). This also refers to the capacity and ability of a firm to produce goods and services tomeet the requirements of foreign market (Cho, Leem, and Shin 2008; Peña-Vinces, Cepeda, and Chin2012). From the environment perspective, firm competitiveness can be influenced by the country oforigin and/or host country of the firm (Coviello, Pervez, and Martin 1998; Moon and Lee 2004). Fromthe industry perspective, the success of firms abroad depends on the success of the national industry, inother words, the industry collaboration between companies belonging to an industrial sector, orinvolved in similar activities (e.g., textiles, agribusiness, and chemicals) (Banerjee 2005; Birru 2011;Filatotchev, Isachenkova, and Mickiewicz 2007). The resource-based view (RBV) considers that afirm’s resources and capabilities and the way in which it exploits them explain its competitivenessabroad (Acedo and Jones 2007; Hatch and Dyer 2004). Not all companies have similar resources (i.e.,firm size, skills of personnel, technology, etc.) (Fahy 2002; Peña-Vinces, Cepeda, and Chin 2012).Considering previous approaches, we analyze the factors that influence firm competitiveness in foreignmarkets.

INTERNATIONAL COMPETITIVENESS OF SMALL AND MEDIUM-SIZED ENTERPRISES 151

Global Strategy

The concept of a global strategy (GS) refers to a set of strategic attributes, such as integratedproduction, standardized products, and global marketing policies, that a firm establishes with theaim of improving its international competitiveness (Peña-Vinces et al. 2014; Pla-Barber 2001). Hence,one of the major decisions that companies must take is to decide which strategy they will use tocompete efficiently and effectively in foreign markets. Companies move away from thinking of astrategy focused on a single country, or a particular culture. Firms try to orient all their processestoward competing on a global basis (Anwar 2003; Pla-Barber 2001; Rugman and Verbeke 1990).Therefore, in most markets they consider the global strategy on the basis of similarity so that theirproducts and services only require small adaptations and can easily be identified (Pla-Barber 2001;Rugman and Verbeke 1990).

A review of the literature shows that firms drawing on a global strategy as a source of competi-tiveness are those that have been most successful in international markets (Anwar 2003; Elenurm2007; Hitt et al. 2006; Knight and Kim 2009). Such firms may attempt to standardize the internationaltastes and preferences of their customers (Pla-Barber 2001; Rugman and Verbeke 1990). However, it isalso the case that some multinationals do not need to adapt their global strategies to host markets whenthey sell abroad, as they only are interested in the distribution of their products (Subhash 1989).

The key to the success of a firm’s global strategy is differentiation from its competitors (Anwar2003; Hitt et al. 2006). Thus, companies need to possess in-depth knowledge of the sector and countryin which these competitors operate (Subhash 1989). They should demonstrate an entrepreneurialculture with a strong global orientation (Hitt et al. 2006; Knight and Kim 2009). Simultaneously,firm success also depends on the characteristics of managers and their ability to conquer foreignmarkets (Anwar 2003; Hatch and Dyer 2004). On the other hand, working with global products couldresult in restrictions imposed by the legislations or regulations of the designated countries (Anwar2003; Galán, González-Benito, and Zuñiga-Vincente 2007; Rugman and Verbeke 1990). AsPla-Barber (2001) notes that a firm’s competitive position in a country is affected in great measureby its position in other countries and vice versa. Thus, firms tend to leverage their competitiveadvantages in most countries as quickly as possible. On the other hand, firms with foreign operationson a home-country basis seek to integrate their production activities in a single place (Mesquita andLazzarini 2008) with the goal of standardizing their products. Nevertheless, difficulties arise whenabrupt changes in markets occur (Galán, González-Benito, and Zuñiga-Vincente 2007). Therefore, inthe context of an emerging-market firm, we propose the following hypothesis:

Hypothesis 1: Global strategy will positively influence the international competitiveness of SMEs from anemerging market.

Human Capital

Human capital (HC) in our research is studied based on the set of specific characteristics of employeesthat help firms to obtain a competitive advantage in foreign markets (Acedo and Jones 2007; Chen andLin 2006). The literature shows that some human capital characteristics, such as age, level of education(BA, Master’s, PhD), fluency in foreign languages, and knowledge and experience of foreign markets,have a positive impact on firms that sell worldwide (Acedo and Jones 2007; Peña-Vinces, Cepeda, andChin 2012; Pla-Barber 2001). Such specific human capital characteristics are considered valuable andscarce resources (Acedo and Jones 2007; Hatch and Dyer 2004; Knight and Kim 2009; Wheeler, Ibeh,and Dimitratos 2008). In this line, the possession of certain intangible assets, such as the knowledgeand talent of employees, is a crucial element for improving the competitive position of firms in foreignmarkets (Cuervo-Cazurra, Martin de Holan, and Sanz 2014; Hatch and Dyer 2004; Moen and Servais2002). There is strong empirical evidence of this in Asia (Chen and Lin 2006; Tzeng 2011; Jin andMoon 2006; Moon and Lee 2004) as well as in European firms. Thus, Acedo and Jones (2007), based

152 J. C. PEÑA-VINCES ET AL.

on Pla-Barber’s research (2001), found that the presence in international markets of those firms withthe greatest representation is explained by the human capital characteristics previously described.

Some researchers consider that employees with experience, and contact with other countries andtheir cultures, drive the innovativeness and competitiveness of firms (Cuervo-Cazurra, Martin deHolan, and Sanz 2014; Ferrier 2001; Porter 1998). Due to their business insights, particularly theirglobal vision, these employees can spot new opportunities that others do not see (Hatch and Dyer2004; Moen and Servais 2002). The current hyper-competition in international markets obliges firmsto count on highly qualified personnel (Peña-Vinces and Urbano 2014; Triguero-Sánchez et al. 2016).MNEs strive to sell their products worldwide, rather than concentrate their efforts on a single market(Peña-Vinces and Urbano 2014). This means they distribute standardized products (Pla-Barber 2001),in turn forcing them to hire either directly or indirectly personnel with certain characteristics.Therefore, many MNEs see international markets as the only option (Peña-Vinces and Urbano 2014,2014). This implies having a profound understanding of the needs and demands of foreign markets(Knight and Kim 2009; Subhash 1989; Zeng et al. 2008). It is specifically the skills of their staff thatenables companies to produce standard products that are then accepted in global markets (Leonidou,Katsikeas, and Piercy 1998; Theodosiou and Leonidou 2003). Therefore, the literature review allowsus to establish the following hypotheses:

Hypothesis 2: Human capital will positively influence the international competitiveness of SMEs from anemerging market.

Hypothesis 3: Human capital will positively affect the global strategy of SMEs from an emerging market.

Firm Size

Commonly, most studies have used firm size (FS) as a control variable, rather than as a factor of competi-tiveness (Acedo and Jones 2007; Chen and Lin 2006). However, many other studies have shown that firmsize is a decisive factor in competing in foreign markets (Ito and Pucik 1993; Moon and Lee 2004; Nadvi1999; Wu and Pangarkar 2006). Although Bonaccorsi (1992) found that firm size is not a determining factorof foreign activities, other research has concluded that it has a positive effect on the firm’s internationalactivities (Cuervo-Cazurra 2008; Wheeler, Ibeh, and Dimitratos 2008; Zeng et al. 2008; Zou and Stan 1998).This is because large firms can exploit economies of scale, research, and the actions related to internationalmarketing (Cuervo-Cazurra 2008; Wu and Pangarkar 2006). In other words, they use their size (large) toreduce costs (Ito and Pucik; 1993; Peña-Vinces andUrbano 2014; Zeng et al. 2008). Large firms also have thecapacity to create and produce products on a large scale (Ito and Pucik 1993; Zeng et al. 2008). As such, firmsize will condition its demand abroad (Nadvi 1999; Wu and Pangarkar 2006). Also large firms are betterplaced to face competitor reactions because they have access to more capital to acquire new technologies orinvest in research and development (Cuervo-Cazurra 2008; Zeng et al. 2008). In this way, they can alsohomogenize their production (Subhash 1989). However, precisely due to their size (large), such firms areoften rendered inflexible (Elenurm 2007), as their ability to respond to the market slows down considerably(Cuervo-Cazurra 2008;Wu and Pangarkar 2006). Taking into account that our study is focused on SMEs, wepose the following hypothesis:

Hypothesis 4: Firm size will positively influence the international competitiveness of the SMEs from anemerging market.

Firm Age

Firm age (FA) refers to the length of time that a company has been operating in the markets (Wheeler,Ibeh, and Dimitratos 2008; Zou and Stan 1998). In the case of international markets, there is also thetime spent working abroad (Cuervo-Cazurra 2008; Peña-Vinces and Urbano 2014). Time has tradi-tionally been associated with knowledge, and this in turn with competitiveness. However, Moen andServais (2002) demonstrated in their study of the “born global firm” that a greater number of years ofoperations in international markets is not a decisive factor in international competitiveness as these

INTERNATIONAL COMPETITIVENESS OF SMALL AND MEDIUM-SIZED ENTERPRISES 153

companies have been internationally competitive from their inception (Oviatt and McDougall 1994).This is in accordance with the international business perspective (Acedo and Jones 2007; Knight andKim 2009; Oviatt and McDougall 1994). In contrast, the industrial economics perspective, specifically,the “Flying Geese theory” (Chen and Lin 2006; Kasahara 2004), indicates that firms must preparelocally in their home country for a certain period prior to moving abroad to compete in internationalmarkets. If they do not do so, their survival will be put at risk. On the other hand, some research(Cuervo-Cazurra 2008) continues to support the idea that firm age plays a significant role. This is thecase of Latin-American multinational companies from emergent economies, such as Brazil and Chile(Arze and Svensson 1997; Mesquita and Lazzarini 2008). Taking into account the born global firmapproach (fewer years of operations), we propose the following hypothesis.

Hypothesis 5: Firm age will negatively influence the international competitiveness of SMEs from anemerging market.

Collaboration in the Industrial Sector

Sector and/or industry are widely used as control variables. However, for the purposes of this research,we include industry collaboration between companies belonging to an industrial sector or involved insimilar activities (e.g., textiles, agribusiness, and chemicals). In isolation, industry would only indicatea firm’s position within an industrial group, but not the role that played in its competitiveness. Industrycollaboration, on the other hand, refers to the mechanisms that allow firms—in one way or another—tocompete more successfully in foreign markets (Banerjee 2005; Birru 2011; Filatotchev, Isachenkova,and Mickiewicz 2007). Firms need the support and assistance of other companies to be able to growand compete internationally (Arze and Svensson 1997; Cho, Leem, and Shin 2008; Nadvi 1999).Industry collaboration among firms can be vertical and/or horizontal. Vertical collaboration involvescompanies at different stages of a value chain (producers and customers), whereas horizontal colla-boration occurs between companies at the same point in a value chain (often competitors) (Birru2011). Therefore, the ability of an SME to become a participant in the global production chain dependson its own capacity (Filatotchev, Isachenkova, and Mickiewicz 2007) to overcome the constraints ofits size and immaturity, and continuously innovate productively as it grows (Guerrieri and Pietrobelli2004; Yuhua and Bayhaqi 2013).

Empirical evidence shows that firms located in a highly competitive industry benefit from researchand development activities (Banerjee 2005; Tzeng 2011), and such firms belong to sectors with similarcharacteristics and they tend to be more competitive globally (Mesquita and Lazzarini 2008; Nadvi1999). Furthermore, industry cooperation allows SMEs, ill-informed in terms of foreign markets, toachieve internationalization as a result of the support of other companies (Filatotchev, Isachenkova,and Mickiewicz 2007; Nadvi 1999; Zeng et al. 2008). Therefore, for the Latin-American emergingmarket context, we propose the following hypotheses:

Hypothesis 6: Industry collaboration will positively influence the SMEs’ international competitiveness.

Hypothesis 7: Industry collaboration will positively influence the global strategy of SMEs.

The Environment of the Host Country

A firm’s international competitiveness is closely linked to the nation of origin and the host country ofenterprises. Therefore, all the competitive actions of an enterprise will always be conditioned by theenvironment of the host country (i.e., macroeconomics and microeconomics) in which firms carry outtheir business operations (Elenurm 2007; Ferrier 2001; Nadvi 1999; Wheeler, Ibeh, and Dimitratos 2008).This means that the firm’s strategies will be constrained by macroeconomic policies practiced in foreigncountries (Galán, González-Benito, and Zuñiga-Vincente 2007; Toppinen et al. 2007). The literature onMNEs shows that understanding socio-cultural variables (culture, language, religion, attitudes, customs,design, education level, and race) is vital in competing globally (Galán, González-Benito, and Zuñiga-Vincente 2007; Hofstede 1993). These variables will affect the strategy developed by companies and may

154 J. C. PEÑA-VINCES ET AL.

influence—positively or negatively—their competitiveness (Hofstede 1993; Pla-Barber 2001;Wheeler, Ibeh,and Dimitratos 2008; Zou, Andrus, and Norvell 1997). The evidence provides numerous cases of both thesuccess and failure of enterprises where socio-cultural variables have played a significant role in the firms’competitiveness (Jin andMoon 2006; Nadvi 1999; Toppinen et al. 2007). The truth is that the environment ofthe host country will in one way or another require enterprises to adjust their business strategy in accordancewith the type of socio-cultural characteristics of each international consumer (Anwar 2002; Galán,González-Benito, and Zuñiga-Vincente 2007; Hofstede 1993; Jin andMoon 2006). Despite the many factorsthat may be found in the literature, they can be summarized into three groups: (i) factors related to the foreignmarket, linked to the growth in demand of foreign markets; (ii) factors associated with political and legalaspects of the destination of the products and services of domestic firms; (iii) social and cultural factors(Galán, González-Benito, and Zuñiga-Vincente 2007; Rugman and Verbeke 1990; Wheeler, Ibeh, andDimitratos 2008). The approaches prevalent in the literature lead us to propose the following hypothesis:

Hypothesis 8: The environment of the host country will positively influence the global strategy of SMEs.

Having developed our research model as shown in Figure 1, we demonstrate the proposal forevaluating the hypotheses in the following section.

Methodology

Population and Sample Description

In the last decade, many Latin-American economies have attained emerging status, as in the case ofBrazil, Chile, Colombia, and Peru (Bloomberg 2014; World Bank 2015). These countries have similareconomic characteristics (Bloomberg. Best Emerging Markets 2014). Therefore, a study of SMEsbased on Peru could provide conclusions and implications useful to other South American economies(e.g., Chile, Colombia, and Ecuador). In 2014, Peru was the second exporter of high-tech productsamong all Latin-American economies, Brazil being in first place (World Bank. Latin America andCaribbean Results 2015). Moreover, Peru was also the first country to experience a greater volume ofexportation over the period 2009–2013 (World Bank. Latin America and Caribbean Results 2015);according to the Latin American Index of Industrial Production of the Inter-American DevelopmentBank (2010) [this index evaluates the rate of growth of national industry within Latin-American

Firm SizeFirm Age

H5H4

GlobalStrategy

Firm’s InternationalCompetitiveness

H1

Collaboration ofIndustrial Sectors

Environment of hostcountry

H7 H3

H6

Human Capital

H2

H8

Figure 1. Research model.

INTERNATIONAL COMPETITIVENESS OF SMALL AND MEDIUM-SIZED ENTERPRISES 155

economies]. In 2010, Peru was ranked one of the highest countries in the region, with a rate of growthof industrial production of 240.60%. Brazil, the most competitive economy of Latin America(Castro-Gonzáles et al. in press) only had a rate of industrial growth of 165.89%, Chile 179.88%,Colombia, 147.79%, and Ecuador 144.40%. In 2014, Peru continued to lead the ranking of industrialgrowth in the South American region, with a rate of 271.81%. Brazil, the biggest economy of SouthAmerica, only had a rate of 160.71% and Chile 197.12%, the remainder of Latin-American countriesshowing similar rates of industrial growth. This indicates that Peru continues to lead in terms ofgrowth in national industry, which means that the industry of Peru serves as a model to study firmcompetitiveness. Until 2010, when we finished our research, Peru was the economy exhibiting bettergrowth in exports of goods and services as a percentage of GDP (Inter-American Development Bank2015) than other economies. Likewise, in the period 2005–2010, Peru had a mean rate of growth of5.5% of its GDP (World Bank, 2015). Thus, Peru is one of the most significant economies of SouthAmerica.

Based on the above consideration, we studied the SMEs of Peru according to the classification ofthe Ministry of Tourism and Commerce (Mincetur in the Spanish acronym). The SMEs fall within the12 most important industrial sectors of the country. Table 1 shows the characteristics of the firmsrepresented in the study.

Concerning the methodology, we sent questionnaires to the SMEs ranked in the top 1000 firms(Mincetur 2006). For inclusion, it was necessary that all the enterprises should have the samecharacteristics. The most significant are as follows: a period of operation in foreign markets of atleast 5 years; international sales comprising at least 60% of total sales; information available onturnover to categorize firms as SMEs (European Commission 2005); operating in at least five countriesother than the country origin.

With respect to the unit sample, responses to the questionnaires (distributed via e-mail and postalmail) were sought from the international operations managers. To ensure that the respondents were thesame persons as those identified in the questionnaires distributed via e-mail, first we contacted them bytelephone to undertake brief interviews, and then we quickly sent an e-mail to their corporate e-mail tothank them for their participation. Finally, the e-mail messages were checked to corroborate if therespondent was the same person contacted previously. For the postal mail questionnaires, we sentenvelopes by hand to personal addressees ensuring the personal identification of those who partici-pated in the survey

A total of 100 questionnaires (discounting those that were incomplete) were returned via e-mail(80%) and postal mail (20%) in the period June 2007 to May 2009, representing a response rate of10.3%. The low response rate is explained in part by the fact that many SMEs in developing countriesare hesitant about completing surveys from foreign universities (Peña-Vinces, Cepeda, and Chin2012). Another possible explanation might be the duration of the study, taking into account that thetime from establishing initial communication with the firms to completion of the data collection wasmore than 6 months. During this period, many managers changed jobs, making it impossible tore-contact with them a second time, particularly as the first telephone call was made to the managers inperson. Another difficulty was the lack of information on updates concerning the firm’s addressbecause many postal surveys were returned. Finally, many managers did not get authorization fromtheir enterprises to participate in our research.

In international business research, particularly when one is working with small firms, ofteninvolving a single company or informant, there are difficulties in obtaining multiple participants(Aragón-Correa et al. 2008; Peña-Vinces and Urbano 2014; Triguero-Sánchez et al. 2016;). As aresult, it might be possible to find potential biases in the mono-method (Chang, Witteloostuijn, andEden 2010; Doty and Glick 1998; Kamakura 2010; Podsakoff et al. 2003). However, there are severalstatistical remedies to detect and control for any possible common method variance (CMV). A posthoc Harman one-factor analysis is often used to check whether the variation in the data can be mainlyattributed to a single factor (Chang, Witteloostuijn, and Eden 2010; Podsakoff et al. 2003).Additionally, other statistical procedures can be applied to partial out common factors or to control

156 J. C. PEÑA-VINCES ET AL.

for them. (Chang, Witteloostuijn, and Eden 2010; Doty and Glick 1998; Kamakura 2010; Podsakoffet al. 2003).To avoid CMV problem, we undertook the following steps: (i) We promised the managersthat our analysis would be aggregated and no organization would be identified individually. (ii) Weidentified highly qualified respondents (e.g., international operations managers). The extant literaturesuggests that the views of a single and well-qualified informant will capture a firm’s approach betterthan the opinions of several respondents, especially when decisions are centralized (Aragón-Correaet al. 2008; Peña-Vinces and Urbano 2014; Triguero-Sánchez et al. 2016). (iii) Following Podsakoffet al. (2003) and Podsakoff and Organ’s (1986) recommendations, we improved the reliability of ourdata by conducting an exploratory principal components analysis with varimax rotation. Our resultsconfirmed the absence of a single factor that accounted for most of the covariances in our variables,suggesting the absence of CMV. In the Kaiser–Meyer–Olkin (KMO) test and Bartlett’s test ofsphericity (χ2), both offered satisfactory levels (see the results in Table 2).

Also, we must indicate that the 100 SMEs included in December 2014 were evaluated again tocheck if they continued selling abroad. The qualitative information revealed that 98% continuedoperating in international markets. On the other hand, we emphasize that Peruvian SMEs exhibit asmall drop in their sales, which can be explained in part by the world economic crisis, taking intoaccount that the US and European countries were their principal markets. With regard to thequalitative analysis of the sample, the average age of the companies is 24 years for total operationsand 14 years for international transactions (i.e., only exporting), and a maximum of 554 employees(mean 238) . The vast majority of the companies sold their products to more than 12 countries(e.g., the US, China, Switzerland, Germany, and Spain). This figure reflects the ability of a firm tocompete and sustain a presence in international markets (Cerrato and Depperu 2011). In terms of

Table 1. Sample characteristics.

Firm classification* Employees (mean 2006–2009) Percentage Turnover (Total sales mean 2006–2009) Percentage

Small firms Employees (<50) 20 Sales ≤ €10 m 94Medium-sized firms Employees (< 250) 74 Sales ≤ €50 m 6Large firm Employees (>250) 6 Sales> €50 m 0

Firm characteristics (2006–2009) Mean

International sales, in US$ 15,600.746Rate of growth of international sales 45.72%Years of local operations (both local and international markets) 24Years of international operation (only exporting) 14Number of countries of sales (mean) 12

Composition of industrial sectors studied

Textiles Agribusiness Chemicals Fishing

Iron/

steel

Wood/

paper Jewelry

Mechanical

metals Footwear Leather

Nonmetallic

mining Other

27% 22% 14% 14% 8% 6% 3% 2% 2% 1% 1% 1%

Main destination markets and their participation for sales (2006–2009)

USA China Swiss Canada Chile Japan Germany Brazil Italy Spain Other

23.6% 9.6% 7.2% 6.8% 6% 5.2% 3.4% 3.4% 3.3% 3.2% 28.3%

Note: To classify small and medium enterprises, we have used the European Commission’s criteria (2005).

INTERNATIONAL COMPETITIVENESS OF SMALL AND MEDIUM-SIZED ENTERPRISES 157

the international sales of the companies, the mean rate of exporting was US$ 15,600,746 in free onboard (FOB) sales. Thus, it is also important to bear in mind the concept of an SME, which is “anyentity engaged in economic activity, irrespective of its legal form (private or public).” Smallenterprises are defined as enterprises that employ fewer than 50 persons and the annual turnoveror annual balance sheet total of which does not exceed 10 million euros (European Commission2005). In the international arena, SMEs are firms that have a share of foreign trade, but also havedifferent kinds of operations worldwide, such as production facilities, research and development(R&D) activities, and technical assistance services (European Commission 2005). Therefore, theEuropean Commission (2005) criteria of sales > €50 million would allow the classification ofPeruvian SMEs as medium-sized enterprises (see Table 1).

Measures

To measure firms’ international competitiveness, we have used the measures developed by Zou andStan (1998), revalidated by Wheeler, Ibeh, and Dimitratos (2008): a) percentage of local profits/totalprofits; b) percentage of foreign profits/total profits. Simultaneously, following Cerrato and Depperu’s(2011) recommendations, to calculate this construct we also employed more subjective measuresrelated to the perception of objectives and goals achieved in foreign markets, and the perception ofsuccess in the international market. It is also important to mention that Peña-Vincent et al. (2012)tested such measures within the Latin-American context (see items in Table 2). We have to say that todevelop the above-mentioned measures of competitiveness—(a) and (b)—it was necessary to reviewthe websites of both the National Customs Authority of Peru (SUNAT in the Spanish acronym) and theMinistry of Tourism and Commerce (Mincetur). The first website collects financial and generalaccounting information, such as the number of employees and year of foundation. The second websiteshows information on foreign sales, such as the destination market of products, types of products,volume of exportation, and prices.

The measurement utilized by Pla-Barber (2001) was applied to evaluate the global strategy. Therespondents had to give an evaluation based on a seven-point scale, ranging from disagreeing (1) toagree (7). This construct considered aspects of the firms such as the standardization of consumers’needs in all markets, the same product offering worldwide, the standardization of technology for allmarkets, and the standardization of marketing policies worldwide.

To measure the human capital characteristics construct, following Acedo and Jones (2007, p. 242),a seven-point scale (1 = not at all important, 7 = absolutely important) was used. This constructincluded six items evaluating business success in foreign markets in relation to the importance ofhuman capital, evaluating aspects of the employees such as their age and education, fluency in foreignlanguages, and experience in foreign markets.

In line with the literature reviewed, firm size was assessed by the number of employees (the meanof the last three years) (Acedo and Jones 2007; Arze and Svensson 1997; Buckley, Pass, and Prescott1990; Ito and Pucik 1993; Mesquita and Lazzarini 2008; Wu and Pangarkar 2006). For firm age, twoitems of measurement were used, one referring to the number of years of operating in the local marketsof the country of origin of the firm (Moen and Servais 2002; Wheeler, Ibeh, and Dimitratos 2008), andthe other concerning the number of years engaged in exporting.

As mentioned above, the environment of the host country involves the target markets of theproducts of international companies. Here, we used a reduced version of a seven-point scale developedby Galán, González-Benito, and Zuñiga-Vincente (2007), comprising only six items with similarcharacteristics. This measured aspects of the business, such as factors related to the growth of demandin foreign markets, those associated with political and legal aspects, and the social and cultural factorsof the destination markets.

The collaboration of the industrial sector was considered as a second-order factor (Chin and Frye1998). Consequently, we mapped two first-order factors or dimensions, i.e., sector cooperation (SC)and networking (networking), with respect to this higher-level construct. Hence, to measure the sector

158 J. C. PEÑA-VINCES ET AL.

Table

2.Resultsofthemeasurementmodelandexploratory

principalcomponents

analysis.

Reflective

constructs

KMO

χ2

CR

AVE

Loading

Weight

Theenvironmentofthehost

country(1

=no

tat

allim

portan

t,7=high

lyim

portan

t)0.724

121.662**

0.898

0.596

Largesize

ofho

stmarke

ts0.8652

0.4141

Growth

ofde

man

din

theho

stmarkets

(poten

tialg

rowth)

0.7554

0.1352

Lowlevels

ofco

mpe

titionin

theho

stmarke

ts0.7336

0.1671

Ince

ntives

oftaxredu

ctionmeasuresin

theho

stmarke

t0.7467

0.1419

Taxcu

tincentives

inthecoun

tryof

origin

0.7429

0.2824

Dem

ograph

icsimila

ritiesof

custom

ersan

dforeignco

nsum

ers(race,

relig

ion,

habits,etc.).

0.7663

0.1322

Firm

age

n.a

n.a

0.766

0.641

Loca

lage

offirms(num

berof

yearsfunc

tioning

intheloca

lmarke

tsof

coun

tryof

origin)

0.5104

0.0423

Internationa

lage

offirms(num

berof

yearsexpo

rting)

0.9993

0.9794

Globalstrategy(1

=strong

lydisagree

,7=strong

lyag

ree)

0.842

754.415**

0.841

0.657

Thene

edsof

ourcu

stom

ersarestan

dardized

worldwide

0.5765

0.1301

Our

prod

ucts/service

sarekn

ownworldwide

0.9428

0.6695

Our

tech

nology

isstan

dardized

worldwide

0.8652

0.3395

Ween

coun

terthesamecompe

titorsin

mostmarkets

———

Our

marke

tingpo

liciesca

nbe

stan

dardized

worldwide

——–

Collaborationofindustrialsectors

(sec

ond-orde

rco

mmon

latent

construc

t)SE

CTORCO

OPE

RAT

ION

(y1)(first-order

common

latent

construc

t)(1

=no

tat

allim

portan

t,7=high

lyim

portan

t)0.618

251.660**

0.803

0.579

Internationa

lclie

nt’s

relevanc

e—

——

Relationshipwith

client’s

relevanc

ein

internationa

lization

———

Presen

ceof

supp

liers

abroad

0.8826

0.5360

Relationshipwith

supp

lier’s

relevanc

ein

internationa

lization

0.7195

0.3444

Presen

ceof

compe

titorsin

theinternationa

lenviro

nmen

t—

——

Relationshipwith

compe

titor’s

relevanc

ein

internationa

lization

0.6676

0.4228

NET

WORKIN

G(Y

2)(first-order

common

latent

construc

t)0.500

19.830**

0.832

0.712

-The

decision

sof

internationa

lizationof

thecompa

nyaregene

rally

alwaysmad

eba

sedon

indu

stry

expe

rienc

ean

dkn

owledg

ede

rived

from

othe

rco

mpa

nies

inthesector

(1=ne

ver,7=always)

0.8068

0.5262

(Con

tinue

d)

INTERNATIONAL COMPETITIVENESS OF SMALL AND MEDIUM-SIZED ENTERPRISES 159

Table

2.Resultsofthemeasurementmodelandexploratory

principalcomponents

analysis.

(Continued)

Reflective

constructs

KMO

χ2

CR

AVE

Loading

Weight

-Lea

rningam

ongbu

sine

ssgrou

psan

dmem

bershipof

ane

tworkca

nhe

lpto

redu

cetheris

kan

dun

certaintyof

goingou

tan

dco

mpe

tingforforeignmarke

tswith

out

having

towaitto

know

and

dominatetheirow

nmarke

t(lo

calm

arke

t).(1

=ne

ver,7=always)

0.8798

0.6541

Firm

size

n.a

n.a

Num

berof

employee

sof

firm

sdu

ring

thelast

threeyears

11

11

Form

ative

constructs

Firm’s

internationalcompetitiveness

(firs

t-orde

rco

mmon

latent

construc

t)VIF

Weight

Loading

T-Statistic

-App

roximateaveragepe

rcen

tage

ofne

tprofitsachieved

during

thelast

threeyears

1.119

0.1726

0.1783

1.6960

-App

roximateaveragepe

rcen

tage

ofne

tprofitsac

hieved

during

thelast

threeyearsas

aco

nseq

uenc

eof

overseas

sales(exporting

)1.172

0.1783

0.9643

7.3087

-Assessthesucc

essof

theco

mpa

nyin

foreignco

untriesdu

ring

thelast

threeyears(1

=very

poor,5–10%;2=po

or,10–20%;

3=average,

20–40%;5=very

good

,80–100%.)

2.311

0.9643

−0.0165

3.2713

-Satisfactionof

complianc

ewith

objectives

andgoalsachieved

inforeignmarkets

inthelast

threeyears(1

=very

poor,5–10%;

2=po

or,10–20%;3=average,

20–40%;5=very

good

,80–100%.)

2.292

−0.0165

0.1726

1.2903

Humancapital(firs

t-orde

rco

mmon

latent

construc

t)VIF

Weight

Loading

T-Statistic

Age

ofem

ployee

s1.389

−0.3436

−0.4573

2.1570

Levelof

educ

ation(BA,MA,PhD

)an

dexpe

rien

ce1.722

0.1784

0.4793

2.3647

Flue

ncyin

foreignlang

uage

s1.521

0.0755

0.3535

1.2655

Kno

wledg

eof

foreignmarke

ts2.532

0.4961

0.8147

7.0642

Experienc

eof

othe

rco

untriesan

dcu

ltures

1.272

0.0943

0.4364

1.6169

Eng

lishas

amea

nsto

workin

thefirm

1.917

0.4990

0.5719

2.6110

Note:

Kaiser–Meyer–O

lkin;χ2:Bartlett’stestof

sphericity;VIF:variance

inflationfactor;CR:compo

site

reliability;

AVE:averagevariance

extracted;

n.a:

notapplicable.

**p<0.05

.

160 J. C. PEÑA-VINCES ET AL.

cooperation dimension, the survey questions developed by Belso-Martinez (2006, p. 217) were usedwith a seven-point Likert scale to assess the level of importance for firms (1 = not at all important,7 = absolutely important), where aspects such as the relationship with the client’s relevance ininternationalization, the presence of suppliers abroad, and relations with the competitor’s relevancein the internationalization process are evaluated. In the case of the networking dimension, followingthe arguments of Lin and Chaney (2007), who stated that the presence in foreign markets is due to thecollaboration of networks, two measurement items developed by these authors were used (seeTable 2).

Hypothesis Testing

Data analysis was conducted using structural equation modeling partial least squares (SEM-PLS)methodology (Chin and Frye 1998), evaluating the SEM-PLS in two stages. First, the measurementmodel was assessed. In the second phase, the structural model was estimated (Hair et al. 2011). TheSEM-PLS procedure has gained interest and been used by researchers in recent years because of itsability to model latent constructs under conditions of non-normality and with small to medium-sizedsamples (Chin 1998; Hair et al. 2011; Marcoulides and Saunders 2006). For this reason, we chose thisparticular statistical technique. Our research investigation is composed of seven constructs; two ofthese are formative, and therefore it is necessary to differentiate between reflective and formativeconstructs as both constructs require different statistical treatments (Chin and Frye 1998; Hair et al.2011).

Formative Constructs

With formative measures, the first step is to ensure content validity, that is, the extent to which theelements of a measurement procedure are relevant and representative of the construct that they will beused to measure (Buysse et al. 1989; Hair et al. 2011; Haynes, Richard, and Kubany 1995).Establishing content validity is a necessarily initial task in the construction of a new measurementprocedure (Haynes, Richard, and Kubany 1995). However, the validity (e.g., construct validity) andreliability (e.g., internal consistency) of the content (i.e., elements) selected should be tested before anassessment of content validity can be made (Hair et al. 2013; Haynes, Richard, and Kubany 1995).Formative constructs are based on the assumption that the indicators cause the construct (Hair et al.2011). An important characteristic of the formative indicators (FIs) is that they are not interchangeable,as is true with reflective indicators. Thus, each indicator of a formative construct captures a particularaspect of the construct’s domain. As a consequence, the breadth of coverage of the construct domain iscrucial to ensure that the domain of content of the focal construct is adequately captured (Hair et al.2011). As there is no “common cause” for the items in the construct, there is no requirement for theitems to be correlated, and they may be entirely independent. In fact, collinearity among formativeindicators can present significant problems because the weights linking the formative indicators to theconstruct can become unstable and non-significant (Hair et al. 2011). Furthermore, the formativeindicators have no individual measurement error terms. That is, they are assumed to be error-free in aconventional sense (Hair et al. 2013). Hair et al. (2011, p. 17) established that when a PLS-SEMpresents formative constructs, attention must be paid to three key issues: (a) The indicators’ relativecontribution to the construct (report indicator weights). (b) The significance of weights (t-values,p-values, or standard errors). (c) The VIF multicollinearity < 5/tolerance > 0.20 and/ or conditionindex < 30.

The results of these evaluations can be seen in Table 2. We can observe the weights, the t-values,and the variance inflation factor (VIF). In the case of the VIF analysis, we decided to opt for the rule ofthumb suggested by Roberts and Thatcher (2009, p. 18). They say a formative construct does notpresent problems of multicollinearity if any of its indicators record values less than or equal to 3.30.

INTERNATIONAL COMPETITIVENESS OF SMALL AND MEDIUM-SIZED ENTERPRISES 161

Following this rule, no items show a problem of multicollinearity (see Table 2). We highlight that thetests of multicollinearity were performed using the SPSS 20 program.

Reflective Constructs

The evaluation of a measurement model begins with the assessment of individual item reliability(Marcoulides and Saunders 2006). SEM-PLS procedure establishes that each item’s measurement mustexceed a threshold of 0.70; however, in exploratory studies like this, 0.40 is an acceptable value (Hairet al. 2011). In our study, three items of the construct industry did not exceed the necessary parameters;therefore, these items were deleted (see Table 2). The next step is to estimate the composite reliability(CR). The reflective constructs have recorded values above the limit set (Nunnally 1997; CR ≥ 0.70).Finally, the average variance extracted (AVE) and the discriminant validity (DV) are evaluated. Toaccept AVE, the value must exceed 0.50 (Hair et al. 2011). The five reflective constructs show valuesabove the parameter set. For the DV analysis, the square root of the AVE is calculated (see Table 3).Once the validity and reliability of the measurement model have been demonstrated, the structuralmodel is assessed (Chin and Frye 1998; Marcoulides and Saunders 2006). The structural model wastested by measuring the intensity of path coefficients or standardized regression weights and theexplained variance (R2) of the endogenous or dependent variables. Furthermore, the nonparametricbootstrapping technique (re-sampling procedure of 5,000 samples) was applied to evaluate theaccuracy and stability of the estimates obtained(Chin and Frye 1998). In addition, the predictiverelevance was evaluated through Q2 (Hair et al. 2011); this exceeded the requirement of Q2 greaterthan zero (Q2 › 0.00). Finally, the results confirm that the structural model has predictive quality,obtaining a goodness-of-fit (GOF) close to one (Hair et al. 2011) (see Figure 2).

Analysis of Results

Our international competitiveness model only attempts to test the theory of developed economies in anemerging market context. The findings are consistent with the literature review. Thus, Hypothesis 1 isconfirmed (H1, ß: 0. 364**) in that firm competitiveness abroad depends on its global orientation(global strategy); in other words, SMEs perceive the foreign market as single (see Table 4 andFigure 2), which is coherent with the literature reviewed (Anwar 2003; Elenurm 2007; Hitt et al.2006; Knight and Kim 2009; Wu and Pangarkar 2006). We can see how the use of a global strategycompared to a strategy of diversification and adaptation to national markets is preferred by the SMEsin a Latin-American emerging country (Peru). Therefore, SMEs compete internationally with

Table 3. Discriminant validity coefficients and descriptive statistics of PLS-SEM.

N Mean SD (1) (2) (3) (4) (5) (6) (7)

(1) Firm’s internationalcompetitiveness

100 3.177 1.291 N.A.

(2) Global strategy 100 4.512 1.946 0.518 0.812

(3) Collaboration of industrialsector

100 5.865 1.692 0.540 0.377 0.792

(4) Human capital 100 4.531 1.582 0.304 0.392 0.331 0.257 N.A.(5) Environment of host country 100 4.636 1.492 0.212 0.318 0.168 0.098 0.291 0.772

(6) Firm size 100 1.000 1.000 0.147 0.247 0.090 0.258 0.035 0.126 N.A.(7) Firm age 100 0.164 0.406 −0.186 0.097 −0.022 0.212 −0.073 −0.088 0.391

Notes: N: number of firms, SD: standard deviation; diagonal elements (italicized) are the square root of variance sharedbetween constructs and their measures (AVE). Off-diagonal elements are correlations among constructs. For discriminantvalidity, diagonal elements should be larger than off-diagonal elements; N.A.—not applicable,

162 J. C. PEÑA-VINCES ET AL.

standardized products, which need to understand fully the nature and demands of foreign markets tounify them (Pla-Barber 2001; Subhash 1989). Hypothesis 2 concerns the evaluation of the effects ofspecific human capital characteristics on firm competitiveness. This construct does not show statisticalsignificance (H2; β = 0.012). It seems appropriate to go deeper into this relationship through futurelines of research to explain why they have no influence in an emerging context. However, we offer oneexplanation: it could be that SMEs may not exploit this resource (human capital) fully in comparisonto large firms (Buckley, Pass, and Prescott 1990; Galán, González-Benito, and Zuñiga-Vincente 2007;Hatch and Dyer 2004; Knight and Kim 2009). Hypothesis 3 relates to human capital concerning thefirm’s global orientation (global strategy). The results show a positive effect, and in line with the RBV(Acedo and Jones 2007; Chen and Lin 2006; Triguero-Sánchez et al. 2016), this type of resource in anSME is noted as being valuable and necessary to compete in foreign markets. Moreover, it becomes acompetitive advantage, stressing the importance of certain resources and capabilities to compete in aglobal environment (Cuervo-Cazurra 2008; Fahy 2002; Knight and Kim 2009). Hypotheses 4 and 5are not supported by the results. On the one hand, firm size does not show statistical significance (H4;β = 0.124). On the other hand, firm age (H5; β = −0.261) does not show a positive effect on the SMEs’

H5 (-)-0.261ns

H4 (+)0.124ns

GlobalStrategy

Firm’s InternationalCompetitiveness

H1 (+)0.364**

Firm SizeFirm Age

Collaboration ofIndustrial Sectors

Environment of hostcountry

H7 (+)0.261*

H3 (+)0.247*

H6 (+)0.382**

Human Capital

H2 (+)0.012ns

H8 (+)0.202*

R² = 0.466

R² = 0.260Q² = 0.278

GOF = 0.414

Figure 2. Results of PLS-SEM. Note: *p < .05; **p < .01; (based on a Student T (4999) distribution with

one tail), ns: not significant.

Table 4. Structural model results.

Hypothesis Path coefficients t-Values Support

H1: Global strategy → Firm’s international competitiveness 0.364** 2.7831 YesH2: Human capital → Firm’s international competitiveness 0.012(ns) 0.1057 NoH3: Human capital → Global strategy 0.247 * 2.0059 YesH4: Firm size → Firm’s international competitiveness 0.124(ns) 1.3188 NoH5: Firm age → Firm’s international competitiveness −0.261(ns) −1.3787 NoH6: Collaboration of industrial sector → Firm’s international competitiveness 0.382** 2.8337 YesH7: Collaboration of industrial sector → Global strategy 0.261** 2.2887 YesH8: Environment of host country → Global strategy 0.202* 2.0519 Yes

Note: *p < 0.05 (based on t (4999), one-tailed test; t-values are 1.6451585), **p < 0.01 (based on t (4999), one-tailed test;t-values are 2.32709405); ns: not significant.

INTERNATIONAL COMPETITIVENESS OF SMALL AND MEDIUM-SIZED ENTERPRISES 163

competitiveness, which contradicts the values expected. However, we highlight its tendency. Thus,firm age might indicate that fewer years operating in the domestic market positively contributes to thecompetitiveness of SMEs. These findings allow us to consider the Peruvian SMEs as “born globalfirms,” as Rialp, Rialp, and Knight (2005, 148) proposed. That is, Peruvian SMEs have without doubta defined international orientation. Firm size indicates that SMEs, by virtue of their size, enjoy greaterpossibilities of competing in foreign markets in comparison to large enterprises (Sánchez-Chiappe andPoratelli 2011) as Peruvian SMEs could be considerably more flexible than large companies when theyoperate worldwide (Peña-Vinces, Cepeda, and Chin 2012). Hypothesis 6 concerns the role thecollaboration of the industrial sector plays in firm competitiveness in foreign markets. Our resultsshow positive effects (H6; β = 0.382**), reinforcing the approach of industrial economics regardingindustry cooperation (Banerjee 2005; Barge-Gil and Modrego 2011; Birru 2011; Tzeng 2011; Lin andChaney 2007; Porter 1990). Therefore, the collaboration of the industrial sector is crucial because itallows SMEs to grow and compete, and achieve their internationalization centered on a networkapproach (Belso-Martínez 2006; Chen and Lin 2006; D’Cruz and Rugman 1993; Mesquita andLazzarini 2008). Furthermore, it allows companies to focus on certain activities in the industryvalue chain, and achieve the competitiveness needed to survive and remain in international markets(Nadvi 1999; Sánchez-Chiappe and Poratelli 2011). Hypothesis 7 is related to industry cooperationregarding the global approach of the firm (e.g., global strategy). The results reveal that cooperationbetween firms is essential as they help with the internationalization of global production (Banerjee2005; Barge-Gil and Modrego 2011; Birru 2011; Tzeng 2011). Hence, it is also interesting to observehow the collaboration of the industrial sector (see Figure 2) plays a very important role in the use ofthe global strategy and contributes 9.8% to explaining the variance of this factor in competitiveness(R2 = 0.260). In the same line, Hypothesis 8 concerns the effect of the international environment on thefirm’s global orientation (GS). We observe that foreign markets exert a positive influence on the firm’sorientation (H8, β = 0.202*). This is consistent with the traditional literature on international business(Cuervo-Cazurra 2008; Galán, González-Benito, and Zuñiga-Vincente 2007; Leonidou, Katsikeas, andPiercy 1998; Theodosiou and Leonidou 2003), which reminds us of the need to analyze the destinationmarkets before moving out to compete globally. Thus, this hypothesis coincides with the qualitativeinformation of the sample, revealing that more than 60% of sales of the Peruvian SMEs go to foreignmarkets.

Conclusions and Implications

The main conclusion that can be drawn from the different analyses performed is the fundamental roleof having a global strategy. In other words, this is the primary determinant of international competi-tiveness or also, if one wishes, of the competitive advantage of SMEs. As our results show, thePeruvian SMEs utilize a global strategy to compete overseas instead of relying on a strategy ofdifferentiation and national adaptation. We must therefore note what determines the adoption of thistype of strategy. We can confirm that the environment of the host countries of SMEs (i.e., the factors ofdestination markets) in which they operate is one of the most favorable factors for the standardizationof their products. That is, the host market size, the growth rate of foreign demand, international tradeagreements, political stability, and social and cultural factors (such as race, income, consumptionhabits, and religion) are the issues that allow Peruvian SMEs to exploit their global strategy.

Based on the existence of a global strategy within Peruvian SMEs, their operations in internationalmarkets would not be possible without the collaboration of the industrial sectors. This coincides withthe results of a vast number of investigations carried out within industrialized countries (Belso-Martinez 2006; Galán, González-Benito, and Zuñiga-Vincente 2007; Nadvi 1999; Porter 1998). Thatis, the functioning of a global strategy in SMEs depends on the collaboration of its suppliers: those ofraw materials, finance and insurance, international transportation, qualified staff, etc., and at the sametime, of the organizational networks (Barge-Gil and Modrego 2011; Tzeng 2011; D’Cruz and Rugman1993; Mesquita and Lazzarini 2008) or the cooperative agreements that SMEs maintain, either with

164 J. C. PEÑA-VINCES ET AL.

sales or for the acquisition and transfer of knowledge. These are factors that also enable them to reducetheir costs and enhance their internationalization. Here, the collaboration between SMEs is conditionedby local customers and competitors as the latter contribute to the creation of new knowledge (Chenand Lin 2006; Porter 1998).

On the other hand, we believe that the companies have been able to bear fruit from their globalstrategy in foreign markets owing to a major source of competitive advantage, such as the humancapital or staff working within the Peruvian SMEs. In our case, we can observe that they have a highlevel of academic preparation, such as having degrees at Master’s level (MBAs) and even PhDs, and inaddition the knowledge of various languages and of foreign markets through traveling for business ortourism. Simultaneously, such particular characteristics make SMEs from emerging markets aware oftheir global reality, and their possibilities of opting for standardization rather than a differentiationstrategy in international markets.

As noted above, global strategy is the primary determinant of the international competitivenessof SMEs located in a Latin-American emerging country, such as Peru, for small enterprises relyingon the adaptation of their national products to destination markets. Hence, their function and designare not found in the hands of a single person but rather in good staff who possess the character-istics described above. In this regard, the staff working in Peruvian SMEs are conscious of theirweaknesses in terms of competing abroad with an international strategy of national diversification.Therefore, it is evident that such firms (Peruvian SMEs) have a clearly defined niche market(standardized products).

Nevertheless, when human capital is analyzed in relation to firm competitiveness (H2), our resultsshow that the characteristics discussed above do not have a significant effect. We can underline theirpositive trend although it is slight. One possible explanation is that in some Latin-American countries(i.e., Peru) the possession of certificates (BA, MBA, PhD) is not necessarily synonymous with thepresence of globally qualified staff in the firm; it may purely be a requirement either to change statusor obtain incentives that employees receive when they have completed higher education. It could alsoconfirm, through the absence of Peruvian universities in the world ranking, lower competitiveness interms of research (Peña-Vinces and Urbano 2014).

As we have pointed out previously, Peruvian SMEs compete mainly in the international arenathrough standardized products; several researchers (Subhash 1989; Zou, Andrus, and Norvell 1997)have argued that this occurs as the products of these companies always or almost always go to maturetarget markets (i.e., supermarkets and large retail chains), where the acceptance of homogenizedproducts is much easier. This means the Peruvian SMEs only compete with commoditized sectors.For instance, we can find in the USA products manufactured by Peruvian SMEs (e.g., asparagus,coffee, legumes, sugars, chocolate, juices, drinks, perfumes, shirts, pants, underwear, and blankets),which are essentially the same as those found in other markets (Europe and Asia), but with minutedifferences such as in the language of the label, which is adapted for each country or group ofcountries.

Regarding firm age, our results suggest that fewer years of operation in local markets give SMEsgreater possibilities of success in foreign markets (the firm’s competitiveness). That is to say, SMEshave not had an extended period of preparation prior to competing internationally.

The literature reviewed indicated that government efforts in industrialized countries are crucial forthe success of SMEs in their entrance into foreign markets (Tzeng 2011). However, the descriptiveinformation revealed that 80% of the SMEs surveyed considered that the actions taken by governmentshave not promoted their success in foreign markets. Thus, we can say that the governments do notnecessarily play a significant role in international competitiveness. This has also been found in a studyof an SME located in an African developing country, Nigeria (Abereijo et al. 2009). Thus, we suggestthat policymakers bear the responsibility for the design of policies that promote international activities.SMEs should be considered more seriously as they are the main generators of the economic devel-opment of countries, and consequently foster the progress of underdeveloped countries through jobcreation (Peña-Vinces 2009).

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Finally, the results obtained show a certain degree of coincidence with the theoretical background(economic and international theories) posed in the study. These suggest the need for the use of a globalapproach as not all theoretical knowledge from industrialized countries has shown significant impor-tance for the competitiveness of Latin-American (Peruvian) SMEs in an emerging context (H2, H4, andH5 not being significant).

One of the main limitations of the study is the cross-sectional nature of the research. Likewise, theauthors also acknowledge that there are other variables that could equally influence the firm’s internationalcompetitiveness, but which for reasons of the extension of the questionnaire are not included. Therefore,our research model might be improved by incorporating other variables, such as international marketingstrategy, research and development, and other aspects that might also influence firm competitiveness. OurPLS model did not evaluate the possible problem of endogeneity, which refers to the causal modelingassumption that the independent variables in an equation are uncorrelated with the error term (McIntosh,Edwards, and Antonakis 2014). Unfortunately, endogeneity tends to be the rule rather than the exception inapplications of multiple regression and related methods when using observational rather than experimentaldata (Antonakis et al. 2014; Semadeni, Withers, and Certo 2013). Properties and capabilities of the PLStechnique have recently been criticized (McIntosh, Edwards, and Antonakis 2014) because most studies inthe business and economics do not evaluate the possible problems of endogeneity. Hair et al. (2013) and hiscolleagues, the leading developers of PLS, have not provided any criteria on how to perform the PLSsoftware to avoid the endogeneity. However, we propose this limitation’s study as a future line of researchto determine if we will have similar results applying McIntosh et al.’s (2014) suggestion to avoid theendogeneity. The authors suggest carrying out an instrumental variable estimation (IVE) that is imple-mented using two-stage least squares (2SLS), with the first stage involving the regression of an indepen-dent variable x on an instrument z, followed by computing the predicted values (McIntosh, Edwards, andAntonakis 2014, p. 219). Future research may tackle similar phenomena through the use of panel data setsthat observe SMEs over time in other regions of Latin America, for instance, Bolivia, Ecuador, Venezuela,and Chile. Our study concerns industrial sectors, and it would be interesting to replicate the study withinthe service sector to determine whether similar results are obtained. As we commented in the introduction,we need to continue to learn more about the different aspects of Latin-American SMEs due to the lack ofempirical studies from these countries. Finally, we would like to indicate that further studies need to becarried out to validate if the high correlation found between the collaboration of the industrial sector andhuman capital still gains empirical support. Our research has evaluated human capital as an independentvariable. However, the results of correlation analysis might indicate that the presence of human capital withthe characteristics described above depends on industrial cooperation.

Acknowledgments

One of the authors (Dr. Peña-Vinces) would like to express his gratitude to Professor José L. Galán(University of Seville) because, without his valuable suggestions, this research would not have beenpossible. Furthermore, acknowledgment is due to the universities of South America, especially thoseof Peru (ESAN, UPC, UP, San Marcos, Wiener, etc.), and to the practitioners who provided theinformation in the surveys and interviews. Our sincere thanks go to those at the Samuel C. JohnsonGraduate School of Management, Cornell University; without their hospitality, it would not havebeen possible to complete this research. Finally, special thanks to Professor Lourdes Casanova andSoumitra Dutta.

ORCID

Jesús Peña-Vinces http://orcid.org/0000-0001-8962-7608David Urbano http://orcid.org/0000-0001-7600-8656

166 J. C. PEÑA-VINCES ET AL.

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