Small and medium-sized enterprises’ (SME) internationalisation

The aim of the study is to investigate the effects of proactive and re-active motivators on UK Small and medium-sized firm’s choice to in-ternationalise regionally, and on their degree of internationalisation. Within the field of international business, studies on small and medi-um enterprises (SMEs) and mode of entry have found that SMEs have tended to internationalise and select their mode of entry mostly in a reactive manner and following cautious and incremental commit-ment routes. In time, with the advent of economic globalization and the change in the global regulatory environment SMEs’ attitudes to-wards internationalisation have changed with more and more firms challenging the traditional incremental and gradual model of inter-nationalisation. The study presents 7 hypotheses to test the concep-tual framework that different motivators can be split into reactive and proactive and that this has a clear effect on the choice of internation-alisation and entry mode, the degree of internationalisation and the degree of regionalization (focusing on UK manufacturing SMEs and their motivations in the EU). Data is collected from 103 UK SMEs and a correlation and multiple regression is run showing the impact and differences of such motivators. Findings prove proactive and reactive motivators can be separated into groups according to their effect and are distinct in themselves whilst also showing which motivators im-pact the most on regionalization, specific entry mode selection (par-ticularly exporting), and the degree of internationalization. In addi-tion, it is found that government policy can be a clear obstacle or push to internationalization.

ΕΚΔΟΣΕ ΙΣοσελότος

Vatatzi 55 str., 114 73 Athens, Greece ΤEL. : +30210 6431108

E-MAIL: [email protected]. ocelotos. gr

Dr. Stouraitis is a multi-lingual inter-national business researcher special-izing in small and medium enterpris-es and internationalization. He holds a Bsc in pure economics, an MBA an Msc in development administration and a PhD in international business strategy from prominent UK univer-sities such as the universities of Kent and Reading (Henley Business School) and University College London. He has worked and trained for the United Nations (FAO and IFAD) and European Commission (DG Enterprise) along his career. His research interests lie in in-ternational development, internation-al business, Small and medium sized enterprises, management and EU business policy. Born in Rome, Italy, and holding a dual nationality (Greek and Italian), he speaks five languages amongst which French and Spanish, is an extensive traveller and admirer of international cultures.

Small and m

edium-sized enterprises’ (SM

E) internationalisation: A U

K case

study on the impact of m

otivation on the degree of internationalisationD

r. VASSILIOS STO

URAITIS

ISBN 978-960-564-243-3

140 × 210 SPINE: 16.3 FLAPS: 80

0_cover_2_stouraitis.indd 1 3/4/2015 4:07:08 PM

Dr. VASSILIOS STOURAITIS

Small and medium-sized enterprises’ (SME) internationalisation: A UK case study on the impact of motivation on

the degree of internationalisation

0_soma_stouraitis1.indd 1 3/4/2015 4:05:00 PM

Thesis submitted to the University of Reading to the degree of Doctor of Philosophy (PhD)

Title Small and medium-sized enterprises’ (SME) internationalisation: A UK case study on the impact of motivation on the degree of internationalisation

Author Dr. Vassilios Stouraitis Publisher’s sieries Science Book design Ocelotos Publications Copyright© 2015 Dr. Vassilios Stouraitis First Published Athens, February 2015 ISBN 978-960-564-243-3

Vatatzi 55 str., 114 73 Athens ΤEL. : +30210 6431108E-MAIL: [email protected]

www. ocelotos. gr

This publication is in copyright. Subject to statutory exception and to the provisions of relevant col-lective licensing agreements, no reproduction of any part may take place without the written permis-sion of the author and of Ocelotos Publications.


5

Acknowledgements

It is a pleasure to thank the many people who made this thesis pos-sible.

It is difficult to overstate my gratitude to my supervisors, Prof. Robert Pearce and Prof. Alan Rugman. With their inspiration, and their great efforts to guide me in the correct direction they made this work pos-sible. Throughout my thesis-writing period, they provided encour-agement, sound advice, useful teaching, and many useful ideas.

I would also like to thank the staff at Henley Business School and the Graduate School for the Social Sciences (GSSS) for providing a great environment to work in, a stable and large office space, social events, the necessary programs and software, and for being always ready to answer any questions.

I would also like to particularly thank my close colleagues for being open to discussion, for exchanging ideas, for being open to brain-storming and collaborating with each other. Their support and help has been critical in order to climb the mountain called doctoral re-search. Many good friendships have been born from this process.

Furthermore, I would like to thank my close friends for standing by me throughout this long and tough journey on the way to making this thesis. I would like to thank them for also being there during my long data collection days all the way to my final conclusion days. Their moral support was a priceless moral boost and not to be forgotten.

Last, but certainly, not least, I would like to thank my parents, Mr and Mrs. Stouraitis, for their immeasurable moral support throughout the beginning, the middle, and the end of this journey. Their patience, guidance, understanding and support created the foundations on which this journey was created.


7

Abstract

The aim of the study is to investigate the effects of proactive and reactive motivators on UK Small and medium-sized firm’s choice to internationalise regionally, and on their degree of internationalisa-tion. Within the field of international business, studies on small and medium enterprises (SMEs) and mode of entry have found that SMEs have tended to internationalise and select their mode of entry mostly in a reactive manner and following cautious and incremental com-mitment routes. In time, with the advent of economic globalization and the change in the global regulatory environment SMEs’ attitudes towards internationalisation have changed with more and more firms challenging the traditional incremental and gradual model of internationalisation. The study presents 7 hypotheses to test the con-ceptual framework that different motivators can be split into reactive and proactive and that this has a clear effect on the choice of inter-nationalisation and entry mode, the degree of internationalisation and the degree of regionalization (focusing on UK manufacturing SMEs and their motivations in the EU). Data is collected from 103 UK SMEs and a correlation and multiple regression is run showing the impact and differences of such motivators. Findings prove proactive and reactive motivators can be separated into groups according to their effect and are distinct in themselves whilst also showing which motivators impact the most on regionalization, specific entry mode selection (particularly exporting), and the degree of internationaliza-tion. In addition, it is found that government policy can be a clear obstacle or push to internationalization.


9

Contents

Contents

List of figures ................................................................................................................14

Chapter 1 Introduction .................................................................................................................171.1 Introduction/purpose of the research .......................................................17

1.1.1 International mode of entry ...............................................................181.1.2 SME entry mode choice .......................................................................231.1.3 SME Internationalization .....................................................................241.1.4 The study’s contribution to the research .......................................28

1.2 Motivations of the study .................................................................................311.2.1 Research questions presented ..........................................................37

1.3 Proactive and Reactive Motivators explained .........................................381.4 Purpose of the study ........................................................................................401.5 Anticipated contributions of the study .....................................................411.6 Organization of the study ...............................................................................42

Chapter 2Literature review and gaps .....................................................................................442.1 Literature review on SME mode of entry choice and stimuli .............46

2.1.1 SME entry modes literature review and analysis ........................472.2 The significance of SME internationalization and the SME definition

adopted .................................................................................................................53The study’s SME definition adopted/introduction to SMEs ........................532.2.1 The motives for SME internationalization ...............................................542.3 Empirical studies on SME Internationalization .......................................59

2.3.1 Perspective of the empirical literature ...........................................692.3.2 Methodology ...........................................................................................702.3.3 Organizational factors ..........................................................................712.3.4 Organizational Resources....................................................................712.3.5 Management ...........................................................................................722.3.6 Mode of Entry ..........................................................................................73

2.4 Research trends and theoretical gaps ........................................................73


10

Dr. Vassilios Stouraitis

2.4.1 Lack of consensus within the literature in search of a theory of internationalization. ................................................74

2.4.2 Lack of a consensus/explanation on the factors which enable resource-constrained firms to internationalise skipping incremental learning. Less focus on internal factors and more on the manager and external factors has led to the assumption that firms with a larger resource base will internationalise faster, which has been disproved. .............................................................................................................75

2.5 Empirical Gaps ....................................................................................................772.5.1 Lack of empirical work on the internationalization of SMEs

and modal choice. ................................................................................772.5.2 Strong focus on the high-tech sector when studying interna-

tional new ventures. ............................................................................782.5.3 Large emphasis on the use of scope as oppose to scale met-

rics of multinationality. .......................................................................782.5.4 Section Conclusion ................................................................................78

2.6 Theoretical Framework and Theoretical Research Model ...................79The theoretical framework adopted ...................................................................79

2.6.1 The Resource-Based view (RBV) ........................................................832.6.2 Criticism: ....................................................................................................842.6.3 The OLI perspective ...............................................................................852.6.4 Criticism .....................................................................................................86

2.7 The theoretical research model ....................................................................872.8 Chapter conclusion ...........................................................................................88

Chapter 3The conceptual framework .....................................................................................903.1 The conceptual framework explained .......................................................90

3.1.1 Firm characteristics ................................................................................913.1.2 Firm size importance ............................................................................963.1.3 Unsolicited order ................................................................................. 1013.1.4 Internationalization intensity ......................................................... 1083.1.5 Barriers to internationalization ...................................................... 117

3.2 Research Hypotheses presented further ............................................... 123

Chapter 4Methodology ............................................................................................................ 1274.1 Major Research Choices/Scope of the research................................... 130


11

Contents

4.1.1 Nature of the study ............................................................................. 1314.2 The Survey Research ...................................................................................... 1324.3 Orientation of the Study / Research philosophy ................................. 1334.4 Deductive-Inductive and Hypothetico-Deductive Research ......... 1334.5 The Post-Positivist Paradigm ...................................................................... 1344.6 Research Design .............................................................................................. 1354.7 Sample selection ............................................................................................. 1364.8 The segmentation of respondents ........................................................... 1384.9 Research methods .......................................................................................... 1414.10 Advantages and disadvantages of the survey approach ................ 1444.11 Data analysis ................................................................................................. 1454.12 Validity and reliability ................................................................................ 1464.13 Designing the Survey ................................................................................ 147

4.13.1 Types of questionnaires .................................................................. 1474.13.2 Piloting and pre-questionnaires ................................................. 1474.13.3 Types of measurement scales ....................................................... 1484.13.4 Sample design and sampling procedures ............................... 1494.13.5 The response rate – improving it ................................................ 1504.13.6 The variables and the survey ........................................................ 1504.13.7 The variables examined by the study along with their cate-

gorization ............................................................................................. 1514.13.8 The response rate ............................................................................. 155

4.14 Regression ..................................................................................................... 1554.15 Transferability ............................................................................................... 156

Chapter 5Data Analysis ............................................................................................................. 1585.1 Introduction .................................................................................................. 1585.2 Descriptive Results ..................................................................................... 1595.3 Response rate ............................................................................................... 1605.4 Profile of the Respondents ...................................................................... 1615.5 Profile of the firms ....................................................................................... 1625.6 Comparison between Small and Medium-sized firms .................. 1645.7 International activities and entry mode ............................................. 1705.8 The remaining entry modes .................................................................... 1745.9 Manager perceptions and commitment ............................................ 1795.10 Test of Hypotheses ..................................................................................... 1805.11 Multiple regression analysis/Logistic regression analysis ............... 181


12


5.12 Conclusions ...................................................................................................... 198

Chapter 6Interpretation of the results ................................................................................ 2016.1 Firm characteristics ..................................................................................... 204

6.1.1 Age ........................................................................................................... 2046.1.2 Strengths ................................................................................................ 2056.1.3 Networks in the host country ......................................................... 2066.1.4 R&D ........................................................................................................... 2106.1.5 Excess capacity ..................................................................................... 2126.1.6 Unsold inventories and the unsolicited order .......................... 2136.1.7 Uniqueness ............................................................................................ 2156.1.8 AcceptabilityUK ................................................................................... 216

6.2 Managerial Characteristics .......................................................................... 2176.2.1 International experience .................................................................. 2176.2.2 Foreign market knowledge ............................................................. 219

6.3 Exporting Barriers ........................................................................................... 2226.3.1 Government factors ........................................................................... 222

6.4 Regionalization ................................................................................................ 2236.4.1 Home(UK) factors (acceptabilityUK, legalrestrictionsUK, Mar-

ketpotentialUk). ................................................................................. 2236.4.2 Host factors (acceptability, legalrestriction, marketpoten-

tial,political stability, network) ...................................................... 2276.4.3 Unsold inventories .............................................................................. 2296.4.4 Repatriating income........................................................................... 230

6.5 Internationalization intensity ..................................................................... 2306.5.1 NewTech ........................................................................................................... 230

6.5.2 Competitor exports ............................................................................ 2316.5.3 Unsold inventories .............................................................................. 2316.5.4 Eulatest ................................................................................................... 2316.5.5 Research and Development (R & D) ............................................. 231

Chapter 7Discussion and Conclusions ................................................................................ 2337.1 Summary and discussion of the main findings ................................... 2337.2 Implications of findings ................................................................................ 235

7.2.1 Implications for policy maker ......................................................... 2357.2.2 Implications for Management Practice ....................................... 237


13

Contents

7.3 Contribution to the literature ..................................................................... 2387.4 Research Limitations ..................................................................................... 2407.5 General recommendations for policy ..................................................... 2417.6 Recommendations for future research ................................................... 242

Bibliography .............................................................................................................. 245

Appendix .................................................................................................................... 258


14


List of figures

Figure 1 The characteristics of the main international market entry modes ..............................................................................................................................22

Figure 2 Visual representation of the literature ......................................................36Figure 3 A hierarchical model of entry mode choices denoting the degree

of presence ......................................................................................................51Figure 4 A comparison of the categories of mode of entry according to

desired criteria/motivations. ....................................................................52Figure 5 The position of motivation in the process of selection of final

mode of entry ................................................................................................55Figure 6 Selected significant studies on mode of entry and stimuli

including the variables tested .................................................................60Figure 7 Major perspectives affecting SME internationalization ....................81Figure 8 Theoretical Framework ...................................................................................83Figure 9 Conceptual framework ...................................................................................88Figure 10 Concept groups ...............................................................................................91Figure 11 Information gathering vs Investment deferral decisions ..............98Figure 12 The prevalence of different forms of internationalization among

EU SMEs ............................................................................................................99Figure 13 Percentage of SMEs with foreign supplier or exports .................. 100Figure 14 The Uppsala model of Internationalization ...................................... 103Figure 15 Internationalization theories .................................................................. 112Figure 16 Exporters ......................................................................................................... 113Figure 17 Foreign business partnerships ............................................................... 114Figure 18 Exporters by industry segments ........................................................... 115Figure 19 Prime destination of foreign business partnerships..................... 116Figure 20 Obstacles to internationalization.......................................................... 119Figure 21 Constraints encountered.......................................................................... 121Figure 22 Relationship of variables depicted ....................................................... 152Figure 23 Summary of measures, proxies and their sources ......................... 153Figure 24 Exporters by industry segments ........................................................... 173Figure 25 Influence of proactive and reactive motivators on export

intensity and regional internationalization. ................................... 198Figure 26 The 4 dependent variables tested ........................................................ 201Figure 27 Independent variables divided ............................................................. 202Figure 28 Results of the regression .......................................................................... 203


15

Contents

List of Abbreviations

SME: Small and Medium Enterprise

MNE: Multinational Enterprise

EC: European Commission

RBV: Resource-Based View

OLI: Ownership, Location, Internalization advantages

OECD: Organization for Economic Co-operation and Development

UN: United Nations

FSA: Firm Specific Advantage


17

Chapter 1

Chapter 1

Introduction

1.1 Introduction/purpose of the research

The phenomenon of internationalization is presented within the lit-erature as a very complex issue that yet remains in need of concep-tualization. It is an issue that has gone through a series of debates and branches. In the times of globalization, the effect of increasing internationalization is one of the biggest challenges faced by small and medium enterprises (SMEs). Therefore, small and medium-sized enterprises must now expand and become far more efficient if they are to meet the criteria for providing the economic and employment growth needed to increase living standards.

Increasing cross-national competition, combined with increasing op-portunities to pursue foreign markets and the ability to profit from expanded scale and scope in their operations, has created many in-centives for SMEs to internationalize and adopt varied entry modes (Oviatt and McDougal, 1995). Furthermore, the need to simultane-ously manage such multiple pressures (product, market, competi-tion) has resulted in a sharp increase in international business activity and has given impetus to a wide variety of governance arrangements for managing them and hence modes of entry (Madhok, 1997).

In addition to this need for increase in activity from SMEs , it can be seen that the literature on internationalization has also mainly fo-cused on large multinational firms as traditional units of economic


18


analysis within this new field . According to Buckley (1989) the litera-ture on international investment had for long ignored foreign direct investment and variation of entry modes by small firms as it attempt-ed to cope with the escalating phenomenon of the multinational en-terprise.

Within the phenomenon of internationalization, foreign market en-try modes are the building blocks of the internationalization process (Welch and Luostarinen, 1988; Jones, 2001), and as Itaki (1991) adds, the first steps are both the most important and most difficult. It is thus this first step and the decision behind it which are of importance to the study. The challenge facing most SMEs is to establish and develop a viable, competitive and sustainable business, usually with limited resources, and often by adopting flexible and imaginative practices.

1.1.1 International mode of entry

Welch and Luostarinen (1988: 36) focusing on process and the firm’s operations, define internationalization as “the process of increasing involvement in international operations”; a concise definition which encompasses the various heterogeneous modes of internationaliza-tion available to the firm, both equity and non-equity agreements. From there, within the literature, an (international) mode of entry is defined as an “institutional arrangement for organizing and conducting (international) business transactions” (Erramilli and Rao, 1993:19). This includes non-equity agreements and thus exporting, as it is about presence in foreign markets, and not necessarily equity agreements.

In the field of international business, the question of international entry mode has attracted a lot of attention by researchers (Ruzzier et al., 2006). The reasons being the following: firstly, entry mode is considered one of the core components of internationalization. Thus, it can be said there is an overlap in research to the extent that re-


19

Chapter 1

search on the firm’s internationalization process will to a large extent include the static factor of international entry-mode choice. Second-ly, the choice of entry mode for a particular foreign market is one of the most critical decisions for firms in international business (Wind and Perlmutter, 1977). Thirdly, albeit concentrating on large firms, the theoretical contributions have been more advanced in the area of foreign entry mode than in other topics of the firms internationali-zation process (Buckley, 1989; Andersen, 1997).

The majority of the theory on international firms up to now, as men-tioned above, according to Rialp et al. (2001), focuses on the analysis of the operations of the multinational corporation and in particular their direct investment activities abroad. It analyses the mode of en-try of foreign direct investment from the perspective of the theory of the firm and industrial organization theory, both sharing the same view and assumption: that the potential investment capacity of a business abroad is based upon its control or possession of an asset and/or firm-specific advantage, mostly intangible. These firm-specific advantages will generally tend to compensate the firm for possible disadvantages of a localized nature which occur from the greater knowledge that local firms will have of their own markets, hence al-lowing the international firm to exploit its own advantage in other markets outside its own.

Therefore, as mentioned above, firms who are internationalizing must select among various different modes available to enter foreign markets taking into account the levels of risk, return characteristics, and degree of control and resource commitment that each mode provides for the entrant firm. For example, creating a production sub-sidiary will take much more time and resources (something lacking in SMEs) than exporting indirectly, yet the latter will not provide as much control as a production subsidiary. Each one of these modes of entry unite to represent a continuum of increasing international in-volvement with different levels of risk and control. Movement along


20


this continuum axis is mostly driven by foreign market knowledge acquired abroad. Thus, the choice of foreign market entry mode must be based on several tradeoffs among risks and returns, the desirabil-ity of control over foreign operations, resource availability, and the interrelationship existing among these several factors.

Regarding modes of foreign entry, the literature presents us with a variety of options, all based on the aforementioned view of localiza-tion advantage; a firm could enter and serve the foreign markets by exporting from its own domestic context, a mechanism of interna-tional activity that could be internalized to a certain extent. Also, it could attempt to exploit specific advantages by investing directly in foreign markets when some factors, such as localization advantages, commercial barriers and/or transport costs, seem to favour local ex-ploitation, by locating producer capacities abroad by setting up its own manufacturing subsidiaries (FDI). In addition, the international firm can co-invest with other firms in an international join venture. Finally, there is the possibility of transferring any advantage to an-other entity such as a foreign firm through a contractual arrange-ment, in exchange for royalties or economic compensation such as international licenses or franchises. It is important to take into ac-count whether products can be exploited in other market segments assuming similar critical factors exist. In addition, it is significant to assess whether there can be a development of new uses for exist-ing products in order to adapt to globalization and foreign trends. Adjustment to product features or development methods might be required, such as internet selling or agents for new territories. In ad-dition, competence development is required to obtain extra market share.

Much of the international business literature focuses specifically on three of the distinct modes of entry; licensing (or franchising), enter-ing into a Joint-Venture, and setting up a wholly owned subsidiary paying less attention to exporting for example (Canabal and White,


21

Chapter 1

2008). Each of these entry modes is consistent with a different lev-el of control, resource commitment, and “dissemination” risk (Hill et al., 1990). Different entry modes imply a different level of control (or commitment) over the foreign operation (Caves, 1982; Anderson and Gatignon, 1986). Control is defined as authority over operational and strategic decision making (Hill et al., 1990). For example, the level of control (or resource commitment) is lowest in the case of licensing or exporting and highest in the case of a wholly owned subsidiary. Dissemination risk refers to the risk that firm-specific advantages in know-how will be expropriated by a licensing or joint-venture partner (Hill and Kim, 1988), it is high under licensing and joint-ventures and lowest under exporting or FDI. Technological and marketing know-how constitutes the basis of the competitive advantage of many mul-tinational firms (Casson, 1982; Caves, 1982; Dunning, 1993). Thus, the firm will want to internalize or avoid disseminating this know-how, as it would reduce extra rents that could be earned from it (Buckley and Casson, 1976; Anderson and Gatignon, 1986). If a firm grants a license to a foreign enterprise, for example, to use firm-specific know-how to manufacture or market a product, it will run the risk of the licen-see disseminating that know-how or using it for purposes other than those originally intended. Thus, monitoring costs and costs of setting up contracts will rise. Paradoxically though, dissemination can occur (albeit less) even under high control modes. For example, in the case of a wholly owned subsidiary there is always the chance that a key employee with access to firm-specific know-how might leave the or-ganization to join another firm, leaving a residual risk of dissemina-tion.

Figure 1 summarizes the above characteristics of each mode of entry;


22


FIGURE 1 The characteristics of the main international market entry modes

Entry Mode Control Resource Commitment

DisseminationRisk

Exporting Low Medium LowLicensing Low Low Medium

Joint Venturing Medium Medium MediumWholly owned

subsidiary High High Low

Source: adapted from Hill et al., 1990

At the empirical level, as shall be seen in detail further on, contra-dictory findings have led to wide criticisms; Recently, in particular instances, internationalization has been perceived to be more rapid than as predicted by the stages model, leading to the growing in-terest in international new ventures (Oviatt and McDougall, 1994) or “Born Global” firms (Knight and Cavusgil, 1996). Furthermore, there has been evidence of firm utilising modes other than exporting, which involve greater commitment and risk, to begin their interna-tionalization (Root, 1987). Finally, Johansson and Mattson (1988) find the famous stages models (or establishment chain) inadequate when the market in which a firm operates is already internationalised.

It is important to notice that Johanson and Vahlne (1977; 1990) have not included co-operative modes of entry, or non-equity agreements, nor hybrid modes of entry in their establishment chain. In view of the frequent use of such modes, this can be considered a weakness (An-dersen, 1997). In addition, the Uppsala model has been criticised as being too deterministic denying the firm’s ability to make strategic choices as far as entry mode choice is concerned and shift away from the predetermined exporting (Root, 1987). Yet, the Uppsala model, as most learning and innovation models have been at the mainstream of internationalization and mode of entry research for several dec-ades making them a basis on which to debate or compare models.


23

Chapter 1

As widely as they are cited, the stage models are also criticised; at a conceptual level, stages theory (particularly the Uppsala model) has been plagued with criticism on various fronts, such as, for example, oversimplification (Bell and Young, 1998), conceptual validity (Le-onidou and Katsikeas, 1996), and finally a lack of integrative approach that would allow for a more eclectic and effective theory of interna-tionalization (Rialp and Rialp, 2001). In addition, at a conceptual level, the stage models have been criticised for being too deterministic and negligent of a firm’s contextual (external) factors that may influence their internationalization and initial mode of entry choice (Turnbull, 1987) along with firm-specific (internal) factors such as resources and capabilities (Reid, 1983).

1.1.2 SME entry mode choice

It is interesting to note how much of the literature on SME interna-tionalization is based on the concept of gradual incremental learn-ing and exporting (stages model) as initial mode of entry for SMEs (for a review see: Leonidou and Katsikeas, 1996), hence explaining the large number of studies on export development and pre-export phase. The stages model has, until recently, received general accept-ance in the literature (Andersen, 1993), and through that, it has influ-enced a large amount of studies on SME mode of entry and mode of entry choice .

Since the mid-1990s though, more and more evidence of the limi-tations of the stages model has appeared in the literature (Madsen and Servais, 1997). Other than Oviatt and McDougall (1994)’s study, McDougal et al. (1994) as well as Knight and Cavusgil (1996) refer to a number of empirical studies which appear to contradict the stages theory of internationalization, giving rise to research on international new ventures and SMEs going beyond exporting as initial mode of entry. As Oviatt and McDougal (1994) assert, international new ven-


24


tures internationalise at inception as a result of competitive forces impeding a successful domestic focus. In addition, these firms control rather than own assets, hence preferring a cooperative mode of entry into foreign markets.

Few scholars, though, have specifically examined SME entry mode choice. Recent work by Yi-Sheng et al. (2001) and Nakos and Brouth-ers (2002), has applied Dunning’s (1988) Eclectic Framework to SME entry mode choice. Others such as Burgel and Murray (2000) and Shrader et al. (2000) have examined components of transaction cost theory such as R&D intensity, training costs, or country risk. Meyer et al. (2008), albeit concentrating on large firms, adopt a resource-based perspective but show how it complements the transaction cost per-spective, adding for a more holistic view of mode of entry.

1.1.3 SME Internationalization

Nowadays, SMEs share many of the same problems and issues faced by large enterprises given the nature of today’s international market-place. There are a variety of issues which have been brought up with-in the decades of literature on small firm entry strategies, such as the relevance of size, the importance of management, the relationship between the firm and market, the importance of constraints on SMEs , the role of uncertainty and finally alternative forms of technology transfer. Yet there still is a lack of homogeneity in the results on the factors affecting operational choices and internationalization.

Buckley (2006) suggests that opportunities for small firms are in-creasingly becoming global yet the means to achieve profitability from these opportunities are not always available immediately. Thus complicating international expansion and increasing the vulnerabili-ty of the internationalizing firm. Buckley suggests cautious incremen-tal step-by-step development as the answer to these situations (such


25

Chapter 1

as may be the case for economies in transition and new EU member states), a theory that is often overlooked and overshadowed in favour of rapid internationalization.

It is important to note that , as mentioned above, SMEs lack the re-sources of large firms, hence may not be able to cope with difficul-ties such as suddenly expanding the management team, matching production and distribution to foreign market needs, researching for a stream of new products, and controlling activities separated geo-graphically for example.

Internationalization has been viewed as both an on-going process of evolution within which the firm increases its international involve-ment as a function of increased market commitment and knowledge; and also as a pattern of investment in foreign markets which can be explained by rational economic analysis. A weakness , as Buckley (2006) states , of the current literature on internationalization, is the lack of a link to performance, meaning that there is a common as-sumption that internationalization should be undertaken by default and can only bring upon positive results to new or old SMEs. It is, though, necessary to establish under what conditions , when, and at what timing internationalization can really benefit the firm and when it is more prudent to be cautious without overstretching the firm’s managerial resources. Finally, it is also crucial to focus on one particu-lar branch of research within internationalization, in our case the firm itself, without switching from, for example, branches and divisions to the manager and entrepreneurial issues.

It is important to note that SMEs have a natural constituency in in-dustries characterized by insignificant economies of scale and spe-cialized demand. This will thus influence their strategic decision and logistical options. Industries in which there is no critical minimum scale at which a firm can be expected to succeed in foreign direct investment. Yet, according to the literature we can see that the inter-


The aim of the study is to investigate the effects of proactive and re-active motivators on UK Small and medium-sized firm’s choice to in-ternationalise regionally, and on their degree of internationalisation. Within the field of international business, studies on small and medi-um enterprises (SMEs) and mode of entry have found that SMEs have tended to internationalise and select their mode of entry mostly in a reactive manner and following cautious and incremental commit-ment routes. In time, with the advent of economic globalization and the change in the global regulatory environment SMEs’ attitudes to-wards internationalisation have changed with more and more firms challenging the traditional incremental and gradual model of inter-nationalisation. The study presents 7 hypotheses to test the concep-tual framework that different motivators can be split into reactive and proactive and that this has a clear effect on the choice of internation-alisation and entry mode, the degree of internationalisation and the degree of regionalization (focusing on UK manufacturing SMEs and their motivations in the EU). Data is collected from 103 UK SMEs and a correlation and multiple regression is run showing the impact and differences of such motivators. Findings prove proactive and reactive motivators can be separated into groups according to their effect and are distinct in themselves whilst also showing which motivators im-pact the most on regionalization, specific entry mode selection (par-ticularly exporting), and the degree of internationalization. In addi-tion, it is found that government policy can be a clear obstacle or push to internationalization.

ΕΚΔΟΣΕ ΙΣοσελότος

Vatatzi 55 str., 114 73 Athens, Greece ΤEL. : +30210 6431108

E-MAIL: [email protected]. ocelotos. gr

Dr. Stouraitis is a multi-lingual inter-national business researcher special-izing in small and medium enterpris-es and internationalization. He holds a Bsc in pure economics, an MBA an Msc in development administration and a PhD in international business strategy from prominent UK univer-sities such as the universities of Kent and Reading (Henley Business School) and University College London. He has worked and trained for the United Nations (FAO and IFAD) and European Commission (DG Enterprise) along his career. His research interests lie in in-ternational development, internation-al business, Small and medium sized enterprises, management and EU business policy. Born in Rome, Italy, and holding a dual nationality (Greek and Italian), he speaks five languages amongst which French and Spanish, is an extensive traveller and admirer of international cultures.

Small and m

edium-sized enterprises’ (SM

E) internationalisation: A U

K case

study on the impact of m

otivation on the degree of internationalisationD

r. VASSILIOS STO

URAITIS

ISBN 978-960-564-243-3

140 × 210 SPINE: 16.3 FLAPS: 80

0_cover_2_stouraitis.indd 1 3/4/2015 4:07:08 PM

Small and medium-sized enterprises’ (SME) internationalisation

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