Small Firm Internationalisation in a Global Knowledge Economy Jim Bell

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Small Firm Internationalisation in a Global
Knowledge EconomyJim Bell
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Introduction

• The Born Global Phenomenon
• Small firms formed by active entrepreneurs (often
  due to a significant innovation or in process or
  technology)
• Their offerings commonly involve substantial
  value added
• Management adopt a global focus from inception
  and embark on rapid and dedicated
  internationalisation
• (Rennie 1993 Oviatt McDougall, 1994 Knight
  Cavusgil, 1996)

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Introduction

• Trends leading to born global phenomenon
• Inherent advantages of SMEs (adaptable, flexible,
  innovative)
• New global niches leading to higher demand for
  specialised offerings
• New process technologies allow profitable
  small-scale production
• ICT enables firms to manage international
  operations more efficiently
• The internationalisation of knowledge fosters
  technology transfer and improves access to
  funding
• The growth of global networks encourage
  international partnerships.
• (Knight Cavusgil, 1996)

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Introduction

• The born global phenomenon is particularly
  significant in an Irish context, given that
  Ireland is a
• Small open economy
• Small firm economy
• Knowledge economy

• There is a growing reliance on the international
  contributions of small knowledge based firms

• Supporting the internationalisation of knowledge
  based firms is widely accepted as a policy
  priority

However, in order to do so we need a clear
understanding of how such firms internationalise
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Outline

• Overview small firm internationalisation theories
• Presentation of an integrative model
• Contribution
• Knowledge required to internationalise
• Supporting the development of this knowledge

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Competing Theories on Small Firm
Internationalisation

• Stage models
• Exporting as an incremental evolutionary process
• Firms radiate outwards from home market
• Firms target psychologically/geographically
  close markets

• Limitations
• Increasing criticisms of these views
• ( Reid, 1983 Turnbull, 1987 Andersen,
  1993 Coviello McAuley 1999)
• Assume pre-existence of a domestic market
• Too deterministic and unidirectional
• Lack explanatory power of how firms move through
  stages

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Competing Theories on Small Firm
Internationalisation

• Contingency theory (Reid, 1983)
• Firms responses to international opportunities
  are determined by current circumstances and
  availability of resources
• Reids view is a precursor to RBV of
  Internationalisation

• Limitations
• Each firm will possess a unique bundle of
  resources
• Managers perceptions of opportunity and risk
  will vary
• Firms international trajectory will be highly
  situation specific
• Hard to draw general implications for public
  policy support

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Competing Theories on Small Firm
Internationalisation

• Networking Theories
• Internationalisation as an entrepreneurial
  process embedded in an institutional and social
  web which enables firms to access information,
  human capital, finance, etc.
• (Johansson Mattson, 1988 Benito Welch,
  1994 Vatne, 1995)
• Valuable from a small firm perspective, given
  their recognised reliance on personal and
  business networks

• Limitations
• Useful perspective, but existence of networks is
  often assumed
• Little explanation on how firms develop/access
  new networks
• Importance of local networks is often
  underestimated
• Are networks/social capital just another
  resource?

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Competing Theories on Small Firm
Internationalisation

• Resource Based View
• The ability to build or leverage resources is key
  to organisational survival, competitive advantage
  and international competitiveness
• (Wernerfelt 1984 Barney, 1991 Grant, 1991)
• Links to a renewed interest in contingency
  theory
• (Woodcock et al, 1994 Yeoh Jeong, 1995 Kumar
  Subramaniam, 1997)
• internationalising firms will respond differently
  in their efforts to overcome resource/competence
  deficiencies

RBV is persuasive, however, no single of theory
provides a holistic view of Internationalisation,
particularly in light of the born global
phenomenon.
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Integrative Model of Small Firm
Internationalisation

• We propose a model based on
• recent empirical studies on SME
  Internationalisation
• (e.g. McKinsey, 1993 Oviatt McDougall, 1994
  Bell, 1995 Madsen Servais, 1997, Coviello
  McAuley, 1999)

• investigations we have undertaken over the last 5
  years that involve
• a case study approach
• over 50 cases in Australia/NZ, Ireland,UK USA
• in-depth, semi-structured in interviews
• judgment sample knowledge-based and
  traditional SMEs
• Inquiry into patterns, pace, processes of
  Internationalisation

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External Environment Favourable/unfavourable
domestic market conditions foreign market
conditions, Industry/sector trends,
vicious/virtuous economic cycle
Internal Environment Firms human and financial
resources, Management competencies, Knowledge-base
ICT capability
Managers Mental Model
Born Global Pathway (Knowledge intensive /
knowledge based firms)
Born-again Global Pathway (or service-intensive
firms)
Traditional Pathway
Home Market
Lead Home Market
Lead Mkt. A
Export Mkt A (close)
Lead Mkt. B
Lead Mkt. n
Export Mkt. B
Home Market
TIME
State of Internationalisation
Home Market
Export Mkt. n (most distant)
(Knowledge as) Source of Competitive Advantage
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Features of Integrative Model

• Model seeks to
• Incorporate evidence of multiple
  internationalisation pathways
• Demonstrate stereotypical pathways and resource
  needs
• Attempts to show state of flux in
  internationalisation decisions (backward/forward
  momentum, episodes/epochs)

Model posits that knowledge acquisition and
knowledge management is the key source of
competitive advantage
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Theoretical Contributions

• Offers a knowledge-based view (KBV) of
  internationalisation (Thus, regardless of the
  pathway firms pursue, greater knowledge
  increases the pace /intensity of
  Internationalisation and enhances international
  competitiveness)

• As knowledge in all forms (markets/networks/techno
  logy/ICT)
• is a resource the KBV extends extant RBV and
  network theories, but does not conflict with
  incremental models

• Research in the area needs to progress from how
  and why firms internationalise to
• What knowledge do firms require to
  internationalise?
• How can firms acquire this knowledge?
• How can they enhance their stock of knowledge?
• How can they constantly renew knowledge?

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Knowledge required for rapid internationalisation

• Knowledge leading to product/service, process or
  technological innovation

• Knowledge of global markets, sectors or niches

• Network Knowledge
• Of potential clients, suppliers and channel
  partners
• Of public sources of assistance or support (inc.
  tertiary education)
• Of private sources of funding to finance
  internationalisation

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Knowledge required for rapid internationalisation

• Knowledge of ICT to
• Enhance communications with clients, suppliers
  channel partners
• As a means of developing stronger relationships
  with such partners
• As a way of gaining detailed and up-to-date
  market intelligence

• Managerial Knowledge/Capabilities
• To develop, strengthen and manage internal
  resources
• To leverage external resources effectively
• Experiential knowledge of international markets

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University Support

• Knowledge leading to product/service, process or
  technological innovation
• Business incubation(software and IB incubator at
  Magee)
• Knowledge transfer partnerships (Over 100 to
  date, 20 current)

• Knowledge of global markets, sectors or niches
• KTPs(70 technology based, 30 Marketing/Managemen
  t focused
• Desk Field student consulting projects,

• Network Knowledge
• Network of research partners on KB
  internationalisation in Australia, Canada, New
  Zealand, Scandinavia, UK, USA
• Networks of firms/support organisations (e.g.
  Canada Technology Triangle)
• Industry cluster initiatives (e.g. Biotech South,
  engineering, multimedia NZ)
• Industry/Sector linkages (e.g Nokia Telecoms
  research centre, Finland)
• International academic networks with
  industry/public networks (IE and AIB Conferences
  150 delegates from over 70 institutions in 25
  countries)

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University Support

• Knowledge of ICT
• Strong focus on Information Sciences at Magee
  Campus
• Joint Business/Information Sciences degrees
• Increasing use of ICT in the delivery of
  programmes, teaching approaches and student
  research projects

• Managerial Knowledge/Capabilities
• Providing hard and soft skills to develop
  graduates knowledge capabilities
• International focus that seeks to develop cross
  cultural awareness, understanding and immersion

• All of these activities, which involve
  collaboration between the University and other
  partners, have a dual purpose
• To support firms growth and internationalisation
  now
• To develop Irelands future knowledge base