Small Firm Internationalisation

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Small Firm Internationalisation
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Lecture Aims
At the end of this lecture you will be able to

• Understand the motivations of the Small Firm when
  they make the decision to internationalise.

• Identify the major barriers and problems which
  impinge upon small firm internationalisation

• Discuss and critique the main theories of
  internationalisation.

• Discuss the nature and effectiveness of
• Government assistance in helping small firms to
  internationalise

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The Small Firm

• Small Firm NO Bonsai Version of the Large Firm

• Differ from large firms in their managerial
  style, independence, ownership, scale and scope
  of operations

• Internationally active small firms are becoming
  key global trends

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EU Definition of the Small Firm Companies which
have - Have fewer than 50 employees - Have
either an annual turnover not exceeding EUR 7m
or - An annual balance sheet total not exceeding
EUR 5m and not more than 5 of the capital or
voting rights is owned by an enterprise is not
itself an SME.
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Definition of Internationalisation

• the process of increasing involvement in
  international operations. (Welch
  Luostarinen, 1988)
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Motivations to Internationalise
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Barriers to Internationalisation

• Too much red tape!

• Lack of
• - Competitive Products
• - Trained Personnel
• - Export Incentives
• - Co-ordinated assistance

• Cultural
• - language
• - local custom
• - psychic distance

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Theories of Internationalisation

• The Establishment Chain (Stages) Model -
  developed at the University of
  Uppsala (Johanson Wiedersheim-Paul,1975)
  (Johanson Vahlne, 1977)

• The Network Perspective

• The Born Global Phenomenon

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The Stages Model

• International operations develop in small,
  incremental steps a GRADUAL process

• The Small firm gradually increases commitment
  and investment with increasing international
  market knowledge experience

• Four different stages
• No regular export
• Export via independent representation (agent)
• Sales Subsidiaries
• Production/Manufacturing

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Criticisms of the Stages Model

• This gradual, organisational approach to
  internationalisation is not characteristic of all
  firms

• Fails to reflect the dynamic, interactive
  environment of internationalisation

• Leap-frog stages as firms favour rapid, more
  direct modes of entry
• - e.g High Technology sector

• Too deterministic each firms
  internationalisation process is unique highly
  situation-specific

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The Network Perspective

• Not what you know its WHO you know!

• Internationalisation proceeds through social,
  exchanges which result in increasing commitment
  to and evolving knowledge about foreign markets

• A System of interactive relationships are
  formed among a number of players including
• - customers
• - suppliers
• - competitors
• - family friends
• - public private support agencies

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Limitations of the Network Perspective

• Risk of entering foreign markets blindly

• Networks do not emerge without considerable
  efforts

• Cannot be considered as an alternative to Stages
  Approach but rather as a complement

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The Born Global Phenomenon

• Born Global Firm or International New Ventures
  relatively new phenomenon

• Definition
• Small, highly committed, technology intensive
  oriented companies that operate in international
  markets form the earliest days of their
  establishments. (Knight Cavusgil, 1996)

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The Born Global Phenomenon

• Finite market opportunities in domestic market,
  may not justify development expenditures for
  certain highly specialized technologies.

• International expansion considered from inception

• Contemporary theories do not fully explain
  occurrence of these Born Globals

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Government Support

• Most national governments place considerable
  emphasis on export promotion activities.
• Understanding of specific firms needs relative
  to their export involvement is required.
• Support aimed at those firms adopting Stages
  approach to internationalisation less effective
  for Born Globals, targeting narrow global
  niches.
• Invest Northern Ireland Export Skills and
  knowledge workshops

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Industry Examples

• FM Environmental Ltd. Newry, Co.Down
• - manufacturing

• Level Seven. Belfast, Co.Antrim
• - information communications technologies

• Alpha Environmental Systems Ltd.
• Coleraine, Co. Londonderry
• - manufacturing / services

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Summary

• Small firm Internationalisation defined

• Motivations to Internationalisation

• Barriers to Internationalisation

• Internationalisation Theories
• The Establishment Chain
• Network Perspective
• Born Global
• Limitations and Criticisms identified

• Government Support

• Industry Examples

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Further Reading

• Knight Cavusgil (1996) The Born Global Firm A
  Challenge to Traditional Internationalisation
  Theory. Advances In International Marketing
  vol.8, pp.11-26

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• Bell, McNaughton, Young Crick (2003) Towards
  an Integrative Model of Small Firm
  Internationalisation. Journal of International
  Entrepreneurship vol.1 (4) pp339

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Further Reading contd

• Etemad, H. (2004) Internationalization of Small
  and Medium-sized Enterprises A Grounded
  Theoretical Framework and an Overview.Canadian
  Journal of Administrative Sciences 21(1)

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Questions ???