International Business Competence and the Contemporary Firm - Article Example

REVIEW OF JOURNAL ARTICLE International Business Competence and the Contemporary Firm by Gary A. Knight and Daekwan Kim The above article by Knight and Kim (2009) has been selected for reviewing. The paper is related to the topic Organisational Objectives and Growth in the context of international business. The contents of the article will be summarised, and the reasons why the paper is of interest will be explained. Summary of the Article Small and medium enterprises (SMEs) are defined as firms with 500 or fewer employees (Knight 2000). Large multinational enterprises (MNEs) have dominated international business for a number of decades. As compared to MNEs, SMEs have fewer financial and tangible resources. Hence, increasing internationalisation of SMEs since the 1980s is a significant development, taking into consideration the fact that international business is often more challenging for smaller firms. Over one million SMEs equivalent to over 30% of the manufacturing SMEs in the industrialised countries are now active in international business, accounting for more than a third of world merchandise trade. These globally functioning SMEs are expanding into multiple foreign markets, drawing more than 60% of total revenue from abroad (OECD 1997). This paper investigates the increasing internationalisation of SMEs, and the reasons for their superior performance abroad. The authors discover a set of “intangible capabilities” (Knight and Kim 2009, p.255) that pertain specifically to small and medium firms, and to their growing global participation. Although firm resource is an important factor supporting superior international performance in the global SME, the authors conceptualise a new construct International Business Competence (IBC) as the intangible capability that is the most significant cause for superior international performance of the international SME. First, the role of IBC in international SME performance is investigated through a series of case studies, to identify the particular firm factors that characterise international business competence in the international SME. In the second phase, they conducted a survey-based study on a large sample of internationally active SMEs, in order to validate findings from the qualitative phase. That is, the authors use these findings to develop and empirically test a “model with several factors that collectively contribute to superior international performance in contemporary SMEs” (Knight and Kim 2009, p.256). According to evolutionary economics, organisational capabilities consisting of critical competencies and embedded routines, are developed by particular firms with the help of their superior ability to create new knowledge (Wu et al 2007). Firms develop appropriate competencies for participating in international ventures, such as a global mindset where the management views the world as the firm’s marketplace, establishing a culture of international business (Knight and Cavusgil 2004). The authors formulate and evaluate a model that relates IBC to SME international performance. The four key dimensions of IBC responsible for SME international performance identified are: international orientation, international marketing skills, international innovativeness, and international market orientation. Evidence from this research paper indicates that international orientation, international marketing skills, international innovativeness, and international market orientation are important dimensions of IBC; and that IBC is a major reason for SME international performance. Finally, the purpose of the study is met, through extending knowledge about international SMEs in relation to IBCs. However, future research on IBCs will further benefit similar business spheres. Appreciation of Contents The article reviewed: on international business competence and the contemporary firm has presented a comprehensive view of the increasing numbers of small and medium enterprises engaged in global business today. This is a new development in the last two decades, since multinational companies had dominated international business in the past. The reasons for growing numbers of SMEs participating in international business as well as the key characteristics of such firms which conducted business successfully in the global arena are issues that required research investigation. Earlier literature on these areas are limited in number, and do not posit any definite theories as the basis for the global operations of SMEs. The contents of this paper have been systematically formatted, and each subtopic has been thoroughly discussed, with support from relevant and recent literature. The research is conducted through literature search and an empirical study to validate the authors’ conceptualisation of the four key dimensions of IBC responsible for SME international performance. The dimensions are: international orientation, international marketing skills, international innovativeness, and international market orientation. Thus, the superior ability of certain firms to create new knowledge leads to the development of organisational capabilities consisting of critical competencies and embedded routines. It is seen that by accurately formulating the criteria that successful SMEs in the global business arena adopt, the authors add significantly to the literature available, and also help other SMEs to venture forth into international markets, following the research evidence from this paper. This research study though comprehensive, has some limitations as identified by Knight and Kim (2009). Besides the four significant dimensions of IBC identified, there are likely to be additional relevant dimensions such as the global commitment that SMEs make, the antecedents of IBC, and internal and external factors of SMEs that influence IBC. Moreover, a firm’s management characteristics is a possible significant internal factor for IBC, and market or technological ups and downs could be external factors. Further, despite the overall positive effect of IBC on SME profit, there may be a partial negative effect on profit, since costs incurred may impact profitability adversely. For this purpose, future research should identify when the overall effect of IBC turns negative with the help of moderators such as industry type and level of competition. Besides ultimate outcome measures, firm performance as a result of IBC can also be measured by immediate customer-satisfaction outcome measures. Conclusions After providing the rationale for the increase in contemporary SMEs and for their global business success today, the authors refer to relevant literature on the concept of international business competence. They develop a set of hypotheses to assess the validity of the proposed model. They explain the research methods used and test their hypotheses in a survey-based research study. Finally, the outcomes of the empirical study and managerial implications are discussed, and conclusions are drawn. Bibliography Knight, G. and Cavusgil, S.T. (2004). Innovation, organizational capabilities, and the born-global firm. Journal of International Business Studies, 35 (2): 124-141. Knight, G.A. and Kim, D. (2009). International business competence and the contemporary firm. Journal of International Business Studies, 40: 255-273. Knight, G. (2000). Entrepreneurship and marketing strategy: The SME under globalization. Journal of International Marketing, 8 (2): 12-32. OECD (Organisation for Economic Cooperation and Development). (1997). Globalization and small and medium enterprises (SMEs). Paris: Organization for Economic Cooperation and Development. Wu, F., Sinkovics, R., Cavusgil, S.T., and Roath, A. (2007). Overcoming export manufacturers’ dilemma in international expansion. Journal of International Business Studies, 38 (2): 283-302. Read More