International Entrepreneurship - Research Paper Example

International Entrepreneurship ID] Word Count: 3501 Contents 3 INTRODUCTION 4 2.LITERATURE REVIEW 5 2.1 Internationalisation of SMEs 5 2.2 Internationalisation Models 6 2.3 Factors driving Internationalisation 8 2.4 Barriers for SME’s entering International Markets 8 2.5 Major Challenges for SMEs 9 3.METHODOLOGY 10 4.FINDINGS AND ANALYSIS 11 4.1 Case-I: Bike Dock Solutions Limited. 11 4.2 Case-II: The Organic Health Company 13 5.CONCLUSION 14 6.RECOMMENDATIONS 15 REFERENCES 17 ABSTRACT Today internationalisation has become a major challenge for SMEs because of the increasing competition. However, it is not like entering into a new market and started getting profits instantly. It needs finances, hard work, market knowledge and commitment to be successful in an international market. Research shows that though the process of internationalisation is slow however this process can be expedited by networking with the local partners. Yet there are several advantages of going international such as availing global opportunity, exploring new markets, earning more profits, improving resource utilisation and spreading investment and reducing risks. Nonetheless, the process of internationalisation requires SMEs to use their scarce resources carefully and effectively in order to achieve success in their expansion plans. This paper evaluates how international expansion can benefit small and medium sized enterprises and how cooperation can facilitate the process of internationalisation. It also evaluates barriers to the process of internationalisation and how effective entry strategy and informed decision can help overcome these barriers. The paper analyses two case studies to see how they have successfully entered international markets. The paper concludes with presenting recommendation for the SMEs discussed in the paper as well as for the SMEs in general that wish to enter international markets. 1. INTRODUCTION Before defining international entrepreneurship it is important to define entrepreneurship. Shane and Venkataraman (2000) defined entrepreneurship as an evaluation and exploitation of opportunities in order to develop and produce goods and services to satisfy needs and demands of the market. Hisrich (2010, p.10), while quoting Hoing-Haftel et al., (1996) defined international entrepreneurship as “any activity of an entrepreneur that crossed a national border. There are other definitions of international entrepreneurship as well where McGrath et al (1992) highlighted the role of national culture while defining international entrepreneurship and Lu and Beamish (2001) have focused on internationalisation of small-sized and medium-sized companies. A more comprehensive definition is provided by McDougall et al (2003) that international entrepreneurship is a combination of risk taking proactive behaviour required to run a new and innovative venture across border in a new culture in order to create value within organisations. Though organisations entering new markets face several challenges especially due to new culture however international expansion has become even more important in today’s competitive environment. Local presence also gets a boost when a company has existence in more than one country. This is important as it gives competitive edge to the company expanding internationally. This paper argues that though internationalisation of small and medium enterprises is exciting and brings along with it several challenges however if proper steps are followed and thorough research is carried out expansion can be made easier. The purpose of this paper is to analyse the expansion of two SMEs who have made it possible for themselves to expand in international markets while averting the challenges they face in the process of internationalisation. The aims and objectives of this paper are outlined below; To critically evaluate the usefulness of international expansion for the SMEs. To analyse how international expansion can be made easier by involving local partners in the process. To identify entry barriers while searching for suitable entry strategies to overcome these barriers. It is argued throughout the paper that entering unfamiliar markets is always challenging and may cause failure if the organisation has not completely studied the ins and outs of the market. The paper with the help of two case studies of SMEs will identify how they have managed to enter international markets successfully and what challenges and barriers they have faced during the process of internationalisation. Next section will present the relevant literature highlighting the benefits of internationalisation and the models SMEs are suggested to follow if they want to expand internationally. Third section will discuss the methodology used to reach conclusions for this paper. Fourth section will present the cases of the two SMEs who have successfully made it to the international markets. Fifth section will present a discussion on the findings and sixth section will conclude the paper while presenting relevant recommendations. 2. LITERATURE REVIEW 2.1 Internationalisation of SMEs Internationalisation from the perspective of entrepreneurship, as explained above, is the expansion of small or medium sized firms in overseas markets. Today the competition is tough and it is important for the companies to expand on a continuous pace in order to stay competitive. However, SMEs are characterized by limited resources both in terms of finances and human resources and they need to create capacity for easy knowledge transfer (Fernandez & Nieto, 2006), it is therefore decisions about international expansion are not always easy for them. According to Zahra (2005) the process of internationalisation requires SMEs to use their scarce resources carefully and effectively in order to achieve success in their expansion plans. Venkatraman and Sarasvathy (2001) stated that strategic management is at the heart of entrepreneurship and it is hence if an entrepreneur holds a strategic perspective in true sense he/she can easily expand internationally. Zahra (2005) stated that it therefore depends upon the entrepreneur to use his/her strategic skills to manage their plans to internationalize in an effective manner. In a study conducted by Chittithaworn et al., (2011) the researchers have identified eight factors for SME’s success and that is SMEs characteristics, their know-how about management issues, their focus on products and services, their identification of consumer demands and markets, their cooperative way of doing business, their financial and other resource management, their strategic approach and their understanding of internal and external environments. Now if all these aspects are studied with respect to SMEs entering international markets, these all aspects fit in well and can be thought of as determining factors in the success of SMEs internationalisation. 2.2 Internationalisation Models Research in the field of internationalisation has been extensive and different internationalisation models have been developed to assist the process. Among the first models of internationalisation was Uppsala model; this model was introduced in 1977 and explains the gradual process of internationalisation (Frosgren & Johanson, 2010). Pandin and Sim (2002) explained that this model of internationalisation suggests that acquiring knowledge about operating in foreign country is slow and in this process one cycle works as an input for the next cycle. This means when going international the activities carried out by the business in one phase will provide experiential knowledge for the activities to be carried out in the next phase; this will also guide about the resources and commitment one should invest in internationalizing (Hansson et al., 2004). Petersen et al. (2003) explained that the most important element in the internationalisation process is market specific knowledge and a firm mastering this can be successful. Frosgren (2002) further stated that change is vital and inevitable in the whole process and commitment and experience are the keys. Hence this model suggests that if the firm has the market knowledge uncertainty and risk elements will be fewer and the firm can take part in international operations confidently; however the process of internationalisation is slow. Another model of internationalisation is the network theory which according to Hadley and Wilson (2003) suggests that a firm can internationalize successfully if they can form good networks with the foreign firms. This theory emphasizes on cooperation rather than competition and suggests that if there is cooperation between local and foreign firms, internationalisation process will be smooth. This theory contradicts with Uppsala model in that it suggests that making networks and cooperation will expedite the process of internationalisation unlike gradual expansion through experiential knowledge as suggested by Uppsala model. Yet another model is Internationalisation Product Life Cycle Theory which is also among the initial models of internationalisation. This model suggests that the process of internationalisation should start with exporting and once the company becomes good at this it can then move on towards foreign direct investment. Another theory of internationalisation is the OLI framework which suggests that firms can have ownership, location or internationalisation advantages. This suggests that taking both tangible and intangible assets to foreign country gives ownership advantages to the firm; then if the firm has to gain location advantages economy of the country, its natural resources and growth potential as per industry will suggest if the firm will have location advantage or not, then lastly if the firm is lucky to have both ownership and location advantages, internationalisation advantage are attained in true sense (Robson 2003). 2.3 Factors driving Internationalisation The process of internationalisation is a need for today’s global and competitive world. Narula and Dunning (2000) explained that internationalisation has become important in today’s economy as the firms need to keep pace with the changing needs of trade. There are different motives of going international as highlighted by the authors some of which include seeking global opportunity, exploring new markets, earning more profits, improving resource utilisation and spreading investment and reducing risks. These are therefore the drivers of internationalisation in today’s economy. There are yet other drivers of internationalisation among SMEs, the most important of which is the opportunities offered by the changing technological environment. Today knowledge-related motives are quite influential in driving internationalisation (OECD, 2009). In addition to this, growth related aspects such as opportunity to advance and excel in business and gain advantage of the available opportunities is the main drive why majority of SMEs try to internationalize their business (OECD, 2009). Hence quest of leveraging scarce resources offers a major drive for internationalisation. 2.4 Barriers for SME’s entering International Markets As highlighted earlier it is not easy to enter international markets especially for SMEs who already have scarce resources. According to a report published by OECD (2009) among the barriers faced by SMEs going international, the most prominent ones are scarce resources, limited international contacts, and lack of managerial and strategic knowledge for international expansion. OECD (2009) stated that these constraints are more prominent for smaller and newer firms aiming to internationalize as compared to medium-sized firms. OECD (2009) report further stated that SMEs belonging to specific sectors may face particular barriers when it comes to internationalisation and this depends upon the industry and sector the SME belongs to. Jones (2009) has also identified more or less similar constraints faced by the SMEs when internationalizing. The author stated that SMEs have lesser capital and they find it difficult to bear operating expenses in new foreign location. The author continued that SMEs are also faced by lack of international skills as they have less exposure and limited capacity and commitment. Another barrier identified by Jones (2009) is the lack of market knowledge and government regulations in which the firm aims to operate. Yet other barriers are industry specific and firm specific in which the SME has little knowledge about competition and have little capacity and risk taking behaviour. 2.5 Major Challenges for SMEs With drivers and barriers of internalisation, SMEs also have to face certain challenges. According to a report published by Kingston Smith LLP (2012) the major challenges faced by SMEs include finance, innovation, drive to learn, seeking advice and learning from experiences of others, keen monitoring of cash flows, using technological ways and using direct referrals and search engine optimisation, and going international. Going international in today’s economy is identified as a major challenge for SMEs if they are to grow and stay competitive. Hence this study critically evaluates the role of internationalisation in SMEs success because though internalisation may be frightening with limited resources and lack of market knowledge however it has several opportunities that can be availed. 3. METHODOLOGY Methodology and research design offers the foundation for a study. This study is mainly qualitative in nature where the cases are analysed to figure out how SMEs have successfully managed to go international in the face of challenges and barriers they face during their expansion process. The philosophy guiding this study is interpretivism where the main purpose is to build theory based on the realities as they came to fore from studying the opinions of actors involved in real life situations (Betz & Fassinger, 2011). This interpretivist approach sets premise for a subjective study carried out to build theory while analysing deeply the realities from the view point of the actors involved in the investigation. Using qualitative approach and interpretivist philosophy, case study paradigm is taken into consideration which according to Yin (1984, p. 23) carries out “an empirical inquiry that investigates a contemporary phenomenon within its real-life context; when the boundaries between phenomenon and context are not clearly evident; and in which multiple sources of evidence are used.” Bergh and Ketchen (2009) stated that case study is not a method but it is a choice of the area which needs exploration. Here in this paper the choice of study is internalisation of SMEs in order to explore how the SMEs have internationalized while overcoming barriers in the process. In the process of case analysis, this study has used inductive approach to data analysis which is of subjective nature and does not focus on hypothesis testing via using scientific methods rather it is based on theoretical foundations and evaluates the area of investigation from a real life perspective (Saunders et al., 2003). To ensure the data collected and analysed during this study is reliable and valid, the researcher has used two case studies to see if the findings are consistent as stated by Esteves (2010) that reliability is when there is consistency in findings. In addition to this, validity is ensured by checking if the research has attained its objectives outlined at the beginning of the paper as stated by Esteves (2010) validity is when the study achieves what it intends to achieve. Hence critical analysis is presented where the data collected from literature and case analysis is compared to see what they suggest in terms of the internationalisation of SMEs. 4. FINDINGS AND ANALYSIS This section presents findings along with a critical analysis which compares cases with the literature review so as to compare primary findings (the case studies) with the secondary research already present in the current body of knowledge. Following presents the cases analysed critically in the light of the reviewed literature in section two. 4.1 Case-I: Bike Dock Solutions Limited. As pinpointed in the literature, technological advancement is one of the major drivers of internalisation of SMEs as they offer ways using which a company can reach masses on a worldwide level. This case study of Bike Dock Solutions Ltd teaches the similar lesson that information technology helps SMEs expand their business abroad. The internet is no longer a passive billboard, it is now being used extensively to advertise products and people are encouraged to interact in real time. In this case, social media sites such as Facebook and Twitter become partners as communities are created and people can comment on the products and its usefulness. These comments are extremely important as they facilitate the building of trust about the product. People can communicate directly and some can also come up with a better business proposal. However the feedback and referrals that help the business to succeed can also cause it to plunge down. Sometimes negative feedback left by an irate customer can drive potential customers away. A big barrier to entry in online businesses is the possibility of scam; people in some countries are afraid of disclosing their details for the electronic transfer of funds because of identity thefts. Sometimes a website maybe a scam with false feedback left to lure the consumers. The SMEs relying on online business methods, therefore, need to gain the trust of consumers to expand their business. Keeping in view all these pluses and minuses, Bike Dock Solutions – a UK based company presents a successful example of online SME that started off with selling bike racks to organisations, businesses and individuals (see figure-I) and has now expanded its services to supplying shelters for bikes and luxury garden offices. Bike Dock Solutions has expanded its business and has branched out. It also makes bus shelters and has gained contract of making bus shelters in Dubai. It employs 14 people and most of the manufacturing is done locally to produce customized products for consumers. The company uses Facebook and Twitter to engage with its customers. With the help of UKTI (UK Trade and Industry), Bike Dock has extended its services to UAE and Europe with USA as its next step. This shows how advancement in technology has proved to be a major driver of internationalisation and how it removes the barriers of boundaries that keep businesses away. Now the world is just like a global business and advancement is all about how you use technology to your advantage as in the case of Bike Dock that has used social media as its face and expanded its services to other countries. Figure I – Bike Dock Solution’s Bike Shelters and Storage 4.2 Case-II: The Organic Health Company The Organic Health Company is a UK based company that started in 2006. It has ten people on its payroll including the founders. It manufactures natural and pure personal lubricants that are free from artificial skin irritants. The sales are steadily going up and 60% of the sales come from exports. The company exports its products abroad and most of its products are manufactured locally. The company follows ethical practices and uses only natural ingredients for its products and for this reason it has a strong base of loyal customers. However the company faced a couple of hurdles when expanding; first was securing finances and the second obtaining copyrights for the products. The company’s request for finance for the purpose of expansion was turned down by the banks and that has restricted its product line. Another barrier is the protection of intellectual property which is quite expensive. The company believes that the government should make it easy for small companies to protect their products from infringement. The UK Trade and Industry (UKTI) have helped the company in exporting its products and till 2012 it was exporting its skin care products to 66 countries. This case presents the use of exporting as an entry mode in international markets especially for companies that lack finances and initial capital for foreign direct investment. Exporting is identified in the literature as a popular mode of entry among SMEs and is found to be best suitable for small companies having fewer finances. This case is in line with the Internationalisation Product Life Cycle Theory which suggests focusing on exports and upon building good and loyal consumer base the company can think of achieving ownership advantages. 5. CONCLUSION This paper has evaluated the literature on the internalisation of SMEs and highlighted the major drivers of the process and the barriers and challenges faced by SMEs while going international. The paper found that facing challenges is common especially due to lack of capital money and finances however modes like advancement in technology and cooperation among local and foreign firms have made it lot easier for SMEs to go international. Though SMEs may fear that going international will bring problems for them, however anything can go wrong if not planned and organised and same is the case with internationalisation; it is therefore important to take planned moves and go for cooperation than competition. The study has analysed two cases of the SMEs who have successfully entered foreign markets and are constantly expanding their business by the use of right strategies and by using the market knowledge properly. It is all about using the right strategy at the right time. Hence this paper is significant in making clear the expansion options for the small and medium enterprises and the suitability of each option for any particular situation. Revisiting research aims and objectives it can be concluded that usefulness of international expansion for the SMEs is evaluated well in the study where it was found that internalisation bring forward many opportunities and revenue generating options. It helps SMEs explore new markets and utilize their resources efficiently. It was found from the studies and internationalisation models discussed in the literature that the process of international expansion can be made easier by involving local partners in the process. Network theory suggested that it is always better to make networks with locals of the area the SME wish to enter so as to facilitate the process of internalisation. Yet the study also achieved its third objective by discussing suitable entry strategies and how the barriers to entering new markets can be removed or at least reduced in intensity. 6. RECOMMENDATIONS Based on the discussion and critical analysis presented in this paper and the analysis of case studies, following recommendations can be made to the SMEs in general and to the SMEs discussed in this paper in particular. For Bike Dock Solutions Ltd it is recommended that the company should keep on expanding in other lines as it is doing currently and have to focus on its local presence along with using social media and internet face. This is important because ultimately to become a brand visibility is important. For The Organic Health Company it is suggested that it should now be focusing on foreign direct investment. This is because using exporting mode the company has already been approaching many countries, which is a sign that their products are popular and they have secured a client base which will support them in their expansion. To make this expansion much easier partnership with a local firm could be an option; but if The Organic Health Company doesn’t feel it a good option due to infringement issues it is quite a possibility that they take up expansion challenge on their own because they have the market knowledge, capability and commitment required for the expansion. Proper evaluation of the market to be entered is very important if an informed decision is to be made about entering a foreign market. Knowledge of the market should be kept at the heart of internationalisation because the more the firm has market-specific knowledge the more they will be in a position to cope with changing culture and meet consumer and market demands. Searching for a local partner and collaboration is very important strategy as suggested by the network theory of internationalisation and hence it should be practiced while expanding internationally. REFERENCES Betz, N. E., & Fassinger, R. E. (2011). Methodologies in Counselling Psychology. In: Altmaier, E. M., & Hansen, J. C. (eds.). The Oxford Handbook of Counselling Psychology, pp. 237-269. New York: Oxford University Press. Bergh, D. D., & Ketchen, D. J. (2009). Research Methodology in Strategy and Management, Volume 5. UK: Emerald Group Publishing. Chittithaworn, C., Islam, A., Keawchana, T., & Yusuf, D. H. (2011). Factors Affecting Business Success of Small & Medium Enterprises (SMEs) in Thailand. Asian Social Science 7 (5), pp. 180-190. Esteves, J. (2010). Proceedings of the 9th European Conference on Research Methods in Business and Management: IE Business School Madrid. Spain: Academic Conferences Limited. Fernandez, Z., & Nieto, M, J. (2006). Internationalization Strategy of Small and Medium-Sized Family Businesses: Some Influential Factors. Family Business Review 18( 1), pp. 2-23. Frosgren, M. (2002). The Uppsala model and the internationalization of fast-moving e-commerce companies. Available at [Accessed on: April 04, 2014]. Frosgren, M., & Johanson, J. (2010). A Dialogue about the Uppsala Model of Internationalization. In: Andersson, U., & Holm, U. (eds.). Managing the Contemporary Multinational: The Role of Headquarters, pp. 283-304. UK: Edward Elgar Publishing. Hadley, R. D., & Wilson, H. I. (2009). The Network Model of Internationalization and Experiential Knowledge. International Business Review 12 (6), pp. 697–717. Hansson, G., Sundell, H., & Öhman, M. (2004). The new modified Uppsala model - Based on an anomalistic case study at Malmberg Water AB. Bachelors Thesis. Kristiansand University. Hisrich, R. D. (2010). International Entrepreneurship: Starting, Developing, and Managing a Global Venture. USA: SAGE Publications Inc. Jones, M. V. (2009). Internationalization, Entrepreneurship and the Smaller Firm: Evidence from Around the World. USA: Edward Elgar Publishing. Kingston Smith LLP. (2012). Success in challenging times: Key lessons for UK SMEs. Available at: [Accessed on: April 04, 2014]. Lu, J. W., & Beamish, P. W. (2001). The internationalization and performance of SMEs. Strategic Management Journal, 22, pp. 565-586. McDougall, P. P., Oviatt, B. M., & Shrader, R. C. (2003). A Comparison if international and domestic new ventures. Journal of International Entrepreneurship 1, pp. 59-82. McGrath, R. G., MacMillan, I. C., & Scheinberg, S. (1992). Elitists, risk-takers, and rugged individuals? An exploratory analysis of cultural differences between entrepreneurs and non-entrepreneurs. Journal of Business Venturing 7(2), pp. 115-135. Narula, R., & Dunning, J. (2000). Industrial Development, Globalization and Multinational Enterprises: New Realities for Developing Countries. Oxford Development Studies, 28 (2), pp. 141-167. OECD. (2009). Top Barriers and Drivers to SME Internationalisation. Report by the OECD Working Party on SMEs and Entrepreneurship, OECD. Pandian, R. J., & Sim, A. B. (2002). Internationalization Process: Revisiting the Uppsala Model in the Asian Context. In: Chan, T., & Lui, G. (eds.). WTO and Global Competition: A new Era for International Business. Hong Kong: Lingnan University. Petersen, B., Pedersen, T., & Sharma, D. (2003). The Role of Knowledge in Firm’s internationalization Process: wherefrom and Where to? In: Blomstermo, A., & Sharma, D. (eds.). Learning in the Internationalization Process of Firms. UK: Edward Elgar Publishing. Robson, S. J. (2003). International Market Entry: Determinants of Australian Exports and Direct Investment to the United Kingdom. Queensland University of Technology. Saunders, M., Lewis, P., & Thornhill A. (2003). Research Methods for Business Students. 3rd edn. India: Pearson Education India. Shane, S., & Venkataraman, S., (2000). The promise of entrepreneurship as a field of research. Academy of Management Review 25(5), pp.217–226. Venkatraman, S., & Sarasvathy, S. D. (2001). Strategy and Entrepreneurship: Outlines of an untold story, In: Hitt, M., Freeman, E., & Harrison, J. (eds.). Handbook of Strategic Management, pp. 650-668. NJ: Blackwell Publishers. Yin, R. K. (1984). Case study research: Design and methods. Newbury Park, CA: Sage. Zahra, S. A. (2005). A Theory of International New Ventures: A Decade of Research. Journal of International Business Studies, 36 (1), pp. 20-28. Read More