The Benefits and Challenges of Internationalising Small and Medium Enterprises - Research Proposal Example

The Benefits and Challenges of Internationalising Small and Medium Enterprises Research Question: What are the benefits and challenges of internationalisation by Small and Medium Enterprises (SMEs)? Literature Review Much of the research conducted in relation to internalisation of businesses concentrates on large multinational firms. As more SMEs get interested in the international market, more research is being dedicated to the external and internal barriers that hinder SMEs from internationalising their business. Fillis (2002) for example indicates that most SMEs lack the motivation to internationalise their businesses. Storey (1994) indicates that the absence of business experience, failure to conduct enough market research, the absence of marketing knowledge, failure to understand international cultures and lack of sufficient financial resources are some of the internal factors affecting SMEs’s efforts to internationalise. External factors which negatively affect SMEs’s internationalisation efforts include stiff competition, communication challenges, distribution challenges, absence of government incentives, complicated legal and regulatory frameworks, and insufficient market share in the targeted markets (Storey 1994). A study conducted by DHL (2013) revealed that the UK had the lowest number of international SMEs among the sampled countries, with only 50% SME international presence. Countries like Brazil and China had 95% of their SMEs operating internationally, while Germany, Russia, France and Italy also performed impressively with 68%, 94%, 81%, and 74% of their SMEs operating in the international market respectively. Some of the activities that have enhanced the penetration of SMEs in the international market include commercial cooperation, technical cooperation and subcontracting with other SMEs in the international market. Exports and imports are also other areas through which SMEs make their presence felt in the international markets (DHL 2013). Of the 50% of UK’s international SMEs, only 22% are ranked as high performing SMEs. Of the foregoing, 14% perform very well in efficiency, while 8% have excelled in innovation (DHL 2013). Consequently, 28% of UK’s international SMEs do not perform impressively in their international markets. One of the major hindrances to an SME’s international performance is the firm’s inability to “contact potential overseas customers” (OECD 2009, p. 10). Barnes, Chakrabarti and Palihawadana (2006), Crick (2007) and Kneller and Pisu (2011) have also investigated the importance of an SME’s inability to establish contact with its target market, and note that it hinders the representation of an SME in the target market. Orser et al. (2008) also found out that growth ambitions of SMEs were a predictor of whether or not the SME would attempt internationalisation. Additionally, OECD (2013) indicates that knowledge assets can predict whether an SME will perform well in the international market. Specifically, SMEs that have a good understanding of international markets were expected to perform well internationally, while those that did not possess such knowledge and understanding were found to perform dismally (OECD 2013). Llyod-Lester and Mughan (2002) also argue that the behaviours and attitudes of the owner/manager of an SME can determine whether or not the SME will succeed in international venture. In spite of several studies having been conducted on SMEs and internationalisation, not much information has been provided towards the role that understanding the challenges and opportunities that the international market pose has on the success or lack thereof in SMEs. The proposed research will therefore seek to fill the existing gap in knowledge and possibly enlighten SMEs on and about what the considerations, which are necessary prior to internationalizing their processes and/or services. Conceptual framework Evidence from the literature review above indicates that SMEs’s ability or inability to flourish in international markets is determined by multiple internal and external factors. However, considering that some SMEs succeed while others fail, this paper will seek to show that understanding the target market and adopting the right strategy for internationalisation are critical factors in determining whether an SME will fail or succeed. As Oviatt and McDougall (1994) note, size is no longer a requirement for the establishment of multinational enterprises. Small firms can succeed in international markets if they understand the target market, establish good communication strategies, establish dependable marketing channels, and deliver consumer value with a product/service. In the proposed research, the researcher will be looking for characteristics of the different firms as well as their variable attributes. The researcher will seek to identify things, actions and strategies in both SMEs, which may have contributed in the success of one and the failure in the other. Notably, it has been argued that an SME must understand the political, economic, legal, social and cultural framework of a specific market before venturing into it (Oviatt & McDougall 1994. The network approach theory of SME internationalisation will be applied in the proposed research, since it argues that knowledge, strategic decision-making, commitment and on-going activities help SMEs internationalise by creating the necessary networks for SMEs to succeed in their internationalisation efforts. Methodology The philosophical approach The proposed research will adopt a constructivist paradigm, which claims that truth is relative and hence dependent on the different perspectives held by different people. As Baxter and Jack (2008) note however, the case study approach does not reject the concept of objectivity. The proposed research will adopt an exploratory case study approach, where the researcher will explore situations that lead to the success and/or failure of featured SMEs in internationalisation. According to Yin (2003), the exploratory case study approach enables the researcher to evaluate interventions that lead to different outcomes. Research questions 1. Why do SMEs need to internationalise their businesses as opposed to growing in their local markets first? 2. Why do some SMEs succeed in internationalising their businesses while others fail? Rationale and research questions SMEs constitute the largest percentage of businesses in any one country (Davis 2005). Additionally, there is a rising trend in the contemporary global business environment where such small and medium enterprises want to venture outside their geographical borders (Davis 2005). Internationalisation is therefore perceived as one of the ways that SMEs can access larger markets and hence increase their bottom-line. Yet, internationalisation is not a simple process; as Fillis (2002) notes, internationalisation has multiple challenges even for the multinational firms whose businesses are ranked as large. The need to access international markets, coupled with the challenges in the international market, present a problem that this paper seeks to investigate. Additionally, there are case studies of SMEs that have succeeded in internationalising their businesses; still, others have attempted and failed. The foregoing then means that some SMEs succeed where others fail. The foregoing realisation means that SMEs need to understand several things before starting the internationalisation process. Specifically, the research will answer the research questions indicated above with the intention of making a contribution in knowledge with the exact factors that SMEs need to consider before targeting the international markets. According to the Organisation for Economic Cooperation and Development (OECD) (2013), SMEs increasingly face challenges in their attempt at internationalisation, and resultantly, only the prepared ones succeed in their ventures. Methods The proposed research will use a case study approach, which is ideally suitable for the ‘why’ nature of the research questions. Baxter and Jack (2008, p. 544) indicate that case studies provide researchers with a qualitative method of study, which enables them (researchers) to study “complex phenomena within” its context. The case study methodology further enables the researcher to deconstruct, reconstruct and understand why things happen the way they do (Baxter & Jack 2008). In the proposed research, the case study approach will help the researcher understand factors that contributed to the success of one SME and the failure of the other SME in internationalisation. Sample The study will identify two SMEs that have attempted to internationalise their business operations in the UK. One will have succeeded, while another will have failed. The foregoing form of sampling is selected because it will enable the researcher to investigate why both SMEs had different outcomes, and base an analysis on the results attained. According to Dion (1998, p. 127), comparative case studies usually “rely on a practice known as selecting on the dependent variable”. The dependent variable in the proposed research would be the success or lack thereof of internationalisation attempts by subject SMEs. The case study approach is not without its fare share of challenges; ‘selecting on the dependent variable’ is by itself a challenge as noted by Dion (1998, p. 128). Additionally, the few cases featured in the comparative case study make scientific testing hard to achieve. Ethics In regard to research, ethics is defined as how a researcher behaves or “should behave in relation to the people with whom he/she interacts” (Simons 2009, p. 96). In the proposed research, the researcher will be required to get permission from the two sampled SMEs to include them in the research. The foregoing is also in line with the Nuremberg code of ethics, which indicates that “all research participation must be voluntary” (p.87). Additionally, the researcher will need to identify the socio-political context that the two firms will be operating in and therefore establish ways through which the research and its findings will not negatively affect the two firms. The researcher will also need to consider fair reporting when analysing and documenting text in order to avoid the possibility that respondents whom he will have established a trusting relationship with will feel betrayed. Other considerations for purposes of upholding anonymity and confidentiality include: getting informed consent from representatives of the two SMEs; asking fair questions (i.e. not too intrusive); avoid any questions and/or actions that may be perceived as contrary to respondents’ privacy; record respondents’ responses accurately; honour confidentiality requests; uphold fairness when analysing and interpreting data; and portray respondents and their representative organisations in a fair but accurate manner. References Barnes, B, Chakrabarti, R & Palihawadana, D 2006, ‘Investigating the export marketing activity of SMEs operating in international healthcare markets’, Journal of Medical Marketing, vol. 6, no. 3, pp. 209-221. Baxter, P & Jack, S 2008, ‘Qualitative case study methodology: study design and implementation for novice researchers’, The Qualitative Report, vol. 13, no. 4, pp. 544-559. Crick, D 2007, ‘SMEs’ barriers towards internationalisation and assistance requirements in the UK’, Journal of Small Business & Entrepreneurship, vol. 20, no. 3, pp. 233-244. Davis, C 2005, ‘Adoption and use of internet technologies and e-business solutions by Canadian micro-enterprises’, viewed 4 July 2014, . Dion, D 1998, ‘Evidence and inference in the comparative case study’, Comparative Politics, pp. 127-145. DHL 2013, ‘Internationalisation – a driver for business performance’, SME Competitiveness Study, viewed 4 July 2014, Fillis, I 2002, ‘Barriers to internationalization: an investigation of the craft microenterprise’, European Journal of Marketing, vol. 36, no. 7/8, pp. 912-927. Kneller, R & Pisu, M 2011, ‘Export barriers: what are they and what do they matter to?’ The World Economy, vol. 34, no. 6, pp. 893-930. Llyod-Reason, L & Mughan, T 2002, ‘Strategies for internationalisation within SMEs: the key role of the owner-manager’, Journal of Small Business and Enterprise Development, vol. 9, no. 2, pp. 120-129. Organisation for Economic Cooperation and Development (OECD) 2009, ‘Top barriers and drivers to SME internationalisation’, Report by OECD Working Party on SMEs and Entrepreneurship, OECD. Oviatt, B & McDougall, P 1994, ‘Toward a theory of international new ventures’, Journal of International Business Studies, vol. 1, pp. 45- 64. Simons, H 2009, Case study research, Sage, London. Storey, D J 1994, Understanding the small business sector, International Thompson Business Press, London. Yin, R. K 2003, Case study research: design and methods (3rd ed.), Sage, Thousand Oaks, CA. Read More