Internationalization of SMEs

Push Factors

• high level of specialisation => reduced market opportunities and high R&D costs
  • Expand towards specific niche arkets locally and globally
• Serve local customers that reside internationally
• Build production systems with units located internationally

Internationalization: a process where firms incease their operational involvement beyond their national territories..adaping firm's operations to the international market

Modes of Internationalization: classical export, international partnerships, joint venures, licensing/franchising, foreign direct investment, import of goods/services or customers/talent. 

The Upssala Model: Internationalization as an incremental stage-wise process (i.e., stage theory)

Stages:

1) Firm consolidates its position in the home market

2) Looks to expand to foreign market, starting with exporting to neighbouring countries (due to cultural/institutional similarities)

3) Enters into other foreign market operations and resource commitments

4) Firm's level of commitment is correlated with its experience and accumulated knolweddge in the international market arena. 

Assumptions:

1) Managers are risk averse - "Psychic Distance" 

Psychic Distance: the psychological block that prevents or distrubs the flow of information between firm and destination market agents. Includes factors such as, language barrier, culture, politicla system, level of education and level of indusstrial development

2) Market knowledge drives Internationalization = as market knowledge and market commitment increase, firms level of resource commitment increases. 

Criticisms: 

1) mere historical descriptions

2) 'provide-driven' instead of 'consumer-driven'

3) tends to view Internationalization as developing along specific patterns without managers deliberately influencing this process

4) Offers little advice on how to manage the transactions for going international. 

Assumptions of Network Theory:

• Phenomenon of creating, developing, utilizing relationships
• Requires less knowledge development and adjustment
• Firms can enter a ew market and Internationalize by developing new relationships, adding commitments to preexisting relationships, and harmonising company's position through a variety of relationships

Criticisms/Drawbacks

• Not a satisfactory model for predictions as too many variables 
• Ignores relationships with competitive firms, domestic competition and govt. involvement