Internationalization of SMEs

• Service export needs more than packing and sending a product 
• Services  
  • need more skill in personnel
  • face more cultural / language barriers
  • face diverse expectations 

• Work with customer: in services, the client is the target and is essential 
  • The service does not exist without the customer, he is integrated in production process 
• Characteristics of services vs manufactured products 
  • Tangibility of the service is not always the same ex. restaurants or teaching 
• Marketing (restrictions and implications)
  • A service is difficult to market because you can’t see it 
  • Loyalty depends more on the staff ad their relationship to clients 
• Role of staff 
  • Performance of staff is less easy to monitor
  • Services are less standardized, because different people offer the service differently 

1. Intangibility: some outcomes are tangible, large spectrum
2. Inseparability: production and outcome happen at same time. Not always true ex. communication service can be asked for and sent later 
3. Heterogeneity: difference amongst providers  
4. Perishability: goes fast after it is received ex. taxi ride, spectrum
5. Ownership: client doesn’t own the service; the service doesn’t enable the client to offer it himself  

• Degree of immateriality of outcome
• Degree of interactivity of customer in the service generation process 

• Location choice for tradeable services is considerably greater than for location-bound services, choice dependent on: 
  • Need to adapt products to local market conditions
  • Transport costs (tariff barriers)
  • Economies of scale in production
  • Availability of factor inputs (qualified personnel)
  • Degree of vertical and horizontal integration within the firm
    • (horizonal = same level of firm activities, vertical = upstream or downstream in value chain)
  • Government restrictions 

Explains how competitive advantage is generated by unique bundle of resources at core of firm

• Managerial resources
• Knowledge-based resources
• Organizational capabilities
• Relational resources
• Physical resources
• Together = export performance, competitive advantage 

• Firm characteristics: size, service type, years in business
• management characteristics
• firm-level resources 
• host country factors 
• choice inernational market entry mode / involvement 

• Difference between FDI and exporting 
  • If the resources don’t allow to do FDI, favor classical exporting 
• Classical export is more difficult for services 
  • Online-based services are easier to export than services needing personal and skills 

• Product embodied in skilled personnel
• Relatively high degree of client involvement 
• Relatively low capital intensity
• Project-based nature of business 

• technical facilitation
• process quality
• relational competence
• cultural sensitivity
• country of origin
• tangible cues
• service climate 
• product differentiability 
• management commitment 

degree of tangibiliy

degree of face to face contact 

1. Direct export
2. System export (follow large customer abroad or joint export by 2 or more complementary firms)
3. Owned subsidiary, direct entry (service-producing organization of its own in foreign market) 
4. Indirect entry, intermediate mode: franchising and licensing 
5. Electronic marketing, internet
6. Cooperating with partners / strategic alliances 
7. Fetching or importing clients 

• Market-driven
  • Find big demand somewhere
  • New actor in own market that pushes firm out 
• Customer-driven 
  • Follow a customer
• Technology-driven
  • New possibilities linked to technology 
• Project-driven 

firm increasing its operational involvement beyond national boundaries 

• direct and indirect export 
  • FDI: producing abroad
• import (cusromers, resources, goods, staff)
• international partnership
• international incentives 
• franchising or licensing 

1. indirect exporting
2. direct exporting
3. own exporting 
4. franchising
5. joint venture
6. wholly owned subsidiary 

firm consolidates position in home market, then expands in close neighbor countries, gradually commits in foreigh market 

• firm's level of commitment positively correlated to experience and accumlated knowledge from previous interactions 
  • effectuation approach: try out and see result
  • causation approach: market study 

• internationalisation is risky, managers are risk averse
• market knowledge is driver of internationalisation
  • experimental (experience before knowledge) 
• resource commitment defined by market knowledge and market commitment 

1. export awareness
2. export intention
3. export trial 
4. export evaluation 
5. export acceptance 

• presented as historical descriptions
• not customer driven
• iternationalization follows patters, little influence of manager
• litlle advice to manager 

• internationalisation is a process of constinuously establishing relationships and managing them 
  • experimental knowledge 
  • relationships embedded in networks 
• firm enters market through
  • new relationships w actor in new market
  • additional commitment in already existing market 

1. early starter: low degree of int of firm, low degree of int of newtorks 
2. late starter: low degree of int of firm, low degree of int of networks
3. lonely international: high degree of int of firm, low degree of int of netowrks 
4. international among others: high degree of int of firm, high degree of int of netowrks 

• market diversification (nb of countries)
• export intensity (% of turnover abroad) 

nb of international relationships 

proportion of international relationships 

• no predictability (too many variables, no pattern)
• no criteria for types of participants
• ignores external factors and actors 

• personal or professional
• bonding ties (common background)
• bridging ties (common sector)