Internationalization of SMEs

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 

Emergence Due to 

• Increasing niche markets
• rapid tech development, esp. in IT
• increased importance of global networks and alliances
• Entrepreneurs/managers with diversified and enriched capabilities 

Success Factors: entrepreneurial / strategic / external environment / organizational

Entrepreneurial

• international vision / experience / knowledge
• educational background
• entrepreneurial cognition / ability
• personal network

Strategic

• Competitive strategy
• Market entry strategy

External Environment

• Industy condition
• geographic location
• government policies

Organizational

• financial condition
• innovation culture
• unique resources/product/services
• international business network

Impact

• showed vulnerability of global supply chains due to inherent risk
• disruptions on top-tier and lower-tier suppliers
• global supply chains are chaging as regional networks and regional supply chains gain in importance

Key Developments

• Boost capabilities in contingency planning: quicker response time in crisis / run simulations in advance
• Localization/regionalization gains traction: reshoring/nearshoring and aligning with growing customer preference for locally made products
• Diversify supplier base and manufacturing footprint: reduce reliance on single source suppliers despite cost benefits
• Visiblity across the supply chain: effective collaboration and access to data
• Investments in supply chian digitalization: technology that makes supply chains more autonomous and intelligent; leads to better customer service, cost savings through operational efficiency, higher revenues, and launching of new business models. 

Approach: goals and means

• tries to achieve a certain goal 
• Uses the best possible means to go there
• tries to maximise the decision outcomes

Challenges

• limited flexibility
• limitations of getting information (in reality, we have missing information)
• what defines our goals? end or means?
• does not cope well with uncertainty 

Approach: no specific goals / looks at means

• looks at the means one has access to
• creates ends from the means without pre-selected goals
• Risks no more than the entrepreneur is prepared to lose
• Treats surprises as positive/remains opens to them
• Leverages contingencies into opportunities 

Effectual Cycle:

• Interact wth potential / actual stakeholders
• Internations lead to new means
• generating means is an on-going process 

Effectual Principles

• Means: only put in danger what you can afford to lose
• Worldview: a perspective wherein you are able to control the current situation
• Leverage contingencies: choosing the best and making a plan; but have the ability to pivot when needed
• Internationalization: constantly generating new means

Criteria

1. Valuable: provides a competitive advantage

2. Rare: control scarce resources/capabilities; owning something that's hard to find but not in demand

3. Difficult to imitate: expensive to duplicate resource/capability. Difficult to find substitute of your product. 

4. Exploited: organised management processes, systems, structure and culture to capitalize on resource and capabilities 

• 4 yes: business with competitive advantage
  • resource tends to be their knowhow
• 3 yes: longterm profitable business mode
  • by the time competitors catch-up, you can be ahead, giving longterm financial sustainability
• 2 yes: profitable business model
  • depends on how fast competitors copy
• 1 yes: sustainable business model
  • shortterm advantage as competitors can do the same
• all no: non sustainable business

Resources: tangible + intangible assets a firm chooses to use and implement its strategies

Capabilities: resources firms use to organize and exploit other resources

Strategy: a firm's theory of how it is going to gain and sustain competitive advantage

Competitive Advantage: when a firm creates more economic value than its competitors

Knowledge: a familiarity, awareness or understanding of someone/ something, such as facts (propositional knowledge), skills (procedural knolwedge), or objects (acquaintance knowledge)

Tacit Knowledge: non verbalized / hard to formulize/ rooted in skills, experiences, insights, judgements / can be shared via interactins / technical dimensions (knowhow) of skills and capabilities / cognitive dimensions of beliefs, ideals, values, schemata, mental models

Explicit Knowledge: codified knowledge that can be expressed in writing, drawings, or computer programs

Knowledge generation: institutional knowledge - understand target markets / network knowledge (social and business) - contacts to develop business activities / internationalization knowledge

Capability: the ability to perform/achieve certain actions/outcomes

Competence: the set of demonstrable characteristics/skills that enable and improve the efficiency/performance of a job

Antecendents

1. Government Export Programs

• facilitates contacts via trade fairs in foreign markets
• organized visits whereby managers develop their own networks
• provide export counselling to overcome lack of expeience in the international market

2. Home Market Difficulties

• intense rivalry / domestic uncertainties

3. Firm Size

• Based on RBV theory ; size depends on firm's managerial and financial resources
• Export depends on domestic success (stage theory)
• Larger export market = greater export intensity 

4. Networks

• contact with suppliers, customers and govt. agencies
• associations with foreign actors for new international opportunities 

characteristics of international orientation

• world as "market", not just home country
• the value system of the organization encourages exploration of opportunities abroad
• management communicates vision to employees
• develops human and other resources to achieve internationalization goals

characteristics of international innovativeness

• leading technological edge of its industry in international markets
• SME invented a lot of the tech. emebedded in the product
• SME employs most skilled specialists in design and manufacturing of products
• Recognised in international markets for product's technological superiority
• First (v. competitors) to introduce product innovations or new operating approaches
• In the last 5 yrs, SME has already marketed many products to foreign markets

1. Cultural values and national religious values

• The beliefs, values and attitudes of religions may have implications for EO 
• Social entrepreneurship may be driven quite directly by religious and moral values - less risky taking and autonomy, but more innovativeness 

2. National Economic Development

• Entrepreneurs in poor regions are motivated and proactive, take as little risk as possible, and innovative only when absolutely necessary 
• In developed economies with enough resource available to entrepreneurs the requirements for an influential EO may be significant and multifaceted 

3. Diasporas and Racial Separation

• Entrepreneurship commonly demonstrated by “excluded” groups - minorities in given society who cannot fit into the mainstream economy or social hierarchy
•  Such groups exhibit a good deal of proactiveness and are willing to take risks 
• The level of innovativeness demonstrated by these groups is highly sector-dependent 

Motivation: Opportunities are not tied to creation of wealth for owners, but rather to the need to serve a social purpose while remaining financially sustainable 

Processes - the set of key activities through which non-profits generate cash flow (donations and grants, concerts, gift shops etc.)

Outcomes: social and financial indicators

Innovativeness: 

• emphasis on achieving core mission: increasing efficiencies / serving more individuals / enhancing what is done for individuals
• emphasis on generating new sources of revenue: selling products or launching ventures that supplement to/independent of social mission
• emphasis on innovation directed at both mission accomplishment and revenue generation in concert with one another 

Risk-taking

• Risk involves the potential for financial loss as well as potential for loss in achieving social impact
• E.G.: heightened competition for donor funding and grants leads to non-profits to increasingly charge fees for their products & services as a means to supplement external funding sources. 

Understanding non-profit EO

• Social, mission-centric innovation, commercial innovation, unique case in which innovation includes both social and commercial aspects
• Social, financial & stakeholder-relevant risk
• Proactiveness relative to similar organisations in terms of social & commercial innovation as well as relative to stakeholder expectations 

definition : Entrepreneurial activities that take place partially or fully outside of formal institutional boundaries, but inside informal institutional boundaries for large segments of society 

• In practice, many entrepreneurs are neither wholly formal nor wholly informal but display varying levels of (in)formalisation - based on the dimensions of legal status as a company, tax registration, and formal accounts 

• According to the WTO, during the pandemic, exports of some services have increased their share, because social distancing measures have increased the demand for services that can be provided digitally (communication services, shopping, education, medicine & entertainment) 

How do service companies differ from other companies?

• how much is the customer integrated into the services?
• no real ownership in it
• Staff are the face of the company

5 characteristics

• Intangibility - unable to touch it
• Inseparability - car is in better shape now than before it was serviced for example
• Heterogeneity - Imagine every service is different, you cannot get the same service twice 
• Perishability - Once you consume it, you cannot reuse it, unless it is a consultancy
• Ownership - if you receive a service, you cannot use the service again after

Internationalization:

• Importing clients
• Australia- millions of students going to study there
• How mobile is the service? How mobile is the customer?
• If you have a location bounded services: auslanderbehorde 

• Service company has certain managerial resource knowledge on doing businesses abroad
• Relational resources: access to clients
• Has an influence on whether you can do exports