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 

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