- Centre for International Business at the University of Leeds
Due to the rapid changes that have occurred in technology, the global economy and the geopolitical situation in the last 30 years, almost every company is affected by at least some kind of international challenge.
International sales and marketing, international sourcing, joint ventures, international co-operation, and Foreign Direct Investments (FDI) are just a few examples of the challenges and opportunities that a company faces.
Year after year, an increasing percentage of FDI and international trade confirm this - despite the global economic crisis, the levels of FDI in 2011 increased in all major economies (developed, developing and transition economies) (UNCTAD, 2012). Initially, mainly only big Multinational Companies (MNCs) were trading and investing internationally. However, nowadays it has become possible for the Small to Medium Enterprises (SMEs) to be involved.
SMEs are a class of companies with high and increasing relevance in the European economic system. In the European Union, according to the annual report on European SMEs 2014/15, they account for 99.8% of the total number of enterprises. They employ 67.4% of the population and generated 58% of the sector’s value added.
Furthermore, the European Commission’s study (2010) on the Internationalisation of European SMEs states that “internationally active SMEs report an employment growth of 7% versus only 1% for SMEs without any international activities” and “26% of internationally active SMEs introduced products or services that were new for their sector in their country; for other SMEs this is only 8%”. Consequently, the SMEs’ internationalisation process merits great attention, especially during periods of economic crisis.
The general current economic situation generates a business environment with high uncertainty. In such conditions, it is very difficult for the (usually resource-constrained) SMEs to develop precise business plans when exploring international opportunities. Therefore they are forced to make decisions based on investing as much as they are willing to lose rather than looking for maximisation of profits.
Given the high relevance of the traditional SMEs in many national economies (eg Italy, Portugal, Estonia, Luxembourg), gaining a better understanding on how European SMEs can successfully compete in the modern globalised business environment will enhance their competitiveness and, ultimately, will help the national and EU economy.
My research aims to achieve a deeper understanding of how European entrepreneurs can speed up the internationalisation process and, therefore, improve the performance of their SMEs. The project is divided into three main parts:
1) The first objective is to explore the consequence of adopting entrepreneurial decision-making on the speed of the internationalisation process itself.
Previous research has helped shape our understanding of the internationalisation process, yet it focused more on the content of new venture internationalisation strategies but neglected to analyse the development and implementation of these strategies.
2) The second objective aims to explore what type of organisational change is involved in the entrepreneurship-driven internationalisation process and what capabilities are required to manage it.
This part of the project aims to identify how an SME changes when it faces an international business landscape and becomes a company able to operate in different markets. The ultimate scope is to shed light on the transition from entrepreneurial internationalisation to multinational companies.
3) The final objective aims to develop and test a model based on the outcomes of the previous objectives.
Developing an effective export channel strategy is critically important as firms expand into international markets where they face greater uncertainty and have to carefully balance control versus flexibility. This is especially important for SMEs that tend to suffer from significant resource constraints.
Selecting an appropriate export channel is a strategically important decision as it affects the performance of the firm and influences its long-term survival. Given the difficulty of changing existing channels, it is a complex decision that involves allocation of resources and long-term strategic planning.
Therefore, based on the results of the first two objectives and by integrating entrepreneurship, organisation and international business literature this objective aims to develop and test a model.
The model will look at the effect of entrepreneurial orientation on the choice of organisational structure and their alignment on firms’ international performance. It will also take into consideration the moderating influence of institutional distance. For this objective, data are collected through a large scale survey with a specifically developed questionnaire.
In addition to academic interest, this research has important implications for entrepreneurs and managers of European SMEs as well as national and EU-level policy makers.
If you are interested in finding out more about this research, email research.LUBS@leeds.ac.uk.
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The views expressed in this article are those of the author and may not reflect the views of Leeds University Business School or the University of Leeds.