SME internationalisation beyond exporting
- Centre for International Business at the University of Leeds
Small and medium-sized enterprises (SMEs) are increasingly able to pursue complex internationalisation strategies, similar to those of their larger counterparts. Modern SMEs that are able to engage in market entry modes beyond exporting, such as foreign subsidiaries, international joint ventures, and international strategic alliances, are typically referred to as micromultinationals.
Whereas previous research has tended to focus on SMEs’ limited ability to internationalise through exporting only, our study has highlighted how micromultinationals are able to use different entry modes by being efficient and fast learners, and by developing and using strong networks.
Understanding and developing different knowledge types is imperative to allowing SMEs to operate as micromultinationals, alleviating the liabilities of smallness and foreignness. In addition to internal knowledge (held by SME managers and key employees), knowledge acquired by advisers external to the company is also important.
There are different types of knowledge required for SME internationalisation via different foreign market entry modes. As opposed to information, knowledge includes beliefs, perspectives, intentions, commitments, and values, and is closely linked to action. Both tacit knowledge (unwritten/unspoken knowledge that is stored internally and hard to communicate) and explicit knowledge (knowledge that can be shared such as data from market research reports) are vital to the successful internationalisation of SMEs.
We interviewed micromultinational managers (internal to the firm) and advisers (external) and found two overarching knowledge dimensions to emerge: core internationalisation knowledge and situational practical knowledge.
Core internationalisation knowledge
Core internationalisation knowledge allows the manager to be the architect of the SME’s future. It is indispensable for identifying opportunities and is responsible for the decision-making process that enables SMEs to engage in and manage internationalisation beyond exporting. Our findings show that it is tightly linked to individuals and is embedded in their subjective experiences, sense and intuitions, and is therefore hardly possible to articulate and transfer.
Core internationalisation knowledge is directly linked to three knowledge types: product distinctiveness, worldwide industry idiosyncratic, and foreign locality knowledge.
- Product distinctive knowledge represents an indispensable starting point for involvement in any international activity. Both its constituents (general product knowledge and expert product knowledge) have been developed prior to the firm’s involvement in internationalisation beyond exporting.
- Worldwide industry idiosyncratic knowledge is a combination of knowledge developed for export-based internationalisation and knowledge specific to micromultinationals. A certain level of knowledge of foreign opportunities in the industry and of knowledge of foreign collaborators in their sector is developed before the SME starts operating as a micromultinational when engaged solely in exporting. However, industry idiosyncratic in-depth worldwide network knowledgeis developed gradually and is essential for internationalisation beyond exporting to take place. It builds on knowledge developed from prior foreign opportunities and collaboration experiences.
- Foreign locality knowledge includes foreign customer knowledge and hands-on foreign market knowledge. Knowledge of international customers is necessary but not sufficient for engagement in internationalisation beyond exporting. However, hands-on knowledge of local culture and institutions, gained through lived experiences, is necessary for being able to operate foreign subsidiaries.
Situational practical knowledge
Situational practical knowledge originates from outside the firm and is typically provided by advisers. Although previous research has suggested that external professional advisers may help in identifying opportunities abroad that are vital for internationalisation but otherwise not necessarily accessible to SMEs, our data reveals that opportunity identification is part of core internationalisation knowledge and therefore internal to the firm.
Both the managers and advisers we interviewed perceive situational practical knowledge to be related to functional knowledge, including tasks of an accounting/legal and financial/banking nature. The external knowledge requirements from advisers occur more frequently after the decision to engage in internationalisation beyond exporting has been taken internally by the manager. We found that for exporting, advisers are only required to assist with support for tasks such as drafting contracts, letters of credit, currency exchange and tariffs ie international trade knowledge. Once the SME has evolved beyond exporting however, extra advice is required for the completion of functional tasks such as setting up foreign subsidiaries ie international set-up knowledge.
Advice for SME managers – knowledge development
The findings from this study have relevant implications for practice. SME managers who aim to engage in foreign market entry modes beyond exporting may find it useful to:
- Develop knowledge that allows them to produce distinctive products
- Combine this knowledge with industry worldwide and hands-on knowledge of foreign markets
- Rely on their tacit knowledge (along with that of their key employees) when making strategic decisions, such as selecting the most appropriate foreign market modes
- Consistently enhance their industry and foreign market knowledge to ensure the sustainability and development of their internationalisation strategies
- Cultivate a firm culture that promotes continued and efficient communication with relevant network individuals in their sector and related sectors
- Engage in an ongoing dialogue with multiple international stakeholders, including face-to-face visits in the foreign markets of interest.
In relation to functional requirements (eg preparing international partnership agreements and setting up subsidiaries abroad), managers should contract the services of professional advisers specialised in dealing with these kind of activities. If satisfied with the advice received, they should remain in contact with that specific adviser and hopefully a trustworthy relationship will develop.
Advisers may find it useful to develop in-depth knowledge of specialised niche sectors wherein micromultinationals operate, making their services more appealing and therefore hopefully increasing the frequency with which they provide knowledge services to these SMEs.
Continuing to develop these different knowledge types will help SME managers make informed decisions related to market entry mode selection and help reduce the perceived risks associated with SME internationalisation beyond exporting.
Subscribers to The Journal of World Business can view the article online (https://doi.org/10.1016/j.jwb.2018.06.001) and in print in Volume 53, Issue 5, November 2018. The Open Access version of this article will be available to view from 5 July 2019. If you’d like to find out more about this research, please contact firstname.lastname@example.org.
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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.