Internal Factors affecting
Internationalisation of Entrepreneurial SME’s
possessed by the entrepreneur is related to the human capital (knowledge,
experiences and skills a person has gathered over time) and entrepreneurial
social capital. (Unger et al., 2011; Kwon and Arenius, 2010) These
entrepreneurial skills trigger the entrepreneur to seize the chance abroad and
grasp this opportunity presented despise of several constraints that may
prevail such as cost and fierce competition. The entrepreneurs must be able to
explore new ideas so that the survival of their business is not at risk. They
should possess negotiation and communication skills to sell the ideas and the
products/ services. Creativity is another concept where the entrepreneurs
constantly re-invent new projects over the time thus achieving organizational
goals. They should be proactive and lead the future instead of waiting to be
influenced by external factors, in being proactive, best practices and better
performance can be achieved within the firm. The entrepreneurs should possess cognitive
adaptability and make changes in decision policies and give feedback. Entrepreneurs are ought to be determined about the goals of
the organization and the challenges and achieve challenging goals.
Drucker (1974) defines
innovation as a means by which entrepreneurs may exploit change in order to
create new services and business opportunities. The ability to constantly
innovate helps the firm to embrace new ideas, undergo experimentation which
will result in the creation of new products, services or technological
processes. The entrepreneur seeks to benefit from new business opportunities
through innovation presented as he wants to be self-sufficient. (Shane, 2000)
Taking risks and
initiatives can be beneficial for the SME’s as there is increase of volume
activities abroad. As supported by Pérez-Luño et al., 2011, a certain amount of risk is crutial for the
business to expand. Risk involves two aspects which are gains and losses, the
entrepreneur must possess a certain tolerance for ambiguity to engage in
certain tasks and being both at a times, a risk taker and risk handler
(Longenecker and Schoen, 2001).Diversification of new products can be quite
risky and may affect the profitability of the business, thus the survival of
the company operating in a global market is at risk.
informal network consists of business partners and friends.
The interaction of informal network
can influence the degree to which an SME’s want to internalize its operation,
however it has been noticed that SME’s rely on informal network due to
closeness of relationships. Loane and Bell, (2006) emphasizes that the
importance and evolution of networking is seen especially in firms operating in
the niche segments due to more difficult on existing markets. Networking is
seen as a tool for acquiring knowledge about the market, identify key
customers, sources of funding and Research and development activities.
The resources can
emerge from the internal environment such as the skills concerning the
organizational learning, communication and information. However, the firm may
face internal resource barriers such as lack of human resource in terms of
staffs which may hamper the willingness of the firm to start export.
It is referred as the
ability to adapt and quickly response to the market expectations. The SME’s can
thus learn from experiences. There is constant need for the product to be
innovative. The SME’s need to use their specific resources at their maximum
capacity and efficiently to satisfy the requirements of the foreign market.
Their strength resides in their ability to overcome barriers such as limited
resources with innovative products/services.
Lack of knowledge is a threat of
entrance for a small firm as difficulties may occur to exploit the
opportunities presented in the foreign market. Suarez-Ortega (2003) identified
some knowledge barriers such as lack of awareness in terms of export
assistance, lack of awareness of economic and non-economic benefits of the
export market, lack of knowledge of the market itself , lack of qualified staff
and how to enter an export market. The managers face a major constraint as they
fear of entering in a market where they know little or nothing about and thus
this lack of information is a top barrier to SMEs internationalization.
Several authors have
drawn on the conclusion that firms that have better access to resources, where
other things being equal, have better chance in entering the foreign market
efficiently. The bigger the firm, the more resources it has for its
internationalization ventures. However, the company size can be based on
several criteria namely:
Number of employees
Internationalisation of Entrepreneurial SME’s
Companies have ease of access to information,
knowledge and networks through tacit knowledge widely available and increases
the chance of SME’s to become exporters. Technology helps in enabling core
business activities such as products and services, market acceptance and to
survive in competing markets and achieve financial success. It helps in
creating quality goods and services to match the global market expectation.
(Kuivalainen et al. 2010, Lee et al, 2001). A process of rapid
internationalization may be essential for achieving necessary sales volumes
before the technology becomes obsolete or imitated by other firms. (Lindqvist,1997)
There is also the involvement of
Research and development where the need to develop new products to satisfy the
new demands arising from customers in the global market. It acts as a factor
inciting SME’s to engage in export.
Technology is vital when used to
strengthen the relationship with customers. SME’s can monitor the consumption
of the customer through online databases showing consumption level and the
demand. Its importance is seen when several studies have shown that in the
internationalization process, high-technology
companies are more international than low-technology companies.
Support and related issues
government of every country is in charge of instituting policies, legal frameworks
and procedures that stipulates how the business is conducted within its
borders. One example is the process
standards for health, welfare, safety, size and measurements can create trade
barriers by excluding products that do not meet the standards. A product may
have to change in a number of ways to meet the requirements of a new market
such as packaging or physical core product. (Cateora, and Graham, 2011)
SME’s internationalization process
can be hampered by the lack of government support in terms of trade
restriction, absence of stimulating policy of national export, unstable rates
of exchange currency and many more.
It also involves the state of the
infrastructure, telecommunications, ports,warehouse, highways and excessive
rules and regulations.
Government imposes regulations on
export policy, procedural customs, endowments and incentives which affect the
internationalization process. The firm’s choice is affected by internal
factors:- tax, legislation, interest rate policy, labour law regulations and
administrative infrastructure (Boter et al.2005). These regulations impose high
challenges for realizing foreign expansion for SMEs but in addition, the
entrepreneur is faced in situations where the access to the rules and
regulations are not well defined and the degree of corruption in a country
poses a threat to the internationalization of SME’s. Firms are often reluctant
to consider export as they face many difficulties from the government
It refers to the legislative and
regulatory frameworks. Strict import rules could be viewed in form of high
tariffs and hardly regulated quotas, these set of laws complicates an export
entry mode, and pushes the SME to find other entry modes. SME’s have to adapt existing laws and
regulations. De Bu?rca, Brown & Fletcher (2004) pointed out that in some
international markets, laws and regulations within the target country may
prevent or restrict imports into the target market or only permit local
manufacturing in less attractive geographical locations
firms face restrictions in terms of quotas or embargoes to force them to
purchase more supplies from the host country.
and trademarks that are protected in one country are not necessarily protected
in another, so SMEs must ensure that patents and trademarks are registered in
each country where business is conducted, (Keegan and Green, 2008).
Environmental characteristic in
the form of political, economic, social, technical, and legal requirements at
home and in the target country also affect internationalisation process (Root,
The environment is characterized
by four elements:
Dynamism-which explains the amount and speed of
Munificence – the scarcity or abundance of
critical resources required for international operation
Complexity – the regulations, competition and
technological demand within the foreign environment
The SME needs to know the
changes that can occur in the environment and adapt to it else it will perish.
Studies have shown that a dynamic environment is better in contrast to a static
environment and creates a positive influence for the firm (Dess, Lumpkin, &
Covin, 1997; Zahra, 1993).
Competitive environment depends
on the levels of competition placed on price, performance, design or style,
patent protection, brand name, packages and services (Root, 1994). A
competitive environment is determined by the cooperation, co-dependence,
co-learning, risk sharing, and joint actions with others (Etemad, 2004).
Competition is essential to
stimulate firms to learn and be aware of the market trends, Wright et al.,
(2007) suggest the authorities support SMEs by
providing reliable and updated information that is spread fairly so firms are
prepared to face a competitive environment.
SMEs need to challenge
themselves and their boundaries to establish themselves a name among other
fierce competitors, studying the competitive environment can be an asset for
The industry factors include two
main elements which are the industry structure and economies of scale (Lumpkin
et al., 2005; Vahlne et al., 1993).
Industry structure is portrayed
as capital intensive and concentrated industries where R&D capacity and
intensity of developing products/services is the focus. An example is Japanese
SMEs rely heavily on research alliances with other SMEs in different industries
and with government research institutes. This has enabled that country to gain
support for its national innovation system as well as maintain a high capacity
for innovation (Sugasawa & Liyanage, 1999).
Economies of scale in contrast,
occur when SMEs turn manufacturing into mass production due to growth in
international activities spread over many markets. This can be achieved by several
means such as focusing on global manufacturing in only one home country, by
manufacturing customized products through franchising and many more. Economies
of scale cuts costs and leads to profit exploitation.
The specific industry
environment in which an organization operate can have an impact on the
strategic direction the firm will take (Miller & Friesen, 1984). A dynamic
environment may provide SMEs with opportunities to innovate strategically,
however this may lead to a greater pressure from competitors.