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Lester Lloyd-Reason
Key Words: Small firms, SMEs, internationalisation, strategic leadership
In this paper we argue that the current
debate within the literature concerning the internationalisation
of business operations relies heavily on the larger firm experience
which does not necessarily represent an easily transferable
model for the small firm. We contend that although an incremental
model is relevant in many instances, small firms are often
opportunistic, intermittent internationalisers and it is the
international orientation of the decision maker, often the
owner-manager, which is the key to the international activity
of the firm. Furthermore, we suggest that this orientation
has its roots within the internal culture of the firm which
is reinforced by the external cultural environment. We argue
that it is this internal culture which should be the focal
point of small firm support mechanisms as they attempt to
internationalise their business operations. We have developed
a model called ‘the internationalisation web’
to illustrate these issues and to provide a focus for policy.
Let us begin by identifying what we mean
by the internationalisation process. The academic literature
continues to wrestle with this definition, but the reference
point continues to be the Nordic model (Johanson and Wiedersheim-Paul,
1975; Johanson and Vahlne, 1977) which sees the internationalisation
process as a linear, gradual sequencial buil-up of events
over time. More recently, refining the model, Johanson and
Mattsson (1993) identified three processes of internationalisation.
First, the theory of internationalisation assumes that the
firm has developed a source of competitive advantage in its
domestic markets. If this advantage cannot be efficiently
exploited within the domestic market without undue transaction
costs, then the firm will seek to move outside of that market
and seek to exploit its sources of advantage elsewhere. Second,
the process of internationalisation, also known as the Uppsala
internationalisation model, describes a process of increased
commitment to international sales and production. In other
words, the internationalisation process is a sequential learning
process as the firm moves through a number of stages. Finally,
the network approach, which focuses on the relationships between
companies. Here the company establishes and cultivates a number
of relationships and networks, and the internationalisation
process is dependent on the quality of the networks developed.
In recent years the incremental, gradualist
internationalisation model has been increasingly challenged
as a number of studies (Voerman et al 1997, Mughler 1997)
have demonstrated that many SMEs engage in opportunistic,
intermittent export activity. Increasingly SMEs use a variety
of strategic combinations, with these strategies themselves
becoming more and more complex (OECD, 1997). Rational strategic
decision making requires a long-term stable attitude towards
risk. One of the key advantages for small firms within their
domestic markets is their flexibility and speed of response,
from changing market conditions to simple requests from customers.
The traditional models of the internationalisation process
as discussed above require a gradualist, incremental move
though a number of different stages. The dilemma for small
firms however, is that they cannot disperse their activities
and market segments as widely their larger competitors, and
so the only way is to diversify away the risk by maintaining
a swift reaction capability for changing conditions. However
this reduces the possibility of specialisation in achieving
longer-term goals. A combination of flexibility and specialisation
is ideal, but in reality is not an option for the small firm.
The internationalisation process within small firms my not
be the smooth, gradualist process after all. Havnes (1998)
argues that any gradualist model is meaningless without an
assumed positive correlation between knowledge of internationalisation
and propensity to change the activity levels in the direction
of (more) internationalisation; and positive correlation between
activity level and acquired knowledge. That is, although a
number of small firms do indeed exhibit incremental and stable
change patters, this is certainly not true of all small firms,
where intermittent and irregular change is a frequent characteristic
of small firm behaviour with regard to their international
activities.
This idea challenges the view that
the internationalisation process is both a rational and gradual,
incremental process. We could argue therefore, that whereas
larger firms may have the luxury of incremental changes within
a gradualist, consistent strategic approach to the internationalisation
process, this would be less likely to be the case within small
firms. International management theory is often based on the
large firm experience, but this might not necessarily be appropriate
for the small firm situation. Here, the international orientation
of the owner manager and the cultural position of the firm
itself play a major role in the small firm’s strategic
agenda. The strength of international networks are of key
importance and the extent to which the small firm would seek
to establish and cultivate these networks would be largely
determined by the international orientation of the owner-manager.
The poor resource base and the high cost in terms of both
financial and non-financial resources would appear to play
a part in the increased trend for opportunistic, intermittent
international activity on the part of the small firm. This
is in direct conflict with the conventional view of the internationalisation
process, which would appear to be much more relevant for larger
sized enterprises.
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