The internationalization and performance of SMEs

Abstract

We discuss and explore the effects of internationalization, an entrepreneurial strategy employed by small and medium‐sized enterprises (SMEs), on firm performance. Using concepts derived from the international business and entrepreneurship literatures, we develop four hypotheses that relate the extent of foreign direct investment (FDI) and exporting activity, and the relative use of alliances, to the corporate performance of internationalizing SMEs. Using a sample of 164 Japanese SMEs to test these hypotheses, we find that the positive impact of internationalization on performance extends primarily from the extent of a firm's FDI activity. We also find evidence consistent with the perspective that firms face a liability of foreignness. When firms first begin FDI activity, profitability declines, but greater levels of FDI are associated with higher performance. Exporting moderates the relationship FDI has with performance, as pursuing a strategy of high exporting concurrent with high FDI is less profitable than one that involves lower levels of exports when FDI levels are high. Finally, we find that alliances with partners with local knowledge can be an effective strategy to overcome the deficiencies SMEs face in resources and capabilities, when they expand into international markets. Copyright © 2001 John Wiley & Sons, Ltd.

Family Entrepreneurship Orientation in Family Owned SMEs: A Key Resource for Internationalization?

“…The second is the scope of internationalization. This refers to the number of markets that SMEs choose to enter, it denotes the international geographic reach of a firm's business (Hashai, 2011;Lu & Beamish, 2001). By operating in many different markets, firms can learn from diverse circumstances and environments, and leverage this experience in new markets to aid international performance (Hilmersson, 2013).…”

“…It is argued that operating in a globalised environment is more complex for SMEs than for large companies (Gary, 2000), since any initiative related to foreign markets will use a greater share of resources in an SME. Further, in the event of failure, the impact of such an initiative on an SME is of much more importance, and thus it entails a higher risk (Pagarkar, 2008;Buckley, 1999;Lu & Beamish, 2001). Some authors call this effect resource disadvantage and scale disadvantage for SMEs compared to their global rivals, both of which affect their possibilities of resilience (Yip, Biscarri, & Monti, 2000).…”

“…Nevertheless, international economy is getting more and more integrated in the proceeding decrease of obstacles in the exchange market and constant progress in the technological field (Lu & Beamish, 2001). Thus, starting internationalization seems to be a strategy needed for the further development of the company.…”

The Spanish company in China: Entry forms and barriers to internationalization

“…En su sector (metalúrgico) se necesitaba un socio local para realizar la inversión. De todas formas, según la entrevista, por su grado de conocimiento del mercado, hubieran utilizado igualmente el apoyo de un socio local para paliar sus carencias (Lu & Beamish, 2001;Makino & Delios, 1996).…”

Operationalizing Psychological Distance in Tourism Marketing

“…To remain competitive in international business, it is essential to launch new products and services for new segments. Due to the variety in life standards and consumers' behaviour in different countries, entering in the new international market is a challenging issue (Albaum & Tse, 2001;Lu & Beamish, 2001;Penaloza & Gilly, 1999;Pornpitakpan, 1999;Sousa & Bradley, 2005). Hence, multicultural marketing could be assisted by measuring and understanding psychological distance (Clark & Pugh, 2001;Evans, Treadgold, & Mavondo, 2000;Eriksson, Majkgard, & Sharma, 2000;Grosse & Trevino, 1996;Sousa & Bradley, 2006).…”