The internationalisation of SMEs in the environment of globalisation from the barriers point of view

1 THE INTERNATIONALISATION OF SMEs IN THE ENVIRONMENT OF GLOBALISATION FROM THE BARRIERS POINT OF VIEW Iveta Šimberová 1 1 PhDr. Iveta Šimberová, Ph.D., Brno University of Technology, Business and Management Faculty, Kolejní 4, 612 00 Brno, Czech Republic, Phone: + 420 541 143 750; Fax: +420 541 143 751, E-mail: [email protected] 2 THE INTERNATIONALISATION OF SMEs IN THE ENVIRONMENT OF GLOBALISATION FROM THE BARRIERS POINT OF VIEW Iveta Šimberová Abstract: A greater part of both international and national literature on internationalization SMEs and final theoretical models are derived from foreign activities of big companies. Scientists’ attention has been drawn to the problematic of integrating SMEs into international transformation especially in the last two decades. If the enterprise is to be successful (i.e. to be competitive, profitable and viable) under the current conditions and mainly under the conditions of the common European market, it is necessary to focus not only on domestic market but expand further beyond the country frontier. This trend is resulting from the instantly growing competitive pressure of globalised market. Internationalization seems to be one of the principal challenges for small and mediumsize enterprises. The significant role of internationalizing activities of enterprises is the level of knowledge which the enterprise has available and what is the scope of utilization like. Globalisation is a big challenge for SMEs in transformation economies on the one side and big threat on the other side. Submitted paper deals with the question of identification of barriers of internationalization activities of SMEs. These barriers can come out from general as well as field and internal environment of the company. In the introduction are indicated theoretical starting points of research of this question. From the latest trends result that just scope and use of knowledge is becoming the motive force of successful business. Results were used from performed empiric research within the framework of the solution to the project GA/402/02/0106 "Internationalization of Small and Medium Enterprises in the Czech Republic". Key words: Internationalisation, SMEs, barriers, Czech Republic, research 3 THE INTERNATIONALISATION OF SMEs IN THE ENVIRONMENT OF GLOBALISATION FROM THE BARRIERS POINT OF VIEW Iveta Šimberová 1. INTRODUCTION A greater part of both international and national literature on internationalization SMEs and final theoretical models are derived from foreign activities of big companies. Scientists’ attention has been drawn to the problematic of integrating SMEs into international transformation especially in the last two decades. If the enterprise is to be successful (i.e. to be competitive, profitable and viable) under the current conditions and mainly under the conditions of the common European market, it is necessary to focus not only on domestic market but expand further beyond the country frontier.This trend is resulting from the instantly growing competitive pressure of globalised market. Internationalization seems to be one of the principal challenges for small and mediumsize enterprises. The significant role of internationalizing activities of enterprises is the level of knowledge which the enterprise has available and what is the scope of utilization like. 1.1. Internationalisation process In the period of the development of internationalization, as a term, it is essential to state that scientists have suggested a spectrum of various approaches, which lead rather to blurring than clearing up the term. Originating methodologies tended to unwind from the situational perspective to the current attitude, classifying internationalization as a dynamic process. The latest finding in this area has emphasized the collaboration between enterprises and other entities together in the process of internationalization. While determining the term of internationalization, we follow Beamish´ definition (1990) in our research. His view is both holistic in nature and has the advantage for 4 clearing up various internationalization processes. He suggests that internationalization is a "process by which firms both increase their awareness of the direct and indirect impact of international transaction on their future, and establish and conduct transactions with enterprises of other countries"(Beamish, 1990,p77).This definition has several advantages, one being the integration of learning with investment, i.e. there are both economic and behavioural components. Secondly, it enables what Korhonen et al (1996) argue that the important but neglected part of the process of internationalization, which is internal internationalization, examples are anti-business and import of goods and services. At third the definition implies rather process than an event. In research terms the debate on internationalization have concentrated on activities of bigger enterprises for a few past years but in the two past decades a visible attempt concerning smaller enterprises has been noted. Several statements exists that smaller enterprises do not take into account managerial thinking of biggersize enterprises (e.g.O´Farrel et al, 1988). Some commentators believe that none of the present "schools" (FDI, Uppsala model and network model) is able to classify internationalization of small and mediumsize enterprises as a whole. Coviello and McAuley (1999) claim that all the three "schools" are presented in literature about small and mediumsize enterprises. Uppsala model is used most of all, network model and FID follows. Most studies follow a simple theoretic frame that may have a reductive effect on the research. Coviello and Mc Auley judge elements of each school may effectively explain the process of internationalization in small and mediumsize enterprises. What may seem odd is a relative absence towards FDI. Buckley (1989) studied issues related to direct foreign investments of small and medium-size enterprises, and a developed model that could be used to evaluate management while deciding in the process of internationalization. However, only a few scientists have accepted this model. Network school seems to be efficient to join small and mediumsize enterprises and other entities, various organizations and ministries, those that play an important role in their development on outside markets (Bridgwater 1992). The contribution to these organizations, specifically established to support small 5 enterprises, has been mentioned very often by scientists in the western part of Europe and the USA. Two spheres of theories specific for internationalization of small and mediumsize enterprises have appeared recently. First one is the result of work by Korhonen et al (1999) that looked into internal internationalization of small and mediumsize enterprises in Finland. They suggest the process of goods import and services is basic for small and mediumsize enterprises in that the knowledge of products, matter of quality and awareness collected during negotiations and foreign relationship, supplier and customer can provide an impulse for outer internationalization. In reality, for most of small and medium-size investigated enterprises internal internationalization preceded outer one. They claim the processes can be mutually bound in some organizations, and suggest that while government naturally protect domestic markets and can find import suspicious, internal internationalization can provide significant long-time contributions to the enterprises concerned. The second sphere of theory of internationalization of small and medium-size enterprises, being developed at present, is critical for all three chief "schools". Oviatt and McDougall made a research (New International Ventures) of new international ventures (McDougall 1989, Oviatt and McDougall 1994, 1997). The classification a new international venture as a "business organization searching from the beginning a significant competitive advantage from the source utilization and sale of results in many countries" (Oviatt and McDougall 1994, p 46).They think, the phase and model scope of internationalisation are not convenient to be understood any more on how these enterprises are internationalized, because the stated theory assumes such enterprises utilized from the position at domestic market. Bloodgood et al (1997) claims, that new ventures can aim to international presence from one or two reasons: At first - international presence is required from the point of competition in a stated sector, as an example can be customers´ expectation concerning services in international destinations; 6 At second - the new enterprise may require an international presence due to the capitalization of a unique collection of managerial sources, global experience, new technologies and innovations, especially as they may be easily usable apart from others. Despite the fact Bloodgood et al admit some useful theoretical elements here that help explain new international ventures as "stage" (phase) theory, but they are not themselves sufficient. They came to the conclusion that a slow, settled approach to internationalization need not be necessarily accompanied with international new ventures; they also admit the role of the government at establishing new enterprises concerning either fiscal policy or national base such as research support. 1.2. Internationalization barriers Several studies dealing with barrier internationalization of exporting and nonexporting enterprises generally are devoted to this problematic theoretically (Leonidov, 1995; Campbell, 1994; Katskeas and Morgan, 1994; Morgan, 1997). On the basis of these studies we may rang barriers of internationalization into five wide areas: financial, managerial, and market-oriented (including both national and international markets), characteristics of industry and enterprises. Generally is known that barriers of internationalization exist on every level of the internationalization process.(Morgan,1997). To understand barriers may differ from the dependance on the level of internationalization of individual enterprises. (Buton, Schlegelmisch, 1987; Cavugsil, 1984; Kedi, Chokar, 1986, Katsikean, Morgan, 1994). These studies are similar in their conceptual characteristics issuing former studies of understanding export barriers in general. (Katsikean, Morgan, 1994, Morgan, Katsikean 1997, 1998). 1.2.1. Characteristics of Enterprise Among basic characteristics of an enterprise belongs for example his size. Shaw and Hassan (2002) found in their research of enterprises providing services in New Zealand that small enterprises are more capable to be successful in penetration on foreign markets than big enterprises. Calof (1994) also states, that size is not a barrier for small and medium-size enterprises. 7 H 1: Size of enterprise measured by the number of employees does not influence his internationalization activities. 1.2.2. Characteristics of industry Another factor relating to an international development of small and medium-size enterprises is that the process may last relatively long and researchers have suggested the export phase itself could develop relatively long. The process is likely to be influenced by the structure of industry and given business environment (Tyebjee 1994), therefore the export significantly differs in individual branches of industry. Small and medium-size enterprises in the Czech Republic present about 99, 8% from the total amount of all enterpreneurial subjects according to Ministry of Industry. 9RGiþHN D 9RGiþNRYi  ,Q WKH EUDQFK RI LQdustry there are aprox. 20% of these subjects and employment rate is about 47% in the national economy. Both Glas and coll. and Smallborne argue that government policy may have a significant impact on the growth and development of small and medium-size enterprises, from which the economy may profit as a whole. They both call for the development and implementation of a convenient fiscal policy to lower tax burden on small and medium-size entities. Barriers are also understood in the sphere of insufficient support of governmental and non-governmental organizations, acting administrative bodies, legislative security, measures regulating export and etc. H 2: Governmental support of institutions has a significant impact on internationalization activities of small and medium-size enterprises. Internationalization may be understood better in the context of an individual sector and enterprise (Boter nad Holmquist 1966, Tyebjee 1994). Bonaccorsi (1994) claim that industrial structure is important because influences the relation between the size of enterprises and the export intensity 8 9RGiþHNDQG9RGiþNRYiS-24) divide small and medium-size enterprises in the Czech Republic according to their competitive position into four groups: - Medium-size enterprises having significance for the Czech market and having long-time experience in international cooperation; - Medium-size enterprises and small export entities working in the areas of growth and having short-time experience in international cooperation; - Medium -size and small enterprises orienting on domestic market and working in traditional branches of production and consumption; - Very small enterprises and micro enterprises anchored in the local area of domestic market regardless experience in international environment; $FFRUGLQJWR9RGiþHNDQG9RGiþNRYiDJRRGFRPSHWLWLYHSRVLWLRQLVPDGH especially by small and mediumsize enterprises that systematically look after their innovation policy rise in productivity of labour and high quality of production. H 2a: The reason for increasing internationalization activities of Czech small and mediumsize industrial enterprises is their competitive ability in the sphere of technological maturity of products and their quality. 1.2.3. Market Characteristics To act well on international markets is the necessity for many Czech enterprises when considering the characteristics of domestic economy (small and relatively saturated internal market, insufficient natural resources, and relatively high degree of specialization of industry). Liesh and Knight (1999) claim that SMEs may utilize advantages of internationalization such as bigger entities so long as they will be able collecting information of external markets. As the small and mediumsize enterprises are more flexible and react promptly, they often have the advantage of being ready to act if they have a sufficient amount of information and awareness and are able to gain. H 3: Enterprises´ application of marketing activities has a positive impact on their internationalization activities. 9 H 3a: The enterprises that engage in international trade more utilizate the collection of information. H 3b: The enterprises that engage in international trade follow more the needs of their customers and their demands. H 3c: The enterprises that engage in international trade utilizate more technology of optional market objectives and their segmentation. H 3d The enterprises that engage in international trade utilizate more tools of marketing mix. 1.2.4 Managerial characteristics The link up between the process of internationalization and strategic thinking in small and medium-size enterprises requires some research. There may be an argument that increasing managerial experience of international trade influences strategic development of small and medium enterprises. Tyebje (1994) indicates the significance of development of managerial knowledge, his attitudes and activities for internationalization of enterprises´ activities. Small enterprises have the advantage in that the same people are likely to deal with either internal or export processes so that the problem with the transformation of knowledge and experience to employees will not exist. Foreign contacts in the sphere of relationships with suppliers may be an important link for the export integration (Martin, 1991). H 4: The more experience the managers of enterprises with international trades have the more international activities are integrated in strategic planning. H 4a: The abilities and experience of management with international operations have an impact on the intensity of internationalization of enterprises activities. H 4b: The enterprises that management utilizate marketing factors for decision of the entry to foreign markets are more internationalized. 1.2.5. Barriers in the area of financial characteristics The problem to rise the capital and sources for small and mediumsize enterprises is one of problematic being in the attention of researchers. (i.g. Fillis, 2001; Buckley, 16 barrier. From the point of view of average data we may say that stronger points of enterprises is chief knowledge of foreign market, collected information about the business practice of foreign competitors, ability to collect information about markets, rate of undertaking product distribution on foreign markets, ability to adjust production with foreign standards, ability to select and realize convenient strategies to penetrate into the foreign market, experience of international operations, accepting new knowledge, ability to use up an opportunity and language knowledge as well. All these factors seemed to be statistically important from the point of view of differences between INT and NEINT enterprises. In some cases were confirmed relations between abilities and experience of management with international operations and the difference between INT and NEINT enterprises, the relation between utilization of marketing factors and their internationalization as well. We may think that in our case pay hypotheses 4a and 4b and by that we may confirm the validity of hypothesis 4. The more experience with international markets managers of enterprises have the more international activities have been included in strategic planning. 2.1.5 Barriers in the Area of Financial Characteristics In the area of financial characteristics we have concentrated above all to a connection between financial sources, their utilization and internationalization activities MSP. From our environment it is known that one of the important barriers of internationalization may be a problem with utilization of external financial sources. Insufficient financial sources may be a big barrier while extending activities on foreign markets. Results have not confirmed hypothesis 5: For small and medium-size enterprises the insufficient financial sources are a barrier of internationalization activities. Within the frame of results has not been confirmed any statistically important relation between INT and NEINT enterprises from the viewpoint of their utilization of financial sources. Average figures show inexpressive differences in the characteristics of institutions used up while financing enterprises´ financial operations. An interesting 17 finding is a relative wide use of financial sources from Funds for financing international activities, funds EU etc. 2.2 Conclusion The problematic of barriers of internationalization is the complicated problematic and even in foreign literature not always clearly described. Our experience, possibilities and access to information sources have influenced the character of the primary research. Literature and published results of investigation dealing with this topic confirm that our barrier determination and understanding of internationalization have been relatively correct. However, it is necessary to point out to other possibilities and directions of research in this area. Certainly it would be interesting to compare the results with other related countries (countries of former eastern and middle Europe). In addition the attention could be drawn more even to a characteristic of barrier in the area of macro economy. Our standpoint for barrier research was rather a point of macro economy, understanding barriers from the viewpoint of MSP. The certain limited result of the presented results is increasing unwillingness of companies to collaborate in research. The evidence of that is a relatively small sample of returned questionnaires of this investigation. 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