Internationalization of SMEs: Finding A Way Ahead

Internationalization is the process of increasing involvement in international operations (Welch and Luostarinen, 1988). Internationalization is a synonym for the geographical expansion of economic activities by firms over a national country’s border (Ruzzier, et al, 2006). Geographic expansion is one of the most important paths for firm growth. It is a particularly important growth strategy for SMEs whose business scope has been geographically confined (Barringer and Greening, 1998). Internationalization is the extent to which a firm is involved in international business. It includes exporting, the presence of foreign subsidiaries, share ownership by foreigners and the appointment of foreigners in the organizational structure (Chelliah, et al, 2010). Small and Medium Enterprises (SMEs) are increasingly operating in international markets. Trade liberalization and the concomitant international competition exert twin pressures on firms. They need to maintain a sustainable competitive advantage owing to the complexities of international trade. New ways are required to compete, as the earlier competitive strategy of differentiation based on price, product or technology, is losing value (Lloyd-Reason, 2003). According to Hessels (2008) SMEs in general can adopt internationalization as a strategy to access or build up resources because European SMEs use internationalization as a means of overcoming resource constraints. But Baldegger and Schueffel (2010) contend that the most prominent factors influencing the internationalization of SMEs are resources, the environment, the industry type the firm is engaged in and the firm’s personnel. SMEs tend to move into foreign markets as exporters and/or as foreign investors (Reynolds, 1997). In general, SMEs can use one or more of the four modes for internationalization: exports, contractual agreements, production investments and strategic alliances (Codotto, 2008). But exporting has been traditionally regarded as the first step to enter international markets serving as a platform for future international expansions (Kogut and Chang, 1996). This strategy is particularly applicable to the internationalization of SMEs because SMEs frequently lack the resources, financial or otherwise, for FDI (Zahra, et al, 1997). Indian markets have opened to foreign companies since 1991. Small and medium enterprises face the competitive pressure of both domestic and overseas rivals. SMEs respond by entering foreign markets, motivated by both push and pull factors (Lloyd-Reason, 2003). As the reduction in the barriers for global commerce continues and the world economy becomes more integrated, there is an increase in the attention being placed on the internationalization of small and medium-sized enterprises (SMEs) (Lu and Beamish, 2001; Knight, 2001). As more and more firms enter the international business environment, there is increased competition. Increasing competition results in a reduction in the ability of SMEs to control their own developmental paths (Etemad et al., 2001). In a very competitive environment, there is a need to identify and understand factors that impact Abstract: The emergence of multinational firms has been a distinct feature of globalization in the developing countries. Many of the emerging multinational firms are small and medium enterprises (SME), seeking to capitalize on their unique skills and capabilities and achieve rapid growth and diversify the sources of their revenue streams. SMEs have used their social capital to penetrate into foreign markets and acquire market share. However they are unable to observe the strategies behind internationalization processes of SMEs. As more and more firms enter the international business environment, there is increased competition. Technological advancements, declining trade barriers etc. are driving the world economy to become more and more integrated and this rapid globalization is enabling SMEs to become international in a quicker yet effective manner. Advancements in information technology and improvements in communication infrastructure have resulted in opportunities for SMEs to participate in global markets in both developing and developed countries. Since, governmental reform in 1991, SMEs in India have been faced with new competitive intensity. Improvements in resource utilization make it possible to sell a variety of products and services from anywhere in the world, around the clock. This paper will help to gain a better understanding of strategies behind the internationalization process of SMEs.