Internationalization of SMEs is not a new trend however recently an increasing number of companies have plans of an international expansion. Unfortunately, many small businesses that are capable of exporting and want to ‘go global’ have not yet begun to do so. Furthermore, many small and medium-sized enterprises (SMEs) with prosperous local business fail in foreign markets.
Any small business that is planning to go abroad needs to make a decision about several aspects, it has to consider whether it is ready to go international, which markets to enter and how to enter them. It also needs to design, implement and control a global marketing plan. Besides, every stage of this process involves good knowledge of international business environments, such as political, economic and cultural issues. In short, the process of formulating an international strategy is complex and requires careful planning.
There has long been an assumption that firms internationalize gradually, after a period of domestic growth. The main proponents of this idea – known as the Stage Theory – have been researchers from the Uppsala School. However, scholars of different disciplines have questioned the universality of that theory and pointed out that many small companies tend to adopt a global focus from their conception. Not only do these firms lack a period of gradual internationalization, but they also tend to face volatile markets with little experience and resources. These firms are broadly known as ‘born globals’.
Recently, the distinction between the Stage Theory and the Born Global model has been criticized on the basis of two main arguments. Firstly, the internationalization process of SMEs may represent a mix of the different models (e.g. for some ‘born globals’ internationalization is gradual but follows a rapid progress). Secondly, the different forms of internationalization (trade, co-operation or foreign direct investment) may be undertaken more in response to different strategic goals rather than as stages in a gradual process. For certain types of service companies, it may be a more adequate strategy to set up an alliance with a foreign company straight away, rather than to pass by a stage of direct export. This is typically the case of a company that is going global in search of know-how or technology.
In Europe, the need to support the internationalization of SMEs is particularly important due to the limitations of the home market. Besides, the globalization of the economy urges firms to think and act more globally. Consequently, companies are becoming more mobile internationally and seeking the countries that offer the best conditions.
There are five main groups of actors involved in supporting the internationalization of SMEs: governments, companies, academia, financial institutions and hybrid organizations. Hybrid organizations include trade associations, chambers of commerce, science parks and business incubators. For example there are some 35 science parks and incubators only in Sweden.
Business incubators can be private or public. Private incubators are for-profit firms that take equity or receive a fee for the business services they provide to their clients. In essence, they are consulting firms specialized in new firm creation. In many cases, public incubators are designed to stimulate the development of new products and services in high-tech industries. For science-based business incubators, an effective collaboration with universities and research institutions is essential to motivate researchers into taking the risk of initiating a company. Incubators have also close relationships with government agencies and with many kinds of investors, since new firms need finances to grow. (Cooper,1985)
A new mechanism for internationalization of SMEs is through the exploitation of Business Angel networks (BAN). A BAN is a private or semi-public body whose aim is to match entrepreneurs looking for equity with Business Angels. A Business Angel is an informal private investor with managerial skills, specialist knowledge and networks, and smart money (i.e. finance and expertise). There are 3000-5000 business angels in Sweden.
Ref:
- Cooper, A.C. (1985), The role of incubator organizations in the founding of growth-oriented firms, Journal of Business Venturing, Volume 1, pp. 75-86
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