Decision-Making and Market Orientation in the Internationalization Process of Small and Medium-Sized Enterprises

Article excerpt

Abstract

* Mental maps are used to represent the risk-perceptions and foreign market orientations of decision-makers within a sample of dynamic small firms in the UK. Quantitative and qualitative analyses help identify factors that influence top managers' perceptions of their spatial environment and link these to the resulting patterns of internationalisation.

Key Results

* International experience and network relationships are found to strongly influence managerial cognition and thereby internationalization decision-making. The learning process appears to be unstructured and opportunistic.

Introduction

Small and medium enterprises (SME's), with 500 or fewer employees, are some of the fastest growing companies in the World and for these companies the development of international operations often accounts for much of this growth. UK SMEs have become a more important component of the UK economy in the past two decades and expansion into international markets has been a central feature of their growth (Storey 1998).

Internationalization for SMEs can be expensive, time consuming and a significant drain on scarce resources. Decision-making processes related to choice of market, timing and mode of entry are therefore important to understand from both a research and managerial perspective (Coviello/Martin 1999).

Current research on internationalization is mainly based on the experiences of large multinational firms and tends to view it as an incremental, multi-stage process. Economic and resource-based theories tend to dominate and the applicability of this research to SMEs is questioned (Burgel et al. 2000, Bell 1995, Rao/Naidu 1992, Reid 1981). This paper reports on a study investigating the internationalization decision-making processes of dynamic SME's in the UK, the influences that impact these decisions, and how the mental maps of executive decision-makers impact the patterns and processes of international expansion of these firms.

We aim to contribute to the growing body of empirical work on small firm internationalization, which lags behind the research on large multinationals. We also make the case for further consideration of the individual decision-maker and factors that influence key decision-makers who drive the strategic direction of such firms. Individual and group perceptions of country opportunities and risks are seen to have a significant impact on the market orientation of the overall SME. This means going deeper into the organisation to incorporate the influences on and attitudes of such decision-makers in our current understanding of aggregate patterns of change and international expansion.

Finally we also seek to make a methodological contribution via the use of mental maps as a technique measuring decision-makers perceptions of internationalization opportunities and helping explain patterns of internationalization.

The first part of this paper will review the current thinking on the process of internationalization and decision making processes that underlie international expansion strategies. We then present an analytical framework adapted from the work of McGaugbey, Welch, and Welch (1997) and Reid (1981) and outline the empirical methodology used in our study of dynamic UK SMEs, including the construction of mental maps. Quantitative data from questionnaires returned by 30 firms and qualitative data from interview-based case studies of 8 of these firms, all from a published survey of the 100 fastest-growing unquoted small firms in the UK in 1999 and 2000, is then presented and discussed.

The internationalization process

Beamish (1990, p. 77) usefully defines internationalization as:

"The process by which firms both increase their awareness of the direct and indirect influences of international transactions on their future, and establish and conduct transactions with other countries. …