Academic journal article SAM Advanced Management Journal

International Market Selection for a Small Enterprise: A Case Study in International Entrepreneurship

Academic journal article SAM Advanced Management Journal

International Market Selection for a Small Enterprise: A Case Study in International Entrepreneurship

Article excerpt

Introduction

Much international business literature focuses primarily on large multinational corporations. However, recent growth in exports has been fueled by smaller enterprises that tend to have fewer resources and, as a result, have less flexibility in choosing appropriate markets and modes of entry. Knight (2001) wrote that small and medium-sized enterprises (SMEs) now account for a substantial proportion of exports from most of the developed countries and that these firms are not likely to wait until they are mature domestically before seeking international customers. In line with this proposition, Alon (1999), for example, found that in the retailing sector, younger firms are more likely to internationalize.

Country selection is an important component of the firm's internationalization efforts because of the impractibility of attempting entry into all 192 nation states. Furthermore, not all countries have the same market potential. Companies, therefore, need to carefully choose where to expend their efforts and limited resources.

There are serious limitations in the current models for market selection and analysis as they relate to small and medium entrepreneurial and family enterprises. Small entrepreneurial firms have little in the way of slack resources to devote to international research and expansion. Critical resources include capital (money), management attention, experienced personnel, international business skills, and know-how about foreign markets. This means that such firms are limited in their ability to hire outside help or utilize their own people. However, internationalization is precisely the direction in which many SMEs need to look.

Many small companies have niche (and sometimes mature) products for which much of the potential is in emerging markets. But these markets also have higher political risk and macroeconomic fluctuations (Welsh and Alon, 2001). For example, Turkey would be an excellent market for a small company in the microelectronics industry due to Turkey's modernization efforts in the 1990s, the establishment of a large military sector, and governmental support for high technology (Murillo, 2000). Despite its small size and unstable political environment, Israel also offers significant potential for high-tech products due to its high level of technical expertise and trading relationships with the electronics industry in the United States and Europe. Alon and Welsh (2001) reported on the potential for U.S. SMEs in developing countries such as India, China, and Brazil. Because of their industrialization efforts, less developed and emerging nations often have pent-up demand for high-tech products from the industrialized world.

Gankema, Snuif, and Zwart (2000) proposed that SMEs follow five stages in their internationalization: (1) domestic marketing, (2) pre-exporting and evaluation, (3) experimental involvement, (4) active involvement, (5) committed involvement. Celectronics, the case to be discussed later, is at stage 4. At this stage, the firm is attempting to systematize its effort to increase international sales, and the export-to-sales ratio is 10%-39%.

Jones (2001) claimed that traditional models--such as the step-stage model of internationalization--are being challenged by a wide range of emerging patterns for SMEs, and that these firms are driven into the global arena as a response to international business influences, opportunities, threats, and imperatives. Increasingly, the SMEs' competitors, customers, suppliers, and employees have come from overseas. Thus, an international orientation has become a necessity rather than an option for many companies.

Using Australian case studies, Brewer (2001) developed a country-selection model based on four steps: (1) establishing a feasible country-set through corporate policy and practical exclusions, (2) using informants to identify/prioritize countries, (3) using informants to evaluate the target country based on market potential and competitiveness, and (4) selecting target countries. …

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