Academic journal article Journal of Small Business Management

SMEs Strategic Reaction to the 1992 Single Market Announcement: Evidence from Scottish Manufacturing Firms

Academic journal article Journal of Small Business Management

SMEs Strategic Reaction to the 1992 Single Market Announcement: Evidence from Scottish Manufacturing Firms

Article excerpt

The dominant paradigm in international market entry theory until the 1990s was the "stages" model, a gradual sequential process consisting of several distinct stages (Johanson and Vahlne 1977; Bilkey and Tesar 1977; Steinmann, Kumar, and Wagner 1980; Cavusgil 1985). This model has an inherent linear structure which channels the organization from a hesitant beginning in exports, through intermediate stages which may include agencies, license agreements, and alliances, to fully fledged foreign direct investment. The process from start to finish is likely to be slow and controlled. This is thought to be due largely to the underpinning assumption of "psychic distance" that bonds common cultures in trade and investment but hinders dissimilar ones from engaging in mutual exchange. Such fear and suspicion can create high entry barriers and alter risk perceptions among decisionmakers. Moreover, the "stages" model also assumes that the organization has a distinct competitive advantage that requires protection at each stage of internationalization.

The model seems to explain the internationalization process among U.K. SMEs, especially with the cultural emphasis on individual rather than co-operative action. With some national market presence, SMEs in the U.K. could enter the process through either push or pull factors. Push factors may emerge from a well-educated management team which has fewer problems of "psychic distance" and whose ability to create and implement foreign business is facilitated by a knowledge of other languages. In addition, the process can be stimulated by initiatives in national or regional policy in terms of incentives, advice, or trade missions. Pull factors are normally chance orders (Bilkey 1978; Brasch and Lee 1978) from foreign purchasers and are more likely to have been channeled to the organization through a pan-national conduit (for example, Enterprise Agency) than to have arrived directly on the desks of executives in SMEs. Once underway, inexperienced players can gain in confidence and, with judicious advice, move through the international stages chain with growing success. The impact of push/pull influence clearly depends on the entrepreneur's perception of opportunity (Shapero 1975; Encyclopedia of Entrepreneurship 1982 [for example, chapters 3, 4 and 16]). This, in turn, is affected by their individual "locus of control" which could be external (success ascribed to such factors as luck or fate) or internal (for example self-reliance).

However, the speed and unpredictable nature of environmental change in the 1990s has made time a key determinant of competitive success in international markets (Stonich 1990; Stalk 1989; Blackburn 1990). The "stages" model is inadequate to cope with rapid internationalization and the ease of entry within regional trading blocks to adjacent foreign markets. The Swedish "markets as networks" approach captures the modern context better, with organizations viewed as members of much larger systems of exchange which include suppliers, buyers, and competitors. There is an assumption of trust, reciprocity, and shared value systems that hold members to the web. Flows of money give way to positions of power. Organizations attempt to improve their influence by positioning themselves at the nodal points of influential arteries. No one organization need have a specific competence as most will be present somewhere in the network. Speed of entry is made possible because of the experience present in the network. Although there is much literature on the theory (Mattsson 1986; Johanson and Vahlne 1977; Forsgren 1989; McKiernan 1992), empirical testing is less prominent. This study goes some way to exploring this avenue.

Network theory and, to a certain extent, the "stages" model, allow study of the continuing internationalization of the more experienced foreign operator through an analysis of movements in the web or along the chain. However, neither of these two prominent approaches to internationalization has dealt explicitly with the case of the major discrete event - the creation in 1992 of the Single European Market - and its impact on the initial and subsequent internationalization steps of smaller organizations. …

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