Academic journal article International Journal of Marketing Studies

How Do Smaller Firms Select Foreign Markets?

Academic journal article International Journal of Marketing Studies

How Do Smaller Firms Select Foreign Markets?

Article excerpt

Abstract

The purpose of this paper was to analyze the internationalization of small and medium-sized enterprises (SMEs) in relation to the international market selection (IMS). To accomplish this, an investigation of the primary factors influencing SMEs' choice when selecting international marketswith a systematic approach way was conducted. In addition we sought to understand whether there was a relationship between the systematic approach in IMS and the characteristics of SMEs. Results revealed that the majority of SMEs adopt a non-systematic IMS. However, in the case of SMEs following a systematic approach to IMS, the study pointed out that SMEs are influenced by firm-specific and host country factors, but not by entry barriers like geographic and cultural distance. In addition, results illustrated the existence of a relationship between systematic IMS and firm size.

Keywords: international market selection, small and medium-sized enterprises, international strategy, systematic and non-systematic approach

1. Introduction

The internationalization process of firms has been one of the most frequently researched topics in international marketing over the past forty years (Fletcher, 2001).

At the same time, during the last decade, small and medium-sized enterprises (SMEs) have been the object of increasing interest. Furthermore, with improved communication systems, and as a consequence of transportation cost reduction and the lowering of barriers to international trade, SMEs have been pushed towards international markets (Nummela, Loane & Bell, 2006). Finally, in most countries SMEs represent the majority of firms and play an important role in the economic growth of these countries (Musso & Francioni, 2012). For instance, in Italy 99.9% of all firms have less than 250 employees (ISTAT, 2011).

As a result, the internationalization process of SMEs has become a subject of academic attention over the last thirty years (Crick & Jones, 2000; Nakos & Brouthers, 2002).

One of the most important SME decisions regarding the internationalization process pertains to which foreign market to enter and expand into (Ellis 2000; Agndal & Chetty, 2007; Sakarya, Eckman & Hyllegard, 2007; He & Wei, 2011). However, although the importance of this decision and the growing attention to SMEs, most of research related to International Market Selection (IMS) has been tailored to large firms (Douglas & Craig, 1992; Cavusgil & Zou, 1994; Makino, Lau& Yeh,2002) and few studies were focused on smaller ones (Brouthers & Nakos, 2005; Francioni, 2010).

The paper aimed to examine the degree of diffusion of a systematic approach to IMS among SMEs and, in case of use of a systematic approach, the primary influencing factors in firms' decisions. In addition, the study sought to understand if there was a relationship between a systematic approach to IMS and the characteristics of SMEs.

The organization of this paper is as follows. After the introduction, the second section approaches to the concept of IMS. Next, the methodology, analysis, and results will be presented. Finally, implications for future research are explored.

2. International Market Selection

IMS is considered the most important decision in internationalization strategy (Root 1998; Papadopoulos; Chen & Thomas, 2002; Francioni, 2012). According to Papadopoulos and Denis (1988), there are two traditional approaches to the IMS: a systematic approach and a non-systematic approach (Andersen & Buvik, 2002).

A systematic approach requires a structured and formalized decision making process, in which firms carry out several analysis before selecting international markets. The importance and need for selecting foreign markets in a systematic way has been emphasized by several researchers, and many models for selecting foreign countries have been created (Douglas, Craig & Keegan, 1982; Johansson, 1997; Root, 1998; Mühlbacher, Leihs & Dahringer, 1999; Rahman, 2003). …

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