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Strategic choices of SMES on foreign markets: some evidence from an
Italian sample
Birgit Hagen*, Giada Palamara** , Antonella Zucchella*
* University of Pavia, Department of Business Research, +39 (0)382 986 457
** University of Insubria, Department of Economics, +39 (0)382 986 418
ABSTRACT
Internationalisation has become part of the daily life of most small and medium sized
enterprises (SMEs), and literature has emphasized the role of this strategic choice focusing on
several aspects, such as motivations, entry mode choices, internationalisation trajectories etc.
The main focus in international business research thus has been on “why” those firms become
international, on “which path” they follow in their international experience, while the strategic
aspects, the “how” side of internationalisation of SMEs has received less attention (Bell et al.
2004).
This paper wants to focus on this literature gap, analysing how internationalised SMEs behave
strategically abroad (from developing competitive advantage to designing market strategies to
adaptation/standardisation decision in marketing mix), in relation to their export intensity.
We are going to present the Italian results of an international research program, involving
European SMEs and European researchers in International Business. The study is still at the
explorative level, so the methodology is based on descriptive and correlation analysis. The
findings constitute research hypotheses that need to be tested with a regression analysis and
confronted with the rest of the sample belonging to the project.
The results underline preference for strategic flexibility, which involves a market widening
rather than a market deepening attitude and the typical trait of Italian family businesses,
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focused on customers and not on markets, ready to respond to each customer needs but not to
adapt to foreign market requirements.
INTRODUCTION
The change in identity and behaviours of SMES has been widely recognised both on the
political and academic level. If in the ‘80s and in the first ‘90s SMEs have been considered
weak in internationalisation mainly because of financial and managerial constraints (Golinelli,
1992, Jarillo, 1989, Oviatt & McDougall, 1994), the picture of SMEs recently changed,
showing a high and growing propensity to internationalise, more frequently, more quickly and
broader in scope (McDougall, Shane, & Oviatt, 1994; Oviatt & McDougall, 1994, 1997;
Knight, Madsen, & Servais, 2004).
The academic and managerial interest in this phenomenon led researchers to investigate the
changed behaviour and its related strategic choices in internationalisation. Studies have
examined influencing aspects such as entry modes (Brouthers and Nakos, 2002),
entrepreneurship (Bloodgood, et al., 1996;Westhead, et. al, 2001; Dimitratos and Jones,
2005), the dimensions of speed and scope of internationalisation (Ancona et al., 2001; Nayyar
& Bantel, 1994; Zucchella, 2001).
Current research aims at understanding the change in internationalisation behaviours, trying to
identify the drivers of the phenomenon (for a state-of-the art, see Rialp et al 2005) and at
describing the strategic dimensions of the internationalisation process (such as objectives,
entry mode, governance and entrepreneurship issues etc.). Relevant research fields on born
global patterns show a discontinuous (Bell, 1995) or accelerated internationalization process
(Bell, et al., 2001; Lommelen et al. 2002) or serial internationalization processes (Zucchella,
2001).
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A significant number of recent contributions seem to shift their attention on firm-specific
drivers of early internationalization, and notably the entrepreneur specific ones. According to
this perspective, the entry in foreign markets is a function of the internal capabilities of the
firm (Autio et al., 2000; McDougall et al., 1994; Zahra et al., 2000). Knowledge
accumulation, organizational capabilities, financial resources, equipment, and other physical
resources are the main drivers that enable large and established firms to perform in foreign
markets, but small firms lack them. This category of drivers goes hand in hand with a growing
number of managers and entrepreneurs oriented to pursue early and develop quickly
international business opportunities, due to their education and/or previous experience (Zahra
& George, 2002; Scabini & Zucchella, 2007) .
Literature, however, presents a gap in describing and analysing the strategic choices that
SMEs pursue on their foreign markets (from developing competitive advantage to designing
market strategies to adaptation/standardisation decision in marketing mix).
The main focus in international business literature on internationalisation of SMEs has been
on “why” those firms become international, on “which path” they follow in their international
experience, while “how” practically SMEs behave in their international markets has received
less attention. Earlier studies in the field (for a review see Leonidou et al. 2002) are
heterogenous and inconclusive as far as a firm’s strategic and competitive situation and its
expression in strategy is concerned.
The objective of this research is twofold: first, it wants to deepen the understanding of how
strategic choices combine to high export performances measured as export intensity;
secondly, it aims at presenting the Italian results of an international research project.
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LITERATURE REVIEW
International strategy and performance
The relationship between strategy and performance has been well documented in the domestic
marketing context but empirical work in the context of export marketing has been fragmented
and inconsistent (Cavusgil & Zou, 1994; Styles & Ambler 1994; Zou & Stan, 1998;Bell et al.,
2004). This is the reason why we focus on international performance and its relationship with
strategic choices.
The analysis of performance implies a crucial complexity: it is the concept of performance
itself being a multidimensional construct, involving the combination of different drivers to
completely express it (Shoham, 1998, Majocchi & Zucchella, 2003).
Performance is a concept that has been widely analysed in literature, and different works
(Larimo, 2007; Shoham, 1998) show a comprehensive review of measures used and variance
of results relative to the specific measure adopted.
Literature contributions can be divided in those adopting financial vs non financial measures ROI, ROA vs market share, customer satisfaction, productivity, efficiency, etc…- (see Hoque,
2004, for a review), and in others following economic ones (sales, growth of firms, etc) vs
non economic measures (satisfaction, efficiency, etc. see Larimo, 2007 for a review).
When studying SMEs international performace the most frequently used performance
measures are the economic ones, which use indicators such as export sales and profits, export
growth, and share of foreign sales over total sales (Katsikeas et al. 2000, Sousa, 2004).
In this paper we decide to focus on export intensity, that is to say the ratio of export over total
sales, as measure of performance on international markets. The choice is based on the fact that
export performance is the most used measure of international performance in recent IB
literature (Madsen & Servais, 1997; Lommelen et al. 2002; Oviatt & Mc Dougall, 1994. For
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this reason the choice of export intensity is crucial in order to compare results of the study to
prevoius research in the filed of IB.
This measure has widely been used in International Business literature as an indicator of
SMEs international performance (Czinkota & Johanson, 1983; Calof, 1993), and is considered
a typical measure of the degree of internationalization (Shoham, 1998) . Moreover, the choice
of export intensity seems to be more appropriate for the sample of this research -SMESbecause of its shortage in resources that makes export the most common and the first kind of
international activity (Leonidou & Katsikeas, 1996).
International strategies
Porter (1986) showed that strategy can significantly influence the nature and magnitude of a
firm’s competitive advantage on its markets. Depicted as being weak in resources, SMEs have
overcome this hurdle mainly due to unique (frequently intangible) assets. In order to gain a
sustainable competitive advantage, firms need their resources to be unique in some way
(Barney, 1991), and this is especially true in a global environment, that is increasingly
competitive and dynamic. In export marketing literature the discussion of competitive
advantages mainly considered product or technology, price and/or marketing advantages
(Knight, 1997, Moen 2002). Larimo and Pulkinnen (2002) following this line expect that
intensively international-market oriented firms have more competitive advantages than less
intensively developed companies, because they most probably will be more successful in an
international and consequently more competitive environment. Additionally, these firms will
try to pursue internationalisation more actively in order to reach an adequate position
internationally.
There is a definite role that competitive advantages lying in unique products and or
technology play in stimulating exports (see Aaby & Slater, 1989, for a review). On one hand,
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a firm with a superior offering is likely to be perceived more frequently and more
interestingly in terms of foreign market request. On the other hand, the possibility to spread
unique assets in foreign markets will be high due to almost non-existing opportunity costs of
exploitation (Albaum, 1994).
Strategic Management studies usually identify three main categories of international strategies
(Thoumrungroje & Tansuhaj, 2005): generic strategies, based on Porter's study (1980) - cost
leadership vs differentiation (e.g. Dess et al., 1997); marketing standardisation vs adaptation
(Albaum & Tse, 2001); diversification vs concentration strategy (Aulakh et al., 2000).
Generic strategies hardly can be pursued by SMEs, lacking financial and economic resources
necessary to develop scale economies or cost reductions. Regarding the second kind of
strategy, the decision ranges from the extreme of a global product to the adaptation carried to
the point of individualization and refers not only to product characteristics and packaging but
also involves pricing, distribution and promotion policies (Albaum et al., 1994). These
choices are influenced by foreign market characteristics as well as by industry, organization,
and international environment characteristics (Buzzel 1968; Cavusgil et al., Jain 1989;
Walters & Toyne 1989).
The underlying assumption is that with better product-market match the company will achieve
greater customer satisfaction and more freedom from competition that in the end translates
into better export performance. This is consistent with literature, which puts customer
orientation for success in the first place (Knight, 1997, Moen 2002). International market
orientation is reflected in strong affinity to foreign customer needs and the attempt to respond
to these by creating value.
When called to determine the degree of standardization and adaptation, companies normally
find a compromise between the two extremes that involves only a part of the marketing mix
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and follows evaluation of factors such as economic, political legal, price controls, distribution
and transportation agreements and costs, similarities or differences in customer behaviour etc.
Empirical results so far have been mixed as far as the standardization/adaptation discussion is
concerned (for a review see Leonidou et al. 2002), it is however expected that the benefits
related to adaptation outweigh the benefits of standardization.
Inconclusive results regard also the case differentiation vs concentration strategy:
differentiation might be expression of customer orientation and the attempt to fulfil specific
needs either through innovation or marketing and image management (Miller 1988). Earlier
studies by Knight (1997) and Moen (1999) give reason to believe that marketing-and product
based differentiation is characterizing highly performing SMEs: empirical results are still
fragmented on this issue: the results of a more recent study by Knight et al. (2004) indicated
the positive impact of product differentiation on export in the US-sub-sample, whereas the
Danish-sub-sample did not show any significant impact.
Very frequently small firms have approached international markets adopting a niche strategy.
The latter explains how small firms, which are traditionally described as running short in
tangible and intangible resources, may reach a sustainable competitive positioning in global
markets. Focus on a narrow market segment through the offer of specialized goods or services
enables small firms to compete globally, without entering in price competition. Moreover, the
smaller the niche, the stronger the need to reach a global scope in order to break even and
reach economies of scale. In market niches small firms can deploy the resources and
capabilities which characterize their organizations, in particular strong orientation to global
customers, wherever they are located, an offer of customized goods, a customized pre and
after sale service (Palamara & Zucchella, 2007).
A last theoretical category is the one opposing "proactive" or "build" to "reactive" or
"defensive" strategy (Simons, 1987; Ittner et al., 1997): it is a more general differentiation,
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but suitable for SMEs. Generic strategies hardly are suitable for SMEs, because of scarce
resources (Calof, 1993), and for the same reason an analysis based on the classical marketing
mix drivers could not be expressive of SMEs world.
The construct of reactive vs proactive strategies seems to be appropriate, first of all because it
can be integrated with issues belonging to the "classic" international strategies previous
mentioned; and, secondly, because it is strongly related to the recent debate of IB studies
regarding the drivers of international activity, such us entrepreneurship, managerial features,
International orientation, etc. (Knight 2001, Dimitratos & Jones, 2005; Scabini & Zucchella,
2007).
Reason at the base of strategic decisions
A review of existing export strategy studies shows a multitude of aspects – from firm and
management characteristics to industry and market characteristics to export marketing
strategy and related variables – that are supposed to have impact on export performance.
Katsikeas et al. (2000) considered two main groups of variables: background variables such as
managerial, organizational and environmental forces and intervening variables such as the
company’s marketing strategy.
Export marketing strategy variables essentially refer to the company’s policy in terms of
international marketing mix, giving special attention to the issue of standardization or
adaptation (Katsikeas et al. 2000; Cavusgil & Zou, 1994, Shoham, 1998) to the conditions of
the foreign market (Douglas & Craig, 1989).
The driving forces for either starting or exploiting export activities are the firm’s need or
wants to utilize and develop its resources in order to sustain its objectives. Consequently,
motivations will be strongly connected not only to the basic goals of the company but also to
the strategy employed.
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Following the classification of Albaum et al. (1994) we suggest two main distinctions: first,
stimuli are defined as being internal to the firm (economic or non-economic goals, managerial
urge) or external, that is home market or export markets related. Second, motives are
distinguished between active and reactive, that is simply responding to internal or external
pressures or based on the firm’s interest in exploiting unique competences or market
possibilities.
Prior studies report that motivation to exporting expressed by proactiveness or reactiveness is
a consistent predictor of good export performance (Dean et al. 2000). Researcher have used
this categorization to discern the strategic orientation of the firm (Johnston & Czinkota, 1982,
Katiskeas & Piercy, 1993; June & Collins-Dodd, 2000). Johnston & Czinkota (1982) find the
proactive exporter performing better in terms of sales volume, following more coherent
export marketing strategies and to be more service oriented than are reactive firms. This is in
line with findings of June and Collins-Dodd (2000) who report proactive approaches the most
successful.
The recent surge in international entrepreneurship studies has strong connections with the
resource based view framework that puts the resources and capabilities a firm possesses and
those it wants to acquire or improve through international operations at the core of
internationalisation strategies (Dhanaraj & Beamish, 2003; Kuemmerle, 2002). This view
finds expression in the hypothesis of international entrepreneurship that considers
entrepreneur-specific capabilities central to internationalisation. Prior studies suggest that
entrepreneurship is a key orientation in SMEs striving for globalisation (Knight, 2000) and
that entrepreneurial managers tend to engage more in proactive and visionary behaviour in
order to achieve strategic objectives in international markets (Knight, 1997). It is reasonable
to assume that in SMEs the entrepreneur’s capabilities are strongly reflected in his or her
organization.
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Miller and Friesen (1977, p 278) defined a proactive firm as being the “first to act” and as
“shaping the environment by introducing new products, technologies, administrative
techniques, etc.” This is also the view of Spender (1989), who found innovative firm
independent from industrial wisdom.
Empirical evidence is that entrepreneurs with former international experience and education, a
global mindset, who have lived abroad, with a high level of education and the knowledge of
foreign languages are characteristics related to a strong international orientation in terms of
export intensity (Cavusgil, 1984; Aaby & Slater, 1988; Madsen & Servais, 1997;
Athanassiou & Nigh, 2002; Ibeh, 2003). Reuber and Fisher (1997) demonstrated that
internationally
experienced
top-managers
move
a
small
firm
more
quickly
to
internationalisation than counterparts without those characteristics. Furthermore the founder’s
ability to see and exploit opportunities contributes to successful internationalisation (Zahra &
George, 2002).
International vision has proved to be important in explaining international development and
intensity (Rennie, 1993, Oviatt & Mc Dougall, 1995, Knight 1997). When comparing quickly
versus slowly internationalising firms, earlier studies especially in the born global field found
the global orientation of the management to be a driver and an important factor for success
(Knight, 1997, Moen 2002, Rennie 1993).
Competence in international operations enables firms to select better export markets,
formulate suitable marketing strategy, and effectively implement the chosen strategy
(Douglas & Craig, 1989, Terpstra 1987).
When managers are committed to an export venture, we can expect careful entry planning and
sufficient resource allocation. Coupled with formal planning careful resource allocation
uncertainty is reduced and the marketing strategy can be implemented effectively (Aaby &
Slater 1989), leading to better performance (Aaker 1988).
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The topic of entrepreneurship, and its central role in the decision making process is strictly
related also to a governance aspect: When investigating the role of governance in providing
SMEs with resources and competences to pursue internationalisation more successfully,
organizational characteristics come into play. As already mentioned above, the individual and
organizational level determinants are strongly linked with the strategic foundations of the firm
and with the firm’s corporate entrepreneurship (Covin & Slevin, 1991; Welch & Welch,
1996). Since the overall entrepreneurial posture has been discussed separately, governance in
this context is defined as ownership structure. Empirical research so far suggests that the
concentration of the ownership that stakes exclusively in the hands of the controlling family
can lead to risk aversion and can discourage innovative strategies (for example Lyagoubi,
2003). On the other hand, it has been demonstrated that the presence of family relationships
between owners has a positive effect in controlling managerial entrenchment and agency
costs, promoting long term commitment and an efficient allocation of resources within the
firm (McConaughy, 2001; McConaughy et al. 2001)
DATA AND RESEARCH METHODOLOGY
Data presented in this paper are the first findings of a European research project involving
five European countries, aimed at adopting an homogeneous research methodology and
developing a data set of international SMEs for cross country analyses.
The Italian sample consists of 141 firms, which are representative of the population of small
and medium sized manufacturing enterprises.
In order to explore the internationalisation process and strategies of Italian firms, the research
has been carried out on data gathered through a structured questionnaires with no open-ended
questions, jointly created by the international research group. The questionnaire was
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constructed through a review of the literature on international business and international
entrepreneurship, and through discussions and focus groups among researchers in project
meetings held in 2005-2006.
The initial English questionnaire was translated into Italian in order to ensure comprehension
and a higher response rate. Then, it was sent to 850 firms operating within the manufacturing
sector and representative of the exporters’ population. The group of firms was selected from a
database of the Union of Italian Chambers of Commerce. A first feedback of 240
questionnaires returned, but only 141 of them were usable for the research purposes. A few of
them had missing entries in the five-point Likert scale used in part of the questionnaire. These
missing values were recovered applying the median value, according to the most common
statistical procedure. This gives us a usable response rate of approximately seventeen percent.
This can be considered an acceptable response rate not only because the research target was
smaller firms, but also because a follow-up questionnaire was not sent.
The object of this contribution is a first exploration of the Italian dataset, giving particular
attention to the factors which may provide insights on the strategic dimension of the
internationalsiation process of Italian SMEs. First a descriptive analysis is reported; then, the
research focuses on the export intensity, i.e. the ratio of exports on total sales. As a typical
measure of the degree of internationalisation (Calof, 1993; Czinkota & Johnston, 1993), our
research goal is to measure the association and the relative strength between the firms export
intensity in 2005 and the main strategic determinats:
(1) the motivations for small firms to export;
(2) the main managerial implications involved in the internationalization process;
(3) the firms’ competitiveness and marketing strategy in the main export markets;
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The independent variables were examined here using a set of questions based on a five-point
Likert scale. The nature of data drove us to apply a non-parametric measure of correlation
well known as the Spearman’s rank correlation coefficient (rho). In a further explorative step
a partial correlation on the relationship between the dependent variable and significant
variables controlling the effect of the others variables will be carried out. This will allow us
to manage, at least, the third-variable problem and to select the appropriate independent
variables for the regression model in order to test the direction of causality.
Description of the sample
The 141 firms are SMES according to the UE parameters regarding personnel units: about 20
% of the firms are micro-enterprises (less than 10 employees), while 45% are small (less than
50 employees).
Most of these firms have born in the ‘70s and ‘80s (44%), and only the 20% of the sample has
been founded after ‘90s . They are all manufacturing firms and belong to the leading
industries of the region, namely machinery and mechanics, food and beverages (traditional
food and local wine industry are well represented), apparel and textiles.,
For the analysed SMEs exporting does not represent a marginal or secondary activity: in 2000
the exports were already more than one third of total sales (34% on average), and five years
later the export intensity ratio reached on average 43% . The internationalisation activity
(mostly expressed by exports) contributes more and more to sales volumes and is getting
closer to the half of revenues, thus showing the firms to be highly dependent on export
(median).
Governance profile
The dominant governance profile is represented by the family owned independent business:
84,4% of the enterprises are independent, and the 69% of them are family business. Family
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business, however, represents the majority of the total sample: a family background is a
common feature of approx. 70% of the sample, representing the Italian structure. One
remarkable issue is represented by the already mentioned fact that about 4 % of these firms
have been family businesses in the past but are not any more. This evidence portraits a system
of traditional firms which is gradually experiencing a transition toward new models of
governance with potential relevant implications for their strategic management, including
internationalisation issues. A generation of Italian entrepreneurs who founded their businesses
in the years of the country’s economic expansion is now retiring or close to retirement and the
firm governance transfer cannot always be handled inside the founders’ families.
Type of customers
It is relevant to observe that more than 90 % of the firms are positioned in the B2B market:
this means that abroad they are contributors to the competitiveness of international value
chains. About a quarter of the sample firms sell their production also to final customers, but
only a small part of the sample (7,1%) follows exclusively this strategy. Orientation towards a
sole B2C strategy, anyway, shows a growing trend in the last 5 years. This reflects a growing
attention towards foreign markets by firms in the apparel, food and wine industry which
leverage the country of origin effect and seek emancipation from large buyers and
subcontractors. This may be linked to experiential learning processes, leading to a maturity of
the firm on the foreign markets, based on a reduction in cultural distance, on a closer position
to the customer needs, and on the development of competences in understanding customers
needs.
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Geographic area
The average number of export markets is 18. The global scope could seem still rather
concentrated (70% of the firm declare less than 20 countries of export), but this number is
considerable taking into consideration the dimension of those firms. The presence in so many
countries, at a first glance, could be interpreted as a “skimming” but not as penetration
strategy as far as internationalisation is concerned. However, it is coherent with the
assumption of a global niche and a strong customer focus following the main field of activity
in the B2B market. Also the relatively low number of clients per market supports the
hypothesis.
The top export countries in 2005 were Germany, USA and France. This implies that
productive specialisations of these firms find their main destination markets in developed
western economies, both geographically close (France, Germany) and distant (USA).
The first foreign countries considered for internationalisation were usually the closest ones,
both in geographic and psychic terms: Germany, France, Switzerland. The order and the
countries of the top 3 export markets in 2005 change with the US and the UK come into play
and ranking second. Jointly with Italy, Germany and Switzerland make part of the same
Hofstede cluster, the UK and the US do belong to a second cluster different from the cluster
of France, but France is very proximate to the north western part of Italy and established
strong cultural and economic linkages with it along the centuries. Cultural diversity in
internationalisation strategy becomes even more varied in the long run.
If the number of countries is relatively high, concentration characterises the number of
customers, that are less than 10 in the three main markets for half of the sample.
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Entry modes
Regarding entry modes, the sample confirms literature that defines export strategy as the
primary foreign market entry mode used by SMEs (Leonidou & Katsikeas, 1996; Wolff &
Pett 2000), offering greater degree of flexibility and an effective means without overstretching
resources and capabilities (Young et al, 1989). An important strategic issue is whether export
takes place through either direct or indirect entry modes. Direct entry is largely prevailing in
our sample. In about 20 % of cases indirect forms via foreign agents or importers/distributors
are used. More resource binding entry modes such as sales offices have been established by 6
% of responding firms and 2 % have embarked in manufacturing joint ventures.
On the other hand, it is possible to observe that gradual foreign expansion
is
“counterbalanced” by stability in internationalisation modes, which tend to persist on the
exporting choice, while are other entry modes are rare. The gradualism in foreign markets
selection is coherent with the Uppsala model (Johansson and Vahlne, 1977) but the
persistence on low commitment entry modes like export is not and seems to characterise the
universe of traditional Italian SMEs.
Among the reasons of this finding, together with the classical explanation of the low
resources (both financial and managerial) endowment of small and micro firms, we could
consider the very high number of countries these firms are dealing with. The average number
of countries, as we commented above, reached 18 in 2005, a particularly high and growing
level (it was 13 five years before), when compared to the size of these firms. It is difficult to
conceive more committed entry modes than export for small firms engaged in so many
different countries. A sequential internationalisation process is thus observed on average, but
it involves more geography than entry modes. This could reflect the need of diversifying
markets and risks, of capturing different opportunities, and limiting the financial and
organisational investments needed to establish and manage a system of subsidiaries, joint
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ventures etc. On the other hand, it could reflect a defined strategic orientation of B2B niche
focused firms, which think and act in terms of global customers and not of foreign markets.
The two interpretations (the opportunistic and the strategic positioning one) are not
necessarily in conflict: they could co-exist in the same firm, but –most important- they could
be the expression of different clusters of firms.
PRELIMINARY
RESULTS
ON
THE
RELATIONS
BETWEEN
EXPORT
INTENSITY AND STRATEGIC ORIENTATION
Following are some preliminary results on correlations of strategic variables and export
intensity such as motivations for export, managerial characteristics, level of competitiveness,
and level of standardization/adaptation of marketing mix to foreign markets.
Table 1 shows the motivations for internationalisation that are significantly correlated with
export intensity (even though the strength of those relations generally is moderate), with
‘international experience of the managers’ and the “global vision of the market” reporting the
highest score.
Table 1 - Motivations for internationalization – Spearman’s rho correlation coefficient
Rho
Managerial
International
Competitor’s
International.
Uniquenes
Global
Small
Proximity
urge for
experience
success on
of customers
of product
mindset+
domestic
to foreign
international.
of mgmt
int. markets
market
customers
0,2739**
0,3525**
0,1769*
0,2085*
0,2223*
0,4058**
0,2421**
0,1828
Growth/profit
Economies
Tax benefits
Competitive
Over-
Unsolicited
goals
of scale
pressure on
production
orders
-0,03
-0,0718
domestic
market
Rho
-0,0417
-0,0219
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0,015
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+ “We have never considered Italy as only marketplace”
** Correlation is significant at the 0.01 level (2-tailed).
* Correlation is significant at the 0.05 level (2-tailed).
Most of the statements correlated with export intensity express a proactive strategic attitude
whereas traditional or reactive motivations such as ‘unsolicited orders’, ‘tax benefits’,
‘economy of scale’, ‘overproduction’ do not find support in our analysis. This could give
proof of the fact that Italian SMEs proactively and strategically embark in internationalisation
activities.
Motivations lying in managerial international experience and management’s
“urge to
internationalisation” are strongly related to export intensity.
The perception of the Italian local market as a small market could be interpreted as a result of
many firms specialisation in tiny global niches jointly with a global vision of the market and
clients that become more and more international, all variables that show significant
correlation with export intensity.
In conclusion, it is not the domestic competitive pressure to push SMEs to foreign markets,
but it is the experience accumulated and the awareness of international opportunities as well
as the pull effect of global customers linking proactive strategies and international
performance. The assumption of a strategic orientation in internationalisation could be also
underlined by the fact that growth and profit goals (short term results) do not show any
significant correlation with export intensity, coherently with past literature (Hoque, 2004).
Table 2 - Management characteristics– Spearman’s rho correlation coefficient
Rho
International
International
Level of knowl.
Commitment to
Level of
orientation
experience
of languages
internationalisation
education
0,4009**
0,3878**
0,3862**
0,3823**
0,1122
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** Correlation is significant at the 0.01 level (2-tailed).
Table 2 shows four out of five managerial characteristics positively and significantly
correlated to export performance. Once again, international experience is confirmed as being
central to internationalisation as is international orientation, manager’s knowledge of foreign
languages and their commitment to foreign business. One therefore reasonably could
hypothesize
that
the
higher
experience,
knowledge
and
commitment
towards
internationalisation, the higher the export intensity is supposed to be.
When looking at correlations between variables expressing the strategic locus of competitive
advantage and export intensity in detail, it is on one side “customer knowledge” and
“customer satisfaction” that correlates significantly to export performance and on the other
side “production”-related advantages such as “development of new production technologies”,
“production process” and “tendering and outsourcing”.
Table 7 - Competitiveness – Spearman’s rho correlation coefficient
Rho
Customer
Competitor
Customer
Prod/service
Development
Prod.
Tenders/
Networking
knowledge
knowledge
satisfaction
quality
of prod. tech.
process
outsourcing
0,3402**
0,183*
0,3058**
0,2556**
0,18379*
0,2508**
0,2099*
0,2064*
0,0000
0,0394
0,0005
0,0037
0,0386
0,0045
0,0179
0,0199
pvalue
** Correlation is significant at the 0.01 level (2-tailed).
* Correlation is significant at the 0.05 level (2-tailed)
The competitive advantage therefore seems to be connected with the “core” competences of
manufacturing firms, with a strong customer focus, and with product quality. The quality
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8th Global Conference on Business & Economics
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aspect is reinforced with a second variable that expresses high quality perception of customers
compared to competition.
None of the marketing mix variables such as brand, positioning, terms of payment,
advertising etc. are related with export performance: this is coherent with the kind of firms
and the particular target of customers (B2B). Consequently, we observe a profile of Italian
firms that succeed in foreign markets due to customer orientation and superior quality of
products as well as their core manufacturing competitiveness in terms of production
technology and processes, tendering and outsourcing competency.
In the overall context of resource constraints in SMEs, the use of marketing instruments
becomes less important or is perceived as being less important, which could explain the
rejection of any association of competitiveness in the marketing area and export intensity. It is
more the coherent choice of resources and their allocation that seem to come into play: almost
two third of companies are in the B2B market which is, at least in its traditional dimensions,
less marketing intensive than a B2C market as discussed in the descriptive analysis. Also the
fact that in about half of the cases the companies enter the market via intermediaries could
help to explain why marketing issues are of minor importance in achieving export
performance. Most probably it is much more the effective support of the distributors that
makes a difference.
In line with the findings regarding competitive advantage in marketing above, export
performance is not related to adaptation of marketing mix, neither in product features, nor in
pricing, promotion and distribution.
Two major strategic orientations could help explain these findings: At a first glance, one
could expect a niche strategy, with global segments that do not require adaptation, but all
items related to “focus strategy” such as specialized product for specialized need, niche
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products etc. do not show any correlation. Another assumption could be the strategic selection
of markets that do not require any adaptation. In view of the exporting area reported, mainly
Europe (and UK, US) and assuming a more uniform environment than in the past, this
assumption seems reasonable. A third hypothesis is adaptation to a minimum level, following
either a lead market or the domestic market. Most simply, and in view of the profile of
competitiveness, Italian manufacturing companies either go for markets in which the quality
of products and a certain country of origin-effect are key and exploitable or they concentrate
in a core business that does not require marketing activities, such as exploring technology
advantage in production or activities in subcontracting or being an outsourcing partner.
Looking at the reasons for withdrawal (de-internationalisation) might shed some more light
on the issue as well, since the main reason for withdrawal is the misfit or lack of adaptation,
therefore indicating that companies may underestimate its importance not only for success but
also for survival in foreign markets.
CONCLUSIONS
The main focus in international business literature on internationalisation of SMEs has been
on the reasons and drivers of SMEs internationalisation and the path they follow in their
international experience, while a unique and consistent literature regarding the strategic
choices of SMEs abroad is still missing, and the issue, especially in the last decades, has
received less attention. According to Leonidou et al. (2002) studies on the subject are
heterogeneous and inconclusive as far as a firm’s strategic and competitive situation and its
expression in strategy is concerned.
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This contribution aims at analysing some indicators of strategic decisions assumed by small
and medium sized firms when approaching foreign markets.
The general descriptive analysis of the 141 surveyed firms, mirrors a prevailing profile of
exporting SME, which is characterised by:
-
family owned independent firms, mostly in the B2B segment
-
growing in terms of export intensity and geographic scope
-
internationalising late in their life on average Even if 22% of the sample can be
defined as born global (Madsen & Servais, 1997)
-
gradual in terms of internationalisation process
-
low committed in terms of entry modes.
This profile is consistent with a sample of manufacturing firms mostly belonging to mature
and traditional industries. The sample anyway shows significant variations when divided into
export intensity classes, which suggest the hypothesis of the existence of strategic clusters in
the world of exporting SMEs.
The main limitation of this contribution is represented by the focus in the empirical section on
descriptive analysis and some preliminary correlation analysis. The next research directions
are represented by a cluster analysis to detect the likelihood of the above hypothesis and a
regression analysis, in order to deepen the relationship between export performance and the
drivers and strategic decision making in SMEs.
The preliminary correlation results seem to show that:
-
On one hand SMEs proactively and strategically embark in internationalisation
activities, because most of the significant findings express a proactive attitude or
customer orientation, whereas traditional or reactive motivations such as ‘success of
competitors’, ‘competitive pressure in the domestic market’, as well as reactive
strategies (‘unsolicited orders’, ‘tax benefits’, ‘economy of scale’, ‘overproduction’)
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do not find support. SMEs are driven to internationalise by international experience of
the managers and by their global vision of the market.
-
As far as competitive advantage is concerned our preliminary results show two
prevailing streams of competitive positioning: on one hand the source of
competitiveness seems to be related to customer knowledge, satisfaction and
proximity, product quality, and uniqueness in general. On the other side core
manufacturing competencies like production technology, processes and knowledge in
tendering and outsourcing constitute sources of competitive advantages to be explored
in internationalisation. The two streams however might combine to the more general
and comprehensive construct of customer orientation, an issue that will be interesting
for further investigation.
-
On the other hand firms approach foreign markets with low committed entry modes to
maintain strategic flexibility and they soon exit when investments in market
commitment are needed, such as adaptation.
The preference for strategic flexibility, which involves a market widening rather than a
market deepening attitude, may be the result of the scarcity of resources of small firms, but
may also be the effect of the choice for “remaining small”, which is a typical trait of Italian
family businesses, focused on customers and not on markets, ready to respond to each
customer needs but not to adapt to foreign market requirements.
The research purpose is not only to support the managers in their decision of
internationalisation, but also to provide a valid framework for governmental associations,
clusters and policy makers for their internationalisation support actions and services.
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