Three approaches to small firm internationalization

Such approaches may include stage approach where firms start by selling products in their home markets and later looking for new countries that they can conduct their business activities. This approach is not likely to be followed by firms that have been reported severally to begin their international operations from the beginning; that is entry to different countries while approaching new foreign markets for sourcing and exporting. The paper therefore, explores and discusses three business internationalization approaches used by small firms during their establishment across borders. Introduction In the last two decades, interest in the area of internationalization has been witnessed. The concept of internationalization is an ambiguous term that involves the outward movement of the company’s business operations. The three main theoretical approaches are; (1) the economic approach, (2) stages approach, and (3) network approach.

Discussion Traditional theoretical approaches The literature has proposed many descriptions and analysis when it comes to the behavior of SMEs. From the three principal types raised, we may find global explanation tried to economic development (Laghzaoui 21). Small firm’s internationalization. More emphasis of SMEs have been on the gradual international development. Some scholars recently summarized the principal theoretical contributions which are radical in the economic approach, by identifying the following: • Internationalization theory is that theory by which small companies can expand their actions internationally within operation of vertical incorporation. • Transaction cost theory: the process of internationalization is particularly a form that is viewed as a result of a firm’s choice between internalization and externalization of their operations. It constitutes a continuation of internationalization theory.

• The eclectic paradigm which is also based on internationalization theory, of which three types of advantages are distinguished: • Ownership advantage – very specific to the company and relates to intangible assets accumulation (i. e. The Uppsala Internationalization Model was developed to uphold two main principles of their contributions: psychological distance and learning process. The model postulates that the international involvements of firms gradually increases with time. The model emphasizes a gradual process of learning and considers experiences gained as the key to internationalization. Thus, the firm improves its decision-making process by gathering knowledge and experience on the foreign market, hence making internationalization a process of a series of incremental decisions. The researchers noted that this model follows a sequential process made of four stages (Peprny & Kubickov 39): • Asymmetrical and opportunist exports activities; • Exports through self-governing agent • Production in foreign countries • Establishment of subsidiaries of sale When entering the new market, firms experience psychic distance that limits their immediate success.

The Product Life Cycle Theory The development of the Product Life Cycle allows companies to undergo through an appropriate internationalization process. This approach begins with the introduction phase where products are first introduced to the familiar markets before being exported to foreign markets. For instance, most of the products sold internationally were initially produced in the U. S. before being exported to other countries. Maturing product: Products are standardized to a certain degree depending on the expansion of the demand. This move partially reduces the requirements for flexibility. Moreover, this stage ensures that firms focus on mass production leading to the achievement of economies of scale. Under this stage the companies start experiencing the demand for their products, which begins to appear in developed nations, thus, enabling entrepreneurs to set up production facilities in this new market with the aim of satisfying the local demand.

Product standardization is an advanced stage which involves producing products according to regulatory bodies’ specifications. Therefore, most of the factors develop gradually over boundaries, while others seem to have challenged the laws of learning and rapid internationalization. Huawei, which is a Chinese firm has adopted the stage internationalization approach to expand its business operations across the world. The choice of the entry strategy was influenced by the company’s vision, business offering, capacity, and resources. Moreover, the market conditions acted as exogenous factors for the company’s operations. Network approach This approach was derived from stages approach especially the Uppsala school. Internationalization through network approach can be perceived as a collective procedure in which affairs are recognized, industrialized and continuously preserved to obtain the firm’s objective.

This internationalization approach has been utilized extensively in the market of manufacturing plastic companies even though it faced great competition from SME in Zlin region. Evaluation of the approaches Various approaches have tried to explain the concept of small firm’s internationalization strategy and scholars have tried to advocate for a general framework. SMEs internationalization is often difficult to succeed and maintaining the position of the foreign market becomes difficult when compared to multinational companies. The need for matching the methods and taking into account SMEs features becomes more essential. The nature of SME internationalizing is based on the combination of the three approaches. Moreover, internationalization of SMEs has been facilitated by the globalization of the world economy because of the reduction of trade barriers that different governments imposed globally coupled with the progress made in ICT and reduced transportation cost.