Internal to create new services and business

Internal Factors affectingInternationalisation of Entrepreneurial SME’s 1)   Characteristicsof entrepreneursThe experiencepossessed by the entrepreneur is related to the human capital (knowledge,experiences and skills a person has gathered over time) and entrepreneurialsocial capital. (Unger et al., 2011; Kwon and Arenius, 2010) Theseentrepreneurial skills trigger the entrepreneur to seize the chance abroad andgrasp this opportunity presented despise of several constraints that mayprevail such as cost and fierce competition. The entrepreneurs must be able toexplore new ideas so that the survival of their business is not at risk. Theyshould possess negotiation and communication skills to sell the ideas and theproducts/ services. Creativity is another concept where the entrepreneursconstantly re-invent new projects over the time thus achieving organizationalgoals.

They should be proactive and lead the future instead of waiting to beinfluenced by external factors, in being proactive, best practices and betterperformance can be achieved within the firm. The entrepreneurs should possess cognitiveadaptability and make changes in decision policies and give feedback. Entrepreneurs are ought to be determined about the goals ofthe organization and the challenges and achieve challenging goals.

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 2)   InnovationDrucker (1974) definesinnovation as a means by which entrepreneurs may exploit change in order tocreate new services and business opportunities. The ability to constantlyinnovate helps the firm to embrace new ideas, undergo experimentation whichwill result in the creation of new products, services or technologicalprocesses. The entrepreneur seeks to benefit from new business opportunitiesthrough innovation presented as he wants to be self-sufficient. (Shane, 2000) 3)   Risk toleranceTaking risks andinitiatives can be beneficial for the SME’s as there is increase of volumeactivities abroad. As supported by Pérez-Luño et al., 2011,  a certain amount of risk is crutial for thebusiness to expand. Risk involves two aspects which are gains and losses, theentrepreneur must possess a certain tolerance for ambiguity to engage incertain tasks and being both at a times, a risk taker and risk handler(Longenecker and Schoen, 2001).

Diversification of new products can be quiterisky and may affect the profitability of the business, thus the survival ofthe company operating in a global market is at risk. 4)   NetworkingNetworking throughinformal network consists of business partners and friends.The interaction of informal networkcan influence the degree to which an SME’s want to internalize its operation,however it has been noticed that SME’s rely on informal network due tocloseness of relationships.

Loane and Bell, (2006) emphasizes that theimportance and evolution of networking is seen especially in firms operating inthe niche segments due to more difficult on existing markets. Networking isseen as a tool for acquiring knowledge about the market, identify keycustomers, sources of funding and Research and development activities.  5)   ResourcesThe resources canemerge from the internal environment such as the skills concerning theorganizational learning, communication and information. However, the firm mayface internal resource barriers such as lack of human resource in terms ofstaffs which may hamper the willingness of the firm to start export.

 6)   FlexibilityIt is referred as theability to adapt and quickly response to the market expectations. The SME’s canthus learn from experiences. There is constant need for the product to beinnovative. The SME’s need to use their specific resources at their maximumcapacity and efficiently to satisfy the requirements of the foreign market.Their strength resides in their ability to overcome barriers such as limitedresources with innovative products/services. 7)   KnowledgeBarrierLack of knowledge is a threat ofentrance for a small firm as difficulties may occur to exploit theopportunities presented in the foreign market. Suarez-Ortega (2003) identifiedsome knowledge barriers such as lack of awareness in terms of exportassistance, lack of awareness of economic and non-economic benefits of theexport market, lack of knowledge of the market itself , lack of qualified staffand how to enter an export market.

The managers face a major constraint as theyfear of entering in a market where they know little or nothing about and thusthis lack of information is a top barrier to SMEs internationalization.8)   Company sizeSeveral authors havedrawn on the conclusion that firms that have better access to resources, whereother things being equal, have better chance in entering the foreign marketefficiently. The bigger the firm, the more resources it has for itsinternationalization ventures. However, the company size can be based onseveral criteria namely:·     Number of employees·     Annual sales/profits·     Market share          Factors affectingInternationalisation of Entrepreneurial SME’sExternal1)   TechnologyCompanies have ease of access to information,knowledge and networks through tacit knowledge widely available and increasesthe chance of SME’s to become exporters. Technology helps in enabling corebusiness activities such as products and services, market acceptance and tosurvive in competing markets and achieve financial success.

It helps increating quality goods and services to match the global market expectation.(Kuivalainen et al. 2010, Lee et al, 2001). A process of rapidinternationalization may be essential for achieving necessary sales volumesbefore the technology becomes obsolete or imitated by other firms. (Lindqvist,1997)There is also the involvement ofResearch and development where the need to develop new products to satisfy thenew demands arising from customers in the global market. It acts as a factorinciting SME’s to engage in export.

Technology is vital when used tostrengthen the relationship with customers. SME’s can monitor the consumptionof the customer through online databases showing consumption level and thedemand. Its importance is seen when several studies have shown that in theinternationalization process, high-technologycompanies are more international than low-technology companies.   2)   GovernmentSupport and related issuesThegovernment of every country is in charge of instituting policies, legal frameworksand procedures that stipulates how the business is conducted within itsborders. One example is the processstandards for health, welfare, safety, size and measurements can create tradebarriers by excluding products that do not meet the standards. A product mayhave to change in a number of ways to meet the requirements of a new marketsuch as packaging or physical core product. (Cateora, and Graham, 2011)SME’s internationalization processcan be hampered by the lack of government support in terms of traderestriction, absence of stimulating policy of national export, unstable ratesof exchange currency and many more.

It also involves the state of theinfrastructure, telecommunications, ports,warehouse, highways and excessiverules and regulations. Government imposes regulations onexport policy, procedural customs, endowments and incentives which affect theinternationalization process. The firm’s choice is affected by internalfactors:- tax, legislation, interest rate policy, labour law regulations andadministrative infrastructure (Boter et al.2005). These regulations impose highchallenges for realizing foreign expansion for SMEs but in addition, theentrepreneur is faced in situations where the access to the rules andregulations are not well defined and the degree of corruption in a countryposes a threat to the internationalization of SME’s. Firms are often reluctantto consider export as they face many difficulties from the governmentinstitutions.    3)   Lawsand RegulationsIt refers to the legislative andregulatory frameworks.

Strict import rules could be viewed in form of hightariffs and hardly regulated quotas, these set of laws complicates an exportentry mode, and pushes the SME to find other entry modes.  SME’s have to adapt existing laws andregulations. De Bu?rca, Brown & Fletcher (2004) pointed out that in someinternational markets, laws and regulations within the target country mayprevent or restrict imports into the target market or only permit localmanufacturing in less attractive geographical locations Exportingfirms face restrictions in terms of quotas or embargoes to force them topurchase more supplies from the host country.Patentand trademarks that are protected in one country are not necessarily protectedin another, so SMEs must ensure that patents and trademarks are registered ineach country where business is conducted, (Keegan and Green, 2008).  4)   Environmental Characteristic Environmental characteristic inthe form of political, economic, social, technical, and legal requirements athome and in the target country also affect internationalisation process (Root,1994).

The environment is characterizedby four elements:      I.        Dynamism-which explains the amount and speed ofchange    II.        Munificence – the scarcity or abundance ofcritical resources required for international operation  III.        Complexity – the regulations, competition andtechnological demand within the foreign environment IV.        Industry characteristicsThe SME needs to know thechanges that can occur in the environment and adapt to it else it will perish.

Studies have shown that a dynamic environment is better in contrast to a staticenvironment and creates a positive influence for the firm (Dess, Lumpkin, &Covin, 1997; Zahra, 1993). 5)   Competitive Environment Competitive environment dependson the levels of competition placed on price, performance, design or style,patent protection, brand name, packages and services (Root, 1994). Acompetitive environment is determined by the cooperation, co-dependence,co-learning, risk sharing, and joint actions with others (Etemad, 2004).Competition is essential tostimulate firms to learn and be aware of the market trends, Wright et al.

,(2007) suggest the authorities support SMEs byproviding reliable and updated information that is spread fairly so firms areprepared to face a competitive environment. SMEs need to challengethemselves and their boundaries to establish themselves a name among otherfierce competitors, studying the competitive environment can be an asset forthe firm.6)   Industry Environment The industry factors include twomain elements which are the industry structure and economies of scale (Lumpkinet al., 2005; Vahlne et al., 1993).

Industry structure is portrayedas capital intensive and concentrated industries where R&D capacity andintensity of developing products/services is the focus. An example is JapaneseSMEs rely heavily on research alliances with other SMEs in different industriesand with government research institutes. This has enabled that country to gainsupport for its national innovation system as well as maintain a high capacityfor innovation (Sugasawa & Liyanage, 1999). Economies of scale in contrast,occur when SMEs turn manufacturing into mass production due to growth ininternational activities spread over many markets. This can be achieved by severalmeans such as focusing on global manufacturing in only one home country, bymanufacturing customized products through franchising and many more. Economiesof scale cuts costs and leads to profit exploitation.

The specific industryenvironment in which an organization operate can have an impact on thestrategic direction the firm will take (Miller & Friesen, 1984). A dynamicenvironment may provide SMEs with opportunities to innovate strategically,however this may lead to a greater pressure from competitors.  

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