Smes in developing countries: financial and economic factors that affect export strategies (página 2)

Theoretical and empirical research findings published in the last 10 to 20 years on the factors that explain SMEs involvement in exporting all agree on one point: the limited ability to acquire information and knowledge about foreign markets and to manage foreign activities is largely responsible for their relatively low level of exporting commitment and poor performance (Julien & Ramangalahy, 2003). As a result of these limitations, industrial districts or clusters have been increasingly recognized as an organizational model enabling small and medium-sized enterprises (SMEs) to compete nationally and internationally (Belso-Martinez, 2006).

The creation or process of joining a cluster, according to Zyglidopoulos (2006), assists the internationalization process of SMEs in two ways: first, cluster reputation directly alleviates the internationalization constraints that SMEs face and, second, cluster reputation has an indirect positive effect on internationalization through its influence on the other cluster-specific factor conditions (p. 82). For instance, Mezquita and Lazzarini (2008) contributes to this latter trend in the cluster literature by outlining specific mechanisms through which firms that properly coordinate their actions with other firms perform better than those firms that do not (p. 376). It is very important to remember that being inside a cluster does not guarantee success in the international market.

Besides clustering, SMEs face different barriers to survival, growth, and innovation. Research by Larsen and Lewis (2007) found that the majority of failures in SMEs performance were due to multiple factors such as under capitalization, short-term liquidity problems, insufficient working capital, insufficient start-up capital, and poor financial management; based on Foley and Green (1995) research, developing overseas markets is particularly difficult for SMEs with their limited financial and human resources. One option is to employ overseas agents to represent the company. However, according to Larsen and Lewis (2007), agents often work for a number of businesses in the same sector and may not be motivated to sell any particular SME"s products in preference to those of another (p. 143).

Research involving marketing techniques (Keh et al., 2007), noted that information on customers and competitors has significant effect on marketing decision-making and that there is a need to continuously gather information on customer needs and competitor capabilities in order to deliver consistently high-quality products and services as well as to create superior customer value (p. 594). After acquiring information, it is crucial that SMEs use the information to their advantage. Unless the collected information is used, it does not provide any tangible benefit (Johnson and Kuehn, 1987).

Some studies demonstrate the importance of using marketing information pertaining to customers and competitors in making marketing-mix decisions, which contributes to higher firm performance in the entrepreneurial setting. This research concludes that information acquisition and utilization should not be a one-time event; rather it should be an on-going process through day-to-day interactions with customers, suppliers, and other business associates. This also suggests the need to have good communication and networking skills (Keh et al., 2007).

Briefly, SMEs risks arises from the fact that SME management is typically thinner than that of a large, diversified company; in a similar vein, an SME likely has limited management skills, international experience and infrastructure, resulting in a steeper learning curve and a greater need to rely on third-party organizations, which can be expensive. In part because of the relatively high costs of hiring outside experts, SME management tends to prefer a "do-it-yourself approach and may hesitate to work with third parties and to invest in the necessary outside counsel and support (Ganster, 2007). At the same time, research by Larsen and Lewis (2007) confirmed that SMEs themselves see the real barriers to partnerships to be associated with an inability to overcome marketing barriers, find suitable partners and a lack of trust.

In relation to developing countries, specifically Latin American countries, the lack of access to investment capital, technology know-how and commercial linkages are among the broader challenges facing established SMEs. Also, local firms that remain privately held may still resist raising the functional importance of finance and R&D (Martin, 2008). In fact, some countries have turned to higher education to solve most of these barriers. Swift and Lawrence (2003) showed that foreign language skills and lack of cultural understanding have become one of the main problems to solve, and how the SMEs have turned to higher education to overcome these difficulties. As Granell (2000) observes: …the secret of success for winning in the new economy is to manage cultural diversity with information, intelligence, a critical and demanding attitude, patience and, above all, with much respect for and understanding of the culture of others.

Methodology

Hypothesis & Model

H1: The more strategies SMEs use to internationalize their products/services, the more participation in the global market they have.

H2: The lack of capitalization and financial management is positively related to a low export performance.

H3: Legal aspects and foreign regulations are positively related to impediment to export.

H4: Participation in the foreign market is positively related to being a cluster member.

Target Population Owners, managers, and/or senior management members of small and medium-sized enterprises located in developing countries.

Sampling Frame

The sample group was composed of owners, managers, and/or senior management members of small and medium-sized enterprises. The initials respondents, were selected from referrals or contacts located in the target market. Additional information and more respondents were obtained from referrals provided by the initial participants.

Before e-mailing the questionnaire, the contact list was updated in order to guarantee accurateness, truthfulness, and optimal results. Participants were asked to fill-in a survey which defines if they met the selection criteria. The selected participants will be managers of all levels and owners of SMEs who are actually internationalizing, or looking forward to, their products and/or services. The surveys will be administered to the e-mail addresses in the database; this is done with the aim of selecting the target population that meets the criteria until achieve the required sample size.

Sampling Technique

A Snowball Sampling technique was used to collect the data. This sampling technique is appropriate because it is not very expensive and can estimate rare characteristics; additionally, this sampling technique seems to be appropriate to the study because it lets us approach to know the SMEs" strategies to internationalize their products; as well as to reach a business network we did not have access and, information that is normally difficult for researchers to gather.

Primary Survey Method

E-mail survey sent through electronic method. The primary survey method will be a structured questionnaire that consists of a set of closed ended-questions, such as multiple choice, scales, and some dichotomous questions.

This method is appropriate for this study because is quick, inexpensive, flexible, efficient, and accurate. However, some of these e-mail surveys could not be responded because they may be confused with spams, or simply because they do not like to share information related to the financial statements of the company. The reason of using closed-ended questions is because they take less time from the interviewer, the participant and the researcher; so they are a less expensive survey method. Remember that we are dealing with business people who do not have much time to answer surveys.

Generally, the response rate is higher with surveys that use closed-ended questions than with those that use open-ended questions. Moreover, they are easier to analyze and can be more specific.

Research Results

Figure 1 shows that 50% of the companies that answered to this survey were small-sized enterprises, 37.5% were micro enterprises, and 12.5% medium-sized enterprises. Figure 2, reports that 50% of the SMEs in this research do not participate in any local cluster or international network, but they prefer to operate on their own. Moreover, 75% of the companies that internationalize their products or services state that customer contact is the best strategy to open up new export markets.

As indicated in Figure 3, half of the SMEs use competitive pricing as a strategy to internationalize their product. However, 62.5% of them use strategies to export such as brand development, control over distribution, advertising, innovation in terms of marketing techniques and, ability to offer new superior products. Finally, this same figure indicates that 87.5% of these SMEs agree with the fact that the ability to offer specialized products and the quality of the products and services provided to the customers are indispensable strategies to internationalize their products or services. The findings also show that there is no SME in this research that disagree with the fact that poor marketing strategies -when measuring specific advantages overseas- affect the decision of SMEs to export (Figure 4). In fact, 62.5% of the participants agree or strongly agree with this idea; on the other hand, 37.5% do not agree or disagree in regards to the idea that marketing strategies are vital to participate and survive in the international market. On other words, almost 2 of every 3 SMEs believe that without well prepared marketing strategies they may fail to successfully reach the target market.

The results also indicate that 87.5% of these enterprises think that under-capitalization, legal aspects and foreign regulation, and inability to find suitable partners or overseas agents (Figure 5) are, beyond question, factors that negatively affect the decision of SMEs to participate globally.

Simultaneously, 75% of them believe that insufficient working capital (Figure 6), poor financial management, high tariffs, and development of a strong supply chain affect their decision to export but in a smaller degree. Finally, almost 90% of these enterprises strongly disagree with the fact that firm size affects the decision to go global.

Conclusions

The most important strategies that SMEs in developing countries implement to internationalize their products are: one, the ability to offer specialized products to specific customer groups and, two, offer excellent quality products and services to the international customers. In other words, specialized products to niche markets and quality products/services represent the more representative strategies used by SMEs in developing countries to attract international customers.

In addition, and according to the results, SMEs that wish to improve their international performance and competitiveness would be well advised to capitalize their business and acquire sufficient working capital before going to the target market. Furthermore, participants SMEs believe that firm size, excessive competition, and barriers to entry are not a big problem when it comes to internationalize their product.

Among the factors that negatively affect the decision of SMEs to participate globally are: poor financial management, legal aspects and foreign regulation, high tariffs, inability to find overseas partners or agents, and development of a strong supply chain.

Finally, the study concludes pointing out that half of the SMEs in the study believe that they are better off by themselves than being part of a local cluster or a network; likewise, the participants believe that the best strategy to open up new export markets is by customer contact.

References

Antonio Belso-Martinez, J. (2006). "Do Industrial Districts Influence Export Performance and Export Intensity? Evidence for Spanish SMEs' Internationalization Process" European Planning Studies, 14 (6), 791-810.

Armario, Julia M., Ruiz, David M., and Armario, Enrique M. (2008). "Market

Orientation and Internationalization in Small and Medium-Sized Enterprises."

Journal of Small Business Management 2008 46(4), 485–511.

Bnet. (2008). BNET Business Dictionary. Retrieved October 22, 2008, from http://dictionary.bnet.com/definition/small+and+medium-sized+enterprises.html?tag=content;col1

Feinberg, R. (2007). Upgrading to Compete: Global Value Chains, Clusters, and SMEs in Latin America. Foreign Affairs, 86 (5), 176-176.

Foley, P. and Green, H. (1995) A Successful High-Technology Company: Plasma Technology Ltd. Small Business Success. The Small Business Research Trust, 72–80.

Ganster, S. (2007). "Strategies for SMEs." China Business Review, 34 (1), 38-41

Granell, E. (2000). "Culture and globalization: a Latin American challenge."

Industrial and commercial training, 32 (3), 89-93.

Holmlund, Maria, Kock, Sören, and Vanyushyn, Vladimir (2007). "Small and

Medium-sized Enterprises" Internationalization and the Influence of Importing on Exporting." International Small Business Journal, 25(5), 459–475.

Johnson, L., Kuehn, R., 1987. The small business owner/manager's search for

external information. Journal of Small Business Management 25, 53–60.

Julien, P., & Ramangalahy, C. (2003). "Competitive Strategy and Performance of Exporting SMEs: An Empirical Investigation of the Impact of Their Export Information Search and Competencies" Entrepreneurship: Theory & Practice, 27 (3), 227-245.

Keh, H., Nguyen, T., & Ng, H. (2007). "The effects of entrepreneurial orientation and marketing information on the performance of SMEs." Journal of Business Venturing, 22 (4), 592-611.

Larsen, P., & Lewis, A. (2007). "How Award-Winning SMEs Manage the Barriers to Innovation." Creativity & Innovation Management, 16 (2), 142-151.

Liang, Tan W. (2003). "What is an SME? SME Definitions and Statistical Issues"

Journal of Enterprising Culture, 11 (3), 173-337

Martin, Scott B. & Andreasson, Kim. (2008). "Latin America"s small and medium-

sized enterprises: the organizational challenge." Economist Intelligence Unit paper, 2008.

Mesquita, L., & Lazzarini, S. (2008), "Horizontal And Vertical Relationships In Developing Economies: Implications For Smes' Access To Global Markets" Academy of Management Journal, 51 (2), 359-380.

Swift, Jonathan S., and Lawrence, Keith. (2003), "Business culture in Latin America: interactive learning for UK SMEs" Journal of European Industrial Training, 27 (8), 389-397.

U.S. Small Business Administration, Office of International Trade. (2008, August). Americas Competitiveness Forum. Retrieved October 22, 2008, from https://www.ibsnetaccess.com/NASApp/NetAccess/Logoff?SessionID=-2182696005998584110

Zyglidopoulos, Stelios C., DeMartino, Richard, and David McHardy Reid. (2006).

"Cluster Reputation as a Facilitator in the Internationalization of Small and Medium-Sized Enterprises." Corporate Reputation Review, 9 (1), 79-87.

Autor:

Andrés Correa-Cortes

Jacksonville State UniversityCollege of Commerce and Business Administration