Smes in developing countries: financial and economic factors that affect export strategies

2. Introduction
3. Purpose of the study
4. Literature Review
5. Methodology
6. Target Population
7. Research Results
8. Conclusions
9. References

Abstract

This paper builds on studies from the literature on competitive strategy, internationalization, and export performance of SMEs in developing countries. Therefore, the aim of this study is to determine the type of strategies that SMEs in developing countries implement to internationalize their products; as well, this paper intends to analyze economic and financial factors that directly affect SMEs performance in global market. This research project is tested by means of an empirical study of a number of small and medium-sized enterprises located in Colombia, South America.

Key Words: SMEs; Developing countries; Internationalization; Economic and financial factors; Export strategies.

Introduction

According to the U.S. Small Business Administration and the Office of International Trade (2008, August), United States" SMEs, as most of Latin America small and medium-sized enterprises, represent around 99.5 percent of all employer firms; moreover, they employ about half of all private sector employees and create more than half of non-farm private gross domestic product (GDP). In addition, U.S." SMEs represent 97 percent of all identified exporters, (accounting for close to 30 percent of the known export value). In most if not all of Latin America, although small businesses have similar impacts on the economy, SMEs represent a very much smaller proportion of the export population. This lack of SME participation in foreign markets limits growth potential and competitiveness, and makes trade appear as more of a threat than an opportunity.

A better understanding of SMEs" information search, by which we mean the perception of export-related information and use of information sources, would allow us not only to find ways of helping these firms to develop and consolidate their activities abroad, but also to see how other firms with the potential or desire to begin international activities could improve and benefit from their information practices (Julien & Ramangalahy, 2003); thus, the intention of this research is to investigate the financial and economic information that affects SMEs" strategies of globalization in developing countries, as well as investigate the perception these enterprises have about the global market.

Purpose of the study

The first objective of this study is to determine the type of strategies that SMEs in developing countries implement to internationalize their products; then, this paper describes financial and economic characteristics of SMEs and its relationship with export performance; after that, what factors negatively affect the decision of SMEs to participate globally; and finally, the study analyzes some SMEs" strategies used to open up new export markets.

Literature Review

According to the BNET Business Dictionary, the definition for SME is an organization that is in the startup or growth phase of development and has fewer than 500 employees (2008). Within the strategic management literature, and particularly within the resource-based view of the firm, there is no common agreement on what distinguishes a micro-firm from a small or a medium one, but generally a micro enterprise employs less than 5 people (Liang, 2003). For instance, Chile considers that 200 employees is the limit for a medium-sized enterprise, while Mexico thinks that having more than 500 employees is a large enterprise.

The globalization of markets, the internal market of the EU, e-commerce, and other institutional changes are examples of factors that have gradually shifted the behavioral pattern of SMEs, causing them to act in a more global manner than before (Holmlund et al., 2007). Several researchers view the internationalization of firms as a "process" whereby firms go through a series of "stages" of increasing international involvement. It is suggested that firms increase their international involvement as a result of their accumulation of experiential knowledge of foreign markets, which increases their comfort level with these foreign markets and leads to further international involvement (Zyglidopoulos, DeMartino, & Reid, 2006).

Although many authors perceive internationalization of SMEs in a different way, Armario et al. (2008) bring together some of them into two major perspectives; the first perceives this course of action as being a sequential process that leads from a domestic market to international markets in accordance with a "learning process," and the second perspective, derived from the international entrepreneurship literature, contends that a firm can be "born global" (p. 485). On the other hand, some studies conclude that the internationalization process of the SMEs is being tackled by the same small and medium-sized enterprise; for example, Julien and Ramangalahy (2003) showed that most SMEs simply do not make the effort, or are afraid of tackling international markets; but some of them limit their international activities because of their poor control over these activities, mainly as a result of a lack of information (p. 227).