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The Internationalization Process of Entrepreneurial

SMEs in High Technology Niche Market segments

BY

Gilbert Cruz-Carreon Bachelor of Science in Tourism Management

Master of Business Administration (MBA)

Brisbane Graduate School of Business Faculty of Business

Queensland University of Technology Brisbane – Australia

Thesis submitted for Master of Business (Research)

2007

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Abstract:

This study seeks to make a theoretical contribution to the rapidly growing field of International Entrepreneurship by investigating the process of internationalization of Small

and Medium Enterprises (SMEs). Bell, McNaughton, Young & Crick, (2003) emphasized the need for researchers to re-conceptualize their thinking on the internationalization

process of smaller firms.

While there has been substantial research done on the small business internationalization and how the participation of these firms in the global economy has fuelled economic

growth in a number of countries (Audretsch & Thurik, 2003; Acs, Randall Morck, Shraver & Yeung, 1997; Storey, 1994; Alam & Pacher, 2003), there is tangible evidence that SMEs

in Australia are not keeping up with global trends. Studies conducted on Australian firms allude to the following reasons for their constrained presence in international markets: (i)

geographic and psychic distance; (ii) costs disadvantage; (iii) overdependence on inward FDI from large foreign multinationals; (iv) a history of inward-looking and narrowly

focussed economic development policies of the Australian government. These factors had the combined effect of imbalanced economic growth which was particularly detrimental to

the small business sector (Australian Trade Commission, 2002; Maitland & Nicholas, 2002; Alam & Pacher, 2003).

Despite the identified obstacles, some Australian SMEs have succeeded in penetrating

international markets. This study involved a preliminary qualitative investigation of selected Australian SMEs and their unique internationalization process. Evidence from the case study based investigation will indicate that the respondent firms have leveraged on

entrepreneurial qualities to overcome the obstacles and enhance their success in international markets. As such, the internationalization process for these selected firms is

seen as an extension of and integral to their entrepreneurial behaviour.

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Using the lenses provided by relevant facets of the entrepreneurship, internationalization

and strategy scholarly fields, this exploratory qualitative study, while building the foundation for further empirical research into the internationalization process of SMEs, can

serve as a guide to researchers for ascertaining future directions in this emergent field. The findings from the study are intended to contribute to a body of knowledge encompassing

the cross-border operations of SMEs. The research also has value from a practical perspective as Australian SMEs can draw from this body of knowledge as they pursue

opportunities internationally.

Key Words:

Internationalization, Entrepreneurship, Small business, Resource Based View, Psychic

Proximity, Networks, Entrepreneurial Motivation, Opportunity Recognition, High Technology, Niche Market, Social Construction

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Statement of Original Authorship

I hereby declare the work contained in this thesis has not been previously submitted to meet

requirements of an award at this or any other higher education institution. To the best of my knowledge and belief, the thesis contains no material previously published or written by

another person except where due reference is made.

Gilbert Cruz-Carreon

9 August 2007

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Acknowledgements Statements of acknowledgements often fall short of identifying all those who have

contributed and the extent of their respective contributions to the conduct of the research and to the preparation of the thesis. As the research journey is often a long and lonely one,

there are many whom you will come across along the way and there are times when one does not even realise how they have helped your progress along the journey. Cognizant of

the risk of neglecting to mention some of those who have helped along the way, I would like to make specific mention of some of them.

First and foremost, I would like to thank the Lord Almighty for his continued blessings, in

particular the resources he has made available and the love, understanding and support of the people around me that has enabled me to undertake this journey. The invaluable support of my immediate family – my wife Gertrude and daughter Gabrielle has provided the

stability, security and warmth of a home despite all the frustrations and setbacks along the journey. Professor Evan Douglas has patiently supervised the conduct of the research and

the preparation of the thesis. Due recognition should also be given to the insights of Associate Professor Susan Dann, Dr Marilyn Healy and Ms Vanessa Ratten during the

initial stages of this research.

Many other individuals – friends, family, colleagues, co-workers, and fellow researchers have been instrumental to bring this publication to fruition. Though I have not made

specific mention of these people, let me offer this Irish Blessing for all of them:

May the Road rise to meet you

May the wind be always at your back

May the sun shine warm upon your face

May the rain fall soft upon your feet

And until we meet again,

May God hold you in the palm of His hand

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TABLE OF CONTENTS

ABSTRACT: 1

CHAPTER 1: INTRODUCTION 9 1.1. SMEs in Today’s World Economy 9 1.1.1. World Data on SME Internationalization 9 1.1.2. Australian SME’s low participation rates in international trade 13 1.2 Focus of the Research 17 1.3. Research Questions 18 1.5. What this investigation is, and is not, designed to achieve 22 1.6. Key Deliverables 23 1.7. Thesis Structure 24

CHAPTER 2: LITERATURE REVIEW 26 2.0 Introduction 26 2.1. The Interplay between Internationalization and Entrepreneurship Issues 28 2.1.1 Pertinent aspects of Entrepreneurship Theory 32 2.1.2 Internationalization theory 36 2.2. The Current State of International Entrepreneurship Theory 42 2.3 Interrelationships between Theoretical Constructs 45 2.3.1 Entrepreneurial Motivations and International Entrepreneurship 45 2.3.2 Opportunity Recognition and International Entrepreneurship 45 2.3.3 Resource-based view, Internationalization, and the Entrepreneurial Firm 46 2.3.4 Network Theory and International Entrepreneurship 49 2.3.5 The Mediating Effect of Psychic Proximity on the Internationalization Process 50 2.4 Australian SME Internationalization 52 2.5 The Gaps in the Literature 54

CHAPTER 3: DEVELOPMENT OF THE CONCEPTUAL MODEL 57 3.0 Introduction 57 3.1 Integrating Elements of the Study 58 3.1.1 Focus on Holistic Process 59 3.1.2 Multiple levels of Analysis 59 3.1.3 Entrepreneurial internationalization behavior 63 3.2 Identification of the Theoretical Constructs for the Study 64 3.2.1 Entrepreneurial Motivations 66 3.2.2 Opportunity Recognition 68 3.2.3 Resource Based View and the Entrepreneurial Firm 71 3.2.4 Network Theory 73 3.2.5 Psychic Proximity 76 3.3 The Conceptual Model for the Study 80 3.4 Summary of Propositions for the Study 84

CHAPTER 4: METHODOLOGY 87 4.0 Introduction 87 4.1 Overall approach 88 4.1.1 Ontological Assumptions Regarding SMEs 89

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4.1.2 Processual approach to Investigation 91 4.1.3 Promoting Research Quality 92 4.1.4 Limitations of the Methodology 94 4.2 Research Design 96 4.2.1 The Unit of Analysis 96 4.2.2 Case Selection 96 4.3 Data sources 97 4.3.1 The Case Study Approach 98 4.3.2 In-depth interviews 98 4.3.3 Examination of Historical/Archival data 99 4.4 Other Matters of Methodology 99 4.4.1 Analysis and Theory-building 99 4.4.2 Ethics 101 4.5 Conclusion 101

CHAPTER 5: PRESENTATION OF RESEARCH RESULTS 102 5.0 Introduction 102 5.1 Profiles of SMEs investigated 103 5.1.1 Growth and Expansion Motives and Propensities 105 5.1.2 The internationalization experience for each case study 107 5.2 Entrepreneurial Qualities revealed in each case study 115 5.3 Firm Creation: Transition from an Individual Entrepreneur to the Firm 117 5.4 Entrepreneurial Aspects of Internationalization manifested in SMEs 119 5.5 Post-hoc Analyses 127

CHAPTER 6: DISCUSSION AND IMPLICATIONS FOR FUTURE RESEARCH 128 6.0 Introduction 128 6.1 Reviewing the Conceptual Model 129 6.2 Discussion on Propositions 132 6.3 Contributions and Suggestions for Future Research 137 6.3.1 Implications for Future Research 139

LIST OF REFERENCES 142

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List of Tables

Table 1.1: Scope of the Research ...................................................................................... 17 Table 1.2: Thesis Structure ................................................................................................ 19 Table 2.1: Cross Theoretical Basis for Morris, et al, Entrepreneurial Business Model

Concept.............................................................................................................. 30 Table 2.2: Shared Fundamental Disciplines in Internationalization and Entrepreneurship................................................................................................ 36 Table 2.3: Contributing Authors for Theoretical Constructs for this Study ....................... 39 Table 4.1: Strategies for Promoting Research Quality ...................................................... 88 Table 4.2: Overview of Data Collection ............................................................................ 93 Table 5.1: Summary of Respondent Firm Details ........................................................... 101 Table 5.2: Entrepreneurial Qualities in Internationalization of Selected Cases .............. 116

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List of Figures

1.1: Australian SMEs Participation in Exporting .................................................... 10 3.1: Transitional/Evolutionary Process: From the Individual entrepreneur to the International SME ....................................................................................... 55 3.4 : The Conceptual Model for the Study ............................................................... 77

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Chapter 1: Introduction 1.1. SMEs in Today’s Wor ld Economy 1.1.1. Wor ld Data on SME Internationalization

The latter part of the 20th century exhibited an interesting reversal of the dominant force in the world economy. Whereas the first three quarters of the century was characterised as a managed economy, dominated by larger, bureaucratic organisations (Audretsch & Thurik,

2003), the last two decades and the early 21st century saw the emergence of Small and Medium Enterprises (SMEs). There is a range of explanations provided for the occurrence

of this phenomenon. One of the earliest explanations was put forth by Joseph Schumpeter (1934, 1942) who wrote about the process of creative destruction – involving the constant

creation of new ideas by innovative firms that, in turn, disestablishes the positions of stagnant, non-innovating firms.

The early 1990s saw the world economy affected by global events such as the twin oil crisis

and an observed increase in the self-employment rate (Acs & Audretsch, 1993). These events whilst having a particular impact on the operations of the large firm were at the same

time pulling in small entrepreneurial firms from their marginalised economic positions to one where they are recognised as a participant in the overall economic development effort.

In 1994, John Naisbitt, author of such bestsellers as Megatrends and The Global Paradox,

wrote about the potential economic power of entrepreneurial ventures including SMEs, to quote:

“ The bigger and more open the world economy becomes, the more small and middle-sized

companies will dominate.”

Naisbitt (1994, 17-21), like many others who have attempted to explain the rise of SMEs, presented the following reasons for the observed emergence of the small business sector:

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o Computers and telecommunications o Deregulation and globalization of financial markets

o Removal of trade barriers all over the world o Convergence of consumer tastes

o Ease and facility of ‘replicating’ quality o Small firm flexibility in terms of labour force

Though it can be said that the above cited factors can affect firms of all sizes, its impact is

more pronounced in the SME segment as its inherent flexibility allows small businesses to respond more quickly to the opportunities presented by these developments. In addition, the

more recent trend towards outsourcing of non-core activities by larger companies creates further opportunities for SMEs, including the potential for international involvement in

cooperation with established multinational firms.

Audretsch and Thurik (2003) argue that the gradual demise of the managed economy and the emergence of the entrepreneurial economy is a response to two fundamental aspects of

globalisation, i.e., the emergence of low-cost but highly-skilled competitors in Central and Eastern Europe, as well as in Asia; and the telecommunications and microprocessor

revolution, that substantially facilitates the shifting of standardised economic activity out of high-cost locations.

Undoubtedly, SMEs have risen to prominence, and this further supports what Audretsch

and Thurik (2003) refer to as a “fundamental shift from a managed economy to an entrepreneurial economy.” The two economic structures are contrastingly different – the

former characterised by stability, continuity and homogeneity, while turbulence, diversity and heterogeneity are central to the latter.

For purposes of this study, the new definition of SMEs which took effect on 1 January 2005

in the European Union combining the parameters of employee numbers and financial assets will be used. The relevant categories are provided below:

� Medium-sized enterprises – 50 to 249 employees with assets not exceeding EUR 50 million.

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� Small enterprises – 10 to 49 employees with assets not exceeding EUR 10 million � Micro firms – less than 10 employees with assets not exceeding EUR 2 million

Recognising that there are variations in the definitions of SMEs among different economies

and industry sectors which creates problems of comparability, the UK Bolton Committee (1971) formulated an ‘economic’ definition, as follows:

� They had a relatively small share of their market place; � They were managed by owners or part-owners in a personalised way, and not

through the medium of a formalised management structure; � They were independent, in the sense of not forming part of a large enterprise (i.e.

non-subsidiary). The combined organisational demographics and economic definitions cited above will be

used for this study.

These firms constitute a dominant sector in the world economy, accounting for over 95% and up to 99% of the business firms’ population. In 2003, 99.8% of enterprises in the

enlarged EU were SMEs. Firms in this category, bringing with them the entrepreneurial qualities of innovation, risk-taking and proactiveness have now gained world-wide

recognition as a key source of dynamism and flexibility in advanced industrialised countries, as well as in emerging and developing economies. The SME sector has

contributed significantly in terms of net job creation in OECD countries, consequently making important inputs towards innovation, productivity and economic growth. The UK

Bolton Committee has emphasised that the small firm sector is at present, and will remain for the foreseeable future, vigorous enough to fulfill the ‘seedbed’ function for economic

growth (Storey, 1994).

Implicit in the increasing importance and visibility of SMEs is the observed increase in the involvement of firms in this category in international business. There is strong evidence

that international growth and expansion is a major priority of firms around the world. The explosion of international growth is reflected in the rise of Foreign Direct Investment (FDI)

or alternative types of investments in overseas markets that involve managerial control of a production or service enterprise. This international growth is indicated both in the monetary

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value of transactions and the number companies with international operations. From around US$60 billion of new investment in 1985, this topped US$800 billion by 1998

(United Nations, 2003) and this burgeoning trend has continued well into the 21st century.

This study is about international entrepreneurship. Since the foundational work of Oviatt & McDougall (1994), much has been published on the various aspects and dimensions of this

emergent field – a field that draws from the broader, more established disciplines of international business and entrepreneurship (Zahra & George, 2002). These authors defined

International Entrepreneurship as “ the process of creatively discovering and exploiting

opportunities that lie outside a firm’s domestic markets in the pursuit of competitive

advantage.” In coming up with this definition, Zahra and George have examined previous efforts by other authors at defining this phenomenon, among others the work of McDougall

(1989), Giamartino, McDougall and Bird (1993), Oviatt and McDougall (1994), Wright and Ricks (1994), and McDougall and Oviatt (2000). The early authors within the emergent

field of international entrepreneurship have drawn predominantly from the international business literature (Casson, 1982; Oviatt & McDougall, 1994; Shane & Venkataraman,

2000). Considering the assertion by a number of researchers that the scholarship of international entrepreneurship is positioned at the intersection between international

business and entrepreneurship, it is a significant concern that there still remains the need for more cross-fertilization between the two arenas. More specifically, there needs to be more

input from the entrepreneurship field. Jones and Coviello (2005) assert that research specific to international entrepreneurship requires a fresh research lens to better understand

how firms develop competitive advantage through entrepreneurial behaviour. Despite the advances towards defining international entrepreneurship, there is still concern that the

domain of this phenomenon remains vague. Other works such as that by Bell, McNaughton, Young and Crick (2003) have cited the lack of an integrative model for small

firm internationalization. Still other researchers have identified gaps on more specific aspects in the investigation of international entrepreneurship, such as the use of network

relationships to pursue foreign market opportunities and conduct international marketing activities (Coviello & Munro, 1996; Etemad & Wright, 2003).

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The study is specifically concerned with the stream of international entrepreneurship that focuses on small business internationalization. Though the growth of SMEs is now

considered as crucial to a nation’s economic development and well-being (Coviello & Munro, 1995; OECD, 2003), this development is not always a matter of choice by the

individual firm. The global business environment has evolved dramatically in the past decade. What we knew as competition in international markets being dominated by the

larger, more established firms has undergone considerable upheavals during this period (Etemad & Wright, 2003). The drivers of globalization are continuously dismantling the

barriers, geographic or otherwise, which segmented the competitive environment of small and large firms. Firms of all sizes now share a common competitive space (Etemad, 1999;

Dana, et al. 2000 and 2001). As a consequence, it is increasingly difficult for independent SMEs to survive unless they become internationally competitive – whether or not they

operate in international markets (Etemad, 2003). Domestic markets are becoming integral parts of a broader, global whole. As a result, internationally oriented entrepreneurs can now

view a much broader range of opportunities and competitive modes, without the constraints of national boundaries. Inherent in this ongoing process of global environment integration

are new opportunities and formidable new challenges facing entrepreneurs and emerging businesses. It is therefore apparent for SMEs that competing globally is not a mere option,

but an economic imperative. This trend is not only expected to create an extra-ordinary competitive environment for all economies (Rutashobya & Jaensson, 2004) but also has

implications on the process of internationalization that SMEs undergo. These aforementioned developments highlight the importance of understanding the dynamic,

interrelated processes that these SMEs undergo in order to maintain a competitive edge in the current global market place.

1.1.2. Australian SME’s low par ticipation rates in international trade

Australia, however, presents a contradiction to indicative trends around the world. It is a wealthy, developed resource-rich nation with few large indigenous multinationals. The

resulting limited scale of outward FDI contrasts sharply with Australia’s long-term dependence on foreign firms and technology (Maitland & Nicholas, 2002). Estimates from

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the Australian Bureau of Statistics indicate that about 25,000 businesses across Australia exported in 2000/01 – a mere 4% of all businesses in the country. Although the proportion

varies among different firm size categories, amongst SMEs this proportion is well below that of most European countries and Canada, but comparable with the USA (AUSTRADE,

2001).

More recent data from the Australian Trade Commission, however, indicate that Australian SME participation rates in international trade are growing. According to the May 2001

Yellow Pages Business Index, 21% of Australian SMEs are involved in international business activities (Harcourt, 2001). It must be understood, though, that this performance

still fades in comparison to what other industrialised nations have experienced. This is apparent in the Australian Trade Commission (2001) data shown in Figure 1 below. The

indication is that for most of the industrialised economies accounted for in the data, more than a third of the total SMEs (ranging from 34%- Spain to 68% - Austria) are involved in

export trade. These empirical observations indicate that Australian SMEs face significant and tangible barriers to their penetration of international markets.

For economies like Australia, one of the most important implications of globalization is that comparative advantage shifts away from traditional factors of production like land, labour

and capital to knowledge-based resources. Consequently, it will be the ability to create, access and commercialize knowledge on a global context that will form the basis of the

SME’s competitiveness. As Alam and Pacher (2003) note, significant structural changes in the Australian economy during the last 15 years reflect a fundamental shift in terms of

support for the small business sector. Being an open and flexible economy, integrated into the key global markets of Asia, America and Europe, Australia has generally kept up with

global trends. Such integration is reflected in economic reform measures, such as lower tariffs, financial de-regulation, and labour market and tax reforms. Together with the

growing convergence of markets around the world, these reforms have created increased demands and challenges for Australian firms, particularly for small businesses.

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FIGURE 1.1: Australia SMEs participation in Exporting

Source: Austrade, 2001, compiled from: ABS, Grant Hattan & Associates and the US Bureau of the Census, 1999, Canadian Bankers Association, 1999

Similar to a growing number of economies, SMEs play a significant role in the Australian

economy. There are signs that SMEs have increased their involvement in the global economy within the last five years. The Australian Bureau of Statistics (ABS) estimates

that there are around 42,000 exporting businesses today, compared to around 25,000 at the beginning of the decade and even fewer before that (AUSTRADE, 2007). The SME sector

accounts for 96.6% of all business operations in the private non-agriculture sector and contributes 56% of private sector employment (www.smallbusiness.info.au). Recognising

its potential for contributing to economic development, Australian federal and state and governments have taken definitive steps to grow the SME sector and increase its

participation in international markets (AUSTRADE, 2001). A Price Waterhouse Coopers survey of 395 mid-sized Australian firms in March 2004 revealed that there is increasing

business confidence and propensity to engage in international activities among SMEs. More specific indications are that medium size businesses are increasing their share of the

global action relative to large businesses; and secondly, that globalisation is providing more

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avenues for international expansion – other than exporting and importing. This is consistent with the findings of the recent SENSIS Business Index that showed SMEs

getting involved internationally through strategic alliances, global supply chains and joint ventures as well as more traditional mechanisms.

However, the economic development that was achieved involved a trade-off in terms of

developing the capabilities of Australia’s SME sector. There are some observed obstacles to Australian SMEs’ presence in international markets leading to its low participation rate as

indicated in Figure 1.1 above. First, the interventionist and inward-looking approach that the Australian government took caused a great deal of confusion among SMEs due to the

lack of coordination and consistency in the policy framework (Mortimer, 1997).

Secondly, the dominance of foreign MNEs in leading industrial sectors forced Australian entrepreneurial capacity into niche segments of the economy or areas protected from

foreign competition by government regulation (Maitland and Nicholas 2002). Consequently, this myopia and inadequate guidance at strengthening SME capabilities has

led to fundamental weaknesses of the Australian small business sector. Hence, the limited representation of this sector in overseas markets.

The Australian business terrain can be characterized as insular. This implies that Australian entrepreneurial ventures operate in conditions that are dissimilar to those which are typical

in other industrialised economies. In brief, the following factors contribute to this insularity of Australian business:

1. Unlike many European, Asian and North American economies where large export

markets are virtually on their doorsteps, Australia has to contend with its geographical isolation. The volume of trade tends to be directly proportional to a

country’s size and inversely proportional to its distance from trading partners. This geographic distance is oftentimes further complicated by psychic distance from

foreign markets. 2. Australia’s export revenue is traditionally generated by a small number of larger

companies. It logically follows that there will be a smaller proportion of exporting

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companies as part of the whole business sector. This has implications for where governmental support and incentives will be channelled.

3. Australia has traditionally had a strong comparative advantage in agriculture and mining. This means large export volumes dominated by relatively few players in

these industry sectors. In contrast, other industrial economies have large manufacturing and services sectors with many players.

4. There is also Australia’s internal geography. With the vast geographical expanse of Australia, it is interesting that its population is heavily urbanized with companies

drawn towards the coastal urban areas. Exporters are no different, as they tend to congregate in cities near ports and infrastructure.

5. The export culture of Australia has been severely constrained by the government’s inward- looking policies in the past. Unfortunately, this government stance has been

to the detriment of the country’s export sector, particularly among SMEs.

The combined impact of these geographic, cultural, economic and political factors will take time to overcome, and substantiates this contention of Australia’s insularity.

Having recognized these obstacles facing Australian SMEs, the question now is – what can

be done about it? This research aims to contribute to addressing these issues by providing useful information on what works in international business. The extant literature suggests

that there are SMEs who are able to overcome their resource constraints and other perceived limitations through innovative combinations of accessible resources,

incorporating entrepreneurial qualities into their internationalization process and leveraging participation in appropriate networks to mitigate the impact of psychic and geographic

distance.

To understand this process better, it was necessary to conduct an exploratory, in-depth investigation of the SME internationalization process.

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1.2 Focus of the Research

The aim of this research is to examine the interplay between entrepreneurship and internationalization processes as it is reflected in Australian small businesses.

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Entrepreneurial behaviour appears to have the following elements: (1) initiative taking; (2) revisiting the social and economic aspects of a firm’s environment in order to find

alternative approaches to resources and situations that will enable greater utility and practicality; and (3) acceptance of risk and possible failure (Hisrich & Peters, 2002:10). The

study seeks to identify the manifestations of entrepreneurial qualities in selected cases within their unique internationalization experience.

Following Zahra and George’s (2002) definition of international entrepreneurship cited

above, and considering the identified ‘gaps’ in the investigation of this phenomenon, there is potential for making a theoretical contribution by examining international

entrepreneurship in the context of constructs such as: � Entrepreneurial motivations and behavior

� Opportunity Recognition � Resource-Based perspective

� Networks; and � Psychic proximity

The aim of this study is to examine the interplay among the above cited constructs. It is

important to investigate this interplay from a holistic perspective as individual entrepreneurs and subsequently, firms do not make isolated decisions in the process of

internationalization. Ultimately, it is hoped that the study will provide a deeper and richer understanding of the process through which domestically operating SMEs expand their

activities to international markets. While investigating the SME internationalization process, it is hoped that the influence of individual entrepreneurial qualities can be

identified and its significance clarified. This is congruent with the perceived need by international entrepreneurship researchers to incorporate more entrepreneurial issues into

this emergent field of enquiry (Jones & Coviello, 2005; McDougall & Oviatt, 2000; Covin & Slevin, 1989).

1.3. Research Questions Entrepreneurial firms that reach the global market quickly after their birth are affected by a

unique set of internal and external drivers that are influenced by the individual

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entrepreneur. For the purpose of this study, what matters is how these firms manage to succeed in a global market (Zahra & George, 2002). In a Special Issue of the International

Business Review (2005) focusing on international entrepreneurship research, several worthwhile research directions like including the expansion of the IE domain beyond the

early stage of internationalization. An emergent line of enquiry which was identified is the intention, search and discovery of international opportunities. Still others like Zahra (2005)

and Autio (2005) have identified potent areas such as the Process Theory of Internationalization (PTI) and its relevance to small firms and how new ventures create and

protect their competitive advantage. Bell, et al (2003: 358) have also proposed that the “existence of multiple internationalization ‘pathways’ can facilitate research into how

internationalizing SMEs can leverage additional external financing, acquire and exploit knowledge, improve their stock of human capital and enhance their networking

capabilities.” For purposes of this study, it is important not to lose sight of the identified barriers to Australian small firm internationalization, i.e.

� Psychic distance � Transport costs

� Labor costs � Limited Australian market

� Inward FDI that has not encouraged entrepreneurship and innovation � History of government’s inward looking policies

The diverse nature of these barriers further justifies the focus of the study on the holistic and interrelated ‘process’. Given this background, the study attempts to address the main

research question:

How do Australian SMEs in the high technology sector overcome barriers to

internationalization?

RQ1 Does the prior industry and international experience of the entrepreneur, including

psychic proximity with identified foreign markets, serve as a strategic resource for

small business internationalization?

RQ2 Is entry into foreign markets by the SMEs significantly influenced by the

owner/managers’ entrepreneurial and innovation capabilities?

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RQ3 Do domestic market limitations significantly influence the entrepreneur to seek

international markets?

RQ4 Are government support and incentives a significant factor that facilitates SME

internationalization?

RQ5 How can Australian SMEs utilise networking as an effective strategy for

internationalization?

Addressing these related questions above will help to focus the overall research effort.

1.4. Brief Overview of Research Approach and Methodology

The methodology adopted for this investigation was influenced to a great extent by the research question. As the research aims to investigate the SME internationalization process

in a holistic manner and hence understand the complex web of interrelated decisions leading to the internationalization of an SME, it was important to conduct a thorough and

in-depth examination involving a small number of Australian SMEs. Thus the researcher does not attempt to establish causal relationships or generate hypotheses and

generalisations, which is typical with larger sample sizes. This trade-off, focusing on more in-depth, richer data on fewer respondents as opposed to a broader insights resulting from a

larger respondent numbers, was necessary in order to achieve a fuller understanding of how selected Australian SMEs have overcome the identified barriers to internationalization.

A qualitative case study approach was utilised focusing on selected Australian SMEs in the

technology and technology application sector. An important dimension of case study research is the amount of detailed information that the researcher collects about each case

studied. Other things being held constant, the fewer cases investigated, the more information can be collected about each individual case. Case study research normally

implies the collection of unstructured data and its subsequent analysis. It is often argued that the aim of case study research should be to capture cases in their ‘uniqueness’, rather than to use them as a basis for wider generalisation or test existing theory. Consequently,

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the findings of case study research, as done in this study, are presented in a narrative approach, rather than framing them in terms of variable dependence and/or relationships

(Gomm, et al, 2000).

Case study research is not sampling research. Case studies are chosen in order to understand the complexity of a single case - to clarify its particularity (Stake, 1995). Case

studies are not investigated to understand other cases. When doing research on a group of case studies, often it is the diversity between cases that enhances knowledge development

(Stake, 1995).

One particular issue in case study research is that of objectivity. How can objectivity be maintained? How can the previously cited narrative approach to presenting the findings

dissociate itself from the own views of the researcher? This issue is a primary concern particularly if the research focuses on individual respondents/case studies (Gomm, et al,

2000). This study, however, deals with organisations, i.e. SMEs. To address this particular issue, the in-depth examination will involve open-ended questions for an identified

respondent within each case study firm. In addition, reviews of available historical/archival data and cross-checking/validation with other interviewees within each case organisation

will be conducted. This iterative process that draws from several sources of information will be done in order to corroborate initial data collected or identify any disconfirming

evidence. Thus, the concern regarding objectivity will be addressed through this multi-faceted approach to data collection. Other issues on promoting research quality will be

covered in the Chapter on methodology.

It is these characteristics of case study research that are seen as appropriate for this particular investigation. As explained earlier, this research is about understanding the

phenomenon of international entrepreneurship – what the process is all about, what drives the internationalization process, particularly for Australian SMEs, and how the

internationalization process reflects entrepreneurial qualities.

The propositions developed in Chapter 3 of this thesis are tested with the selected case studies. To ensure that the methodology conforms with previous research done on

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international entrepreneurship, the interview protocol was developed based on measures identified in the extant literature that focussed on the relevant theoretical constructs.

1.5. What this investigation is, and is not, designed to achieve

This study involves an in-depth investigation of selected Australian SMEs. It aims to

generate new insights into the qualitative issues related to SME internationalization. This will be achieved through an empirically grounded, context specific, multi-faceted

investigation, and therefore does not aim for generalisability. Instead, it is hoped that it will contribute a meaningful starting point for further qualitative and quantitative investigations.

It is important to articulate at this early stage what this investigation is designed to achieve,

and equally important, its limitations and what does not fall within the scope of the research. Table 1.1 below presents this information:

Table 1.1: Scope of the Research

This investigation will:

� … focus on SME internationalization � … enhance the understanding of the internationalization process of SMEs by

presenting findings in the context of selected Australian SME case studies � … focus on the process and what facilitates internationalization, particularly

factors that relate to the individual entrepreneur � … provide insights that can be tested or probed in additional studies � … be a relevant and meaningful starting point for the continuation of

qualitative and quantitative investigations into entrepreneurs’ efforts at internationalizing their firms operations.

This investigation will not:

� … focus on corporate or ‘large’ firm entrepreneurship or internationalization

� … attempt to validate or qualify the relevance of current international entrepreneurship theory

� … focus on the factors or ‘attributes’ that lead to successful internationalization

� … use Australian SME case studies as a basis for generalizations that will

23

apply to other firms � … be another review or ramification of the staged and contingency patterns of

internationalization � … provide all the answers to the prevailing gaps in knowledge relative to small

firm internationalization. 1.6. Key Deliverables

The author believes that the conduct of this investigation, as demonstrated in this thesis,

represents an important step towards achieving a re-conceptualisation of the internationalization process of small and medium–sized firms which incorporates the

significant influence of the individual entrepreneur – a gap which has been identified by several authors who have published in the international entrepreneurship area (Jones &

Coviello, 2005; McDougall & Oviatt, 2000; Covin & Slevin, 1989). As emphasised in previous sections, the study and the related findings are not meant to be a basis for

generalizations regarding the process that other firms, both in Australia and overseas, undergo as they pursue opportunities across geographic boundaries. However, this research

undertaking will have significant implications on the subject of small firm internationalization in terms of the following deliverables:

� A holistic conceptual model that reflects the possible interplay/interrelationships among several theoretical constructs drawn from internationalization, entrepreneurship and

strategy research.

� An enhanced understanding of the process that an Australian SME undergoes as part of the effort to overcome the barriers to penetrating international markets.

� The identification and description of factors that can facilitate the internationalization of

the Australian SMEs selected as case studies.

� A framework for further investigations of the internationalization process of other Australian small businesses or even those in other countries.

24

1.7.

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25

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.

26

Chapter 2: Literature Review 2.0 Introduction Although there has been considerable work done on defining international entrepreneurship

(e.g. McDougall, 1989; Giamartino, McDougall and Bird, 1993; Oviatt and McDougall, 1994; Wright and Ricks, 1994; and McDougall and Oviatt, 2000), there still remains some

ambiguity in terms of the domain of this phenomenon (Zahra and George, 2002). McDougall and Oviatt (2000) have qualified ‘international entrepreneurship’ as an

emergent field of study occupying an overlap between the international business and entrepreneurship disciplines. However, there is concern that international entrepreneurship

research lacks a clear and unified theoretical direction (McDougall and Oviatt, 2000). Despite the recent advances in internationalization research, studies specific to international

entrepreneurship still require a paradigm shift and the use of alternative research ‘lenses’ to gain a better understanding of how internationalizing firms develop competitive advantage

through entrepreneurial behavior (Jones and Coviello, 2005). One of the areas where there has been limited investigation is in the significance of international entrepreneurship theory

for SMEs (Rutashobya and Jaensson, 2004).

SMEs have considerably increased their international activities. Changes in the competitive environment and the interdependence of the global economy make internationalization an

imperative for many entrepreneurial firms (Zahra & George, 2002). OECD data indicate that as of 2000, SMEs contributed between 25% to 35% of world manufactured exports and

accounted for a smaller share of Foreign Direct Investment (OECD, 2002).

In Australia, there are some parallel changes in the composition of the business sector. In response to the burgeoning global trends, small exporters are growing in terms of company

size and regional Australia is showing indications of strong sectoral growth. These developments reflect a slight departure from the insular characteristics of the Australian

economy discussed previously in Chapter 1. During the late 1990s, micro and small exporters grew at an average of 11% and 9% annually, compared with 4% for medium

players, with a fall of 5% for large exporters. The trends are not spectacular, but are

27

probably indicative of subsequent growth. It must be noted, however, that despite the evidence of increased internationalization among Australian firms, international activities

are increasing in terms of number of markets rather than more involvement in existing markets. Australian firms have also been observed to pursue traditional markets in USA

and Europe which are perceived to have less uncertainty (Alam & Pacher, 2003). The Australian export culture is also undergoing some changes with more entrepreneurial

ventures falling into the category of ‘born globals’ – firms that get involved in international operations from the time of their inception rather than focusing on the Australian domestic

market initially (McKinsey & Co, 1993; AUSTRADE, 2002). The author supports the thinking that examining the interplay between entrepreneurship and internationalization processes in the context of SMEs is a worthwhile topic of research

(Zahra and George, 2002). To examine these processes, it is necessary to look into internal and external factors that have an effect on the internationalization process, particularly as

these relate to SMEs. The discussion in following sections will draw from three main bodies of theory

(entrepreneurship, strategic management and internationalization) and the rapidly growing ‘hybrid’ field of international entrepreneurship. Zahra & George (2002) have cited the need

to enhance the significance of international entrepreneurship research by reinforcing its theoretical rigour. Three potential areas of research that can place international

entrepreneurship as a prominent and productive research stream were identified by Zahra and George, as follows: the international entrepreneurship process, the context of

international entrepreneurship, and post-internationalization agenda.

The first two areas - the international entrepreneurship process, and to an extent, the context of international entrepreneurship focus on issues that are highly congruent with the main

theme of this study, i.e. how SMEs overcome the barriers to internationalization. The pertinent questions are how, why and when do entrepreneurial firms discover and exploit

opportunities outside their home country? An equally important issue is the conditions that make internationalization a more promising option than solely domestic operations. The combination of these issues present situations that ‘drive’ firm internationalization.

28

The third issue of post-internationalization agenda is beyond the scope of the current study as it deals with issues relating to firm activities after it has penetrated international markets.

The literature on entrepreneurship reveals that there is an evolutionary process that takes

place as the individual entrepreneur launches a firm (SME), wherein the nascent entrepreneur becomes a practising entrepreneur (Casson, 1998; Morris, 2005; Jones &

Coviello, 2005). There is also evidence from the internationalization literature that there can be a congruent evolutionary process that occurs as a small entrepreneurial firm

establishes itself in a domestic market and then pursues growth and expansion in overseas markets (Casson, 1982; Jones & Coviello, 2005).

This study aims to trace this evolutionary process from the individual entrepreneur, to the

proprietary level, to an internationally operating SME. In addition to this unique perspective, the study will also focus on the Australian context. The review of extant

literature along these main bodies of theory will lead to the selection of constructs that will provide the theoretical underpinnings for this study.

2.1. The Interplay between Internationalization and Entrepreneurship Issues

The internationalization of firms has been the subject of extensive academic enquiry. However, small-firm internationalization is an area that has not received much attention

(Rutashobya & Jaensson, 2004).

The emergence of a new stream of the internationalization literature focussing on ‘born global’ firms in the early 1990s ushered in a new-found interest in smaller entrepreneurial firms which adopt a global focus from inception through the implementation of a rapid and

systematic internationalization approach (McKinsey and Co, 1993). The ‘born-global’ phenomenon was indicative of the inevitable trend towards globalisation mediated by the

pervasive impact of enabling new technologies (Knight & Cavusgil, 1996). Born-global firms management are more committed to internationalization, pursue global market

‘niches’ from inception and generally exhibit more proactiveness (Covin & Slevin, 1989). This proactiveness, encompassing cognition, learning and strategy that set entrepreneurial

29

activity in motion is a typical characteristic of entrepreneurial firms (Bell et al, 2003; Zahra, 2005). Oviatt and McDougall’s (1994) work on International New Ventures (INVs) provided the

foundations for most of the research focussed on the common ground between internationalization and entrepreneurship. The work on INVs emphasised that it is the

strategic action that these INVs undertake that builds their competitive advantage. Subsequent research led to the thinking that entrepreneurial activity is a major source of

competitive advantage (Zahra et. al, 2000b) for INVs. More recent work has emphasised the impact of entrepreneurial qualities on how these smaller firms compete in the global

market arena (McDougall and Oviatt, 2000; Zahra, 2005).

The review of the theoretical foundations of international entrepreneurship undertaken by Dana, et. al. (1999) as well as Shane and Venkataraman (2000) and Ucbasaran (2001) tend

to indicate theoretical convergence between entrepreneurship and internationalization. The complementary theoretical interests and empirical developments in both fields are a logical

interface. More recent research supports a general acceptance that entrepreneurship and internationalization are entailing processes. Common to both fields of research are the

behavioural processes related to the creation of value resulting from the assembly of a unique package of resources to exploit an opportunity – including those that necessitate

crossing international borders (Morris, et.al. 2001; Johansson and Vahlne, 2003, McDougall and Oviatt, 2000).

It should be noted that the above-cited ‘interplay’ between internationalization and

entrepreneurship issues are actually a response to and an extension to Casson’s (1982) early work suggesting the need to consider the firms’ entrepreneurial characteristics when

discussing internationalization. More recent work by Buckley (2002) provides further justification for pursuing the examination of this interplay by asserting the need to inform

and build on the strengths of existing internationalization theory by incorporating pertinent aspects of entrepreneurship theory.

Jones and Coviello’s (2005) conceptual paper on entrepreneurial internationalization provides further substantiation to the convergence of internationalization and

entrepreneurship theory. In their examination of separate simple models of entrepreneurship

30

and internationalization, the authors proposed that both areas exhibit an evolutionary and potentially discontinuous process determined by innovation, and influenced by human

volition, action or decision. More importantly, the research identified shared core concepts of innovation, change, a cyclical process of behaviour and culmination in a specific value-

adding event (Jones & Coviello, 2005).

In terms of small firm internationalization, it has been observed that those who have a higher propensity to internationalize follow a more structured, systematic approach to

internationalization rather than fragmented, reactive or opportunistic ‘knee-jerk’ activities (Bell et al 2003). This structured, systematic approach in most cases requires the adaptation

of product and/or market innovation or the adoption of new information technologies. The proactiveness and innovation exhibited by internationalizing SMEs is typical

entrepreneurial behavior which can also be considered as ‘drivers’ of internationalization (Bell et. al., 2003; Covin & Slevin, 1989).

Internationalization ‘patterns’ for firms (whether large or small) are highly individualistic,

situation-specific and unique (Bell et. al. 2003). Buckley et al (1979) argued that firms do not necessarily adopt consistent organisational approaches to internationalization. The

contingency frameworks applying to international business and exporting fields (Reid, 1983; Woodcock, et al., 1994; Yeoh and Jeong, 1995; Kumar and Subramaniam, 1997)

suggests that internationalization may be affected by multiple influences over time (Melin, 1992). Such contingency models posit that the firm’s internationalization decisions such as

product modification, market selection, and mode of entry are made in a holistic, interrelated manner (Luostarinen, 1979). Specifically, this research seeks to investigate the

influence of the entrepreneur on overcoming barriers to SME internationalization. Specific elements in the context of this study include the firms’ unique resources, entrepreneurs’

motivations, objectives and ambitions, strategies to reduce psychic distance, the firm’s general and task environments, and opportunities. These factors are, by nature, unique and

particular for each firm. It is important to note at this stage that the examination of small firm internationalization requires analysis of firm behavior and how this is influenced by

individual entrepreneur characteristics. Chapter 3 will elaborate further on this multiple analytical level approach which is seen as a consolidating element of this study.

31

Further, Turnbull (1987) and Bell (1995) argued that small firm internationalization is neither linear nor unidirectional. Hence, there is potential for forward and backward

momentum. The ‘state’ of internationalization is contingent upon prevailing external environmental conditions, human and financial resources of the firm, other internal

considerations, and most importantly, the key decision maker’s mental model and global mindset (Berry, 1998) This idea that there are no rigid pathways to internationalization and

that it is contingent on a range of factors with a predominant influence of the entrepreneur, further reinforces the contention that unique and specific to each firm.

The foregoing discussion tends to highlight two important premises for this study. First, the firm’s internationalization process is substantially influenced by issues related to the

individual entrepreneur and likewise by elements typical to the entrepreneurial firm. Secondly, the firm’s internationalization process is also shaped by multiple influences both

internal and external to the firm. The logical result of these combined influences is that firms, in particular SMEs, do not exhibit similar and consistent patterns of

internationalization. It is highly dependent on how the various influences – the ‘drivers’ of internationalization - come together. It is significant to note here that not all small firms

which manage to penetrate international markets may have the dominant entrepreneurial qualities of proactiveness and innovation. For instance, the person who simply exports

standard products to an ethnic community in another country (e.g. Thai food condiments to Thais in Australia or Filipino fish paste to Filipinos in the USA) may not bee considered as

acting entrepreneurially. Similarly, a businessman who puts together a team of telemarketers in Bangalore, India and subcontracts call centre services for US or Australian

companies is simply jumping on the ‘bandwagon’ with others before him. The potential value of this study is in terms of investigating the innovative strategies that small firms

implement to combine unique resources that overcome identified barriers to internationalization such as prohibitive transport and labor costs, psychic differences and

limited product acceptability in foreign markets. The approach taken to achieve this is to use “lenses” provided by established theories of entrepreneurship, internationalization and

strategy.

The following sections will now examine entrepreneurship and internationalization theory separately for the purpose of identifying the areas of overlap between the two disciplines

(McDougall and Oviatt, 2000).

32

2.1.1 Pertinent aspects of Entrepreneurship Theory

Consistent with the initial discussion in Chapter 1, this research will be primarily concerned with processes, specifically the interplay between entrepreneurship and internationalization

processes. It is believed that this perspective will be more consistent with the proposed research question. This section will use some fundamental aspects of entrepreneurship

theory as a logical starting point. However, the focus will be on the entrepreneurial firm paying particular attention to its ‘architecture’ and strategy platform and how this has been

influenced by the owner-manager. This approach is essential as the study needs to move from the individual entrepreneur to the firm as the unit of analysis, as the latter unit is more

congruent with the study’s focus on internationalization.

The strategy literature has maintained that the characteristics of the firm’s top management team (TMT) can significantly affect its strategic choices (Finkelstein and Hambrick, 1996)

including those related to internationalization (Carpenter & Frederickson, 2001; Calof and Beamish, 1994). This is particularly significant in newly-launched entrepreneurial firms

where the TMT could be as small as a single member and consequently, most strategic and operational decisions are influenced by the entrepreneur. As it relates to

internationalization, TMT characteristics such as foreign work experience, foreign education, background and vision are critical to extending the entrepreneurial process from

domestic markets to international operations (Zahra & George, 2002). The importance of TMT (owner-managers in the case of entrepreneurial firms) experience with international

operations are useful for assembling resources, gaining access to international networks, and configuring the firm’s value chain (Oviatt and McDougall, 1994, 1995). Reuber and

Fischer (1997) have also highlighted the value of international experience to create linkages with strategic partners.

Oviatt and McDougall (1995) have proposed that unique organizational assets and

knowledge bases can influence the international entrepreneurship process. These are further corroborated by empirical studies (Bloodgood, et al. 1996; Burgel & Murray, 1998). The

positive relationship between TMT international experience and some indicator of firm performance (Carpenter, Sanders, and Gregersen, 2001; Daily, Certo, and Dalton, 2000) is

33

particularly important as it sheds light on what drives internationalization for small owner-managed firms. As the focus of analysis shifts from the individual to the firm level, it is significant to note

that there has been considerable work done on the success factors for entrepreneurial ventures (Miller, 1983; Covin and Slevin, 1989; Yeoh and Jeong, 1995; Lumpkin and Dess,

1996; Kuemmerle, 2002; Ibeh, 2003; Knight and Cavusgil, 2004). Davidsson (2003) asserts that there are so many factors affecting firm performance that it is difficult to ascertain the

contribution of the entrepreneur. However, current research tends to indicate that there are consistent behaviour patterns. A prominent finding is that one of the most important

‘entrepreneurial abilities’ is probably to identify, cultivate and use other people’s abilities (Davidsson, 2003). This suggests that entrepreneurship is more of a social and

organisational issue rather than an individual one (McKaskill, 2006).

Stevenson and Gumpert (1985) posited five questions in relation to the entrepreneurial process, as follows:

1. Where is the opportunity? 2. How do I capitalize on it?

3. What resources do I need? 4. How do I gain control over them?

5. What structure is best?

Though all these points are worth investigating, this study will focus on questions 1 to 3 as these are seen to have higher relevance to internationalization processes specific to

entrepreneurial firms. The congruence of these three questions with the internationalization process of SMEs and the conceptual framework being proposed for the study will be further

substantiated in Chapter 3’s discussion on the theoretical constructs for this study. The discussion of findings in Chapter 5 also illustrates how the firms investigated for this study

have responded to these challenges. A particular focus is how the firms overcame barriers to the pursuit of identified opportunities in overseas markets. Though questions 4 and 5 present important issues, particularly as they relate to the firm’s development of

Sustainable Competitive Advantage (SCA) and long-term survival, this particular study does not extend to cover these longer-term issues that the firms face.

34

Morris, et al.’s work on the entrepreneur’s business model (2001, 2005), provides a useful starting point for addressing the entrepreneurial process questions cited above. At a

fundamental level, the sustainability of entrepreneurial ventures is seen to be anchored on the presence of an entrepreneur possessing certain competencies (Man, Lau and Chan,

2002), a coherent management team (Francis and Sandberg, 2000), an innovative business concept (Covin, Slevin and Heeley, 2000), creative approaches to resource acquisition and

deployment (Erickson, 2002), and strategic adaptation and coherent growth strategy (Morris and Schindehutte, 2001) among other factors. The prevalent occurrence of failed

start-up businesses is predominantly due to the inadequacies of an underlying business model (Morris et al, 2005). Stewart and Zhao (2000) defined the firm’s business model as a

“statement of how a firm will make money and sustain its profit stream over time”. The entrepreneurs’ business model is also significant for this study as it is indicative of a

transition from the individual entrepreneur level to the proprietary (firm) level. The business model can help ensure a fairly logical and internally consistent system for the

design and operations of the venture that, in turn will be communicated to the employees – developments that are consistent with the idea of small firm establishment. Casson (1998)

in his work on the entrepreneurial theory of the firm emphasized the synthesizing and coordinative role of the entrepreneur. Closely linked to the core competencies of the firm,

Casson asserts the tangible role that the entrepreneur has in terms of providing the framework for coordination and building trust among its members (employees). Small firm

success can be said to be highly dependent on entrepreneur’s ability to align business processes and strategic goals (Morris, et al, 2005).

Morris proposed an integrative framework which included foundational business model

components such as: the firm’s value proposition, internal processes and competencies, how the firm makes money, and differentiation strategies based on unique and innovative

resource combinations (Morris, et al, 2005). Table 2.1 below summarises the primary aspects of Morris’ model reflecting its cross-theoretical bases.

More significantly, the proposed integrative framework also incorporates the growth and

time objectives of the entrepreneur, a reflection of the entrepreneur’s orientation. It was argued that the business model must capture the entrepreneurs’ objectives and ambitions,

thereby considering the business as an investment model. Four alternative models were proposed to characterise most ventures: subsistence, income, growth, and speculative. The

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subsistence firm is characterised by mere survival and meeting basic financial obligations. The income model (also referred to as ‘lifestyle’ firms) applies to a small business person

who invests in the business to a point when it generates an ongoing healthy income stream for the owner. In a growth model, there is substantial re-investment, after the initial returns,

in an attempt to grow the value of the firm to the point that it eventually generates a major capital gain for the initial investors. Finally, the speculative model implies a firm where the

entrepreneur’s timeframe is shorter, and the objective is typically to demonstrate the potential for the venture and then sell it (Morris et. al, 2005). For the purpose of this study,

the growth and speculative models are more appropriate since they imply the pursuit of further opportunities including those beyond the firms’ initial (i.e. domestic markets).

TABLE 2.1: Cross-theoretical Basis for Morris et al, Entrepreneurial Business Model concept

Value Creation Competitive Advantage Economics � Value-chain concept

(Porter, 1985) � Value systems and

strategic positioning (Porter, 1996)

� Value chain network (Gulati & Singh, 1998)

� Positioning within the industry value chain (Christensen, et al., 2001; Champion, 2001; Wise and Baumgartner, 1999)

� Resource-based view (Barney & Wright, 2001; Wernerfelt, 1995)

� Strategic network theory (Jarillo, 1995)

� Cooperative strategies and value creation network (Dryer and Singh, 1998)

� Sustainable position or core competence (Hamel and Prahalad, 1994)

� Advantage built around innovation capability (Schumpeter, 1934)

� Firm’s source of advantage that leads to superior performance (Hill, 2001)

� Value as a unique combination of resources that produce innovations (Schumpeter, 1934)

� Transaction cost economics (Madhok, 1997; Wilkinson, 2002; Williamson,1975,1985)

� Efficient and well-executed system of firm’s value-creation activities (Porter, 1985)

An important theoretical perspective which should not be neglected is the idea that the different elements of the business model are inter-related system components that form the

architectural backbone of the company (Morris et al, 2005). This perspective provides a useful foundation for examining the individual entrepreneur influence on the firm’s

strategies and tactics both for domestic and international contexts.

36

Jones and Coviello (2005) in a conceptual paper on entrepreneurial internationalization

behavior used the entrepreneurial process as a basis for explaining how the combination of innovation, change and creativity (Brazeal and Herbert, 1999) leads to an entrepreneurial

event. The entrepreneurial event involves the separation of the innovation from the predecessor (inventor/innovator) and its subsequent exploitation (Brazeal and Herbert,

1999). In the context of the entrepreneurial firm, this ‘exploitation’ reflects the transition of the firm from the foundational level to the proprietary level of the business model, entailing

innovation that is unique to a particular entrepreneur and venture (Morris et al, 2005). It is important to note that while the foundational level of Morris’ model is adequate to capture

the essence of the establishment of a business venture, its sustainability is ultimately dependent on the entrepreneur’s ability to utilise unique approaches to one or more of the

above cited foundation components, thus serving as the firm’s ‘platform for innovation’. Davidsson (2005) included geographic market expansion under the domain of

entrepreneurship. He justifies this on the basis of defining entrepreneurship from a market perspective. It follows then that the firm’s innovation platform may encompass the

application of its business model in new geographical markets, whether or not these ventures are successful.

2.1.2 Internationalization theory

A number of theories have addressed the issues of why, when, where, and how firms

engage themselves in international business. These theories have ranged from economic to behavioural perspectives. Economic theories focussed on explanations of why trade takes

place between countries including those that investigate the firms’ the economic logic of going international.

Behavioural theories, on the other hand, seek to explain the managerial decisions of the

individual firm or the owner manager (Rutashobya and Jaensson, 2004). More recent literature reflecting the broad range of differences among firms in terms of the pattern, pace

and intensity of internationalization suggest the need for researchers to re-conceptualise their views on the internationalization process, particularly for smaller firms (Bell et al,

2003).

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As stated in Chapter 1, it is not the intention of this paper to comprehensively review all of

the streams of internationalization literature. Following is a review of a few major traditional and recent theories that have gained currency in the internationalization

literature, and which, more importantly, may have an impact on this study.

Economic fundamentals indicate that one of the ways firms seek growth is through internationalization. As such, it is logical that growth objectives represent a significant

driving force for firm internationalization (Luostarinen, 1979; Rugman, 1980; Penrose, 1995).

Vernon’s (1979) Product Life Cycle (PLC) theory explains internationalization in terms of

the movement of products and productive activity from developed economies, where there is high domestic demand, to other moderate-income countries. Products move through the

traditional life cycle stages of introduction, growth, maturity and decline in the context of trade between nations, as productive activity and consumption moves from the

industrialised, economically advanced to those which are in their developing stages. The theory, however, is limited in the sense that it fails to consider products that do not go

through the life cycle stages due to technological advances and more liberal market reforms.

The behavioural models present divergent views. However, some streams complement

existing theories. Under the behavioural models category, the traditional internationalization theories include Transaction Cost Economics (TCE) approach

(Madhok, 1997; Wilkinson, 2002; Williamson, 1975, 1985), the Uppsala process model of internationalization (Johansson and Wiedersheim-Paul, 1975; Johansson and Vahlne, 1977,

1990), and the innovation-diffusion model (Rogers, 1962; Bilkey and Tesar, 1977; Cavusgil, 1980; Czinkota, 1982; Reid, 1981). These traditional models are influenced by

issues related to cost-minimisation and risk aversion. Under these models, the firms’ internationalization decisions, such as extent, scope, patterns and pace of

internationalization, market entry mode, and internalization are made with primary consideration given to transactions costs, risks and uncertainties associated with

geographically and psychically distant markets. These considerations will then result in the

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gradual/incremental increases in the level of commitment that firms exhibit in foreign markets.

The innovation-diffusion model is similarly anchored on the same considerations but takes

the perspective that internationalization is a form of innovation for the firm in terms of being a ‘new economic activity’ in a foreign market. (Davidsson & Junehead, 2001;

Andersen, 1993; Casson, 2000). Innovation-diffusion models incorporate features such as the incremental character of the internationalisation process, the concept of psychic

distance and the gradual commitment of resources (Ford & Leonidou, 1991; Andersen, 1993). Fundamental to these types of internationalization models is psychic distance. The

literature identifies a broad range of indicators for psychic distance between countries, including cultural distance, business difficulty, language differences and level of education

(Nordstrom & Vahlne, 1992; Vahlne & Wiedersheim-Paul, 1973). A further discussion of this concept will be provided subsequently in section 2.3.5. However, the main difference

for this model is that it focuses on the learning sequence in connection with adopting an innovation. As such, it looks at the firm’s internationalization decision as an innovation.

The successive entry into new foreign markets leads the firm to adopt alternative market entry modes or strategies, as the firm gains market experience and knowledge.

In essence, these traditional models tend to describe firm internationalization as gradual and

incremental as they go through a series of evolutionary ‘stages’. As alluded to in an earlier section, this ‘evolution’ leads firms to commit greater resources to overseas markets

gradually and tend to go for markets that are increasingly geographically and psychically distant. An underlying assumption within these models is that firms are well established in

their domestic markets before venturing abroad (Bell, et. al., 2003).

These models have been criticized for being very deterministic (Johansson and Vahlne, 1992); for lacking explanation on behaviour of firms that leapfrog or are born-global

(Fletcher, 2001); for putting too much emphasis on psychic distance (Melin, 1992); and for insufficient importance placed on the role of networks. Traditional internationalization

models have also been viewed to wrongly assume step-wise progression and forward motion and pay inadequate attention to potential divergence in the patterns, pace and scope

of internationalization due to industry, company and people contexts (Buckley et al, 1979; Cannon and Willis, 1981; Reid, 1983; Rosson, 1984; Turnbull, 1987). Further, Turnbull

39

(1987) found inadequate empirical support for ‘staged’ internationalization as firms often omitted stages in the process. There are also limitations in terms of delineating boundaries

between stages, or adequately explaining the processes that lead firms to move between the stages (Andersen, 1993).

However, the value of these traditional ‘process’ models should not be undermined as there

is evidence that many firms, particularly those gravitating outwards from large, mature economies, have internationalised and continued to do so in an incremental manner (Bell et

al, 2003).

The eclectic model, the resource-based perspective, and more recently the born-global and the network perspectives fall within the non-traditional behavioral models category.

Dunning (1981, 1997) in his eclectic approach attempts to explain the existence of multinational corporations (MNCs), and what drives their expansion and growth. The word

eclectic was deliberately chosen to convey the idea that a full explanation of the transnational activities of enterprises needs to draw upon several strands of economic

theory; and this is not necessarily limited to foreign direct investment (Dunning 1988; Paliwoda 1993). Inherent in the model is the idea that firms make choices as part of their

internationalization process rather than follow a prescribed set of stages that is the dominant feature of the internationalization process models (Nair 1997). Dunning’s model is based

on three propositions related to location specific advantage, ownership advantage and internalization advantage. Choice of foreign market entry mode will therefore be influenced

by these three variables. Due to its evident focus on multinational corporations, the relevance of this model to new ventures and small firm internationalization is seen as

limited.

The resource-based view (RBV), which draws from the strategy literature, complements the other perspectives in several ways. Drawing from Dunning’s discussion on ownership

advantages, RBV proposes that entrepreneurial capability (skills, attitudes, and motivations), organizational capability, availability of a change agent, export marketing

knowledge and experience, market information, and business and social networks are all important drivers of internationalization. The arguments of most researchers in this area

are rooted in Penrose’s (1959) resource-based perspective.

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Many researchers have focussed on network theory and internationalization (Sharma and Johansson, 1987; Johansson and Mattsson, 1988; Axelsson and Johansson, 1992; Johansson

and Vahlne, 1992; Benito and Welch, 1994; Vatne, 1995). Vatne (1995, 72), in particular discussed "internationalization as an entrepreneurial process that is embedded in an

institutional and social web which supports the firm in terms of access to information, human capital, finance, and so on.’ The significance of network theory is particularly

evident in inter-firm relationships among firms that operate in small open economies and in emerging nations, where domestic demand may be limited (Coviello and McAuley, 1999).

Small firms, in particular, have much to gain in terms of access to foreign markets through involvement in established business networks. However, it should be noted that even the

more prominent authors on network theory suggest a more robust explanation of small firm internationalization by combining network theory and the traditional incremental staged

models.

Reflecting a totally divergent view from incremental or ‘staged’ internationalization models, the born-global model of internationalization highlighted the significance of

smaller and younger firms and their distinguishing characteristics that allow them to internationalize rapidly and thereby create value for their founders and owners (Oviatt and

McDougall, 1994 McKinsey and Co, 1993; Knight and Cavusgil, 1996). The work on born-globals and International New Ventures (INVs) challenged some of the more established

paradigms on the internationalization process, in particular the ‘stages’ theory (Zahra, 2005). Many of these ‘born-global’ and usually knowledge-intensive firms are formed by

active entrepreneurs, often due to a significant breakthrough in process or technology, and their offerings commonly involve substantial value creation (McKinsey and Co., 1993). A

common characteristic is that management adopts a global outlook from inception and pursues rapid and dedicated internationalization. This internationalization is typical among

firms that target small, highly specialised global market ‘niches’ (Bell et al, 2003). While some of the subsequent work has adhered to Oviatt and McDougall’s original arguments,

other researchers have incorporated aspects entrepreneurship, strategy and cognitive psychology theories to refine and extend the original framework (Zahra, 2005).

It is important to mention, though, that internationalization theories have predominantly

focussed on large, established multinational firms’ foreign market entry strategies and operations, rather than on new ventures (Acs, Dana & Jones, 2003). Coviello and McAuley

41

(1999) suggest that, conceptually, future research should attempt to integrate the extant views of internationalization and entrepreneurship recognizing that no single view may be

appropriate, specifically as they relate to SMEs.

TABLE 2.2: Shared Fundamental Disciplines in Internationalization and Entrepreneurship

CONTRIBUTING

THEORIES INTERNATIONALIZATION ENTREPRENEURSHIP

Transaction Cost Madhok, 1997; Wilkinson, 2002;

Williamson, 1975, 1985

Internalisation Dunning, 1977, 1981, 1988; Lumpkin & Dess, 1996; Firm Growth Luostarinen, 1979; Rugman,

1980; Penrose, 1995; Autio et. al, 1997

Morris, et. al., 2005

Innovation Johanson & Vahlne, 1977, 1990; Andersen, 1993; Casson, 2000

Lipparini & Sobrero, 1994; Davidsson & Junehead, 2001; Schumpeter, 1934; Brazeal & Herbert, 1999; Shane & Venkataraman, 2000

Resource-Based Theory Hamel and Prahalad, 1994; Melin, 1992

Barney, 1991; Erikson, 2002; Porter, 1985

Opportunity creation or recognition

Oviatt & McDougall, 1994 Kirzner, 1973

Networks Coviello & Munro, 1995; Beamish, 1999

Birley, 1985; Jarillo, 1989; Ellis, 2000; Larson, 1991

The foregoing discussion, specifically, the reference to firm innovation, risk-taking and

pro-activeness incorporating components of opportunity recognition, entrepreneurial motivations, objectives and ambitions, firm’s resources and strategic behavior, indicates a

congruence with the issues related to internationalization processes discussed earlier. This is evident in Table 2.2 above that clearly shows the overlap in what has been published

within the internationalization and entrepreneurship disciplines. It is therefore justifiable to assert that internationalization processes can occur in the context of entrepreneurial

processes. The following section focuses on the emergent field of international entrepreneurship paying particular attention to areas of integration between

entrepreneurship and internationalization theories alluded to in the previous sections.

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2.2. The Current State of International Entrepreneurship Theory

There has been considerable attention focussed on the role of SMEs in international trade and how they facilitate knowledge and managerial skills transference in the global

marketplace. Oviatt and McDougall’s (1994) paper on international new ventures served as a milestone and a reference point for the research in the area of international

entrepreneurship (Zahra, 2005). They defined INVs as ‘a business organisation that, from inception, seeks to derive significant competitive advantage from the use of resources and

the sales of resources in multiple countries’ (Oviatt and McDougall, 1994). An underlying proposition here is that the firm’s age at internationalization has important implications for

firms’ successful expansion, survival and performance. The proposition follows on from the argument that the firm’s gestation period and, hence age can significantly influence the

resources that new ventures and entrepreneurs assemble (Reynolds and Miller, 1992), and hence, firm size. As such, this proposition has tangible implications for the bridging the gap

between SME internationalization and international entrepreneurship. Despite the limitations of previous conceptual and empirical studies focusing on international entrepreneurship (Autio, et. al, 1997; Bloodgood, et. al, 1996; Steensma, et. al. 2000; Zacharakis, 1997; Zahra, Ireland, and Hitt, 2000a ; Roberts and Senturia, 1996; McDougall and Oviatt,1996; Zahra and Garvis, 2000), it is without doubt that these studies have served to expand the domain of international entrepreneurship. More significantly, these previous investigations of the international entrepreneurship phenomenon have supported the contention that it is a multidimensional construct – evolving from the relationships between organizational, environment and strategic factors (Zahra

and George, 2002). This is particularly significant for this study since it focuses on internal and external ‘drivers’ of internationalization.

The continued emergence of international entrepreneurship as a field of study separate from

international business and entrepreneurship has led researchers to take a closer look at the contributing disciplines and subsequently ‘flesh out’ the common ground, specifically

between internationalization and entrepreneurship. McDougall and Oviatt (2000) in further work on the area have amended their definition of international entrepreneurship as ‘…. a

combination of innovative, proactive, and risk-seeking behaviour that crosses national borders and is intended to create value in organisations.’ Such a definition indicates the

acceptance of the link between internationalization as a firm-level undertaking which

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involves the crossing of international borders (Wright & Ricks, 1994) with Covin and Slevin’s (1989) identification of the characteristics of entrepreneurial orientation.

A further affirmation of the interface between internationalization and entrepreneurship

uses the work of Covin and Slevin (1991) as a springboard. Covin and Slevin assert that behaviour is the ‘central and essential element in the entrepreneurial process’ and that an

organisation’s actions (or behaviour) are what makes it entrepreneurial. Extending this analogy, examining the internationalisation behaviour of firms and identifying its

entrepreneurial qualities would provide further unifying directions for international entrepreneurship research (Jones & Coviello, 2005; Zahra, 2005).

Internationalization researchers (Coviello & Munro, 1995, 1997; Boter & Holmquist, 1996)

have determined the primary evidence of internationalization behaviour to be: (1) market entry modes;

(2) foreign market choice; (3) timing of entry into foreign markets.

Firm activities related to the behaviour indicators above have been found to be closely

related to innovation, resource commitment, the firms’ operating environment, intensity of activity over time (first-to-market issues), and risk-taking – elements which also logically

fall within the scope of entrepreneurship (Lumpkin and Dess, 1996).

Though Covin and Slevin’s (1991) work acknowledges how individual entrepreneurial behaviour can affect organisational actions, their model fails to make distinctions between

individual and firm level behaviour, oftentimes considering these two levels as synonymous. Since this study will eventually focus on SME (firm-level)

internationalization, it is important to recognise that the individual entrepreneur is the key antecedent for internationalization behaviour, i.e. when and where to allocate resources

relative to international growth (Madsen & Servais, 1997).

As a fitting conclusion for this section, Chrisman, Bauerschmidt & Hofer (1999) argue that the entrepreneur’s personality, skills and values will affect subsequent behaviours and

decisions. Consequently, the entrepreneur’s key decisions, strategies and management practises will shape the performance of the venture (Cooper, Gimeno-Gascon & Woo,

44

1994). Thus, the firm has an entrepreneurial influence that serves to combine capabilities, competencies and resources (Eisenhardt & Martin, 2000) as part of the strategic and tactical

activity of the organisation, including specific decisions, processes and actions that result in or contribute to internationalization.

The following sections will further illustrate the interrelationships between the various

elements of the internationalization and the entrepreneurial processes. This discussion will be in terms of the interaction between the relevant theoretical constructs of the resource-

based view, entrepreneurial motivations, opportunity recognition, networks and psychic distance. Table 2.3 below summarises the contributing authors for each theoretical

construct.

TABLE 2.3: Contributing Authors for Theoretical Constructs for this study ENTREPRENEURIAL MOTIVATIONS � Morris, M.,Schindehutte, M., Allen, J.,Richardson, J., & Brannon, D., 2005 � Zahra & George, 2002 � Autio, Yli-Renko & Salonen, 1997 � Finkelstein & Hambrick, 1996 � Stevenson & Gumpert, 1985 OPPORTUNITY RECOGNITION � Kirzner, 1973 � Oviatt & McDougall, 1994 � Zahra, S.,Korri, J. S., & Yu, J., 2004 � Zahra, 2005 � Coviello & Munro, 1995 RESOURCE-BASED VIEW � Autio, Yli-Renko & Salonen, 1997 � Bloodgood, Sapienza & Almeida, 1996 � Zahra & Garvis, 2000 � Barney, 1991 � Wernerfelt, 1984 � Grant, 1991 � Zahra, 2005 � Stevenson & Gumpert, 1985 � Bell, J., McNaughton, R., Young, S., & Crick, D., 2003 � Zahra & George, 2002

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TABLE 2.3: Contr ibuting Authors for Theoretical Constructs for this study (cont’d.) NETWORKS � Coviello & Munro, 1995 � Rutashobya & Jaensson, 2004 � Morris, M.,Schindehutte, M., Allen, J.,Richardson, J., & Brannon, D., 2005 � Autio, Yli-Renko & Salonen, 1997 � Zahra & George, 2002 � Oviatt & McDougall, 1995 � Larson, 1991 � Lipparini, A., & Sobrero, M., 1994 � Welch, D. E. & Welch, L.S., 1996 � Bell, J., McNaughton, R., Young, S., & Crick, D., 2003 PSYCHIC PROXIMITY � Zahra & George, 2002 � Steensma, K., Marino, L., Weaver, M., Dickson, P., 2000 � Bell, J., McNaughton, R., Young, S., & Crick, D., 2003 � Bell, 1995 � Knight & Cavusgil, 1996 � Zahra & George, 2002 � Knight, 1999 � Lovelock, 1999

2.3 Interrelationships between Theoretical Constructs

2.3.1 Entrepreneur ial Motivations and International Entrepreneurship

There is ample evidence that the owner/manager’s growth motivation can have an impact

on the firm’s international entrepreneurship activities (Zahra & George, 2002). Autio et al

(1997) tested this proposition and found that firms with high growth orientation were more

likely to internationalize their operations. This is indicative of the importance of managerial attitudes in shaping the strategic direction of their enterprises (Finkelstein and Hambrick,

1996) particularly in terms of international expansion. There is, however, a limited amount of empirical evidence to further support the relationship between firm owners’ attitudes,

motivations and international expansion.

2.3.2 Opportunity Recognition and International Entrepreneurship

A key area that can give young, entrepreneurial and established firms enduring competitive

advantages that set them apart from their rivals is the ability to recognise opportunities and pursue them creatively (Kirzner, 1973) through an internally consistent combination of

46

entrepreneurial ability, risk-taking and firm resources. The extant literature on opportunity recognition has identified the ability of entrepreneurial firms to recognise and pursue

opportunities as a key construct in international entrepreneurship. Oviatt and McDougall (1994) noted that international new ventures (INVs) perceive their environments quite

differently as compared to their well-established rivals. Small firms that internationalize rapidly adopt alternative assumptions and cognitions of the market and competition,

possibly leading them to seek and identify different types of new opportunity and subsequently exploit these using innovative approaches (Zahra et al., 2004). While this issue of opportunity recognition may be examined in terms of firm level

capacities, it is important to note that the foundations of competitive advantage actually emanates from the entrepreneurs’ cognitions that allow them to quickly spot opportunities

in international markets and develop new ways to exploit them (Zahra, 2005).

As the small entrepreneurial firm establishes itself in the marketplace, while maintaining the qualities of pro-activeness, risk-taking and innovation, its internal processes may, in

turn, serve as the foundation for competitive advantage. Whilst opportunities in the external environment might be the same for all firms, the organisational form and internal processes

of entrepreneurial firms may allow them to pursue certain opportunities more effectively than others (Zahra, 2005).

Case study research indicates that the limited growth of domestic markets was a major reason for the rapid internationalization of high technology new ventures (Coviello and

Munro, 1995). These findings suggest that the necessity of seeking and pursuing alternative growth opportunities oftentimes becomes a ‘driver’ for internationalization, particularly

when the domestic market is not an attractive opportunity.

2.3.3 Resource-based view, Internationalization, and the Entrepreneurial Firm

The strategy literature has drawn from resource-based theory as a key factor for explaining

the various strategic choices that firms make (Barney, 1991). The basic premise in the resource-based perspective is that the firm’s ability to generate and build or leverage

47

resources and competencies that is the key to competitive advantage and organizational survival (Wernerfelt, 1984; Barney, 1991; Grant, 1991). It is important to note that the

development of a firm’s resource base is closely related to managerial capacity. This managerial capacity, in turn, impacts on the firms’ strategic action, i.e. how they

outperform competitors who may control more resources. Entrepreneurial firms are characterised by their action, not by the types or amount of tangible resources they control

(Zahra, 2005).

This presents contradictory views regarding the resources that a firm controls. A key insight in Oviatt and McDougall’s (1994) work on INVs is that the new ventures do not need to

own their resources in order to internationalize their operations - a view shared by entrepreneurship scholars Stevenson and Gumpert, (1985). Oviatt and McDougall place

greater emphasis on how new ventures compete in international markets – its resourcefulness rather than the amount or types of resources controlled.

Zahra & George (2002), on the other hand, have argued that resources are an important

factor influencing international entrepreneurship. Small internationalizing firms will adopt a range of approaches to pursue opportunities in overseas markets ‘contingent’ on the level

of resources available to it (Reid, 1983; Woodcock et al, 1994; Yeoh and Jeong, 1995). Researchers propose that a firm’s competitive strategy leveraging on its unique resources

can spur its international entrepreneurship activities (Zahra & George, 2002).

It is important to qualify what ‘resources’ include in order to rectify these contradictory views. The knowledge base of the firm is a source of competitive advantage that influences

both the patterns and pace of internationalization (Autio et al., 2000; Ericksson et al., 2000; McNaughton, 2001). This knowledge base is often embedded in both product and process

and in most cases their sales and marketing functions as well. This finding is particularly significant to SMEs that are typically characterised by limitations of tangible resources.

Competitive advantage in the context of entrepreneurial firms focuses on the elements of

proactiveness, risk-taking and innovativeness. Zahra (2005) posits that entrepreneurial firms retain these qualities and embed them in their organizational culture (Lumpkin &

Dess, 1996). This then becomes the foundations for competitive advantage of entrepreneurial firms as they pursue opportunities in overseas markets.

48

Oesterle (1997) pointed out another category of internationalizing firms who encountered

‘epochs’ of internationalization after showing little or no interest in overseas markets for a period of time. Bell, et al (2003), these ‘born-again’ global firms exhibited a sudden shift in

focus from a domestic to an international orientation triggered by a new infusion of new human and/or financial capital and/or acquisition of new product/market knowledge –

resources that the firms do not necessarily own. Further illustration is the first mover advantage of rapidly internationalizing SMEs (born

globals) that facilitates the rapid penetration of global niches (Bell et al, 2003). This competitive advantage is anchored on the exploitation of the firm’s proprietary knowledge.

It is also significant to mention here that cognitive and psychological forces influence the entrepreneurs’ ability to reconfigure resources in unique ways that allow the firm to achieve

certain advantages. They may also affect the speed by which entrepreneurs and their respective ventures learn and adapt. These forces, in turn, have tangible implications on

small firm performance in international markets.

Internationalization of a firm’s value chain or inputs into the production process can significantly influence the nature and magnitude of a firm’s competitive advantage (Zahra

& George, 2002).

The literature on born-global firms places emphasis on how these firms succeed in the global market, an undertaking that requires innovativeness, risk-taking and

entrepreneurship (Zahra and George, 2002). Such a focus is also evident in the strategy literature, where firms that excel in their respective industries exhibit a considerable amount

of creativity and innovativeness in leveraging their core competencies (Hamel and Prahalad, 1994). Using theoretical lens from organizational theory, sociology, strategy,

entrepreneurship, and international business, research on firm innovativeness as the firm identifies market opportunities, defines (configures) its value chain, selects areas to be

internationalized, and identifies unique ways to reach potential customers, provides justification for inclusion of such studies in the domain of international entrepreneurship

(Zahra and Garvis, 2000).

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2.3.4 Network Theory and International Entrepreneurship

At a fundamental level, network theory depicts markets as a system of relationships among a number of players encompassing customers, suppliers, competitors and private and public

support agencies (Axelsson & Easton, 1992). Entrepreneurial ventures that are seeking to develop international markets can draw from network theory. Many researchers have

focussed on the impact of network theory on internationalization (Sharma & Johanson, 1987; Johanson & Matsson, 1988; Axelson & Johnason, 1992; Johanson & Vahlne, 1992;

Benito & Welch, 1994; Vatne, 1995). This leads to an examination of internationalisation issues, in particular, the impact of network relationships on foreign market selection and the

relative influence of other firms (in both direct and indirect relationships) on new market entry strategies (Coviello and Munro 1995). The authors conclude that the international

expansion of entrepreneurial firms is enriched by analysing beyond the firm’s individual actions and understanding the impact of a firm’s role and position within a network of

relationships. It is important to mention that network theory and its implications on entrepreneurial ventures’ expansion support the idea of strategic choices in the context of

international market entry. The importance of firm resources in its strategic choices, including that of internationalization, has been discussed in previous sections.

Drawing from entrepreneurship theory, Morris, et al (2005) posited that a fundamental

component of the entrepreneur’s business model is a strategic domain which includes a focus on managing interactions and exchanges across organisational boundaries, with

special consideration for growth opportunities. This implies that networks and alliances are indeed a strategic imperative for entrepreneurs. It is important to note that intangible

resources such as reputation and networks can significantly influence the speed and degree of internationalization (Zahra, et al, 2000b). Entrepreneurship (Autio, et. al., 1997; Larson,

1991; Lipparini and Sobrero, 1994), strategy (Gulati, 1998; Jarillo, 1988; Keil, Autio and Robertson, 1997), and international business (Welch & Welch, 1996) researchers have

emphasised the importance of networks for organisational success (Zahra & George, 2002). Likewise in the emergent field of international entrepreneurship Autio, et al (1997) and

Zahra, et al (2000b) have given due recognition to the mediating effect of networks. It is, however, apparent that further investigation needs to be done with respect to the

relationship between networks and the speed, scope and extent of internationalization (Zahra & George, 2002).

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Case study research suggests that new ventures with extensive networks were able to internationalize quickly and successfully (Oviatt & McDougall, 1995). More specific

studies such as that conducted by Zahra, et al (2000b) with the technology sector indicate that technological networks have a significant positive association with the status, speed

and degree of internationalization, with this effect even higher for new firms with high R&D spending. Autio, et al (1997) highlighted the importance of international collaborative relationships for its internationalization effort. These findings were corroborated by Zahra, et al (2000b)

and expanded this further by saying that such relationships provide new ventures the knowledge and resources that can expedite international growth.

For born-again globals, the sudden shift in focus from a domestic to an international

orientation is triggered, among other things, by improved access to new networks in overseas markets (Bell, et al 2003). In turn, these new international networks enable the

firm to tap into additional human and/or financial resources thereby increasing the pace of internationalization.

Among ‘born global’ and ‘born-again global’ firms, there is stronger evidence of export or

domestic client followership and of the importance of networking with suppliers and other channel partners. These firms are also more likely to integrate into clients’ existing

channels (Bell, et al 2003). The Australian Trade Commission (AUSTRADE) has conducted some research which

indicates that the successful integration of Australian SMEs in the global economy is highly dependent on knowledge and networks. Education and training is critical, as well as access

to information and strong networks that will enable these smaller players to help themselves (AUSTRADE, April 2002, 53).

2.3.5 The Mediating Effect of Psychic Proximity on the Internationalization Process

The major factor influencing an incremental or a gradual process of foreign market entry is

uncertainty with distant or culturally different markets, and the fear to invest resources

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where market knowledge is limited. Psychic distance appears to be the major hindrance, and is minimized through experiential learning and market commitment in foreign markets.

Psychic proximity, which is the congruence and compatibility of culturally-influenced

“perceptions of the world’ among people from its various parts, could serve as another mediating factor for the firm’s internationalization process. Zahra and George (2002) made

mention of ‘differentials’ or ‘proximity’ as an indication of the amount of differences between home markets and the emerging opportunities in foreign markets. Though the

literature suggests a substantial influence of national cultures on psychic proximity, there are several other dimensions of the construct like market practices, customer profiles, and

habits to name a few (Zahra & George, 2002). The literature identifies a broad range of indicators for psychic distance between countries. A study by Vahlne and Wiedersheim-

Paul (1973), which focused on internationalizing Swedish firms, operationalised the construct using the following dimensions:

� Difference in the level of economic development between Sweden and the host countries;

� Difference in the level of education between Sweden and the host countries; � Difference in ‘business language’;

� Difference in culture and local language; � Existence of previous trading channels between Sweden and the host countries.

This range of psychic distance indicators appears to support Zahra & George’s (2002) contention that it has a strategic impact on the firm’s internationalization, particularly in

terms of strengthening connections with chosen foreign markets.

Nordstrom and Vahlne (1992) likewise identified psychic distance dimensions beyond the cultural realm, asserting that the construct included a component of business difficulty, as

well as cultural distance. Psychic distance, in their view, encompasses “cultural (aligning with Hofstede’s cultural dimensions), structural (i.e. legal and administrative systems) and

language differences” (Nordstrom & Vahlne, 1992:10).

Among born-global firms, there is evidence that there is greater influence of global industry trends as reflected in (Bell, et al 2003):

o Global product development o Less impact of psychic proximity

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Furthermore born-global firms tend to target home and international markets concurrently. There is also evidence (Bell, 1995) that firms in this category who are already established

in domestic markets, tend to follow domestic clients abroad, regardless of the ‘psychic proximity’ of the new market. This is a departure from the observable pattern in firms that

follow the more traditional internationalization approaches described above.

In the case of service firms, the slower pace of internationalization can be partly explained by the need to gain requisite local market knowledge in order to culturally adapt service

offerings and marketing strategies for foreign consumers (Knight, 1999; Lovelock, 1999). This reflects firm efforts to gain psychic proximity and hence acceptance in foreign

markets. 2.4 Australian SME Internationalization

Exports and international trade involvement contribute substantially to Australia’s economic health, accounting for more than a fifth of Gross Domestic Product (GDP) and

providing approximately one in five Australian jobs (Harcourt, 2002). Despite this significant contribution, the Australian Bureau of Statistics estimates that only one in every

25 Australian businesses is involved in international business, substantially below comparable industrial economies (AUSTRADE, 2002)

The situation is baffling, but not a complete mystery. Australia is an open and flexible economy integrated into the global markets of Asia, America and Europe. During the past

15 years, the Australian economy has experienced significant structural changes. Economic reform measures, such as lower tariffs, financial deregulation, labour market reform, and

tax reform have been implemented. Combined with the growing convergence of markets, these have presented new demands and challenges for Australian businesses (Alam and

Pacher, 2003). But the low involvement in international business cannot be simply explained by an inability to cope with these challenges. Some of the explanations attribute

the situation to misguided priorities in the past. The limited scale of exports and outward foreign direct investment (FDI) is blatantly contrary to Australia’s long-run reliance on

foreign firms and technology. During the 1960s, inward FDI outweighed outflows twenty to one. Consequently, the manufacturing sector in modern Australia is dominated by

American, Japanese, British and European interests. By taking over domestic firms in the

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highly-protected, import-replacing manufacturing sectors, foreign investors created foreign-dominated oligopolistic industries, characterized by overcapacity and constrained trade

practices. A natural consequence of this is the prevalence of inefficient and inflated cost structures throughout the economy leading to the lack of competitiveness of Australia’s

manufactured exports in world markets (Maitland and Nicholas 2002).

While the Australian government focused on trade and financial liberalization, micro-economic reform and the export of high-value added products, as cited earlier, there was

inadequate attention devoted to outward FDI policy. For a small and mature economy like Australia, which is isolated from the regional trading blocks, this neglect is a surprising

anomaly (Maitland and Nicholas 2002).

A related issue is the tendency of earlier Australian government regimes towards protectionism. Australia’s early economic development was heavily influenced by

protective tariffs, and this in part enhanced an inward-looking, but relatively efficient economy in the 1970s and 80s (Alam and Pacher, 2003). The economic development

achieved during this period provided some sense of complacency. The government actively encouraged selected industries. Combined with its so-called trade liberalization programme

that facilitated the upsurge in inward FDI, rapid industrialization was achieved primarily through reliance on foreign MNEs and import-substitution.

As discussed in Chapter 1, the Australian government’s economic reform measures

combined with its history of inward-looking policies constrained the development of the small business sector leading to the low participation rates of Australian small business in

international trade. Moreover, although Australia’s outward FDI has increased since the early 1980s, many other economies, particularly in Western Europe and North America,

experienced faster growth.

Notwithstanding the expansion in FDI, Australia remains a relatively small player in the international investment community – accounting for around 0.6 and 0.4 per cent of global

FDI inflows and outflows, respectively, in 1999. This is well below Australia’s contribution to global income, which was around 1.3 per cent in 1999 (World Bank 2001).

54

To address this issue, it is important to understand the position of Australia in the context of international business. Having examined the historical background in the previous section,

Australia’s peculiarities are seen to have considerable implications on entrepreneurial ventures’ internationalization. It must be mentioned, though, that a small proportion of

Australian SMEs have addressed the challenges of the Australian business environment and successfully penetrated international markets. The extant literature suggests that SMEs

overcome the obstacles and resource constraints (managerial, financial, information, etc.) by technological advancement and network relationships (Bonaccorsi, 1992; Gomes-

Caseres, 1997). Moreover, several researchers assert that SME internationalization may be facilitated by incorporating entrepreneurial qualities into the process (Zahra, 2004; Jones &

Coviello, 2005, Fletcher, 2004). These approaches will be examined in more detail in Chapters 3 and 5.

2.5 The Gaps in the Literature

The foregoing discussion provides further impetus to the need for greater and better

theoretically grounded research on certain aspects of international entrepreneurship.

It is evident from the review of extant literature that internationalization of SMEs requires a creative combination of entrepreneurial ability, risk-taking, firm resources and market

opportunities (Zahra, 2005). A common assumption in a good part of the literature reviewed is that firms follow rigid ‘pathways’ to internationalization. However, the

empirical work small firm internationalization by Bell, et al (2003) indicated that the actual internationalization trajectories of firms are highly individualistic, situation specific, and

unique. Each firm’s internationalization pattern results from a combination of managerial insights, experience, connections and contacts, network relationships, and informal and

formal industry analyses. These issues reflect the selected constructs for this study. These unique approaches to internationalization, particularly in terms of overcoming barriers to

crossing international borders and penetrating foreign markets is an area that this research focuses on.

As proposed earlier, the extant literature suggests that the internationalization process can

occur in the context of the entrepreneurial process. To strengthen this argument, it is necessary to examine the process wherein an individual entrepreneur transitions to the

55

proprietary level, and depending on his/her propensity for growth and expansion, evolves into an international venture. In line with the research question, the examination of this

process also facilitates the further clarification of the entrepreneurial influence on the internationalization process.

An investigation of all the above-cited factors would be useful to address the gaps

identified in the extant literature, prominent of which are: � Uniqueness of small firm internationalization trajectories;

� Impact of entrepreneurial qualities in small firm internationalization; � Distinction between the internationalization process of large established firms and SMEs;

� Deeper insights into the processual and interrelated nature of small firm internationalization.

However, such an investigation would be too broad for one study. This study, therefore,

focuses on an investigation of the internationalization process for SMEs with a specific emphasis on an understanding of the interrelationships between the selected theoretical

constructs. This investigation will also contribute to establishing a clear link between SME

internationalization and international entrepreneurship. The relationship between these two fields of investigation has been assumed in the extant literature (Rutashobya & Jaensson,

2004; Zahra, 2005). However, it is not clear where in the domain of international entrepreneurship does SME internationalization fall.

It is hoped that the focus on small firm internationalization, and how it becomes part of the

entrepreneurial process, combined with the case study methodology, that highlights the particularity of each case, will address some of the research gaps outlined above.

The aspects that make this study unique, then, are as follows:

1. A focus on the evolutionary process from individual entrepreneur to a domestic SME to an international SME.

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2. The use of constructs such as entrepreneurial motivation, opportunity recognition, the resource-based view, networking and psychic proximity as interrelated

theoretical lenses to examine the small business internationalization process. 3. The application of the conceptual model derived from the study to Australian

SMEs.

It is important to mention at this early stage that the aim is to formulate a precise contingency model that incorporates the theoretical constructs that have been identified in

previous sections. It must be understood, however, that the precise model developed in this study is not an end in itself. Considering that it is a case-study based investigation, the

study reflects theoretical construct relationships that apply to the case firms. Other studies may reveal different relationships and/or model configuration, but the model here may

serve as a basis for empirical validation in subsequent studies. As such, the contribution is not the model, per se, but it becomes part of the evolutionary process which leads to richer

and deeper insights into the small firm internationalization phenomenon. This approach conforms to what was proposed by Jones and Coviello (2005) in their conceptual paper on

entrepreneurial internationalisation behaviour – a firm-level manifestation of international entrepreneurship. As with this particular study, the development of similar contingency

models will provide a good foundation for researching internationalization as a process of entrepreneurial behaviour. It is hoped that a series of empirically validated and

academically rigorous models will contribute to the unification of international entrepreneurship theory (Jones and Coviello, 2005).

The interrelationships between selected theoretical constructs will be illustrated in

conceptual framework that will be developed in Chapter 3. This will then be the basis for the propositions for the study which were then tested during the actual conduct of the

investigation.

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Chapter 3: Development of the Conceptual Model

3.0 Introduction

The discussion in the two previous chapters, and in particular, the review of relevant

literature within the entrepreneurship, international business and strategic management domains has revealed an opportunity to contribute to the re-conceptualisation of the

internationalization process of small and medium–sized firms. While it is evident that SMEs around the world have continued to increase their involvement in the international

arena, this radically changed competitive environment poses considerable challenges for small firms. In particular, obstacles such as geographic and psychic distance, high transport

and labour costs, competitive pressures and inappropriate government policies have hampered international involvement of small businesses in economies like Australia. The

continued development of international entrepreneurship as a legitimate field of academic enquiry has repeatedly emphasised the need to inform the internationalization literature

with entrepreneurial issues (Covin & Slevin, 1989; Buckley, 2002; Jones & Coviello, 2005). In their review of contemporary empirical research on small firm

internationalization, Coviello and McAuley (1999) found further support for the contention that SME internationalization is best understood by integrating major theoretical

frameworks. Their review of sixteen studies focussing on SME internationalization led to the conclusion that the use of a single theoretical lens is myopic and does not help the

development of international entrepreneurship theory. To address this identified gap, this study will focus on substantiating the implications of entrepreneurial issues on the

processes that SMEs undergo as they increase their international involvement over time.

Drawing from the strategy and entrepreneurship literature, it will be evident from the study that the capacity to combine entrepreneurial qualities with Valuable, Rare and Hard to copy

and Nonsubstitutable (VRHN) resources by the five respondent firms greatly enhanced their successful penetration of international markets. Essentially, the approaches that appear

to have a favourable impact on their internationalization include: • astute opportunity recognition and to the extent possible, opportunity ‘enactment’;

• innovative products and business models;

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• proactive approaches to reducing psychic distance; • participation in the right kind of business networks;

• creative combinative combination of assets and resources to pursue identified opportunities

However, it should be emphasized that the approach to the firm’s internationalization,

combining the above elements, is primarily driven by the individual entrepreneur. The discussion in the subsequent chapters will illustrate how the respondents in the firms

investigated, have established their respective business ventures and with motivations like independence, application of their unique skill sets, growth and expansion of their

businesses and managed to move these ventures from domestic to international operations. It will also be evident in the subsequent discussion that the entrepreneurs have leveraged

the entrepreneurial qualities of proactiveness, innovativeness and risk-taking (Covin & Slevin, 1989; Brazeal & Herbert, 1999) to overcome the identified barriers to

internationalization.

3.1 Integrating Elements of the Study

For purposes of internal coherence, the discussion in this chapter will reiterate some of the elements emphasised in the two previous chapters, as follows:

� Focus on Holistic Process � Multiple levels of Analysis

� Entrepreneurial internationalization behaviour

The above elements will be used as unifying and consolidating elements for the development of the conceptual model for the study that will illustrate the proposed

relationships between the theoretical constructs that were identified as the focus of this investigation. The use of this approach is essential as part of the process to integrate the

views on SME internationalization using the theoretical ‘lenses’ provided by entrepreneurship, international business, and strategic management scholarship.

59

3.1.1 Focus on Holistic Process

Entrepreneurial processes are essentially driven by the desire to start a new venture, or re-

invent and radically transform an existing company. Entrepreneurs, including both owner-managers and corporate entrepreneurs, seek to shape the future of their businesses by

visualizing and implementing new, imaginative ventures and business models. This entrepreneurial process results in desired outcomes of organizational genesis, firm growth

and rejuvenation underpinned by new competitive advantages. These, in turn, lead to expanded profit opportunities.

The research on entrepreneurship, more specifically on entrepreneurial processes, has

generated increased interest more recently. A significant part of the extant literature has focused on the emergent field of international entrepreneurship. Following on from the

previous discussion about the overlap between internationalization and entrepreneurship, it is evident that the resulting interface is a logical one (Dana, et al, 1999; Shane &

Venkataraman, 2000; Ucbasaran, et al, 2001) in that its emergence reflects complementary theoretical interests and empirical developments (Coviello & Jones, 2005). Specific to this

study, it is interesting to note that recent research has provided more concrete evidence that entrepreneurship and internationalization are generally accepted as overlapping processes.

In particular, the behavioural processes geared towards value creation made possible by the assembly of a unique package of resources to exploit an entrepreneurial opportunity

(Morris, et al, 2001; Johanson & Vahlne, 2003) is congruent with Covin and Slevin’s (1991) description of internationalization as a composite of behaviour with innovation,

proactiveness, risk-seeking and value creation as prominent elements. Thus there is the common integrative element of behavioural process in both theoretical areas.

3.1.2 Multiple levels of Analysis

The emergent field of international entrepreneurship has undergone significant changes since Oviatt & McDougall’ foundational work in the area in 1994. More recent work

(Oviatt & McDougall, 2000; Zahra, 2004) has identified an organizational culture in internationalized firms that focuses on stimulating and exploiting entrepreneurial activities

60

in international markets. A more profound understanding of this organizational culture will only be possible through an in-depth investigation of internationalized firms that considers

(i) the individual entrepreneur level; (ii) the firm (SME) in the domestic market; and (iii) the firm (SME) operating in international market/s. Figure 3.1 below illustrates this multi-

level analytical approach that this study will take.

����������������

Individual Entrepreneur

Entrepreneurial Firm

(SME)

Domestic Operations

International Operations

����� ��������� �������

���������������������������

����������� ������ �!��"��#!"$ �!���%���!&'��(�

��!) � *'���+�#�+$�"��� �',�'�'$�� !� *'��� '��� �!��"��-�

The figure re-enforces the assertion made in Chapter 2 that the internationalization process

may be considered to occur as part of the firm’s overall entrepreneurial process. The figure also reflects the further development of the entrepreneurial firm as it enters the realm of

growth and expansion. The extant literature suggests that this growth and expansion may occur in the domestic and/or the international markets (Morris et al, 2005; Coviello &

McAuley, 1999), as indicated by the double-headed arrow in the figure. This study will, however, focus its analysis on the growth and expansion of businesses in international

markets, as indicated by the solid arrow linking the entrepreneurial firm with its international operations.

Dimitratos and Plakoyiannaki’s (2003) work on international entrepreneurial culture is a

useful starting point for the multiple levels of analysis mentioned above. Dimitratos and Plakoyiannaki asserted that there are six dimensions embodied in international

entrepreneurial culture. The first is market orientation which is a firm-level dimension

61

denoting its interest in and commitment to international activities. It must be pointed out, though that market orientation is also a necessary element to operate in a domestic market.

The second dimension is learning orientation described as the gathering, interpreting, and

disseminating intelligence about foreign markets and the alertness to opportunities that exist in these markets. While the systematic collection and processing of market

intelligence for decision-making is a firm level concept, opportunity recognition has been extensively discussed in the entrepreneurship literature and is seen as an individual level

concept. The Discovery Theory, typically referred to as the individual/opportunity (IO) nexus view has focused on the existence, discovery and exploitation of opportunities in the

context of individual action (Kirzner, 1973). Further substantiating opportunity recognition’s link to entrepreneurship, Shane and Venkataraman (2000) assert that

individuals can only take advantage of an opportunity for entrepreneurial profit if they recognize that the opportunity exists and has value. Entrepreneurial ‘alertness’ is an attitude

(emotional state with a pre-disposition for action) of receptiveness to available opportunities in the market place that are not recognized by other human actors (Alvarez,

2005). Kirzner (1973) further explains that at any point in time, only a limited subset of the population will discover a given opportunity. It should be noted, though, that the combined

elements of receptiveness to relevant market information and the ‘alertness’ to opportunities are pervasive at the individual entrepreneur, domestic and international firm

levels. This is particularly observable in SMEs where there is inseparability of the owner/manager and the entrepreneurial firm.

The next two dimensions of international entrepreneurial culture are innovation

propensity and risk attitudes. The former refers to a firm’s inclination to pursue new ideas and the willingness to undertake new economic activity, including the extension of a firm’s

operations in a foreign market. The latter being the firm’s receptiveness and desire to undertake significant and risky resource commitments in pursuit of new opportunities in

foreign markets. These two dimensions are not new to international entrepreneurship. As part of the evolutionary process to integrate internationalization with entrepreneurial

orientation, Covin and Slevin (1989) have emphasised the essential elements of innovativeness, proactiveness and risk-seeking behaviour. Oviatt and McDougall (2000)

have also modified their views of international entrepreneurship by emphasizing the same elements as necessary entrepreneurial qualities of international firms. It is significant to

62

note that innovativeness and risk-seeking qualities were covered in the literature in the context of the individual entrepreneur, the domestically operating firm and also at the cross-

border operations level.

Networking orientation, reflecting the propensity of the firm to access social and human capital through alliances, cooperative ventures, and other formal and informal approaches

to social embeddedness is the fifth element of the international entrepreneurial culture identified by Dimitratos and Plakoyiannaki’s (2003). There are a number of researchers

who have focused on the relationship between network theory and internationalization (Sharma & Johanson, 1987; Johanson & Mattsson, 1988; Axelsson & Johanson, 1992;

Johanson & Vahlne, 1992; Benito & Welch, 1994; Vatne, 1995, Coviello & Munro, 1997). The latter works espouse the idea that internationalization is part of the entrepreneurial

process that is integral in an institutional and social web which supports the firm in terms of access to information, human capital, finance and other resources (Bell, et al, 2003). This

access to tangible and intangible resources highlights the importance of networking orientation to firms, both at domestic and international levels.

The sixth and final dimension of international entrepreneurial culture is motivation

orientation referring to the range of incentives and rewards that the firm utilizes to direct and encourage its employees and organization to achieve pre-determined objectives,

including the exploration and exploitation of opportunities in foreign markets. The impact of various motivation approaches is particularly significant in the transition from the

individual entrepreneur to the firm level, whether in a domestic or international context. It is important to mention the work done by Howard Stevenson (1983) towards clarifying the

difference between the entrepreneur, as the seeker of opportunity, and the administrator, as the guardian of existing resources. Stevenson describes the characteristics of the ‘promoter’

who leans towards the entrepreneurial domain and the ‘trustee’ tending towards the administrative domain. The discussion bears a strong parallelism with the transition from

the individual entrepreneur to the firm – a primary aspect of the multi-level nature of analysis in this study. It is significant to note the emphasis on fostering creativity and

flexibility in entrepreneurial organizations. Stevenson asserts that entrepreneurial firms differ from administratively managed firms in terms of their philosophy on rewards and

compensation. Entrepreneurial firms have been observed to focus more on the creation and harvesting of value, and consequently emphasize performance (where performance is

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closely related to value creation). Administratively managed firms, on the other hand, are more often guided in their decision-making by a propensity to protect the employees’ ‘turf’

and security of position. Hence, the latter adopts a more dominant risk-averse approach – a characteristic which is divergent from the entrepreneurs’ typically higher levels of risk

tolerance.

The foregoing discussion inevitably leads to two assertions: (1) there needs to be an investigation and subsequent analysis at several levels (individual entrepreneur, domestic

firm and international firm) of international entrepreneurial culture; and (2) these dimensions do not operate in isolation and are actually mutually re-enforcing within the

firm as it evolves through the path of internationalization. The idea of achieving a holistic view of firm internationalization can be supported with further clarity made possible by this

multiple level and interrelated approach described above.

As emphasised in previous chapters and also in the preceding sections, it is evident that the individual entrepreneur has a tangible and observable influence on the firm as it increases

its involvement in international markets. This supports the first proposition for the study as follows:

P1: The individual entrepreneur is a key driving influence for small firms’ independent

(non-subsidiary) and flexible structure and consequently its unique internationalization experience.

3.1.3 Entrepreneurial internationalization behavior

The review of extant literature has, so far, indicated the need to substantiate the theoretical

significance of the overlap between entrepreneurship and international business. Buckley’s (2002) advice to “inform and build on the strengths of existing internationalization theory

by importing entrepreneurship theory” presents a potent field of further theoretical development. One attempt to pursue this research direction is the concept of entrepreneurial internationalization behaviour (Coviello & Jones, 2005). This is seen as a

firm-level manifestation of international entrepreneurship but brings in an added dimension

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of analysis – the individual entrepreneur. Drawing from research that has been conducted on this narrow avenue of conceptual development, the main assertion is encapsulated well

in the work of Chrisman, et al (1999) as cited earlier in Chapter 2. They argue that firm level behaviours and decisions are affected by the entrepreneur’s personality, skills and

values. It logically follows that the entrepreneur’s key decisions, strategies and management practices will have an impact on venture performance (Cooper et al, 1994).

This interaction between entrepreneurial characteristics and firm performance implies that there is an entrepreneurial influence that serves to combine capabilities, competencies and

resources (Eisenhardt & Martin, 2000) as part of the firm’s strategic and tactical activity. Such strategizing includes specific decisions, processes and actions that result in or

contribute to internationalization. Oviatt and McDougall’s foundational work for the emergent field of international

entrepreneurship (Oviatt & McDougall, 1994) had a predominant focus on new ventures and their internationalization processes. Ten years after their initial work that established

the field of international entrepreneurship as a legitimate area of research, they have broadened the theory beyond new ventures, and now include the opportunity seeking

activities of established businesses, including SMEs. 3.2 Identification of the Theoretical Constructs for the Study

The development of international entrepreneurship theory is continuously lending support

to the contention that a firm’s internationalization has a multi-dimensional and multi-disciplinary nature involving the combined impact of several factors (Madsen & Servais,

1997; Coviello & McAuley, 1999; Zahra & George, 2002). It has been emphasized in the literature that internationalization is a process, and therefore dynamic rather than static.

Coviello & McAuley’s (1999) review of the small firm internationalization process reveals the need to have an integrative view, reflecting insights from international business,

entrepreneurship and strategic management disciplines, among others. As such, it is important to recognize that further research into small firm internationalization needs to

proceed using several theoretical ‘lenses’ in order to have a deeper understanding of its holistic and interactive nature.

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A substantial part of the internationalization literature focuses on the outcomes of the internationalization process and the factors that have led to firms’ cross-border activity.

Most of this, however, is examined after the fact. Wiedersheim-Paul, et al (1978, 53) observed that the “likelihood of acquiring a fortuitous order will in many cases be

dependent upon the pre-export activity of the firm”. This pre-export activity of the firm would even extend back to the pre-founding influences on the firm (Shane, 2000). As such,

this has clear relevance to the multiple levels of analysis that underpins this study. As emphasized above, the significant impact of (i) factors that relate to the individual

entrepreneur in the process of transition to a small business; and (ii) the internal and external forces that drive the small business from domestic to international markets is a

primary interest of this study. By investigating this ‘evolution’ in the context of the internationalization process, it is hoped that a richer understanding of the entrepreneurial

influences on firm internationalization will be achieved. At the same time, this approach will also address the observed need to import entrepreneurial issues into

internationalization theory (Casson, 1982; Buckley, 2002; Jones & Coviello, 2005). It is apparent that any empirical investigation of this process needs to be done at multiple levels,

as discussed in section 3.1.2 above, at the same time identifying the dynamic interrelationships between selected theoretical constructs.

The review of international entrepreneurship literature has necessitated an examination of

the related material in the internationalization, entrepreneurship and strategy disciplines. Concern has been expressed regarding the diversity of theoretical contributions and

influences from various disciplines within the international entrepreneurship field (Dana et al, 1999; Shane & Venkataraman, 2000; Ucbasaran, 2001). Despite these concerns, it is

significant to note that there is some identifiable theoretical convergence between internationalization and entrepreneurship. To illustrate, the role of the entrepreneur in

aspects of economic theory such as transaction costs, internalization decisions, theories of the firm and firm growth and innovation is congruent with internationalization theory,

particularly in terms of internalization/transaction cost perspective and the export development approach. Entrepreneurial qualities related to pulling together resources to

take advantage of opportunity, such as commercializing an innovation, likewise, has relevance to internationalization research that focuses on human and social capital in the

context of resource-based theory, the organizational learning approach and the emerging theory on international new ventures (Oviatt & McDougall, 1994). Working within the

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potential and latent areas of theoretical convergence, a set of five theoretical constructs were identified to be of primary relevance to this study, as follows:

� Entrepreneurial Motivations � Opportunity Recognition

� Resource Based View and the Entrepreneurial Firm � Network Theory

� Psychic Proximity

Each of these constructs will now be discussed and their possible interrelationships examined for the purpose of integrating these into the conceptual model for the study. 3.2.1 Entrepreneurial Motivations

Drawing from the literature on entrepreneurial motivations, this section will focus on the

effect of individual motives on venture creation growth and expansion. It will be argued that individuals will become entrepreneurial if they have the means, the motive and the

opportunity. Fundamental to any discussion related to launching a new venture are issues related to risk tolerance, opportunity creation and recognition. Hisrich and Peters (2002: 72) assert that “individuals who are secure in their job situation, have families to support and

prefer their present lifestyle are not expected to be prone to set-up business ventures”. They posit that although the motivations for entrepreneurial activity vary considerably,

independence – not wanting to work for anyone else, is seen as a predominant reason for becoming an entrepreneur. This underlying motivation to be independent is what drives

entrepreneurs to accept all the social, psychological, and financial risks associated with new ventures. Delmar and Davidsson’s (2006) work related to nascent entrepreneurs tends to

support the contention of independence as a primary motivation for entrepreneurs. Using Gartner’s (1985) model on new venture creation as a logical departure point, Delmar and

Davidsson assert that the new venture creation process reflects the nascent entrepreneur’s willingness to shape the environment in accordance with their own preferences, and in most

cases independent of the current state of the environment. The underlying process here, which reflects the entrepreneur’s motivations, relates to new venture creation performed by

a single or limited number of persons evaluating the possibility of establishing a new

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venture based on its alignment with their personal preferences and goals (Shaver & Scott, 1991).

With regard to other aspects of entrepreneurial motivation, Miner (1990), in a study of high

growth entrepreneurs and managers, found that there are considerable differences in terms of motivation between the two groups. The findings from Miner’s sample indicated that

entrepreneurs are more task-motivated being more concerned with results, while managers tend to be hierarchically-motivated tending to follow procedure and bureaucratic processes.

Miner further posits that the entrepreneur is driven by five motive patterns, as follows: (1) desire to achieve through one’s own effort;

(2) maintain personal control over outcomes by avoiding risk and leaving little to chance;

(3) obtaining feedback on the level of results of one’s performance; (4) desire to introduce innovations; and

(5) desire to think about the future.

Considering these entrepreneurial motivations in the context of Dimitratos and Plakoyiannaki’s (2003) work on international entrepreneurial culture, it is noted that there

are some areas of convergence with Miner’s assertions, particularly in terms of risk attitudes, innovation, and concern for results and performance. As such, we note that

individual entrepreneurial motivations can influence how the organization conducts it operations. Conversely, organizational cultures can shape the way owner-managers and

employees see and consequently approach their markets, customers and competition (Zahra, 2004).

It should be emphasized, however, that a fundamental assumption related to entrepreneurial

motivation is that in most cases, the entrepreneur enters into the process of venture creation predominantly based on the willingness to create a business in a scenario of relatively high

degree of uncertainty of the final outcome (Delmar and Davidsson, 2006).

Once a new venture is launched, entrepreneurial qualities will still be evident in the small business (Oviatt & McDougall, 2000; Zahra, et al 2004). Chandler and Jensen (1992)

highlighted the critical importance of the entrepreneurial role in terms of recognizing opportunities and driving the venture through to the achievement of organizational goals.

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In the discussion of entrepreneurship theory in Section 2.1.1, Michael Morris, et al (2001, 2005) were reported as categorizing the personal aspirations of entrepreneurs as follows:

� Subsistence � Income

� Growth � Speculative

As discussed, these aspirations will have an implication for firm operations and subsequent

internationalization – particularly in terms of taking an entrepreneurial firm operating in a domestic market to one that has an international presence. This study will, however, focus

on income and growth as entrepreneurial aspirations that strongly relate to international entrepreneurship.

The foregoing discussion on entrepreneurial motivations, attitudes and abilities serves as an

appropriate foundation for the following discussion of theoretical constructs of opportunity recognition and the resource-based view of the entrepreneurial firm.

3.2.2 Opportunity Recognition

The discussion in section 2.3.2 regarding opportunity recognition pointed out two aspects which make it a significant construct having particular relevance for this study; vis-à-vis: (i)

the ability to recognize opportunities and pursue these through creative combinations of individual capabilities and organizational resources can serve as a basis for competitive

advantage (Kirzner, 1973) ; (ii) the basis of this competitive advantage, which can set firms apart from their rivals, may actually result from individual entrepreneur cognitions of

opportunities in the market place and how the firm can take advantage of these (Zahra et al, 2004).

As a further integration with the earlier discussion, Dimitratos and Plakoyiannaki’s (2003)

work on international entrepreneurial culture referred to a dimension of learning orientation described as the gathering, interpreting, and disseminating of intelligence about foreign

markets and the alertness to opportunities that exist in these markets. This provides tangible support for opportunity recognition being included as a primary theoretical

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construct for this study. Consistent with the underlying approach for the study, the construct has significance at the levels of the individual entrepreneur, domestic small

business and, ultimately the international SME. McDougall and Oviatt’s (2000) modified view on the internationalization of small firms, conforming to Covin and Slevin’s (1991)

description of internationalization behaviour, highlights the importance of innovation, proactiveness, risk-seeking and value creation as firms pursue opportunities in international

markets. In particular, the element of proactiveness suggests a connection with alertness to opportunities. There is, however, debate as to whether opportunities are to be considered in

isolation from the individual entrepreneur. One view espouses that entrepreneurship encompasses the elements of (i) opportunities; and (ii) the individuals who strive to take

advantage of them (Shane and Venkataraman, 2000). While this view is a valuable contribution, it has been criticized for its limited view that opportunities are ‘objective’

phenomena, i.e. people have a common perception of each opportunity. This view fails to take into account that opportunity recognition is influenced by each individual’s social and

personal background (Baker, Gedajlovic & Lubatkin, 2003).

To resolve this issue, McDougall & Oviatt, (2003) suggested that opportunities may be discovered as well as enacted (Weick, 1995). This latter view asserts that people may act

and then interpret what their actions have created, including creations that end up being economic opportunities. Alvarez (2005) has done further work to clarify the distinction

between opportunities as either being discovered or created. She posits that there are two alternative theories regarding entrepreneurial opportunity. Section 3.1.2 above refers to the

Individual/Opportunity (IO) nexus also referred to as the Discovery theory (Kirzner, 1973). A dominant assumption here is that opportunities exist in the market place, but individual

actors have differential information regarding their existence. The opportunity only becomes relevant when entrepreneurs take action to exploit them, e.g. apply a new-process

framework or recombine resources to place the individual entrepreneur/firm in a better position in relation to the opportunity (Alvarez, 2005).

The alternative theory on entrepreneurial opportunity is referred to as the Creation theory (Venkataraman, 2003; Schumpeter, 1934; Casson, 1982; Loasby, 2002). The focus in this theory is the entrepreneur and how he/she takes steps, makes decisions and subsequently

formalizes these within the context of firm (enterprise) action. There is an implication of an iterative process of formulating and testing hypotheses and learning from the experience.

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As opposed to the Discovery theory, the Creation theory describes a process of entrepreneurial action involving potential opportunities the existence of which may not

have been known or anticipated. As explained above, the Discovery theory presumes the existence of opportunities, a premise that does not apply to the Creation Theory. As such,

the latter theory proposes that “opportunities do not have an existence independent of the actions of entrepreneurs who decide to ‘create’ them” (Alvarez, 2005). More recently, a

number of contemporary researchers in the entrepreneurship area have focused on the theory of ‘effectuation’ (Saraswarthy, 2000). Bearing strong congruence with the Creation

theory, effectuation is a dynamic and interactive process of creating new artefacts in the world. Effectual reasoning is a type of human problem solving that takes the future as

fundamentally unpredictable, yet controllable through human action. The environment is seen as constructible through choice; and goals as negotiated residuals of stakeholder

commitments rather than as pre-existent preference orderings (Dew & Sarasvathy, 2002).

Eckhardt and Shane (2003) have extended the theory on opportunity recognition by further emphasizing the varying and constantly changing nature of entrepreneurial influence on

opportunities. They assert that entrepreneurial activity is ‘episodic’ (Gartner, 1990) and therefore will not have a consistent impact on opportunities over time. In fact, the continued

disequilibrium in the environment necessitates alternative approaches by the entrepreneur (Eckhardt & Shane, 2003). Following Casson (1982) and Shane & Venkataraman (2000),

they define entrepreneurial opportunities as “situations in which new goods, services, raw materials, markets and organizing methods can be introduced through the formation of new

means, ends, or means-ends relationships” (Eckhardt & Shane, 2003, 336).

Whilst the views presented on entrepreneurial opportunity may appear to be contradictory, those who have conducted closer investigation into this specific aspect of entrepreneurship

theory assert that the Discovery theory and the Creation theory are two logically consistent theories of entrepreneurship. Far from being contradictory, the two are complementary in

nature as they present patterns of observed entrepreneurial action in alternative settings.

As the study turns its focus on the Australian scenario, the preceding discussion on entrepreneurial motivations and opportunity recognition suggests the following two

propositions for the study:

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P2: The limited Australian market is a primary motivation for SMEs to pursue overseas market opportunities.

P3: Innovative products allow Australian SMEs to pursue any market (domestic or

overseas) with less competition and reduce the impact of costs disadvantages (transport and labor).

The foregoing discussion is also useful in the sense that it presents a logical take off point

for discussion on issues related to the entrepreneurial firm, while continuing to incorporate individual entrepreneur issues. It will be argued that once an identified opportunity is

matched with a firm’s resources and the appropriate individual motivations, there is a greater possibility of entrepreneurial activity. 3.2.3 Resource Based View and the Entrepreneurial Firm

This section will build on previous discussions on the entrepreneurial firm and how it

innovatively combines resources in order to pursue opportunities in both domestic and international markets. Section 2.3.3 above provides a useful springboard for a discussion that draws from individual entrepreneur issues and how this impacts on the creation of the

entrepreneurial firm. Adopting this approach will address two underlying rationales for this study – (i) it will clarify and substantiate the interrelationship between entrepreneurship and

strategic management (Alvarez & Barney, 2002); and (ii) it will further facilitate the importing of entrepreneurial issues into the scholarship of internationalization strategy.

Though the discussion will inevitably touch on issues related to competitive advantage due to its significance to small firm strategies particularly in international markets, this will not

be the primary focus here. Rather, the focus will be on how entrepreneurial qualities are reflected in how a firm brings together unique packages of resources to exploit marketplace

opportunities in a competitive environment – domestic or international.

Implicit in traditional resource-based theory is control or ownership of resources. Barney (1991:101), for instance, defined resources as “all assets, capabilities, organizational

processes, firm attributes, information knowledge, etc. controlled by the firm to conceive of

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and implement strategies that improve its efficiency and effectiveness”. Research into small entrepreneurial firms, however, may require alternative assumptions as they are typically

resource-poor and do not have control of resources. Zahra (2005) asserts that entrepreneurial firms are typically defined by their actions rather than by the resources they

control. This implies that ownership of resources is not imperative for small firms, but it is their ability to organize innovative ways to create and deliver value better than their

established and presumably resource-rich competitors which has strategic value. As emphasized in section 2.3.3, entrepreneurial firms leverage more on their resourcefulness -

how they compete in both domestic and international markets. Consequently, the focus for small entrepreneurial firms shifts to its intangible assets such as organizational cultures,

business relationships, and innovative abilities (Hamel and Prahalad, 1994).

A basic premise under the resource-based view of strategy is that the success or failure of firms is affected by the tangible and intangible assets of the firm. Barney (1991) asserts that

organisations need to possess a resource that is Valuable, Rare and Hard to copy and Nonsubstitutable (VRHN) in order to have a competitive advantage in the marketplace.

There is debate, however, as to whether this is an accurate and adequate reflection of assets that a firm has access to, particularly for the small firm. Several researchers in the strategy

area have pointed out the need for alternative concepts of a firm’s resource base such as those that consider how firms access isolated resources and the need for combinatorial

competence (Hitt & Ireland, 1985; Sanchez, Heene & Thomas, 1996). Zahra (2005) presents an opportunity to incorporate individual and firm level entrepreneurial issues into

the resource-based view of strategy. He asserts that competitive advantage in the context of entrepreneurial firms focuses on the elements of proactiveness, risk-taking and

innovativeness. As discussed, this view has served to enhance McDougall and Oviatt’s (2000) work on small firm internationalization. Mosakowski (2002), in her work on the

entrepreneurial process, supports the alternative views on the resource-based theory of strategy. She argues that the identification of business opportunities and the subsequent

development of business models and strategies for exploiting these opportunities – should not be classified as resources at all. This issue is particularly significant for small

entrepreneurial firms as the entrepreneur’s ability to enact and pursue opportunities through the clever combination of resources is fundamental to the entrepreneurial process. As such,

it is difficult to dissociate this entrepreneurial ability and knowledge from the firm’s other resources and assets.

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Casson (1998) has likewise recognized the need incorporate entrepreneurial issues into the

traditional theories of the firm. He asserts that the most effective way to bring together the insights from transactions cost-based and resource-based theories of the firm is to build the

theory of the firm around the personality of the entrepreneur. Consistent with the idea of combinatorial competence mentioned above, Casson suggests that knowledge-based

resources such as synthesizing skills, encompassing information, tangible and intangible assets, of the entrepreneur are closely linked to the core competencies of the firm.

It is significant to point out at this stage that the discussion on the entrepreneurial firm

constantly draws us back into the issues related to the individual entrepreneur and the resulting influences on the organization. Zahra (2005:21) takes the position that the

“evolution of the firm’s mission and resource base are intimately related to managerial capacity, which, to some extent, is defined by the pre-launch experience”. This individual

entrepreneur influence is quite pervasive, even extending to the context of small firm internationalization. Using theoretical lens from organizational theory, sociology, strategy,

entrepreneurship, and international business, research on firm innovativeness as it identifies market opportunities, defines (configures) its value chain, selects areas to be

internationalized, and identifies unique ways to reach potential customers, presents further evidence of significant individual entrepreneur influence on the domain of international

entrepreneurship (Zahra and Garvis, 2000).

The following sections focus on two dominant influences on the cross-border operations of small firms; viz: networks and psychic proximity.

3.2.4 Network Theory

“ …as firms become more dynamic and more pluralistic in the extent and form of their

foreign value activities, it seems likely that they will take a holistic approach to the

multitude of relationships they form with foreign firms. Therefore, the Network perspective

is a useful variant to the traditional models of inter-firm relationships.”

Dunning, 1993

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Dunning’s assertion above provides a valuable take-off point for the discussion on networks as a primary construct for this study. Aligning with the earlier identification of the

holistic and process-focussed nature of this study (see section 3.1.1 above), the following discussion will illustrate how the network perspective is a significant influence on SME

internationalization. Expanding on the contention that “Internationalisation is an entrepreneurial process that is embedded in an institutional and social web which supports

the venture in terms of access to information, human capital, finance and so on” (Bell et al, 2003: 341), this part of the chapter will discuss how involvement in business networks can

serve as a mediating factor in the internationalization process.

The literature on small firm internationalization has undoubtedly emphasised the importance of networks to facilitate the integration of small businesses into the global

arena. In the third millennium, it is imperative for companies to arrange a large number of links with their external environment in order to achieve a sustainable competitive

advantage. The current business environment, characterized by integrated domestic and international markets, does not only use networks as a facility for retaining old and

acquiring new customers. Cooperation and external agreements are in fact crucial for firms to both achieve resources, competencies and knowledge. Consequently, external relations

of firms are a very relevant source of their competitiveness and survival. This assumption shapes the present historical phase of capitalism, in which the 'network paradigm' is the

dominant model of business management and governance for both large and small companies. There is a considerable amount of literature that has focussed on networks. These studies have approached the subject matter of networks from several perspectives. The work of

Sharma & Johanson, (1987); Johanson & Mattsson, (1988); Axelsson and Johanson, (1992); Johanson & Vahlne, (1992); Benito & Welsh, (1994); and Vatne, (1995) have

examined the relationship between network theory and internationalization. The network theory perspective is not only limited to firms pursuing opportunities in foreign markets,

but is also seen as a fundamental element in entrepreneurial firm creation and subsequent development. In his work on the entrepreneurial theory of the firm, Casson (1998)

examines the underlying factors that lead to the creation of firms and subsequently highlights the influence of the entrepreneur in the process. Casson (1982) discusses the

coordinative role of the entrepreneur aimed at improving the allocation of resources.

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Inherent in this coordination process is the freedom of the individual entrepreneur to form associations (e.g. assign rights to tangible or intangible assets) with other individuals or

other institutions. Associations may either be formal or informal and could take the form of business partnerships, joint stock companies or industry trade associations. Casson (1998)

posits that firms are ‘vehicles’ by which entrepreneurs carry out their coordination plans. Linkages and associations (formal or informal) between individual entrepreneurs and/or

firms build up trust between their members so that plans may be carried out in confidence (Casson, 1998). At an organisational level, section 3.1.2 above cites the work of Dimitratos

and Plakoyiannaki’s (2003) on international entrepreneurial culture which encompasses an element of networking orientation, once again emphasizing the necessity of various forms

of formal and informal alliances to facilitate the entrepreneurial firm’s access to resources.

Taking the discussion back to the internationalization context, Oviatt and McDougall’s (1994) work on international new ventures articulated that networks are useful for INVs in

terms of providing access to markets, distributions channels, contacts and referrals, and even financing. As such, network relationships are intangible resources essential for

organizational growth (Coviello, 2006). Such findings are consistent with the arguments put forth by Gulati, et al (2000), Bergman Lichtenstein & Brush (2001) and Anderson &

Wictor (2003). However, it is significant to point out in relation to the multiple analytical levels of this study that several studies (Coviello & Munro, 1995, 1997; Sharma and

Blomstermo, 2003) have ascertained the value of networks to firms even at the time of firm conception, in this case coinciding to the individual entrepreneur level (Coviello, 2006).

Intangible network resources are therefore essential for firm operations even at pre-commercialisation, pre-growth, and pre-internationalization stages.

As a final point to reinforce the mediating influence of networks on small firm

internationalization, it is essential to cite the work of Coviello and McAuley (1999) who conducted a comprehensive review of 16 empirical studies aimed at understanding the

processes and patterns that explain how smaller firms increase their cross-border activity over time. These empirical studies covered a number of countries and a broad range of

industries. The staged pattern of internationalization, revealing a gradual, incremental outward process was still evident among the firms surveyed, although the findings from

different studies report somewhat mixed results. Of particular relevance to this study is the finding that certain small firms have actually circumvented the gradual, incremental

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approach to internationalization by successfully penetrating psychically or geographically distant markets. Bell’s (1995) study on small software firms, for instance, provides some

disconfirming evidence against the longstanding Uppsala model (Johanson & Vahlne, 1977). The findings from this study suggests that inter-firm relationships such as those with

clients, supply chain partners, allied industries, etc. facilitate the internationalization of the small high technology firm. However, the intention here is not to undermine the value of

traditional staged models of internationalization. Consistent with the findings of Bodur and Madsen (1993), Coviello and Munro (1997), and Fontes and Coombs (1997) there is robust

justification for examining SME internationalization using both the incremental stage approach and network analysis. It further supports the contention that network-based

approaches to internationalization have a strategic value, particularly for smaller firms allowing them to evolve very rapidly due to the influence of network relationships. The

indications from studies focussing on the impact of networks on small firm internationalization are that (1) Network relationships allow SMEs to overcome size-related

challenges, so often argued to restrain their growth (Coviello & McAuley, 1999); and (2) networks tend to mitigate the effect of psychic and/or geographic distance, thereby

enhancing rapid internationalization. This latter point serves as an appropriate springboard for the final theoretical construct for this study – psychic proximity.

The evident impact of networks for small firm operations, both in domestic and

international growth contexts leads to the next proposition for the study:

P4: In the context of internationalization, networks are an effective approach to overcome resource constraints and mitigate the impact of psychic distance presented by the

international business environment.

3.2.5 Psychic Proximity

As compared to the other theoretical constructs considered for this study, which operate

both in a domestic and international context, psychic proximity has a focus on the firm in international environments. Researchers suggest that psychically close countries are more easily understood that distant ones, and, as such, offer more ‘friendly’ and familiar

operating environments for internationalizing firms (O’Grady & Lane, 1995). This is

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particularly significant for SMEs due to their limited resources and bargaining power in the international arena.

Psychic proximity is closely aligned with the international business literature which argues

that firms begin their internationalization process in countries with psychic proximity before venturing into more distant countries (Johanson & Vahlne, 1992). In particular,

Coviello & McAuley’s (1999) review of empirical research on small firm internationalization referred to the establishment chain (stage) models of

internationalization. Johanson & Vahlne’s (1977) model, commonly referred to as the Uppsala model, suggests that internationalization activities occur incrementally as a result

of increasing market knowledge and commitment.

Integrating this discussion with the multiple levels of analysis for this study, international business researchers argue that the perceptions and beliefs of owner/managers both

influence and are, in turn, shaped by incremental involvement in international markets (Bilkey & Tesar, 1977; Reid, 1981; Czinkota, 1982; Cavusgil, 1984). This involvement

results in a pattern of evolution from the individual entrepreneur initially having little or no interest in international markets, to examining and evaluating opportunities in markets with

psychic proximity. As the entrepreneurs gain more confidence based on their initial experience in foreign markets, they can then drive their firms to pursue active expansion

into more challenging and unfamiliar markets and hence become more increasingly committed to international growth (Coviello & McAuley, 1999).

Empirical research examining the psychic proximity construct tends to support the idea that

firms have a tendency to adopt a step-wise approach to their internationalization, gradually entering more distant markets. Van Den Bulcke’s (1986) study of forty-one Belgian direct

investments abroad indicated a sequential movement from entry modes requiring less resource commitment to those with greater company commitment. Luostarinen’s (1979;

cited in Luostarinen & Welch, 1990) study focusing on Finnish firms indicated that internationalization activities started with counties that were physically and culturally close

and that had short business distance to Finland, subsequently advancing stepwise to countries with greater psychic distance. With this observed gradual involvement in foreign

markets, as reflected in choice of markets and entry modes, there is an implicit assumption

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of similarity among countries that have psychic proximity – and similarity is easier for firms to manage than dissimilarity.

There is, however, a dearth of information explaining why entrepreneurs and firms follow

this gradual or stepwise pattern. Some initial work aimed at a better understanding the psychic proximity concept suggests that there may be two prominent influential interrelated

factors for this pattern. Firstly, there is an underlying element of learning within the psychic proximity construct. Nordstrom and Vahlne’s (1992:3) revised definition of

psychic distance stating that these are “factors preventing or disturbing firms learning about and understanding a foreign environment”, incorporates the learning element. Emphasising

that internationalization is a dynamic, learning process, it is asserted that owner/managers must not simply collect information, but should learn to interpret these correctly to enhance

their understanding of the market and consequently adapt to it (O’Grady & Lane, 1996). The other factor is uncertainty and how firms manage this aspect of internationalization. It

is suggested that firms pursue markets with psychic proximity because these are where they see opportunities and the perceived market uncertainty is low (Johanson & Vahlne, 1992).

Researchers suggest that psychic proximity between home and host markets facilitate the learning for internationalizing firms and in turn, reduces the level of uncertainty firms face

in new markets (Kogut & Singh, 1988; Johanson & Vahlne, 1992).

It is suggested that the psychic proximity construct should be qualified and understood better if it is to be considered as a significant factor for small firm internationalization

(O’Grady & Lane, 1996). Boschma’s (2005) work on identifying different forms of proximity is a tangible step towards this understanding. Recognising that geographical

proximity or cultural proximity in isolation are insufficient basis for addressing the problems of coordination, Boschma asserts that other related dimensions of proximity

should be examined. The following proximity dimensions are suggested: � Cognitive – a shared knowledge base in order to communicate, understand, absorb

and process new information successfully. � Organisational – the set of interdependencies within, as well as, between

organizations “connected by a relationship of either economic or financial dependence/interdependence (between member companies of an industrial or

financial group, or within a network)” (Kirat & Lung, 1999:30)

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� Social – socially embedded relations between agents (individual entrepreneurs and firms) at the micro-level stimulating interactive learning resulting from trust and

commitment. � Institutional – provides the macro-level institutional framework which provides

stable conditions for interactive learning and knowledge transfer between actors (individual entrepreneurs and firms).

� Geographical – Short physical distances bringing people together favouring information contacts and facilitating the exchange of tacit knowledge.

The foregoing discussion on the implications of psychic proximity leads to the final

proposition for the study, as follows: P5: A product or firm’s country of origin is not a significant factor considered by global

markets and this allows Australian SMEs to build their psychic proximity with chosen overseas markets.

The preceding discussion has presented a set of theoretical constructs that are considered as

fundamental to small firm internationalization. As explained, these constructs are drawn from the entrepreneurship, international business and strategic management disciplines.

Though these constructs of entrepreneurial motivation, opportunity recognition, resource base, networks and psychic proximity have different foundation disciplines, they are

brought together in this study for the purpose of gaining a deeper understanding of small firm internationalization by incorporating broader theoretical insights. Coviello & McAuley

(1999) urged researchers to be cautious with the false notion that the pursuit of total knowledge can be reached with a single school of research and accordingly this study

acknowledges the complexity of the real and perceived world in which firms operate and hence investigates small firm internationalization using a combination of theoretical

perspectives. Subsequently, it is posited that the small firm internationalization process involves interrelated decisions, reflecting interrelationships between the theoretical

constructs, made in a holistic manner.

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3.3 The Conceptual Model for the Study

Examining the interrelationships between identified theoretical constructs requires the use

of underlying consolidating elements identified in section 3.1 above. As emphasised in the previous discussion, the SME internationalization process has a holistic nature necessitating

the integration of “strategic thinking, strategic action, emergent developments, chance and necessity” (Johanson & Vahlne, 1990:22). The interrelated decisions made within this

holistic process may be examined and analysed at several levels further clarifying the interrelationships between the theoretical constructs. Chrisman, et al. (1999) argued that the

entrepreneur’s personality, skills, values and motivations will affect their behaviours and decisions. It follows that the entrepreneur’s key decisions, strategies and management

practices will shape the performance of the venture (Cooper, et al., 1994) relative to an identified opportunity. At the firm level, there is consequently an observed entrepreneurial

influence which is essential for combining competencies, capabilities and resources (Eisenhardt & Martin, 2000) as part of the strategic and tactical operations of the

organization. These operations encompass specific decisions, processes and actions that contribute to the pursuit of opportunities in both domestic and international markets. It must be noted, though, that the mutual influence between the individual entrepreneur and the

firm is expected to vary among different firms, over time, and whether the firm activity occurs in a domestic or international context (Jones & Coviello, 2005).

This whole process with its interrelated decisions and resultant behaviours is influenced by

a range of internal and external forces referred to as the drivers of internationalization. It is proposed that these drivers have an impact on the growth and expansion propensity of the

entrepreneur, how the owner/manager perceives or enacts opportunities, and eventually combines resources and maps out strategies to pursue identified opportunities.

It is difficult to capture the breadth and complexity of the SME internationalization process in just one piece of research. As Coviello and McAuley (1993) suggest, research on small

firm internationalization has been hindered to a certain extent by the positivist ideal that this holistic and dynamic process can be explained by examining certain key variables or a

single school of research. As emphasized in previous chapters and also in the development

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of the conceptual model in this chapter, small firm internationalization is a complex social phenomenon requiring multi-theoretical perspectives (Jones & Coviello, 2005). In Chapter

1, it was stated that the emergent field of international entrepreneurship lies at the overlap between the more established disciplines of international business and entrepreneurship

(Zahra & George, 2002). It is also significant to note that critics of the current state of international entrepreneurship literature have pointed out its inadequacy in terms of

integrating different theoretical perspectives (Bell, et al, 2003; Coviello & Munro, 1996; Coviello & McAuley, 1999).

More specifically, researchers have emphasized the need to incorporate more

entrepreneurial issues into internationalization literature, particularly as it relates to small firms (Casson, 1982; Dana, et. al, 1999; Shane & Venkataraman, 2000; Ucbasaran, 2001;

McDougall & Oviatt, 2000; Zahra, 2005). To achieve this integration, it is imperative that the fundamental commonalities of international and entrepreneurship literatures be

understood. Researchers can then proceed to develop more concise models of small firm internationalization – following an evolutionary process from the simple, to the general to

the precise conceptual development. Whilst there has been considerable progress made on researching the commonalities between internationalization and entrepreneurship literatures

(Covin & Slevin, 1989; Wright & Ricks, 1994; McDougall & Oviatt, 2000), the development of context-specific models remains a potent area of empirical research. These

context-specific models could, in turn, be the basis for targeted investigation of selected, more manageable set of constructs (Jones & Coviello, 2005).

Following this approach to conceptual development described above, the constructs from

the study are drawn from the literatures of entrepreneurship, internationalization and strategic management. The interrelationships between selected constructs of entrepreneurial

motivation, opportunity recognition, resource-based view, networks and psychic proximity are examined in terms of how these are reflected in the internationalization process of small

firms. In turn, it is hoped that this will lead to a deeper understanding of a small piece of the puzzle embodying the entrepreneurial nature of internationalization as it pertains to small

firms. Jones and Coviello (2005) referred to these as precise models of entrepreneurial internationalization behavior. Despite their narrow focus, the development of a range of

these precise models, similar to the one for this study, could incrementally and successively

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lead to a better understanding of the broader, more complex field of small firm internationalization.

The proposed conceptual model shown in Figure 3.4 below reflects the interrelationships

among selected constructs. In essence, the proposed model suggests that opportunities in the environment (Zahra & George, 2002) will be perceived by individuals, some of whom

may have the appropriate personal qualities and characteristics (i.e. abilities, skills and attitudes). When the opportunity and these individual qualities are aligned with personal

preferences and goals, this in most cases, will provide the motivation for establishing a new venture (Shaver & Scott, 1991). Establishing the venture implies the necessity for

combinatorial competencies (Casson, 1998) on the part of the individual entrepreneur to bring together capabilities, competences and resources which enables this entrepreneurial

firm to pursue the identified opportunity (Eisenhardt & Martin, 2000). The extant literature suggests that a considerable majority of firms are not born globals and therefore will

initially pursue opportunities in domestic markets, a view which is consistent with the traditional models of internationalization discussed in Chapter 2. Coviello and McAuley’s

(1999) review of contemporary empirical research on small firm internationalization suggests that the establishment chain (stage) models of internationalization are still

dominant among small firms. This supports the idea, as shown in Figure 3.4 below, that small firms tend to initially operate in domestic markets upon establishment due to its lower

levels of risk and uncertainty.

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FIGURE 3.4: The Conceptual Model for the Study

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The psychic proximity construct bears significance for two main aspects of this study. First,

the construct has tangible implications on the Stage models of internationalization, specifically in terms of the step-wise, incremental commitment nature of international involvement within this model (Van Den Bulcke’s, 1986; Luostarinen, 1979). As such,

psychic proximity is expected to have an impact on the small firm internationalization process. However, the magnitude of this impact needs to be empirically validated. It must

be noted that empirical studies have mixed conclusions regarding the mediating effect of psychic proximity on small firm internationalization (O’Grady & Lane, 1996; Coviello &

McAuley, 1999). This is why the effect of psychic proximity in the proposed conceptual model is represented by broken lines. Secondly, the nature of the psychic proximity is such

that it permeates all the three levels of analysis of this study – the individual entrepreneur, the small firm in the domestic market, and the internationalized small firm. As explained in

section 3.2.5 above, the perceptions and beliefs of owner/managers both influence and are, in turn, shaped by incremental involvement in international markets (Bilkey & Tesar, 1977;

Reid, 1981; Czinkota, 1982; Cavusgil, 1984). As individual entrepreneurs learn more about their domestic and international markets, the perceptions of uncertainty are expected to

decrease, which in turn, provides more confidence for them to drive their firms to more geographically and psychically distant markets. This simultaneous process of managerial

learning and uncertainty reduction resulting from increased proximity is expected to operate

84

not only as small firms increase their international involvement but also in relation to their domestic operations (Boschma, 2005).

Literature on the networks construct is extensive and well-established. Similar to the other

selected constructs for the study, the extant literature has revealed some tangible interrelationships of the networks construct with the resource base view of the firm, psychic

proximity at both the individual entrepreneur and organizational levels, and also with how opportunities are recognized and pursued by the small firm in domestic and international

contexts.

Thus the proposed model presents a web of interrelationships among the selected constructs supporting the idea that small firm internationalization is a dynamic and holistic process

driven by a set of internal and external factors which is unique to each firm and primarily aimed at overcoming the identified barriers and challenges to the firms’ cross-border

operations. As discussed in Chapter 2, each firm’s business model must capture the entrepreneurs’ objectives and ambitions and these could be categorized into subsistence,

income, growth, and speculative (Morris et al, 2005). It is proposed that the focus on small business internationalization focus of this study bears a direct relationship to the

entrepreneurial firms’ income and growth motivations. Consequently, each small firm will have an internationalization experience which will be different from other small firms.

Hence, the use of the case study methodology is further justified by the particularity of each firm’s internationalization experience. Moreover, the model embodies the propositions

developed within this chapter that will be tested/validated with the case study investigation to be presented in Chapter 5. 3.4 Summary of Propositions for the Study

The foregoing discussion on selected theoretical constructs for the study integrated by the identified elements in section 3.1 has led to a set of five propositions which will be the

basis for empirical validation.

P1: The individual entrepreneur is a key driving influence for small firm’s independent

(non-subsidiary) and flexible structure and consequently its unique internationalization experience.

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P2: The limited Australian market is a primary motivation for SMEs to pursue overseas

market opportunities.

P3: Innovative products allow Australian SMEs to pursue overseas markets with less competition and reduce the impact of costs disadvantages (transport and labor).

P4: In the context of internationalization, networks are an effective approach to overcome

resource constraints and mitigate the impact of psychic distance presented by the international business environment.

P5: A product or firm’s country of origin is not a significant factor considered by global

markets and this allows Australian SMEs to build their psychic proximity with chosen

overseas markets.

The five propositions summarised above are implicit in the model presented in Figure 3.4

above. P1, which relates to the dominant motivations and influences within the small firm is reflected in the individual entrepreneur stage as the firm is established and when it

eventually pursues growth opportunities beyond its domestic markets. P2 focuses on the barrier of limited domestic markets which, in turn leads to the firm’s transition to an

internationally operating firm shown in the central portion of Figure 3.4. The Opportunity

Recognition construct is also relevant here as it relates to the small firms’ pursuit of

opportunities to beyond their limited domestic markets. P3’s focus is on the innovative

capability of the small firm that enables it to develop competitive advantage and pursue

niche markets/industries overseas. P4 expands on the transition of the firm from a domestically operating small firm to a firm with international presence by leveraging its

involvement in appropriate networks that, in turn, facilitates the reduction of psychic distance. It is also important to mention that the impact of networks is also significant when

the firm in the transition from the individual entrepreneur to the proprietary firm as it facilitates access to necessary resources (financial, managerial and information) for firm establishment. P5’s main focus is on the small firm that has initiated international

operations with its primary intention being strengthening its “foothold” in international markets by building trust and psychic proximity with overseas customers. The case study

investigation served to test these propositions. By doing so, the relevant theoretical

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constructs may be seen in the context of Australian small businesses as they increase their involvement in international markets.

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Chapter 4: Methodology

4.0 Introduction

As pointed out in Chapter 1, this study aims to investigate the SME internationalization process in a holistic manner and hence understand the complex web of interrelated

decisions leading to their increased involvement in international markets. A variety of data collection methods have been observed in SME internationalization research. Very often,

the methodology in each study reflects the nature of the research problem (Coviello & McAuley, 1999). A broad categorization of previous research could be in terms of

qualitative, in-depth approaches or broad quantitative approaches aiming to ascertain general patterns of internationalization, i.e. what happens during the process. The first type

of methodological approach focusses on understanding complex, context specific issues like learning and social processes, behavioural and relationship investigations. The nature

of these research problems required qualitative and grounded methodological approaches, such as case study research, which generate rich insights into the phenomena. These studies

used a relatively small number of depth interviews or a combined survey/interview approach (Chetty & Hamilton, 1996; Bjorkman & Kock, 1997; Covielo & Munro, 1997;

Zafarullah, et al, 1998). In contrast, the second type of approach entails large-scale survey databases to identify patterns of investment activity, modes of entry, or the geographical

extent of cross-border operations (Coviello & McAuley, 1999).

In previous research there has been an excessive reliance on archival data - what has been described by Gummesson (2000) as examining the tip of the iceberg in management

research. He suggests this is the equivalent of the researcher setting foot on the iceberg, only making possible a limited insight into the phenomena of interest. There is also

concern regarding the single-method data collection approach described above. Whilst there is some merit in aligning the methodology to the research problem, such an approach

inaccurately implies that there is one single best method to investigating SME internationalization. Consequently, small business researchers are limited by a reliance on either quantitative, aggregate data, or more qualitative, sector-specific data. This tendency

is not expected to provide the true nature of internationalization, particularly as it relates to

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small firms. Furthermore, the multiple levels of analysis aspect of this study necessitates methodologies that can capture issues related to the individual entrepreneur and also to the

small entrepreneurial firm as it evolves from a domestic enterprise to an international enterprise.

Thus the research seeks to identify and dissect the dynamic and holistic processes in

context, rather than surmising causation and testing for correlation in a statistical study. In summary, the aim of the methodology used in this research, and one of the contributions of

the thesis, is the dynamic description of the SME internationalization process, using multiple methods, in an attempt to explore the breadth, depth and processes of the

phenomena of interest.

This chapter is structured into four main subsections: Section 4.1 – Overall approach,

addresses all broad issues of approach to the research; Section 4.2 – Research design, discusses the unit of analysis and case study selection; In Section 4.3 – Data sources, – the

case study approach is explained, encompassing data-collection activities of in-depth interviews with owner-managers, other staff members of the firms, individuals in network

and allied organizations, and review of company documentation and website information. The final section, Section 4.4 addresses all other pertinent aspects related to methodology,

including analysis and theory-building, and ethics.

4.1 Overall approach

SME internationalization research, parallel with international entrepreneurship, is an emergent field. More significantly, contemporary research is tending to be more integrative in nature (Coviello & McAuley, 1999; Bell, et al, 2003). Working on the premise that

internationalization is a dynamic and holistic phenomenon, it is only logical to approach the research in the area in a similar manner. Such an approach could be described to be “(1)

integrating multiple methods of data collection and analysis, whereby the pool of knowledge continues to expand across sectors and cultures over time; and (2) making better

use of the extant literature by analysing both the published findings and its supporting databases in an integrative manner” (Coviello & McAuley, 1999: 251). This section

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describes the approach to the research. After explaining some ontological foundations, it outlines the process-based approach. Expanding on what has been learnt from published

critiques of other relevant research, the discussion outlines how this has been incorporated into the design. Acknowledging that this particular study cannot address the identified

methodological inadequacies of previous research, the section proceeds to state the limitations of the design.

4.1.1 Ontological Assumptions Regarding SMEs

All research reflects some ontological (nature of being) assumptions in relation to the phenomenon being investigated. It is important to point out that the current literature on

small firm internationalization, despite the advances made in recent years, fails to make a succinct distinction between small and large firms. This distinction is somewhat taken for

granted by small business researchers. Extensive reviews of small firm internationalization (Leonidu & Katsikeas, 1996; Ellis & Pecotich, 1998; Coviello & McAuley, 1999) are

limited in terms of distinguishing characteristics.

It should be understood that the conduct of this study rests on an assumption that small firms do not simply behave/operate as miniaturized versions of larger firms (Fletcher,

2004). In Coviello & McAuley’s (1999) review of 16 empirical studies on the internationalization of small & medium-sized organizations, only nine of the studies

identified some distinguishing features of small firms that somehow provided the rationale for the interest in this type of organizations. A variety of arguments were offered, including

the SMEs liability of newness and the dominant influence of owner-managers in the small firm. However, a common characteristic of small firms identified in these nine studies is

that of limited resources (financial, managerial, informational, etc) – seen as a challenge for SMEs.

However, there is some portion of the extant literature that present alternative views

regarding resource-based limitations of small firms. Bonaccorsi (1992) and Gomes-Casseres (1997) for instance, argue that small firms are able to overcome resource

limitations through the innovative packaging of resources and assets they have access to, but not necessarily own. In particular, the usual approach to ascertaining SME size based

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on number of employees (OECD, 2005; Lu & Beamish, 2001; Coviello & McAuley, 1999) presents a further weakness of the resource-limitation argument. Given the rate of

technological advancement and the access to these, and the possibility that small firms may be networked both figuratively and literally (e.g. through information technology), the

current assumptions on size and resource limitations of small firms may be obsolete. This study is, therefore, underpinned by the belief that smaller firms differ from larger

firms in terms of independence, ownership and control, managerial influence, and scale/scope of operations (Schollhammer & Kuriloff, 1979; O’Farrell, et al, 1988).

Furthermore, this divergence from larger firms, upon which a substantial part of internationalization literature is based (Coviello & McAuley, 1999), reflects alternative

managerial processes (Smith et al, 1988) supported by simpler, less rigid and sophisticated structures (Julien, 1993; Carrier, 1994; Carson et al, 1995). Shuman and Seeger (1986: 8)

succinctly state the unique nature of small firms, as follows:

“ Smaller businesses are not smaller versions of big business… smaller businesses deal with

unique size-related issues as well, and they behave differently in their analysis of, and

interaction with their environment.”

It is important to note that the significance of social construction processes is emphasized here. This is congruent with earlier assertions that the individual entrepreneur has a tangible

influence on the organization structures, strategies and tactics, including those that relate to the firms’ internationalization decisions. Focussing on the interactive (rather than the

cognitive) social constructionist perspectives are formed through an interactive process of dialogue, exchanges, relations, joint undertakings and co-ordinations. Of particular

relevance to the multi-level analytical approach of this study is that social constructionist ideas emphasize how entrepreneurs are constantly evaluating information, considering

different options or scenarios and, in turn, bring along these previous ‘experiences’, understandings, social contacts and history of relationships to their interactions with clients,

stakeholders, suppliers, and other alliance partners. Consequently, the entrepreneur’s socially constructed perspectives will tend to permeate the small firm’s domestic and

international operations. International entrepreneurship, then, is a construction of the past in the present that is subsequently envisioned into the future (Fletcher, 2004).

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The context of this qualitative investigation then is that small firms operate/behave differently from larger organizations in the international arena and such behavior is a result

of social construction processes that the individual entrepreneur goes through.

4.1.2 Processual approach to Investigation

Small business internationalization is a field of enquiry that draws from entrepreneurship,

internationalization and strategy scholarships. Chapter 1 explained how the emergent field of international entrepreneurship lies in the overlap between international business and

entrepreneurship (Oviatt & McDougall, 1994; Wright and Ricks, 1994; and McDougall & Oviatt, 2000; Zahra & George, 2002). Researchers, must however, be cautious in applying

the prescriptions of current international business models to small businesses. The internationalization experiences of selected respondent SMEs to be discussed in the

following chapter will provide evidence that small business internationalization is processual, iterative, fluctuating and does not necessarily occur in neat sequential stages in

the life cycle or establishment chain (stage) models of internationalization (Johanson & Wiedersheim-Paul, 1975; Johanson & Vahlne, 1977). Turnbull (1987) and Bell (1995) were

also cited in Chapter 1 affirming the idea that small firm internationalization is neither linear nor unidirectional. Welch and Luostarinen (1988, 1993) provide further empirical

evidence that small business internationalization is process-based arguing that it does not always involve a smooth, immutable pattern of international expansion.

The study is perhaps best described as adopting a processual approach (Hinings 1997;

Pettigrew 1990; 1997; Van de Ven and Huber 1990). To borrow liberally from Pettigrew (1990: 277), the aim in such research is to collect data which are:

• processual, emphasising action and structure over time;

• comparative, providing a range of studies;

• pluralist, in that the research describes and analyses the sometimes competing versions of reality that exist within organisations;

• historical, in that the research takes into account the development of ideas and actions

across time, and

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• contextual, in that the study examines the interaction between process and context at

varying levels of analysis.

It is important to note that the processual approach to investigation supports the focus on the holistic pr ocess, discussed in Chapter 3, and the social construction process, explained

in section 4.1.1 above, both underpinning elements of this empirical investigation of small firm internationalization. Like most processual research, this study used the methods of

documentary analysis and semi-structured interviews with multiple respondents (Ferlie & McNulty, 1997).

4.1.3 Promoting Research Quality

This research has the advantage of being informed by literature from the contributing disciplines of entrepreneurship, internationalization and strategy – the identified source

disciplines of international entrepreneurship. Being an emergent field of enquiry, it has been observed that a considerable portion of the literature identifies the limitations of the

source disciplines, particularly in terms of explaining the unique and dynamic nature of small business internationalization (Bell, et al, 2003; Coviello & McAuley, 1999; Lu &

Beamish, 2001; Rutashobya & Jaensson, 2004). Consequently, there has been a considerable amount of empirically-founded studies that have utilized sound and

appropriate methodological approaches. A range of constructionist research quality issues are addressed in relation to methodological approach.

The matter of objectivity of case study research was briefly discussed in Chapter 1. In particular, the narrative approach to reporting the findings from in-depth interviews lends

itself to interpretation issues, both on the part of the interviewer and the interviewee. This issue becomes particularly problematic when dealing with individual respondents (Gomm

et al, 2000). It is important to remember that a primary aim of qualitative research is to report a view of the world (the phenomenon being investigated) as it is lived and

constructed by interacting individuals (Seale, 1999). This requirement implies a separation of the researcher/interviewer’s own view from the lived experience of the respondent.

Objectivity is less of an issue for this study as the unit of analysis is the entrepreneurial firm rather than the individual. However, there is still a substantial focus on the influence of the

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individual entrepreneur on the organisation’s structure, decision-making, strategy and processes. Other strategies adopted to maintain objectivity are (i) multiple data sources; (ii)

multiple interviewees in each case organization; and (iii) iterative interviews. As suggested by Seale (1999), the data collected are then translated into plentiful illustrative examples of

key concepts. These are incorporated in Chapter 5: Presentation of Research Results.

Other strategies for achieving research quality were drawn from Yin (1993, 2003). The specific research quality indicators are briefly explained below and Table 4.1 summarises

the strategies used.

� Construct Validity: establishing appropriate operational measures for the concepts being studied.

� Internal validity: normally a research quality indicator for causal studies rather than descriptive or exploratory studies. Establishes causal relationships between events

or behaviours, i.e. certain conditions leading to other conditions, as opposed to random or unrelated events. In case study research, this involves making inferences

from events as they occur. In turn, the series of events may indicate a pattern of behaviour. Causal relationships may also be informed by other interviews and

documentary evidence collected as part of the case study (Yin, 2003). � External Validity: ascertaining the domain or context to which a study’s findings

may fall under. � Reliability: demonstrating that the approach to the study, i.e. the data collection

procedures, can be replicated and subsequently have consistent, similar or comparable results.

To summarise in relation to the quality of the research, a large number of strategies were

implemented in an attempt to ensure that the research would be of high quality. The extent to which this objective was achieved is, of course, dependent on (i) time and resource

constraints faced by the researcher; and (ii) the researcher’s skill in implementing the strategies.

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Table 4.1: Strategies for Promoting Research Quality

QUALITY INDICATOR CASE STUDY APPROACH PHASE OF RESEARCH Construct Validity • Check measures used in

previous studies • Multiple data sources • Establish pattern of

evidence • Have key informants

review draft of report of findings

• Literature review • Data collection

Internal Validity • Ascertaining patterns of evidence

• Multiple data sources • Explanation building • Account for disconfirming

evidence

• Designing research instrument

• Data analysis

External validity • Consultation with other case-study researchers

• Draw from theory in single case-studies

• Ascertain/observe patterns/logic in multiple case studies

• Literature review • Research design

Reliability • Consultation with other case-study researchers

• Develop case study protocol

• Develop case study database

• Research design • Data collection

4.1.4 Limitations of the Methodology

It is recognised that interviews are a socially constructed interaction, with limitations such

as lack of control of interviewee reliability. However, the case studies involved multiple respondents, iterative interviews and analysis of company documentation, which provided

evidence on what people actually did, compared to what they say they did.

To a large extent, the limitations of the methodology have been anticipated in the previous

sub-sections. In terms of the overall methodology, there are three general limitations, all of which are attributable to issues related to interpretation, ‘corrupting’ the socially

constructed view of the respondent and over-generalizing from context-specific findings (Pye, 2004). Additionally, there are limitations associated with each method.

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First, case studies “like experiments, are generalizable to theoretical propositions and not to populations or universes” (Yin, 2003, 10). This is an acceptable limitation as long as it is

articulated and does not suggest broader applicability based on a limited number of cases.

Second, the context-specific nature of the research is acknowledged. Aspects of context that deserve mention include the high level of influence of the individual entrepreneur,

matters of organisational size and location. In relation to size, the number of employees selected for the study ranged from 7 to 47, thus falling within the micro- to small enterprise

category based on OECD and European Union standards organizations. And finally, all the case companies are Queensland-based. A significant point here is that the extent of

influence and control of the entrepreneur is strongly related to the number of employees. All the case companies were observed to be closely knit organizations with the entrepreneur

being a main driving influence in most, if not all, aspects of the business. However, in the organizations with higher number of employees, there were indications that the

entrepreneur was preparing to withdraw from direct, hands-on management. However, this only happens after a suitable organizational structure has been put in place.

Third, the study was conducted within a three-month period in late 2006. The research

cannot exclude the possibility that study over a longer period of time might produce different results (Brannen, 1987).

For the written documents, the main limitation with interpretative approaches to company documentation is that the amount of detail captured in the original document varies

enormously (Paltridge, Hurst & Morgan, 1973). However the research design involving multiple data sources provided the opportunity to engage in dialogue with research

participants (Hodder, 2000). In the course of the study, owner-managers and other staff members were able to provide clarification on some of the documents. However, as with

interviews, these documents cannot be regarded as incontrovertible evidence of ‘truth’ (Silverman, 2000). Comparison on documentary data, with data collected by other means,

helped identify various plausible interpretations of data sources.

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4.2 Research Design

4.2.1 The Unit of Analysis

The unit of analysis for this research are small businesses based in Queensland, Australia

that have some amount of involvement in overseas markets.

In late 2005, the State Manager for AUSTRADE in Queensland provided a list of 813 SMEs in Queensland which were assisted by this agency in one way or another, i.e.

information supply, training, market access, grants or some form of advice on overseas markets. The list of organizations was categorized according to industry sector and was

prepared for the purpose of identifying sectors that were not accessing AUSTRADE’s services at that point in time. For reasons of confidentiality, this list could not be included as an appendix for this study. The researcher was allowed access to selected organizations

on the list as long as the AUSTRADE officials were informed and that they made the initial contact. A decision was made with the supervisory team for this study to focus on the

technology and technology application sector. Recognising the bias with the AUSTRADE sample, other potential sources of SMEs within the selected sector were utilized. These

other sources included a technology incubation centre, an association of business owners in Queensland and some personal contacts of Queensland University of Technology

academics. Altogether, these alternative sources provided an additional list of over 30 potential respondents. Finally, for practical reasons, all participating organisations had to be

based in the southeast corner of Queensland for ease of access.

4.2.2 Case Selection

There are competing epistemological, theoretical and practical arguments about the appropriate number of cases (see, for example, Stake 2000, 446; Yin 2003, 51-52).

Ultimately, there had to be a compromise between breadth and depth of data collection. As already noted, five organisations were ultimately enrolled. They are referred to in the thesis

as Jewellery Retail, Weighing Scale, Ski Tracking, Environmental Chambers and Hotel Software.

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To ensure comparability among eligible organizations for the study, the potential

respondent should have satisfied the criteria for small enterprises provided in Chapter 1. The criteria related to firm size in terms of number of employees and asset base and the

firms also had to be independent, non-subsidiary and owner-managed. Respondent firms also had to be in the technology or technology application sector as indicated in the

previous section. Though the firms had these commonalities, case selection ensured sufficient diversity among the selected firms in terms of age, actual number of employees

and the actual industries they belonged to. Issues related to cross-case analysis and synthesis will be further discussed in Chapter 5 – Presentation of Research Results.

A practical consideration in the process of selection was that these enterprises had very lean

organizations and the owner-managers were constantly busy. This situation had a tangible implication on the availability to participate in the research. After five months of effort,

only five organisations were ultimately persuaded to participate as case studies. Initial telephone calls were made to the 30 organisations that might meet the criteria for selection,

and background information was collected on each organisation. From this group, 10 organisations were approached. The final sample of five respondent firms was based on

initial scoping interviews and the simple matter of respondent availability and receptiveness.

4.3 Data sources

Multiple sources of information were used to address the issue of objectivity of the investigation. Data were collected through a combination of in-depth interviews and

supported by secondary material as follows:

• Iterative interviews with owner managers;

• Interviews with other staff members;

• Interviews with affiliated organisations;

• Review of publicly available documentation regarding the respondent firms

• Review of the respondent firms’ website information.

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4.3.1 The Case Study Approach

The case study method is considered appropriate for this study due to its historical and contextual nature (Pettigrew, 1985). In Chapter 1, it was explained that the purpose of this

study is to investigate how these small firms manage to succeed in a global market (Zahra & George, 2004). This further supports the focus of the study on ‘process’ and the

interrelationships of selected constructs (Yin, 1989). Multiple case studies were investigated with the end in view of gaining a richer understanding of the uniqueness of each respondent firm’s internationalization process – how the domestic entrepreneurial firm

evolved into an international enterprise, as influenced by the socially constructed experience of the entrepreneur.

The use of multiple cases allowed for rich detail necessary to make a theoretical

contribution (Eisenhardt, 1989; Yin, 1989; Hakim, 1987; Miles & Huberman, 1984). As explained in section 4.2.2 above, cases were purposely selected and are ‘instrumental’ in

the Stake (1995) sense.

4.3.2 In-depth interviews

Five cases (respondent SMEs) in the technology sector and technology application sector were investigated. A total of approximately 30 hours altogether of in-depth interviews over

a three-month period (August to October, 2006) with various subjects both within and outside the respondent SME were conducted. The range of respondents included owner-

managers, R & D managers, marketing directors, export managers, business network members, and government agency personnel who assisted the respondent firms in one way

or another. Raw data from the interviews were transcribed and compiled. As the respondent firms are in the technology and technology application sectors, it was necessary to disguise

the names of companies and interview respondents to avert the possibility of indiscriminately releasing company sensitive information. Though there was considerable

variation in the extent of knowledge of the respondent firm’s international development, the compilation of interview proceedings constituted a rich data source for purposes of this

study.

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Interviews and case descriptions were returned to the interviewees for corroboration, revision and consent to publish.

4.3.3 Examination of Historical/Archival data

Documentary and published material, such as internal organization reports, promotional pamphlets and website information were used for purposes of validating interview

responses.

Table 4.2 below summarises the data-collection activity corresponding to each selected firm for the study. As pointed out earlier, there was some amount of variation in the activity

for each respondent firm, but this was inherent in the study given the nature of respondent units and resource and time constraints.

Table 4.2: Overview of Data Collection

DATA SOURCE JEWELRY RETAIL

WEIGHING SCALE

SKI TRACKING

ENVIRON- MENTAL

CHAMBERS

HOTEL SOFTWARE

Entrepreneur initial interview (1 to 2.5 hrs)

√√√√

√√√√

√√√√

√√√√

√√√√

Entrepreneur follow-up interview (1 hr max)

√√√√

√√√√

√√√√

√√√√

√√√√

Interview with other staff

√√√√ √√√√ √√√√

Interview with affiliated organisation

√√√√ √√√√ √√√√

Company documentation

√√√√ √√√√ √√√√ √√√√ √√√√

Company website √√√√ √√√√ √√√√ √√√√ √√√√

4.4 Other Matters of Methodology

4.4.1 Analysis and Theory-building

In reality, the process of theory building commences at the point of starting the research (Eisenhardt 1989; Richards 2005, 62). However, in this section, the focus will be on the

more analytical phase of the research.

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Given the emergent nature of international entrepreneurship, in particular small business internationalization, this study adopted an exploratory and descriptive approach. Case study

methodology, therefore, provided the rich detail necessary for theory building (Eisenhardt, 1989). As discussed in section 4.2.2 above, the selected cases reflect sufficient diversity to

allow for examination of the particularity of each case (Gomm et al, 2000). Company ages ranged from a little over a year to fifteen years in operations, they had between 7 to 47

employees and were in different stages of internationalization. The five companies had different product characteristics and served different offshore markets, using a variety of

international linkages. Multiple and iterative in-depth interviews with the key decision makers in each of the firms, combined with secondary data, generated the information on

which to build the case histories. The chronology of the firms’ internationalization processes were captured through the use of multiple data sources. This historical mapping

allowed for pattern-matching with theory as suggested by case researchers (Eisenhardt, 1989; Yin ,1988). It is important to re-iterate the unique analytical approach of this study

which examines the extent to which the influence of the individual entrepreneur permeates the strategies and tactics of the small firm as it increases its international involvement.

The intrinsic connection of case study research with empirical evidence enhances the

strengths of this approach to theory building. Theory from case study research has the important characteristics of novelty, testability and empirical validity. More significant for

emergent fields of enquiry like small business internationalization, case study research, which incorporates the social constructionist perspective, is independent from prior

literature or past empirical observation. As Coviello & McAuley (1999, 251) have emphasized, internationalization is too dynamic and broad a concept to be exclusively

defined by any one school of research, perspective, or mode of explanation.

As part of the theory-building process, interpretations of the data from the various sources were discussed in several forums involving participants doing qualitative investigations in

other disciplines. Throughout the conduct of the research, the author attended fortnightly meetings of the QUT Faculty of Business Qualitative Researchers Forum. Findings and other details of the study were also presented in formal seminars and conferences, as

follows:

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� Fourth Australian Graduate School of Entrepreneurship (AGSE) International Entrepreneurship Research Exchange, Queensland University of Technology, Brisbane, Queensland, February 2007.

� Australia/New Zealand Marketing Academy (ANZMAC) Conference, Queensland

University of Technology, Brisbane, Queensland, December 2006. � Faculty of Business Research Colloquium, Queensland University of Technology,

Brisbane, Queensland September 2006. � Presentation to the Research Seminar Series on Entrepreneurship and Innovation,

Brisbane Graduate School of Business, Queensland University of Technology, Brisbane, Queensland, September 2006.

4.4.2 Ethics

Level 1 (Low risk) Ethical clearance was granted by the University Ethics Committee in

August 2006. Issues regarding research ethics (Kvale 1996, 109-123; Neuman 2003, 116-134) that deserve special mention are informed consent, right to privacy, protection from

harm, and portrayal.

The process of informing potential case organisations about participation in the research was described in Section 4.2.2. Consent agreements were entered into with each

organisation, and each individual interviewed.

4.5 Conclusion

This Chapter has explained the design of the research. Within the constraints of resources and time, the methodology was thorough, included multiple data sources and techniques,

and produced results which the reader will hopefully find to be (as Denzin & Lincoln, 2000: 5 say) rigorous, broad, complex, rich and deep.

In Chapter 5, the five case studies are presented in turn, beginning with the study of

Jewellery Retail organisation.

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Chapter 5: Presentation of Research Results

5.0 Introduction

As Welsh & White (1991) noted and as constantly emphasized in previous chapters, “a

small business is not a little big business”. Management in SMEs is different to management in larger enterprises with their embedded management practices and

instruments. As discussed, the typical processual and fluctuating nature of management and strategizing in small firms, including those related to internationalization, departs from the

linear and uni-directional approach taken by larger firms. Small business practice highlights the importance of multi-faceted frameworks of analysis which extend beyond the traditional

structural, strategic and behavioural perspectives. As such, it necessitates consideration of the chaotic, opportunistic and incremental process through which entrepreneurs enact

opportunities and build international relationships (Buckley, 1991; Anderson, 1993; Calof & Beamish, 1995; Bell & Young, 1996; Jones, 1999). To ground the approach described in

the chapter on methodology, case evidence on five Australian SMEs were examined. The five cases operate in five diverse high technology niche market segments. Despite this diversity, effort was made to ensure the comparability of the five cases. The approach to

ensure comparable cases was described in detail in Section 4.2.2. It should also be noted that the case companies offer a unique combination of product and service to their selected

niche market segments. Respondents from each firm indicate that the service complement in their respective operations is a critical part of the effort to maintain strong client

relationships and is therefore part of their differentiation strategy. As such, none of the selected firms offer purely tangible product nor purely service. Consequently, the research

avoids issues related to comparison between product or service firms. Case firms, hereafter, will be referred to as Jewellery Retail, Weighing scales, Ski tracking, Environmental

chambers and Hotel software. The firms have different degrees of international involvement and were examined for indications of their international venturing processes,

particularly the manner in which the five key constructs considered in this study interrelate with one another.

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In the following section, each case is introduced, along with a summary of its internationalization activity in the context of the selected constructs for the study.

5.1 Profiles of SMEs investigated

JEWELRY RETAIL

This firm is a small organization with 7 employees in addition to its two founding partners.

Its primary activity is the design, further development, maintenance and support for point-of-sale and retail management software for independent jewelry retailers. Products are

designed exclusively for the industry with the input and expertise of jewelry retailers, wholesalers, association members, buying groups and the firm’s clients and users. The

entrepreneur’s family has been in the jewelry industry for over 35 years with her parents having owned and operated a retail jewelry store in Brisbane city since 1974. In 1995,

while completing Bachelor of Information Technology and Bachelor of Law degrees, the entrepreneur developed a management system to help her parents run their jewelry store.

After completing her degrees, and working briefly in the US, the entrepreneur founded Jewelry Retail. The company, now based in New Farm, Brisbane provides innovative,

business savvy solutions to the jewelry industry. Since then, the business has become a leader in jewelry software, providing retail and wholesale solutions to jewelers in over 10

countries and 3 languages. WEIGHING SCALE Weighing scale is currently Australia's leading manufacturer of electronic componentry for

weighing scales used in any industry. Established in 1992, the company has anchored its continued success and growth to a long-term commitment to quality and continued product

development. Its award winning designs combine the latest in modern technology with the kind of practical industrial know-how that only a specialist can provide. This small business

first gained quality accreditation ISO 9001 in 1995 and then ISO 9001:2000 in 2003.

The company’s world-class design centre is based in Acacia Ridge, Brisbane and is equipped with the latest in 3D CAD software, electronics design tools and embedded

software development tools. It is a fully equipped pre-compliance lab where products can

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be tested to the most exacting standards of any market in the world. Its production facility is also based in Brisbane. Automated testing and calibration equipment is custom built in

house and ensures that all the company’s products undergo extensive functional and environmental testing.

Sales and service centres are based in Brisbane Australia and in Mühltal Germany, where

Weighing scale’s first international client is based. The sales team has over 100 years of combined experience in the weighing industry specifically, so they know their products and

they know the weighing instrument industry very well.

SKI TRACKING The company is a Brisbane-based technology company established in early 2005. It has

developed extensive intellectual property that combines the latest in GPS, WI-FI and RFID technologies into a small electronic tag worn by skiers. This is further supported by

proprietary tracking and analysis software making possible an easy-to-use service package. The company’s service package addresses the performance and safety monitoring needs of

skiers and also the asset management and tracking requirements of ski resort operators.

Within the medium-term timeframe, Ski tracking is primarily targeting alpine resorts worldwide that service in excess of 500,000 annual skier visits. With North America, its

first international market, the company is focusing on the four leading Ski area operators – Intrawest, Vail Resorts, American Skiing company, and Booth Creek. ENVIRONMENTAL CHAMBERS An Australian based company whose primary function is manufacturing a range of hi-tech laboratory equipment. Environmental chambers was established in June 2002 by the owner-

manager who is an avionics technician by training. The company manufactures a range of standard and custom-made equipment in its manufacturing plant in Springwood in

Brisbane’s southern suburbs. These are normally referred to as environmental chambers with controlled elements of moisture, temperature and sunlight.

Environmental chambers’ parent company has been in the medical laboratory business for

over 30 years and has accomplished a respected product reputation. The owner/manager’s

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father had established a company in New Zealand that had an opportunity for a joint venture with an Australian company. This became the origin of Environmental chamber. HOTEL SOFTWARE Hotel software is an IT start-up company specializing in operations software for the hotel industry. The company has a software development team led by the owner-manager, who is

a past hotelier and now a qualified software developer.

The Toowong, Brisbane-based company develops and sells software solutions that assist in optimizing workflow and making smarter business decisions, leading to increased revenues

and proven substantial cost savings. The products are offered as a suite of solutions that can be deployed together or independently. The software solutions are unique in that its two

core components address an operational area present in each hotel that is not served by other software vendors globally.

The firm’s competitive advantage is based on being first-to-market, patentable IP for the

housekeeping component and the management’s in-depth experience in the hotel industry. The company has 28 blue-chip hotel clients in 3 Australian states and has overseas clients

in New Zealand, Fiji and St Petersburg. It must be noted that that these overseas clientele were mainly a result of leads generated by the company’s previous customers.

�

5.1.1 Growth and Expansion Motives and Propensities

Although there is an observed variation in the internationalization patterns of the five firms,

the attitudes and orientation of the owners were stimulated and influenced by a range of external and internal drivers and modified by the previously held perceptions and

international experience. Personal contacts with overseas importers, and experience gained from travelling overseas, particularly to Europe, USA and Asia substantially influenced the attitudes and orientations of the owner-managers of the firms. It is significant to note, in

relation to their international exposure, that a common observation among all the respondent entrepreneurs is that they perceived the Australian market as limited.

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Consequently, the respondents had decided at firm inception or at a very early stage of their operations that they would pursue opportunities in international markets.

The firms’ willingness to consider international expansion was also facilitated by potential to expand production capacity, both domestically and overseas.

A review of the data from respondents indicates that the drivers of internationalization may be categorized into three groups, as follows:

PERSONAL FACTORS

� Desire for independence � International experience

� Propensity for risk-taking � Technical knowledge

� Alertness to opportunities

FIRM-RELATED FACTORS

� Access to resources

� Clarity of business model, particularly in relation to internationalization � Innovative product

� Organization responsiveness � Customer Relationship Management Systems

BUSINESS ENVIRONMENT AND MARKET FACTORS

� Opportunity to market the firms’ product/service offering � Opportunity to participate in networks

� Limitation of domestic markets � Government support for internationalization

The nature of small entrepreneurial businesses does not lend itself to structured approaches

and/or indications of the factors cited above. It has, however, become apparent from the case information gathered that the factors exist to varying degrees among the five case

companies.

Table 5.1 below summarises the pertinent details of the five case SMEs. The information presented is congruent with the definition of SMEs provided in Chapter 1.

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TABLE 5.1: Summary of Respondent Firm Details

COMPANY PRODUCT START OF OPERATIONS

TOP MANAGEMENT

TEAM

# OF EMPLOYEES

ANNUAL TURNOVER

Jewellery Retail

Jewellery retail software

1995 Two – brother and sister

7 N/a

Weighing Scale

weighing instruments electronics

1992 Founder, R & D Manager, Production Manager

47 Au$ 7.0 million

Ski Tracking Skier tracking software

2005 Two partners – one operations, one software development

15 N/a

Environmental Chambers

Environmental compartments

2002 Owner-manager 10 Au$1.4 Million

Hotel Software Hotel software 2001 Owner-manager and recently hired business development manager

11 N/a

5.1.2 The internationalization experience for each case study

JEWELRY RETAIL

This manufacturer of jewellery-retail software is currently selling 10% of its output to the

international market and 90% to the domestic market. It has developed a software product which is specific for the export market – a complete plug-and-play hardware and software

package. This package has been developed in accordance with software internationalization standards and can be used in different locales, currencies, languages, etc.

International sales started in February 2001 after the owner/manager attended the World Jewellers’ Conference with its first export markets as New Zealand and then Sri Lanka.

Since then, it has increased its overseas markets to 9 countries including the UK, Spain, Japan, USA, Italy, Monaco and India in 2005. The increase in the number of overseas

markets are a result of the company’s presence on the World Wide Web and the owner-manager’s active pursuit of niche markets, specifically areas where the jewellery industry is

growing and/or commercializing and there is little software available. The owner-manager realizes, though, that her business hasn’t approached the international markets

systematically. Up to 2005, the company has simply pursued opportunities where they saw

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it, rather that pro-actively enacting opportunities to match the company’s capabilities and competencies.

November 2005 saw the launch of the company’s product for the international market. This

coincided with the formulation and subsequent implementation of its first export plan. It is now taking a planned and systematic approach to penetrate the Indian market. Other

priority international markets are Hong Kong and the UK.

Jewelry Retail leverages on its extensive (53 years combined for the Top Management Team) knowledge of the jewellery industry to develop customer-friendly innovations in

their products. The company focuses on the niche of independent jewelry retailers in its international operations. The owner-manager emphasizes building trust among the firm’s

customers through quick response to their requests and being proactive to their software development needs.

Jewelry Retail uses indirect entry methods, in particular reseller licenses to achieve

penetration in their overseas markets. They recruit potential partners who have had some kind of service or support role in the local jewelry industry in their respective country. The

owner-manager explained that this approach facilitates building trust with customers and minimizes the impact of cultural differences. The owner-manager perceived her firm’s

internationalization experience as moderately difficult but is highly satisfied with the internationalization process that they undertook.

WEIGHING SCALE

The company currently sells 50% of its range of electronic weighing instruments componentry outside of Australia. Estimated breakdown of its overseas sales are 25% to

30% to Europe and the rest spread out to Southeast Asia, Middle East, South Africa and the USA. The company founder and owner-manager is of European origin and has travelled

quite extensively while working with the Australian government for a number of years. There are two primary factors that have fuelled the company’s pursuit of international

markets. First, the owner-manager’s international experience clearly indicated to him that the Australian market presents limited opportunities for company growth. The second

factor is highly related to its technically sophisticated product. Being a manufacturer of the electronic components of highly sensitive weighing instruments, the company’s design and

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development costs are quite high. These costs then need to be recovered in their commercial operations. The limited Australian market, however, does not enable the

company to achieve economies of scale, and thereby recover its development costs, within a reasonable timeframe since there are very few companies that would buy the company’s

products.

The initial venture into the foreign market was with a USA company in 1995 – three years after the company was established. Negotiation with an American company failed after 3

months of negotiation. However, this experience got the owner-manager and the company’s R & D manager in contact with a German company who became interested in the

company’s product and willing to work with them in product development. The venture with the German company was not without its frustrations and set-backs as well. Most of

these were related to meeting the quality standards of the German company and the European Union in general. However, the Weighing Scale team persisted and eventually

achieved the desired product quality standard. This situation of being ‘pressured into high quality’ turned out to be beneficial for the company in the long term as it raised its overall

production quality standards. The owner-manager explained that because of the stringent quality standards of European Union, the acceptance of the company products there

facilitated their compliance with product standards anywhere in the world. The experience with the German company also led to the establishment of the company’s world-class

design centre based in Brisbane – the first in Australia. The establishment of the centre also the company’s R & D manager closely involved in quality control systems, spending three

months in Germany with the buyer company to learn their quality standards systems and procedures.

Weighing Scale obviously has established itself in the international market place. They

have been appointed as the exclusive distributor of the German company’s products in Australia. The company currently has a 20% share of the Australian market for electronic

componentry of sensitive weighing instruments. However, the company has its sights on having the majority of its business overseas. Its international operations encompass both

upstream and downstream segments in their highly specialised industry. Apart from distributing the German company’s products and their own products in Southeast Asia,

USA and the Middle East, contract manufacturing for some products is also being done in China.

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The company’s international operations are heavily anchored on product quality. Apart

from having the highly regarded European CE mark quality standard, Weighing Scale also holds the Netherlands Measurements Institute (NMI) accreditation that also has very tough

standards. Both the owner-manager and the R & D manager see the company’s competitive advantage as high performance combined with cost control. Interestingly, the company has

leveraged its quality accreditations to gain government support for both its domestic and international operations. Weighing Scale has been awarded several government grants

under the START and Export Market Development Grant (EMDG) schemes.

Despite the numerous setbacks in its internationalization experience, the owner-manager considered it as only moderately difficult. However, there were a number of things that the

owner–manager would have preferred to do differently in their internationalization process. This includes better market intelligence from the firm’s product installers and distributors

after the initial success in international markets, utilizing Australian government assistance particularly in terms of accessing market information and stronger company effort and

resources channelled towards the North American market.

SKI TRACKING

Ski Tracking has designed and manufactured electronic tracking devices worn by skiers.

The company is a very young entity set up in May 2005 by two young entrepreneurs in their mid-20s. Based on a highly technical and sophisticated, but user-friendly product, the

company has rapidly brought together its financing, management team, research & development team, and its alliances with strategic, commercial and technology partners.

Among the case companies, Ski Tracking has the least international involvement at the

present time. While it has its system deployed in Mt Buller and Mt Stirling in Victoria for the 2006 ski season, it is in negotiations with the Big Four ski area operators in North

America – Intrawest, Vail Resorts, American Skiing Company, and Booth Creek. The Big Four control 28 resorts with over 20 million skiers per ski season.

Ski Tracking uses a ‘razor/razor blade’ business model involving low upfront or initial

costs for customers but once product loyalty is achieved, they ensure revenue streams from extended and expanded usage. Underpinning this business model is an innovative service –

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a unique solution that integrates proven GPS, wireless communications and RFID technologies, linked and supported by proprietary software. The company is one of the few

in the world that have seamlessly integrated these technologies for commercial use. Being first-to-market with this innovative, technically sophisticated product and combining this

with highly responsive technical support enables the company to lock-in the users of its products.

Similar to the other case companies, Ski Tracking’s founding partners draw from

international experience gained with leading aerospace and telecommunications companies and the Australian Defence Force. The original idea for the company’s innovative product

came from an American aerospace academic who saw great commercial potential in combining the aforementioned technologies and applying this to competitive ski sports and

also the operations of ski resorts. The director of the technology incubation centre with which this firm was involved was also willing to support the founding partners based on

their innovative product and business model.

ENVIRONMENTAL CHAMBERS

This Australia-based manufacturer of environmental chambers followed a different

internationalization path from the other four case companies. The company is actually a spin-off from a New Zealand laboratory equipment firm established by the entrepreneur’s

father. This original firm entered the Australian market in the mid-1990s. At that point, the entrepreneur (respondent) was working as an avionics technician and had a minimal

involvement with his father’s company. He did recognize the potential of export markets for the company’s products and took it upon himself to set up the parent company’s website

and proceeded with a fragmented, ‘shotgun’ approach to the pursuit of potential overseas buyers. The parent company’s product information was sent to potential overseas buyers

and this effort resulted in some enquiries by mail, phone call and fax. In 1998, the father sold his shares in the parent company and passed on ownership and management to the

study’s respondent.

The current firm, which is part of this study, was established in Australia in June 2002. However, this small business had substantially cut back its product range as compared to

the parent company. Environmental Chambers concentrates on the manufacture and

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distribution of environmental chambers with controlled temperature, moisture or sunlight depending on the requirements of the buyer.

Due to its original base of operations, the company already had substantial export sales in

New Zealand and had an established distribution network there. Outside of Australia and New Zealand, the company had its first export sale of its equipment to a tobacco company

in Hong Kong. Currently, the owner-manager estimates that his firm sells 60% of its output outside of Australia. The bulk of these overseas sales are in Southeast Asia, South Asia,

Mainland China, the Middle East and, of course, New Zealand. There is a sprinkling of sales in the UK but the strict quality standards within the European Union are seen as a

deterrent. The company has not channelled much effort to the US market due to its unfamiliarity with that part of the world.

Operating in a highly technical niche segment, the owner-manager works on a high quality

product positioning. He says the ideal situation is for his B2B clients to associate the firm’s brand name and logo with high quality. This quality focus is embedded in the

organizational culture of the firm’s small team of ten people. The owner-manager has implemented systems within the company which links concern for quality with incentive

schemes.

Consistent with the aforementioned objective of strong visibility of the company’s brand name and logo, Environmental Chambers sells directly to its clients and through some

carefully selected distributors. These relationships, built over the years, may be considered as a form of network which the company has effectively leveraged for its continued

operations. There is also an emphasis on repeat business over new business. The owner-manager sees his firm’s competitive advantage in the flexibility in design and construction

of the environmental chambers. This is evident in the responsiveness to the company’s existing B2B clients. This company emphasis appears to be consistent with the overall shift

of the company to a custom-made product range away from standard stock items. There are apparently higher profit margins (up to 50% gross) with custom-made chambers.

The owner-manager believes that the firm has had moderate level of difficulty with its

internationalization but thinks that aspects of their internationalization process could be improved upon. In fact, he has a low level of satisfaction with the overall process. It is

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observed that the owner-manager prefers to have a direct hand in company operations, particularly in quality control and also with building relationships with clients. Although,

this may be seen as a common tendency of small business owners, there have been a couple of concerns raised with the company situation, as follows:

(1) the alleged emphasis on high quality seems to be inconsistent with the hesitance with the strict quality standards of the European market;

(2) the emphasis on repeat business rather than new business may be a reflection that the owner-manager is not able to spread himself enough to pursue new business.

Both of these factors tend to have a retarding effect on the firm’s growth and expansion. Brief interviews with the firm’s production manager and the AUSTRADE officer who was

involved in assisting this small business in the past indicate that the firm could do better, particularly in its international operations if the owner-manager was working ‘on the

business’ rather than ‘in the business’.

HOTEL SOFTWARE

Hotel Software, with its hotel operations solutions software, is another small business

which has managed to penetrate international markets without having an articulated systematic plan. In fact, the owner-manager admits that quite a number of the firm’s

international contracts were based on previous relationships within the hotel industry and were unplanned and even accidental.

Formerly a revenue manager for a hotel in Australia the company founder saw a gap in

hotel systems, particularly in the workflow and Customer Relationship Management area. This led to the establishment of the company in July 2001 as a specialized software

developer for the hotel industry.

With its 28 blue-chip hotel clients in 3 Australian states, the small company with 11 employees has managed to put a foot in the door of the international market. Estimated

proportion of its overseas operation is at 30%. Its first overseas hotel client was in Fiji and this came about from having one of the company’s Australian clients being transferred to

the Fiji hotel. A similar situation happened with another hotel in New Zealand and another contract is under negotiation with a hotel in St Petersburg through another former

Australian client. Though the company’s innovative software solutions has allowed it to

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pursue clients overseas, this is not seen as a pro-active approach to generating overseas business.

According to the owner-manager, most of the software developers for hotels are American

companies and there is only one noteworthy competitor in Australia. The smallness of the company is not seen as a major deterrent for penetrating overseas markets. In fact, the

owner-manager considers it as a source of competitive advantage as its lean and closely-knit organization allows a high level of responsiveness with client problems being solved

within 24 hours. The hotel industry is seen as a specialized niche market with very discerning buyers. As such, the owner-manager places high priority on building trust with

his company’s clientele and leveraging on the word-of-mouth advertising that results from this relationship. The background in the hotel industry also emphasizes a strong customer

service ethic which filters through to his small team.

The owner-manager is not entirely satisfied with Hotel Software’s internationalization process. He believes that the company’s ability to penetrate overseas markets is highly

dependent on the hotel industry clients. Having recognized the fragmented and unstructured nature of the company’s internationalization, two measures have been put in place, as

follows (i) preparing an internationalization plan; and (ii) taking on board a senior staff member to look after change processes and business development. This new company

officer also has extensive background in the hotel industry. Though the owner-manager was not willing to provide a copy, the aforementioned internationalization plan incorporates

priority markets and how each will be systematically approached. Being of European origin (German), the owner manager feels that he has some psychic proximity with that part of the

world and considers this as a priority market. The USA is also a priority market as it has a well-established and lucrative hotel and hospitality industry. The owner-manager plans to

tackle the Asian markets when the company has sufficient resources to do so. He feels that there is considerable potential, though, as most of the hotel executives in this part of the

world are expatriates from Europe and the USA, it is appropriate that Hotel Software establish its quality and responsiveness reputation in those part of the world first.

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5.2 Entrepreneurial Qualities revealed in each case study It is apparent from the foregoing discussion in Section 5.1 above that the selected small

businesses encountered the barriers to internationalization that were identified in Chapter1. Most apparent among the barriers are limited Australian market and the prohibitive

transport costs resulting from Australia’s distance from the more lucrative markets.

Among the five cases, there was an observed variation in terms of motivations to establish an entrepreneurial firm. For instance, the owner-managers for Jewelry Retail, Weighing

Scale and Ski Tracking had years of experience in either the corporate world or government. In Jewelry Retail and Ski Tracking’s cases, the owner-managers felt that their

creativity was constrained in established organizations. In the case of Weighing Scale, however, the owner-manager who worked with the government for many years, was of the

opinion that his entrepreneurial skills were honed while working with government as he had to find innovative ways to make better use of government resources.

Cases Jewellery Retail, Ski Tracking and Hotel Software also exhibited indications that

entrepreneurial activity arose based on an identification of an innovative product that could serve an unmet need in their respective industries. Jewellery Retail’s Point-of-Sale and

inventory software for independent jewellery retailers, Ski Tracking’s GPS monitored skier arm band, and Hotel Software’s IT-based solutions for workflow and customer relationship

management were product offerings that were developed based on a perceived need in the industry that were not being adequately served by existing products.

Two of the case companies, Jewellery Retail and Environmental Chambers were a ‘spin-

off’ of some form from a family business. Both the owner-managers in this case were pulled into the former family business and eventually established a separate company. It is

interesting to note, though, that in Environmental Chamber’s case, the owner-manager admitted that he didn’t have any entrepreneurial inclinations when he was younger. In both

cases, the owner-managers were given a free-hand in operating a particular part or aspect of the family business at the time of initial involvement. This provided these entrepreneurs the

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autonomy and served as motivation to enhance their entrepreneurial skills on a limited, more manageable situation.

The in-depth interviews with the owner-managers of each case organization reveal that

entrepreneurial activity was primarily motivated by two dominant factors, i.e. (i) desire to be independent; and (ii) desire to serve an unmet need in their respective industries. These

motivations are consistent with entrepreneurial motivations as discussed by several researchers in the entrepreneurial area (Hisrich & Peters, 2002; Delmar & Davidsson, 2006;

Dimitratos & Plakoyiannaki’s, 2003).

The case information also suggests that entrepreneurial motivations are closely related to the perception of opportunities by the individual entrepreneurs. It is significant to point out,

however, that the owner-managers interviewed tend to fall into categories, as follows: (i) those who believe that opportunities are meant to be discovered; and (ii) those who believe

that opportunities can be ‘enacted’. This classification seems to align with Alvarez’s (2005) work on the theory of entrepreneurial action.

In the cases of Weighing Scale and Environmental Chambers, the approach to seeking

opportunities was described as a constant scanning of the business environment (internet, industry publications, upstream and downstream industry partners, customers, and business

networks) to identify possible opportunities primarily to market the firm’s product offerings. Like the owner-managers of the other respondent firms, Weighing Scale and

Environmental Chambers entrepreneurs are technically inclined people. However, unlike the other entrepreneurs, those with these two respondent companies believe in the quality of

their existing product offerings and this drives their efforts to ‘discover’ opportunities in the market place.

Jewelry Retail, Ski Tracking and Hotel Software, on the other hand, have owner-managers

who typically had some years of exposure to their respective industries and/or organizations and subsequently identified a ‘gap’ which could be filled by a conscious departure from the

current state of affairs – be it an innovative product or an alternative approach to how things are currently done. Consistent with the ‘creation’ or ‘enactment’ theory of

entrepreneurial opportunity recognition (Venkataraman, 2003; Loasby, 2002; Casson, 1982), the owner-managers for these firms recognized that to exploit the opportunity

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presented by the innovation, there needed to be a process of hypotheses testing and learning and a series of decisions to be made. This reflects the process described by the owner-

managers of this group of cases.

5.3 Firm Creation: Transition from an Individual Entrepreneur to the Firm

The case organizations which participated in this study fall into the category of micro- and

small enterprises based on accepted definitions of SMEs (OECD, 2005; UK Bolton Committee, 1994). As mentioned in Chapter 4, the number of employees for each

organization ranged from 7 to 47. The size of the organizations is particularly significant for this aspect of this study as it has an impact on the transition process from the individual

decision-maker to a proprietary firm with its distinct business model (Morris, et al, 2005).

Four of the respondent firms had less than a dozen employees while one of them (Weighing Scale) had grown to 47 employees. In all of the cases it is evident that the owner-manager

had a direct hand in the tactical and strategic decision-making and operations of the firm. In several instances the interviews with owner-managers were disrupted by staff members

who had to ask the respondent questions regarding a certain operational issue. In one situation, the meeting with the owner-manager for Jewelry Retail had to be re-scheduled as

she had to deal directly with a software installation issue with a new client.

From a strategic perspective, company documentation, such as business plans, export plans and investor prospectus indicate congruence between interview data and what is published

in this aforementioned company documentation. Interviews with affiliated organizations also seem to corroborate the indication of the owner-manager’s influence in tactical and

strategic issues. However, the message being conveyed is that for the firm to move forward, including effort related to internationalization, the owner-managers needed to learn to

delegate and dissociate themselves from tactical and operational issues.

Recognising that each individual entrepreneur is different, it was also interesting to note that each owner-manager had a particular interest in an aspect of the entrepreneurial firm’s

operation. Jewellery Retail’s owner-manager, drawing from her previous involvement in software design due to her IT background, was particularly keen on building trust with

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clients and streamlining IT-based customer relationship management systems. Similarly, Weighing Scale’s owner-manager was the main designer of the company’s electronic

products in the initial years of the business. However, he admits that he is not highly skilled at product design and configuration of their company’s sensitive weighing equipment. As

such, he has put considerable effort into developing the company’s design and production team. Interviews with other staff members of Weighing Scale indicate a recognition and

appreciation of the owner-manager’s familial approach to running the business. A further indication of this is the fact that the initial premises for the business was the owner-

manager’s home and he grew the business from there up to a certain point before moving to its current location.

The founding partners for Ski Tracking are both aerospace engineers who have a strong

technical background. The desire to respond to customers’ technical concerns is reflected in the presence of one of the founding partners as an on-site manager where the company’s

equipment is installed. Concurrently, the data being collected from operation sites needs to be processed and managed at a central location – critical tasks which are overseen by the

other partner. This reflects the breakdown of responsibility between the two entrepreneurs, one of them being directly involved in site operations, liaison with existing clients and

technical support while the other looks after the software developers and sales engineers. The company premises, with its open plan confined area, also supports constant and cross-

fertilising communications and the informal culture of the business – an organisational feature that once again reflects the entrepreneurs’ preferred managerial approach.

Environmental Chambers’s owner-manager also has a technical inclination drawing from

his training as an avionics technician. In addition, he also runs a closely-knit team with 9 staff members. Indications of a motivation orientation based on Dimitratos and

Plakoyiannaki’s (2003) and Stevenson’s (1983) is evident in this entrepreneur’s approach. Having a strong quality focus, he has incorporated a quality orientation in the firm’s

compensation and incentive scheme.

Hotel Software’s owner-manager has years of background in the hotel industry and consequently has in-depth knowledge and relevant networks. Though he has the technical

knowledge, as a software developer and hotelier, the researcher perceives that his dominant involvement was in his relationship with potential and existing clients. Though exposing

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the company to certain risks, its 28 Australia-based and about 4 to 5 overseas hotel clients are predominantly a result of the owner-manager’s efforts.

5.4 Entrepreneurial Aspects of Internationalization manifested in SMEs

The information gathered from multiple sources, in general indicates how entrepreneurial qualities can facilitate overcoming the observed barriers to the SME internationalization

process, as embodied in the research question for this study. Table 5.2 below recapitulates the entrepreneurial qualities embedded in the internationalization process as suggested early

in Chapter 3. As the SME internationalization process has been described as a holistic, multi-dimensional and interrelated process (Zahra & George, 2002; Bell, et al., 2003;

Fletcher, 2004), Table 5.2 also incorporates identified approaches that fall within the domain of internationalization strategy. As such, the findings from the study are congruent

with the contention that international entrepreneurship involves an overlap of entrepreneurship and internationalization (McDougall & Oviatt, 2000; Zahra & George,

2002).

While other approaches may be evident in the selected firms, the ones indicated in the table below are the most prominent based on the data examined. Two areas are worthy of note in

the information presented. First, the data from the five cases reflect strategies which are consistent with what the extant literature suggests as strategies aimed at overcoming their

size and resource constraints. These same findings are congruent with the emphasis of this study on overcoming barriers to small firm internationalization. TABLE 5.2: Entrepreneurial Qualities in Internationalization of Selected Cases

COMPANY OPPORTUNITY RECOGNITION

INTERNATIONAL EXPERIENCE

INNOVATIVE TECHNOLOGY

PSYCHIC PROXIMIT

Y NETWORKS

Jewellery Retail

√ √ √ √ √

Weighing Scale

√ √ Not evident √ √

Ski Tracking

√ √ √ √ √

Environmental Chambers

√ √ Not evident Not evident Not evident

Hotel Software

√ √ √ Not evident √

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Secondly, it is interesting to note that none of the five case companies considered

competition as a significant driver for their internationalization. A possible explanation for this is that the firms selected are all in the technology and technology application sector and

their products are highly technical and targeted at niche markets. The nature of their product/service offerings being Valuable, Rare, Hard to copy and Nonsubstitutable is

consistent with Barney’s (1991) concept of competitive advantage. Whilst competition may still be a significant issue for the owner-managers, the technological competitive advantage

developed by each firm tends to lessen its impact as it ventures into international markets (Lu & Beamish, 2001; Oviatt & McDougall, 2005; Coviello & McAuley, 1999). A more

significant pressure is cost-related, particularly the need to recover high product development costs through access to a broader market. These priorities reflect the

respondent firms’ attempts to overcome some of the barriers to internationalization identified from the outset, i.e. high labour and transport costs and the limited Australian

market.

Chapters 2 and 3 provided substantial discussion of networks (Dimitratos & Plakoyiannaki’s, 2003; Coviello & McAuley, 1999; Coviello & Munro, 1997) and psychic

proximity (Nordstrom & Vahlne, 1992; O’Grady & Lane, 1995) and how these constructs affect small business internationalization. However, the findings in relation to these

constructs are not consistent for the five cases. Owner-managers for Jewelry Retail and Weighing Scale clearly indicated that they place value on the access to information,

resources and markets that networks make possible. The Jewelry Retail owner-manager, for instance, supports participation in trade fairs as an effective way to maintain involvement in

the jewelry industry networks. This also facilitates access to markets and updated information on jewelry retailing in their chosen target markets. Weighing Scale, on the

other hand, leverages on the networks of the owner-manager in the government and also on a professional association of Technology company executive officers. The government

network is seen to be useful for accessing government support mechanisms such as funding, technical advice and overseas market information. The technology group, on the

other hand, is considered quite valuable in terms of gaining ideas on dealing with tactical and strategic issues in technology and technology application businesses.

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Ski Tracking, youngest among the case companies, is currently part of a technology business incubation centre. This ‘network’ within the incubation centre is seen as a useful

facility to prepare for full commercialization of the company’s product offering. Through this network, Ski Tracking can gain access to business advice, office services, market

research, etc.

In the cases of Environmental Chambers and Hotel Software, the owner-managers did not see much value in business networks. Being small enterprises with direct involvement of

the owner-managers in day-to-day operations of the firm, it was apparent that strengthening relationships with customers rather than members of a network is considered more

important. Owner-managers also indicated that due to their responsibilities, they do not have the time to participate in business networks. The owner-manager for Hotel Software

also said that the hotel industry is closely-knit and there is really no need for other networks to gain access to potential buyers.

It must be noted, however, that these latter companies may have a limited perception of

what networks are and how these can facilitate their internationalization. In Chapter 2, it was stated that network theory depicts markets as a system of relationships among a

number of players encompassing customers, suppliers, competitors and private and public support agencies (Axelsson & Easton, 1992). This definition implies an expanded view of

networks, one that is not restricted to formal or visible business networks.

In general, the entrepreneurs in the five case companies have a common view that membership in networks is valuable for the business only if it is the appropriate network,

i.e. it will provide access to necessary resources and intangible assets. Data from other empirical sources (interviews and company information), however, present evidence of the

impact of network relationships on foreign market selection and the relative influence of other firms (in both direct and indirect relationships) on new market entry strategies

(Coviello and Munro 1995). In Hotel Software’s case, contracts with hotels in Fiji and St Petersburg were generated through an informal network of former Australian-based clients.

Environmental Chambers and Jewellery Retail have adopted a strategy of expanding internationally using carefully selected dealers and distributors who are well-established

and have a favourable reputation in their chosen markets. This network of dealers and

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distributors have served the respondent firms well in terms of representation and facilitating their acceptance into their chosen foreign markets.

The findings in relation to networks further supports the assertion that the international

expansion of entrepreneurial firms is enriched by analysing beyond the firm’s individual actions and understanding the impact of a firm’s role and position within a network of

relationships (Sharma & Johanson, 1987; Johanson & Matsson, 1988; Axelson & Johnason, 1992; Johanson & Vahlne, 1992; Benito & Welch, 1994; Vatne, 1995).

The foregoing discussion provides a clear indication that involvement in networks could be

an effective strategy to address some of the identified barriers to small firm internationalization. Specifically, the respondent firms have derived the following benefits

from their respective networks: � Mitigate the impact of psychic distance through partnerships with foreign market dealers

and distributors (Jewellery Retail and Environmental Chambers). � Access to foreign markets to supplement limited Australian domestic market (Hotel

Software and Jewellery Retail). � Access to other resources like funding for international expansion, labour, technical

expertise and foreign markets information (Weighing Scales, Jewellery Retail and Ski Tracking).

� Developed relationships with overseas firms which could open doors for the respondent firm as an independent entity (Weighing Scale and Hotel Software).

Likewise, information from the five cases had mixed results regarding the impact of

psychic proximity. For instance, the owner-manager for Environmental Chambers and the current Managing Director (formerly Research Director) for Weighing Scale feel that the

Australians’ honest and straightforward manner of doing business is somewhat tolerated in the international business arena. Both of these interview respondents also felt that if the

company has a good quality product offering and the potential buyer is convinced that their requirements can be served, there is a possibility of fostering a commercial relationship. It

must be noted, though, that the founding entrepreneur for Weighing Scale felt that his European (Dutch) origin was instrumental in gaining a foothold in the European Union.

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The Jewellery Retail owner-manager also felt that in order to build trust with clientele, it was necessary to be thinking in the same way as the buyers. To achieve this insider status,

the company appoints local representatives and licensees who already have some support role in the local jewellery industry. This approach facilitates the understanding of the local

market requirements and the subsequent response to these. As the owner-manager explains it, the careful and involved selection of licensees is the chosen approach to reduce psychic

distance. The use of this approach is apparent in the company’s recent moves to penetrate the Indian market. One of the founding partners for Ski Tracking also placed high

importance on the similarity of the culture and psychic make-up of Australia and the USA in the process of negotiations with the Big Four American ski resort operators.

Finally, Hotel Software’s owner-manager claims that psychic proximity is not really a

factor in the hotel industry. Considering that the big international hotel chains already utilize a multi-domestic internationalization strategy, this company’s owner-manager

justifies his views by pointing out that most hotel chains have expatriate managers in their hotels around the world. And these expatriate managers are typically moved around the

different hotels. Therefore, the impact of psychic proximity is really minimal, at least for this industry. The owner-manager continues to say that in the hotel industry, it is really the

familiarity with the hotel industry circles (not country or culture based) which is of utmost importance.

It is significant to note, however, that all of the owner-managers interviewed had

international experience of some form or another. Three of the entrepreneurs, in fact, have a non-Australian origin – Weighing Scale’s founder is Dutch, Environmental Chambers

owner-manager is from New Zealand and Hotel Software’s founder is German. In addition, the current managing director of Weighing Scale (formerly Research Director) spent a

period of time in Germany with the company’s international client and the owner-manager of Jewellery Retail worked as an IT consultant with a large multinational in the USA. It is

apparent from the in-depth conversations with these respondents that they have a familiarity with overseas markets and they have been involved in transactions outside of the Australian

domestic market. The international experience appears to have had facilitated the achievement of psychic proximity. Despite the claims by some respondents that psychic

proximity is not a major priority, the familiarity with foreign markets made possible by the

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international experience and consequently, the psychic proximity is useful to overcome the perceived barriers to internationalization in the following ways:

� Reducing psychic distance and cultural differences with chosen foreign markets by combining international experience with an honest and straightforward approach to

building customer trust. � Opening up the possibility of doing business outside of the limited Australian market.

� Pursuing niche markets/industries enables the respondent firms to quickly develop relationships with customers and thereby overcome the psychic distance barrier.

� Shedding the “branch office” or subsidiary mentality of small Australian firms by enabling them to pursue opportunities in foreign markets independently once they have

gained a familiarity with markets outside of Australia.

Section 5.2 above on entrepreneurial qualities observed in the case companies, discussed the approach to opportunity recognition adopted by the firms. It was explained that the

respondent firms had divergent approaches to opportunity recognition, with Weighing Scale and Environmental Chambers indicating a tendency to ‘discover’ opportunities for its

offering which was perceived as technically superior. The owner-managers for Jewellery Retail, Ski Tracking and Hotel Software, on the other hand, tended to ‘enact’ opportunities

for its offering. The latter group of respondents exhibit a more proactive and innovative approach to opportunity recognition. Despite these differences, it is posited that the

respondent firms have all leveraged this entrepreneurial quality of opportunity recognition to overcome the identified barriers to internationalization in the following ways:

� Identified and pursued opportunities beyond the limited Australian domestic market. � Seeking/pursuing Australian government assistance (funding, market information,

training, etc.) to take advantage of overseas opportunities. � Shed the ‘branch office’ or subsidiary mentality, typical of Australian small businesses by

independently pursuing overseas niche markets that they can serve despite their resource limitations.

Finally, the respondent firms have managed to initiate and expand their international

operations through the use of innovative technologies. The selected firms within the technology and technology application sector present an above average possibility to

pursue opportunities in overseas markets. Foremost among the factors leading to this capacity for Australian firms are: (1) Firm capability to design innovative offerings that can

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be targeted at overseas niche markets; and (2) the need to pursue expanded markets (beyond the limited Australian domestic market) to recover the high development costs of

these innovations. The nature of these firms may present a significant bias in the findings. However, it should be pointed out that the product and process innovations observed among

the respondent firms may actually be applied by any type of firm regardless of industry, size, age or business model. This broad range of firms that can come up with these

innovations reduces the significance of the perceived bias. Below is the range of innovative technologies that the respondent firms have developed:

� Ski Tracking’s combination of GPS, WI-FI and RFID technologies in its tracking device is undoubtedly considered as cutting-edge technology. This small firm has also innovated

on the recording and interpreting the data from the tracking device as a value-addition for its users. The portability of its tracking device addresses the transport cost barrier for the

company’s overseas operations. � Jewellery Retail has developed a web-based and downloadable Point-Of-Sale software for

its overseas clients. Aside from virtually eliminating transport costs for its products, this innovative business format improves accessibility of the product and tends to mitigate

psychic and geographic distance. � Jewellery Retail has also developed a streamlined Customer Relationship Management

(CRM) system that allows the company to quickly respond to customer enquiries and requests, whether they are in Australia or overseas. Interviewees from a network where

this firm is a member confirm that this is a competitive advantage of this small firm of seven employees. This innovation enables this firm to overcome the barriers of labour

costs and also earns the trust of overseas clients, thereby reducing psychic distance. The innovative CRM system has also facilitated Australian government support in terms of

being awarded a federal government grant to expand the firm’s overseas operations. � Weighing Scale has established the first world-class design and quality testing facility for

weighing scale electronics componentry in Australia. Drawing from the quality assurance systems of their major customer in Germany, this state-of-the-art facility has enhanced

the quality and hence, marketability of the firm’s products in overseas markets. This quality-enhanced marketability obviously has the effect of expanding the firm’s markets

beyond Australia’s domestic market. The company’s bold and independent venture into overseas markets and subsequently gaining international recognition mitigates the ‘branch

office’ or ‘subsidiary’ mentality – another identified barrier to small firm internationalization.

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� Weighing Scale’s design centre which is equipped with the latest in 3D CAD software, electronics design tools and embedded software development tools has resulted in

substantial savings particularly in labour and transport costs. Similar to Jewellery Retail, Weighing Scale’s innovativeness has attracted government support for this international

venture. � Though not a purely a technological innovation, the owner-manager of Environmental

Chambers has designed an incentive system based on quality performance of the company’s nine employees. Emphasizing the company’s quality orientation, an IT-based

system that integrates quality monitoring with employee performance appraisal is a key management tool for this company.

� Environmental Chambers’ owner-manager has also indicated that around two-thirds of their chambers are custom-made for their clients – a departure from the approach taken by

their competitors who manufacture standardised equipment. The close coordination with clients in the areas of product design, accuracy and equipment calibration has substantial

impact on its production processes. To a certain extent, this business model incorporates an innovative process that tends to reduce the psychic distance. The aforementioned

innovations relating to product design, quality assurance and employee reward systems implemented at Environmental Chambers have been combined to enable this company to

achieve tremendous efficiencies in its labour costs. � Hotel Software has leveraged the owner-manager’s hotel industry experience to identify

and address some gaps in business solutions that are specific to hotel operations. The owner-manager’s astute sense of these gaps enables this solutions provider to tailor the

software to individual hotels. The products are offered as a suite of solutions that can be deployed together or independently. The solution is unique and innovative in that its two

core components address an operational area present in each hotel that is not served by other software vendors globally. Being a software design company, the firm effectively

circumvented the transport costs barrier to internationalization. Similar to the other respondent firms (except Weighing Scale) Hotel Software has a lean organizational

structure with only 11 employees. This labour efficiency is made possible by the nature of the firm’s innovative product. Finally, the unique and custom-made software solutions are

targeted at a niche market – the hotel industry. From this small firm’s internationalization experience discussed in Section 5.1.2, this industry is typically not confined to a single

market. As such, Hotel Software has also overcome the barrier of the limited Australian domestic market.

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5.5 Post-hoc Analyses The preceding discussion on the results of the research indicates that the

internationalization experience is unique to each of the five cases. Each case company tells a different story and although there are some common elements of the internationalization

experience corresponding to the selected constructs, there is variation in terms of their significance for each case.

The uniqueness of each case further justifies the processual approach taken for this study.

As emphasized in previous chapters, the aim of the study is to gain a better understanding of the interrelated, holistic and dynamic process of small business internationalization

through the conduct of in-depth qualitative investigations. As the preceding discussion on the findings from the study reveal, each respondent firm has a unique set of resources and

competencies, among which entrepreneurial qualities are prominent, that they have leveraged to overcome the identified barriers to small firm internationalization. The

following chapter will review this complex process for the case companies and how the propositions in Chapter 3 have been validated or disconfirmed.

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Chapter 6: Discussion and Implications for Future Research

6.0 Introduction The initial discussion in Chapter 1 emphasized that this study aims to contribute to the re-

conceptualization of the current views on small business internationalization (Bell et al, 2003). Recognising that the small firm internationalization process is an interrelated,

holistic and dynamic process, the intention was to use selected theoretical constructs from the disciplines of entrepreneurship, internationalization and strategy as alternative lenses to

examine the internationalization processes in Australian SMEs. The earlier chapters have also drawn out relevant aspects of the extant literature on small business

internationalization. More significantly, the assertion was made that although SMEs have taken on a more prominent role in the international business arena (Storey, 1994; OECD, 2005; Rutashobya & Jaensson, 2004), significant challenges still remain in terms of barriers

to SME internationalization (Coviello, 2006; Jones & Coviello, 1999; Lu & Beamish, 2001; Jones & Coviello, 2005; Alam & Pacher, 2003; Bell et al, 2003). Foremost among these

barriers to internationalization are prohibitive labour and transport costs, psychic distance, limited domestic markets (particularly for Australia), a dominant branch office/subsidiary

mentality of small firms, and non-supportive and inward-looking government policies for the small business sector. The significance of this issue of barriers to small firm

internationalization, particularly for Australia’s case, has led to the following research question: How do Australian SMEs in the high technology sector overcome barriers to

internationalization? For the purpose of focussing the research further, the following related questions were also

identified in Chapter 1:

RQ1 Does the prior industry and international experience of the entrepreneur, including

psychic proximity with identified foreign markets, serve as a strategic resource for

small business internationalization?

RQ2 Is entry into foreign markets by the SMEs significantly influenced by the

owner/managers’ entrepreneurial and innovation capabilities?

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RQ3 Do domestic market limitations significantly influence the entrepreneur to seek

international markets?

RQ4 Are government support and incentives a significant factor that facilitates SME

internationalization?

RQ5 How can Australian SMEs utilise networking as an effective strategy for

internationalization?

6.1 Reviewing the Conceptual Model

Having identified the relevant theoretical constructs of (i) entrepreneurial motivations; (ii) opportunity recognition; (iii) resource-based view; (iv) networks; and (v) psychic

proximity, Chapter 3 provided a discussion on how a precise conceptual model of small business internationalization (Jones & Coviello, 2005) was developed. Following through

on the need to empirically validate precise models, similar to the one developed for this study, a set of five propositions was formulated, as follows:

P1: The individual entrepreneur is a key driving influence for small firms’ independent

(non-subsidiary) and flexible structure and consequently its unique internationalization experience.

P2: The limited Australian market is a primary motivation for SMEs to pursue overseas

market opportunities.

P3: Innovative products allow Australian SMEs to pursue overseas markets with less competition and reduce the impact of costs disadvantages (transport and labor).

P4: In the context of internationalization, networks are an effective approach to overcome

resource constraints and mitigate the impact of psychic distance presented by the international business environment.

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P5: A product or firm’s country of origin is not a significant factor considered by global markets and this allows Australian SMEs to build their psychic proximity with chosen

overseas markets.

It is important to note that the review of relevant literature, primarily drawing from the disciplines of entrepreneurship, internationalization and strategy, the conduct of the case

study-based investigation and the resultant findings have revealed an intricate web of interrelationships among the fundamental elements of this study. In particular, the barriers

to internationalization, the research questions, the selected constructs for the study, and the observed strategies to overcome the barriers have all amalgamated together to describe a

unique, socially constructed internationalization experience of each entrepreneurial firm investigated. The five propositions for the study serve as a useful take-off point for

examining the internationalization process of five Australian small businesses through an in-depth case study investigation.

As explained in Chapters 2 and 3, the study looks into small business internationalization at

three overlapping levels – the individual entrepreneur, the domestic entrepreneurial firm, and the internationalized SME. An underlying purpose here is to ascertain the individual

entrepreneur’s influence on the domestic entrepreneurial firm as it increases its international involvement. It became evident in the course of the study that the interrelated,

holistic and dynamic phenomenon that is the small firm internationalization process is actually a socially constructed experience of the individual entrepreneur.

All of the five respondent firms operated in domestic markets prior to venturing out in

international markets. The analysis of the internationalization experience of each firm indicates that it is divergent from McDougall and Oviatt’s (2000) definition of international

entrepreneurship; viz:“ a combination of innovative, proactive, and risk-seeking behavior

that crosses or is compared across national borders and is intended to create value in

business organizations…” While this definition gives greater emphasis to internationalization as a process through which entrepreneurship is realized, the cases

examined reveal that for firms which start late in their cross-border activity, the internationalization process is actually subsumed under the entrepreneurial process, i.e.

entrepreneurship is the overarching process through which internationalization occurs. Whilst this is a fine line differentiating the analytical emphasis, the distinction is

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nonetheless an important one since processes of international entrepreneurship vary according to the point at which internationalization occurs (Fletcher, 2004).

For international new ventures (INV) or born global firms the realization of entrepreneurial

activities cannot be separated from the international business context and market in which they are being created. International entrepreneurship is a tightly integrated process

whereby the entrepreneurs envision and realize the emergence of their business as an international entity. For these firms, internationalization is not an extension of what has

already occurred or has been in the home market. Instead, entrepreneurial activities are more spatial, concerned with what can be constructed anew or afresh in relation to global

markets rather than in relation to the local or regional context in which the business is located.

Alternatively, for small firms that internationalize a few years after start-up, the

international arena is seen as another ‘site’ in which entrepreneurial activities are tried out or practiced. Though the entrepreneurs in the five cases were aware of opportunities outside

of the Australian domestic market, they chose to initiate their entrepreneurial activities in the domestic or local context. Being technology companies, with at least three of the

respondent firms having IT-based operations, the in-depth interviews with the owner-managers indicate that there wasn’t a clear distinction made between domestic and foreign

markets. As such, internationalization is an extension of what has already occurred in the domestic market and in this sense is also local or regional. Internationalization for these

firms has a different purpose. Entrepreneurs are enacting and extending their entrepreneurial capabilities, which have been created and constructed in the familiar

local/regional context. In some cases this international enactment occurs for reactive reasons such as competition or saturation in home markets. For other firms (as with at least

two of the cases discussed in this study) internationalization occurs because cross-border opportunities are seen as ‘windows’ to be opened. What is important is that these windows

are opened and enacted in order to bring about product/service/organizational transformations. Furthermore, the entrepreneurs who are driving the internationalizing

firms are working something out which might mean losing, negotiating or trading some aspect of their entrepreneurial practice – compromises which are inherent in entrepreneurial

activity. In so doing, they are extending entrepreneurial skill; taking calculated risks, bringing together new combinations of product, service or technologies, utilizing network

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contacts and acting upon the special knowledge that has been constructed in the local/regional context where the business is located. In addition, entrepreneurial issues get

resolved, worked through, realized, created, shaped and adapted through international exposure. However, what is particularly significant here is that the transformation described

above, incorporating synthesizing, risk-taking and social construction elements are all encompassed under the entrepreneurial process.

6.2 Discussion on Propositions

The following discussion will review the research results in the context of the propositions for the study.

P1: The individual entrepreneur is a key driving influence for small firms’ independent

(non-subsidiary) and flexible structure and consequently its unique internationalization experience.

Many contemporary researchers within the emergent field of international entrepreneurship

have emphasized the significance of the individual entrepreneur’s influence on strategic and tactical decision-making in the firm. Casson (1998) argues that the role of the entrepreneur

is most fundamental in examining the behavior of the firm. He asserts that the synthesizing skills of the entrepreneur are closely linked to the firm’s core competencies. Chapters 2 and

3 have discussed at length a range of studies that substantiate the assertion that the individual entrepreneur’s influence on the firm spans the pre-founding, pre-

commercialization and pre-internationalization stages of the firm (Eisenhardt & Martin, 2000; Jones & Coviello, 2005).

The presentation of research findings in Chapter 5 further confirms the extensive influence

of the individual entrepreneur on the operations of the five respondent firms. More importantly, when asked questions relating to their motivations for venturing out into

international markets (i.e. why go for unfamiliar foreign markets?, directions for growth and expansion?, firm’s internationalization objectives?), the owner-managers had a range of

responses which were congruent with motivations identified in the extant literature, such as independence, opportunity to tap into expanded markets and utilize their unique skill sets.

The pace and pattern of internationalization embodied in the account of each firm’s

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internationalization experience reflects the influence of the individual entrepreneur. Specific indications of this influence are seen in the lines of business of Environmental

Chambers and Jewelry Retail – firms which are spin-offs of the family businesses that their owner-managers were a part of. Hotel Software, on the other hand, is a software solutions

business in the hotel industry reflecting the past experience of the owner-manager as an hotelier.

Other indications of individual entrepreneur influence are in terms of emphasis on specific

aspects of company operations. Jewelry Retail’s owner-manager, for instance, places high value on building trust with clients and considers responsiveness to their requirements as a

competitive advantage of her small firm. This reflects her previous disappointment with large company bureaucratic processes. Her concern with implementing IT supported

customer relationship management systems also reflects her training and background in IT.

Other indications include Weighing Scale’s familial environment fostered by its owner-manager and Environmental Chamber’s integrated system of quality control and employee

incentives.

P2: The limited Australian market is a primary motivation for SMEs to pursue overseas market opportunities.

Table 5.2 reveals that all the owner-managers for the five respondent firms have acquired

international experience of some form or another. It is evident from the findings that there are two primary implications of this international experience. First, the exposure to

international markets had re-enforced the idea that the Australian market is limited for their innovative niche product offerings and the market does not present an opportunity to

achieve economies of scale. Secondly, there is evidence that there is an element of individual and organizational level learning which allows experience and performance-

based knowledge to be incorporated into the internationalization decision process.

From the data collected, it can be inferred that individual entrepreneurs and the small businesses they manage tend to improve their performance and increase their international

involvement based on gaining experience in their domestic and international operations. However, the interviews suggest that this learning occurs subconsciously. The individual

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entrepreneurs’ risk attitudes also play a significant role in this learning process as entrepreneurs are more willing to try out new things that also bring with it the possibility of

failure. Chapter 5 provided the account of Weighing Scale which encountered multiple failures before succeeding with a major supplier contract and exclusive distributorship with

a German company. The interview data, however, indicates that the firm continued to tenaciously pursue the opportunity despite the initial failures and also suggests a learning

process that the firm went through to subsequently achieve success.

Environmental Chambers and Jewellery Retail also indicated a learning process and gaining familiarity with overseas markets as part of their efforts to identify licensees and

distributors.

P3: Innovative products allow Australian SMEs to pursue overseas markets with less competition and reduce the impact of costs disadvantages (transport and labor).

Table 5.2 indicated that the Jewelry Retail, Ski Tracking and Hotel Software leveraged their

innovative product offerings to gain a competitive advantage in international markets. In the case of Jewelry Retail and Hotel Software, the innovations were based on observed gaps

in their respective industries. Ski Tracking, on the other hand, saw the opportunity in combining GPS, WI-FI and RFID technologies into a user-friendly tracking device. The

compact and portable nature of the products of these three firms enabled the companies to overcome the obstacle of high transport costs to and from Australia. Jewelry Retail has

even gone to the extent of making their product web-based and downloadable for ease of access for their customers.

The lean organisations of these three companies, with less than 20 employees for each of

them, is also an indication that they are able to overcome the obstacle of high labour costs in Australia.

As briefly discussed in Section 5.4, the issue of competition in overseas markets did not

appear to be a primary concern for the five respondent firms. It was suggested that the innovative nature of the firms’ products provides a competitive advantage both in domestic

and overseas markets. This is particularly true for Jewelry Retail, Ski Tracking and Hotel

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Software wherein the offerings came about due to identified gaps in their respective markets, in particular needs which were not being served by the competitors.

P4: In the context of internationalization, networks are an effective approach to overcome

resource constraints and mitigate the impact of psychic distance presented by the international business environment.

Network theory has received considerable attention from contemporary researchers. In

particular, its impact on internationalization has been extensively investigated (Sharma & Johanson, 1987; Johanson & Mattsson, 1988; Axelsson & Johanson, 1992; Johanson &

Vahlne, 1992; Benito & Welch, 1994; Vatne, 1995, Coviello & Munro, 1997).

The traditional resource-based perspective tends to support the idea that small businesses are constrained in terms of resources. However, Bonaccorsi (1992) and Gomes-Casseres

(1997) present alternative views that some SMEs are able to overcome their resource limitations through strategies such as network relationships. The idea here is that SMEs are

able to access managerial, financial and informational resources with the aid of networks.

Furthermore, networks can also facilitate achieving ‘insider status’ and thereby cultural congruence in foreign markets. As such, it is also seen as a useful strategy for reducing

psychic distance.

The results of investigations of five Queensland-based SMEs reveal mixed perspectives on business networks by the interview respondents. Owner-managers for Jewellery Retail,

Weighing Scale and Environmental Chambers clearly leveraged on their participation in networks in industry, trade associations and government to facilitate access to markets,

funding and other resources. In Ski Tracking’s case, founding partners indicated that the main network they participated in is its fellow members of the technology incubation

centre. This was not seen as a typical network as the extant literature defines it, i.e. an institutional and social web which supports the firm in terms of access to information,

human capital, finance and other resources (Bell, et al, 2003). An interview with the director of the technology incubation centre tended to support this perceived limitation of

the incubation centre members as a full-blown network.

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Hotel Software’s owner-manager presented a divergent view on networks. He contends that the already international nature of the hotel industry already provides access to international

clients. He explains that the industry is very close-knit and relationships are fostered directly with current and potential clients rather than indirect approaches such as network

participation.

A consistent message that was being conveyed by respondents relates to the choice of networks to participate in. As discussed in Chapter 5, small business owners, who are

typically pressed for time, cannot waste time on social gatherings with unclear purposes. Whatever the extent of involvement by the respondent owner-managers, they will only

channel time and resources to the network if the membership will serve their own purpose.

P5: A product or firm’s country of origin is not a significant factor considered by global markets and this allows Australian SMEs to build their psychic proximity with chosen

overseas markets.

The fifth proposition primarily relates to the psychic proximity construct. The establishment chain (stage) models of internationalization, also referred to as the Uppsala

model of internationalization (Johanson & Vahlne, 1977) asserts that firms follow a pattern of incremental involvement and subsequent commitment to their target markets. While

Jewellery Retail, Weighing Scale and Hotel Software have expressed strong indications that being of a similar mindset with their overseas customers is an important factor, owner-

managers for Environmental Chambers and Ski Tracking did not share the same thinking. The latter firms contend that the honesty and straightforward approach to negotiation and

building trust by Australian entrepreneurs is something that is valued by their overseas customers. However, the extant literature and specifically, the findings from this study

seem to support the idea that in today’s global market, the buying decision is not significantly affected by the country of origin of the products and/or the companies. As

such, with the country of origin issue out of the way, Australian small businesses can focus their attention on producing a high quality offering and addressing the specific needs of

their target customers.

It is also possible that the high technology products and the niche target markets of the respondent firms’ offerings may also lessen the significance of country of origin effect. As

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the in-depth interviews reveal, the clients of the firms were more concerned with product quality and its ability to serve their requirements. In the cases of Jewellery Retail,

Environmental Chambers and Hotel Software, the owner-managers have taken a lead role in building trust with their clients.

In general, there is tangible evidence that SMEs who manage to create a visceral connection

with customers through appropriate trust-building strategies and customer relationship management systems could be less concerned with country of origin effects.

6.3 Contributions and Suggestions for Future Research

Chapter 4 on Methodology made it clear that this case study based investigation does not aim to make comparisons and/or make generalizations concerning small firm

internationalization. However, the researcher would be remiss in his responsibilities of disclosure if the emergent pattern in the data were not presented. These are briefly

discussed in the following section.

It was found that the owner/managers interviewed had considerable overseas exposure and saw the Australian market as limited. Consequently, the respondents had decided at firm

inception or at a very early stage of their operations that they would pursue opportunities in international markets. The study also revealed further that the five SMEs who were part of

this study have based their success in international markets primarily on (i) an innovative product that conforms to global quality and competitive standards; and (ii) a visceral

connection with well-defined niche markets. In addition, the investigations drawing from multiple data sources, indicate that these firms have combined certain elements to achieve

continued international success. These are categorised below as Organisational/firm elements and Individual elements.

Organisational/firm elements

• Leveraging on information technology, particularly in the areas of product development, opportunity seeking and streamlining business operations

• Planned, systematic approach to their internationalization • Customer responsiveness and appropriate Customer Relationship Management

systems

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• Availing of training for international operations and other forms of government assistance

Individual elements • Tendency to continuously seek opportunities, including those outside of the

Australian domestic market.

• Personal contacts and earning the trust of current and potential clients • Membership/participation in ‘appropriate’ business networks

In Chapter 1, it was made clear that this study is about international entrepreneurship. Zahra

& George’s (2002) work on an integrative model for this emergent field indicated that there still remains some ambiguity in terms of its domain. The foundational work of Oviatt &

McDougall (1994) was seen to have focussed too much on international new ventures (INVs). More recent works have extended the domain of international entrepreneurship

(Wright & Ricks, 1994; McDougall & Oviatt, 2000; Bell et al, 2003; Fletcher, 2004) to include entrepreneurship in established firms and small firm internationalization.

This study focuses on small business internationalization as a legitimate area of research

enquiry within the emergent field of international entrepreneurship. As asserted in the extant literature, small businesses do not simply behave as miniaturized versions of larger

firms (Fletcher, 2004; Coviello & McAuley, 1999). Of particular interest for this study is the significant influence that the individual entrepreneur has on small firm

internationalization. Both the extant literature and the data generated for this case study based investigation provide robust evidence that the individual entrepreneur plays a

significant role in small firm internationalization. Contemporary researchers have emphasized the need to understand this significant role and incorporate it in the subsequent

research in the field of internationalization (Casson, 1998; Jones & Coviello, 2005; Wright & Ricks, 1994; Covin & Slevin, 1989). It is important to cite the work on Jones & Coviello

(2005) on entrepreneurial internationalization behaviour which is a firm-level manifestation of international entrepreneurship. However, it should be understood that this

work gives due recognition to the individual entrepreneur as a main antecedent for firm-level activity, including those that relate to internationalization.

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Finally, the discussion on the individual entrepreneur influence on small business internationalization cannot be isolated from the view that international entrepreneurship is a

socially constructed phenomenon (Fletcher, 2004). As discussed in Chapter 4, social constructionist ideas emphasize how entrepreneurs are constantly evaluating information,

considering different options or scenarios and, in turn, bring along these previous ‘experiences’, understandings, social contacts and history of relationships to their

interactions with clients, stakeholders, suppliers, and other alliance partners.

In relation to the identified research issues for this study, it was revealed that the individual entrepreneur has predominant motivating influence on small firm internationalization. To

overcome identified obstacles to internationalization, the entrepreneur draws from industry and international experience, and the ability to recognize, enact and pursue opportunities

through an innovative combination of assets and resources. The entrepreneur driven small firm can also overcome resource constraints through participation in appropriate networks

and taking advantage of technological breakthroughs.

6.3.1 Implications for Future Research

The conduct of this case study based research has uncovered important aspects of the

internationalization process that have been overlooked or undervalued in past research. The development of a precise model with its supporting propositions and the subsequent testing

in the context of five selected small businesses, generated four significant implications on the subject of small firm internationalization. These are: (1) An holistic conceptual model

that reflects the possible interplay/interrelationships between several theoretical constructs on internationalization and entrepreneurship which have been investigated in previous

studies; (2) An enhanced understanding of the process that an Australian SME undergoes as part of its attempt to penetrate international markets; (3) The identification and description

of factors and their interrelationships, that reflect the holistic and dynamic internationalization process of Australian SMEs selected as case studies; (4) A framework

for further investigations of the internationalization process of other Australian firms or even firms in other countries.

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The findings from the study are intended to contribute to a body of knowledge encompassing the cross-border operations of SMEs. The research also has value from a

practical perspective as Australian SMEs can draw from this body of knowledge as they pursue opportunities internationally.

As with most research, and particularly in an emergent field such as international

entrepreneurship, there are aspects which need further refinement and empirical validation. One of the areas that researchers have failed to examine is the impact of the environment on

international entrepreneurship variables. Moreover, methodological approaches limiting data collection to single industries to control for variability have neglected the possibility of

divergent views or interpretations of the environment (Zahra & George, 2002). A consequent area of investigation, then, is the configuration of international entrepreneurship

activities across different business environments. Here we have an apparent departure from the thrust of previous research that focused on common patterns of firm internationalization

(Buckley, et al, 1979).

Related to the issue of variability of foreign business environments, there have also been a number of studies focusing on entry mode strategies positing the appropriateness of

alternative modes for different types of new or established ventures (McDougall, 1989; Beamish, 1999; Fontes and Coombes, 1997). Again there is a gap here in terms of

empirically grounded studies, especially with regard to SMEs.

There is also a degree of ambiguity with respect to the outcomes of international entrepreneurship. Past empirical research on international entrepreneurship has yielded

inconclusive findings on the links between international entrepreneurship and financial or non-financial performance indicators (Zahra & George, 2002).

From a government policy perspective, it has also been noted that there is a need to adopt

more holistic approaches to supporting SMEs with a much broader scope of internationalization approaches over the export of goods and services as well as inward and

outward strategies (Fletcher, 2001).

Finally, there has been considerable effort at pulling together the pertinent aspects of international entrepreneurship into an integrative framework for small firm

141

internationalization (Bell, et al 2003; Jones & Coviello, 2005; Zahra & George, 2002). However, substantial work still needs to be done to address the identified gaps in previous

models. Coviello and McAuley (1999: 229) have made the observation that there is still “no single theory that has sufficient explanatory power on its own”. Proposed models should

incorporate relevant dimensions of extant incremental ‘stage’ theories, network perspectives, contingency approaches and allied resource-based views. Only by integrating

elements of these conceptualisations can a coherent perspective of small firm internationalization be achieved (Bell et al, 2003). Such an integrative model can then be

used as a springboard for empirical testing, validation and hence, future theory building.

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