International Business Small and Medium Enterprises (Smes) Essay

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International Business

Small and medium enterprises (SMEs) or could also be referred to as small and medium-sized businesses (SMBs) are firms with a limit as to the number of personnel who operate and run them. Small enterprises are usually more than large companies are. They also employ many more workers. SMEs have the capacity for enhancing innovation and competition in different economic sectors in a market (Beck, 2000).

Many SMEs are involved in large-scale and global activities. It is only a small number of these firms that are involved in internationalization that goes far beyond the international market. Imports and exports are the commonest forms of internationalization. Some of the internationalization activities include technological co-operation with a foreign partner, acting as a subcontractor to a foreign partner and participate in active foreign direct investment. The level of internationalization and the company size are closely related. Companies will larger business operations are always tempted and have the desire to internationalize. This applies to any single form of internationalization (Barber & Alegre, 2010).

Internationalization of SMEs

From the beginning, modes of internationalization such as exporting have been seen as a means of increasing turnover of individual enterprises. Exportation is a very important form of internationalization but in the course of economic events, internationalization has emerged to be a much more differentiated business process. It has been of crucial importance for achieving competitiveness and innovation in the business industry (Peng, 2011).

Foreign business partnerships and foreign investments represent viable ways to enable transfer of knowledge and technology. In addition, it has acted as a means of strengthening international business strategies of SMEs. These international business activities traverse across different levels of outward (like sales) and inward (like imports) activities along the chain of value. Moreover, firms that export are often involved in a collection of inward and related activities that are related with each other.

Internationalization is made up of a broad cluster of activities facilitating the expansion of enterprises' competitiveness and innovative capabilities. However, policy makers seeking to foster internationalization and improve a firm's competitiveness have not utilized the model of dealing with the issue adequately (Crick & Chaudhry 2013).

SMEs are likely to be internationalized when their country of origin is small. On the other hand, SME's that are close to a national border do not have a significant effect on its level and mode of internationalization. There is a reverse relation between the largeness of a given SME's home country total number of people and its level of international activity. Trade, research, transport, communication, and manufacturing are normally the highest internationalized sections of the economy (Peng, 2011).

The greatest number of internationalized SMEs is found in wholesale trade, manufacturing, and sale of motor vehicles. Besides, the most internationalized services include the research services sector. In addition, exporting and importing activities augment with intensity when a given enterprise ages (Crick, 2009).

Size of firm

The number of SMEs that takes part in global business activities has a close link to the largeness of the company. Medium-sized business enterprises are more active in technical coordination than micro-enterprises. Normally, the size class effect does not occur because of the sector effect. Many micro-enterprises are retailers and have a lower export orientation. As shown, the models and effect of size are significant success factors (Crick & Spence, 2005).

Sector

Manufacturing and wholesale trades are considered to have one of the highest shares of exporting SMEs. For foreign direct investment, the same scores are seen in manufacturing, wholesale trade, transport and communication and business services. On the other hand, construction and personal services have the least significant score. The number of SMEs with international technical cooperation is not very high in most sections of the economy (Crick & Chaudhry 2013).

Age of firm

The number of SMEs that import and export increases in a steady manner as the firm ages. In most cases, the older enterprises are usually seen to be much more involved in export and import

International activities vs. Features of the enterprises

The internationalization of the SMEs is not always affected by the location in small or large economies. The smaller the country the more internationalized is the SMEs. On the other hand, its closeness to national land borders is fundamental for operations in cross border regions. Commercial use of the internet is closely related to the high international activity. It is evident that SMEs that are internationally active are more innovative and report higher employment and business turnover growth and development (Spence, Manning & Crick, 2008).

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Internationalization vs. Innovation

SMEs can become innovative by bringing fresh products and services to the market. They could either develop these products themselves or not. In addition, the SMEs could be innovative by introducing process innovations. Internationally active firms create products and services while taking part in process innovations unlike firms operating locally. A firm's new product development could be essential in order to get into foreign markets. It could also be a because of a firm's foreign market activities (Nummela, 2011).

Firms with solid plans to internationalize are more seen to be more innovative than SMEs on average. This is a comparison with SMEs without such plans. This relates to the bringing in of products that are novel for a given country's sector. It is particularly more evident for firms that have solid plans to make financial investments abroad (Harvie & Lee, 2002).

Introduction of new products or services

Internationally active firms often introduce new products or services to various sectors of the economy. There is a strong link between exports and innovation. A distinction between the various international business activities is seen when trying to relate to fresh product or service introductions. In contrast, there seems to be hardly any relation to the way in which firms participating in different systems of internationalization brought in new products or services. As a result, the results for the overall 'internationally active' variables showing three categories of SMEs are the ones that are mainly illustrated (Barber & Alegre, 2010).

Firms without any solid and plans are less likely going to invest abroad and start direct exports and imports. They helped to develop new products or service as they sought to venture into foreign markets. Moreover, firms with clear-cut and goal-oriented plans try to invest abroad. In addition, firms with goals for international business activities have plans for the same while locally operating firms lack such plans. This means that the advancement of fresh products was because of foreign competition in the home market (Crick & Spence, 2005).

Process innovation

SMEs would introduce process innovation when it participates in internationalization activities. The innovation introduced often facilitates the well-organized use of wealth in the respective country. SMEs that participate in international business activities have a higher rating compared to their non-internationalized counterparts. On the contrary, non-internationally active firms display a reversed phenomenon (Crick, 2009). On average, firms with international business, activities more often bought in process innovations that are unique to the financial sector. This provides a differentiation into the varying ways of internationalization. It has been revealed that this does not hold when business firms are subcontractors to foreign major contractors (Harvie & Lee, 2002).

Effect on performance of enterprise

Economic research is not conclusive concerning the relationship between being internationally active and enterprise performance in terms of growth. In most cases, entry modes differ when benefits and costs are put into perspective. However, the advantages of dealing with export business within a firm level are emphasized since they may bolster sales growth, employment growth, and improved financial performance (Gassmann & Enkel, 2004).

Significant disparities are evident when SMEs involved in several modes of internationalization with those that are not are compared. The combinations of the internationalization modes and SMEs with actual plans have shown high employment growth (Lenihan, 2010).

Barriers for internationalization as perceived by SMEs

The fundamental barriers as seen by SMEs are internal and external barriers. Internal barriers refer to the price of their own product or service. It also relates to the high expenses of internationalization. On the other hand, external barriers relate to insufficient capital, inadequate information, inadequate public support (Barber & Alegre, 2010). Moreover, external barriers could include the expenses of paperwork associated with transport.

Inadequate capital and insufficient public support are the main barriers to effective internationalization. This might be linked to the fact that large and experienced SMEs are active in diverse markets. The barriers are extreme when SMEs are small. Besides, awareness of public support programs among SMEs is not very high. In many developing countries, SMEs are often unaware of the existing public support programs for internationalization (Spence, Manning & Crick, 2008).

One of the main steps in adequately supporting SMEs to get access to international market opportunities is to increase the low awareness of business support programs among SME. Moreover, the use of public support is still very low. Only a small fraction of the total number of SMEs uses public.....

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