Journal of Small Business and Enterprise

Journal of Small Business and Enterprise Development
SME int ernat ionalizat ion research: past , present , and f ut ure
Mitja Ruzzier Robert D. Hisrich Bostjan Antoncic
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Mitja Ruzzier Robert D. Hisrich Bostjan Antoncic, (2006),"SME internationalization research: past, present,
and future", Journal of Small Business and Enterprise Development, Vol. 13 Iss 4 pp. 476 - 497
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JSBED
13,4 SME internationalization
research: past, present,
and future
476
Mitja Ruzzier
Arc-Kranj, Kranj, Slovenia
Robert D. Hisrich
Thunderbird, The Garvin School of International Management, Glendale,
Arizona, USA, and
Bostjan Antoncic
Faculty of Management, University of Primorska, Koper, Slovenia
Abstract
Purpose – The purpose of this paper is to understand the similarities and differences in the
internationalization of SMEs and MNEs and the specific factors affecting them.
Design/methodology/approach – The relevant literature was reviewed particularly in the context
of the major theories of internationalization.
Findings – The positive and negative aspects of each theoretical approach to internationalization are
present to form the basis of a new model of international entrepreneurship.
Research limitations/implications – The newly developed conceptual model has not been
empirically tested.
Originality/value – A redeveloped theoretical integrative conceptual model of international
entrepreneurship is proposed based on four internationalization properties (mode, market, product, and
time), internationalization performance, and key antecedents and consequences of the internationalization
process.
Keywords Small to medium-sized enterprises, Resources, Research
Paper type Conceptual paper
Introduction
Internationalization is a phenomenon researched intensively over the last few decades
from a variety of viewpoints, including: organization theory, marketing, strategic
management, international management, and small business management. Issues such as
international decision-making and management, the development of international
activities, and factors favoring or disfavoring internationalization have been studied for
both large as well as small businesses.
The focus of this study is on small and medium enterprises (SMEs) and their strategic
internationalization and export behavior. Given the nature of today’s marketplace, SMEs
Journal of Small Business and
are increasingly facing similar international problems as those of larger firms. For many
Enterprise Development SMEs, especially those operating in high-technology and manufacturing sectors, it is no
Vol. 13 No. 4, 2006
pp. 476-497 longer possible to act in the marketplace without taking into account the risks and
q Emerald Group Publishing Limited
1462-6004
opportunities presented by foreign and/or global competition. As a result, discussion of
DOI 10.1108/14626000610705705 internationalization in this study needs to cover to some extent, aspects of general
internationalization of both large and small firms, while focusing on the SME research
internationalization of SMEs.
Internationalization – the evolution of the concept

In previous international business literature, mature multinational corporations played
a dominate role, whereas SMEs (and especially their internationalization) have only
recently attracted broader interest (Miesenbock, 1988). This reflects the fact that 477
several countries, particularly those experiencing balance of payment deficits, have
attempted to increase the international activities of their SMEs in order to boost
economic growth, cut unemployment and create potential mini-MNEs in the future.
Internationalization is a synonym for the geographical expansion of economic
activities over a national country’s border. The term started to be used when the
phenomenon gradually replaced imperialism as the dominant organization principle

framing cross-border interaction between market economies starting in the 1920s. The
economic internationalization process accelerated in the post-second-world-war era
and appeared unrivalled until the early 1970s, when a new phenomenon of
globalization started to emerge (Gjellerup, 2000).
Globalization usually refers to a stage in which the firm’s operations are managed on a
global scale, not in just a few selected countries. It is characterized by the worldwide
integration of ever more competitive markets and companies facing global competition.
Traditional exports are increasingly coming under pressure while the conditions for
marketing and production are changing rapidly. As a result, today’s companies, including
SMEs, have to respond to markets at an increasingly faster pace (Pleitner, 2002).
Globalization also includes the functional integration of geographically dispersed
economic activities. It means something more in terms of the scope, content and intensity
of mutual connections, capital and management involvement (Svetlicic, 1996) and is
therefore a qualitative extension of internationalization (Gjellerup, 2000).
It is generally agreed that three forces are driving the globalization of business (Acs
et al., 2001; Gjellerup, 2000). The first is the explosive growth of low-cost technology
connecting people and locations. Better information-processing and communication
technology is creating a greater awareness of international economic opportunities.
The second force behind the globalization of business is the steady dismantling of
trade barriers and financial deregulation. Free-trade agreements have generated a
more level playing field for innovative firms. The third force motivating the
globalization of business is the widespread economic restructuring and liberalization
that followed the fall of socialism in Russia and Central/Eastern Europe, as well as the
geographical expansion of markets in Asia, particularly China. These previously
closed areas are now new markets and magnets for investment, opening further
opportunities for growth and investment.
However, despite all these driving forces of globalization, internationalization has
not been replaced, and many observations on internationalization remain valid today.
The fact is that globalization’s impact on the SME sector is likely to be more profound
than on the already highly internationalized large corporate sector. While previously
SMEs were considered passive victims rather than active players, evidence indicates
that this view is no longer valid. In the last few decades, many SMEs have successfully
set up activities beyond their home markets and their role is increasingly crucial in
contributing to future growth (Gjellerup, 2000).
JSBED Globalization and the attendant issues have only recently been introduced in small
13,4 firm development and research (Madsen and Servais, 1997). Ruigrok (2000) proposed
that the term “global” should be reserved for those companies and phenomena that
really deserve this label. Traditionally, SMEs restricted their activities to the region of
their location, or stayed within their national boundaries (Pleitner, 1997). Today many
are active in one or two world regions and are therefore international or regional
478 players. Following Ruigrok (2000), the term internationalization will be used to refer to
SMEs’ outward movement of international operations, while globalization will refer to
the international connectivity of markets and the interdependence of national
economies strongly affecting all SMEs’ activities.
Internationalization also means a changing state. The growth of the firm provides a
background to internationalization and to some degree the concepts of
internationalization and growth are intertwined (Buckley and Ghauri, 1993).

However, some features are unique to internationalization or, at least, there are
significant degrees of difference between growth at home and growth internationally.
As is indicated in Table I, existing research has focused on SMEs’
internationalization mainly from the point of view of the firm’s international
activities or operations by applying product, operation, and market analyses (e.g.
Luostarinen, 1979) or network analyses (e.g. Johanson and Mattson, 1993). There is a
tendency in small firm research to view the process of internationalization as
evolutionary (Luostarinen, 1979; Johanson and Wiedersheim-Paul, 1975) through
which companies become increasingly committed to, and involved in, international
activities, but at a certain point can also become inverted and result in
de-internationalization (Calof and Beamish, 1995). In Nordic countries the
internationalization of SMEs has traditionally been defined as “the process of
increasing involvement in international operations” (Welch and Luostarinen, 1993,
p. 156) and this process has often been understood as gradual and sequential,
consisting of several stages.
In a network context, Johanson and Mattsson (1993, p. 306) described
internationalization as a “cumulative process, in which relationships are continually
established, maintained, developed, broken and dissolved in order to achieve the
objectives of the firm”. This view, however, seems somewhat fragmented as it focuses
exclusively on relationships. Assuming that SMEs operate within their natural
context, the view of Johanson and Vahlne (1990, p. 20) developed from Johanson and
Mattsson (1993) appears more promising. They define internationalization as the
“process of developing networks of business relationships in other countries through
extension, penetration, and integration”.
In their definition, Lehtinen and Penttinen (1999) try to summarize the fundamental
characteristics of the internationalization process based on the Nordic research
findings. Their definition also covers two concepts occasionally applied in the context
of internationalization, namely international orientation and international
commitment. International orientation refers to a firm’s general attitude towards
internationalization, thus representing an evaluative dimension. Reid (1981) defined it
as a measure of the perceived difference between foreign markets and the home market
space along economic, cultural, political, and market-strategic dimensions.
International commitment is basically associated with the requirements of the
operation modes chosen and the size of international business. The latter seeks to
SME research
Author Definition Focus
Welch and Internationalization is the outward Process, firm’s operations

Luostarinen (1993) movement of a firm’s international
operations
Calof and Beamish Internationalization is the process of Process, firm’s operations
(1995) increasing involvement in 479
international operations
Johanson and Internationalization is the process of Process, firm’s operations
Mattson (1993) adapting firms’ operations (strategy,
structure, resources etc.) to
international environments
Johanson and Vahlne Internationalization as a cumulative Relationships, process
(1990) process in which relationships are
continually established, developed,

maintained and dissolved in order to
achieve the firm’s objectives
Lehtinen and Internationalization as developing Networks, relationships
Penttinen (1999) networks of business relationships in
other countries through extension,
penetration and integration
Lehtinen and Internationalization concerns the Relationships, firm’s operations,
Penttinen (1999) relationships between the firm and its process, int. environment
international environment, derives its
origin from the development and
utilization process of the personnel’s
cognitive and attitudinal readiness
and is concretely manifested in the
development and utilization process
of different international activities,
primarily inward, outward and Table I.
cooperative operations Selected definitions of the
Ahokangas (1998) Internationalization is the process of Resources, process internationalization of
mobilizing, accumulating and SMEs classified by their
developing resource stocks for focus and research
international activities approach
position firms somewhere between the extremes of no involvement (domestic firm) and
full commitment (a firm with a realized foreign direct investment).
Generally, the overall research focus has shifted from the definition and analyses in
terms of international activities to the resources needed for internationalization. With
reference to the resource-based perspective, Ahokangas (1998) proposed a definition of
SME internationalization in terms of resources within the natural context (e.g. within a
firm’s network). An internationalizing firm can be viewed as mobilizing unique and
interdependent resource stocks that enable and contribute to the firm“s
internationalization activities within its natural context. This definition thus implies
that internationalization is “the process of mobilizing, accumulating, and developing
resource stocks for international activities”, regardless of the actual content of the
international activities themselves.
A company’s involvement in international business might arise when a company sells
its products to foreign markets, buys products from abroad or starts to cooperate in some
JSBED area with a foreign firm. This implies that international operations can be divided into
13,4 “inward”, “outward” and “cooperative” operations, which shows the “holistic nature of
internationalization” (Korhonen, 1999). Although internationalization is a
multidimensional phenomenon, this study focuses on SMEs’ outward
internationalization, due to the following. First, more than inward operations, outward
operations can in the long term increase the competitive advantage of a company,
480 organization or a country. Second, at the firm level outward internationalization benefits
may also be evident in the form of product and process innovation, better utilization of
capacity, skill development and a generally improved business performance (Morgan and
Katsikeas, 1997a). Third, at the country level outward internationalization induces several
favorable outcomes for productivity performance, labor market employment levels,
foreign exchange accumulation and related externalities such as industrial welfare and
societal prosperity. Fourth, the intensifying competition, integration and liberalization
seen in international markets have forced firms to begin considering outward

international activities as a key factor in their future growth, profitability and even
survival. Finally knowledge of the outward internationalization process and related
operations is more complex than that for inward internationalization.
Selected internationalization theories and models

In terms of the individual firm, the basis of internationalization research can be found
in the behavioral theory of the firm proposed by Cyert and March (1963) as well as in
different decision-making theories. From a market perspective, trade theories can also
provide a lens on internationalization research.
Havnes (1994, cited in Ahokangas, 1998) argued that any of the models of small firm
internationalization can be seen as presenting either a market, firm or entrepreneurship
perspective. The market perspective of internationalization has mainly been restricted
to studies on internationalization or the diversification strategies of large firms
conceived within the context of strategy research with roots in economics (e.g.
Dunning, 1988; Mahoney and Pandian, 1997). The firm perspective, which includes the
stage models of internationalization, provides the bulk of available literature on SMEs’
internationalization, whereas the number of studies based on the entrepreneurship
perspective is much less (e.g. Cavusgil and Naor, 1987).
In the current research, there is a difference in focus for large versus small
businesses. Although global strategies, strategic international alliances, and problems
of diversification and control are concepts frequently encountered, the discussion
focuses almost exclusively on large firms or the so-called multinational enterprises
(MNEs). Small entrepreneurial business research is more concerned with various
stages (or export development models) of internationalization. In spite of the gap
between the two lines of research, both build on the foundations of organization theory,
although significant differences have resulted. Attempts to apply theories developed
for or based on large firms may lead to relatively awkward results when applied to
smaller businesses as ideas developed for large firms do not necessarily work in a
small business setting (Chen and Hambrick 1995, cited in Ahokangas, 1998).
Internationalization theories focusing on MNEs

The beginning of internationalization research in the late 1950s and 1960s focused on
large multinational companies and their international activities often called the
economic approach, resulted in a vast body of theoretical and empirical data. Some of SME research
the main theories on the internationalization of MNEs resulting include: the
internalization theory, the transaction cost theory, the eclectic paradigm, and the
monopolistic advantage theory. The abovementioned theories are the dominant
approaches in MNE research and will only be presented in brief as the core of this
study concerns SMEs.
481
Internalization theory
Internalization theory centers on the notion that firms aspire to develop their own
internal markets whenever transactions can be made at a lower cost within the firm
and will continue until the benefits and costs of further internalization are equated to
the margin (Buckley and Casson, 1993). Internalization can involve a form of vertical
integration bringing new operations and activities, formerly carried out by

intermediate markets, under the ownership and governance of the firm especially
when natural markets are imperfect or missing. Internalization of transactions beyond
national borders leads to the creation of the multinational enterprise. Antecedent to
market internalization is a process of information gathering and assessment, through
which management determines the best foreign expansion approach.
The transaction cost approach

Referring to the transaction cost approach, Teece (1986, cited in Gilroy, 1993, p. 82)
remarked, “At one level the internalization school and the transaction cost approach
are one and the same. Both see the firm as a response to market failure. Profit-seeking
firms internalize operations when by so doing the costs of organizing and transacting
business will thereby be lowered”. The difference of both theories is that in the
transaction cost approach the unit of analysis is the transaction itself (Williamson,
1975; Gilroy, 1993).
The eclectic paradigm

The eclectic paradigm, also known as the OLI Paradigm, is based on internalization
theory and tries to explain the different forms of international production as well as the
selection of a country for FDI (foreign direct investments). According to Dunning
(1988), the internationalization of economic activity is determined by the realization of
three types of advantages. First, ownership advantages which are specific to the
company and related to the accumulation of intangible assets, technological capacities
or product innovations. Second, the internalization advantages stemming from the
capacity of the firm to manage and coordinate activities internally in the value-added
chain. These are related to the integration of transactions into multinational hierarchies
through FDI. Third, location advantages referring to the institutional and productive
factors present in a particular geographical area. These arise when it is better to
combine products manufactured in the home country with irremovable factors and
intermediate products of another location.
Monopolistic advantage theory

Monopolistic advantage theory holds that MNEs exist because a firm has unique
sources of superiority over foreign firms in their own markets (Hymer, 1976, cited in
McDougall et al., 1994). The advantages belong to the MNE and cannot be acquired by
JSBED other firms. One type of monopolistic advantage is superior ability. Hymer (1976, cited
13,4 in McDougall et al., 1994) argued that MNEs have superior knowledge, as found in the
form of superior manufacturing processes, brand names, differentiated products,
organizational talents, or patented technology. Monopolistic advantage theory holds
that once a firm has developed this superior knowledge, it can exploit this advantage
overseas at virtually no additional cost over that of exploiting that advantage in the
482 home market (Caves, 1971, cited in McDougall et al., 1994). Because local entrepreneurs
have to pay the full cost of developing this knowledge, they are unable to compete with
the foreign firm despite their advantage in local market knowledge.
Stage models of internationalization

There are two primary stage models – the Uppsala Internationalization Model
(U-model) and the Innovation-related Model (I-model).
Uppsala internationalization model (U-model)

The second stream of research on internationalization focusing on SMEs started
sometime in the early 1970s in the Nordic countries, with these researchers collectively
being referred to as the Uppsala School. Researchers operating in small and open
economies were more interested in the dynamics of the whole internal process of small
firms (Bloodgood et al., 1996; Korhonen, 1999). Because of these differences in the
research objects and research contexts, Nordic researchers started their own
theory-building.
Researchers in Sweden and Finland at around the same time developed models of
internationalization generally referred to as Nordic models (Korhonen, 1999) or
learning models (Ahokangas, 1998). Influenced by the behavioral theory of the firm
(Cyert and March, 1963, cited in Ahokangas, 1998) and Penrose’s theory of knowledge
and change in organizations (Penrose, 1959), Johanson and Vahlne (1977, 1990)
developed the Uppsala Internationalization Model. In this dynamic model,
internationalization of the firm is seen as a process of increasing a company’s
international involvement as a result of different types of learning. According to the
model, the authors propose that the general and experiential market knowledge and
resource commitment of firms (state aspects) affect commitment decisions and current
business activities (change aspects). The change aspects, in turn, increase the market
knowledge and stimulate further resource commitment to foreign markets in the
subsequent cycle (Andersen, 1993). This model implies that firms increase their
international involvement in small incremental steps within those foreign markets in
which they currently operate. Firms will then enter new markets lying at a greater
“psychic distance” due to differences in languages, education, business practices etc.
This accumulated knowledge in conducting international operations drives
internationalization by influencing the entry-mode and country-market selection.
In the Uppsala model, the concept of foreign market commitment is composed of
two factors: the amount of resources committed and the degree of commitment (see
Figure 1). The former can be operationalized as the size of the investments needed, e.g.
in terms of marketing, organization and human resources, while the latter refers to the
difficulty of identifying an alternative use for the resources and transferring them to
that alternative use (using the concept of sunk costs, Ahokangas, 1998).
The Nordic internationalization models have had a considerable influence on SME research
studies focusing on the internationalization of firms and significant efforts have been
made to further test and refine the ideas (Vida and Fairhust, 1998; Morgan and
Katsikeas, 1997b; Clark et al., 1997; McAuley, 1999; Peng, 2001; Eriksson et al., 2000;
Knight and Liesch, 2002; Chetty, 1999; Glas et al., 1999). Although research has
provided some empirical support for the Nordic models, some criticisms have emerged
(for a detailed review of weaknesses of the stages model, see Chetty, 1999). The 483
Uppsala internationalization model has been criticized as deterministic (Reid, 1981)
and, if firms were to develop in accordance with the model, individuals would then
have no strategic choices (Andersson, 2000). Another bigger challenge is that today
many firms simply do not follow the traditional pattern of internationalization
proposed by stage theory. Some firms are international from their birth and have been
called: international new ventures (McDougall, 1994; Oviatt and McDougall, 1994,
1995), born global (Madsen and Servais, 1997), and global start-ups (Oviatt and
McDougall, 1995). Some authors have proposed separating the research into
international start-ups from traditional small business internationalization
(McDougall et al., 1994); these arguments for separation are mainly based on
specificity of the time of internationalization. In terms of internationalization correlates
the argument is somewhat arbitrary at best (Antoncic and Hisrich, 2000).
Innovation-related models (I-models)

The term “innovation-related” is derived from the work of Rogers (1962, cited in
Gankema et al., 2000), in which each subsequent stage of internationalization is
considered as an innovation for the firm (Gankema et al., 2000). Their focus is
exclusively on the export development process, in particular of small and
medium-sized firms. Leonidou and Katsikeas (1996) on the basis of a comprehensive
review of the most important models (Bilkey and Tesar, 1977; Cavusgil, 1980; Reid,
1981) noted that the models are a number of fixed, sequential stages, although the
number of stages varies considerably between models, ranging from as few as three to
as many as six. They also identified three generic stages: the pre-export stage; the
initial export stage, and the advanced export stage. Andersen (1993) pointed out that
generally the models are relatively similar and the differences tend to be in the number
of stages and terminology used. Being behaviorally oriented to a significant extent,
these models treat individual learning and top managers as important aspects in
understanding a firm’s international behavior (Andersson, 2000).
Figure 1.
The Uppsala model of
internationalization
JSBED Some feel that the proposed stage models (innovation-related) are quite vague in
13,4 theoretical terms. The demarcation criteria for distinguishing between stages are
problematic (Miesenbock, 1988; Andersen, 1993) and too little attention is paid to the
time of the different stages as well as to the operationalization of the stages.
Determining the stage differences with reference to activities appears to be more a
matter of subjective opinion rather than discovering real differences between the
484 stages. Ahokangas (1998) noted that, from a process point of view, these models fall
short in that they only describe the process of change but not its dimensions nor the
different approaches used by firms in developing their activities.
The first two types of models (the Uppsala and Innovation-related models) have
been used to analyze small, but also large, firms with the focus on explaining the
development of internationalization and international activities. The main thrust of
these models is the incremental nature of internationalization processes, first, in terms

of activities and, second, in terms of resources – the basic building blocks of the
behavior of firms. Since these models have long been in the mainstream of
internationalization research, a wide variety of such models are found in the literature.
The mode of explanation employed in the models varies from cyclic to stage-based to
evolutionary, with the different modes frequently being confounded.
Network approaches to internationalization

Another way to analyze a firm’s internationalization within a process approach is to
use the network as the starting point since this approach provides an appropriate
framework for understanding firms as embedded actors in business networks
(Johanson and Mattsson, 1993; McAuley, 1999). Based on the Uppsala model, Johanson
and Vahlne (1990) continued an examination of the internationalization process by
applying a network perspective. The extension of the model involves investments in
networks that are new to the firm, whereas penetration means developing positions
and increasing resource commitments in networks in which the firm already has
positions. Integration can be understood as the co-ordination of different national
networks. Thus, if the relationships between firms are seen as a network, it can be
argued that firms internationalize because other firms in their (inter)national network
are so doing. Within the industrial system, firms engaged in the production,
distribution and use of goods and services depend on each other due to their
specialization. Certain industries or types of markets are more likely to be
internationalized given the configuration of the world economy (Buckley and
Ghauri, 1993; Andersen, 1993).
In the model of Johanson and Mattson (1993) the emphasis is on gradual learning
and the development of market knowledge through interaction within networks. A
firm’s position in the network may be considered both from a micro (firm-to-firm) or a
macro (firm-to-network) perspective. From the micro perspective, complementary as
well as competitive relationships are crucial elements of the internationalization
process. In other words, firms are interdependent both through co-operation and
competition. Both direct (involving partners in the network) and indirect (involving
firms that are not partners in the network) relations within networks need to be taken
into account when analyzing macro relationships. By combining micro and macro
perspectives of networks, Johanson and Mattsson (1993) identified four stages of
internationalization: the early starter, the late starter, the lonely international, and the SME research
international among others.
According to their model, internationalization of the firm means that the firm
establishes and develops positions in relation to other counterparts in a foreign
network. The internationalizing firm is initially engaged in a network which is
primarily domestic and then further develops business relationships in networks in
other countries. This is achieved through the establishment of relationships in country 485
networks that are new to the firm (international extension), through the development of
relationships in those networks (penetration) and through connecting networks in
different countries (international integration). The strength of the network model of
internationalization lies in explaining the process rather than the existence of
multinational or international firms. From the network perspective, the
internationalization strategy of a firm can be characterized by the need to:

.
minimize the need for knowledge development;
.
minimize the need for adjustment; and
.
exploit established network positions (Johanson and Mattsson, 1993).
Much of the network-based research on international business focuses on the

management of international relationships. In these studies, the firm is viewed as a set
of interlinked relationships connecting it with other firms in a more or less intimate
fashion, depending on relationships within the network (e.g. Blankenburg et al., 1996,
cited in Ahokongas, 1998). Theoretical issues raised with regard to networks include
not only the different types of relationships and their properties, but also issues such as
trust, control, resources, and interdependency within and between firms. What seems
to be neglected in most process-oriented research and especially within networks
approach is the strategic position and influence of individuals, especially
entrepreneurs, in the SMEs’ internationalization.
Knowledge embedded in long-term relationships is often concentrated in one person
in the firm, who will have a substantial impact on internationalization through close
social relationships with other individuals. Such social relationships are extremely
important for entrepreneurs and their business (Davidsson and Honig, 2003; Hoang
and Antoncic, 2003). This social network is a sub-network within the business
network, effecting and being effected by the gained resources and the chosen
operational mode (Holmlund and Kock, 1998).
Inter-firm and interpersonal relationships also appear to be influential in other
internationalization issues: foreign market selection (Andersen and Buvik, 2002);
market servicing (Welch and Welch, 1996); dynamics of entry (Meyer and Skak, 2002);
international market development and marketing-related activities (Coviello and
Munro, 1995); time of internationalization (Oviatt and McDougall, 1994); propensity to
export (Westhead et al., 2001); strategic choices and performance (Peng and Luo, 2000);
and degree of internationalization (Brush et al., 2002). Jaklic (1998) suggested that
networks can be especially useful for SMEs in catching-up economies since it is
possible to overcome some of the problems of knowledge and technology as well as
capital accumulation. Bonaccorsi (1992) illustrated that small firms trade and acquire
information with one another through their social network, which leads them to imitate
one another and speed up export entry.
JSBED Despite some shortcomings, network theory can shed light on how the resources,
13,4 activities, and actors (Hakansson and Snehota, 1995, cited in Ahokangas, 1998) within
networks affect the different dimensions of the internationalization processes of SMEs,
whether at the level of individual firms or for groups of firms. In summary, the network
of a firm is capable of providing the context for international activities, although
further study is required on the resources and development strategies used by firms.
486
Resource-based approach to internationalization
Based on existing models, a resource-based perspective on internationalization is
currently emerging. The objective is to develop a dynamic capabilities/resource-based
theory of the firm – whether this firm is domestic, international or global. The RBV
(resource based view), developed within the field of strategic management, has two
roots: seminal writings on business strategy by K. Andrews (1971, cited in Foss et al.,
1995) and A. Chandler (1962, cited in Foss et al., 1995) among others, and Edith
Penrose’s (1959) work called The theory of the growth of the firm, characterizing firms
as a collection of heterogeneous or firm-specific resources (Foss et al., 1995). Recently,
numerous strategy scholars have revitalized the concern about the resources and
capabilities side of firms (Foss and Eriksen, 1995).
The resource-based view of strategic management focuses on sustainable and
unique costly-to-copy attributes of the firm as the sources of economic rents, i.e. as the
fundamental drivers of the performance and sustainable competitive advantage
needed for internationalization. A firm’s ability to attain and keep profitable market
positions depends on its ability to gain and defend advantageous positions with regard
to relevant resources important to the firm (Conner, 1991). Resource-based models
recognize the importance of intangible knowledge-based resources in providing a
competitive advantage. They address not only the ownership of resources, but also the
dynamic ability for organizational learning required to develop new resources. This
has led to an improved understanding of firms’ diversification strategies (Montgomery
and Wernerfelt, 1997), internationalization being one of them.
Given the heterogeneity of small firms and their operating environment, there are
fundamental difficulties in seeking to identify and define the critical resources needed
for internationalization. By focusing on the attributes that resources should possess to
sustain a long-term competitive advantage, authors have proposed different
characteristics (Barney, 1991; Peteraf, 1993; Wernerfelt, 1997; Mahoney and Pandian,
1997; Grant, 1991). Barney (1991), for example, argued that resources must be valuable,
rare, imperfectly imitable and not substitutable, while Grant (1991) proposed that
resources must capture durability, transparency, transferability, and replicability.
These different perspectives indicate that these attributes are “often relatively broad
and hazy” (Winter, 1995) and that there are “not clear boundaries between them”
(Andersen and Kheam, 1998). Resources in general can be considered stocks of
available tangible or intangible factors[1] that are owned or controlled by the firm and
converted into products or services, using a variety of other resources and bonding
mechanisms.
Past research offers few examples of resource-based or capabilities-based studies of
small firms’ internationalization. They include models of Rautkyla (1991, cited in
Ahokangas, 1998), Hurry (1994, cited in Ahokangas, 1998), Roth (1995), Luo (2000) and,
the most promising of them all, the model of Ahokangas (1998). This model concerns
resource development and strategic internationalization behavior of small firms SME research
combining the strategic and network perspectives of resources. Ahokangas (1998)
assumes that SMEs are dependent on the development potential of key internal and
external resources, which can be adjusted/developed within the firm and between firms
and their environments. This adjustment behavior is analyzed along two dimensions:
(1) where do the resources reside; i.e. what is their source – are they internal or
external to the firm; and 487
(2) does the development of resources take place in a firm-oriented manner (inward
orientation) or in a network-oriented manner (outward orientation)?
From the perspective of the firm, these two dimensions lead to four hypothetical modes
of resource adjustment: the adjustment of:
(1) internal resources in a firm-oriented mode;

(2) external resources in a firm-oriented mode;
(3) internal resources in a network-oriented mode; and
(4) external resources in a network-oriented mode (see Figure 2).
The key issues concerning these modes of resource adjustment include control over
and interdependence between the critical resource stocks. This is predicated on the
assumption that the accumulation of interdependent resource stocks at the firm level is
based on shared control.
The first kind of resource adjustment (internal firm-oriented) can be seen as the
development strategy of a firm that tries alone to develop the critical resources
needed for internationalization by entering into international activities and learning
from experience, without depending on externally available resources.
External resources in the development of the firm’s internal resources, such as
relationships with various expert organizations, research institutions or universities,
represent the second mode of adjustment (external firm-oriented). The adjustment of
internal resources in a network-oriented mode involves development activities
traditionally associated with co-operation in any field from R&D to international
Figure 2.
Modes of resource
adjustment
JSBED after-sales services (usually in the form of alliances between firms), where both
13,4 partners share an interest in developing resources jointly. The last adjustment mode
(external network-oriented) comprises networking behavior that is taken a step further,
from sharing only resource stock interdependencies to also sharing control over the
firm’s resources. Some examples are mergers between two firms or joint ventures.
The practical application of the model of resource adjustment is that firms may
488 pursue different internationalization development strategies, with different
international activities over time. They can be either firm- or network-oriented
resource development strategies or a combination utilizing internal and external
resources.
The development of resource-based theory and the network perspective seems to
have gone hand in hand. In both theories, internal and external resources available to
the firm are seen as constituting the total set of resources available to the firm. In order
to gain access to strategic resources, firms may co-operate vertically, with respect to
the product flow, or horizontally with competitors in other worlds by entering into
network relations. To some extent, the network and resource-based approaches also
seem to be merging, with the model proposed by Ahokangas (1998).
Network perspective, which claims that the network (and the actors within the
network) provide the resources for internationalization, offers another point of view
with regard to available resources. From the entrepreneurial perspective, networks of
individuals and the tacit knowledge they integrate (social capital of entrepreneurs) can
be seen as resources themselves. Individual entrepreneurs (and their firms) are
connected through networks with other entrepreneurs (companies) in the same
industry and a wider (international) environment. And it is through networks that
entrepreneurs get access to resources and information for entrepreneurial actions.
Resource-based models and traditional models of internationalization (the Uppsala
and innovation-related models) can be further distinguished by the way in which the
theoretical underpinnings are made explicit in research derived from the
resource-based theory (Andersen and Kheam, 1998; Ahokangas, 1998). The central
construct of the models rests on (organizational) experimental learning that increases
(market) knowledge and leads the firm to increased (market) commitment. Market
knowledge is based on Penrose’s (1959) definition of experimental knowledge, which
can be learned only through personal experience. In experimental learning, the
organizational capabilities of firms within a dynamic nature of a model can be
recognized. Since the theoretical foundations of the resource-based approach are still at
an early stage of development, it is sometimes difficult to discern to what degree
researchers are relying on internationalization research or resource-based theory. The
absence of SMEs research is striking, however.
International entrepreneurship
The economic view is useful in establishing single production facilities during the later
stages of a firm’s internationalization (Vahlne and Noedstrom, 1993), but it ignores the
process aspects of internationalization. The process approach does handle this aspect
but, like the economic approach, overlooks the possibility of individuals making
strategic choices (Reid, 1983; Turnbull, 1988; Andersson, 2000) and is less appropriate
for understanding radical strategic change, where entrepreneurs and top managers
play an important role (Reid, 1981; Andersson, 2000). Since our interest is in the
internationalization of SMEs, we cannot neglect the importance of entrepreneurs, SME research
widely recognized as the main variables in SMEs’ internationalization (Miesenbock,
1988). However, in order to create the most value, entrepreneurial firms also need to act
strategically, and this calls for an integration of entrepreneurial and strategic thinking
(Hitt et al., 2001). Therefore, entrepreneurs can be seen as strategists who find a match
between what a firm can do (organizational strengths and weaknesses) within the
universe of what it might do (environmental opportunities and threats) (Foss et al., 489
1995).
The last approach to SMEs’ internationalization is a new emerging research area at
the interface of entrepreneurship and international business research called
international entrepreneurship (McDougall and Oviatt, 2000a; Antoncic and Hisrich,
2000). This newly created research field is still searching for the right definition of the
intersection of the two research paths, or more importantly the activities associated
with entrepreneurial firms seeking to cross national borders. The most recent proposed
definition specified international entrepreneurship (McDougall and Oviatt, 2000b) as a
“combination of innovative, risk-seeking behavior that crosses national borders and is
intended to create value in organization”. Similarly, even if attempts of a systematic
review of international entrepreneurship exist (McDougall and Oviatt, 1999, 2000),
there is still a lack of an integrative theory (Antoncic and Hisrich, 2000).
Figure 3 summarizes the findings of McDougall and Oviatt (2000a) on the domain of
scholarly literature on business organizations. They have noted there has been a
substantial body of research in quadrants I, III and IV. Research in quadrant I has been
the preserve of entrepreneurship scholars, and quadrant IV has been the focus of
international business scholars. Multiple functional areas have focused on quadrant III.
Quadrant II, a more sparsely studied area which represents the domain of international
entrepreneurship, is the subject of this study.
Given the above, international entrepreneurship will be labeled a research approach
to the internationalization of SMEs from the entrepreneurial perspective, which best
integrates all the relevant approaches to internationalization with entrepreneurship, as
a composite part of SMEs’ internationalization.
Alvarez and Busenitz (2001) and Rangone (1999) built a bridge between the
resource-based view and entrepreneurship, implicitly proposing entrepreneurs as the
source of sustained competitive advantage and (slightly) moving the focus of analysis
of the resource-based view from the firm level (Foss et al., 1995) to the individual level,
Figure 3.
The domain of
international
entrepreneurship with
regard to other academic
literature on organizations
JSBED but still in the context of resources. These authors suggest that entrepreneurs have
13,4 individual-specific resources that facilitate the recognition of new opportunities and
assembling of resources for the venture (Schumpeter, 1950; Alvarez and Busenitz, 2001;
Penrose, 1959). Entrepreneurial knowledge, relationships, experience, training, skills,
judgment, and the ability to coordinate resources are viewed as resources themselves
(Barney et al., 2001; Barney, 1991; Langlois, 1995). These resources are socially
490 complex and add value to the firm because they are not easy to imitate and other firms
cannot simply create them (Alvarez and Busenitz, 2001).
Some confusion still exists regarding the definition of entrepreneurship. Some
observers use the term to refer to all small businesses; others to all new businesses (Acs
et al., 2001). In practice, however, entrepreneurship (corporate entrepreneurship or
intrapreneurship) is also present in well-established large and small organizations,
being an important element of their organizational and economic development.

Who then are the founders of such entrepreneurial firms? Entrepreneurs are
individuals carrying out entrepreneurial actions (Andersson, 2000). They are one of the
most important agents of change with the capacity and willingness to take risks in
realizing their judgments, to be innovative and to exploit business opportunities in a
market environment (OECD, 2000). Often these opportunities can be perceived in
international markets and, to exploit them, entrepreneurs establish ventures that
operate across national borders. They are “alert” to the possibilities of combining
resources from different national markets because of the competencies (networks,
knowledge and background) they have developed in their earlier activities (McDougall
et al., 1994). Following the logic of the resource-based view of the firm, the possession
of such competencies are not the same for all entrepreneurs. Only the entrepreneur
possessing these competencies is able to combine a particular set of resources across
national borders as the basis of an internationalized firm.
At the heart of entrepreneurial activity is innovation (Hitt et al., 2001). Schumpeter
(1934) distinguished between invention and innovation, with invention being the
discovery of an opportunity and innovation being the exploitation of this opportunity
(Alvarez and Busenitz, 2001). International entrepreneurial success requires not just
the discovery of a valuable innovation but also that the innovation be introduced
successfully to world markets (Acs et al., 2001). This can be identified as
internationalization, or as an example of what Schumpeter defined as
entrepreneurial action (Andersson, 2000). He suggested five possible situations
where new innovations can occur. The entrepreneur “reforms or revolutionizes the
pattern of production by exploiting an innovation or an untried technology for
producing a new commodity or producing an old one in a way, by opening up a new
source of supply of materials, or a new outlet for products, or by reorganizing the
industry” (Schumpeter, 1934). Developing Schumpeter’s ideas further, the process of
internationalization can be seen as innovation adoption, which gives richer insight into
how international activities are initiated and developed (Reid, 1981) and recognizes the
idea of innovation-related models.
The historical development of theoretical models of internationalization may be
understood in terms of the four perspectives previously discussed, but increased
globalization and hyper-competition has led to a new phenomenon of international
start-ups which represent a challenge to such approaches to internationalization.
Especially in this new phenomenon and in SMEs in general, individual entrepreneurs
and their personal factors and relationships have an evident position. Recently, SME research
researchers (Antoncic and Hisrich, 2000) have proposed a new integrative conceptual
model that attempts to integrate the traditional models with the emerging area of
international start-ups. The model, indicated in Figure 4, is built around the concept of
internationalization that consists of internationalization properties (time and mode)
and internationalization performance. Other building blocks of the model are
internationalization antecedents (environmental conditions and organizational 491
characteristics) and internationalization consequences (organizational performance).
They have developed a set of propositions and implications about relationships in the
conceptual model.
This newly developed conceptual model of international entrepreneurship seen in
Figure 4, developed from the model originally proposed by Antoncic and Hisrich
(2000), represents the conceptual integration of the theory of small and medium firms’
internationalization process merging into the area of international entrepreneurship.

The main modifications from its original form are threefold. First, the entrepreneur’s
(founders/manager’s) characteristics, previously part of organizational characteristics
are now analyzed separately, and are divided into two parts: human and social capital.
This reflects the importance and role we believe founders/manager’s and their
characteristics have in the internationalization process. Second, internationalization
consists of four main dimensions (mode, market, product, and time) instead of two plus
internationalization performance (previously analyzed separately). Third, some
different parameters were selected for firm characteristics.
Conclusions and implications

With the global integration of economic environments and different factors driving
globalization and internationalization of companies with SMEs becoming the pillars of
economic growth and change, SME internationalization research will remain one of the
Figure 4.
The international
entrepreneurship
conceptual model
JSBED most important areas. Theories underpinning their research will have to adapt and
13,4 follow this development. This study contributes to SMEs internationalization
development theory with the conceptual integration of various SME
internationalization theories into a new emerging area of international
entrepreneurship. This study contributes to theory by proposing a redeveloped
theoretical integrative conceptual model of international entrepreneurship centering on
492 four internationalization properties (mode, market, product, time) plus
internationalization performance as well as key antecedents (environmental, firm,
and entrepreneur’s characteristics) and consequences of internationalization (firm
performance).
This study advances SME internationalization research by clarifying the new
emerging area of international entrepreneurship and its theoretical basis within
internationalization research. International entrepreneurship places more importance

on entrepreneurship and entrepreneurs (and their characteristics), widely considered as
the main variable in SME internationalization research. Second, it gives more
importance to the time dimension, with the increasing number of SMEs operating
internationally from their inception making time one of strategic dimensions of
internationalization.
The proposed international entrepreneurship model shares limitations noted by
Antoncic and Hisrich (2000) in their initially developed conceptual model; the model is
comprehensive but not exhaustive, and it does not specifically address interactions
among constructs. Another limitation identified concerns the antecedents of
internationalization, especially companies’ and entrepreneurs’ characteristics. By
identifying such factors some limitations may arise. Did the antecedents of
internationalization (companies’ and entrepreneurs’ characteristics) determine the
degree of internationalization or the opposite? A longitudinal research design may
clarify this issue.
An important implication of the model for practitioners is that they need to
constantly evaluate different elements related to internationalization. Especially
crucial are the skills, competencies, and management know-how the entrepreneur
needs to develop in order to be successful in the process of internationalization.
Note
1. Different resource classifications have been proposed (e.g. Hall and Hofer, 1993; Grant, 1991).
Amit and Schoemaker (1993) suggested seven main categories of resources: (1) financial (size
and type of capital); (2) physical (location, plant, access to raw materials, transportation etc.);
(3) human (personnel and management); (4) technological (product and process-related); (5)
reputation (image, brands, loyalty, trust, goodwill); and (6) organizational resources
(management systems). Proponents of the network perspective have added a seventh
category, the relationships of the firm. Some of the firm’s relationships, for example those to
foreign customers, suppliers, authorities etc., constitute one of the firm’s most valuable
resources during the process of internationalization. Wernerfelt (1997) reduced resource
classification to three groups: physical, financial and intangible resources. The latter have
also been referred to as tacit knowledge (Peng, 2001) or organizational routines and skills
(Nelson and Winter, 1982).
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Corresponding author
Robert D. Hisrich can be contacted at: hisrichr@t-bird.edu
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Internationalization – the evolution of the concept

phenomenon gradually replaced imperialism as the dominant organization principle

internationalization and growth are intertwined (Buckley and Ghauri, 1993).

Welch and Internationalization is the outward Process, firm’s operations

continually established, developed,

seen in international markets have forced firms to begin considering outward

Selected internationalization theories and models

Internationalization theories focusing on MNEs

integration bringing new operations and activities, formerly carried out by

The transaction cost approach

The eclectic paradigm

Monopolistic advantage theory

Stage models of internationalization

(U-model) and the Innovation-related Model (I-model).

Uppsala internationalization model (U-model)

Innovation-related models (I-models)

these models is the incremental nature of internationalization processes, first, in terms

Network approaches to internationalization

internationalization strategy of a firm can be characterized by the need to:

Much of the network-based research on international business focuses on the

(1) internal resources in a firm-oriented mode;

being an important element of their organizational and economic development.

internationalization process merging into the area of international entrepreneurship.

Conclusions and implications

internationalization research. International entrepreneurship places more importance

international customer/market selection”, International Business Review, Vol. 11 No. 3,

Johanson, J. and Wiederscheim-Paul, F. (1975), “The internationalization of the firm – four

Morgan, R. and Katsikeas, C. (1997a), “Obstacles to export initiation and expansion”,

To purchase reprints of this article please e-mail: reprints@emeraldinsight.com

Construction Services: A Comparison between Emerging and Developed Economies’ Construction

Queensland University of Technology, Brisbane, Australia . 2014. Internationalisation of emerging market

Management 3:2, 145-158. [Abstract] [Full Text] [PDF]

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