RESE1119 - Research Methods

Research Proposal

Determinants of Export Performance for French SMEs of the Food Processing Industry

Under the Supervision of Dr Sven Kuenzel

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Course RESE1119: Research Methods (EU) Course School/Level B/PG Coursework Research Proposal Assessment Weight 100.00% Tutor S Kuenzel Submission Deadline 17/12/2014

Coursework is receipted on the understanding that it is the student's own work and that it has not, in whole or part, been presented elsewhere for assessment. Where material has been used from other sources it has been properly acknowledged in accordance with the University's Regulations regarding Cheating and Plagiarism.

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Table of contents

1. Introduction

1.1. Research Aim 1.2. Objectives 1.3. Research Questions

2. Literature Review

2.1. Different approaches to the Internationalisation process 2.1.1. Internationalisation as a gradual process 2.1.2. New approaches to the Internationalisation process

2.1.3. The distinguishing features of International SMEs

2.2 Determinants of export performance for SMEs 2.2.1. The resources of the firm

2.2.2. The characteristics of the company

2.2.3. The Internal and External Environments 2.2.4. Through a consensus ?

2.3. Interest of the Food-Processing Industry 2.3.1. Specific features of the sector 2.3.2. Innovation as a key factor for success 2.3.3. Determinants of innovation capabilities

2.4. Conclusion

3. Research Design

3.1. Methodological Approach 3.2. Data Set

3.2.1. Data Collection 3.2.2. Sample

3.3. Data Analysis Plan 3.4. Time Scale for the Research 3.5. Difficulties

4. Conclusions

5. References

6. Resources

1. Introduction

1.1. Research Aim

In Business, the concept of International Development is used to describe the expansion of a company outside its national boundaries. It has, for a long time, been seen as the domain of large firms. Indeed, Small and Medium Enterprises (SMEs) were thought not to have enough resources to cope with the negative impacts of global expansion (Dileep 2012, cited in Toulova, Votoupalova and Kubickova, 2014, pp. 419). However, today, their ability to successfully enter foreign markets is largely recognised. In a context of economic crisis, going global might even be considered by SMEs as a condition to expand and survive, by enhancing competitiveness (Bijman, Tulder and Van Vliet, 1998). Based on this assumption, a lot of studies have been conducted about the internationalisation of smaller firms, with an emphasis on the determinants of their performance in foreign markets. However, the changing and pluralistic nature of organizations makes it difficult to identify generally applicable best practices (Bryman and Bell, 2011, p.5), and justify a focus of the research on certain industries. In France, SMEs represent nearly 80% of the companies, but account for only 15% of the export in value, which shows that there is room for improvement. In the Food Processing Industry, leading sector, expanding its operations abroad is very complex, but it can also be very valuable, given the reputation of the French gastronomy (cf the success story of Michel et Augustin in Asia, or Bonne Maman, etc...). For SMEs, there are good opportunities to seize, on markets neglected by larger firms. However, although being of high interest, the case of agrifood firms has been largely underused by the Literature. From that perspective, this research aims, through a study of the Food Processing Industry, to enrich the knowledge regarding global expansion of SMEs. Existing theories and models regarding the determinants of performance will be tested on several French SMEs from the sector, whose specific features (perishability of the products, low margins, transportation, regulations to comply with...) might lead to significantly different findings, and offer new research avenues.

1.2. Objectives

This project starts with a literature review to underline the different approaches that can be found regarding the international development of firms, and acquire general knowledge about the topic. The next step is to point out the gaps in the existing literature, in order to define a focus for our research, and adress several questions that should be answered. Then, the formulation of various hypotheses will lead us to the investigation part of the project, which aims to measure the impact of several factors on the performance of Global SMEs from the Agrifood sector. Different methods for collecting and analysing data will be used, in order to confirm or reject the hypotheses, and explore new research avenues.

1.3. Research Questions

These research questions will constitute the starting point of our project. By defining a focus, they prevent from a massive collection of useless data (Bryman and Bell, 2011). Regarding the international development of Small and Medium Enterprises, several issues emerged from the literature, and made us adress a few questions we would like to answer : Is the success of Small and Medium Enterprises into foreign markets solely dependent on

their resources ?

Do the characteristics of the industry influence the international development of firms ? What are the motives and obstacles to going global in the Food Processing Sector ? To what extent is Strategic Management the core determinant of a firms performance in

foreign markets ?

From that perspective, the main question of this research project is : What are the determinants of Export Performance for French SMEs of the Food Processing Industry ?

2. Literature Review

Many studies have been written over internationalisation of SMEs and, interestingly, they often came to very different conclusions. The aim of this literature review is to critically analyse the different approaches found in the literature, in order to highlight the existing gaps and lay the foundations for further research, as suggested by my research questions.

2.1. Different approaches to the Internationalisation process

2.1.1. Internationalisation as a gradual process Based on the Uppsala Model (U-Model), the process of international development has

long been considered as slow and gradual, resulting from a series of incremental decisions. Businesses, due to their lack of knowledge regarding foreign markets, were assumed to build a stable regional position before expanding abroad (Johanson and Vahlne 1977, pp. 23-32). Inspired by the behavioural theory of the firm (Cyert, Feigenbaum and March, 1959, pp. 8195), the model advocates experiential learning and risk aversion (Chetty, 1999; Zucchella, 2004; Servais and Rasmussen, 2004 cited in Osarenkhoe, 2009, pp. 286316).

2.1.2. New approaches to the Internationalisation process Recent studies depicts international development as a non-linear and dynamic process. Previously, a gradual approach was justified by the need to acquire knowledge about foreign markets. But today, with a growing number of people with extensive experience of global business, enterprises can easily hire the competence they need (Hollensen, 2007 cited in Osarenkhoe 2009, pp. 286316). Moreover, in a globalised economy, with improved transportation and communication technologies, expansion has become easier. Thus, more and more companies are considering taking the great leap forwards (Pedersen and Shaver 2011, pp. 263274). This trend leads to the born (again) globals , SMEs that expand internationally quickly after their creation, and compete, to some extent, with large multinationals (Bonaccorsi 1992, pp. 605635; Oviatt, Maksimov and McDougall 2011). To overcome the cost of foreigness , these firms necessitate a compensating advantage (Kindleberger and Kaldor 1969). Thus, Williamson (1975 cited in Osarenkhoe 2009, pp. 286316) using the Transaction Cost Approach (TCA), states that managers should implement a strategy that helps minimise production and transaction costs. However, the strategy depends on several other factors, such as the relationship with stakeholders (Mattsson and Johanson 2006, pp. 259274). As highlighted by Penrose, entry strategy also relies on the business capabilities, and the opportunities in the foreign environment (1995). From that perspective, it seems crucial to analyse the specific characteristics of SMEs and their impact on the internationalisation process.

2.1.3. The distinguishing features of International SMEs The lack of resources, planning activities and knowledge about foreign market is often

seen as the main obstacle to the internationalisation of SMEs (Toulova, Votoupalova and Kubickova, 2014, pp. 419 ; Chtourou, 2006, p. 88). In the Food Processing Industry, low margins, lack of guidance, constraints in terms of regulations and nature of the product (perishability), combined with a more and more demanding customer, add to the complexity of the process (Benyahia-Taibi, 2011). Nevertheless, going global might be a very valuable option for SMEs, given the good opportunities on markets neglected by larger firms. Moreover, the specific features of SMEs, often considered as obstacles, can also give them significant advantages over larger firms. Paunovic and Prebezac (2010) argue that, due to a smaller size and a less complex organizational structure, SMEs have a good innovation potential, and can respond faster to changing business environments.

2.2 Determinants of export performance for SMEs

2.2.1. The resources of the firm The Resource-Based View (RBV) (Barney, 1991, pp. 99120) argues that the success

of SMEs in foreign markets relies on their resources and capabilities. This theory has been supported by many authors, such as Beamish and Dhanaraj (2003, pp. 242261). Admittedly, resources matter, as SMEs must overcome several barriers while trying to expand. But the potential usages, and so the value of a resource for a company, depend on the way the management team will combine it, coordinate it and use it with other resources (Sanchez, 2000, pp. 5581). Thus, emphasis should rather be on how resources are being used, which reflects the impact of the management team.

2.2.2. The characteristics of the company Several authors point out a correlation between the characteristics of the firm and its

export performance.

First, the size of the company which, according to Oviatt and McDougall, is linked to its level of internationalisation (cited in Chtourou, 2006, p. 88). Several studies (Miesenbock, 1988, pp. 4261 ; Wagner, 1995, pp. 2939) assume that the larger is a company, the higher is its export performance. However, smaller firms are often associated with more growth opportunities and increased flexibility, which may improve their performance (Bonaccorsi, 1992, pp. 605635 ; Calof and Beamish, 1995, pp. 115131).

The experience of the firm, which depends on its age and its export experience, is also assumed to positively influence its performance in foreign markets, due to its association with maturity in terms of management and business partnerships (Ursic and Czinkota, 1984, pp. 159168). However, an older firm might be less likely to implement innovative strategies, which are considered as a key success of factor in the Food Processing Industry (Maurel, 2009, pp. 118142). Moreover, these determinants, because of their static nature, have a limited scope. From that perspective, several authors focused on dynamic characteristics. For example, an export-oriented management is believed to enhance the performance of SMEs abroad (Maurel, 2009, pp. 118142 ; Remaud and Couderc 2006). Stevenson, Roberts and Grousbeck (1985) go further, by linking performance not only to the export orientation, but also to the entrepreneurial behaviour of the firm and the characteristics of its decision-maker, in terms of innovation, proactivity and risk-taking. This approach has been reiterated by Beamish and Dhanaraj (2003), and later by Favre-Bonte and Giannelloni (2007, cited in Maurel, 2009, pp. 118142). Nevertheless, even if the literature largely recognises the impact of the intrinsic qualities of

the firm, many other factors have to be considered to explain the performance of a business aborad.

2.2.3. The Internal and External Environments For Holzmuller and Stottinger (1996, cited in Maurel, 2009, pp. 118142), the

performance of SMEs depends not only on their management-related features, but also on their internal and external environment. This view is shared by Pantin (2006, p.77). Maurel, based on the Contingency Theory from Mintzberg, underlines the impact of the context in which the firm operates (2009, pp. 118142). Indeed, factors such as trade barriers, relationships with suppliers or exchange rate fluctuations can significantly impact companies

performance in foreign markets (Wilkinson and Brouthers, 2006, pp. 233252 ; Majocchi, Bacchiocchi and Mayrhofer, 2005, pp. 719738). However, this approach does not seem sufficient to explain by itself the success or failure of a business. Moreover, internal and external environments significantly vary between companies and industries, which means that findings might not be the same for SMEs of the Food Sector.

2.2.4. Through a consensus ? A few authors tried to synthesize all the previous models into one, to provide a

complete overview of the factors influencing export performance. Aaby and Slater (1989), for example, linked performance with environment and strategy, with this last one being influenced by the firms characteristics, resources and competencies. Zou and Stan, (1998, cited in Maurel 2009, pp. 118142) offer a slightly different view, as they distinguish between controllable internal determinants and uncontrollable determinants, which are either internal (characteristics and resources) or external (specific features of the industry and foreign markets). Despite the relevance of these approaches, there are still some gaps in the existing literature,

as the determinants of export performance might not be the same from one industry to another.

2.3. Interest of the Food-Processing Industry

2.3.1. Specific features of the sector Rastoin studied the specific features of the Food Processing Industry: the

perishability of the products, the location of the production and consumer basins, the weak performance of logistics (volume/costs ratio), and the consumers habits (cited in Cheriet, 2010, p.46). This characteristics of the industry, combined with the regulations regarding food products, makes the internationalisation process more complex, and thus more interesting.

2.3.2. Innovation as a key factor for success When resources are limited, the way they are used determines the firms ability to

innovate, which is seen as a key factor of success in foreign markets (Schumpeter 1912, cited in Batterink et al., 2010, pp. 4776), especially in the Food Sector. Innovation, which comprises activities of development, marketing and production (Garcia et Calantone, 2002, pp. 110132), may focus either on products, processes, marketing or organizational structure (Benyahia-Taibi, 2011). Innovation of product is the most common among SMEs of the Food Industry, which usually innovate incrementally and informally, through small improvements (Becheikh, Landry, Amara, 2006, pp. 275300). Costa and Jongen justify this gradual approach by the cost and complexity of the process (2006, pp. 457465). For Lebeau and Vinals, however, stepped

innovation is due to the fact that managers only react to perceived business opportunities (2006, cited in Becheikh, Landry, Amara 2006, pp. 275300).

2.3.3. Determinants of innovation capabilities Commercial, financial and technical success of innovations can be assessed with

indicators such as sales growth, Return On Investment and costs (Griffin and Page, 1996, pp. 478496). However, the ability of a firm to innovate cannot be directly measured (De Jong and Brouwer, 1999; St-Amant and Renard, 2003; Koivisto, 2005, cited in Becheikh, Landry, Amara 2006). Nevertheless, the literature highlights factors that are believed to positively influence the innovation capabilities of SMEs, supposedly correlated to their export performance.

Thus, the speed of implementation of the innovation is considered as a source of competitive advantage for the First Mover (Becheikh, Landry, Amara 2006). Various authors also insist on the influence of regional networks over the innovation capabilities of exporting businesses (Gellynck, Vermeire and Viaene, 2007, pp. 209226). The link between regional networks and internationalisation may seem surprising, but regional networks, becoming more and more globally integrated (Lu and Beamish, 2001, pp. 565586), can help small exporters in overcoming internal restrictions (Van Gils and Zwart, 2004, pp. 685692), and gradually move from a regional to an international scale. The Clusters Theory and the models of Milieux Innovateurs or Industrial Districts (Benyahia-Taibi 2011) also suggest that networking positively influences innovation capabilities, thus leading to better export performance. However, it is to mention that, despite globalisaton, countries remain different from each other, which means that localised capacities acquired through networks are useful but not sufficient to gain a competitive advantage in foreign markets (Malmberg and Maskell, 2006, pp. 118).

2.4. Conclusion

Based on the existing literature, different approaches are found regarding the factors of success for exporting SMEs, which help in understanding the multi-dimensional influences that should be considered when entering foreign markets. However, despite attempts to combine all the models into ones, there are still some gaps between the research and the reality of the business. Moreover, the different methods of performance measurement used makes the comparison of the approaches difficult.

Little has been written about SMEs of the Food Processing industry, which present some specific features that make the sudy of their internationalisation even more interesting. And it appears that, except partially in the approach through resources, financial determinants of the export performance have not been studied. The same applies to cultural factors, that should be paid more attention as possible environment-related determinants.

3. Research Design

3.1. Methodological Approach

This research relies on the hypothesis that the performance of international SMEs is

influenced by financial, but also non-financial factors (e.g. characteristics of the Management), which cannot be easily translated into numeric data. On one hand, a quantitative approach is needed to set up a basis for what we consider as good and bad performance, which will be used later to analyse the data collected. The same approach is also needed to assess the impact of various financial factors (e.g. invested capital, promotion budget) over the performance of the firm. However, the lack of theories and models about this specific concern implies that we use an inductive approach. On the other hand, a qualitative approach is needed to study non-financial factors, whose correlation with the firms performance cannot be scientifically measured, and relies more on the researchers interpretation. Qualitative research is often associated with an inductive approach (i.e. establish theories based on the results of specific cases) (Bryman and Bell, 2011). However, given the large amount of study that has already been done regarding the performance of SMEs in foreign markets, and the fact that this research aims to test this theories on the under-studied Food Processing sector, a deductive approach will be used. The null hypothesis will be as follows: In the Food Processing industry, the determinants of International SMEs performance are the same as in other industries. Using mixed methods seems the most suitable approach for our project. The quantification of findings from qualitative research might be useful to uncover the generality of the phenomena being described (Silverman 1984, 1985, cited in Bryman and Bell, 2011). These approaches have long been considered not compatible (Hughes 1990, cited in Bryman and Bell, 2011). However, today, their complementarity is largely recognised, and is even considered as a strength to overcome the possible issues going with data collection and analysis (Bryman and Bell, 2011, p. 630). Moreover, a qualitative approach might facilitate

the quantitative research, by providing hypotheses that could be tested, while the quantitative method will be useful in selecting people to be interviewed or companies to be studied (Bryman and Bell, 2011).

3.2. Data Set

3.2.1. Data Collection Research using the quantitative method (i.e. the criteria for assessing performance and financial determinants) will be conducted using secondary data, relative to the companies sales, expenses, growth and so on. To find this data, different sources will be used, including:

Databases such as Diane, ProQuest or MarketLine Company Reports (easy to find for public limited companies) French Government Reports European Commission (ec.europa.eu, with a specific portal for SMEs) Food and Angriculture Organisation (FAO; fao.org)

Data will also be collected directly from companies considered as relevant, through the use of mail or online questionnaires, whose response rate can be limited, but which offers the advantage of not being costly and time-consuming. Structured interviews, with a clearly specified set of questions (Bryman and Bell, 2011, p. 466), might also be undertaken to ensure the relevance of the findings. Where a qualitative approach is involved, data will mainly be collected using personal interviews (both depth-interviews and focus-groups). Offering the advantage of being flexible (Bryman and Bell, 2011, p. 465), this method seems the most appropriate for this research. Indeed, great attention should be paid to the environment of the firm, but also to its intrinsic characteristics. From that perspective, a focus on the people and their perceptions seem crucial. Thus, the study will be made using semi-structured interviews, for they give the interviewee a great deal of leaway in how to reply (Bryman and Bell, 2011, p. 467).

3.2.2. Sample Small and Medium Enterprises are defined as companies with less than 250

employees, and/or with annual turnover lower than 250M, and/or with annual balance sheet lower than 43M (The new SME definition - User guide and model declaration [no date]).

This research will be conducted among SMEs involved in the development of any international operation or activity even without going beyond national borders (Tarpczynski, Wrona 2013 cited in Toulova, Votoupalova and Kubickova 2014). Thus, both exporting and globally integrated companies will be studied. While, for the quantitative approach, the use of online resources will allow to investigate

across a quite large sample, for the qualitative research, the sample will be smaller (around 30 companies), due to time restrictions, the cost of collecting data, but also to the homogeneity of French Agrifood SMEs. To offer a good overview, focus will be on SMEs from different markets within the Food Processing industry. To ensure the validity and reliability of the findings, companies with different levels of performance will be investigated. Most of the interviews will be adressed to the owner of the business, who is expected to give insights of what he/she sees as relevant and important, about fairly specific topics mentioned in the Interview Guide. Most of the questions will be open-ended, and deal with topics such as the motives for going global, the general strategy of the business, the owners view over the firms performance, the strategic plans for the future, etc

3.4. Data Analysis Plan

For this research, the first step is to determine what to consider as good or poor performance. According to Shoham (1998, cited in Maurel, 2009, pp. 118142), export performance is a composite outcome of a firms international sales, which includes three dimensions : export sales, export profitability and export growth . This definition will be used as a frame of reference. To assess the performance of a firm, two different methods will be used. First, the STEP Scale Model (Lages and Lages, 2004, pp. 3656), which focuses on short-term performance and short-term exporting intensity. Then, the EXPERF Scale Model, which also consider strategic performance and perceived export success (Maurel, 2009, pp. 118142). Export Intensity (the percentage of export sales over the total sales) is considered as the main performance indicator, as it allows the comparison between firms of different sizes. However, these approaches are mainly short-term-oriented. Thus, long-term indicators (e.g. long-term growth, health, etc...) will also be considered. To analyse the secondary data obtained from databases or through questionnaires, statistics softwares such as SPSS and Excel Stat will be used.

For the analysis of qualitative data, we will use, amongst others, a language-base approach, relying on discourse and conversations analysis. This will be particularly useful to measure the impact of the owners characteristics over the firms performance.

However, it might be difficult to find relationships between variables. Thus, for every possible determinant, we will look for an intervening variable, influenced by the independent variable, and in turn having an effect on the dependent variable (Bryman and Bell, 2011, p. 639).

3.5. Time Scale for the Research

This provisional calendar reduces the risks of lacking time to complete the research. It can evolve over time, depending on how our study has progressed. Given that the final dissertation has to be submitted on the 7th of May 2015, we will have 16 weeks to complete the project. (based on the return date for the proposal, 21st of January).

3.6. Difficulties

For this project, it might be difficult to find out enough managers/owners to interview, due to the limited number of French SMEs from the Food Processing industry that followed the path of internationalisation. Then, given the semi-structured format chosen for interviews, a clearly defined interview guide need to be realised, to avoid missing important information. Also, it is essential not to analyze the data only in relation to the existing theories. New research avenues should at the same time be considered. Last, while conducting this research, particular attention should be paid to the compliance with ethics. Data collected might be sensitive, and it is our responsibility to ensure that its

integrity is preserved. The same applies to the interviewees, whose identity should not be disclosed in the dissertation.

4. Conclusions

The performance achieved by a firm depends on several factors, which are not always financial. Indeed, the manager makes decisions, which, combined with other variables, influences the firms strategy, itself impacting the firms performance. The latter is assumed to result from a multitude of interdependent forces, whose impact is even greater when it comes to international development. Given their smaller size and their less complex organizational structure, SMEs are believed to be more strongly impacted by those variables. Based on this assumption, a lot of research has been done over the topic and, interestingly, the authors often came to conclusions that were different but, to some extent, complementary. The influence of the firms resources, its intrinsic characteristics and its environment has been highlighted. However, the financial determinants of the post-internationalisation performance have been paid little attention. Moreover, despite its leading position in France, the Food Processing Industry case has been underused. As far as I am concerned, the interest of this sector lies in its very specific features, which might lead to different findings regarding the determinants of performance abroad. From that perspective, I would like to contribute, through this project, to the development of new research avenues regarding Global SMEs.

WORDS COUNT : 4044

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Stevenson, H., Roberts, M. and Grousbeck, I. (1985) New Business Ventures and the Entrepreneur - Howard H. Stevenson - Hardcover - 2nd ed. 2nd edn. United Kingdom: Richard D. Irwin.

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Toulova, M., Votoupalova, M. and Kubickova, L. (2014) Barriers of SMEs internationalization and strategy for success in foreign markets,International Journal of Management Cases, 17(1), pp. 419.

Ursic, M. and Czinkota, M. (1984) An experience curve explanation of export expansion, Journal of Business Research, 12(2), pp. 159168. doi: 10.1016/0148-2963(84)90003-1.

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6. Resources

Category of resources needed Example of resources Analytical Tools Excel Stat, SPSS.

Access to online-databases (for the collection of financial information)

MarketLine, ProQuest, Diane.